Chemical National Bank v. Wagner

JUDGE BENNETT delivered the opinion of the court. The Swift Iron and Steel Works Company is a corporation, created by the Legislature of this State in January, ■1871. At the time of the transactions i-n controversy in this case, E. L. Harper was president of the company and •J. H. Mathews was its treasurer; there were also a vice-president and board of directors of said company. The ■powers of each are set forth in the company’s by-laws, as follows: “Sec. 3. All contracts and obligations binding the corporation may be signed by the president or vice-president.” “ Sec. 5. The treasurer shall have charge of the finances of the company, and shall sign all checks and receive and account for all moneys and property coming into his hands.” “ Sec. 8. There shall be a business committee consisting of the president and vice-president, who shall have full power to transact the business of the ■company, under such restrictions as the board of directors may devise from time to time.” This by-law was amended so as to authorize either member of the business committee to act in the absence of the other, and in the .■absence of both “the treasurer shall have power to act ■as such committee.” J. II. Mathews, in April and May, 1887, drew six promissory notes in the name of the Swift Iron and Steel Works for twenty-five thousand dollars each, due respectively in four months, and signed by him as treasurer and made payable to himself individually, which he . then indorsed individually and delivered to E. L. Harper, who was then vice-president of the Fidelity' National Bank of Cincinnati. Said Harper, as vice-president of the Fidelity National Bank of Cincinnati, indorsed said notes to the appellants — two to the Chemical National [529] Bank and four to the First National Bank — to collaterally secure loans of money to the Fidelity National Bank. Not long thereafter the Fidelity National Bank and the Swift Iron and Steel Works, becoming insolvent, made an assignment for the equal benefit of creditors. The appellants filed these collaterals in the suit by the assignee of the Swift Iron and Steel Works to have its affairs .settled and assets distributed, for the purpose of obtaining their pro rata thereon. The lower court rejected their claim upon the ground that J. H. Mathews, as treasurer, had no authority to issue them payable to himself individually; hence, they were void at the instance of the ■company. The appellants contend that said Mathews did have authority to issue said notes; but if he did not the notes were negotiable paper and they were purchasers thereof for value, having no notice of any infirmity in them. It is conceded, for the sake of the argument, that the notes, dated at Cincinnati, Ohio, indorsed and payable to •order at a bank in New York, were, by the laws of Ohio ■and New York, negotiable paper, and that the appellants, .as innocent holders thereof for value, are not prejudiced by any equities existing between the antecedent parties, ■of which they had no notice, or notice of sucÍl facts as -should put them upon inquiry as to the existence of the antecedent equities. But the rule protecting innocent purchasers of negotiable paper against antecedent equities does not apply to the authority to make the paper. The holder of the paper purchases it at his peril in reference to the authority to make it. Caveat emptor applies to him in full force in reference to the authority to make the paper. For instance, if the person making the paper pro [530] fesses to act as agent for another, the person purchasing it must look out for the agent’s authority to make the paper; the purchaser purchases at his peril as to the authority of the agent. The same rule applies to an agent of a corporation issuing paper in the name of the corporation; the purchaser of the paper buys it at his peril as to the agent’s authority to issue it. The only exception is, if the agent of the corporation, in issuing the paper, acts within the scope of his authority, but in the particular he acted wrongfully, of which the purchaser for value had no notice, nor of such facts as -should put him upon inquiry as to the authority in the particular case, then the innocent purchaser would be protected upon the ground that the corporation, whose agent acted within the scope of his authority and with the consent of the corporation, should suffer by the wrongful act of the agent acting within said scope, rather than an innocent purchaser. So the question is, did Mr. Mathews have authority to issue these notes ? "We think not, for the following reasons: By the fifth by-law, supra, his authority is confined to taking charge of the finances of the company, signing its checks, receiving and accounting for its money coming to his hands; and, by an amendment, to act as a business committee in the absence of the president and vice-president. Now, by the fifth by-law, he had no authority to issue said notes, and there is no pretense that he issued them as a committee. But suppose he did, had he the authority to do so? We think not; because, in the first place, if he could issue them at all he could do so only in case of discharging the business of the company in the absence of the president and vice-president, and it is not [531] shown that they were absent, which absence is a condition precedent to sneh authority; and, in the second place, the business committee — including the president, vice-president and treasurer — were confined to transacting the legitimate business of the company, subject to the direction of the board of directors, and it is not shown that they conferred authority upon the committee to issue these notes or any notes of the kind, which would be beyond the scope of their authority as a business committee. Nor is it shown that they, or either of them, ever exercised such authority, with or without the authority of the board of directors, save the treasurer’s action in this instance, which action was an attempt by the treasurer to bind his principal, as its agent, to pay him as principal the sums that the notes called for. To allow the agent to thus bind his principal, without authority from him to do so, would at once destroy good faith on the part of the agent and become the most glaring fraud; to prevent which, and to protect the principal, the law declares such transactions void at his instance. The principal may give authority to his agent to thus hind him, and an agent in like manner may bind the corporation he represents, if he acts under the “ immediate instructions from some other superior agent” authorized to thus act, or “from the board of directors.” (See 1 Morawetz on Corporations, sec. 527.) It does not appear that the board of directors authorized J. II. Mathews to thus act, and if Mr. Harper authorized him to thus issue said notes, it was an attempt to bind the company for his personal benefit in connection with another corporation, not within the scope of his authority, and was a fraud upon his principal. Now the notes bear upon their face the conclusive evi [532] dence of tbe fact that tbey were issued by Mr. Matbews, as agent, to bimself as principal, wbicb was notice of itself to tbe appellants tbat tbe notes were void at tbe instance of tbe company, wbicb destroyed tbeir immunity as innocent purchasers, and consequently tbey could not recover tbereon unless tbey could sbow tbat tbe company, by its superior officer, authorized so to do, or its board of directors, with like authority, authorized Mr. Matthews to thus issue tbe notes; because tbe appellants being, prima facie, not innocent purchasers, tbe notes being void upon their face, tbey, in order to entitle them to recover from tbe company, must show tbat they were issued rightfully and properly by the company’s agent, wbicb tbey have failed to do. The judgment is affirmed. There is no brief o.n file for the appellees.