Oilman v. F. O. Bailey Carriage Co., Inc.

• Decision Date: 30 March 1928
• Citation: 141 A. 321
• Parties: OILMAN v. F. O. BAILEY CARRIAGE CO., Inc.
• Court: Maine Supreme Court

141 A. 321

OILMAN

v. F. O. BAILEY CARRIAGE CO., Inc.

Supreme Judicial Court of Maine.

March 30, 1928.

On Motion and Exceptions from Superior Court, Cumberland County.

Actions by Henry Gilman against the F. O. Bailey Carriage Company, Inc. Verdicts for plaintiff. On general motions and exceptions by defendant. Overruled.

Argued before WILSON, C. J., and PHIL BROOK. MORRILL DEASY, STURGIS, and BASSETT, JJ.

Clifford C. McGlauflin, of Portland, for plaintiff.

Clement F. Robinson and Forrest E. Richardson, both of Portland for defendant.

STURGIS, J. Two actions of assumpsit tried together in the court below and brought forward in a single record.

In No. 5353 the defendant is sued as maker of seven promissory notes, and as indorser of four customer's notes so called, all of which the plaintiff holds as indorsee. In No. 5354 the plaintiff seeks to recover upon seven checks drawn by the defendant and transferred to the plaintiff by the payee.

Verdict was for the plaintiff in both suits, and the cases come before this court on general motions and exceptions to denial of motion for directed verdicts, rulings upon evidence during the trial, and instructions given and refused in the charge to the jury.

The F. O. Bailey Carriage Company, Inc., the defendant in this suit, was incorporated in 1913 as a reorganization of the F. O. Bailey Carriage Company. The board of directors consisted of five members, but from the date of incorporation through the period here involved Neal W. Allen, Charles W. Phinney, and William A. Gilman were the active members of the board, other directors giving little if any attention to the management of the corporation. Mr. Phinney had general charge of merchandise. Mr. Allen was actively interested in another business, and while he kept a general contact with this business, he was not regularly engaged in its affairs. Mr. Gilman was treasurer and financial manager.

On August 30, 1913, the board of directors voted that:

"The treasurer of this corporation be and hereby is empowered and authorized in the name and on behalf of this corporation to sign and indorse any and all notes, checks, or drafts."

That vote remained unrescinded, and the entire financial management of the corporate affairs was left to the treasurer apparently without interference on the part of the board, except as upon the treasurer's reports the board at their monthly meetings discussed and acted upon corporate matters.

Our consideration of the cases will follow their numerical order and be of necessity subdivided as varying issues require.

No. 5353.

General Motion—Exception to Befusal to Direct Verdict.

The plaintiff's claims in this action are based upon corporation notes made or transferred by the treasurer without the knowledge of the other directors. He is a brother of the treasurer and asserts that he paid value for all these notes and that the corporation is liable to him for these moneys. Group I.

The treasurer of the corporation, W. A. Gilman, was a witness for the plaintiff. He testifies that on September 13, 1914, the company was short of ready money, and to enable it "to get through the day" he drew his personal check for $145 and deposited it in the checking account of the corporation. Again on October 2d of the same year he advanced $200 to meet the company's note due on that day to the Excelsior Carriage Company, and on September 17, 1915, he advanced $300 to pay the corporation note, payable to the Boston Harness Company. He says these advances were not repaid, and at the end of the fiscal year, January 31, 1916, there being an unpaid balance of salary amounting to $160 due him, he issued to himself a corporation note for $805, dated February 1, 1916, which is the note declared upon in the first count of the plaintiffs writ. In support of these statements extracts from the books of the company were read into the record showing minutes upon the books evidencing the issuance and existence of this note to W. A. Gilman.

The note was signed "F. O. Bailey Carriage Company (Inc.) By W. A. Gilman, Treas." It bore notation on its face that it was for cash loaned in "1914, $345" and in "1915, $300," and for "salary due (Bal.) 1915, $160." It was on demand with interest, and according to the testimony of the plaintiff and W. A. Gilman, sometime in 1917 was sold to the plaintiff for full face value. Interest was paid on it up to January 31, 1921.

At the end of the next fiscal year, W. A. Gilman testifies the corporation owed hira $470. He says that he advanced to the corporation on February 1, 1916, $70 to meet a harness company note; February 24, 1916, he put his own check for $125 into the company's cash; and later, in a settlement of his personal accounts with James Bailey Company, for which he acted as part time bookkeeper, that company's debits against the defendant were set off to the amount of $79. These sums, with unpaid salary of $160, and balance due for interest on the note which he had taken the preceding year, made up the $470 due him on February 1, 1917, and he issued the company's note payable on demand to himself for that amount. The plaintiff and W. A. Gilman concur in the statement that this note was also sold to the plaintiff for full face value, and interest paid as per indorsements until January 31, 1921. This note bears notations on its face indicating the consideration for which it was issued, and bookkeeping entries recording its existence are in the record.

An important fact concerning these notes is in evidence. Both Mr. Allen and Mr. Phinney, who with the treasurer were the active directors of the corporation, admit that they had knowledge of the existence of these notes, but deny knowledge of the transfer to the plaintiff. Furthermore, it is undenied that an audit made of the company's affairs included a statement of the existence and amounts of these notes, and that a copy came into the hands of the several directors.

Both notes were executed by the treasurer in the name of the corporation and payable to the treasurer as an individual. And while such a note is a danger signal which the discounter or purchaser disregards at his peril, and under the Uniform Negotiable Instruments Act (P. L. 1917, c. 257) each is not "regular upon its face" (section 52), the plaintiff is not "a holder in due course" (section 52), and the paper "is subject to the same defenses as if it were nonnegotiable" (section 58), Gilman v. Carriage Co., 125 Me. 108, 131 A. 138, and cases cited, it is not absolutely void. In such a case it is not a question of purchase in good faith. The purchaser takes with notice given on the face of the instrument, and his rights depend upon the transaction being or not being in fact for the corporate uses and benefit.

"The officer may in good faith lend money or credit to the corporation on the same terms as a stranger, and take and enforce security for the payment of the debt." 2 Thomp. on Corp. (2d Ed.) § 1412.

"So long as a corporation is solvent, it may borrow money from, or otherwise contract with, an officer or director, and may pay him or mortgage or pledge property to secure him, just as it may pay or secure any other creditor. * * * In other words, if there is an indebtedness owing a corporation officer from the corporation and the corporation is solvent, there is no question but that the corporation may give its officer security for the debt, such as a note, mortgage or pledge of corporate bonds, or the like. * * *" Fletcher on Corp., 3570.

As already noted, the directors by vote had given the treasurer a general authority "to sign and indorse any and all notes, checks or drafts." It is unquestioned that in the general trading business of the corporation the treasurer arranged and negotiated all commercial loans and discounts. The active members of the board left this part of the corporate business to the treasurer's sole care and management, giving it only a general supervision. The treasurer's reports showing the existence of these two notes payable came before the board at repeated monthly meetings, the reports stating by abbreviation that the notes were payable to the treasurer. They were also included in "notes payable" in the auditor's report. There was no objection to the treasurer's acts in these matters and no repudiation of the notes issued.

The court has stated and affirmed the the rule that a board of directors may establish a mutual understanding that the treasurer shall be the active agent of the board in the management of the financial affairs of the corporation. Such an understanding need not be created by a formal vote; it may be inferred from the situation and conduct of the parties. An officer may acquire the power to bind the corporation by the habit of acting with the assent and acquiescence of the board, and his unauthorized acts may be confirmed by the approval and acquiescence of the board. Previous authority and subsequent ratification may be shown by circumstances and conduct. Johnson v. Johnson Bros., 108 Me. 270, 279, 80 A. 741, Ann. Cas. 1913A, 1303; York v. Mathis, 103 Me. 67, 79, 68 A. 746; Peirce v. Morse-Oliver Co., 94 Me. 406, 47 A. 914; R. S. c. 51, § 72, See, also, Murray v. Nelson Lumber Co., 143 Mass. 250, 9 N. E. 634; Sherman v. Fitch, 98 Mass. 64; Blake v. Domestic Mfg. Co., 64 N. J. Eq. 480, 38 A. 241.

Ratification may also be implied from the receipt and retention of the benefits of an unauthorized act of an agent. were a contract is made by an agent in behalf of a corporation, but without authority, and the corporation, after knowledge of the facts attending the transaction, receives and retains the benefit of it without objection, it thereby ratifies the unauthorized act and estops itself from repudiating it. "The reason is that it must exercise its option of affirming or disaffirming in whole, not in part; that it cannot disaffirm "so much of the unauthorized act as is onerous while retaininig so much of...