Fifth National Bank of Providence v. Navassa Phosphate Co.

the Caribbean sea and also in the states of Massachusetts, Maryland, Mew Jersey and Pennsylvania. At this principal business office in Mew York the only official of the company in attendance and conducting its affairs was Lawton, the president. One other director only was a resident of this state, but the whole burden and responsibility was thrown upon and borne by the president at the office in Mew York.

The evidence shows that he chartered vessels for the shipment of phosphates from the island, that he attended to the insurance of the cargoes, that he paid the current accounts of the company, and endorsed checks which were payable to the company’s order. He was not only president but treasurer, and was consciously invested by the company with the broad general power inseparable from the position in which it placed him as the sole manager of its affairs at its principal place of business. It is true that" the sales of phosphates actually delivered in Mew York were small in comparison with the bulk of the company’s business, but they sold to some extent on foreign account, the shipments for which were direct from the island, the financial management appearing upon the books in Mew York, and it does not follow from the proof that the great bulk of the business was not done in that city and by the president.

The company had no cash capital. Its articles of association disclose that fact, and that all its shares issued were to be issued for property purchased. Its annual reports show the same thing. Where then was the money to come from with which to pay for the loading and shipment of the phosphates, the labor employed in the work, the premiums for insurance and the charter of vessels. At least until profits were realized and a surplus accumulated over and above dividends paid, the working capital was necessarily to be borrowed upon the credit of the company. Mo director was ignorant of that fact. Who then was authorized to do the borrowing? The evidence shows that it was done mainly in Mew York and by Lawton as president. For eight or nine years he was continually endorsing paper as agent of the company, procuring discounts, putting the proceeds to the credit of the company in its deposit accounts, and using those proceeds so far at least as necessary in its business. Were the directors of the company ignorant of that fact?

There is no proof that they ever borrowed a dollar to put or keep the enterprise in motion, except in one instance to which I shall refer, and must have known that Lawton borrowed or furnished the necessary means. Two discounts, at least, which went to the benefit of the company, were pointed out upon its cash book, kept in Mew York, and all of them were said to appear upon the stubs of the check book. At the annual meeting held in Mew York, each year, Lawton made a report to the directors and laid the books before them. They looked them over, not critically, perhaps, but to some extent, and spread upon them was the truth of what Lawton was doing, and they “ took his word for everything.”

But an occasion came when direct information was given, un

less a very improbable presumption furnishes an answer. The witness, Kirkland, who was employed in Lawton’s office, went to Baltimore with notes drawn by Lawton Bros., for $20,000. He there met Dunan, who was secretary and commercial agent of the company, and John C. Grafflin, who was vice-president and a director. Heither of these persons had any authority conferred by the by-laws to endorse the paper of the company, or bind it in any manner. And yet upon the representation of Kirkland that a stringent money market in Hew York made it impossible for Lawton to procure money there, and that he needed it promptly, Dunan endorsed the notes in the name of -the company, and Grafflin procured their discount, and the proceeds were remitted to Lawton. It is difficult to believe that Grafflin and Dunan were lending the credit of the company to Lawton, as an individual, and to enable him to meet his own personal obligations. That implies an utter violation of duty on their part, and so gross as to be improbable, though not impossible. It is a more reasonable supposition that they knew the paper which Lawton desired to meet was that upon which the Havassa company had been made liable by his endorsement, and so that they had some justification for the endorsement and discount which they made and procured. The plaintiff offered to prove that such endorsement was for the benefit of Lawton, as treasurer, but the question was excluded.

While the by-laws of the Havassa Company place a restriction upon the action of its treasurer, they impose none upon that of the president, and it was competent for the company to authorize him to bind it by endorsement. That he undertook to do so upon large amounts of paper, and continued the practice for eight or nine years; that by that process he furnished the working capital of the company so far as it appears to have had any; that annually he put the books and accounts before the directors, and that some of them were present when the endorsements were made, are facts which were proved on the part of the plaintiff. The real difficulty which beset it, and which produced its defeat in the courts below, was in establishing that the directors knew that he was creating obligations against the company, and gave him authority by acquiescing in its exercise. But the circumstantial evidence, although by no means conclusive, tends to establish that knowledge. The directors knew that the business of the company was being carried on at Hew York by Lawton; that, in the absence of cash capital, it must have been done with borrowed money; and, therefore, that Lawton was creating obligations against the company which it would be called upon to reimburse. They knew, too, that no one of them bad given a written consent to him as treasurer to create obligations, and so they must have understood that to a greater or less extent he was borrowing money on the credit of the company, either acting as treasurer without the written assent, or acting as president without a specific authority expressly conferred. To either process they assented by silent acquiescence, and, while ignorant of details, it may well be urged that they were not ignorant of the material and fundamental fact.

And this element of the situation is so far supplemented by the facts that the cash book and check books were put before them at the annual meeting, that one of the directors did each year examine the check book of the Chemical bank which showed large discounts, that some of the paper was endorsed by Lawton in the presence of the directors, as to raise a serious question of fact. It is true that some of this proof was contradicted and much of it in some directions justly criticised, but that does not help us to disregard it entirely. If such authority was conferred it will protect the plaintiff bank on that ground and without proof on its part that its officers knew in advance of the exercise of such authority and its ratification. As to the plaintiff it becomes an actual authority. The question, therefore, must be submitted to a jury and when that is done nothing which we have said about the facts in the performance of our duty must prejudice or control their performance of their own,

The judgment should be reversed and a new trial granted, costs to abide the event.

All concur.