German National Bank v. Butchers' Hide & Tallow Co.

JUDGE HAZELRIGG delivered the opinion oe tiie court. .The appellee is a corporation, the stockholders of which are the butchers of Louisville. In aid of its trade, it also organized a corporation known as the Kentucky Oak Tanning Company, the stockholders of which, with a trifling exception, were the first corporation and its stockholders. Pursuant to the purposes of its organization, the latter corporation some ten years before the institution of this action took from the appellee a large quántity of hides coming from animals slaughtered by the butchers of the city, and •executed its four notes, aggregating some $40,000, negotiable and payable to the appellee at the bank of the appellant. These notes were at once discounted at their place of payment and their proceeds placed to the credit of the appellee. Upon the maturity of each of the notes, from time to time, for many years, the appellant bank, at the instance and request of the two corporations — the payee and ilie payor — • renewed the paper in the usual course of business, using for that purpose, the following form: “$ Louisville, Ky........;.....18.. ...............................after date.....promise to pay to the order of..................................... ..........................................dollars, value received negotiable and payable at the office of the German National Bank, at Louisville. Ky., with interest after maturity at the rate of 6 per cent per annum until paid.” — 38 — This was signed thus: “Kentucky Oak Tanning Company, “By its President, Gottlieb Layer. Endorsed: “Louisville Butchers’ Hide and Tallow Co. “By Adam C. Layer, President.” The name of the appellee would be filled in as the payee, and when the proper dates and amounts were inserted and the signatures of the parties attached, the note would be delivered to the bank. When two of the notes matured on April 8,1890, the usual form was not at band, and the bank official furnished to the payor a form of this kind: “$ Louisville, Ky..........189.. .....................................days after date we jointly and severally promise to pay to the order of the German National Bank, of Louisville, Ky.............dollars, value received, negotiable and payable at the office of said bank at Louisville, Ky., with interest after maturity at the rate of six per cent, per annum until paid.” Upon getting this form, the book-keeper and general manager of the tanning company, with an old form before him, sought to make the new conform to the old form, and therefore ran his pen through the words “German National Bank,” as well as through some other words not found in the old. The note then read as follows, it being one of those sued on in this action, the other one differing only as to its amount: “9,464.21 Louisville, Ky., April 8, 1890. Four months after date we promise to pay to the order of the Louisville Butchers’ Hide and Tallow Company nine thousand four hundred and sixty-four dollars and twenty-one cents, value received, negotiable and payable at the office of said bank, at Louisville, Ky., with interest after — 39 — maturity at the rate of 6 per cent, per annum until paid.” Signed: “Kentucky Oak and Tanning Company. “By Gottlieb Layer, President.” Endorsed: “Louisville Butchers’ Hide and Tallow Co. “By its President, Adam C. Layer.” The other two notes were renewed on the old forms. When they were due the last time, each of the four was duly protested for non-payment, and thereafter this action on them was brought in the Jefferson Court of Common Pleas, but was finally heard by the chancellor in the Louisville Chancery Court. The petition was amended and reformation asked as to the two notes where the erasures occurred, and it was alleged that the Avords “German National” were left out by mistake and the words “said bank” meant in fact, in the contemplation of all the parties, the German National Bank. This was denied by the appellee, and it was contended that the notes were not negotiable and payable at any bank, and that the only liability imposed on the appellee was that of assignor, and this had been discharged by the negligence of the bank in failing to prosecute the maker of the notes to insolvency. It was also contended that the act of the appellee’s president in discounting and renewing the four notes was ultra •vires; that as to íavo of the notes, there was no mistake, or if there was, it could not'be corrected. After an elaborate preparation of the case the chancellor held that the contention on the part of the defendant that its president had no right under its articles of incorporation and by-laws to discount paper could not be sustained; that it had received the proceeds of the discounts and had continued to hold them, and in many other ways had approved the action of its president in making the discounts in ques — 40 — tion. As to two of the notes, therefore, judgment was rendered for the plaintiff. It was held, however, that the evidence as to the mistake in the execution of the other notes was insufficient to authorize the court to reform them, and as to them the court dismissed the petition. It is to be observed at the outset that this contest is between the original parties to the notes. The rights of no innocent holder are involved, or of any indorser for mere accommodation. The appellee sold to the appellant and received and used the proceeds of the notes in its business. It continues to do so, and we hardly need cite authority in support of the chancellor’s conclusion that the transaction was not void for want of authority on the part of the appellee’s president to discount the paper. The corporation can not hold on to the money and repudiate the acts by which it got it. “In every ease a corporation must account for benefits which it has received under an ultra vires transaction. This is a well-known equitable doctrine. It has been applied not only to persons of full age and under no disability, civil or mental, but also to those who are under some incapacity— infants and lunatics. From these persons the principle has been extended to corporations.” (Brice on Ultra Vires, 2 Eng. Ed., 769.) “A corporation can not be charged with the loan of money made by its directors without authority, but if any portion of the money was applied for the benefit of the company, it may be held liable to that extent’ at least.” (Morawetz, sec. 123.) See also to same effect Springfield &c. T. P. R. Co. v. Trustees of Harrodsburg, 11 Ky. L. R., 309; Sherman Center Town Co. v. Russell, 26 Pac. Rep., 715; Congress &c. Spring Co. v. Knowlton, 103 U. S., 57. — 41 — As to tlie question of the place of payment, it seems to us hardly necessary to have made the attempt to correct the oversight of the draftsman in leaving out the words“German National.” It is perfectly manifest that in the contemplation of all the parties to the transaction, the words “ said bank” meant the appellant. Three times each year for from eight to ten years the appellee had regularly endorsed the forms furnished by this bank, where it had originally gotten the money, and we do not doubt it was as much surprised as the appellant in discovering the absence of the usual words. Under the circumstances, the language “said bank,” as used, meant the German National Bank. But if we could not so read the paper, the evidence is absolutely conclusive as to its real meaning. The officers of the bank, those of the tanning company, as well as those of the appellee, unite in saying that in signing the notes sued on in renewal of former ones, the intention was to sign duplicates of the old notes, which were all payable at the German National Bank. The president of the appellee says that when he signed the notes sued on he intended signing such duplicates, and that what he did in fact sign meant the German National Banlc; that there was no other meant. The learned chancellor was of opinion that there was no direct proof of an antecedent contract between the parties, that the particular notes sued on were to be made payable at this bank, and it may be admitted that none of the witnesses say in express terms that there was such an antecedent agreement or contract to that effect. What is absolutely clear, however, is that the evident understanding of each party to the transaction was that the renewals were to be made payable as the old notes had been for years. The common intention of the parties, as shown by the entire absence of any contrariety — 42 — in their testimony on this point, is evidence of their mutual understanding and agreement. It was because of this arrangement and agreement, so well understood, that the intent was common and mutual to all to sign notes payable at the bank where they were doing this particular business. If such were the purpose of the parties to the bills, why may not the agreement be carried out by the insertion of the omitted words? In Scales v. Ashbrook, 1 Met., 358, it was held that “relief should be granted whenever an instrument” — in that case a bill of .exchange — “which is intended to ca.vry into execution an agreement previously made, by mistake of the draftsman, either as to law or fact, does not fulfill that intention, or violate it. In such case equity will correct the mistake * * and will compel the party refusing to comply with the agreement according to its terms.” Citing Inskoe v. Proctor, 6 Mon., 311; Hunt v. Rousmaniere, 1 Peters, 13; Story’s Eq., sec 115. To the same effect see Parcels v. Gohegan, 2 J. J. Mar., 133; McCurdy v. Breathitt, 5 Mon., 234. In Cothran v. Cunningham, 28 Ga., 178, it was held that parol evidence was admissible to show that it was agreed to make a note payable in bank, and the fact that a former note of which the note sued on was a renewal was so payable was a cogent circumstance, going to show such an agreement. (See also Farr v. Ricker, 46 O. St., 265; Watkins v. Maule, 2 Jacob & Walker, 237.) Mr. Daniel, in his work on Negotiable Instruments, lays down the rule that mistakes in the execution of such paper may always be corrected, unless the rights of third persons have intervened. (Secs. 850-53.) The learned chancellor very aptly said that courts of equity never" rectify contracts, but that they do rectify the instruments evidencing the contracts. We can not agree with him, however, in holding that the agreement — 43 — in this case was not shown by sufficient proof, or that no mistake was shown in the execution of the notes. If the manifest intention or agreement of all the parties to the bills is to be effectuated the instruments must be read as if they contained the words “German National” between the words “said bank.” It is impossible to doubt this under the proof. Affirmed on cross-appeal and reversed on the original appeal, with directions to enter judgment on each of the notes sued on.