Haas v. Bank of Commerce

CourtSupreme Court of Nebraska
Citation41 Neb. 754,60 N.W. 85
PartiesHAAS v. BANK OF COMMERCE.
Decision Date18 September 1894
OPINION TEXT STARTS HERE
Syllabus by the Court.

1. Where the law authorizes a corporation, and there has been an attempt in good faith to organize, and corporate functions are thereafter exercised, such an organization is a corporation de facto, the legal existence of which cannot ordinarily be called in question collaterally.

2. Therefore, where a bank brought an action upon a note indorsed to it, and the answer denied the corporate existence of the bank, proof showing the adoption and recording of articles of incorporation, and that the bank had acted thereunder for a period of years, was sufficient to establish its corporate existence.

3. The Bank of O. indorsed to the Bank of C. certain promissory notes as collateral security to an indebtedness incurred in favor of the Bank of C. Among these was a note of H., upon which suit was brought. H. claimed that the note had been procured from him by the Bank of O. by fraud, and the evidence tended to prove that fact. Held: (a) That, in the action upon the note, H. could not require the Bank of C. to first exhaust its other collateral. (b) That, the fraud being established, the Bank of C. was only entitled to recover to the extent of the unpaid portion of the indebtedness for which the note was pledged. (c) The Bank of C. having surrendered one of the collateral notes, and taken in exchange other notes, secured by mortgage, drawn to the order of itself, it was bound to account, as if the original note had been paid in full.

4. Certain rulings on the evidence examined, and held not erroneous.

Error to district court, Douglas county; Ferguson, Judge.

Action by the Bank of Commerce against Andrew Haas on a promissory note. There was a judgment for plaintiff, and defendant brings error. Modified.Bartlett, Crane & Baldrige, for plaintiff in error.

Cornish & Robertson, for defendant in error.

IRVINE, C.

The Bank of Commerce sued Andrew Haas on a note made by Haas to the order of the Bank of Omaha for $2,500, with interest at 10 per cent. from April 25, 1889, and payable 90 days after date. The Bank of Commerce averred it had become owner of said note by a general indorsement thereof. Haas answered, denying the incorporation of the Bank of Commerce, admitting the execution of the note, but denying that the plaintiff was the owner thereof, and alleging that the plaintiff held the note as collateral security to a loan made by the plaintiff to the Bank of Omaha. Haas further averred that the note was given for stock in the Bank of Omaha subscribed for by Haas upon the faith of certain representations made to him by the officers of the bank, which representations were false. It is unnecessary to state these representations. It is sufficient to say that there was evidence fairly tending to establish the facts that they were made, that they were material, that they were justifiably relied on, and that they were false. Haas also averred that the stock in the Bank of Omaha for which the note sued on was given was never issued to him, and that the plaintiff received the note with knowledge of the facts constituting the defense. Finally, it was alleged that the plaintiff, at the time of taking such note, and at other times, took from the Bank of Omaha other securities sufficient to secure the loan to the Bank of Omaha, upon which it had realized sufficient to pay said loan, and that the Bank of Commerce retains in its possession a large amount of such securities. The defenses thus set up may be analyzed as follows: First, a plea of fraud in the inception of the note, coupled with a plea of failure of consideration; secondly, a plea of payment; thirdly, an allegation that other securities held were sufficient to pay the debt. The reply puts in issue the material averments of the answer, and alleges that the Bank of Commerce took the note before maturity, and without notice of any defense thereto. There was a trial to a jury, resulting in a verdict and judgment in favor of the bank for $3,003.29.

The first question discussed in the briefs relates to the corporate existence of the plaintiff bank. The assignments of error which directly refer to those issues relate to the admission in evidence of the articles of incorporation of the bank, and the admission of certain parol testimony in regard thereto. From the argument made in the brief, we are somewhat in doubt as to whether Haas is complaining of the admission of this evidence, of the legal sufficiency of the evidence, or of the failure of the court to submit the issue to the jury. Perhaps the most satisfactory method of considering the case will be to treat it as if all three questions were presented. As to the admission in evidence of the articles of incorporation, the only objection made was that the document was incompetent. The document in evidence appears to be signed by the incorporators in the presence of an attesting witness, to have been regularly acknowledged, and to bear a regular certificate of acknowledgment by a competent officer. The document also bears the certificate of the county clerk of Douglas county to the effect that it was received for record, and was recorded. No specific objections appear either in the record or in the brief. We cannot perceive any reason why this document should have been excluded as incompetent, and none is suggested in argument.

As to the sufficiency of the evidence of the corporate existence of the bank, it may be well to declare now that where the law authorizes a corporation, and there has been an attempt in good faith to organize, and corporate functions are thereafter exercised, there exists a corporation de facto, the legal existence of which cannot ordinarily be called in question collaterally. It would be intolerable to permit, in any civil action to which such a body was a party, an inquiry into the legal right to exercise corporate functions,--a right which it is for the state alone to question in appropriate proceedings for that purpose. On this there is a substantial unanimity in the authorities. Among other cases may be cited Williamson v. Association, 89 Ind. 389;Pape v. Bank, 20 Kan. 440;Frost v. Coal Co., 24 How. 278;Society v. Cleveland, 43 Ohio St. 481, 3 N. E. 357. The evidence here shows that articles of incorporation were adopted, acknowledged, and filed for record in the office of the county clerk, and that the bank acted under such articles, and conducted business thereunder, for some years. This was sufficient evidence of a corporate existence. Abbott v. Smelting Co., 4 Neb. 416;Merchants' Nat. Bank v. Glendon Co., 120 Mass. 97.

We may here advert to the assignment of error in regard to the admission of parol evidence in respect to the incorporation. The petition in error refers to the general subject of this assignment, but does not point out the particular ruling complained of. It might be dismissed for that reason. The plaintiff in error had brought out in cross-examination, from one witness, the fact that after the adoption of the articles of incorporation in evidence the capital stock had been increased, and new articles adopted. In redirect examination the defendant in error asked whether the new articles were more than an amendment of the original articles. An answer was admitted to this question, but struck out on motion of the plaintiff in error. Several other questions were then asked, either without an answer or without an objection; and finally the witness was asked whether or not the bank acted under the articles in evidence, except that by an amendment the capital stock was changed. There was an objection to this question, which was overruled, and we here have the only exception relating to the subject. The question asked related, not to the contents of the articles, but to whether the bank was acting under these articles. This was a proper subject for parol evidence, and the objection was properly overruled. The court did not submit the issue we have been discussing to the jury for its determination, but the plaintiff in error took no exception to the instructions in which the court stated the issues; and furthermore the uncontradicted evidence established a corporation de facto, and left nothing for the determination of the jury upon the question. What we have just said in regard to the failure of the plaintiff in error to except to that portion of the instructions stating the issues to the jury also disposes of the argument made that the court erred in stating that the reply denied the allegations of the fifth, sixth, and seventh paragraphs of the answer, without stating to the jury what the allegations were in those paragraphs.

The pleadings, it will be remembered, admit that the note sued on was held by the defendant in error as collateral security to a loan made to the payee of the note, the Bank of Omaha. On the trial it developed that the Bank of Omaha was indebted upon an overdraft to the Bank of Commerce in the sum of $4,000; that several notes of third persons were held by the Bank of Commerce as a...

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