Wright's Appeal , 1882 Pa. LEXIS 177 ( 1882 )

Mr. Justice Paxson

delivered the opinion of the court, February 27th 1882.

The amount involved in this case is large, and it is apparent that a heavy loss must fall upon one of two innocent parties. Both appear to have reposed blind confidence in John S. Morton, who is the central figure in the unpleasant story of speculation and dishonor which this record unfolds.

The learned counsel for the respective parties have furnished us with able and exhaustive arguments upon the points presented, and we have no difficulty in arriving at our conclusions upon the law of the case.

The assignments of error raise but two questions: 1st, was Morton the agent of the company or of the appellant ? and, 2d, are the company estopped from denying the validity of the shares for which the fraudulent certificates were given to appellant %

The learned court below, while recognizing the great and admitted hardship of the appellant’s case, held, nevertheless, that “ Mr. Morton was as much her agent as that of the company, and that the burden of his fraudulent acts must bo left where he placed it.”

This view was quite as favorable to the appellant as she had a right to expect. Morton was undoubtedly her agent. The learned .Master finds and reports as a fact, that she delivered to Morton 1780 shares of valid stock, taking his individual due-bill therefor. These certificates with executed powers of attorney in blank irrevocably constituted an attorney to sell, assign and transfer the same. Under these powers, 1380 shares, the number in dispute, were sold and transferred to parties who are holders for value and without notice. It is, therefore, too clear for argument that as to the shares thus sold, Morton was her agent and attorney expressly authorized in writing under seal, to sell or pledge the stock. And having sold it, he was liable to account to her for the proceeds. But it is said he borrowed the stock for the company of which he was the president, and that he was the agent of the company for that purpose. Upon this subject the master finds “ that the company had not authorized' Morton to borrow certificates for its use, and that its treasury was sufficient for its needs, and that the money realized in the sale of the valid shares was not' applied to corporate uses.” It was not alleged that this finding of fact was not correct. Indeed it was not attempted to be shown that .Morton had any express authority from the company to borrow the appellant’s stock, or that one dollar of the proceeds thereof had ever gone into its treasury. It was contended, however, that he possessed such implied power; that, from either the assent or the supineness of the directors, he had, as president of the corporation, drawn unto himself all of its powers, and directed all of its affairs without control or restraint from any one. There is no doubt that in the management of the business of the corporation, Mr. Morton was permitted to exercise large powers. It is also true that the powers of a president to bind his company are broad, and such powers may be implied, like those of any other agent, from a known course of dealing. Thus it has been repeatedly held that if a- corporation permits its agent to exceed his powers from time to time, and subsequently ratifies his acts, it cannot afterwards set up such excess of authority as against a person who has been deceived by it. This principle is so familiar that a reference to the cases is unnecessai’y. No such course of dealing existed in this case. There is no evidence that Mr. Morton ever borrowed a dollar for the company. He did not even borrow the appellant’s stock for the company. He borrowed it for himself, and gave his individual note therefor, with his own securities as collateral. It is true, as the Master finds, he told the appellant that he intended to use the money for the company, but this naked falsehood did not alter the legal effect of the transaction, however much the appellant may have been deceived and misled by it. Had this, in fact, been a loan for the corporation, though unauthorized, and had the money gone into its treasury, we would have had an entirely different question before us.

The implied powers of the president or agent of a corporation, must be considered in connection with the usual and legitimate business of such corporation. Had Mr. Morton made a contract for the lease of an office, as in Steamboat Company v. McCutcheon, 1 Harris 13, or to purchase horses, cars or material needed for the purposes of its business, it might have been binding upon the corporation because it would have been among the implied powers of its president. So far the cases go; but I know of no authority which holds that where he borrows money for himself upon his own note he can bind the corporation therefor by falsely representing that he wants the money for his company. The authorities are the other way. It is sufficient to cite Angelí & Ames on Corporations §§ 220 to 297; Martin v. Great Falls Manufacturing Co., 9 N. H. 451.

This brings us to the second branch of the case. Was the company estopped? The appellant contends that because the dividends continued to be paid upon her stock, it was a recognition by the company of her ownership of it.

This may be disposed of in a few words. The case lacks the essential elements of an estoppel. A party is not estopped or concluded by his own admissions unless another person has been induced by them to alter his condition: Heane v. Rogers, 9 B. & C. 577; Newton v. Liddiard, 12 Q. B. 925. In Bigelow on Estoppel, p. 437, it is laid down that the following elements among others must be present, in order to work an etoppel: 1. The party to whom the representation was made must have been ignorant of the truth of the matter; and, 2. The other party must have been induced to act upon it. Both these essential elements are lacking in this case. The appellant to whom the dividends were made is chargeable with knowledge of the fact that Morton, her agent and attorney, had transferred the stock. And secondly, there is no evidence that the appellant was induced to act on account of the dividends. She parted with nothing on the strength of them. Her stock was gone, hopelessly gone, in the ruin which overtook John S. Morton. There is no evidence that her condition was in any way changed by the receipt of the dividends. If changed at all, it was for the better by just their amount.

Aside from this, until the discovery of Morton’s frauds the appellant was entitled to the dividends. The stock was pledged, not sold. In such case the dividends are paid to the pledgor. This is the case, even if the pledgee has had the stock transferred into his own name. He collects the dividends and pays them to the pledgor. Morton from time to time received orders for the dividends from the pledgees, and when presented to the company the latter was in duty bound .to pay them to the appellant. It will be observed there was no double payment — to the appellant and to the pledgees.

It does not help the case of the appellant, that Morton subsequently gave her certificates of stock signed by the proper officers and attested by the seal o± the company, for those he had borrowed and converted to his own use. Such new certificates were a fraudulent over-issue, and the result of an unlawful and criminal conspiracy between Morton and the other officers concerned therein. The appellant gave the company no value for them. The case is one of clear embezzlement on the part of Morton; and much as we regret the loss it will entail upon the appellant, we see nothing that would justify us in throwing the consequences of her misplaced confidence upon the appellees. The cases of Association v. Sendmeyer, 14 Wright 67; Finney’s Appeal, 9 P. F. S. 398; and Pennsylvania Railroad Company’s Appeal, 5 Norris 102, show where the loss should fall in such a-case as this.

The decree is affirmed, and the appeal dismissed at the costs of the appellant.