City Electric St. Ry. Co. v. First Nat. Exch. Bank

• Decision Date: 08 February 1896
• Parties: CITY ELECTRIC ST. RY. CO. v. FIRST NAT. EXCH. BANK.
• Court: Arkansas Supreme Court

34 S.W. 89

CITY ELECTRIC ST. RY. CO. v. FIRST NAT. EXCH. BANK.

Supreme Court of Arkansas.

February 8, 1896.

Appeal from circuit court, Pulaski county; Robert J. Lea, Judge.

Action by the First National Exchange Bank against the City Electric Street-Railway Company on a promissory note. From a judgment for plaintiff, defendant appeals. Reversed.

John McClure, for appellant. Ratcliffe & Fletcher, for appellee.

WOOD, J.

The bank sued the railway company on a negotiable promissory note purporting to have been executed by the company, payable to H. G. Allis and George R. Brown and indorsed by them before maturity for value, and delivered to the First National Bank, and by it indorsed and delivered to the plaintiff. The answer, in substance, sets up that the defendant was a corporation, organized under the laws of Arkansas (chapter 47, Sand. & H. Dig.); that the note was executed by the president and secretary of the defendant corporation, without any authority from or knowledge of its board of directors; that the charter and by-laws of the corporation gave no such authority; that the president and secretary had the records to show that they were duly authorized to issue the note, but that such record entry was false, and the directors had no knowledge of such entry until long after the maturity of the note; that the directors had never ratified the unauthorized acts of the said officers; that the said secretary and president had never indulged in a course of dealing, between the corporation and third parties, so as to lead strangers to believe that they (the president and secretary) had power to issue negotiable paper in the name of the company, nor had the corporation ever received any consideration for said notes. A demurrer to this answer was sustained, and, the defendant refusing to plead further, judgment was rendered against it for the amount of the note, which this appeal seeks to reverse.

The answer presented a good defense unless it can be said (1) that the anthority of the president and secretary to issue the note in suit must be presumed from the fact that they have exercised it, or (2) that the corporation is bound by the false record showing that the directors had conferred such authority upon the president and secretary.

1. Unless the authority is expressly conferred by the charter or given by the board of directors, it may be stated, as a general proposition, that the president and secretary of a corporation are not empowered to bind it by their signatures to commercial paper. They have no inherent power to execute negotiable notes in the name of the corporation. Tied. Com. Paper, § 121; Cook, Stock, Stockh. & Corp. Law, § 716; McCullough v. Moss, 5 Denio, 567; 4 Thomp. Corp. § 4619; Life & Fire Ins. Co. v. Mechanic Fire Ins. Co., 7 Wend. 31; Hyde v. Larkin, 35 Mo. App. 365; Pierce, R. R. 32-34; Walworth County Bank v. Farmers' Loan & Trust Co., 14 Wis. 325; 1 Mor. Priv. Corp. § 537; Titus v. Railroad Co., 37 N. J. Law, 98-102; Wait v. Association (N. H.) 23 Atl. 77, and authorities there cited; Bank v. Atkinson, 55 Fed. 465. Where the authority of the president and secretary to bind the corporation is challenged, as it has been by the answer in this case, that authority should be shown by the proof, and not be presumed as a matter of law. Turnpike Co. v. Looney, 1 Metc. (Ky.) 550; Bacon v. Insurance Co., 31 Miss. 116; 4 Thomp. Corp. 4619; Craft v. Railroad Co., 150 Mass. 208, 22 N. E. 917; Bank v. Hogan, 47 Mo. 472; Dabney v. Stevens, 40 How. Prac. 341; 1 Wat. Corp. 445; Bank v. Hamlin, 14 Mass. 180; Railway Co. v. James, 22 Wis. 187; Bliss v. Irrigation Co., 65 Cal. 504. We are aware that there are authorities contra, and counsel for appellee have cited us to American Exch. Nat. Bank v. Oregon Pottery Co., 55 Fed. 265, where it is held that, "if the president and secretary sign" a negotiable promissory note, "their authority is inferred from their official relation." This case is analogous, the question being presented (as in the case at bar) on demurrer to an answer which negatived the authority of the president and secretary to issue such paper. But the court, to sustain its position in that case, cited only two cases, viz: Merchants' Bank v. State Bank, 10 Wall. 644; and Crowley v. Mining Co., 55 Cal. 273. In the case in 10 Wall., supra, the court use this language: "It should have been left to the jury to determine whether, from the evidence as to the powers exercised by the cashier, with the knowledge and acquiescence of the directors, and the usage of other banks in the same city, it might not be fairly inferred that the cashier had authority to bind the defendant." True, it is also said "that, if the contract can be valid under any circumstances, an innocent party in such a case has a right to presume their existence, and the corporation is estopped to deny them." But we submit that the broad dicta of the latter quotation, in view of the fact that there was a usage of other banks, and a usual course of dealing, with the knowledge and acquiescence of the directors, shown, were unnecessary for the determination of the question before the court. It was the very language doubtless which caused the learned circuit judge in American Exch. Nat. Bank v. Oregon Pottery Co., 55 Fed. 265, to hold, as a matter of law, that the authority of the president and secretary would be presumed from the fact that they had exercised it. So, also, in the California case cited to support the ruling in 55 Fed., supra, it was admitted that the president, whose authority was being questioned, "was the superintendent and general managing agent, having full control of the business of the corporation." The difference, therefore, between those cases and the one at bar, and the one in which they were cited, is too obvious for further notice. The facts of the case of Gelpcke v. City of Dubuque, 1 Wall. 175 (where the language above quoted from Judge Swayne in 10 Wall. was first used by him), and in Supervisors v. Schenck, 5 Wall. 772; City of Lexington v. Butler, 14 Wall. 296; Tod v. Land Co., 57 Fed. 47-53; and Bank v. Young, 41 N. J. Eq. 531, 7 Atl. 488, — also cited by counsel for appellee, where this dictum has been repeated, did not justify such a sweeping declaration of law. For an examination of these will show that, in some of the cases, municipal or county bonds were in controversy, which showed upon their face authority for their issue; and in other cases, that the contracts or transactions made or performed by the agent of the corporation were such as had been frequently or usually made or performed by him before, in the course of the business of the corporation; or, that the corporation had received some benefit from the unauthorized act. But the doctrine announced in American Exch. Nat. Bank v. Oregon Pottery Co., 55 Fed. 265, is unsound, and not supported by the weight of authority. Besides, the principle it seeks to establish is in conflict with the doctrine announced by the supreme court of the United States in Bank v. Armstrong, 152 U. S. 346, 14 Sup. Ct. 572, where it was held "that the vice president of a bank, however general his powers, could not exercise such a power unless specially authorized so to do, and that persons dealing with the bank were presumed to know the general powers of the officers." Mr. Morawetz, in speaking of these dicta in those cases where they have been incautiously used, said: "They must be considered in view of the facts of the particular cases in which they were made. ...