Davis v. West Saratoga Bldg. Union, No. 3

• Decision Date: 08 March 1870
• Parties: GEORGE W. DAVIS v. THE WEST SARATOGA BUILDING UNION, NO. 3.
• Court: Maryland Court of Appeals

32 Md. 285

GEORGE W. DAVIS v. THE WEST SARATOGA BUILDING UNION, NO. 3.

Court of Appeals of Maryland

March 8, 1870

APPEAL from the Court of Common Pleas.

The appellant purchased from Henry Brocker, a broker, a promissory note, dated 21st of December, 1868, for $600 drawn by the appellee, payable, three months after date, to the order of William Heck, and by him endorsed. The note was signed by the officers of the appellee, who had before signed and issued notes which had been paid by the appellee, and it had been the habit for notes to be given in the same manner and paid at maturity. Heck had previously executed to the appellee a mortgage, and instead of receiving the money had taken its promissory note for $1,200; when this note was about to become due, the note upon which this suit was brought, together with another note of the same amount were drawn, payable to the order of Heck, and by him endorsed, and delivered to Brocker, with the intention of having them discounted for the purpose of raising the money to pay the note given to Heck, as aforesaid. Brocker received the money from the appellant, but never paid it over. This note was protested for non-payment at maturity, and suit was instituted thereon by the appellant.

Exception. The plaintiff offered the following prayer, which was rejected by the Court:

"If the jury believe from the evidence that the note sued upon in this case was signed by Leonard Myers, August Conradas and William Heck, that they were at the time of said signing the president, treasurer and secretary of Saratoga Building Union, No. 3, and that said note was issued for the purpose of raising money to pay the obligations of said Union, which had been given to a member who borrowed money from it, for the return of which he had executed a mortgage to said Union, and that the said note was endorsed by William Heck, the payee, and then sold by a broker or agent of defendant to whom it had been delivered by the said officers to the plaintiff, and that the plaintiff is the holder thereof in good faith, for value paid by him therefor, then the plaintiff is entitled to recover."

The defendant offered four prayers--three were rejected and the following, the first, was granted:

That the paper writing, bearing date the 21st of December, 1868 and signed by Leonard Myers, President, August Conradas Treasurer, and Wm. Heck, Secretary, filed in the proceedings as the plaintiff's cause of action, is not in law the promissory note of the defendant, and the plaintiff cannot recover upon it.

The Court also verbally instructed the jury "that there was no evidence in support of the plaintiff's claim, and they must therefore find for the defendant." To the rejection of his prayer, and the granting of the defendant's first prayer, as also to the verbal instruction given by the Court, the plaintiff excepted; and the verdict and judgment being against him, he appealed.

The cause was argued before BARTOL, C.J., STEWART, BRENT, MAULSBY, MILLER and ROBINSON, J.

Samuel Snowden, for the appellant.

A building association, incorporated under the law of 1868, ch. 471, can make and issue a promissory note for some purposes. Corporations must act within the powers conferred upon them by the organic law under which they are incorporated. These powers are divided into principal or express powers, which are such as are expressly conferred upon it by its charter, and are therefore easily ascertained by examination of that instrument; and accessory or incidental powers, which are such as are usual and necessary to carry into effect the purposes for which it was established, and to attain the object of its creation. Wellesburg & N. P. R. Co. vs. Young, 12 Md., 477; Mayor, & c., of Balto. vs. Balto. & Ohio R. R., 21 Md., 91.

The Act of 1868, ch. 471, sec. 48, enlarges the common law rule, and enacts "that the corporations formed thereunder may do every act or thing not inconsistent with law which may be necessary or proper to promote the objects, designs and purposes for which they may be formed." And if the means employed are reasonably adapted to ends for which the corporation was created, and tend directly to their accomplishment not amounting to the transaction of a separate, unauthorized business, they come within its implied powers. Wilwarth vs. Crawford, 10 Wend., 342; Madison & Plank R. Co. vs. Watertown & Plank R. Co., 5 Wis., 173; Clarke vs. Farrington, 11 Wis., 306; Angell & Ames on Corporations, ch. 8, sec. 12. And these implied powers must be performed by its agents. Smith vs. Eureka Flour Mills, 6 Cal., 1; Strauss vs. Eagle Ins. Co., 5 Ohio (N. S.) 59. And unless restrained by their charters, corporations have the right to contract debts, make notes and accept drafts, as incident to the particular business in which they are authorized to engage. Ketchum vs. Buffalo, 14 N. Y., 356; Rockwell vs. Elkham Bank, 13 Wis., 653. The making of a promissory note is incident to every corporation. Lucas vs. Pitney, 3 Dutch., 228.

It has been decided that a company formed for the manufacture of glass-- Mott vs. Hicks, 1 Cowen, 513; an Insurance Company, Barker vs. Mechanics' Ins. Co., 3 Wend., 96; a Mining Company, Mass. vs. Oakley, 2 Hill, (N. Y.,) 265; a Commission Company, Munn vs. Commission Co., 15 Johns., 44--may make and issue promissory notes. In all these cases, the power to issue the note was implied.

It is not contended that the right to issue a promissory note is within the express terms of the act of incorporation, but, "that it is a power not inconsistent with law, and necessary and proper to promote the objects, designs and purposes" for which it was formed, and is therefore implied. The appellee was formed, as is declared in its certificate, for the purpose of the accumulation of a fund, by the savings of its members, sufficient to enable them to purchase for themselves, real or leasehold property, and generally, for the purpose of a building association. By sec. 87 of the law, a corporation formed for a building asociation, "may, at any time, in advance of the period of time at which such corporation may cease to exist, according to the plan contained in the original articles of association, advance to any member thereof, for such premium as may be agreed upon, the sum which he would be entitled to receive upon the dissolution of the corporation, or may purchase his shares," &c.

Where a corporation can lawfully contract a debt, it may make and issue its promissory note for the payment thereof-- Abbott's Digest of Cor., page 116, secs. 1 and 4, and authorities there cited. The issuing of a promissory note is a means reasonably adapted to the ends for which the association was formed, and tends directly to their accomplishment, and there is nothing in the law under which it is incorporated, or in its constitution, which prohibits the exercise of this power.

The promissory note sued upon in this case, being signed by the officers of the appellee, to whom are entrusted, by its constitution, the management of its fiscal concerns, is prima facie the note of the Union. Frye vs. Tucker, 24 Ill., 180; Elwell vs. Dodge, 33 Barb., 336; Downing vs. Mt. Wash. Co., 40 N. H., 230. No seal is required in order to bind the corporation. Angell & Ames on Corp., 174; Abbott on Corp., 723, sec. 15; Union Bank vs. Ridgely, 1 H. & G., 326.

If it be, and the appellant thinks that it is, within the implied powers of the appellee to borrow money for the express purpose of accommodating its borrowers--to issue promissory notes to its members instead of money, upon receiving from them mortgages upon real or leasehold property--to contract a debt for the paymont for shares purchased by it from its members, or to pay for withdrawals--then it may lawfully make its promissory note for any of these purposes, and the note sued upon being made and issued for the purpose of raising money to pay a debt already incurred for an advance to one of its members, is the valid and binding contract of the Union, and the written and verbal instruction of the Court below is therefore erroneous.

If, then, the appellee has the power to issue a note for any purpose, the bona fide holder of its notes before maturity is not bound to ascertain whether they were issued for a lawful purpose. For where a corporation has power under any circumstances to issue negotiable securities, the bona fide holder thereof has a right to presume that they were issued under the circumstances which give the requisite authority, and they are no more liable to be impeached for any infirmity in the hands of such a holder than any other commercial paper. The Royal British Bank vs. Turquand, 88 English Com. Law Rep., 326; Gelpeke, et al. vs. City of Dubuque, 1 Wall., 175, [203]; Commissioners of Knox County vs. Aspinwall, 21 Howard, 539; Farmers' Loan and Trust Company vs. Curtis, 3 Selden, 466.

The appellant being a bona fide holder, comes within the rules of law in reference to such, which are so well settled. Story on Prom. Notes, (Ed. 1868,) secs. 195 and 196 and notes; 1 Parsons on Bills and Notes, secs. 254, 255.

Edw. W. Salmon, for the appellee.

The prayer offered by the plaintiff below is defective in two respects particularly:

1st. In assuming that Myers, Conradas and Heck, the signers of the paper writing sued on were the agents of the defendant, and authorized to sign on its behalf.

2d. In assuming that the said paper writing was sold by a broker or agent of the defendant.

There is no proof in the cause that the signers of the note were authorized to do so, nor is there any proof that it was sold by a broker, or by an agent of defendant. On the contrary, the proof is distinct and clear that Brocker, to whom the note was delivered, was...