BANK ". SUTTON MANUF'G CO.

191

MANUF'O

F.A.BM:ERS'

'I

," ·. ,

NAT. BANK . , OF ,.

....,.

INn.,". SUTTbN

Co.

i;' I;

,;fCircuUi OOW11

fif AppeaZB, Sixth

No. 31.

Circuit. October 11, 189S.}

L

CoN"PLIOT OJ' LAws-LEX LOCI CONTRACTUS-BILLS OJ'E:lOllA1flJII.

A btu of exchange drawn in Indiana, accepted hi 'Michigan, to be discounted In "IJl,dianalloUd paid,in, is an Indiana contract, and the liability thereon is to be determined by the law of that state. v. B/.(£ir, 21 Wall. 241. followed.

' .,

2.

NJlGOTIABJoE IXSTR'[)MENTS...,..PBovisION POR ATTORNEYS' FEES.

"An &Cdeptance of a bill 'of exchange with interest after maturity, and attorneys' f/¥lS, is aeon,tract to pay a suD:l certain at ,maturity, and is therefore negotiable,for the provisions as to interest and attorneys' fees become operative only after matu, rity. ' , pl'oVldi4g tbat all agreements iii' 8, bm of exchange or other 'Written eVIdence efindebtedness to pay attorneys', fees upon" any condition 'therein slit forth II are void, does nqtrender v,oid an, agreeQ}ent to pay attorneys' fees on tlie implied cOndition that they shall be payable 'only in case of dishonor. MarUm., MInd. 380, followed· How. ADI;!. St. Mich. c. 124, prOViding in general terms that it shall not belli.wful for any cotJj0ration to divert its operations to any other purpose that set forth in tAearticles of association! is merely declaratory of thl;l common law,andunder it a corporation accepting a olll of exchange without consideration, merely for the aooomDiodatioD of the drawee,is bwnd with respect to a bonafide indol'llee for value before maturity. ' ,
VIREs,-DECLARATORT ST,lTU'l'B,

a.

,

··

I.

FEDERAL COUltTs-STA'l'B DECISION.

The 'rederal courts, when called upon to construe the general' commerel.ai law of Indiana in respect to a questionwbich i., a new one in the, federal courts, should give weight to the Indiana decisions, although they are not absolutely bound thereby. Burges8 v. Seligman. 2 Sup. Ct.Rep. 10, 107 U. S; 20, followed. '

In Error, to the CirouitCourt of the United for the Eastern District ofMiohigan. Action by the Farmers' National Bank of Valparaiso, Ind., against the SuttonMQ,nufacturingCompany to recover on sbill of exchange accepted by. Qle Judgment for defendant. Plaintiff brings error. Reversed. TAFT, Cirouit Judge: The action in the court below was in atl8Umpsit by the Farmers t Valparaiso. IJ;ld., as the indorsee ora bill of exchange theS.utton Manufacturing Company of Detroit, Mich., as acceptor of the bill for the amount of the biJI and interest. The bill was &8 follows: "&2,00(). OFFIOE OF HOPFER LUMBER & MANUFACTURING Co., 8OBllTO J. S. HOFPER & SONS, WnoLESALE LUMBER DEALERS.
"MWITIGAN CITY, INDIANA, June 4,1890· . ,"Ninety days after date, pay to the order of Hopper Lumber &; ,Manufacturing Co. two,thou8Rnd dollars, with interest at the rate ,of eight per cent. peI: annum after ,maturity, and attorneys' fees, without any relief from vaIu_ti9n or appraisement laws., Value receiVed. and charge to account of "HOFPER LUMBER & MANUFACTURING Co. . "Per J. S. HOPPER, Pree. "To th, Button Manu,facturi1l11 00·· Room 40. Haagu Bu.ilding. P,trole, Ifich. ' ""Due Sept. 5tb.-

DDERAI. REPORTER,

voL i)20

on the face of note:

"A,CQ!tpte4.', P_yst]d,ichigao Savings Bank.
"THE SUTTON MANUFACTURINO Co. "Per HENRY S. HOPPER, Treaa.

Protested for nonpayment September 5, 1891. Indorsed on blloCk of note:
"Pay to G. F. Bartholomew, cashier, or order.
"HOPPER LUMBER &; MANUFACTURING CO. "Per J. S. HOPPER, Pres.

"C. E. ARNDT, Cashier."

C. Eo Arn<f.t was the cashier olthe Citizens' National13ank of Michigan City, Ind., and G. F. Bartholomew was the cashier of the plaintiff was of both the Hopper Lumber & bank. J.$., Manufacturing Company of Michigan City, and of the Sutton Manufacturing Company. of Detroit, and Henry S. Hopper, his son, was the secretary of both companies. The Sutton Manufacturing Company was a solvent and :prosperous concern, engag.ed in the manufacture of pails and buckets and smaller wooden ware. The Hopper Manufacturing ComJ;iat;ly was anew enterprise, engaged in making refrigerators and furniture specialties. The Sutton Manufacturing. Company was a corporation organized under the general laws of Michigan, as contained in 124 ,Qf.Howell's Annotated, Statutes of Michigan, the fonrth seCtionof which (Comp. § 4130) reads as follows:
"The stockholders of every corporation formed under this act shall .. 'Il · distinctly and definitely state in said articles (of association) the purpUtle tor which every such corporatitln shall be established. and it shall not be lawful for said corporation to divert its operations, or appropriate its funds, to any other purpose ell;cept as hereinafter stated."

The acceptllnce sued upon was given for the accommodation of the Hopper Lumber & Manufacturing CompanYtand was without any consideration moving to the Sutton Company. ,The bill was drawn by J. S. Hopper at, Michigan City, Ind., arid sent to his son, Henry'S. Hopper, thel1ehretary and treasurer oithe Sutton cOm pany, at Detroit. Henry accepted' it, and returned it to his father,at Michigan Oity, who p'tocured the note to be disc()unted by the Citizens'. National Bank of Michigan City· The evidence on the trial was conflicting upon the l,>,oint whether the officers of the Citizens' Bank knew that this bill wasaccom: modation paper, or knew that the Hoppers, father and son, filled the same offices in both companies. It was undisputed, however,that the plaintiff was a bona fide pnrchaser of the bill without 'notice and for value before maturity. At the conclusion of the evidence the court below directedthe jury to return a'verdict for the defendant on two grounds: JIlirst, that the 'acceptance sued on, being without consideration, was beyond the power of the defendant company to make, and was void; and, JJecond, that the bill was'not a negotiable instrument, and it was therefore (jpen to' the, defendant that it was without consideration. A writ of error was sued out by the plaintiff to the judgment for defendant, and the error assigned was the direction of the court to the jury.

FARMERS' NAT. BANK V. SUTTON MANUF'G CO.

193

'Drm M. Dicki'Mon and Elliott G. Stevenaon, for plaintiff in error.
Henry a. Wisner and Fred a. Harve;y, for defendant in error. Before BROWN, Circuit Justice, and TAFT, Circuit Judge.
TAFT, Circuit Judge, (after stating the facts.) This judgment must be reversed. We cannQtagree that either of the grounds upon which the learned judge directed a verdict for the defendant was well taken. 1. The feature of the bill which in the opinion of the court below destroyed its negotiability was the stipulation to pay attorneys' fees. It said that this rendered the amount due uncertain, and that certainty in the amount due was an essential of negotiable paper. The bill was drawn in Indiana and accepted in Michigan, to be discounted in Indiana, and to be paid in Michigan. In Tilden v. Blair, 21 Wall. 241, Pelton, a resident of Chicago, drew a draft payable in 60 days, and ,sent it to Tilden & Co., a firm resident in New York state,for t4eir They accepted it without consideration, and returned it to him for the purpose of enabling him to have it discounted in Chicago. The draft was made payable in New York city. The supreme court held that the draft was an Illinois contract, and that the liability of the acceptors to a bona fide purchaser for value before maturity was to be determined by the law of Illinois, and not by that of New York. The case cited and the one at bar are on all fours, and the contract here accordingly be held to be an Indiana contract, the liability on which is determined by Indiana law. Except so far· Rsthe rights of the parties are affected by statute the question is one of general commeroial law, but it is the general commercial la WI 'of the state of Indiana. Upon such questions courts of the United States, in exercising a jurisdiction concurrent with that of the8tate courts, have always asserted an independence ofjudgmentras to the state law, even if they differ with the state supreme court. But where the question is a new oue with the federal courts it is their rule, as it is their duty, to give weight to the decisions of the courts of the state, whose law they. are administering. Burgess v. Seligman, 107 U. S. 20, 2 Sup. Ct. Rep. rO,and authoriCt. Rep. ' ties citedonpage 34, 107 U. S., and page 22, 2 Thel(ontract of acceptance is, by the face of the bill, to "pay * * * two thousand dollars, with interest at the'rate of eight per cent. per annum after maturity, and attorneys' fees, without aay relief from valuation or appraisement laws." The stipulation as to interest expressly applies ooly'in case the bill is not paid at maturity. The provision as to valuation and appraisement laws can, in view of the operation of such laws, have reference only to the execution of a judgment or attachment on suit brought, and is therefore also applicable only in case the bill is not paid at maturity. On the principle of noscitur a sociis it clearly follows that the agreement to pay attorneys' fees could only become operative after the bill had been dishonored. Such would be the reasonable interpretation of the contract without the aid of the other stipulations, for it is not usual or necessary to employ attorneys to collect bills before they are due. In Proctor v. Baldwin, 82 Ind. 377, it was held by the v.52F.no.2-13

supreme of Indianalth8it jna, promissory' ,in wbiQhthe,m\lk\lr agreed to pay an " with ten per and attorfees,(lould neys' fees," the conditiOJl;wa'S implied that only be charged against the maker as were incurred after dishonor. That was Mstlimgercase, tbanAl1ls.. In Ind. 301, the woidsb'Mvitb irl:terest, at,ten. per ,per,annumaftepnatlldty and at- , torneys'.fees, "weresimUadYi construed. :,see, also" Gar'l(eI' V" PontipWl"
i,:.;, ' , ., ';.

conditlDn; set fort,hpand made a part. pf anybiU, of ar,qt!.,4_/;,(P/-"O,IDls8orY"nqW,,;Qr otner, written evi\lence of ipde,btedness. are wI! 'applying \)"ocontl,'acts made tha,t pro,v,idlld" shall previous to 'the taking' effect of
1,1,

Lest'it',mttybe supposeliUobav-e,escapell ,ou,r;atteqtioq, lj. stll.tute of IndiaJ:la,'wbich took Statutes ofIndiana t , :lSSt;) in I; It reads as i ( JlUt Any.andall agreements to pay fees upon any.

tbhn'lct:It"':',rJ' . .

C:: . ,·;

,';.j.,

·

. '

.

('L'(·'·j'·'·

hi! ' . (

"

in suitjs that the therein IOItly:on of tl;1e, bill at migbt:,sellmto" bring the stipulation inhibition·Qf thr$l3ction ·.·'.' '.fl;ultthe section is not to be regarded as. haviiDg &u:ch' effect is aut1wrHati the su the st&t,e in rC'hwehmlttn v. :1.(<11'#'1:1., 54 380, whereit was :hEM thl,l.t a stipulation'tiO. pay the of the,. Q,ote. (( and fl.ve per cent: attorneys' fees;" )was :not, void u.nqertheJ !!tatute, altbqugh there wasa:n implied condition::tbat they should in, case ofdishonor, because forbade,s\l.clt stipPlatioQ when the condition was eXpressed, ill the . As, the cMdition is bill in sUit, but isimplied,.Jl:!e, statute ,does not aPply to it. The law it has been hy ancient u$lge,. aJ:ld deduciblefrcom logical consideratiQns. UPO:J:l..thepQipt at here,,: however" authorities are in such hopeleslil th;ttview wllich seems instruments. to Us most consis.tElpt TM indispensable QllAli!lies)E)fa ,Won o(e;xcha,nge are tllllltit shall be pay-" ablein a sum <lertaio<, at, a ItimecertaiD, ,to ,a person certftin. It is in-, tended to be a eil,'cm1ll.tipg IJDedium: Uli\.:"tiJ maturity. Fortllis purpose e'lery pUl'<lhasermlP-st 1;ql.Q'W exactly wbat willba or be: paid on It that, ,istt> be paid at thattime.·,lf.the.:smntb!eD paid is nx,ecl and certain, we Q.o bOt see wby that tq;what shall be dpnein'clllile; the,.bill its as a ciaImedium 'before it·$sdisponorecl;, as. thebilI is disho,npred, for Jhereafteran indorsee tltlethan his ".. It is qnreasonable to hold that negQt.tability of. a hilI is !II: provi!lion ha effe.ot.
i ' , ,;," '. i

·

BANK

";SU'1'TON MANtJ'F'G CO.

195

. As alreadyr ibtJ.lllated, it ,is impossible', to' re'ooncile the authorities. For we prefer to follow those; courts which hold that thtl agreem.ent tQ. pay attomeys' fees after maturity does not destroy the negotiabilityOf,a bill ofexcbange.Weare the more inclined to do so beoauSl'lwe are eonsidering an· Indiana' contract, and this' view has: been establiflhed as the law of that state in a series of decisions, beginning with v. Pyl.e. 35 Ind. 103" The other cases are Proctor v·. Baldwin; 82 Ind. McClung, 67 Ind. 10; Maxwell v. Morehart, 66 Ind. 301; Smock v. Ripley, 62:Iild. 81; Hubbard v. HarriBon, 38 Ind. 823.. , . ' . 'I'h:e Gourt of appeals of Kentucky reached tbe.same conclusion in Goo; v. B{},nking OJ., 11 Bush, 186; the supreme court of Iowa in SperT'Jl'f. Horr, 32IQwa, 185; the supreme court of Kansas in Seaton v. Scovill, 18 Kan. 434; and the supreme court of Illinois in Nwkerson v. Sheldim,33 Ill. in Houghtonv. MO'l'I;ison, 29 Ill. 244. Judge PARDEE, ofthe fifth circuit, in Adams v. Addington, 16 Fed. Rep. 89, and Mr. Justice BREWER, while circuit judge, in Huyhitt v.JoooBoit, 28 Fed. Rep. 865, expressed. the same .views. Other authorities to the same effect are Trader,v. Ohidester, 41 Ark. 242; .Heard v. Bank, 8 Neb. 10; Didridtv. Bayhi, 23 La. Ann. 767; ,1IfYWff1IiJf.ein v. Barnesj 5 Dill. 482; BalT/kv. F'Urpta, (Sup. Ct·. Mont.) 28 PM. Rep. 291. See, also, TfYWne v. Rice, 122 and 4rnold v. RQ,uroad, 5 Duer,.207 ·. The contrary decisiops jo· Minnesota,. Wisconsin, Missouri, South Carolina, North · California, Pennsylvania, Maryland, and Michigan it wouldpe useless to consider or to attempt to distin/1:uish. 2. The remaining question is whether the Sutton Manufacturing Company cal:1 aV'oid their acceptance in the hands of, a bona fide purchaser for value before maturity on the ground that it was ultra vires. The flfic,tence shows cpnalusively that HenryS. Hopper, the secretary and treasurer, had full and general authority to sign and issue business behalf of thecorpo;t'l:!.tion. The only limitation of his8uthority wasthe;8ll.flle as that,up()n'the corporation the extent of its charter powers. , , Everyone dealing with a 'Corporation is charged with notice of its poratl;l powers. If, therefore, a reference to the charter shows a seeming act of the <;orporation to be beyond its powers;. it is void, and cannot be made the basis of any claim or liability against the corporation. But there are,actsthat mayor may not be within tl1e charter powers, their lawful character being dependent on the existence of a fact which cannot be know,n from the act itself. If the extrinsic fact upon which depends character of the act is one, peculiarly within theknowledge()f)hegeoeral agent of the corporation by whom the act is done, the actitseKis an impliedrepreseotation that the necessary fact exists, the truth pf whioh the corporation is estopped to deny against aQY person who in dealin/l withijle corporation has parted with value on the it. The principll;lh$9been frequepQ,y applied in cases of commerQial Pl1per issned in the nalpe of thecorpof.!J.tionby its officers hay· ing authority to issue such paper.

196

Fll1DERAL '. REPORTER t

vol. 52:

A leading case is that of Stoney v, Insurane" 00., 11 Paige, 635. Chancellor YVALWORTH there decided that a negotiable security of a corporation W'hich upon its Jaceappeared to have been duly issued by the corporation,'and in cOllflDrmity with the provisions of its charter, is valid in the hands of a bonafide holder thereof without notice, although such security.was infactisBued for a purpose and at a place not authorized.by.' the ,charter of the company, ahd in violation of the laws of the state ·where it was actually issued. See, also, to the same effect, Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 125; Bissell v. Railroad 008., 22 N. Y. 289; Mechanics' Banking A88'n v. New York &:8. 00.,35 N. Y. 505; Bank v. Young, (N. J. Err. & App.) 7 Atl. Rep. 488; Wright v. Line 00" 101 Pa. St. 204; Water 00. v. DeKay, 36 N. J. Eq. 548; Oredit 00. v. Howe Mach. 00., 54 Conn. 357, 8 Atl. Rep. 472; Gelpcke v. City of Dubuque, 1 Wall. 203; Genesee CoontySav. Bank v. Michigan Bdrge 00., 52 Mich. 438,18 N. W. Rep. 206; Bird v. Daggett, .97, Mass. 494. The learned judge below held that these authorities did not apply because of the general statutes of .Michigan, above referred to, making it divert the operati'onsot to appropriate the funds of a corporation to purposes'not set forth in the articles of association. In his view thi$.statutor¥ 'denuiDciation ofultr'a vires acts renders aocommodation paper absolutely void; We cannot agree with him. The generalbwrmsof the statute .indicate that it was in this respect merely deolamtory olthe comr:n.orilaw,M the legislature of Michigan had intended to establish a rule of liability'for corporations of that state differeoth'om that 'applied everywbereelse, it would have used. ml>rJlspeoitio "language, so that'iis purpose could stood. .'.,,/' ';. Negotiable .in'str,nrnentshltvingtheir origin in a transaction forbidden bystatuteareinl>tt\'oid:inthehands'ofa bO'i/;a fide·holder fONTaIue wit}:lcmt n,otioe' unless thtl 1statute,expresalydeclares them to be void. Chit. Bills, 95; Story; ,1l'rOOt'.'Notes',§ 192; Daniel, Neg. Inst.§ 188; Norrisv. Langley, 19 N. H. 423; Bank v. Thompson, 42 N. H. 369; Converse v. Dooter, 32 Vt. 8'28; 831jWyaUv::1hlmer, 2 Esp. 538. . . tIereis nota specific aVO'icling' of accommodation paper issued by corpOrations; and we going much too far to give such effect to the' very general language eonsideration. '.In Bird v. Daggett, 97 MaBJij,·'494,:itwas held that Where an agent of lli'oorporationl dUly 'authorized t6 i gi'gn all notes and business paper, unlawfUlly gave in the name of the company, the company wasHable toa bonajldeholderfor value before maturity. The general statute· of Massaohusetts';,tlike the Michigan' statute, provided that it should ·be unlawful for' it to divert its operations. Or appropriate its fUdds to otherpurposesthani those set' forth in its l!Irtic1esof association, The casElls exaotlyHlte the one at bar. :" . .: fJ.'he Michigan cases cited j de' not IDeet the point. In Beecher v. Dacey, 45u Mich. 98r7 N. W. Rep.6'S1');the making ofacco.mmodationacceptances was said not to be of the eorputation, but

POUII.IN V. 9ANADIAN PAC. BY. CO·

197

there was in that case no question of the rights of a bona fide holder for value. The same is true of the cases of McLellan v. Pile Works, 56 Mich. .582, 23 N. W. Rep. 321, where the court held that the plaintiff had notice of facts from which he ought to have inferred the real character of the paper. The case of Merchants' Nat. Bank v. Detroit Knitting & Corset Works, 68 Mich. 620, 36 N. W. Rep. 696, seems to be based wholly on McLellan v. File Works, and turned on the question of the general authority of the agent signing the acceptance. The statute and its effect are not considered at all. The judgment of the circuit court is reversed, with instructions to order a new trial.

·

POUlLIN

v.

CANADIAN PAC.

Ry.

Co.

(Circuit Court of Appeals, Sixth' Circuit.

October 11, 1892.)

No. 42.

1. CARRIERS-EJECTION OIl' PASSENGER-DEFECTIVE TICKET.' The face of a railway ticket is. conclusive evidence to the conductor of the terms of the contract between the passenger and the company, and the purchaser, of a defective, ticket, who is ejected from a train, must rely upon his action against the company for the negligent mistake of the ticket agent. Rattwwu 00. v. Bewnett, 50 Fed; Rep. 496, 1 O. O. A. 544, followed. I. BAME-OO:STRIBUTORY NEGLIGENCE. At the city ticket office of a railroad company a passenger paid the price ofa ticket from Detroit to Quebec and return, but, by mistake of the agent, was given a ticket, 'both parts of which were stamped for passage from Detroit to Quebec. He discovered the mistake when about to take the train. and thereupon conll'u.lted a person temporarily in charge of the st/ltion office during the absence of the agent. This person 8aid he had no authority to correct the mistake: but tbought the'matter wO,uld be all rigbt. The passenger went to Quebec, ana ,spent severalWlleks. but on the way home was ejected from the train. HeUl, that he was r know that the conductor had a ,right to refuse the ticket, !);nd tberefore, in boarding the train, was guilty of negligence barring a recovery in tort. and r6ndeting his damages merely /lominal if bi8action is on contract.. BROWN, J., dissenting on the ground,that; under all the circumstances of the case, tbe question of contt-ibu'tQry negligence was one for tbe jU,ry. Eddy v. Wallace. 49 Fed. Rep. 801, 10. O. .A. 435, l1nd Evan8 v. RaiZroad Co·· (Mich.) 50 N. W. Rep. 386, distinguished. 8. SAME. ' The fact that one conductor allowed a passenger. 'Wbo was ,snbsequently ejected by another conductor, to ride on a defective ticket, does not affect the proper standard of due care on the part of the passenger in trying to cure the defect.
   

In Error to the Circuit ,Court of the United States for the Eastern District of Michigan. Action on the case by John B. Poulin against the Canadian Pacific Railway Company to recover damages for ejection from a train. The declaration was demurred to on the' ground that it should have sounded in contract. Demurrer overruled. 47 Fed. Rep. 858. Jury instructed to find fot: defendant. Plaintiff brings error. Affirmed. Statement by TAFT, Circuit Judge: Plaintiff was a resident of the city of Toledo, Ohio, and the defendant was a railway corporationorgapized under the laws of the Dominion of Plaintiff Oanada. The facts shown by the evidence were as