Northwestern National Bank v. Great Falls Opera House Co.

57 P. 440, 23 Mont. 1, 1899 Mont. LEXIS 73

Opinion

MR. CHIEF JUSTICE BRANTLY,

after stating the case, delivered the opinion of the court.

Appellant complains that the court below committed error in the following particulars:

(1) In striking out his plea of the statute of limitations.

(2) In striking out his defense of release based upon his alleged contract with respondents.

(3) In directing execution to issue notwithstanding the proof showed that respondents had been reimbursed for the money expended by them in the payment of the judgment.

(4) In sustaining the objection of respondents to the introduction as evidence of the minutes of a meeting of the board of trustees of the Opera House Company held on October 5, 1891.

We notice these questions in the order in which they are presented.

1. The contention is made by appellant that this proceeding is an action, within the meaning of the Code of Civil Procedure Section 559, and that the limitation of three years (Id. Sec. 514, subdivision 1) is available as a complete defense to respondents’ claim. It is true, as claimed by appellant, that the limitation begins to run against the right of a surety to demand reimbursement from his principal, or contribution from his co-surety, as soon as payment is made by him; for, until such payment is made, no cause of action has accrued in his favor. (Wood on Limitations, Sec. 145; Oppman v. Steinbrenner, 17 Mont. 369, 42 Pac. 1015; Chipman v. Morrill, 20 Cal. 131; Stone v. Hammell, 83 Cal. 547, 23 Pac. 703; Richter v. Henningsan, 110 Cal. 530, 42 Pac. 1077.) It is also the rule that, in an ordinary action to enforce repayment or contribution, the right of action is not based upon the written instrument upon which the surety was liable to the payee. It is based upon an implied assumpsit for money paid by the surety for the use and benefit of the principal dr co-surety. (S6e authorities cited.) The law implies the promise upon the part of the principal to indemnify the surety for money paid by the surety for him, and upon the part of the co-surety to bear his share of the burden. Therefore, if this were an ordinary action for contribution, the limitation of three years invoked by the appellant (Sec. 514, subdivision 1, Code of Civil Procedure), would apply, and the claim of respondents would be barred This proceeding, however, is not an ordinary action within the meaning of Section 559, supra. Relief is here sought in a summary way by the respondents under the provisions of Section 348, First Division, Compiled Statutes 1887, brought forward into the Code of 1895 as Section 1242, Code of Civil Procedure. This section provides: ‘‘When property liable to an execution against several persons is sold thereon, and more than a due proportion of the judgment is satisfied out of the proceeds of the sale of property of one of them, or one of them pays, without a sale, more than his proportion, he may compel contribution from the others; and when a judgment is against several and is upon an obligation of one of them as security for another, and the surety pays the amount, or any part thereof, either by sale of his property or before sale, he may compel repayment from the principal. In such case the person so paying or contributing is entitled to the benefit of the judgment to enforce contribution or repayment, if, within ten days after his payment, he file with the clerk of the court where judgment was rendered, notice of his payment and. claim to contribution or repayment. Upon the filing of such notice, the clerk must make an entry thereof in the margin of the docket. ’ ’ An examination of the provisions of this section leads at once to the conclusion that its purpose is to relieve the paying surety from the necessity of bringing an action to enforce reimbursement or contribution. If a judgment has .been rendered against the principal and the sureties, this brings the surety within the class of those who, after payment, may invoke the provisions of the statute for relief. The action has already been had. The judgment fixing the liability of the parties has been entered. The surety paying for the principal or his co-surety is given “the benefit of the judgment to enforce contribution or repayment,” if he gives the notice required in the statute. He is not required to bring suit upon the judgment. No new judgment is contemplated. Otherwise, “the benefit of the judgment” given the surety would be in a large measure nugatory. It is clearly the intention of' the provision that the paying surety shall be substituted to all the rights of the plaintiff in the judgment, with the right and privilege of using it, just as the plaintiff could use it, to enforce by the process of execution thereon-the payment of such claim as he has. The same provision was construed by the Supreme Court of Minnesota in 1887 in Ankeny v. Moffett, 37 Minn. 109, 33 N. W. 320. In this case the court say: “To this right no condition is attached, except that of filing notice of payment and claim to contribution with the clerk of the court within ten days. The benefit of a judgment includes the means of enforcing it by execution. We think that it was the intention of the legislature that the subrogation, in such a case, by operation of .law, should be as extensive as that which would occur by express assignment, and that, by payment and filing the required notice, the party paying should be, ipso facto, subrogated to all the right of the judgment creditor. If a party attempts to enforce contribution when he is not entitled to it, or for a greater amount than is his due, of course he could be enjoined. ” The only thing necessary to put the process in motion, after complying with the statute, is for the paying surety to show, after notice to his co-surecy (Davis v. Heimbach, 75 Cal. 261, 17 Pac. 199; Clarke v. Austin, 96 Cal. 283, 31 Pac. 293), that he belongs to the class of persons contemplated by the statute, and the amount of his claim. This being done, the judgment is as efficacious in his behalf against his co-surety as it was originally in favor of the plaintiff against himself. This right would therefore be destroyed only by the death of the judgment from lapse of time. (Peters v. McWilliams, 36 Ohio State 155.) The limitation invoked by appellant therefore does not apply, and the action of the trial court in striking out the plea was correct.

2. We think the court below was also correct in striking out the allegation of appellant setting up his contract of release. In assuming the position he did, he sought to maintain the proposition that because, as a trusted officer of the Cascade bank, he had the authority to loan its moneys, he was therefore at liberty to make such agreements with, and exact such promises from, the customers of the bank, as would inure to his own personal profit: and that, too, without reference to his fidelity or disloyalty to his employer. It is a well-settled principle, both in law and equity, that the courts will not lend their aid to enforce contracts and promises, the tendency of which is to place one under wrong influences, or those which offer one a temptation to do what may injuriously affect the rights of third persons. Especially is this true in case of those who occupy fiduciary relations towards the business and property of third persons. They are not permitted to deal with the subject of their trust for their personal advantage. “Loyalty to his trust is the first duty which the agent owes to his principal. Without it the perfect relation cannot exist. Reliance upon the agent’s integrity, fidelity, and capacity is the moving consideration in the creation of all agencies. In some it is so much the inspiring spirit that the law" looks with jealous eyes upon the manner of their execution, and condemns, not only as invalid as to the principal, but as repugnant to the public policy, everything which tends to destroy that reliance. ’ ’ (Mechem on Agency, Sec. 454.) It follows, therefore, that an agent will not be permitted to put himself in a position where his interests will be antagonistic to those of his principal. “An agreement which tends to lead persons charged with the performance of trusts or duties for the benefit of others to violate or betray them will not be enforced.” (2 Beach on Modern Law Contracts, Sec. 1513.) In Rice v. Wood, 113 Mass. 133, the court, in speaking of a secret agreement by which a broker was to get a commission from the purchaser of real estate which he had been employed to sell on commission, said: “Contracts which are opposed to open, upright, and fair dealing are opposed to public policy. A contract by which one is placed under a direct inducement to violate the confidence reposed in him by another is of this character. ’ ’ Cases might be multiplied which recognize and enforce this principle, but the following, which are more or less in point, are deemed sufficient: Continental Trust Co. v. Toledo, St. L. & K. C. R. Co., 86 Fed. 929; Lum v. McEwen, 56 Minn. 278, 57 N. W. 662; Bell v. McConnell, 37 Ohio St. 396; Bunker v. Miles, 30 Me. 431; Miller v. Davidson, 3 Gilman 518, 44 Am. Dec. 715; Tisdale v. Tisdale, 2 Sneed 596, 64 Am. Dec. 775; Byrd v. Hughes, 84 Ill. 174; Noel v. Drake, 28 Kan. 265; Atlee v. Fink, 75 Mo. 100; and Spinks v. Davis, 32 Miss. 152. In Atlee v. Fink, supra, the court say: “One employed by another to transact business for him has no right to enter into a contract with a third person which would place it in his power to wrong his principal in the transaction of the business of the latter, and which would tempt a bad man to act in bad faith towards his employer. The interests of the defendant’s employers, and those of plaintiffs, as buyers and sellers, were antagonistic, and defendant could not serve two masters in a matter in which there was such a conflict in their interests.” The contract under consideration comes clearly within the rule of these cases. Atkinson put himself by this agreement in a position where the temptation was to be less careful and scrupulous in taking security for the loan, and it is of no moment that in fact the security was good, and that the bank lost nothing by the transaction. So jealous is the law of such transactions, that, if the release had actually been executed, the bank could have made him account for the profit he gained; and, as this was not done, the law will not aid him in the enforcement of it.

But, apart from the question of the validity of the contract viewed from the standpoint of public policy, we do not think it rested upon any consideration. Atkinson did not lend his own money, If the loan was a good one, then his duty to his employer was to make it. If it was not a good one, it was his duty to refuse it, for he cannot be heard to say that he made a bad loan in violation of his duty. His act in making the loan was therefore the act of the bank, his principal, and the consideration moved from the borrowers to the bank. The bank extended its accommodation, and it was compensated by the payment to it by the borrowers of the interest charged for the accommodation. He furnished no consideration whatever.

3. Appellant contends that the proof shows that the respondents have been reimbursed for the moneys paid by them in satisfaction of the judgment.. Upon this point the proof is the following: The judgment was rendered and entered on December 13, 1892, upon a promissory note signed by the Opera House Company as principal and the other defendants as sureties. On December 17, 1892, the respondents borrowed from the plaintiff herein, upon their individual note, the sum of $1,200. This sum was deposited to the credit of defendant Webster. He thereupon drew out this amount in three checks — one to pay the judgment of plaintiff herein, one to pay off a judgment of the same kind in favor of the Merchants’ National Bank and against the Opera House Company, the defendants interested in this controversy, and one Wegner, and one to the account of the Opera House Company. The last was a small balance of $7. The judgment in favor of the Merchants’ National Bank amounted to $2,212.50. When the note of the respondents fell due, they borrowed from the Cascade Bank, of which defendant Atkinson was cashier, the sum of $3,200, to be used,' with moneys borrowed from other sources, to pay off the $1,200 due to the plaintiff bank on their individual note. This was done on February 11, 1893. The note to the Cascade Bank was executed in the name of the Opera House Company by H. O. Chowen, as president, and C. M. W ebster, as secretary. It was indorsed by them and Myers and Crutcher. Chowen and Webster were in fact trustees and the president and secretary of the corporation. Myers and Crutcher were also trustees. The moneys borrowed from other sources were obtained in the same way. The sum of $5,000 had been borrowed by them in January ■ frojn the State Bank of Minneapolis,'Minnesota. The note made to this bank was indorsed by the respondents and one Dickerman. It was also executed in the name of the corporation. After paying off out of this loan some charges for interest upon a mortgage upon the property of the corporation and for insurance, the respondents deposited the balance, about §3,$00, together with the amount obtained from the Cascade Bank, in the Security Bank, to the credit of the corporation. This was done on February 14, 1893. Thereupon the amount of the note due the plaintiff bank was paid by a check of the Opera House Company drawn against this fund. This check was drawn by C. M. W ebster, the secretary and treasurer. The note due the Minneapolis bank was afterwards taken up by defendant Myers. This was some time in May, 1893. Since that time the respondents have been paying to Myers individually their share of the interest upon this sum. When the note to the Cascade Bank was paid, the money for that purpose was obtained from the Stockmen’s National Bank, at Fort Benton, Montana. The note given for this was signed by the Opera House Company, by its president and secretary, and was indorsed by the respondents, with A. W. Kingsbury, Theo. Gibson, and John Lepley. This was done on November 1, 1893. After that date this note was renewed from time to time, and was still due and unpaid at the date of the hearing herein. At the time these transactions took place, the property of the corporation, consisting of the building and the lots occupied by it, was mortgaged for §22,000. The corporation was also indebted, besides this sum, to the amount of §15,000 to §20,000. The mortgage was subsequently foreclosed, and the property sold to satisfy it. The property realized §17,000, leaving a deficiency judgment for the trustees of the corporation to pay. There were nine of these trustees, the appellant, and the respondents being of the number. The various transactions with the Cascade, Stockmen’s, and Minneapolis-banks were had without any meeting of the board of trustees, and without consultation with them by the respondents, they acting with Kingsbury, Lepley, and Gibson in case of the transaction with the Stockmen’s and Cascade banks,-, and with Dickerman in the transaction with the Minneapolis bank. Kingsbury, Lepley, Gibson, and Dickerman were not trustees.

All the parties interested knew fully the conditions surrounding the corporation, and the purposes for which the moneys wore being borrowed. All knew that the corporation was insolvent in 1892, that it remained so, and that, besides the mortgage indebtedness secured by the lien upon its property, it owed large amounts. All knew that the enterprise was an unfortunate one, and that ultimately the liability incurred, both upon the notes in the judgments and upon the loans afterwards secured, was personal. All were anxious to escape the perils of the wreck that had overtaken them, and to avoid further loss. The appellant understood this as well as the respondents. He was a member of the board of trustees, and,- if the respondents are to be charged with responsibility for acting for the corporation, he should be held to share the responsibility with them, because he dealt with them with full knowledge of the conditions. He therefore does not stand in the attitude of a stranger to the enterprise, trying to recover from the defunct corporation or from its officers upon a liability based upon representations made by them. He knew that they were acting, not as a board, but as individuals, and that as to him and them the corporation was not bound.

It is the rule that those who act as officers of a corporation cannot deny their authority to so act, when the rights of third parties are in question. But the appellant stands in no attitude to invoke this principle. He incurred no liability upon the faith of anything respondents have done, nor was he in any way deceived or misled by them to his injury. The banks from which the loans were obtained could properly say, perhaps, that these officers and the corporation are estopped to deny liability; but he, ■ from his relation to it and them, cannot make this claim. Under the facts surrounding these transactions, we think it would be inequitable and unjust to permit the appellant to escape liability to bear his part of the common burden. We do not think that the status of the debt incurred by the respondents to raise the money to pay the judgment on December 17, 1892, was in any way changed by their subsequent behavior with reference to it. Nor do we think that their use of the corporation’s name in executing the notes upon which they afterwards borrowed the money with which to pay it puts them in such a position, under the facts, that it can be fairly said that they have been reimbursed by their principal.

4. The minutes of a meeting of the board of directors held on October 5,-1891, were offered in evidence by counsel for appellant for the purpose of showing that the notes upon which judgments were entered in this case, and also in the case of the Merchants’ National Bank, (23 Mont., 57 Pac. 445), were authorized by the corporation. Upon objection, these were excluded. There was no error in this. It was claimed by respondents that they were authorized. Judgments had already been entered upon them. The appellant was a surety upon them, and judgment had been entered against him. The evidence was immaterial and wholly foreign to the investigation. It could only serve to incumber the record.

Let the order appealed from be affirmed.

Affirmed.

Mr. Justice Pigott, having been of counsel, took no part in this decision.