Glidden & Joy Varnish Co. v. Interstate Nat. Bank, 69 F. 912

69 F. 912 | 8th Cir. | 1895

Lead Opinion

CALDWELL, Circuit Judge,

after stating the case as above, delivered the opinion of the court.

Waiving the technical objections to the sufficiency in form of the exceptions taken at the trial and of the assignments of error in the brief, we will proceed to dispose of the case on its merits.

For some reason, which we are unable to comprehend, objections were taken all through the trial to the introduction of all evidence tending to show that it was the Ohio, and not the Missouri, corporation that was doing business at Kansas City after January, 1891. Objection was also taken to all evidence tending to show that Dudley had authority, as manager of the Ohio company’s Kansas City branch, to borrow money and execute negotiable notes therefor. One ground of this objection was that Dudley’s authority, as manager, to execute notes for borrowed money, could only be shown by some formal order or resolution of the stockholders or board of directors of the defendant company. A further ground of this objection was the erroneous assumption of fact that the notes sued upon were not executed in the name of the defendant company. This assertion is made all through the brief of the counsel for the plaintiff in error, but it is an error of fact. The charter name of the Missouri company was the “(Hidden & Joy Varnish Company of Kansas City, Missouri.” The charter name of the Ohio company was the “Glidden & Joy Varnish Company,” and the notes sued on are executed in this name.

The alleged error discussed at greatest length, and the one apparently chiefly relied upon, is that the court refused, at the close of all the evidence, to give the jury a peremptory instruction to return a verdict for the defendant. The contention of the plaintiff in error is (1) that it was the Missouri, and not the Ohio, company that was doing business at Kansas City; and (2) that, even if the Ohio company was carrying on the business at Kansas City, its manager, Dudley, had uo authority to borrow money and execute negotiable notes therefor, in the name of that company. These questions of fact were properly submitted to the jury, under instructions to which, as a whole, no just exceptions can be taken. Upon a careful reading of all the evidence on these issues, it is obvious that the court below did not err in refusing, to instruct the jury to return a verdict for the defendant. There w;as abundant evidence, we think, which necessitated the submission of the case to the jury. It is indisputable, from the evidence, that aftei* the sale of its property to the Ohio company, and the cancellation of all ils stock, except a nominal sum, “to keep alive” its charter, the Missouri company did no business in Kansas City or elsewhere. It had no property, no capital, no credit, and no manager. The business at Kansas City, from and after the date of this transaction, was the business of the Ohio company, and was conducted by Dudley, as its manager. After that time, Dudley was the manager of the Ohio company. That company fixed and paid his salary as manager, and it was to that company that he made his reports and returns. After the sale of its property and the cancellation of its stock, the Missouri company was nothing more than a dummy. It had probably a technical legal existence, through the three shares of uncanceled stock held by the Ohio company, not as capital stock for any business purposes, but “in trust to keep alive the charter” of the company. Its business career was closed. If not dead, it was in a comatose condition, closely bordering on death. It remained in this condition until 1S93. In that year it was discovered that the Kansas City branch of the Ohio company, owing to the general depression in business then prevailing throughout the country, or to the mismanagement or dishonesty of Dudley, or from some other cause, was so much involved that its assets were probably insufficient to pay its debts. So long as the business of this branch was prosperous and profitable, the Ohio company received and appropriated the profits, and nothing was heard of the dormant Missouri company; but, when it was discovered that the business of this branch was likely to entail a loss, the Ohio company at once denied that it was a branch of its business, and disclaimed responsibility for its debts. It set up the claim that it was the Missouri company that had been conducting the business at Kansas City all the time, and that that company alone was responsible for the debts of the concern; and, claiming itself to be a creditor of the Missouri company, it attached all the property in Missouri, as the property of that company. Immediately following this attachment, F. K. G-lidden, then secretary of the Ohio company, and the last president of the Missouri company, but who had performed no official act as president of that company since it sold its property to the Ohio Company, in 1891, appeared in Kansas City, and, assuming that the property there was the property of the Missouri company, proceeded, as president of that company, to make an assignment of the property for the benefit of the creditors of that company, of which the Ohio company was alleged to be one. It is needless to say that the attachment of its own property, and the assignment of property that did not belong to the assignor, did not strengthen the claim of the plaintiff in error. As we have seen, the Ohio company retained, as trustee, the three shares of uncanceled stock of the Missouri company, “to keep alive the charter” of that company. For whom the Ohio company was to .act as trustee, in respect of these three shares of stock, does not appear, and the nature of the trust is not disclosed, further than that it was “to keep alive the charter.” But it can make no such use of that charter as is here attempted. It cannot, when it is prosperous, maim the Kansas City business as its own, and, when it is unprofitable, claim that it is the business of the Missouri company. The law will not countenance any such thimblerigging. One corporation cannot avoid the payment of its just obligations by putting forward as the debtor another corporation, similar in name, which, if it has a legal existence at all, exists only in name, and as a mere dummy or scapegoat for the debtor corporation. The Ohio company is now seeking, not only to resuscitate the Missouri company, but to give to that resuscitation a retroactive effect, so that the debts and obligations created by the Ohio company while it carried on the Kansas City business and the Missouri company slept shall be treated as the debts and obligations of the latter company. One corporation cannot keep another corporation under its management and control, and use it as a scapegoat for its debts whenever it finds it desirable or profitable to do so. The liability of the plaintiff in error for the .debts of the Kansas City branch does not arise from the fact that it or its stockholders owned the uncanceled stock of the Missouri company, or, for that matter, all the stock of the Missouri company. Its liability is grounded on the fact that after the sale of its stock and property to the Ohio company the Missouri company went out of business, and that thereafter the Ohio company owned the property, and conducted the business through its manager, Dudley. It is quite immaterial to the decision of this case what was the legal effect of the transaction between the two companies, whereby the Ohio- company acquired the property of the Missouri company, and the stock of the latter company, save a nominal amount, was canceled. The question here is not whether that transaction was valid, or whether it disabled the Missouri company from further conducting business; but the question is, did that company in fact continue to conduct and carry on the business at Kansas City after the sale of its property to the defendant and the cancellation of its stock? Upon that question títere is no room for contention. It is perfectly clear, upon the evidence, that from the date of that transaction the Ohio company carried on the business at Kansas City, and that it is responsible for the debts contracted by its manager in the control of that business, and that the circuit court should have so told the jury.

The remaining controverted question of fact, namely, whether Dudley, as manager of the Kansas City business for the Ohio company, had authority to borrow money, and execute the negotiable promissory notes of the defendant company therefor, is equally clear, upon the evidence. From the time the defendant company established a branch house in Kansas City, in 1885, down to the time the business was closed out, in 1893, Dudley was the sole manager of that business. His relation, as sole manager and director of the business, was the same, whether the business was carried on for the Ohio company or for the Missouri company. He had all the time the entire and absolute control and management of the business. The officers of the company who resided at Cleveland, Ohio, never exercised any control or supervision over the business, and only visited Kansas Oitv at long intervals. Dudley borrowed money, discounted paper, executed all contracts, hired and discharged all employes, attended to the banking business, and signed all notes and checks. No one was over him. None of the officers of either company, who resided in Cleveland, Ohio, ever paid any attention to tbe business at Kansas City. A more absolute and exclusive management and control of a business cannot be conceived of than that exercised by Dudley. The business was important and extensive. It involved the purchase and manufacture of raw materials, and the sale, of the manufactured product. There were four traveling salesmen, who were employed by Dudley, and received their orders and instructions from and reported to In'm. These traveling salesmen knew of no other person having authority in or about the business. The territory allotted to the Kansas City branch embraced substantially all the country west oí the Mississippi river to the Pacific coast. An agent and manager left, as Dudley was, in the sole and exclusive management, direction, and control of such an extended manufacturing and commercial business, must necessarily exercise very large powers. It is conceded that he might buy and sell.on credit, and discount bills receivable to raise funds to pay debts and purchase goods. Mr. Glidden, the president of the Ohio company, says that, when Dudley got notes for goods sold, “I suppose it was in the natural order of things to take them to the bank, and put the indorsement on as treasurer of the Glidden & Joy Varnish Company, and discount them, and get the proceeds.” But it is contended he could not borrow money for any purpose, however pressing the necessity therefor. It is conceded that he might lawfully execute the company’s negotiable notes for stock or materials, and make them payable irf bank. Suppose, upon the maturity of such notes, he had no funds in hand to meet them, and could not raise funds for that purpose by the discount of bills receivable, or that he had no bills to discount. Was he bound to let the notes go to protest, although he could borrow the money from the bank to pay them, for the asking? Or suppose a favorable opportunity offered to buy stock at advantageous figures for cash. What would a prudent man, whether owner or manager, conducting a large mercantile or manufacturing business, do under like circumstances? Universal usage among all classes of business men engaged in manufacturing or commercial pursuits answers the question. Mr. Glidden himself admits that, in an emergency, Dudley had the right to apply to the bank for cash advances; and, if he had this right, he had, of course, the right to give a note for the advance. Left as he was in the absolute control and management of this whole business, to act according to his own best judgment and discretion, Dudley had authority to do whatever a reasonably prudent merchant or manufacturer would have done under like circumstances and conditions. His powers were commensurate with the reasonable and necessary requirements of the business committed to his sole and exclusive management. Among the highest duties imposed upon him by his position was the duty of upholding and maintaining the credit of the concern. The protest of the paper of a manufacturing and commercial corporation, like that for which Dudley was manager, would instantly destroy its credit, if it did not throw' it into bankruptcy. Dudley was sole manager of the financial as well as all other departments of the Kansas City branch. The contention that the general agent and manager of a commercial and manufacturing business, such as Dudley was conducting, has no power to borrow money, and execute notes therefor, to avert such disasters, does not deserve serious consideration. If such an agent, having it in his powTer to borrow money to maintain the credit of the concern and avert insolvency, should neglect or refuse to do so, he would be guilty of a gross dereliction of duty to his principal. A general manager, having the exclusive management and conduct of a manufacturing and commercial business, and admittedly having the power to purchase stock, contract debts, and discount notes, may, when there is occasion for so doing, borrow money to pay debts or purchase goods, and give his principal’s negotiable note therefor. The authority of such a manager to borrow money does not have to be shown by an express order or resolution of the stockholders or board oí directors of the company. It may be implied from the general powers of such a manager, and the necessities and usages of the business. This implication would seem to be well-nigh conclusive, when, as in this case, the manager lias the sole and exclusive control and management of a branch house of a mercantile and manufacturing corporation whose domicile is in a distant state, and whose officers never assumed to manage or conduct the business of the branch house, or to place any limitations on the powers of its manager, in any respect. In Scofield v. Parlin & Orendorff Co., 10 C. C. A. 83, 61 Fed. 807, where the defense was similar to that set up in this case, the court said:

“The rulings of the court to the contrary, and, presumably, the sworn denial of the execution ot the contract, proceeded upon tlie theory that, in order to bind tiie corporation, a contract must be shown to have been executed or authorized by a formal corporate act, such as an order or resolution of a board of directors. But the business of modem mercantile and manufacturing corporations is not always, or even generally, conducted in that way, but is com-milted to agents and managers, whose powers are limited, practically, only to the lines of business for the prosecution of which the corporations were formed.”

And in the case of Merchants’ Nat. Bank of Gardiner v. Citizens’ Gaslight Co., 159 Mass. 505, 34 N. E. 1083, the court said:

“Upon consideration of the decisions cited, we think it fair to say that the 'Making and indorsing of negotiable paper is to be presumed to be within the power of the treasurer of a manufacturing and trading corporation, whenever, from the nature of its ordinary business, as usually conducted, the corporation is naturally to be expected to use its credit in carrying on commercial transactions. Such paper is the usual and ordinary instrument of utilizing; credit in commercial dealings, and it is for the interest of the corporation and of the community that the best instrument should be employed. It is no less for tlte interest of all that, il' negotiable paper is to be employed, its validity should not bo open to objections which would impair its usefulness by requiring at every step an inquiry into the authority by which it is issued. * * -s Although such companies [gas companies] manufacture only as they ddiver, and so have no occasion to hold large quantities of manufactured goods for a market, there are features of their business which make it necessary for them to have control of large amounts of money at certain seasons. Coai—their chief raw material—is uniformly at its lowest price in the summer, and, away from the seaboard, is usually taken in large quantities at that season. Gas is uniformly sold upon time, and the bills collected monthly or quarterly. The work of extending and repairing street mains, and other work upon the manufacturing plant, can be done to the best advantage during only a portion of the year. A business so conducted affords abundant scope- for the advantageous use of the credit of the corporations engaged in it, and they would naturally be expected to use their credit in the transaction, of their ordinary business.”

In the case of Moore v. Manufacturing Co., 113 Mo. 106, 20 S. W. 975, the court said:

“The power of an agent or officer of a corporation to bind his principal is governed by the law of agency; and, where an officer has been permitted to manage all the business of a corporation, his authority to bind it will be implied from the apparent power thus conferred upon him.”

And see Mahoney Min. Co. v. Anglo-California Bank, 104 U. S. 192; Martin v. Webb, 110 U. S. 7, 3 Sup. Ct. 428; Manufacturing Co. v. Soxman, 138 U. S. 431, 11 Sup. Ct. 360; Bell v. Bank, 57 Fed. 821; Washington Sav. Bank v. Butchers’ & Drovers’ Bank, 107 Mo. 144, 17 S. W. 644; Bank v. Armstrong, 8 C. C. A. 155, 59 Fed. 372; Merchants’ Nat. Bank of Boston v. State Nat. Bank of Boston, 10 Wall. 604.

We have carefully examined each error assigned, and are satisfied none of them has any merit, in the light of the facts of the case. The judgment of the circuit court is therefore affirmed, with costs, and with interest thereon from the date of its rendition by the circuit court at the rate of 10 per cent, per annum.

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Concurrence Opinion

SANBORN, Circuit Judge

(concurring). I. concur in the result in this case on the ground that the course of business at Kansas City shown in this record, the reports made by Dudley to the plaintiff in error of the existence of bills payable he had made as its agent, and the testimony of its president that, if Dudley needed money to pay a coal bill, he thought he was expected to and would go to the bank, and have the money advanced to pay it, constituted sufficient evidence to warrant a jury in drawing the inference that the corporation knew that Dudley was making promissory notes on its behalf, and impliedly authorized him to do so. But I cannot concur in the view, which I understand to be expressed in the opinion of the court, that the general manager of the business, or of a local branch of the business, of a manufacturing and trading corporation, who is authorized to buy and sell goods, to carry on the manufacturing business, and to take and discount promissory notes for his principal, is thereby vested with the implied power to borrow money on its behalf, and to execute its notes therefor. I do not understand the rule of law to be that such a general agent is presumed to have the same authority to borrow money on and to execute notes in behalf of his principal that a reasonably prudent merchant or manufacturer has to make notes and borrow money for himself. I think the true rule is laid down in section 398 of Mechem on Agency, in these words:

“An agent having general authority to manage his principal’s business has, by virtue of his employment, no implied authority to bind his principal by making,_ accepting, or indorsing negotiable paper.”

Tiedeman, in his work on Commercial Paper, at section 77, says that the presumption of law is more strongly opposed to an implied authority to execute and negotiate commercial paper than to do anything else, and that even where there is a general authority “to transact all-business,” or “to do all lawful acts concerning all the principal’s business, of what nature or kind soever,” it is very generally held that the power to execute bills and notes is not included.

In New York Iron Mine v. First Nat. Bank, 39 Mich. 644, 651,—a case in which the stock of the mining corporation was held by Samuel J. Tilden and W. L. Wetmore, and the latter had had the entire management and control of the mining business which was carried on by the company in the state of Michigan, had expended more than three million dollars, and had lawfully discounted the bills receivable of the corporation,—the supreme court of Michigan held that all of this was insufficient to warrant the inference that Wetmore had implied power to borrow money and to issue the promissory notes of the corporation. Judge Cooley, in delivering the opinion of the court, said: ■

“The issuing of promissory notes is not a power necessarily incident to the conduct of the business of mining, and it is so susceptible of abuse, to_ the injury, and, indeed, to tlio utter destruction, of a corporation, that it is wisely left by tlio law to be conferred, or not, as the prudence of the board of directors may determine.”

In my opinion the same rule, and for the same reason, governs the agencies of commercial and trading corporations. McCullough v. Moss, 5 Denio, 567; Murray v. East India Co., 5 Barn. & Ald. 204; Benedict v. Lansing, 5 Denio, 283; The Floyd Acceptances, 7 Wall. 666; Perkins v. Boothby, 71 Me. 91.