Madison & Indianapolis Railroad v. Norwich Saving Society

Gregory, J. Suit by the appellee against the appellant, on the guaranty of the latter of the payment of certain bonds executed by the Martinsville & Franklin Railroad Company, payable to the Madison & Indianapolis Railroad Company, or assigns, at the Merchants’ Bank, in the city of New York, and by the latter railway company assigned to Winslow, Lanier & Co. The bonds were put upon the market, in the city of New York, by Winslow, Lanier & Co., the agents of the payee, by a circular, in which it was represented that the appellant was the owner of the bonds; that the same had been issued to her by the maker, to pay a certain indebtedness of the latter to the former. The appellee is the holder, in good faith, of the bonds and guaranty sued on. William N. Jackson, on the trial, testified that “he was the secretary of the appellant on the 1st of May, 1852; was such secretary from 1844 to 1853. That the appellant had agreed to indorse the bonds of the Martinsville Company; that the first order was for $25,000, but was increased to $30,000; that the bonds were for the purpose of preparing the Martinsville Road for the iron. The bonds were not issued to, nor indorsed by, the appellant for any indebtedness due from the Martinsville Company; there was no such indebtedness; nor in consideration of iron sold by [459] the Madison Road to the Martinsville Road, hut to give them credit, that the latter might raise money upon them to prepare the road for the iron. The inducement to the Madison Road to indorse the bonds was to get business from the Martinsville Road when completed; this business was expected by the intersection at Franklin. Winslow, Lanier $• Co., were stockholders in the Madison Company, and one of them was a director in the road; thinks it was Winslow. When the bonds were sold, the Madison Company was notified, and the money passed through the office of that road, and Mr. Parks received it as the president of the Martinsville Company. The bonds sold for $85 on the $100. Parks, as president of the Martinsville Company, borrowed money of the Madison Company in advance, which was repaid out of the proceeds of the sale of the bonds. The bonds sold for about $25,000, and the whole proceeds were paid over to Parks, part before, and part after the sale of the bonds. No interest was paid to the Madison Company on advances. The following advances were made in 1850: $5,000, $3,000, $3,000, $2,500 and $2,000. This was in the months of May, June-, August and October, 1850, and in January, 1851. Between that time and September, 1853, the Martinsville Company received $2,500, $1,000, $1,376, with smaller sums making up the amount of sales of the bonds. Thinks that no stock of the Martinsville Company was transferred to the Madison Company. He ceased to be secretary of the Madison Company about June 1st, 1853, and previous to his leaving he thinks no payment in money or bonds was made by the Martinsville Company to the Madison Company, for iron furnished by the latter to the former. The first shipment that was received upon the Martinsville Road was in December, 1853, and the iron had been laid in the summer of 1853. “ S. S. Gillett was treasurer of the Madison Road. The agreement for running the Martinsville Road by the Madison [460] Road was made after the sale of the bonds, and was in 1853. The records of the appellant are at Madison. “ I-Iis impression is that Winslow, Lanier Co., notified the Madison-Company as the sales of the bonds were made, and said company then paid to the Martinsville Company the amount, and sometimes paid in advance. The Madison Company transacted its business in New York through Winslow, Lanier § Co.,-and had large business transactions with them. The indorsement of the bonds by the Madison Company was printed with the bonds, but the signature of Mr. Brough was written, and witness’ signature as secretary was written; the date was also written, and the seal was impressed. “The Madison Company was selling its own bonds at Winslow, Lanier g- Co.’s about the same time; and previous to 1852, they had sold for the Madison Road, perhaps, $600,000 of bonds, or perhaps more. In 1852, the Madison Company had good credit in New York. The Martinsville Company was almost unknown in New York, and could not have had much credit. “When he signed the indorsement of the bonds, he handed them to the president or treasurer of the Madison Company, but he supposes he handed them to the treasurer, and does not know whether Mr. Parks had them or not.” It is contended that the charter of the Madison Company did' not empower it to make accommodation paper, and that the construction of the Franklin Road was a purpose foreign to the objects for which the former company was incorporated, and that therefore the bonds and guaranty were issued without authority by the appellant, and are therefore void, even in the hands of an innocent bona fide holder. The bonds and guaranty were legal on their face. It is within the corporate power of the appellant to sell and guarantee bonds held in the usual course of business. The court -below, sitting as. a jury, had a right, from the evidence, to find that the Madison Company was the holder of the bonds; that it had advanced money [461] thereon to the maker, which was to he reimbursed out of the money arising from the sale thereof. In the case of Stoney v. The American Life Insurance Company, 11 Paige’s Ch. Rep. 635, it was held by Chancellor Walworth, that “ the negotiable security of a corporation, which upon its face appears to have been duly issued by such corporation, and in conformity with the provisions of its charter, is valid in the hands of a Iona fide holder thereof without notice, although such security was, in fact, issued for a purpose, and at a place, not authorized by the charter of the company, and in violation of the laws of the state where it was actually issued.” In the case of The Farmers’ and Mechanics’ Bank v. The Butchers and Drovers’ Bank, 16 New York Rep. 125, Selden, J., after citing this and two other cases, says: “I have no hesitation in concurring with these learned judges in the principle thus asserted, and am not aware that a contrary opinion has ever been judicially expressed. A citizen who deals directly with a corporation, or who takes its negotiable paper, is presumed to know the extent of its corporate power. But when the paper is, upon its face, in all respects such as the corporation has authority to issue, and its only defect consists in some extrinsic fact, such as the purpose or object for which it was issued, to hold that the person taking the paper must inquire as to such extraneous fact, of the existence of which he is in no way apprized, would obviously conflict with the whole policy of the law in regard to negotiable paper.” In the case of Smead et al. v. The Indianapolis, Pittsburgh & Cleveland Railroad Company, 11 Ind. 104, this court attempted to draw a distinction between paper executed beyond the power, and that executed within the power of the corporation, but by an abuse of the power in that particular instance. After a careful review of all authorities on the question, it is difficult to sustain such a distinction on any sound principle of law or reason, when applied to commercial paper, legal on its face, and when the [462] lack of power must be soughtin extrinsic facts. It is clear, where the paper, on its. face, shows the want of power, that it will be void in the hands of the assignee, for there cannot be an innocent holder of such paper. The. general principle, we think, fairly deducible .from the authorities, is this; the.general agent of a corporation, clothed with a certain power by the charter, or the lawful act. of the-corporation, may .use that ¡ power for an unauthorized,, or even a prohibited, purpose, in his dealings with an innocent third party, and yet render the corporation liable for his acts. The judgment is affirmed, with 1 per cent, damages, and costs.