Pauly v. Pauly

40 P. 29, 107 Cal. 8, 1895 Cal. LEXIS 705

• Court: California Supreme Court
• Decided: April 4, 1895
• Docket: No. 19505
• Status: Published

Opinion

Haynes, C.

The complaint contains several causes of action, the first four being upon promissory notes alleged to have been executed by the San Diego Cable Railway Company to the California National Bank of San Diego, aggregating $57,330. Another cause of action is for attorneys’ fees and expenses in a certain action brought by the bank against the cable company in the United States circuit court; and the last cause of action is for the sum of $359,000, for moneys alleged to have been paid by the bank to various persons at the request of the cable company for its use and benefit and upon its order. The $359,000 includes the moneys evidenced by the promissory notes sued upon in the antecedent counts.

The answer consists of specific denials of the allegations of the complaint, and a counterclaim to recover the sum of $50,000, the alleged value of certain shares of the capital stock of the cable company, and the further sum of $119,000 for moneys alleged to have been had and received by the bank to and for the use of the cable company.

The cause was tried by the court without a jury, and the court found against the plaintiff upon each of its causes of action, and also against the defendants upon their counterclaim, and judgment was entered accordingly. This appeal is taken by the plaintiff from the judgment against him and from an order denying his motion for a new trial. There is no appeal from the judgment upon the counterclaim.

The bank became insolvent and suspended business November 12, 1891, and the cable company was adjudged insolvent March 15, 1892.

Appellant specifies certain particulars in which the findings are claimed to be not justified by the evidence, but the principal questions arise upon rulings made upon questions of evidence; and the more important of these hinge upon the relations existing between these corporations through their respective boards of directors.

The board of directors of the cable company consisted of Dare, Collins, Havermale, Palmerston, and Fisher. Of these Dare, Collins, and Havermale were officers and directors of the bank, Havermale being president and Collins cashier, while Dare was president of the cable company, Havermale vice-president, and Collins treasurer.

The promissory notes in question were executed in the name of the cable company by O’Brien, secretary, but he does not appear to have been authorized to do so by any previous resolution or formal direction of the board, nor does there appear to have been any general power conferred by the board upon the secretary to execute promissory notes or other obligations of that character on its behalf.

It is claimed by appellant, however, that these notes were ratified by the cable company: 1. By a failure of that company to dissent; and 2. By express action of the board of directors of the cable company, at a special meeting held November 28, 1891, at the house of vice-president Havermale, at which meeting there were present Havermale, Collins, and Palmerston, of whom Palmerston only was not interested in the bank; Dare being absent in Europe, and Fisher not having been notified. As evidence of such ratification plaintiff offered in evidence the minutes of said special meeting, as follows:

On motion of Mr. Palmerston, seconded by Mr. Collins, the following resolution was unanimously adopted:

“ Resolved, That the San Diego Cable Railway, a corporation, by and through its board of directors, regularly assembled, does hereby acknowledge and agree to pay the sum of $84,330, being due the California National Bank of San Diego, and evidenced as follows: One note of $20,000, dated September 3, 1891, due December 3, 1891; one note of $10,000, dated September 3,1891, and due December 3, 1891; one note of $10,130, dated September 3, 1891, and due December 3, 1891; one note, $17,200, dated June 30,1891, and due on demand. The sum of $27,000 placed to the credit of the S. D. Cable Railway Co. in their account with the California National Bank, on February 12,1891, being carried in the form of a note as a cash item signed by Dare & Collins for $28,500; also, an overdraft for the sum of $9,444.27. The total principal sum being $93,774.27.”

Counsel for plaintiff also stated that he expected to follow with further evidence going to show that the cable company received the money, and that it went into the construction of the road; that the business had been transacted at the bank; that the cable company obtained its money there, and that these notes were given for the debt.

Several objections were made to the introduction of said minutes, to the effect that the meeting was not called by competent authority; that it was not held at the office of the company; that the minutes do not show that notice was given to Fisher; that Fisher was in fact not notified, and that two of the three directors present were directors of the bank, and could not bind the cable company by an acknowledgment of an indebtedness to the bank.

Appellant does not rely upon the authority of the secretary to execute these notes to sustain their validity. No such authority was shown; and as to the attempted express ratification, it appearing affirmatively that the meeting was special, and that the directors were not all notified, the meeting was not duly assembled, and its action did not bind the corporation as a valid corporate act. The other objections to the admission of the minutes as an express ratification of the execution of the notes need not be considered. The court, therefore, did not err in the exclusion of the resolution as evidence of express ratification, nor in refusing to receive the promissory notes in evidence in support of the causes of action based thereon. Whether they could be received in connection with other evidence, for any purpose, need not be considered in this connection.

This, however, is not conclusive of the right of the plaintiff to recover for money loaned or advanced by the bank so far as it was applied to the proper uses of the cable company. The liability of defendant does not rest upon the express contract appearing upon the face of these notes, but upon the right of the lender to recover money which has gone to swell the assets of the cable company. If the bank in fact furnished to the cable company moneys, whether as loans upon unauthorized promissory notes, or upon account, or paid money for construction of its road, or in discharge of its legal liabilities, so far as the same were in fact" applied to the proper use and benefit of the cable company, such moneys may be recovered by the plaintiff to the extent to which they have not been repaid. Plaintiff in the last count of his complaint pleaded facts which, if proved, would entitle him to such a recovery. In support of this proposition see the following authorities: Morawetz on Private Corporations, secs. 526, 616; 715, Gardner v. Butler, 30 N. J. Eq. 702, 721, 724; Twin Lick Oil Co. v. Marbury, 91 U. S. 587; Santa Cruz R. R. Co. v. Spreckles, 65 Cal. 193; Seeley v. San Jose etc. Co., 59 Cal. 22. In New Castle Northern R. Co. v. Simpson, 23 Fed. Rep. 214, it was held that the corporation must account to the contractor for benefits received under an ultra vires contract, with interest on the amount found to have been due when the work was stopped.

In Leavenworth v. Chicago etc. Ry. Co., 134 U. S. 688, 707, Mr. Justice Blatchford, speaking for the court, said: “ I am unable to see any thing in the fact that some of the same men were found to be trustees in this deed and directors in the Bock Island Company, and that directors in the Southwestern Company were also directors in the Bock Island Company, which should block the course of justice, paralyze the power of the court, and deprive the creditor corporation of all remedy for the enforcement of its lien. If it could show that the Southwestern Company did not owe this interest, or that the Bock Island Company had in its hands the means of the Southwestern Company to meet this obligation, and that by reason of collusion between those who controlled both companies this fact was suppressed or concealed, it would present a strong case for relief. But this would be actual fraud, and one not necessarily growing out of the influence of the Bock Island directory over that of the Southwestern. Notwithstanding this commingling of officers the corporations were distinct corporations. They had a right to make contracts with each other in their corporate capacities, and they could sue and be sued by each other in regard to these contracts; and the question is not could they do these things, but have the relations of the parties—the trust relations, if indeed such existed—been abused to the serious injury of the Southwestern Company.”

The money that was paid, from whomsoever it was obtained, was obtained by and disbursed through the proper financial officer of the cable company, viz., its treasurer, through the agency of the bank, and if applied to the proper uses of that company there at once arose an implied promise to repay it.

The remaining controversies, so far as they involve the rulings of the court upon questions of evidence, require a general statement of the facts disclosed by the record.

The bank was in existence before the cable company was organized. Who the stockholders of the cable company were, aside from the directors, is not disclosed. It is shown that on February 15, 1890, certificate No. 2, 500 shares was issued to Collins, and certificate No. 3 to Dare for 500 shares, and to Palmerston July 8,1890,100 shares; that Fisher originally held 500 shares, but, on March 17, 1890, he sold all but one share to Dare and Collins.

During part of the time covered by these transactions Collins was cashier of the bank, and part of the time president, and all of the time treasurer of the cable company. Dare and Havermale were also directors of the bank, and were also president and vice-president, respectively, of the cable company, and Palmerston and Fisher, who were not connected with the bank, were the remaining directors, Fisher being the general manager.

An account was opened by the bank with the cable company, and all moneys, whether acquired by loans or otherwise, were credited to the company’s account by the bank as deposits. Fisher had charge of the construction and general business, and bills and accounts of labor and materials were presented to him; he would O. K. them, signing his name thereto, and direct the holder to go to the bank for payment; and these bills, accounts, time warrants of the laborers, etc., were paid by the teller of the bank as though they were checks, stamped paid, and charged to the company’s account.

From the organization of the cable company through all these transactions J. E. O’Brien was book-keeper of that company, and during the latter part of the time was also its secretary. The company had no pass-book as a depositor, but generally twice a week the bank would deliver to O’Brien a statement of the company’s account and surrender the paid vouchers, and from these statements and vouchers O’Brien kept a ledger account with the bank in the books of the company, which was thus practically a rescript of the bank’s books. Some of the machinery was purchased by Dare, and the bills for such did not pass through Fisher’s hands, but would be audited and settled for at the bank; and part of the time, instead of giving time checks to laborers, a payroll would be made out and money to pay the same would be drawn from the bank in bulk, and a check would be the voucher in such case, but by whom drawn does not appear. At the time of the trial Dare had long been absent in Europe, Collins was dead, and two of the three book-keepers of the bank who made entries in the company’s account in the books of the bank were absent from the state. The cashier of the bank and the bookkeeper who had charge of the genera] books of the bank testified as to the manner in which the accounts were kept, and Brimhall, one of the three who kept the books in which this account appeared, testified to the handwriting of the absent book-keepers as well as his own, that the entries were made in the usual course of business on the day of the several transactions as they occurred, and that he believed the account to be correct. Some testimony was also given by one or more other parties who had settled their private accounts with the bank and found the bank’s accounts to be correct.

The court eventually received in evidence, first, the statements of account furnished to the book-keeper of the cable company by the bank, and afterward the ledger of the cable company showing the account with the bank made up from said statements, but refused to receive in evidence the books of the bank and the vouchers returned to the cable company’s book-keeper with the statements.

Plaintiff again offered in evidence each of the notes set out in the complaint, and these were again excluded. Plaintiff then offered in evidence the note of $17,200, dated June 30, 1891, as explanatory of an item of the same date and amount appearing in the statement admitted in evidence, said item being, “ Note for $17,200,” for the purpose of showing that that entry was of the note offered, and that note was thereupon received in evidence. The ledger account of the cable company which was received in evidence showed that said credit, “note for $17,200,” was carried through the stated accounts to the final balance as a credit to that amount, and these statements also showed a final balance or overdraft against the cable company of $9,444.27. This balance added to the credit, “ note for $17,200,” makes $26,644.27, and for this amount appellant insists he should have had judgment, and that the finding that the cable company was not indebted to the bank in any sum whatever is not justified by the evidence, and this contention, I think, must be sustained.

The evidence was meager in regard to the financial resources of the cable company. Mr. Fisher testified, when called by defendants, that “ Collins and Dare looked after the financial part of the road entirely, and I never saw any of the accounts after I passed on the bills, as I have stated here before; I would O. K. them, and that is the last I would' ever see of them”: that he did not examine the books; that he had implicit confidence in Mr. Dare and Mr. Collins; that after the failure of the bank he only knew of any balance being due the bank through reports in the newspapers, but he never said any thing to the officers of the bank about it; that prior to the failure of the bank he heard rumors that the bank was carrying the cable company, and the officers of the bank denied it, and said the cable company had a balance in the bank. When these conversations occurred does not appear, but it does appear that after March 17, 1890, he held but one share of stock, having sold 499 shares to Collins and Dare, and admitted that after that time, though he remained a director, he had no financial interest in the corporation, and gave that as the reason why he made no inquiries as to the truth of the newspapers’ reports after the bank’s failure, to the effect that the cable company owed the bank “ninety odd thousand dollars.” It would, therefore, appear probable, at least, that the former inquiries were made in the early stages of the work. All the notes mentioned in the record were made after Fisher parted with his interest in the corporation. It further appeared that though Mr. Fisher had procured the books for the book-keeper in which to keep the company’s accounts, he had never looked into them or sought to inform himself of the state of the company’s accounts.

In Morse on Banks and Banking, third edition, section 295, page 513, it is said: “The sound rule would seem to be that the depositor’s bank-book, if it has been returned to him, and he has not within a reasonable time objected to it, should be regarded as prima facie evidence of the way the account stood between him and the bank at the date of the last balancing. It settles the presumption in the case, and leaves the onus on the party disputing it.”

This prima facie evidence was not rebutted, and judgment for the sum stated should have been for the plaintiff.

There are other grounds justifying a reversal, and, as they involve questions which will doubtless arise upon another trial, they should be noticed.

The vouchers delivered with the statements to the cable company are not only prima facie evidence of the payment by the bank of the several sums named in them, but these payments, having been made principally upon bills certified by the general manager, to that extent, at least, furnished satisfactory evidence that the money paid thereon was in fact applied to the proper use and benefit of the cable company; and, as we have already held that the plaintiff could not recover upon the notes alone, because of their unauthorized execution, such evidence was material and important to the plaintiff, and he was prejudiced by the exclusion of these vouchers.

The court also erred in excluding the books of the bank.

The first ohjection to this evidence argued by counsel for respondents in his brief is that these books were not “ kept in the regular and usual order of business,” because the cable company had no pass-book, and because the money was not paid out upon checks, but upon bills, etc. Whether or not there was a pass-book in no wise affected or changed the inode of keeping the bank’s accounts. The statements rendered to the cable company’s book-keeper showed the deposits as well as the payments, in the same manner as if written up in the pass-book. That payments were made upon bills instead of checks could not affect the correctness of the accounts, the bills being treated as checks.

I think the preliminary evidence was sufficient to authorize the admission of the books of the bank, especially in view of the fact that statements of the bank’s account had been regularly furnished to the cable company, thus giving it the opportunity to examine it and investigate its correctness. These statements being in evidence, and no objection having at any time been made to them, furnished at least prima facie evidence that the account of the bank was correct. The interest of Dare and Collins as officers of the bank does not seriously, if it at all, affect this question. Their interest on behalf of the bank was not greater than in transactions with any other customer, and it is well settled that books of account kept by banks are admissible in evidence. (See McLennan v. Bank of California, 87 Cal. 569, 575, and cases there cited.) The interest- of parties to a transaction invites scrutiny just as the interest of a witness invites scrutiny; but such interest goes only to the weight of the testimony, not to its admissibility; even when a party was disqualified as a witness, because of his interest, he was permitted to testify to the correctness of his account and put that in evidence.

It has been seen that the notes upon which the first four counts are based, not having been executed by proper authority, are not evidence of a liability upon the express contract appearing upon their face; but, as it is also true that if the money represented by or named in the notes was furnished by the bank, and was received by and applied to the proper use and benefit of the cable company, plaintiff is entitled to recover the same, the question arises whether the notes are admissible in evidence for the purpose of showing that the money represented by them was furnished by the bank.

The record does not disclose the circumstances under which nor by whose direction the secretary executed the notes. It does appear, however, that Collins and Dare were intrusted with the management of the finances of the cable company, and the only evidence in the record showing that money was received from any other source than the bank was given by Mr. Fisher, to the effect that he understood that the money was borrowed in the east; that he, Collins, and Dare, each made notes individually, the other two becoming indorsers, and he thought that in this way about $100,000 was raised, and that he did not know of the cable company borrowing in its own name.

The stumbling block in this case, however, seems to have been the double relation or agency of Collins, Dare, and Havermale, being at the same time officers and directors in both corporations. In Adams Min. Co. v. Senter, 26 Mich. 73, Captain Frue was the agent of the Adams Company, and also of the South Pewabic Company. Frue sold to Senter certain timber belonging to the Adams company in payment of a bill which the Pewabic company owed to Senter, in order that the latter company should be given additional credit, and this action was brought by the plaintiff against the defendant for taking said timber. After discussing other questions, Mr. Justice Campbell said:

“The question next arises, How far the double agency of Captain Frue affected his relations to his employers and to third persons. It was claimed that, upon the principle that a man cannot contract with himself, and cannot occupy positions involving a conflict of duties, all of his dealings whereby the property of one company was transferred to or used for the other should be held unlawful. There is no validity in such a proposition. The authority of agents may, where no law is violated, be as large as their employers choose to make it. There are multitudes of cases where the same person acts under power from different principals in their mutual transactions. Every partnership involves such double relations. Every survey of boundaries, by a surveyor jointly agreed upon, would come within similar difficulties. It is only where the agent has personal interests conflicting with those of his principal that the law requires peculiar safeguards against his acts. There can be no presumption that the agent of two parties will deal unfairly with either. And when both deliberately put him in charge of their separate concerns, and there is any likelihood that he may have to deal with the rights of both in the same transactions, instead of lessening his powers it may become necessary to enlarge them far enough to dispense with such formalities as one man would use with another, but which could not be possible for a single person to go through with alone.”

Collins and Dare were not the bank, though they were its agents; and in an action by the bank, or its receiver, it is not perceived why their acts and admissions as the agents of the cable company, in charge of its financial affairs, are not admissible in evidence against it in relation to those matters that were intrusted to their management by the latter company. If they had procured the money from another bank with which they were not connected, assuming that the notes were executed by the secretary by their direction, I think it would not be contended that the notes were inadmissible in evidence, in connection with the other facts, for the purpose of showing that the payee was the party lending the money.

I think the judgment and order should be reversed and a new trial granted.

Searls, C., and Belcher, C., concurred.

For the reasons given in the foregoing opinion the judgment and order appealed from are reversed and a new trial granted.

Henshaw, J., Temple, J., McFarland, J.