Kenneally v. First National Bank of Anoka

• Decision Date: 27 January 1969
• Docket Number: No. 19108.,19108.
• Citation: 400 F.2d 838
• Parties: Edward R. KENNEALLY, Trustee of Reed Plumbing, Heating and Air-Conditioning, Inc., Appellant, v. FIRST NATIONAL BANK OF ANOKA, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

400 F.2d 838 (1968)

Edward R. KENNEALLY, Trustee of Reed Plumbing, Heating and Air-Conditioning, Inc., Appellant, v. FIRST NATIONAL BANK OF ANOKA, Appellee.

No. 19108.

United States Court of Appeals Eighth Circuit.

September 24, 1968.

As Amended on Denial of Rehearing October 31, 1968.

Certiorari Denied January 27, 1969.

James E. Culhane, of Culhane & Culhane, Minneapolis, Minn., for appellant; Michael L. Culhane, on the briefs.

Thomas G. Lovett, Jr., Minneapolis, Minn., for appellee.

Before MATTHES and HEANEY, Circuit Judges, and REGISTER, Chief District Judge.

Certiorari Denied January 27, 1969. See 89 S.Ct. 716.

HEANEY, Circuit Judge.

The trustee in bankruptcy appeals from an order of the District Court confirming the referee's decision. The referee found that the trustee was estopped to deny that the bank was a secured creditor by virtue of an assignment of accounts receivable and a factor's lien. We hold that the security instruments were not valid, did not bind the corporation or estop the trustee and that payments received by the bank under these instruments were preferential under § 60 of the Bankruptcy Act (11 U.S.C. § 96). We reverse and remand with directions to determine the validity of prior assignments of accounts receivable.

Reed, Inc., was incorporated pursuant to Minnesota law on November 21, 1963. Albert F. Reed, Jr., a thirty per cent stockholder, was named President. His wife, Marcella Reed, a ten per cent stockholder, was named Secretary. The other stockholders were Rosina Popp, Vice President, a fifty per cent stockholder, and Marie Reed, Treasurer, a ten per cent stockholder.

On February 24, 1964, Mr. Reed negotiated a $12,000 loan with the First National Bank of Anoka. The loan was evidenced by a note whose terms are not apparent from the record. Accounts receivable, having a book value of $12,164, were assigned as security. The assignment was executed by Reed. His wife did not join in its execution. Additional assignments, with or without Mrs. Reed's signature, may have been made as payments were made on those originally assigned.¹

In late March or early April, Reed, Inc., was in need of funds to meet payrolls and other operating expenses. On April 8th, Mr. Reed negotiated a new loan with the bank. On that date $11,436 remained to be paid on the February 24th note. The face value of the uncollected accounts receivable was $8,700. Their actual value was substantially less than that amount.² The bank advanced an additional $4,564, cancelled the original note and took a two-week eight per cent note for $16,000 from the corporation. The bank also took an assignment of accounts receivable and a factor's lien on the inventory as security. The accounts receivable assigned, which apparently included those previously assigned, had a book value of $21,000 and a subsequently appraised value of $15,750.

The inventory (merchandise) had a book value of $21,000 and a subsequent determined appraised value of $7,931.³ The April 8th note was signed:

"Reed Plumbing, Heating and Air Conditioning, Inc. By Albert F. Reed, Jr., Pres.

Marcella E. Reed"

The April 8th assignment was signed:⁴

"Reed Plumbing, Heating and Air Conditioning, Inc. By: Albert F. Reed, Jr."

And the April 8th factor's lien was signed:

"Reed Plumbing, Heating and Air Conditioning, Inc. Albert F. Reed, Jr., Pres."

The sum of $9,095 had been paid on the April 8th note by June 12, 1964. On that date, Reed, Inc., initiated this proceeding by filing a voluntary bankruptcy petition.

THE VALIDITY OF THE NOTE, THE ASSIGNMENT AND THE FACTOR'S LIEN OF APRIL 8TH.

The Note.

The corporate resolution authorizing Reed, Inc., to borrow money and give security for it required the signatures of the President and the Secretary. This resolution was filed with the bank on a form provided and completed by the bank.

The trustee contends that the absence of the word "Secretary" in Mrs. Reed's signature defeats its validity. He also argues that Mrs. Reed signed the note in her individual capacity.

The referee found that the word "Secretary" had been inadvertently omitted from the note. He also found that it could be inferred from the circumstances that Mrs. Reed had signed the note in her official capacity. These findings are supported by substantial evidence.

The inadvertent omission of the signer's title will not affect the validity of an instrument where it is clear the instrument was signed by a party in an official capacity. Towers v. Stevens Cattle Co., 83 Minn. 243, 86 N.W. 88 (1901); Bentall v. Koenig Brothers, Inc., 140 Mont. 339, 372 P.2d 91 (1962); St. Clair v. Rutledge, 115 Wis. 583, 92 N.W. 234 (1902); 7 Fletcher on Corporations § 3035, p. 103. We affirm the decision of the referee and the District Court holding the note valid.

THE FACTOR'S LIEN AND ASSIGNMENT OF ACCOUNTS RECEIVABLE OF APRIL 8TH.

The referee found: that the factor's lien and assignment which were both dated April 8, 1964, were signed by Mr. Reed at a time when Mrs. Reed was not present; that neither Mrs. Reed nor the other officers of Reed, Inc., had either prior to subsequent knowledge of their existence; that the bank was aware of the requirement that the signatures of the President and the Secretary were required on any security instruments; that the bank knew that the President's signature was the only one on the security instruments; and that there was no evidence to support the view that the directors and the stockholders, other than Albert Reed, had acquiesced in signing the security instruments or to support the view that authority for him to sign could be implied from past transactions.

Implicit in the above findings which are supported by the record is the unstated finding that the security instruments were signed by Albert Reed after Mrs. Reed had signed the note.

The referee concluded that the President had neither express nor implied authority to bind the corporation by his signature alone, that he was without apparent authority to do so and that his act had not been ratified by the corporation.

The District Court, on the other hand, held that the factor's lien and the assignment were validly executed corporate instruments because: the bank was not responsible for knowing and following the corporate by-laws; the President had been the sole executor of an earlier assignment; the President had signed the April 8th instruments in his official capacity; the transaction was a corporate one; an argument for express or implied authority could be made; and ratification could be supported.

We agree with the referee's conclusion that the security instruments were invalid.

Reed was without express or implied authority to bind the corporation by his signature. Express authority was negated by the terms of the resolution. While implied authority may be inferred from facts and circumstances, Best v. Krey, 83 Minn. 32, 85 N.W. 822 (1901); Restatement, Second, Agency § 7 Comment c., where a principal has expressly required the concurrence of two officers to exercise a specific authority, neither has implied authority to exercise such power without concurrence of the other. Bloomingdale v. Cushman, 134 Minn. 445, 159 N.W. 1078, 1080 (1916).

The appellee argues that Reed's authority to sign the factor's lien and the assignment can be implied from the fact that his wife joined in the execution of the note. We do not agree. The authority to give security instruments cannot be inferred from the authority to borrow. American Nat. Bank of Sapulpa, Okl. v. Bartlett, 40 F.2d 21 (10th Cir. 1930); Restatement, Second, Agency § 75 Comment b. See, Wells & Co. v. Sharp, 208 F. 393, 398 (8th Cir. 1931).

The appellee also urges that a finding of apparent authority can be sustained as (1) the resolution furnished to the bank was ambiguous, and (2) there was a history of the President alone executing security instruments on behalf of the corporation.

In our view, the resolution is unambiguous. It provides:

"RESOLVED, that Albert F. Reed, Jr., President and Marcella E. Reed, Secretary (both signatures required) be and they hereby are authorized to borrow from time to time on behalf of this corporation from the above bank sums of money * * *.

"That said officers are hereby authorized to pledge or mortgage any of the property * * * of the corporation, * * *."

(The italicized words were typed by the bank.)

The appellee's second contention is also without merit as only those who have acted in reliance upon the apparent authority of the agent are entitled to recover where the agent possessed no actual authority, express or implied. Dispatch Printing Co. v. National Bank of Commerce, 115 Minn. 157, 132 N.W. 2 (1911); Restatement, Second, Agency § 8 Comment c. Here, there was no reliance as the bank knew that two signatures were required and only one was present.

The District Court found that "ratification can be easily supported." We do not agree. There is no evidence that any of the officers, other than the President, had knowledge of the execution of the security instruments. While knowledge of an officer may be imputed to a corporation, the knowledge must be that of an officer; other than the wrongdoer, if the corporation is to be bound. Ft. Dearborn Nat. Bank v. Seymour, 75 Minn. 100, 77 N.W. 543 (1898); Restatement, Second, Agency §§ 91, 272 Comment c.; 2 Fletcher on Corporations §§ 758-59, pp. 1087-89.

Nor were the security instruments ratified by a retention of benefits. The corporation received and retained $4,500 in additional funds as a result of the loan. While Mrs. Reed signed the note and presumably knew that the corporation was obtaining $4,500 in additional funds, there is no evidence indicating that she or the other officers knew that the factor's lien and the assignment of accounts receivable had been given to secure the note. Such knowledge cannot be imputed to her or the corporation.⁵ American Nat. Bank of Sapulpa, Okl. v. Bartlett, supra;⁶ ...