Kraniger v. People's Building Society

• Decision Date: 18 January 1895
• Docket Number: 9122
• Citation: 61 N.W. 904,60 Minn. 94
• Parties: PAUL KRANIGER v. PEOPLE'S BUILDING SOCIETY
• Court: Minnesota Supreme Court

61 N.W. 904

60 Minn. 94

PAUL KRANIGER v. PEOPLE'S BUILDING SOCIETY

No. 9122

Supreme Court of Minnesota

January 18, 1895

Appeal by defendant from an order of the district court for Ramsey county, Otis, J., denying its motion for a new trial. Reversed on condition.

John D O'Brien and John F. Fitzpatrick, for appellant.

Kueffner Fauntleroy & Searles, for respondent.

OPINION

MITCHELL, J.

The defendant was a private corporation for pecuniary profit organized under the laws of this state in 1876. The articles of association provided that "the general purposes of said corporation and the general nature of its business shall be the building of houses, by raising funds to be loaned to its members for the purchase of real estate, satisfaction of mortgages, and other investments; also, the holding and sale of real estate taken on forfeitures or otherwise; and any other business naturally pertaining to its principal object, as aforesaid." The articles further provided that "the highest amount of indebtedness or liability which said corporation shall at any time incur is $ 1,000." The allegations of the complaint were that the defendant borrowed of plaintiff $ 1,500, and executed therefor to him its promissory note for that amount, payable in six months, with interest, no part of which had been paid; that the note was executed on behalf of the defendant by its president and secretary, who were duly authorized to borrow money for it, and execute therefor notes and other evidences of indebtedness in its name. The answer consisted of special denials of the allegations of the complaint. The note in question, omitting the date, was as follows: "Six months after date, we promise to pay to the order of Paul Kraniger fifteen hundred dollars, for value received, with interest," etc. Signed: "John G. Donnelly, Pres. C. J. Thomson, Secty. People's Building Soc."

The first point made by the defendant is that this was the note of Donnelly and Thomson individually, and not of the defendant society. There is nothing in this point. This note is on its face one of the class where, under the doctrine of Souhegan Nat. Bank v. Boardman, 46 Minn. 293, 48 N.W. 1116, and other decisions of this court, extrinsic evidence is admissible to show that the officers executed the instrument in their official capacity as the note of the society. The evidence in this case was plenary that Thomson assumed to borrow the money and execute the note for and in behalf of the defendant, and that plaintiff understood that he was lending the money to it, and accepted the note as its contract; also that the note was in the form usually executed in behalf of the society when money was borrowed for its use.

Defendant's next contention is that Thomson, the secretary, had no authority to borrow money for the society, or to execute notes therefor in its name. So far as this involves merely the question of the extent of the authority of Thomson as an agent of the corporation (leaving out of consideration the limitation on the power of the corporation itself contained in the articles of association), the contention is equally unfounded. The evidence shows that Thomson, as secretary, had been permitted for years to manage the entire business of the corporation about as he pleased. In short, the society was practically a one-man corporation, and that man was the secretary. He was in the habit of borrowing money for the society, and executing notes therefor in its name, whenever he saw fit, and of paying them when they fell due by giving the drafts of the society on its treasurer, without any express authority from, or even consultation with, the board of directors. The president of the society was in the habit of executing its notes in blank, so that the secretary could fill them up and issue them whenever he pleased. This method of conducting business had been going on for a long time with the actual knowledge of at least a part of the directors, and with constructive notice to all of them, but without objection, so far as appears, from any one. The records of the board of directors show that during all this time they never once took any formal action by way of either authorizing, ratifying, or disapproving a single loan made by the secretary in the name of the society. Here was a course of business which had been permitted to grow up with and by the knowledge which the board, charged with the duty of controlling and conducting the corporate business, had, or must be presumed to have had, of the acts of the secretary in and about the affairs of the corporation, which is equivalent to express and formal authority to the secretary to make such contracts in behalf of the society. At least, the evidence was such as to justify the jury in so finding.

The most serious question in the case, however, grows out of the fact that the loan and note given therefor were in excess of the amount of indebtedness authorized by the articles of association; in short, that the transaction was ultra vires the corporation itself, and not merely an authorized act of an agent. It appears that the society never received the benefit of any of the proceeds of this loan; that Thomson upon receiving the money from plaintiff, instead of turning it over to the treasurer of the society, or applying it to corporate uses, embezzled it, by appropriating it to his own use, and then absconded. If the society had...