Woodward v. Nelligan

19 App. D.C. 550, 1902 U.S. App. LEXIS 5415

• Court: Court of Appeals for the D.C. Circuit
• Decided: April 4, 1902
• Docket: No. 1172
• Status: Published

Opinion

Mr. Justice Shepard

delivered the opinion of the Court:

Our conclusion from the foregoing facts agrees with that of the learned justice who presided at the hearing in the special term of the equity court.

It must be borne in mind that the association was not an incorporated institution with powers defined in a charter granted by, or under the authority of the government. It was an association formed by the agreement of certain persons embodied in articles called by them a constitution. The result was the formation of a partnership of a peculiar character, the managing pai'tners being styled directors. The general partners, called stockholders, came in and went out at will by subscription to stock, and its retirement through payment of loans, or its withdrawal without a loan, in accordance with rules regulating the same. The powers exercised by the directors, as managers of the partnership, are not to be measured by the strict rule applying in the case of the directors of a corporation, notwithstanding their analogy. Hence, many of the decisions cited on behalf of the appellants are not directly applicable, because they involve the duties and powers of corporations governed by the statutes whence they derive their authority.

Yet, even in the case of regular corporations, it is well settled that the powers of officers and managing agents may be extended by practice on their part and continued acquiescence on the other so as to bind the corporation. Clark on Corporations, pp. 489-499, and cases cited.

The powers referred to, of course, mean powers that might be conferred upon, or exercised by an officer witbin the limits of the powers conferred by law upon the corporation itself.

A special, or limited partnership, uncontrolled by a regulatory statute, obviously has greater latitude than a corporation which is. Hence it may become bound in respect of matters confessedly foreign to the original objects and express powers of the association, by the customary practice of all the partners, or by that of one or more managing partners, with the apparent knowledge and acquiescence of all others concerned, as appears in this case. 1 Lindley Partnership, 250, 251; 2 Idem, 822; Shaffon’s Executors, 1 De G., M. & G. 516, 590; Keene’s Executors, 3 Idem, 212, 280.

Herein, as shown above, we have the practices of nearly fourteen years. Notwithstanding the limited powers of Lynch, as secretary, under the original articles of association, he became practically the general manager through the sufferance of the directors, at least, or their gross negligence, and with the apparent knowledge and consent or acquiescence of the stockholders generally.

The latter changed from time to time, as we have seen, and there is nothing in the record to show that, at the time of going into liquidation, there remained any “ live ” stockholders or members outside of the directors themselves, who are parties to this suit. Nor has it been made to appear that there are any creditors who by virtue of that relation may have an interest in the result of this suit.

The practice that was permitted Lynch to solicit members, issue pass-books, and receive dues at any time for a great number of years, may have been recognized as beneficial to the association, for the testimony tends to show that he accounted, generally at least, for money so received. The evidence shows that the practice was recognized as a great convenience to many members who could not easily attend the regular night meetings, and'naturally, therefore, become widely extended. Lynch was the custodian of all bonds, mortgages, and deeds, and it was his duty to keep accounts with borrowers and furnish statements for settlement. The evidence shows that, on one occasion at least, he received the money of a borrower and receipted the statement, subsequently sending her the formal release of her mortgage. The directors’ evidence shows that he was expected to attend to the loans, and that inquiries were not prosecuted when he offered an objection. Notwithstanding the provisions of the constitution, they did not undertake the enforcement of obligations when he informed them that loans were safe.

Under these conditions, Nelligan, having raised the money to pay his loan, asked Lynch for a statement of his indebtedness. Lynch made it out and on the same day attended the receipt of the money by Nelligan’s wife, who then and there delivered it to him in payment of the sum so stated to be due. Lynch (when does not appear, but evidently soon thereafter) surrendered the bond and trust deed to Nelligan, and it was among his papers at his death. When Nelligan’s payments of dues ceased, it was the duty of the directors to make inquiry, and enforce payment if his indebtedness remained unpaid, and his stock was thereby uncanceled. Without such action on their part, and notice, Nelligan, and his wife and children after his death, had no right to suspect any misconduct on the part of Lynch. They were plain people and not well informed in regard to the complete protection of their rights. Had they not been misled by what seems to be the gross negligence of the directors in leaving them in ignorance of the failure of Lynch to pay over the money, they might have been able to compel him to do so between 1890’ and 1898.

Negligence of this character and its probable effect in irreparable loss to the party affected, furnish a well-established foundation of estoppel. Leather Manufacturers’ Bank v. Morgan, 117 U. S. 96, 115.

In addition to the long and inexcusable silence of the directors, we have the additional grounds of their long acquiescence, with knowledge, in the general powers of management exercised by Lynch. Prairie State Loan Association v. Nubling, 170 Ill. 240, 244, 245. In that case the association had been regularly incorporated; in the points upon which the decision turned it closely resembles this. And the court aptly said on the pages noted above: “ Common knowledge of the general conduct and management of associations known as building associations shows that in the majority of cases the secretary of such an association has largely the control of the details of its business. He generally possesses the confidence of its members who largely rely on him. * * * Its directors should certainly be held to an ordinary degree of diligence and watchfulness over the interests of the association and over those who handle its funds. * * * Endlich, in his work on Building Associations, says the secretary is often the general agent of the association, and often is, in point of fact, the manager of its entire business. Where such control and management are vested in him, even tacitly, the association will be bound by his acts under such extended authority.” See also Chicago B. Assn. v. Cromwell, 65 Ill. 453, 460.

The cases most strongly relied on by the appellants are: Morrow v. James, 3 Mackey, 27, and Van Waggenen v. Genesee Falls Sav. Assn., 88 Hun, 43. Those cases are in our opinion clearly distinguishable. The single question in each was, whether the association was bound by the payment of money to the secretary who had no authority, as members were bound to know, to receive it, and who appropriated it to his own use. There was no evidence, as in the case at bar, to show that the secretary had been permitted by the directors, or held out to members as authorized, to receive their dues; nor was there any negligence in the directors operating to the prejudice of the members so paying. Hnder the facts it clearly appeared that the delivery of money to the secretary was as their agent, to pay their dues to the treasurer, and not as the agent of the association duly authorized to receive payments.

The decree is right and will be affirmed with costs. It is so ordered. Affirmed.