The Sedalia National Bank v. Economy Steam Heating & Electric Company

• Decision Date: 28 June 1910
• Citation: 130 S.W. 377,145 Mo.App. 319
• Parties: THE SEDALIA NATIONAL BANK, Appellant, v. ECONOMY STEAM HEATING & ELECTRIC COMPANY, Respondent
• Court: Kansas Court of Appeals

130 S.W. 377

145 Mo.App. 319

THE SEDALIA NATIONAL BANK, Appellant, v. ECONOMY STEAM HEATING & ELECTRIC COMPANY, Respondent

Court of Appeals of Missouri, Kansas City

June 28, 1910

Appeal from Pettis Circuit Court.--Hon. Charles Hoffman, Judge.

Judgment affirmed.

Sangree & Bohling and W. M. Williams for appellant.

(1) Defendant corporation clothed its vice-president and general manager in the city of Sedalia with apparent authority to represent and act for it in negotiating the loan represented by the note sued on, and in executing said note in its name and behalf, and should have known of his habit of making such loans. It ought not now be heard to deny his authority to bind it upon the note sued upon, even though no express authority to the officer executing the note was shown, and he subsequently became a defaulter to the corporation. Hennessy, etc., Co. v. Bank, 129 F. 557; Bank v North Missouri, etc., Co., 86 Mo. 125; Glidden etc., Co. v. Bank, 16 C. C. A. 534; Watson v. Mfg Co., 61 S.E. 273; Buckwald, etc., Co. v. Hearst, 75 A. 113; Keas v. Lime Co., 71 Mo.App. 109; Moore v. Gaus and Sons Mfg. Co., 113 Mo. 116; Sparks v. Trans. Co., 104 Mo. 539. (2) Defendant corporation kept a bank account and had pass books. These pass books, upon their face, showed that defendant was being given credit in its bank account for loans represented by the notes introduced in evidence. A comparison of the pass books with the company's other books would have disclosed the loans. It was defendant's duty to examine its pass books, and it must be held to have constructive notice of what such an examination would have disclosed. Hennessy, etc., Co. v. Bank, 129 Fed. l. c. 560; Bank v. Morgan, 117 U.S. 96; Bank v. Bank, 6 C. C. A. 183; Myers v. Bank, 44 A. 280; Bank v. Allen, 27 L. R. A. 431; Quatrochi Bros. v. Bank, 89 Mo.App. 500. (3) A corporation is bound by the acts of its general manager, even though in excess of his actual authority, where it has held him out to the public as possessing such authority. 10 Cyc. 924; Rosenbaum v. Gilliam, 101 Mo.App. 126; Citizens, etc., Co. v. Thornton, 174 F. 760. (4) Plaintiff cannot be affected by any limitation of the authority of the manager of the defendant corporation contained in its by-laws or in instructions given to him, of which it had no notice. 10 Cyc. 925; Electric Co. v. Walsh, 105 N.W. 1; Alton v. Cotton Mills, 44 So. 654; Jones v. Williams, 139 Mo. 1; Bates v. Keith Iron Co., 48 Mass. 224; St. Clair v. Rutledge, 105 Wis. l. c. 592; Buskwald, etc., Co. v. Hearst, 75 A. 113.

Charles E. Yeater for respondent.

(1) The defendant company, engaged exclusively in the business of selling steam for heating purposes, was a small non-trading corporation, with its plant idle half the year; consequently, either explicit authority, long custom or usage recognized by the company, or express ratification, is necessary to make the note sued on a valid obligation. Hyde v. Larkin, 35 Mo.App. 365; Bank v. Hogan, 47 Mo. 472; Bank v. Tel. Co., 51 P. 829; Craft v. Railroad, 150 Mass. 207. (2) The contention that the execution of the notes signed by Mowbray, in the name of the company, was acquiesced in and therefore constitute a custom and usage, or have been ratified, is untenable, because, such notes were secretly, fraudulently and criminally issued by the manager, for his own benefit, and no other officer of the company had any knowledge whatever of them; and an acquiescence in or ratification of an unknown act is a logical impossibility. Windsor v. Bank, 18 Mo.App. 675; Hyde v. Larkin, 35 Mo.App. 373. (3) There is no evidence whatever that the plaintiff bank ever issued a pass book to defendant, and both plaintiff's and defendant's evidence shows that defendant did not know that it had an account at plaintiff's bank, and there is therefore no inference to be made therefrom of defendant's ratification of Mowbray's acts. Keyser v. Hinkle, 127 Mo.App. 74; Inv. Co. v. Bank, 96 Mo.App. 142, 103 Mo.App. 617; Hickman v. Green, 123 Mo. 176; Bank v. Lovitt, 114 Mo. 525.

OPINION

JOHNSON, J.

--This action is upon a negotiable promissory note for four thousand two hundred dollars payable to the order of plaintiff bank and signed by Economy Steam Heating & Electric Company, per Robert Mowbray, vice-president and manager, and by Robert Mowbray individually. The note was dated December 22, 1906, and was made payable ninety days after date. No part of it, either principal or interest has ever been paid.

The answer of the defendant corporation was a plea of non est factum, the individual defendant made no defense and suffered judgment to go against him. By agreement of parties a jury was waived and, after hearing the evidence, the court rendered judgment in favor of the defendant corporation. Plaintiff appealed.

The facts of the case, about which there is little controversy, thus may be stated: The American District Steam Company of Lockport, N. Y., engaged in the business of manufacturing and operating steam heating plants, installed a plant of that character in Sedalia under contract with a local corporation and failing to receive payment of the agreed price, caused the property to be sold under legal proceedings and became the purchaser. The officers of the company then caused the defendant company to be organized and incorporated under the laws of the State of Missouri for the purpose of owning and operating the business. There were five stockholders of defendant company, three of whom resided in Missouri, the other two in New York. The Missouri stockholders each owned one share and the remainder of the capital stock was owned by the two New York men, one of whom was elected president and the other secretary and treasurer. The defendant Mowbray was elected vice-president and manager and assumed the management of the business in the fall of 1900.

The business of the company was the manufacture and sale of steam heat for use in public buildings, business houses and residences in Sedalia; Mowbray was the only representative of the company in Sedalia and he acted as general manager of its business for something more than six years. He was discharged from the services of the company upon the discovery that he was a defaulter and embezzler of its funds. The total volume of business transacted by the company under the management of Mowbray was approximately $ 90,000, or about $ 15,000 per year. There was no demand for the company's product in the summer months and during such periods the plant remained idle. The principal duties of Mowbray were to purchase coal and other supplies, procure customers, collect bills and make weekly reports to the secretary whose office was in Lockport. The business being small there were but few employees. The by-laws of the company provided: "The board of directors may engage a general manager or superintendent who shall have the general supervision of the operation of the company's property and the transaction of such other business as is necessary in the absence of the officers of the company. He shall not have the power to create debts or obligations without the consent of such officers of the company as have the vested right to create such indebtedness."

The installation of extensions to the plant was not entrusted to Mowbray but was performed under the personal supervision of the president, and, in fact, as well as by the provisions of the by-laws, Mowbray's authority and duties were restricted to matters of routine business. When the business ran behind, funds were sent from Lockport in anticipation of the requirements of the business beyond its income.

Shortly after he took charge of the business in 1900, Mowbray opened a bank account for the company with one of the Sedalia banks and began borrowing money on the company's paper which he executed as vice-president and general manager. He deposited the proceeds of the collections and checked against the account in making disbursements on account of the company. He also checked against it for his own purposes but signed the company's name to such checks. He continued this practice for six years and in the latter part of the year 1906, owed the Citizens' National Bank where the account was kept, a note of $ 3800 to which he had signed the defendant's name. Pressed for payment of this note, he applied to the cashier of the plaintiff bank for a loan of $ 4200. The cashier knew that defendant company kept an account with the Citizens' National Bank for he had often noticed the checks of the company in the clearing house, but he did not know that Mowbray had borrowed money on the corporate name of defendant. We quote from the testimony of the cashier:

"When he (Mowbray) came for the money he said that he had concluded to change his account over to our bank and I asked him how much money he wanted. He took his pencil and figured around awhile and said, 'I will want about $ 4200,' and he said 'I owe the Citizens' Bank about $ 3600, I don't know the exact amount.' He said 'I have not noticed the account lately and I will want about $ 600 to pay for coal.' I then asked him if he was authorized to borrow money and he said he was. He said 'I have been borrowing money ever since I have been here of all the banks.' He said 'I have an account with all three of the banks here.' . . . He told me he had authority to borrow money. I asked him explicitly about it. I asked him how he signed notes and he said the Economy Steam Heating Company by himself as vice-president and manager. He said 'I am manager and vice-president of the company.' I said 'The Department criticises a loan made in that way,' . . . and he said he would sign the note individually, and I said, 'That is all right,' and I wrote out the note and he signed it and I gave him...