Midland Steel Co. v. Citizens' Nat. Bank

• Decision Date: 09 January 1901
• Citation: 59 N.E. 211,26 Ind.App. 71
• Parties: MIDLAND STEEL CO. et al. v. CITIZENS' NAT. BANK.
• Court: Indiana Appellate Court

26 Ind.App. 71

59 N.E. 211

MIDLAND STEEL CO. et al.

v.CITIZENS' NAT. BANK.

Appellate Court of Indiana.

Jan. 9, 1901.

Appeal from circuit court, Henry county; William O. Barnard, Judge.

Action by the Citizens' National Bank against the Midland Steel Company and others. From a judgment in favor of plaintiff, defendants appeal. Reversed.

Ryan & Thompson and Elliott & Elliott, for appellants. M. E. Forkner and Blacklidge, Shirley & Wolf, for appellee.

WILEY, J.

The appellee, as indorsee, sued appellant the Midland Steel Company and others upon the following note: “The Midland Steel Company. $2,000. Muncie, Ind., April 23, 1896. Four months after date we promise to pay to the order of the Muncie Land Company two thousand dollars, value received, negotiable and payable, without defalcation or discount, at the Union National Bank, Pittsburg, Pa., with interest at six per cent. per annum from date. $2,000. R. J. Beatty, President.” The judgment, as affirmatively appears from the record, was rendered upon the second paragraph of the complaint, and hence is the only one we need notice here. This paragraph avers that appellant steel company executed to the Muncie Land Company the note in suit; that when said note was executed Ross J. Beatty was the president of appellant steel company, and that said company was a duly-organized corporation; that when said note was executed, and before and afterwards, said company was in the habit of executing contracts and promissory notes upon a blank form furnished by said company, and in the name and style of “R. J. Beatty, President,” said notes bearing across the face thereof in large type the words “Midland Steel Company,” so printed upon the face of said forms to indicate that the real obligor was said Midland Steel Company; that said note after its execution was treated by said company as its own, and was understood to be the obligation of said company by its board of directors, officers, and other persons connected therewith, and was put in circulation, sold, transferred, and indorsed to appellee as the note of the Midland Steel Company, the debt for which the same was executed being the debt of said company; that in the execution of said note said company adopted the words “Midland Steel Company” as printed upon the face thereof, together with the words “R. J. Beatty, President,” as its signature, intending that the name “R. J. Beatty, President,” should refer to and include as a part of said signature the printed words “Midland Steel Company.” The complaint also avers that before the maturity of said note, and for a valuable consideration, and in the due course of business, appellee purchased said note from the original payee, the Muncie Land Company, and that said company indorsed the same in writing to appellee; that said note was duly presented for payment at the bank designated therein; that payment was refused, and that the same was duly protested on the 24th day of August, 1896. Copies of the note, the indorsement, and protest are filed as exhibits. Appellant answered in three paragraphs, to the second and third of which a demurrer was overruled. Appellee replied in three paragraphs, to the second and third of which a demurrer was overruled. Trial by the court, and, upon proper request, the court made a special finding of facts, and stated its conclusions of law thereon. The conclusions of law were favorable to appellee, and judgment was rendered thereon for the amount of principal and interest due on the note. Appellant excepted to the conclusions of law, and moved for a new trial, which motion was overruled.

The errors assigned are the overruling of the demurrer to the second paragraph of the complaint; the overruling of the demurrer to the second and third paragraphs of reply; the overruling of the motion for a new trial; and that the court erred in each of its conclusions of law.

In the recent decision of the supreme court in the case of Second Nat. Bank of Akron v. Midland Steel Co. (Dec. 13, 1900) 58 N. E. 833, the same question was presented as to the sufficiency of the complaint as presented by the record now before us. The note sued on there was identical to the one upon which this action is founded, as to date, amount, terms, place of payment, and signature, except as to time of maturity. In that case it was averred that the note sued on was the note of the Midland Steel Company, executed in the name of “R. J. Beatty, President,” and that the sole consideration of said note was a debt then due and owing by said company to the Muncie Land Company. The court in that case, by Dowling, J., reviewed many authorities, and in an able and exhaustive opinion held that the form of the instrument sued on was not such as to require the court to presume that it was the obligation of R. J. Beatty, and that extrinsic evidence was admissible to explain the instrument, and to show that it was intended and understood by the parties to be the note of the Midland Steel Company. Upon the authority of that case, the second paragraph of the complaint in this case states a cause of action, and we so hold. There was no error in overruling the demurrer to it.

Our attention is next called in argument to the action of the court in overruling the demurrer to the second and third paragraphs of reply. It is important, before taking up the sufficiency of the reply, to notice briefly the answer of appellant. While the answer is very lengthy, we can group its salient and important features into a few words. It is averred that appellant is a corporation organized under the laws of this state for a specific purpose, viz. to manufacture and sell certain iron and steel products. In the body of the answer the articles of association are set out in full. It is averred that it has been engaged in the business for which it was organized, and has not been engaged in any other or different business. It is also averred that the Muncie Land Company, the original payee of the note in suit, is also an Indiana corporation, and that it was organized to buy and sell real estate, etc. The answer pleads section 3858, Horner's Rev. St. 1897, which prohibits a corporation from using its funds in the purchase of stock in any other corporation, except upon the written consent of all the stockholders of the company desiring to purchase said stock, and the written consent of all the stockholders of the corporation in which stock is sought to be purchased. It is averred, further, that Ross J. Beatty, who was interested in organizing and promoting the appellant company, was induced by the promoters of the Muncie Land Company to subscribe for a large block of stock in said company for and on behalf of the steel company, and that, to avoid the provision of the statute above cited, they informed him that he could subscribe for said stock in his name as trustee for said steel company; that in pursuance thereof he did subscribe for such stock in the sum of $15,000 by, on, and in the name of “R. J. Beatty, Trustee”; that after said subscription appellant company was duly incorporated, and said Beatty became its president, and has ever since held that office. It is also averred that said Beatty is the general manager of the appellant company. It is averred also that said Beatty was never appointed by said company or its stockholders trustee to subscribe for the purchase of said stock, and that said subscription was never approved or ratified by said company or its stockholders, and that the stockholders never consented in writing that said Beatty should subscribe for said stock; that before the execution of the note sued on there had been paid upon said stock out of the funds of appellant the sum of $9,000, but that the stockholders never consented that the funds should be so used, nor did they ratify such acts; that at the time said notes were executed appellant was not indebted to the land company, except that said balance of $6,000 of said subscription to its capital stock was unpaid; that the note sued on, and other notes aggregating $6,000, were executed by it in the name of “R. J. Beatty, President”; and that said land company well knew all of said facts. There was a third paragraph of answer, but we need not refer to it further, for it sets up the same facts substantially as the second.

It is the theory of appellant that the note sued on under the allegations of the second paragraph of the complaint is not commercial paper under the law of this state, as it is not payable at a bank in this state, and hence was subject to any defense, even in the hands of a bona fide holder for value, that the law would authorize as between the original payee and the maker. Upon this theory, the answer of appellant was good, for it showed a perfect defense to the note. To meet this answer, appellee sought in its reply to avoid the defense pleaded. The second paragraph of reply avers that appellee purchased the note for value, before maturity, in the due course of business, and without any knowledge of the facts set up in the answer; that Beatty was president of appellant company when the note was executed; that it was executed as the note of appellant as an evidence of a debt then due the land company; that the consideration moved to, and was received by, appellant; that Beatty was authorized to and did execute the note as the note of the steel company in the transaction of its business. The reply then pleads a statute of Pennsylvania in force since April 5, 1849, relating to the execution and negotiability of notes, etc., and sets out the statute relied upon in full. That statute is as follows: “All bills of exchange, drafts, orders, checks, promissory notes or other instruments in the form, nature or similitude thereof, that shall or may hereafter be made or be drawn or indorsed within this commonwealth upon any persons or person, body politic or corporate, co-partnership, firm or institution of or in, or that...