St. Vincent College v. Hallett

• Decision Date: 23 April 1912
• Docket Number: 1,806,1,808.,1,807
• Citation: 201 F. 471
• Parties: ST. VINCENT COLLEGE v. HALLETT.
• Court: U.S. Court of Appeals — Seventh Circuit

201 F. 471

ST. VINCENT COLLEGE v. HALLETT.

Nos. 1,806, 1,807, 1,808.

United States Court of Appeals, Seventh Circuit.

April 23, 1912

Rehearing Denied July 1, 1912.

Humphrey District Judge, dissenting.

Jesse McDonald, of St. Louis, Mo., and William E. O'Neill and Charles L. Mahony, both of Chicago, Ill., for plaintiff in error.

Clark M. Cavenee, W. W. Gurley, Arthur Dyrenforth, and Sidney W Worthy, all of Chicago, Ill., for defendant in error Hallett.

Moritz Rosenthal, Henry H. Kennedy, Joseph W. Moses, Julius Moses Hamilton Moses, and Walter Bachrach, all of Chicago, Ill., for defendant in error National Copper Bank.

Eli B. Felsenthal, John W. Beckwith, Edward G. Felsenthal, and Walter J. Spengler, all of Chicago, Ill., for defendant in error Suffern & Son.

Before KOHLSAAT and MACK, Circuit Judges, and HUMPHREY, District judge.

MACK Circuit Judge.

A single question is presented for adjudication in each of these cases: Is a promissory note in the hands of a holder in due course, executed in the name of an Illinois corporation organized under the general act relating to corporations not for pecuniary profit, by its president, the obligation of the corporation, if such execution was neither expressly nor impliedly (either generally or in the specific instances) authorized or ratified, either by the members or the board of directors (unless such general authority arises from the provisions of the statute, charter, or by-laws hereinafter set forth), if it was done for the president's own purposes, and if the corporation received no benefit therefrom or consideration therefor, either directly or indirectly?

The trial judge to whom the cases were submitted, by his rulings on the pleadings and the evidence answered this question in the affirmative, and rendered judgments against St. Vincent College on nine such notes ranging in amount from $5,000 to $40,000.

The objects of the corporation as stated in its articles of incorporation are 'to obtain sites for and to build college and school buildings for its own use, and such appurtenances thereto as may be necessary for its own use; and to employ professors, teachers and such other employes as may be necessary; to provide and establish courses of study, classical, scientific, commercial, divinity, art and mechanics, and in all lower branches of learning.' Chapter 32, Hurd's Rev. Stat. of Illinois, 1905, being the act under which the corporation was formed, provides, in so far as here material, as follows:

'Sec. 31. Corporations, associations and societies not for pecuniary profit, formed under this act shall be bodies corporate and politic; * * * may have power to make and enforce contracts in relation to the legitimate business of their corporation; * * * and they and their successors, by their corporate name shall, in law be capable of taking, purchasing, holding and disposing of real and personal estate for purposes of their organization; may by their trustees, directors or managers, make by-laws not inconsistent with the laws of this state, or of the United States, which by-laws, among other things, shall prescribe the duties of all officers of the corporation. * * *

'Sec. 32. Corporations, associations, and societies, not for pecuniary profit, formed under the provisions of this act, may select trustees, directors or managers from the members thereof, in such manner, at such times and places and for such periods, as may be provided by the certificate of incorporation, or in case such certificate does not contain such provisions, then as may be provided in the by-laws, which trustees, directors or managers shall have the control and management of the affairs and funds of the corporation, society or association. Said trustees, managers or directors may, upon consent of the corporation, society or association, expressed by the vote of the majority of the members thereof, borrow money, to be used solely for purposes of their organization, and may pledge their property therefor. Whenever trustees, managers or directors shall be elected, a certificate under the seal of the corporation, giving the names of those elected and the term of their offices, shall be recorded in the office of the recorder of deeds, where the certification of organization is recorded. Vacancies in the board of trustees, directors or managers shall be filled in the manner provided by their by-laws, and upon filling any vacancy a like certificate shall be recorded. * * * '

The only by-laws that in any manner refer to the powers of the president or the trustees are as follows:

'Five trustees shall be elected by the college every three years, commencing at the expiration of the term of the first board. * * * The trustees shall exercise control over the affairs of the college. Any three of them shall form a quorum for the transaction of business, but no purchase of real estate, no deed of transfer or mortgage of the real property of the college, or note to secure a loan, shall be made unless authorized by resolution of and at a meeting of the members of the college, a quorum being present.

'The president shall call or order the secretary to call all meetings. He shall preside at such meetings. He shall execute all instruments of every kind in and about the business of the college, and he shall in general exercise all authority and perform all acts usually exercised and performed by presiding officers of colleges.'

All the notes in these suits, with one exception, are in the following form, differing only in amount, date, name of payee, and place and time of payment:

'$25,000.00.

Chicago, Illinois, February 8, 1908.

'Four months after date we promise to pay to the order of Fidelity Funding Company, twenty-five thousand dollars at Central Trust Company, Chicago. Value received.

St. Vincent College, by P. V. Byrne, C. M. Pres.

'No. 2605.

'Due June 8, '08.'

The one exception referred to is a note in the same form as the others except that it is signed: 'St. Vincent College, by P. V. Byrne, C. M. Pres. Hugh J. O'Connor, Acting Treas.' The undisputed facts appearing from the record are that the notes were signed by P. V. Byrne and Hugh J. O'Connor; that at the time of the signing P. V. Byrne was the qualified and acting president, and Hugh J. O'Connor was the qualified and acting treasurer of the defendant below; that the indorsements on the notes were genuine; that the several plaintiffs below were holders in due course; and that none of the notes had been paid.

Many questions have been argued that are beside the real point in the case. Ultra vires is not involved; that corporation had power to issue negotiable paper. Nor is the fundamental question one that is governed by the law of negotiable instruments. It is essentially a question of agency. Is the president of such a corporation, solely by virtue of his office, authorized to bind the corporation as principal?

It is contended by defendants in error that the by-laws expressly authorize the president to execute corporate notes, and that therefore the real question in the case is whether or not the act of the president, although not authorized in the specific instance and although not for corporate purposes, is nevertheless binding on the corporation because the power of the board of directors has been fully and lawfully delegated to him.

If the by-laws had provided that not only the power to execute instruments, but the power to determine when such execution is necessary or desirable in the management of the affairs of the corporation, shall be vested in the president, either the holder in due course of negotiable paper or the other innocent party to any ordinary contract made by the president apparently on behalf of the corporation, could hold the corporation to the same extent as if the board of directors had specifically authorized or ratified the transaction.

Under such a by-law, the sole question would be whether or not the action of the president or the board of directors would be binding without a vote of a majority of the members. Louisville, New Albany & Chicago Railway Co. v. Louisville Trust Co., 174 U.S. 552, 19 Sup.Ct. 817, 43 L.Ed. 1081, would be a strong authority in favor of the note holder in that event. In that case the defendant railway company was a corporation organized under a statute of the state of Indiana, which contained the provision that:

'The board of directors of any railway company organized under and pursuant to the laws of the state of Indiana, whose line of railway extends across the state in either direction, may, upon the petition of the holders of the majority of the stock of such railway company, direct the execution by such railway company of an endorsement guaranteeing the payment of the principal and interest of the bonds of any railway company organized under or pursuant to the laws of any adjoining state, the construction of whose line or lines of railway would be beneficial to the business or traffic of the railway so endorsing or guaranteeing such bonds.'

A negotiable guaranty of certain bonds was executed under the seal of the corporation by order of the board of directors and signed by the president and secretary of the corporation, although a majority of the stockholders did not petition for the execution of the guaranty, as required by the statute. There was no evidence that the stock holders ever authorized the contract or the guaranty; on the contrary, at their next annual meeting it was voted to reject and disapprove both the contract and the guaranty as having been made without legal authority. Before the stockholders' meeting was held at which this action of disapproval took place, 135 of the bonds on which the guaranty was made had been negotiated...