United States Nat. Bank v. Herron

144 P. 661, 73 Or. 391, 1914 Ore. LEXIS 128

• Court: Oregon Supreme Court
• Decided: December 8, 1914
• Status: Published

Opinions

Mr. Justice Ramsey

delivered the opinion of the court.

This is a suit in equity to recover from the defendants, Charles E. Herron, Estey A. Herron and Catherine L. Shehan, the principal sum of $5,000, with interest thereon at the rate of 6 per cent per annum from September 6, 1910, claimed to be due on two promissory notes, and for the foreclosure of a mortgage, claimed to have been executed by said parties on 480 acres of land in Malheur County, to secure the payment of said sum of $5,000 and interest, etc. The complaint asked, also, for the correction of an error in the description of the said land as stated in the complaint.

Both of said promissory notes and also said mortgage are dated and were executed on September 6, 1910, at Yale, Oregon, and said notes were made payable at the United States National Bank of Yale. The defendant Catherine L. Shehan resides in the City of Washington, D. C., and she did not execute either of said notes or said mortgage in person, and she was not in Oregon when they were executed. One of said notes was executed for $3,000 and the other for $2,000. They are exactly alike, except as to the amounts for which they were executed. The said notes were made payable to the order of Harry R. Garrett on or before one year after date, etc., and each of them is witnessed by two witnesses. Said mortgage was made to Harry R. Garrett, and it is in the usual form. Said notes were indorsed and passed to the plaintiff for a valuable consideration at about the date of the execution thereof. Said mortgage was assigned, but the assignment was not under seal, nor was it acknowledged before any officer.

The complaint alleges the execution of said promissory notes, their negotiation, and the execution and assignment of said mortgage and the recording of said mortgage. The complaint is lengthy, and sets out a copy of a power of attorney, executed by Catherine L. Shehan to Charles E. Herron, authorizing him to execute, and sign her name to a negotiable promissory note and deliver the same to Harry E. Garrett for $5,000; it to be payable to the order of said Garrett, on or before one year after its date, bearing interest at 6 per cent per annum and payable at any bank in Vale, and authorizing him to make a mortgage on said 480 acres of land, to secure the payment of said note, etc. Paragraph 16 of said complaint is as follows:

“That said notes and said mortgage were given to secure a loan of $5,000, which sum in cash, lawful money of the United States of America, was on the execution and delivery of said instruments paid over to the said Charles E. Herron, and the whole thereof was thereupon by said Herron applied wholly to the use and benefit of the defendant Catherine L. Shehan, by investments in her business pursuits and to the payment of her just debts and liabilities all in Malheur County, Oregon, all of which benefits she, the defendant Shehan, then and there accepted and retained, and she does now still have and retain the same. ’ ’

Catherine L. Shehan filed an answer to said complaint denying each and every allegation thereof, except paragraphs 1, 2, 4, 10 and 11. She denies paragraph 16 of the complaint set out supra.

A decree was rendered in favor of the plaintiff and against Charles E. Herron, Estey A. Herron and Catherine L. Shehan for the recovery of said $5,000 and interest thereon at the rate of 6 per cent per annum from September 6, 1910, and for costs and disbursements, and foreclosing said mortgage, etc. The defendant Catherine L. Shehan appeals from the whole of said decree; the other defendants do not appeal. In form, said promissory notes are joint and several. The defendant Shehan makes several points upon which she relies for a reversal of said decree.

She contends that she did not authorize her attorney in fact, Charles E. Herron, to execute either of said promissory notes or said mortgage, and she bases this contention upon the terms of the power of attorney, which she executed to him. Said power of attorney was received at Vale the day that said notes and said mortgage were made, and all of the parties to said notes and mortgage and the plaintiff bank knew the contents of said power of attorney before said notes and mortgage were executed and before any part of the consideration for the execution of said notes and mortgage was paid or delivered. Said notes and said mortgage show on their faces that the name of Catherine L. Shehan was subscribed thereto “by her attorney in fact, Charles E. Herron.”

The following is a copy of said power of attorney:

“Know all men by these presents, that I, Catherine L. Shehan, a widow, of Washington City, in the District of Columbia, do hereby make, constitute and appoint- Charles E. Herron of Vale, in the State of Oregon, my true and lawful attorney, in and for the purposes hereinafter mentioned, to wit: He is hereby authorized and empowered to execute and sign my name to a negotiable promissory note and deliver the same to Harry K. Garrett, said note to be dated September 6, 1910, for the sum of five thousand dollars ($5,000), payable to the order of said Garrett on or before one year after its date and bearing interest at six (6) per cent per annum and payable at any bank at Vale, Oregon. And the said Herron is further authorized to execute in my name a mortgage, or deed of trust, to secure the payment of said note and interest, upon and covering four hundred and eighty (480) acres of land owned by me in Malheur County, Oregon, that being all the land owned by me in said county, and also all my right, title and interest in and to all water rights and surveys and reservoir and dam sites owned hy me in said county. Said mortgage or deed of trust to be in the ordinary form, used in said county and the said Herron is authorized to sign my name to said note and mortgage, or deed of trust, and to acknowledge for me and in my name the execution of the said mortgage, or deed of trust, and to deliver said note and mortgage or deed of trust, to said Garrett, and said note and mortgage or deed of trust, so executed and acknowledged to said Garrett shall be in all respects as binding on me as though I had personally executed and acknowledged the same.

“In witness whereof, I have hereunto set my hand and seal this third day of September, 1910.

“Catherine L. Shehan. [Seal.]

“Signed, sealed and delivered in the presence of us as witnesses: Alexander H. Galt.

“M. A. Ballinger.”

Said instrument was properly executed, acknowledged and certified.

The following is a copy of one of said promissory notes:

“No. 2. $3,000.00

“Yale, Oregon, September 6, 1910.

“On or before one year after date, for value received, I promise to pay to the order of Harry R. Garrett, at the United States National Bank of Yale, Oregon, the sum of three thousand dollars ($3,000) in gold coin of the United States, at the present standard value, with interest thereon in like gold coin at the rate of 6 per cent per annum, from date until maturity, interest to be paid semi-annually, and if not so paid, the whole sum principal and interest, to become due and collectible at the option of the holder of this note, and in case suit or action is instituted to collect this note or any part thereof, I promise to pay, in addition to the costs and disbursements provided by statute, an additional 10 per cent of the amount sued upon for attorney’s fees. Charles E. Herron,

“Estey A. Herron,

“By Her Attorney in Fact, Charles E. Herron.

“Catherine L. Shehan,

“By Her Attorney in Fact, Charles E. Herron.

“Witness:

“J. B. Weaver.

“John W. Corson.”

The note for $2,000 is just like the foregoing copy, except as to the amount of the principal.

The main question for decision is: Did the power of attorney, set out supra, authorize Charles E. Herron to subscribe the name of the defendant Catherine L. Shehan to said promissory notes? The said power of attorney confers upon said Herron the following power to execute a promissory note:

“He is hereby authorized and empowered to execute and sign my name to a negotiable promissory note and deliver the same to Harry B. Garrett, said note to be dated September 6, 1910, for the sum of five thousand dollars ($5,000), payable to the order of said Garrett, on or before one year after date, and bearing interest at 6 per cent per annum, and payable at any bank at Vale, Oregon.”

It will be observed that said instrument makes Herron the special agent of Mrs. Shehan for certain stated purposes: (a) He was not authorized to borrow money; but he was empowered to execute and sign her name to a promissory note having certain stated qualities. (b) He was authorized to execute one note, and it was to be for $5,000. (c) It was to be dated September 6, 1910, and to be a negotiable note, and payable to the order of said Garrett on or before one year after its date at any bank in Vale, and it was to bear interest at the rate of 6 per cent per annum. The power does not state anything concerning the execution of said note by any person other than Mrs. Shehan. Said power, also, authorized Herron to execute, in the name of Mrs. Shehan, a mortgage or deed of trust “to secure the payment of said note and interest,” upon land referred to in said power.

Instead of executing one note for $5,000, he executed two, one for $2,000 and the other for $3,000. Said notes were executed and signed by Charles E. Herron and Estey A. Herron, as makers thereof, in addition to having the name of Mrs. Shehan subscribed thereto by said Herron as her attorney in fact. Said notes are in form joint and several. According to said power, the note that Herron was authorized to execute for Mrs. Shehan was to be payable “on or before one year after its date, and bearing interest at 6 per cent per annum.” The notes executed are made payable on or before one year after date “with interest thereon in like gold coin at the rate of 6 per cent per annum from date until maturity, interest to be paid semi-annually, and if not so paid, the whole sum, principal and interest, to become due and collectible at the option of the holder of this note.” If the note had been executed according to the power, the interest would have become due at the end of the year. According to the notes that were executed, the interest became due semiannually, with a stipulation that, if the interest should not be paid semi-annually, the principal sum and interest should become due and collectible at the option of the holder of the notes; The notes executed contain, also, a promise to pay 10 per cent of the amount sued for, as attorney’s fees. The notes are witnessed.

1-4. When power is conferred upon an agent, by a power of attorney, the meaning of general words in the instrument is restricted by the context and construed accordingly, and the authority given is construed strictly so as to exclude the exercise of any power that is not warranted either by the terms actually used, or as a necessary means of executing, with effect, the authority given. This is true of powers given to execute or indorse negotiable paper.

In 1 Clark & Skyles, Law of Agency, Section 266, the authors say:

“Power to draw and indorse negotiable paper, like all other powers of attorney, will always be strictly construed, and will not be held to have.been conferred upon an agent, unless the intention to give such authority plainly appears; and where it has been given it must be strictly pursued and will not be extended beyond the limits specified in the power.”

Section 267 of the same work illustrates the rule, stated supra, as follows:

“Thus an agent who is authorized to draw and indorse bills of exchange in the name of the principal has no power to draw and indorse them in his own name, or in the joint name of himself and principal, or of his principal and third parties; nor can he draw or indorse them in the name of his principal, when authorized to draw them in his own name, ’ ’ etc.

1 Mechem, Agency, Section 784, says:

“Formal instruments conferring authority will be strictly construed, and can be held to include only those powers which are expressly given and those which are necessary, essential and proper to carry out those expressly given. It will indeed be presumed that the principal, in conferring a power, intended to confer with it the right to do those things without which the object contemplated could not be accomplished, but beyond this the authority will not be extended by construction. ’ ’

The same work, in Section 974, illustrates the rule thus:

“Authority to sign the principal’s name to promissory notes will be limited to notes drawn in the usual form, and will not authorize the execution of a note containing a provision that if not paid at maturity an additional sum of 10 per cent would be paid. Authority to an agent to draw a bill in the principal’s name will not authorize a bill drawn in the joint names of the principal and the agent; nor will authority to draw a bill authorize an agent to contract to indemnify the acceptor against the consequences of his acceptance; nor will joint authority from several persons to indorse a bill in their names jointly authorize several successive indorsements,” etc.

In his work on Agency (Section 68), Judge Story says:

“Indeed, formal instruments of this sort are ordinarily subjected to a strict interpretation, and the authority is never extended beyond that which is given in terms, or which is necessary and proper for carrying the authority given into full effect.”

In Craighead v. Peterson, 72 N. Y. 279 (28 Am. Rep. 150), the facts were that the defendant executed a power of attorney, authorizing P. to draw and indorse any check or checks, promissory note or notes, on any bank in the City of New York, in which the defendant had an account, etc. P. executed, in the name of the defendant, and delivered to the plaintiff’s testator, two promissory notes, payable at a bank where the defendant had no account. The court held that the making of said notes was ultra vires, saying, inter alia:

“A formal instrument delegating powers is ordinarily subjected to strict interpretation, and the authority is not extended beyond that which is given in terms, or which is necessary to carry into effect that which is expressly given. They are not subject to that liberal interpretation which is given to less formal instruments,” etc.

In Batty v. Carswell, 2 Johns. (N. T.) 49, the facts were that A authorized B to sign his name to a note for $250, payable in 6 months, and B signed it to a note for that amount payable in 60 days, and the court held that A was not bound, saying, in part:

“This was a special power, and ought to have been strictly pursued. * * But the note that Abner Carswell authorized the witness to put his name to was to be payable in 6 months, whereas, the note he signed had only 60 days to run. The note, then, as far as it concerned Abner, admitting that there was no revocation, was made without authority.”

In Mechanics’ Bank v. Schaumburg, 38 Mo. 228, the syllabus in part is:

“Where an express authority is given in writing by the principal to the agent, another or different authority cannot be implied. The extent of the authority is to be ascertained from the instrument itself, and it cannot be enlarged by parol evidence. A power of attorney given by a principal to his agent, to execute, sign, draw and indorse notes and bills in the business of the principal, will not import an implied authority to use the name of the principal in joint transactions with other persons and for their benefits.”

In Harris v. Johnston, 54 Minn. 177 (55 N. W. 970, 40 Am. St. Rep. 312), the syllabus is:

“Each of several tenants in common of real estate executed a several and separate power of attorney authorizing the agent to sell the land and execute warranty deeds of his interest in the property, and ‘to sell and indorse any promissory notes that may be taken and secured by mortgage’ on the property. Held, that the power did not authorize the agent to bind his principal as indorser, jointly with the other cotenants, of a note taken payable jointly to them all.”

• 31 Cyc. 1383, says:

“Even when clearly granted, power to execute commercial paper must be strictly pursued. Power to deal in a certain way with commercial paper is not to be enlarged by construction to permit the doing of other, although of somewhat similar things.”

In Stainback v. Read & Co., 11 Gratt. (52 Va.) 281 (62 Am. Dec. 648), the syllabus is, in part:

“A power of attorney given to an agent to act in the name and on behalf of his principal, in the absence of anything to show a different intention, must be construed as giving authority to act only in the separate individual business of the principal. A power of attorney, to draw, indorse and accept bills, and make and indorse notes, negotiable at a particular bank, in the name of the principal, does not authorize the attorney to draw a bill in the joint names of himself and his principal.”

See, also, on this point, Ewell on Agency, pp. 204, 205; Attwood v. Munnings, 7 Barn. & C. 130; First Nat. Bank v. Gay, 63 Mo. 33 (21 Am. Rep. 430); N. R. Bank v. Aymar, 3 Hill (N. Y.), 262; Blum v. Robertson, 24 Cal. 127; Bank of United States v. Beirne, 1 Gratt. (42 Va.) 234 (42 Am. Dec. 551); Bank of Deer Lodge v. Hope M. Co., 3 Mont. 146 (35 Am. Rep. 458).

The agency of Herron was clearly a special one, to execute the note and mortgage described therein. Special authority, like a general one, confers by implication all powers necessary for or incident to its proper execution: 31 Cyc. 1343. As shown supra, the authority of a special agent must be strictly pursued, and those who deal with him must at their peril determine the extent of his authority, as he cannot bind his principal by his acts outside of the scope of his authority.

5. Herron was, by the power of attorney, authorized to execute and sign the name of Mrs. Shehan to a negotiable promissory note and deliver it to Garrett. This note was to be dated September 6, 1910, for the sum of $5,000 and payable to the order of said Garrett on or before one year after its date. It was to bear interest at the rate of 6 per cent per annum. It was to be payable at any bank in Yale. It is manifest from the terms of this power that the maker thereof intended to authorize the agent to execute a promissory note only of the kind described therein. The note was required to be negotiable and to bear a certain date and to bear interest at a stated rate, and it was required also to be “payable on or before one year after its date.” If the note had been drawn as required by the power, both the principal and the interest would have become due and payable at the end of a year from its date, and an action for the recovery of either the principal or any of the interest could not, under any circumstances, have been maintained until the expiration of a year from the date of the note.The authority delegated to Herron authorized him to execute a note of that character and no other.

The notes that he executed provide, in the first place, that the principal shall be paid on or before one year from the date of the note; but they require the interest to be paid semi-annually. This is a clear and material departure from the power conferred upon the agent. The note that he was authorized to execute made the interest collectible at the end of the year; but the notes executed by him made the interest collectible at the end of six months'. Furthermore, the note that the agent was authorized to execute would have made the principal collectible at the end of twelve months; but the notes executed by him made the principal collectible at the end of six months, at the option of the holders of the notes, if the interest was not paid at the end of six months. The agent had no authority to make the interest collectible semi-annually, or to make the principal collectible at the end of six months^ at the option of the holders of the notes, if the interest should not be paid semi-annually. The agent by making the interest on said notes collectible semi-annually, and providing that, if it should not be so paid, the principal should, also, become due and collectible at the option of the holders thereof, acted outside of the authority conferred upon him, and contrary thereto. The notes that he executed, and also the mortgage given to secure their payment, are not the notes or the mortgage of Mrs. Shehan, and they are void as to her.

Mrs. Shehan had a right to require that the $5,000 for which she intended to make herself liable should be included in one note, and not in several, and she seems to have done so by the power that she executed; but we do not find it necessary to decide whether the execution of the two notes instead of only one, or having said notes signed by Charles E. Herron and Estey A. Herron as makers thereof jointly with Mrs. Shehan, was such a departure from the powers vested in said agent as to invalidate said notes as to Mrs. Shehan.

We hold that the notes executed aré not the notes of Mrs. Shehan, because the interest was made payable semi-annually, instead of at the end of the year, and the principal was made collectible at the end of six months, at the option of the holder thereof, if the interest should not be paid semi-annually as required by said notes. We do not find it necessary to decide whether the telegrams offered in evidence were so identified as to be entitled to be admitted in evidence. The power of attorney was in the possession of the parties when the notes and mortgage were executed, and the bank plaintiff had notice of its contents when it obtained title to the notes. The telegrams did not add anything to the powers of the agent, Herron.

6. The plaintiff alleges in the complaint that the $5,000 which was loaned when the notes and mortgage were executed was paid to Charles E. Herron, and that said Herron used the whole thereof for the use and benefit of Mrs. Shehan for improvements in her business in Malheur County, and that she accepted and retained, and that she does now accept and retain, said benefits.

Although it is not so stated, we presume that this allegation was set forth in the complaint to show a ratification of the acts of the said Herron in obtaining said money upon said notes. This allegation was denied by Mrs. Shehan, and the plaintiff failed to sustain it by proof. There was a complete failure to prove the facts necessary to show a ratification. There was no evidence to show that Mrs. Shehan had knowledge of the contents of the notes to which Herron subscribed her name until this suit was commenced. The evidence shows that she resides in the City of Washington. There is no evidence that she was ever in Oregon. The evidence fails to show what was done with the $5,000. The plaintiff produced evidence that Charles E. Herron had deeded his land to Mrs. Shehan and that she had given him an agreement that he was to have the land back on paying her a certain amount of money; but there was no evidence to prove that Mrs. Shehan received any part of said money. The evidence shows that Herron was trying to borrow the money and that he obtained it, but it does not appear what he did with it. In addition to the exhibits put in evidence, the plaintiff had but one witness that gave evidence concerning the facts in issue. It is a well-settled principle of law that a party who relies on ratification of unauthorized acts of an agent has the onus of proving the necessary facts to show such ratification.

31 Cyc. 1647 states the rule thus:

“A party relying on a ratification of the unauthorized act of an agent has the burden of proving it. To meet the burden it is necessary to show that the ratification was made under such circumstances as to be binding on the principal, especially to see to it that all material facts were made known to him, or, as is sometimes stated, to see to it that there was an adoption of the act by the principal, with full knowledge of what had been done in his name and on his behalf; and it does not suffice to show that the principal omitted to make inquiries and that facts might have been learned by diligence on his part, if it appears that he was misapprehended or was mistaken as to material facts. But in sustaining the burden of proof cast on the one seeking to enforce a liability by ratification, arising from silence or a failure to repudiate an unauthorized act after knowledge thereof, it is not necessary for him to show that by such silence he has been misled to his prejudice. ’ ’

We find that the court below erred in rendering a decree in favor of the plaintiff and against the defendant Catherine L. Shehan, upon said promissory notes and said mortgage; and we find, also, that said notes and said mortgage are utterly void as to her.

The decree of the court below is reversed so far as it relates to the defendant Catherine L. Shehan, and as to her this suit is dismissed. Reversed.