Alton Manufacturing Co. v. Garrett Biblical Institute

90 N.E. 704, 243 Ill. 298

• Court: Illinois Supreme Court
• Decided: December 22, 1909
• Status: Published

Opinion

Mr. Chief Justice Farmer

delivered the- opinion of the court:

The first question necessary to be determined is whether the Garrett Biblical Institute, under its charter, was authorized to borrow money for its corporate purposes. The answer to this question must depend upon the provisions of the charter under which the corporation is operating, for the powers which any corporation is permitted to exercise are those, only, which its charter confers upon it, either by express grant or by implication, and the implied powers are recognized and given effect for the purpose of enabling such bodies to exercise the express powers granted. An incidental power is one that is directly and immediately appropriate to the execution of the specific power granted, and not one that has a slight or remote relation to it. (People ex rel. v. Chicago Gas Trust Co. 130 Ill. 268; 10 Cyc. 1096.) These implied or incidental powers which a corporation possesses in order to carry into effect the legitimate purposes of its creation are not limited to such as are absolutely indispensable to this end, but include such powers, not expressly prohibited by the charter, as are reasonably necessary, by fair intendment, for the accomplishment of such purposes. - (10 Cyc. 1097.)

The Garrett Biblical Institute is a charitable corporation, created primarily for educational purposes. It is ex^pressly empowered to establish and maintain within the bounds of Cook county a biblical institute under the patronage and control of the Methodist Episcopal Church. The conduct and control of the corporation are placed in a board of trustees. The original act or charter under which it was incorporated was passed in 1855 and fixed the number of trustees at five, but by an amendment to the act, passed in 1865, this number was increased to six. The trustees and their successors are elected by the Rock River Annual Conference of the Methodist Episcopal Church, and in case of a division of the said conference, then the annual conference within the bounds of which the said institute may be located shall elect such trustees. By section i of the act it is expressly declared that appellee “shall be capable, in law, of taking and holding, by gift, grant, devise or otherwise, and of purchasing, holding and conveying, both in law and equity, any estate or interest therein, real, personal or mixed, and shall have power to execute and fulfill all such trusts as may be confided to said corporation, and to take, hold, use, manage, lease and dispose of all such trust property as may in any manner come to said corporation charged with any trust or trusts in conformity therewith.”

It will be observed that the power to borrow money and issue notes therefor is not expressly granted to appel- - lee by the terms of its charter. But the almost universal rule of law is, that corporations possess the implied power ■ to borrow money when necessary to carry out the purposes of their organization, and when such power is possessed and debts contracted thereunder a corporation may execute its notes or other customary evidences of indebtedness therefor. The authorities on this proposition are very numerous and an extensive collection of them will be found in Thompson on Corporations, (vol. 3, 2d ed. pp. 87, 108,) and in 10 Cyc. 1101; also, this rule is announced by Justice Scholfield in Ward v. Johnson, 95 Ill. 215. “This power to borrow is not limited either to particular kinds of corporations or to those organized for any particular, purpose, but is possessed practically by all corporations whose business or objects may render it necessary or proper to resort to this method of raising money.” (3 Thompson on Corporations,-2d ed.-sec. 2174.) And it has been held that educational institutions and eleemosynary corporations may borrow money under this general power or authority. Moss v. Harpeth Academy, 7 Heisk 283; Hayward v. Pilgrim Society, 21 Pick. 270.

The charter of appellee does, however, grant to it the express power of purchasing, holding and conveying, in law and equity, any estate or interest therein, real, personal or mixed, and the power to hold, use and manage the same. Under this power it cannot be questioned that appellee may expend money for the purchase of real estate for the use of the institute and to maintain and keep it in repair, and it is equally clear that if it did not possess the ready funds at a time when it might be necessary to the purposes of the corporation to make a purchase of real estate or necessary to make expenditures for needed repairs and maintenance of property which it owned, under its charter it possessed the implied power to borrow money for such purposes and give its notes therefor. The trustees having power to borrow money for proper corporate purposes and execute notes therefor, might exercise this authority in a number of ways: (i) They might appoint one of their nupnber as agent of the corporation for that purpose and expressly or impliedly clothe him with authority to borrow money and give notes; (2) where no actual authority has been conferred upon the agent of the corporation to borrow money and give notes but where the agent has done so, and with full knowledge of all the facts the corporation' has approved and ratified the acts of the agent, it will be liable to the same extent as if actual authority had been given to perform the acts; (3) where no authority had been given or existed in the agent to borrow money but where the corporation received the use and benefit of the money it will be liable; (4) by holding an agent out to the public as possessing authority to exercise the powers assumed by the agent and to do the acts performed by him, in which case the corporation would be bound to the extent of the agent’s apparent authority.

Our first inquiry, then, relates to the correctness of the ruling of the trial court in holding that there was no evidence tending to show that Dr. Shepherd, treasurer and “business agent” or “business manager” of the corporation, had ever been given any authority by the trustees to borrow money and execute the notes of the corporation therefor. This necessitates an examination of the testimony to some extent.

The mere appointment of Dr. Shepherd as treasurer, or his appointment (if he was so appointed) as “business agent” or “business manager,” would not have, of itself, invested him with any authority to borrow money and give the obligations of the corporation. If he was given such authority it must be traced to some other source than his mere appointment by the trustees to these positions. Dr. Shepherd was one of the trustees of appellee for some years prior to his election, April 20, 1897, to the office of treasurer, of the corporation, and he continued thereafter as one of said trustees. The minutes of the proceedings of the board of trustees show that on May 6, 1897, Dr. Shepherd was directed “to make a careful examination of the Garrett building in Chicago with a view of making such alterations as will increase the income from the property and to report his recommendations to the board of trustees, with plans and estimates of the probable expense of the alterations and recommendations.” We are unable to find in the abstract any report of Dr. Shepherd made in pursuance of this authority and direction. The minutes of a meeting of the trustees held May 26, 1898, show that Dr. Shepherd presented a form of lease with Reid, Murdoch & Co., with memoranda and specifications; that the same were approved and “the proper officers of this board of trustees be authorized and directed to execute the same.” At the same meeting a resolution was adopted “that R. D. Shepherd, treasurer, be authorized to arrange for a building loan for the purpose of constructing the building referred to in the foregoing lease, the amount not to exceed three hundred thousand ($300,000) dollars, and that, pending negotiations for such a loan, he be authorized to make temporary loans as the necessity of the progress of the work may demand.” The president and secretary were authorized to execute such building contracts for the construction of the building as they and the treasurer might approve. This building was to be erected upon land owned by appellee and formerly occupied by a building known as the “Garrett building.” At a meeting of the trustees of the appellee May 25, 1899, Dr. Shepherd reported that the building was not yet complete and that some of the money due for its construction was being held until the work was approved. Dr. Shepherd also reported that appellee owned real estate with a twenty-foot frontage on Randolph street for which he had been offered $30,000; that he could buy twenty feet adjacent to it for $26,000, and asked the board to determine whether it would sell its property or buy the adjacent property and improve the whole by erecting a building thereon. A motion was made and adopted by the board of trustees that the matter be left to a committee, consisting of William Deering and Dr. Shepherd, with full power to determine what should be done in the matter. As we understand the evidence it was determined to sell this property and it was sold for $30,000. In 1901, on the recommendation of Dr. Shepherd, the board of trustees of appellee ordered the construction of two other buildings upon its property. One of them is called the “Manufacturer’s building,” the other one the “Factory building.” The building constructed on the Garrett building site and leased to Reid, Murdoch & Co. cost $408,573.26. The manufacturer’s building cost $353,946.14. The cost of the factory building is not given. We do not find in the abstract the specific orders and directions of the board of trustees authorizing the construction of the factory building. It only appears to have been constructed by authority of the board. Neither is it shown at what time the buildings were completed. At a meeting of the board of trustees May 27, 1903, a resolution was adopted authorizing “the proper officers of the board of trustees” to arrange for funding so much of the floating indebtedness of appellee, as may be deemed expedient. On May 25, 1899, Dr. Shepherd made a report to the annual meeting of the board of trustees of the appellee purporting to show receipts and disbursements for the preceding year. In that report he charges himself with having received $22,783.66 and having paid out $28,848.87. The evidence shows that he also made a report of receipts and expenditures May 29, 1901, but this report is not to be found in the abstract or the record. Crandon, secretary of the board, testified, that in that report Dr. Shepherd credited himself with the payment of $12,136.72 interest. We find no other report of receipts and expenditures by him until May 24, 1905, when he made a report purporting to show receipts and disbursements for the two years from 1903 to 1904 and 1904 to 1905. The report shows receipts for the year 1903 to. 1904 of $201,434.81, and expenditure of all of that sum except $7541.53 balance on hand. In his report for the year 1904 to 1905 Dr. Shepherd charges himself with $111,330.67, and credits himself with disbursing all that sum except $17,812.11. He does not charge himself in any of these reports with receipts of moneys borrowed for the construction of the buildings erected, and testified on the trial that the building account was not included in his reports. B. P. Crandon was one of the trustees of appellee and was secretary of the board. He testified that he examined the reports made by Dr. Shepherd for the board and compared the disbursements with the vouchers,' but he never examined the books of the treasurer, or anything else than the report, to verify the correctness of the receipts.

It is apparent from the items reported by Dr. Shepherd as making up his receipts and disbursements that moneys received on account of the building operations were not included. It would seem that this must have been known by the board of trustees, for the authorized cost of the construction of the Reid-Murdoch building and the manufacturer’s building was more than one-half million dollars. Their actual cost, when completed, was more than three-quarters of a million dollars. There is no evidence of any source from which this money could have been obtained except by the negotiation of loans. That Dr. Shepherd did, during the progress of the building operations, borrow money and give notes of the corporation therefor was known to the board of trustees. Some of such notes were paid off by appellee, and the proof tends to show that these notes were given and paid off with the approval of the board of trustees. Eight notes, aggregating a large sum of money, were given to the Illinois Trust and Savings Bank between August i, 1898, and November 16, 1898. Three notes were given. to the State Bank of Chicago between May 4, 1899, and October 1, 1901. One note for $2000 was given to H. F. Fisk, trustee for Mrs. Coan, in 1897. January 14, 1899, a note for $1400 was given the Woman’s Foreign Missionary Society, and February 3, 1903, a note for $6000 was given the same organization. August 1, 1900, a note for $1100 was given Jennie P. Fisk, and September 25, 1901, another for $2218 was given the same party. With the exception of the note to H. F. Fisk, trustee, all these notes were executed after the building operations had been entered upon. They were all signed by appellee, by Dr. Shepherd, treasurer. As we have said, the proof tends to show appellee had knowledge of these transactions.

It will be observed that when Dr. Shepherd was authorized to negotiate a loan for the construction of the .Reid-Murdoch building he was also authorized to secure temporary loans pending its negotiation. The evidence tends to support the conclusion that he exercised this authority and borrowed money upon the notes of the corporation, from small amounts up to considerable sums, from time to time. If these temporary loans were ever consolidated in one amount to one person or corporation the record does not show it. The record of the board of trustees authorizing the construction of the manufacturer’s building is not as specific in its authority to Dr. Shepherd to borrow money as was the record with reference to the Reid-Murdoch building. With reference to the manufacturer’s building, Dr. Shepherd, in a report made to the trustees May 29/ 1901, recommended the construction of the building at a cost approximating $300,000, and that authority be given to execute a lease for it, and authority be given, also, “looking toward the procurement of a fund for the purpose of building.” A motion was adopted by the trustees “that said report be approved and that its several recommendations be concurred in.” It was not necessary that authority might be conferred by the appellee on Dr. Shepherd to borrow money that the evidence of such authority should be reduced to writing and preserved. The failure to preserve in the minutes or other writing the evidence of a corporation’s act conferring authority upon its agent to borrow money would not invalidate authority conferred. If there is a writing or record of the authority it is the most satisfactory evidence to establish that fact, but where the evidence is not so preserved, then it may be proven by any legitimate testimony, direct or circumstantial, competent under the rules of evidence to prove a fact not evidenced by any writing or record. (Bank of United States v. Dandridge, 12 Wheat. 64.) That a record was not always made of the acts of the board of trustees is indicated by the fact that no record was made of any action of the board, so far as this record shows, for the construction of the factory building. It certainly cannot be presumed that such an important and expensive work could be done without the knowledge of the board of trustees, and if it did know of the work and permitted it to go on and money to be borrowed for that purpose, the corporation would be deemed to have ratified the acts of the agent borrowing the money used for the construction of the building. It is a circumstance also proper to be considered with all the other evidence in determining whether the board of trustees had, in fact, authorized Dr. Shepherd to borrow money.

That the indebtedness incurred by the corporation in its building operations was not all paid off prior to May 27, 1903, by merging all the corporation’s indebtedness into one or more loans on long time, is inferable from the fact that on the last mentioned date the board of trustees adopted a resolution authorizing its proper officers “to arrange for funding so much of the floating indebtedness of the institute as it may deem to be expedient.” Two of the notes sued on were given before that resolution was adopted and one of them afterwards. In his report of May 24, 1905, which covered a period of two years previous, Dr. Shepherd stated that his work in connection with the negotiation of loans and the development of the corporation’s property had made very heavy demands on his time and vitality; that he wished in the near future to ask to be relieved of these cares and duties; that no special statement had been previously made in regard to the various building operations, and not being himself an accountant, he requested that a thorough examination of his accounts be made by Mr. Crandon and presented to the board of trustees at its convenience. Pursuant to this request Crandon was directed to audit the accounts of Dr. Shepherd and authorized to employ such help as he deemed necessary in doing the work. Thereafter Crandon reported, as the result of his investigation, that while Dr. Shepherd was treasurer of appellee, and up to September 30, 1905, he.had received $1,786,315.22, and that, including the balance which his accounts showed was on hand, he had disbursed the same amount. Crandon testified, however, that all of this balance was not on hand as a matter of fact and that Dr. Shepherd was $11,000 short in his accounts with appellee. It is a reasonable inference to be drawn from the proof that the principal part of the large sum of money received by Dr. Shepherd was from loans negotiated by him. In his report for the year 1903 and 1904 Dr. Shepherd credits himself with having paid $35,476.54 interest, and in the report for the year 1904 and 1905 he credits himself with having paid $32,567.91 interest. These reports were not made until after the notes sued on were given, but the authority of Dr. Shepherd to pay these large sums of interest does not appear to have been questioned by the board of trustees. It is a circumstance proper to be considered in connection with the previous acts of the board of trustees proven upon the question whether the board had authorized Dr. Shepherd to borrow money and issue notes. The evidence also tends to show that moneys received by Dr. Shepherd as treasurer of appellee were deposited in the State Bank of Chicago to the credit of appellee and were checked out by him, and no one else had any authority to draw checks against the account.

We might refer to other circumstances in evidence, but in our opinion the foregoing is sufficient to have entitled appellant to have the case - submitted to the jury upon the question whether appellee had given Dr. Shepherd, in his capacity as treasurer and “business agent” or “business manager,” actual authority to borrow money and give notes therefor, or whether, in the absence of actual previous authority to do so, he had borrowed money and given notes with the full knowledge and approval of the corporation. On a motion to direct a verdict the court is not permitted to weigh the evidence. If there is any evidence which, with all reasonable inferences to be drawn therefrom, fairly tends to prove the plaintiff’s case it should be submitted to the jury. Woodman v. Illinois Trust and Savings Bank, 211 Ill. 578; Libby, McNeill & Libby v. Cook, 222 id. 206.

We are also of opinion there was sufficient evidence to entitle plaintiff to have the case go to the jury upon the question whether, in the absence of any authority in Dr. Shepherd to borrow the money and give the notes sued on, he did borrow it and appellee received the use and benefit of it. The evidence warranted the conclusion that the money received for the notes sued on was deposited in the bank to the credit of appellee. This, in connection with the other proof as to the manner in which the money was drawn out, tends to show that appellee received the benefit of it. It is, of course, not conclusive of that fact, but, standing alone, tends to support it. This court has held that where a principal actually receives the benefit of money procured by the unauthorized acts of its agent, the principal will be liable in the amount it has received the benefit of. First Nat. Bank of Las Vegas v. Osborne, 121 Ill. 25; Fay v. Slaughter, 194 id. 157.

We are inclined to agree with the trial and Appellate Courts that there is not sufficient evidence in this record to go to the jury upon the question whether appellee was liable by reason- of having held out Dr. Shepherd to the public as possessing apparent authority to borrow money and issue notes of the corporation. In Merchants’ Nat. Bank v. Nichols & Shepard Co. 223 Ill. 41, it was said, on page 50: “A principal may be bound to the extent of the apparent authority which he has conferred upon his agent, but that is because he has held the agent out to the public as possessing the power which the agent exercises. In such a case the principal may bind himself by causing others to believe the powers of the agent to be greater than those actually conferred, (Maxey v. Heckethorn, 44 Ill. 437,) but the acts which amount to such representation of the agent’s authority must be known to the party setting them up if he intends to avail himself of them. (Ramson v. Curtiss, 19 Ill. 456.) A party dealing with an agent must prove that the facts giving color to the agency were known to him when he dealt with the agent. If he has no knowledge of such facts he does not act in reliance upon them and is in no position to claim anything on account of them.” To the same effect is Jackson Paper Manf. Co. v. Commercial Nat. Bank, 199 Ill. 151. Where reliance is placed upon the apparent authority of an agent to bind the principal by giving notes, the assignee of such notes, even though they were received before maturity, would occupy no better position than the payee, for if the payee was not authorized to take the notes he could not confer authority upon his assignee to collect them. We think the evidence does not fairly tend to show that Fisk knew of and relied upon the acts of appellee which it is now claimed invested Dr. Shepherd with apparent authority to borrow the money and give the notes. A case of squandering or appropriating to his own use, by an agent or officer of a corporation, moneys borrowed in the name of the corporation but without reference to its corporate needs and purposes is not presented for decision by this record.

The evidence, we think, was sufficient to justify submitting to the jury the liability of appellee on three grounds: First, whether the money was borrowed by authority, express or implied, of the corporation; second, if not borrowed in pursuance of authority previously given, did the corporation, after knowledge of the fact of its being borrowed, approve or ratify it? Third, if it was borrowed without previous authority, and was not afterwards, with knowledge, ratified by the corporation, did it receive the use and benefit of the moiiey ? It will, of course, be understood that we do not intend, by what ?is said herein, to express any opinion as to the weight of the evidence. What we have held is, that upon certain grounds mentioned the evidence was sufficient to require the case to be submitted to the jury.

The judgments of the Appellate and municipal courts are reversed and the cause remanded.

Reversed and remanded.