71 F. 797 | 6th Cir. | 1896
After stating the facts as above, the opinion of the court was delivered by
The conceded facts are that these bonds were used by. Herman and Pank as collateral security for .their individual debt to Boynton. Herman and Pank were both officers of the Kentucky Malting Company, and as such their possession of these corporate securities was presumably the possession of the corporation. Boynton knew that Herman was the president, and Pank the secretary and treasurer, of the corporation whose bonds they proposed to give him as security for their individual debt. Under these circumstances, it was his duty to inquire as to their title to these bonds, or their authority to use them for their private purposes. If he took them without informing himself as to their right to dispose of them, he cannot stand as a bona fide purchaser of negotiable securities for value, if it should turn out that they had no right to use them as security for their own debt. The general presumption in favor of such officers of a corporation might support a disposition of the securities for any apparent corporate purpose, but that presumption does not extend so far as to justify one who accepts such securities in payment of, or as security for, the private obligation of the officer. There is no presumption that even a general agency will support a transaction by which the agent is to profit at the expense of his principal. The dealing between Boynton, on the one side, and Herman and Pank, on the other, was concerning their individual matters, in which the corporation was not concerned. When, therefore, Herman and Pank proposed to use securities of the corporation in which they were officers for their private purposes, the knowledge of Boynton that they were officers of the corporation issuing the bonds was notice to him that they had no authority to use them
“September 8th. 1885. Called a meeting of directors and stockholders of the Kentucky Malting Company, held at their office this 8th day of September, 1885, all members being present. Mr. Herman offered the following resolution, which was unanimously adopted: ‘Whereas, the board of directors of the Kentucky Malting Company authorizes the president and secretary to issue 120 mortgage bonds, of $500. each, to bear 6 per cent, interest, dated September 30, 1882, and due in ten years from date, and said bonds having been issued accordingly, but not disposed of; and whereas said company has now received a bid for said bonds from 10. W. Herman and J. H. Pank,— we unanimously recommend and agree to accept said bid, and hereby authorize and iustruct the president to deliver said bonds to the said E. W. Herman and I. H. Pank, upon their complying with the terms and conditions of their said bid.’ [Signed] E. W. Herman. J. H. Panic. Frank Senn. Adam Stumpff. F. Reidhar.”
That resolution is found on the minutes of the corporation, and it was signed by every one then owning shares. It did not, however, speak the truth, and was, on the evidence of Pank himself, a fraud and a deception. No bid was ever made by Herman and Pank, or either of them, or intended to be made. No bonds were sold to them, or intended to be sold. The bonds then belonged to the corporation, and were in its treasury. Herman has not testified. He is silent, and silence, under the circumstances, is significant. Pank; a witness altogether in sympathy with appellee, has been ex
“if every shareholder had been in the room, and every shareholder had said, ’Thai is a contract which we desire to -make, which we authorize the directors to make, to which we sanction the placing the seal of the company,’ the case would not have stood in any different position from that in which it standi! now. The shareholders would thereby, by unanimous consent, have been attempting to do the very thing which, by the act of parliament, they were prohibited from doing.”
Them are many cases to the same effect. Thomas v. Railroad Co., 101 U. S. 83; Central Transp. Co. v. Pullman’s Palace Car Co., 139 U. S. 59, 11 Sup. Ct. 478; Humboldt Min. Co. v. American Manufacturing, Mining & Milling Co., 10 C. C. A. 415, 62 Fed. 356.
The [lowers of a corporation are those expressly granted, and such implied powers as are necessary to carry out those specifically named. No authority to lend credit to another is to be implied from the mere fact that it might be beneficial to the corporation to support the credit of another, or that thereby business might be induced or increased. Davis v. Railroad Co., 131 Mass. 258.
“A corporation,” said this court in Marbury v. Land Co., 10 C. C. A. 401. 62 Fed. 342, ‘is impliedly prohibited from doing anything which ft is not expressly permitted by its charter to do, or which is not fairly incidental and necessary to the enjoyment of that which is expressly permitted.” In Humboldt Min. Co. v. American Manufacturing. Mining & Milling Co., cited heretofore, the question was as to the validity of a guaranty by a corporation organized to make ironwork for mining plants, of the contract of another corporation for ihe erection of a mining plant, upon the expectation of securing the sale of the ironwork used in the plant. We held that guaranty ultra vires, the court saying:
“The objection to the guaranty is that it risks the funds of the company in a different enterprise and business, under the control of another and different person or corporation, contrary to what its stockholders, its creditors, and the slate- have a right, from its charter, to expect.”
In (he case of McCutcheon v. Capsule Co. (decided at this term of the court) 71 Fed. 787, we held that the investment of the funds of one manufacturing corporation in the stock of another, as an investment to be held by the buying company, was not within the express or implied powers of the buying corporation, and was an
An effort has been made to show that it was much to the advantage of the malting company to support the credit of Herman and Pank by the use of its bonds as collateral for their note. Boynton, Herman, and Pank had for two years been partners, under the style of J. H. Pank & Co. That firm was engaged in business as malsters at Chicago, and as such had bought grain for the malting company, and sold it much malt. The transactions between the corporation and the firm had been numerous, and involved large sums. The credit extended by the firm had doubtless been of no little advantage. J. H. Pank, though the secretary and treasurer of the malting company, lived in Chicago, and managed the .business of J. H. Pank & Co. The entire capital of that firm had been advanced by Boynton, either as capital in the business to his credit, or as capital put in for Herman and Pank through loans to them. Boynton, on the expiration of the term of the partnership, in September, 1885, expressed a desire to withdraw, and proposed to sell out to Herman and Pank; and for this purpose he proposed to nominally lend them $50,000 for four years, taking their note secured by a" pledge of $60,000 in the mortgage bonds of the Kentucky Malting Company. Herman wished the loan increased to $60,000. A correspondence ensued between them, and three of Herman’s letters have been introduced by Boynton as evidence. In one of these letters, written August 19, 1885, and but a few days before the transaction now involved was consummated, Herman expresses his opinion as to the relative value of the business relations of the corporation and the firm, and his view as to the importance of thése bonds to the corporation as .collaterals to protect their credit. He says:
“I admit that we had some advantage in the last two years in Mr. Pank being in Chicago, but, on the other hand, has not your business with us been many thousands of dollars in your pocket?”
In another letter, bearing date August 20, 1885, in which he is insisting upon a loan of $60,000 to himself and Pank, he says, concerning the use of these bonds to secure such a loan, that:
“Again, the bonds have been a great convenience to us here, on temporary loans of small amounts, and I deem them almost a necessity to hold as a reserve to fall back upon in a case of necessity. X don’t, therefore, feel that we can let them go, in the manner now spoken of, short of the amount I mentioned, since the Kentucky Malting Company will not receive much, if any, benefit therefrom. As mentioned yesterday, if you come down I can convince you of your investment being a double secure one. I want to go to Birmingham Saturday, or Sunday noon, and, if you conclude to feel favorable towards my proposition, I would like to have you here Wednesday next, to show you all you want to see.”
The evidence relating to the business relations between the firm and the corporation, both before and after the pledging of these bondfs, makes it clear to us that the malting company was much more important to J. H. Pank & Co. than J. H. Pank & Co. were to the malting company. To Herman and Pank the continuance of
This brings us to the vital question in the case. For Boynton, it is said that he did inquire as to the authority under which Herman and Pank proposed to pledge these bonds, and that his attorney was shown the resolution passed by the directors and stockholders, heretofore set out in full. It is further said that inquiry was then made of Herman whether the terms and conditions referred to in the resolution had been complied with, and that he replied that they had been complied with, and that he and Pank had bought the bonds outright from the company. It has been argued that Boynton was under no obligation to make further inquiries, and had a right, under the circumstances, to rely upon the truth of this recorded action of the stockholders, and the declarations of Herman that the terms and conditions of sale had been complied with. In ihe light of all the facts and circumstances known to Boynton, we do not think he had any right to rely upon the truth of this resolution, or the declarations made by either Herman or Pank. He was undoubtedly anxious to sell out, and wind up his connection wit h these men. He had $15,000 capital invested as a partner in the firm of J. H. Pank & Co. In addition, the firm was indebted to him, as a. firm, in about $10,000 more. Herman owed him, individually, $15.000, and Pank owed him the same, being sums advanced for them to enable them to pay up their several contributions to the capital of J. H. Pank & Co. Neither Herman nor Pank appear to have had any outside means whatever. For fhe realization of these large sums he could apparently rely only upon the assets of J. II. Pank & Co., which would involve a winding up of the business of that concern, payment of firm debts, adjustment of the equities between the partners, and finally an application of the interest of Herman and Pank in the surplus assets to the payment of their individual liabilities to him. In addition, Boynton owned the malting house used by the firm, and for which it, had been paying' a rental of $6,000 per annum, and taxes and repairs. He was
“No, sir; it was not. I supposed that Mr. Herman and Mr. Pank were the Kentucky Malting Company, and could do as they pleased, but my attorney required that the directors should take some action showing that they were authorized to use the bonds in this way.”
Being thus advised that some action of the corporation was necessary to authorize “the use of the bonds in this way,” he relied upon that attorney to see that some action was taken by the corporation which would authorize such use of the bonds. As to the steps taken to procure such authority, he was asked this question:
“Did not Ling and Pank and yourself, together, devise a certain entry on the minute book of the Kentucky Malting Company, which you demanded should be made before you would take the bonds? Answer. I did not. Q. Did not Ling? A. Ling, as-1 remember, required that the directors should take some action to authorize the use of the bonds. Q. Your lawyer told you, before you took those bonds, some action on the part of the stockholders of the corporation was necessary, to make the issue of these bonds lawful, did he not? A. Yes, sir; I said to him that Mr. Herman and Mr. Pank were the Kentucky Malting Company, and he said, ‘There is another stockholder.’ They said that he was a small stockholder, and had nothing to do with the affairs of the company; but he said it was necessary for the directors to hold a meeting, and legalize or authorize in some way the transfer of the bonds. Q. Do you know whether Mr. Ling, your attorney, got such a paper, showing the authority? A. I do not. There was something said to him that satisfied him that it was all right.”
How, tbe thing done which satisfied Ling, Boynton’s attorney, that the matter was all right, was the adoption of a line of action which Ling himself mapped out. Ling says that he advised Pank “to call a meeting of the stockholders, and present them a bid for the bonds, and have it accepted by them.” How, did Ling or Boynton believe that a bona fide purchase of these bonds was to be made by these men, who, so far as this record shows, had not been able to pay a dollar of capital into the business of J. H. Pank & Go., or that the corporation would let go, for a song, securities valued by Boynton himself at $55,000, and which he knew were of the utmost value to the Kentucky corporation as collateral on
‘•inasmuch as your interests and those of your corporation will conflict in ibis case, the utmost good faith and fair dealing must be shown.” “Make your proposition a matter of record, and see to it that some impartial member of the corporation shall stand between it and you.”
What course did he pursue? He himself wrote the resolution now relied upon as estopping the corporation. That resolution recites:
“ ViuJ whereas said company has received a bid for said bonds from E. W. Uerman and .T. II. Pank, we unanimously recommend and agree to accept said bid. and hereby authorize and instruct the president to deliver said bonds to iho said E. W. Herman and .1. H. Pank, upon their complying with the terms and conditions of their said hid.”
What the “bid” was, which was so unanimously satisfactory, is nowhere stated. But still more extraordinary is the remarkable conclusion that the stockholders, in the same unanimous way, “authorize and instruct the president to deliver said bonds to the said R. W. Herman and J. H. Pank, upon their complying with the terms and conditions of their said bid.” Who was to decide what these "terms and conditions” were? Who was to decide whether they had been complied with? Who was to receive the consideration? Tlv' contention maintained by the learned counsel for appellee is (hat Herman himself, under the resolution, was to determine these questions, and that his declaration that the terms and conditions had been complied with concludes the corporation, as between it and Boynton, who, through his agent, had devised and procured This most extraordinary corporate action. Herman, the agent of rhe stiller, is lo determine these questions, although he is himself (he buyer, and directly interested in deciding against the seller and in favor of the buyer. The general rule is that the same person cannot act as agent for both parties in the same transaction, unless each party expressly consents to such double agency. In such case the agent is substantially but an arbitrator. The instances in which such a double agency has been sustained have generally been where there were in fact two principals, and an agent representing both,
“There must be one innocent party and one negligent party, before the requirements of the maxim are answered, and the conduct of .the plaintiff is therefore as important as that of the defendant.”
If, therefore, this resolution was prepared, in the negligent form in which it was passed, by Boynton or his agent, Ling, and with no reasonable expectation or belief that á bona fide purchase of these bonds was contemplated, Boynton was not innocent or misled, and cannot avail himself of the maxim. That he had no reasonable ground for believing that Herman and Pank intended to actually buy these bonds, or were financially able to do so, we are convinced. The very form of the resolution concocted by Ling is strong evidence that it was intended as a mere form of sale, intended and understood by Boynton, as well as Herman and Pank, as authorizing the use of these corporate securities by Herman and Pank for their own purposes, — a use which it is altogether possible they regarded as beneficial to the corporation. A most pregnant circumstance tending to show that Boynton was not deceived, and that he understood that these bonds had not been bought by Herman and Pank, but continued to be the property of the corporation, is found in the fact that none of the coupons on these bonds were ■ever presented to the corporation for payment. Herman and Pank paid the interest on their note to him. But he was aware of £he fact that the accruing coupons were suffered to lie unpaid, and when the first note made by Herman and Pank fell due, four years after date, the bonds bore eight past-due coupons. These matured coupons he cut off and canceled, and gave to Pank. A payment was then made on the old note, and a smaller note taken for the
“It is an acknowledged principle of tho law of agency that a general power or authority given to the agent to do an act in helialf of the principal does not extend to a case where it appears that the agent himself is the person interested on the other side. If such a power is intended to he given, it must he expressed in language so plain that no other interpretation can rationally he given it, for it is against the general law of reason that an agent-should he intrusted with power to act for his principal and for himself at the same time. Tho by-law is general in its terms, and could he fully carried*808 out to its fair and legitimate purpose by excluding from its meaning the case of either officer acting in his own personal matter.”
While the resolution recites that the- “hid” of Herman and Pank was accepted, yet the authority of the president to deliver the bonds depended upon a precedent condition, — compliance with “the terms and conditions of that bid.” What evidence was offered Boynton that this precedent condition had been performed? Hone, except the unsupported declarations of these two men that they had bought the bonds, out and out. It has not been insisted that what Pank said binds the corporation. He was known to be an officer of the corporation, and the securities he had in possession were known to have been the securities of the corporation, but a few days before. His possession was presumably the possession of the corporation, and his claim to have bought them was a self-serving declaration made in his own interest, and adverse to the interests of his corporation and to the presumptions growing out of his official connection. If the “bid” referred to in the resolution had been by a stranger, and the president authorized to deliver the bonds “upon compliance with the terms and conditions of the bid,” a very different case would be presented. One finding the bonds in the possession of the bidder might well presume that they had been properly delivered. The .fact of possession would have justified belief in ownership. But this is not the case if the “bid” appears to have been made by the official custodian of the bonds. There was no apparent change in the possession, and the declarations of neither Herman nor Pank would, in the absence of other evidence, rebut the presumption arising out of their official relation to the bonds. Why should Herman’s declarations be any more admissible against the corporation than those of Pank? Counsel say the reason is that the resolution authorized him to deliver the bonds upon compliance with the terms of sale, and from this is to be presumed authority to determine the fact of compliance, and that, therefore, his admission as to compliance is binding upon the corporation. This argument depends upon an implication, and does not find support in any express authority to decide and accept compliance. Ho such implication is admissible when the fact and sufficiency of compliance involve the determination of a matter in which his interests were in direct conflict with those of the corporation. In accepting payment, whether in money or obligations, for the bonds sold, he would have to assume an authority not expressly conferred. In declaring that the terms and conditions of his bid had been complied with, he was acting for himself, and in his own interests. If Boynton chose to rely upon the truth of his assertion, he- did so at his peril. If it turned out that it was untrue, he must take the consequences. The truth of the matter, according to his witness, Pank, is that no bid was ever made, and no purchase of the bonds ever intended. According to what the same witness says, the resolution was a mere form, intended to authorize Herman and him to pledge the bonds for their own debt, — a proceeding consented to, as he claims, because it was supposed by the stockholders