Staples v. Port Graham Coal Co.

delivered the opinion of the Court:

The appellee, both in the brief and in oral argument, suggests “a conspiracy on the part of Whorf, Staples, and the Commercial National Bank to deprive the Port Graham Coal Company of its property.” In other words, appellee now attempts to challenge the good faith of appellant and the bank. At the trial, counsel for appellee objecting to a question asked a witness for appellant, appellant’s counsel stated: “If your Honor please, I wits merely offering that to show the good faith of Mr. Staples, * * * ” To this the court answered : “There is not any issue as to Mr. Staples’s good faith raised here, is there?” Thereupon Mr. Hay, of counsel for appellee, stated: “No, your Honor. We think it is irrelevant. We still admit that Mr. Staples thought that the man had authority.” Mr. Hinton, counsel for appellant, then said: “Well, there is no issue of Mr. Staples’s good faith, then.” To this Air. Herrick, of counsel for appellee, responded: “We do not hardly admit that, but we do claim that the state of mind of Mr. Staples has absolutely nothing to do with this case. The question is, Was there authority ? We move to strike out anything along the line as to what Mr. Staples thought.” It is too plain to admit of argument that counsel for appellee cannot now assume an attitude inconsistent with that then assumed, to the prejudice of appellant. The trial having proceeded upon the theory that the question of good faith was not material, appellee now is estopped *550to raise the question. We may add, however, that we find nothing in the record upon which such a contention reasonably could be founded.

The learned trial justice disposed of the case upon the theory that appellant never acquired title to the warrant; that “his simply was the part of a guarantor of the prior indorsements for the purpose of having that check or draft deposited in the bank.” The court further said: “The whole thing started in the bank. Mr. Ramsey was an agent acting for the bank. Tie was the one who was trying to find out whether that bank should take that check on deposit. That is all there was to it.” Wo are unable to adopt this view of the case. Whorf had been sent here without funds on a mission for the company necessarily involving considerable time. Tie had contracted obligations, presumably legitimate, and his sole object in getting the power of attorney, so far as the evidence discloses, was to obtain the funds which he needed; in other words, to cash the warrant. Everybody understood that such was his object, and there is not a line of testimony, as we read it, inconsistent therewith. On the contrary, if all he sought was the deposit of the warrant in the Commercial Bank to the credit of the company, he might just as well have sent it to Seattle. The power of attorney, under which he was presuming to act, authorized him to “indorse, collect, receive, and receipt for” said warrant and to take all lawful ways and means “for the collection of said warrant.” He already had the custody of the warrant as the agent and general manager of the company, and this power of attorney purported to give him authority to cash it, which he did. The mere fact that he elected to leave a portion of the money on deposit in the bank in no way changes the legal aspect of the transaction. He was entitled to receive it all in cash, and it is of no moment that he took enough merely to satisfy his obligations and left the balance on deposit.

Appellant clearly was an accommodation indorser, and sec. 1333 of the Code [31 Stat. at L. 1399, chap. 854] declares that “such a person is liable on the instrument to a holder for value notwithstanding such holder at the time of taking the instrument *551knew him to be only an accommodation party.” Appellant, being liable to the bank, and having fulfilled Ms obligation by taking up the warrant, occupies exactly the same position as the bank would have occupied. lie is a holder for value.

We conic; now to the controlling question in the case, and that is, whether the company was bound by the indorsement of Whorf. It must be kept in mind that this was a close corporation, and that substantially all its stock was held by the Whorfs and Kedelsheimer. The sole business of the corporation, so far as the record discloses, was the development of the coal mine which had been purchased from the Whorfs. Mr. Whorf, as general manager, unquestionably was the active bead of the corporation. It probably was owing to these facts that, after the organization of the corporation was completed on March 3d, 4th, and 5th of 1913, no meeting of the board of directors was held until August 24, 1914. In other words, as the stock was ail controlled l>y the Whorfs and Mr. Itcdelsheimer, the usual formalities were dispensed with and the business of the company conducted as a family or partnership affair. In such a situation, where the directors are the only shareholders and have knowledge of what is done, they are presumed to have acquiesced therein.

If is plain that the treasurer, having been a figurehead in the affairs of the company, must remain so here. That is to say, the company is not in a position to contend that under the by-laws certain authority was conferred upon him when, in fact, he was not called upon or permitted to exercise any.

What, then, was the situation as disclosed by the record when Whorf was sent here ? The corporation had sustained a serious loss, and the general manager, without any formal authorization, but apparently with the knowledge and acquiescence of all concerned, was sent here to obtain an appropriation for the loss. At that time the president was living', so that no question can be raised as to Whorf’s authority to undertake the mission, nor is there any denial of his statement that he was not provided with funds. In view of this situation, had the Treasury Department cashed this as well as the other warrant for Whorf upon his *552statement of authority to receive payment thereon, there would be room- for serious doubt as to the corporation’s right to question the transaction. Thus, in Buchwald Transfer Co. v. Hurst, 111 Md. 572, 75 Atl. 111, 19 Ann. Cas. 619, the president of a business corporation owned nearly all its stock and exercised complete control over its affairs. No meetings of the board of directors had been held from the time of the organization until after the president and secretary had executed a chattel mortgage of the company’s property to secure a loan, when the board passed a resolution disapproving the same. The directors were the only shareholders, and had knowledge of the manner in which the president had managed the concern and had acquiesced therein. The validity of the mortgage was sustained. The court said: “It is true that a president of a corporation does not ordinarily have authority to mortgage its property, unless authorized by the board of directors, but that authority may be implied under some circumstances.” And in Sheridan Electric Light Co. v. Chatham Nat. Bank, 52 Hun, 575, 5 N. Y. Supp. 529, 127 N. Y. 517, 28 N. E. 467, where, as here, the stock was owned by three or four individuals, a committee of three was intrusted with the general management of the company’s business, but was not specially authorized to indorse paper for the company. ' This committee, by poAver of attorney, delegated to one of its members authority to indorse certain checks and drafts, which were so indorsed and cashed by the bank. The authority of the committee was sustained. The court said: “The stock of the company was substantially OAvned by the three members of the committee, and by Mr. Sheridan, for the employment of whose inventions it was incorporated. And where that is the nature of the corporation, it is not essential that the selection of the committee should be by formal resolution of the board of trustees entered in their minutes. Eor it has been held that ‘where a corporation consists of.a small number of persons, like a partnership, they may transact all their business by conversation without formal votes. And it will be a violation of the plainest principles of justice to hold those who deal with them to prove all of their acts by regular votes.’ (Melledge v. *553Boston Iron Co. 5 Cush. 158, 51 Am. Dec. 59.) It does not accordingly detract from the authority of the committee that no formal resolution has been found in the minutes of the proceedings of the board defining and declaring the limits of its authority.” See also Cunningham v. German Ins. Bank, 41 C. C. A. 609, 101 Fed. 977; Murphy v. W. H. & F. W. Cane, 82 N. J. L. 557, 82 Atl. 854, Ann. Cas. 1913D, 643; Marine Bank v. Butler Collier Co. 1 Silv. Sup. Ct. 155, 23 N. Y. S. R. 319, 5 N. Y. Supp. 291: Sun Printing & Pub. Asso. v. Moore, 183 U. S. 642, 651, 46 L. e.d. 366, 373, 22 Sup. Ct. Rep. 240; Ford v. Hill, 92 Wis. 188, 53 Am. St. Rep. 902, 66 N. W. 115.

However, we will deal with the case actually presented. The president of the corporation having died, the vice president, who under the by-laws possessed the same authority that the president would have possessed, executed the power of attorney to which we have referred. The question therefore comes down to this, Was the president of the company authorized to execute such an instrument in the circumstances disclosed? We think he was. The president and vice president were expressly authorized 1o sign bonds, deeds, and contracts, and the mere fact that a particular hank was made the depository of the funds of the company, and that the president was requirt'd to sign chocks drawn on those funds, does not affect this transaction. Here, the general manager of the company had been intrusted with a special mission to a far distant point, and it was to he expected that his legitimate expenses would he paid by the company, whether he was successful or otherwise. If successful, the natural course to pursue was the one adopted, especially.when we consider that Whorf was not only the general manager, but the business head of the corporation. Any other expedient would have been inconsistent with the whole course of conduct up to that time. The general manager having been sent here and having incurred legitimate obligations, his associates would have shown a lack of confidence in him had they required him to send the warrant to Seattle instead of having it cashed here.

Had the proceeds of the warrant been deposited in the hank at Seattle, the president or, upon his decease, the vice president, *554could have withdrawn them, and, that being so, the power to cash the warrant could be delegated, since the exercise of such a power involved no judgment or discretion. Thus in Sheridan Electric Light Co. v. Chatham Nat. Bank, 52 Hun, 575, 127 N. Y. 517, 5 N. Y. Supp. 529, the court said: “This committee, having itself power to indorse and negotiate paper payable to the order of the company, could delegate the same power by its united action to the witness Shephard, through the instrumentality of the power of attorney, for that involved no exercise of judgment or discretion on his part. * * * What was to be done was the performance of no more than ministerial acts, and the power to perform those acts could, in this manner, be confided by the committee to one of their number.”

Whorf having had authority to cash the warrant, it was not incumbent upon either the bank or appellant to supervise his disposition of the proceeds. From what they had learned, he theretofore had been permitted to exercise broad powers as general manager, and there was no reason for them to assume that he would not be faithful to his trust. It is apparent from the letter which was written Whorf by direction of the board of trustees at its August, 1914, meeting, that he had been allowed wide latitude in the management of the company’s affairs, for he was “required to give an accounting to the company for all moneys received and expended by you (him) as general manager or otherwise, since the organization of this company.” Certainly, in view of this and other evidence in the record, the company is not in position to complain because the bank and appellant did not question the good faith of Whorf. Indeed, even now, it is by no means clear that if a balance should be struck, it would be in favor of the company rather than Whorf.

Viewing the case from any angle, we are impelled to the conclusion that this is an attempt by appellee, in a court of equity, to repudiate a transaction for which it was fully responsible, to the injury of one who had every reason to assume the regularity of that transaction and the existence of the authority conferred upon and exercised by appellee’s agent. The decree, therefore, *555must bo reversed, with costs, and the cause remanded with direction to enter a decree for appellant.

Reversed and remanded,