Opinion
No. 25686
Decided March 25, 1936.
Corporations — Acts of president not binding, when — Building and loan association — Unauthorized acceptance of savings account, not binding upon association, when — Liquidation — Transaction constituted stock subscription, and not preferred, when.
1. A corporation is bound by the acts of its president only to the extent that such acts are within the express powers conferred upon him, or can be implied from the powers expressly conferred, or are within apparent powers he has knowingly been permitted to exercise.
2. An Ohio building and loan association is not bound by the unauthorized and undisclosed agreement of its president to accept a deposit of money for placement in a savings account at interest, when the association's constitution and by-laws provide for the subscription to, and ownership of, its shares of capital stock by the deposit of money for that purpose, on which dividends are payable from the earnings of the association, to which rule it has consistently adhered.
3. Where, in reliance upon such agreement, an individual places money in such association, but in doing so follows the usual procedure incident to a stock transaction, thereafter accepting dividends for a period of several years without complaint, so that the association is without cause to regard him otherwise than a stockholder, he thereby relegates himself to that position and cannot successfully demand priority for his deposit as a savings account in dependence upon the unauthorized agreement, when the association is taken over for liquidation by the State Superintendent of Building and Loan Associations.
ERROR to the Court of Appeals of Cuyahoga county.
The Mutual Building Investment Company of Cleveland, hereafter referred to as "the company," and William H. Kroeger, Superintendent of Building and Loan Associations of the State of Ohio, in charge of its liquidation, prosecute error to this court from a judgment of the Court of Appeals in favor of defendant in error, Ray Brody, trustee for Shirley Silverman, ordering priority of payment on her claim of $3,799.65, which the superintendent had rejected as a preference.
Under date of April 4, 1927, four named persons entered into a written agreement creating a trust fund for the benefit of Shirley Silverman, a minor. Each contributed an equal amount to make the total sum of $3,000. Among the provisions of the instrument were the following:
"2. That said total sum of $3,000.00 shall be deposited with The Mutual Building Investment Company of Cleveland, Ohio, or such other Bank in the City of Cleveland as mutually agreed between all of the parties hereto, in a Savings Account under the name of Rae Brody, Trustee for Shirly Silverman.
"3. That subject to the terms herein stated, said sum together with all interest and dividends paid thereon from this date shall remain in said account until the said Shirley Silverman shall attain the age of 21 years when said entire sum then on deposit shall be paid to her unconditionally."
Additional provisions relate to the disposition of the fund on the happening of certain contingencies, and to the appointment of successor trustees if the necessity should arise.
It appears that the company was a mutual building and loan association organized under the laws of Ohio. Its constitution and by-laws provided only for subscriptions to, and ownership of, its shares of capital stock on which dividends were payable from the earnings of the company, and contained no authorization for the acceptance of interest-bearing savings accounts.
According to the testimony produced by defendant in error, the then president of the company was given a copy or the trust agreement in the spring of 1927, and subsequently consented to accept the $3,000 as an interest-bearing savings account in the company payable on demand, representing that he had taken the matter up with the board of directors and intimating its approval.
On such understanding the money was paid over on June 30, 1927. At that time, pursuant to the direction of the president, the following notation was made on the margin of the trust agreement: "Accepted on the within conditions. (Signed) The Mutual Building Investment Company, M.A. Mack, Secy."
However, in connection with the transaction, there was executed a "Signature Card," as follows:
"Account No. 15247 Date June 30th 1927
"Subject to the provisions of its Constitution and By-Laws and of the laws of Ohio, now and hereafter in force, the undersigned hereby subscribes for shares in the capital stock of The Mutual Building Investment Company of Cleveland, Ohio, to be known as Running Stock — Paid-up Stock to the amount of all sums paid in by me to, or credited to me by said company on said account; this subscription to cover such number of shares and fractions of shares at the price of $200.00 — $500.00 per share as equals the amount to my credit at any time; each withdrawal from said Account to cancel stock in the amount so withdrawn.
"Sign here — Ray Brody (Trustee for Shirley Silverman)."
The $3,000 was treated by the company as an ordinary stock payment. Its receipt was acknowledged on a "Running Stock Deposit Slip," and it was thereafter carried on the records of the company as a "Stock Deposit," with a notation at the bottom of the individual account sheet reading: "See trusteeship order on file 6-30-27."
There was issued to the trustee a standard passbook, which she or a representative of hers retained, bearing the number of the account with the disclosure therein that it pertained to a "Stock Account." "Extracts from Constitution and By-Laws" were printed on the last page of the passbook relative to the annual meeting, dividends, withdrawals, etc.
Eight semi-annual dividends were declared and credited to this account from January 1, 1928, to July 1, 1931, amounting in all to $799.65, which were also placed on the passbook as such; no explanation apparently being asked or protest registered by the trustee to this procedure.
Plaintiffs in error called as their witness the former president of the company. On direct examination he stated: "I remember he [Mr. Edgert, attorney for the trustee], asked me about an account. 'Take this three thousand dollars.' We didn't discuss any special account or anything of that kind."
Some of tile further questions and answers were as follows:
"Q. During that period what was the condition of The Mutual Building Investment Company insofar as cash was concerned? A. Well, we had a lot of cash that we could not invest. And we were not accepting deposits from anybody.
"Q. Was there any restriction on deposits, as to amounts and — A. I think the restriction at that time was not to accept more than $100 from any one person.
"Q. If any larger amount was to be accepted, that was to be given special consideration; is that correct? A. Yes, sir.
"Q. Was that restriction in effect at the time that Mr. Edgert and Mr. Schwartz came in to see you? A. Yes.
"Q. You heard the conversation that Mr. Schwartz and Mr. Edgert related here, stating that you would have to find out whether you could take that account. Do you remember whether that was the case? A. Well, I couldn't say positively. I may have consulted my Executive Committee about it. Mr. Edgert said the Board of Directors, but I meant the Executive Committee. I probably consulted them about it. * * *
"Q. * * * Will you tell the Court the type of institution that The Mutual Building Investment Company was? A. It was a mutual building and loan company.
"Q. And by 'a mutual building and loan company' you mean what? Just explain what that kind of an institution is, and what its functions are. A. It is a mutual concern where all the depositors receive the same rate of dividends, and there are no special deposits. Everything is on a stock deposit, or a paid-up stock account. * * *
"Q. Did The Mutual Building Investment Company at any time pay any fixed rate of interest? A. No."
On re-direct examination the former president was asked if the particular transaction was ever taken up formally with the Board of Directors, and he answered: "It was merely taken up in a general way as an ordinary deposit."
The findings and judgments of the Court of Common Pleas and the Court of Appeals were practically the same. The latter court found:
"That, the money deposited by Plaintiff Trustee with the Defendant, The Mutual Building Investment Company on June 30, 1927, was made by her and accepted by said The Mutual Building Investment Company as a Special Savings Account, with the right in Plaintiff or her successor trustee, to withdraw said deposit and interest at any time; * * *
"That, Plaintiff Trustee, is entitled to a preference upon the assets of said Defendant Corporation prior to the liens of holders of running stock and other stockholders of The Mutual Building Investment Company for the amount now due her on said deposit, viz.: Three Thousand Seven Hundred Ninety-nine Dollars and Sixty-five Cents ($3,799.65) and costs of suit."
Judgment was rendered accordingly.
Mr. John W. Bricker, attorney general, Mr. Charles H. Jones and Mr. Rces H. Davis, for plaintiffs in error.
Mr. Sol Edgert, for defendant in error.
All dealings in respect to the deposit of the $3,000 in question were with the then president of the company and reliance was placed solely on his representations. For the purposes of this discussion we shall assume he agreed to take the money for the company as an interest-bearing savings account. Did he possess such authority and was the company bound thereby?
A generally accepted rule of law is thus stated by the Court of Errors and Appeals of New Jersey, in the syllabus of Myrtle Avenue Corp. v. Mt. Prospect Building Loan Assn., 112 N.J.L. 60, 169 A. 707:
"A corporation is bound by the act of its president only to the extent that the power to do the act has been conferred upon him expressly by the charter, bylaws or corporate action of its stockholders or board of directors, or can be implied from the powers expressly conferred, or which are incidental thereto, or where the act is within the apparent powers which the corporation has caused those with whom the president has dealt to believe it has conferred upon him."
Of similar effect is the second proposition of the syllabus of Bradford Belting Co. v. Gibson, 68 Ohio St. 442, 67 N.E. 888, where it is said:
"In the absence of express authority conferred upon its officers or agents, and of such a course of dealing with the world as clearly implies authority to do the controverted act, a corporation can be bound only by its board of directors."
The third proposition of the syllabus in the last cited case contains the significant remark that "An agent cannot enlarge his own authority by an unauthorized representation as to its extent."
With the above statements in mind, let us turn to an examination of the record in the present case. As already noted, the constitution and by-laws of the company, introduced in evidence as an exhibit, made provision exclusively for the subscription to, and ownership of, its shares of capital stock. No other part of the constitution and by-laws expressly or by implication vested power in the president or any other officer to alter or change such rule in any way. The representatives of the trustee were put upon notice that the president did not possess such power, for they testified that on an occasion prior to the date of the deposit he imparted the information that the matter would have to be referred to the board of directors for approval.
There is no evidence that the company ever accepted a savings account during the entire time it was engaged in business, or that anything of that sort had ever before been attempted by any of its officers. In fact, the only evidence on the subject is to the contrary.
Continuing our initial assumption, we have here, therefore, an isolated case of the president of a company making an agreement wholly unauthorized by its constitution and by-laws, its stockholders or its board of directors; an agreement not within his incidental or apparent powers; an agreement entirely outside the usual business of the company; and there is no direct evidence that such agreement was known to or ratified by the stockholders or board of directors.
So far as the company was concerned, an ordinary stock transaction was involved. Without desire to be too repetitious, we again note that the receipt of the $3,000 was listed on a "Running Stock Deposit Slip" and the company's records showed a "Stock deposit." The trustee signed the usual "Signature Card" subscribing for shares of the company's capital stock, subject to its constitution and by-laws. She was issued the usual passbook disclosing a stock account. She was credited with semi-annual "dividends" which were entered on the passbook and so characterized over a period of four years. There is nothing to show any objection or protest to the credit of such dividends.
Ordinarily, one of full age in the possession of his faculties and able to read and write, who signs an instrument and remains acquiescent to its operative effect for some time, may not thereafter escape the consequences by urging that he did not read it or that he relied upon the representations of another as to its contents or significance. Or as Judge Davis remarks in McAdams v. McAdams, 80 Ohio St. 232, 240, 88 N.E. 542, 544: "A person of ordinary mind cannot be heard to say that he was misled into signing a paper which was different from what he intended, when he could have known the truth by merely looking when he signed."
Under the circumstances of this case, the answer to the original question must be that the president of the company was totally lacking in authority or power to make the agreement charged to him, and consequently it was without effect on the company. As to the company, defendant in error was a stockholder who must be so treated in this controversy. The following cases lend support to the result reached: Provan v. Bondeson, 157 Minn. 478, 196 N.W. 659; Draeger v. Kent County Savings Assn., 242 Mich. 486, 219 N.W. 637; Dorrity v. Greater Durham Building Loan Assn., 204 N.C. 698, 169 S.E. 640; Gary Hobart Savings Loan Assn. v. Strong, 99 Ind. App. 422, 190 N.E. 373.
It is to be remembered that the trust relationship existing between a trustee and his cestui que trust, established by a written agreement or otherwise, is not ipso facto carried over to create the same relationship between the trustee and a financial institution in which funds of the trust are placed. Proposition two of the syllabus in Squire, Supt. of Banks, v. Oxenreiter, ante, 475.
Counsel for defendant in error has cited a number of authorities which are not in point, because they relate either to ultra vires acts of corporations themselves, or to the acts of officers and agents of corporations performed within their express, implied or apparent powers.
The ultimate conclusion is that the Court of Common Pleas and the Court of Appeals were wrong in ordering priority of payment to defendant in error over other stockholders of the defunct company.
The judgment of the Court of Appeals is accordingly reversed and judgment is entered for plaintiff in error.
Judgment reversed.
WEYGANDT, C.J., STEPHENSON, WILLIAMS, JONES, MATTHIAS and DAY, JJ., concur.