Park Hotel Co. v. Fourth Nat. Bank

• Decision Date: 18 April 1898
• Docket Number: 966.
• Citation: 86 F. 742
• Parties: PARK HOTEL CO. v. FOURTH NAT. BANK OF ST. LOUIS.
• Court: U.S. Court of Appeals — Eighth Circuit

86 F. 742

PARK HOTEL CO. v. FOURTH NAT. BANK OF ST. LOUIS.

No. 966.

United States Court of Appeals, Eighth Circuit.

April 18, 1898

This writ of error challenges a judgment of $14,528 in favor of the Fourth National Bank of St. Louis, the defendant in error, and against the Park Hotel Company, a corporation, the plaintiff in error, upon a promissory note in these words:

'St Louis, Mo., Dec'br 3rd, 1894.

'On February 1st, 1895, after date, I, the Park Hotel Co. of Hot Springs, Ark., promise to pay to the order of the Fourth National Bank of St. Louis, Mo., fifteen thousand dollars, for value received, with interest at the rate of eight per cent. per annum from maturity until date.

'The Park Hotel Co., 'By Ed. Hogaboom, Pres't. 'Ed. Hogaboom.'

The bank alleged in its complaint that this note was executed in renewal of a note of the hotel company of like amount, which was executed by it to the bank, for value received, on February 28, 1891, and which was extended from time to time, upon payment of interest, until December 3, 1894, when the note in suit was made in its stead. The hotel company denied that it made either of these notes; that it ever received any consideration for them; that it ever paid any interest on them; that they were ever extended at its request, or with its knowledge; denied that its president, Ed. Hogaboom, ever had any authority Ed. Hogaboom and the bank, of which it never had any knowledge, and to which it never assented. At the close of the trial of the issues thus raised, the court below instructed the jury to return a verdict for the bank, and this charge is the error assigned. The essential facts upon which this instruction rests are these: In 1891 the Park Hotel Company was a corporation engaged in the construction and furnishing of an hotel, and afterwards in the operation of it, at Hot Springs, in the state of Arkansas; and Ed. Hogaboom was its president. On February 28, 1891, without paying the corporation any consideration therefor, and without the knowledge or consent of any other officer or agent of the hotel company, Hogaboom made a promissory note in this form: 'On June 28, 1981, after date, for value received, I, the Park Hotel Co. of Hot Springs, Ark., promise to pay to the order of Ed. Hogaboom fifteen thousand dollars, for value received, with interest at the rate of eight per cent. per annum from maturity until paid.

The Park Hotel Co., 'By Ed. Hogaboom, Pres't.'

-- indorsed his name upon it, pledged as collateral security for its payment, 666 shares of the stock of the State Savings Bank & Trust Company of Hot Springs, which he owned, and whose face value was $16,650, discounted it at the Fourth National Bank of St. Louis, and procured from that bank, and spent for his own benefit, the proceeds of the discount. He renewed this note, obtained extensions of the time of payment of the debt it evidenced, and paid the interest on it, and $1,500 of the principal, until it was finally evidenced by the note of December 3, 1894, in suit. The bank sent notice of the maturity of the various notes which Hogaboom made to the hotel company at Hot Springs; but all these notices were received by Hogaboom, and none of the other officers or employes of the company were aware of this transaction, or of the existence of any of these notes, until about May 1, 1895, when one of the notices fell into the hands of the manager of the hotel. In August of that year the manager informed the treasurer of the corporation of his receipt of this notice, and all the directors were notified of the existence of the note of December 3, 1894, early in the month of March, 1896. Between May 1, 1895, and February 19, 1896, Hogaboom paid the interest on, and obtained several extensions of the time of payment of, this note; and on that day he paid the bank $1,500 of the principal of the debt, and gave it his three individual notes, for $4,500 each, payable in 30, 60, and 90 days from that date, respectively. The bank took these notes on account of the note in suit, but it retained the latter as collateral security for the payment of the three individual notes. In May, 1896, Hogaboom failed, and then the bank brought this action. On February 28, 1891, when the bank discounted the original note, Hogaboom represented that he had authority to borrow $20,000 for the hotel company, and that he was borrowing the money which he obtained by the discount of the note of that date for that corporation; and the officers of the bank believed these representations, but pursuant to the custom of that bank, in the words of the president, to 'take the last indorser's check for the proceeds of such a note, showing that he, as indorser or guarantor, obtained the money. He can't go back on us, and say that he did not receive a consideration for the indorsement,'-- the bank placed the proceeds of the discount to the individual credit of Hogaboom, and paid it out on his individual check. The hotel company never received any of the proceeds, or any credit or benefit from any of the proceeds, of the transaction.

J. M. Moore, for plaintiff in error.

George B. Rose (U. M. Rose and W. E. Hemingway, on brief), for defendant in error.

Before SANBORN and THAYER, Circuit Judges, and PHILLIPS, District Judge.

SANBORN Circuit Judge, after stating the case as above, .

Unless the hotel company is estopped from contesting the validity of the note in suit, this judgment must stand or fall by the transaction of February 28, 1891. The only consideration for this note is a discount by the bank of the note of that date. If the discount of that note did not charge the hotel company with any liability to the bank, then unless it is estopped from making this defense, it never became liable upon any of the renewals of that note, because they were without consideration, and the bank knew that fact when it took them. We lay aside, therefore, for the moment, the question of estoppel, and turn to the consideration of the transaction of February 28, 1891. The note which the bank discounted on that day was signed, 'The Park Hotel Co., by Ed. Hogaboom, Pres't,' was payable to the order of Ed. Hogaboom, and was indorsed by him. The bank discounted it, paid the hotel company nothing on account of it, placed all the proceeds of the discount to the credit of Hogaboom, and paid them out on his check. The legal result of the transaction was that Hogaboom had made the corporations' accommodation note, payable to his own order, and the bank had discounted it, and paid him the proceeds of it. There is no evidence in this record that Hogaboom was ever specially authorized by the hotel company to make this note, and to discount it for his own benefit, or to make any note of the corporation payable to his own order, or any contract of the corporation with himself. The bank seeks to recover on the ground that Hogaboom and general authority to conduct the business of the hotel company, and to make and discount its commercial paper. The briefs and arguments of counsel exhaustively discuss this question under the by-laws of the corporation and the statutes of Arkansas. There is an objection to the recovery in this case, however, which lies deeper, and is liable to be more fatal in its consequence;, than any answer we might give to that question. It is that the execution of this note was not within the scope of the general power of the president to make commercial paper of the corporation. General authority to conduct the business and to issue the promissory notes of a corporation is authority to do those acts for corporate purposes, and in the interest of the corporation, only. It does not include the power to do them for the exclusive benefit of others, to the detriment of the corporation. And while a promissory note, made by an agent or officer having such authority, in the usual form, and taken by a stranger in the ordinary course of business, carries with it the presumption that it was issued for corporate purposes, and under lawful authority, a note issued by such an agent, payable to himself, is accompanied by no such presumption, but is itself notice that it is without the scope of his general power, and that it does not bind his principal, unless its execution was specially authorized by the corporation, through its directors or officers, other than the agent to whom it is payable. Such a note is a danger signal, which the discounter or purchaser disregards at his peril. It is notice to him that, if it is contested, he cannot recover upon it, under any general authority in the agent, or at all, unless he proves that the agent was specially authorized to make that particular transaction, or to make contracts of the corporation with himself. To the general rule that the acts and contracts of a general agent, within the scope of his powers, are presumed to be lawfully done and made, there is an exception as universal and inflexible as the rule. It is that an act done or a contract made with himself by an agent on behalf of his principal is presumed to be, and is, notice of the fact that it is without the scope of his general...