Presbyterian Board v. Gilbee

Opinion by

Mb. Justice Fell,

This appeal is from an order confirming the report of an auditor awarding distribution of a fund realized by a sheriff’s sale. The only question to be considered is the validity of the appellant’s title to bonds which were a lien on the fund and entitled to payment from it. In March, 1900, the Schuylkill Iron and Steel Company issued registered bonds, secured by a mortgage of its property, to the amount of $80,000. One half of these bonds it placed in the hands of two trustees, in whose names they were registered, to be held subject to the order of the board of directors. At the same time the board authorized the trustees to transfer bonds to the amount of $20,000 as collateral security to the holder of its outstanding notes. In April, 1900, the appellant bought these notes and received the bonds with other collaterals which accompanied them. In June, 1900, he loaned the company, $2,000, with which to pay wages, under an agreement that he was to receive its note with bonds of the face value of $7,000 as collateral. These bonds are the ones in question. When the loan was made, three of the board of directors, one of whom was the secretary, one the treasurer, and the other the general manager of the company, requested the trustees, one of whom was also a director, to deliver the bonds to the appellant, and the request was complied Avith. In July, 1900, the company was adjudged bankrupt, and subsequently its real estate was sold under proceedings' on the mortgage, which was prior in lien to the mortgage by which the bonds were Secured, and the fund for distribution Avas created by this sale.

It is conceded that the lien of the mortgage securing the bonds was divested by the sale and transferred to the fund, and that there was not an avoidable preference under the bankruptcy law, because there was a present consideration for the transfer of the bonds. The trustee in bankruptcy therefore stands in the same position that the company stood. He and the appellant are the only claimants of the fund, and no rights are involved except those of the appellant, who loaned the money on the faith of the pledge of the bonds, and those of the company Avhich borrowed it. The auditor rejected the appellant’s claim on the ground that the directors as a board had not authorized the trustees to deliver the bonds, and because the trustees, the registered owners, had not transferred the bonds nor executed a power of attorney for that purpose.

The trustees in whose names the bonds were registered and Avho had custody of them were not trustees under the mortgage by which the bonds were secured, but under a trust created for some business purpose of the company, and the limitation of their authority appeared only by a resolution on the minute book, and of it the appellant had no notice. He had before purchased bonds of the same issue, registered in the names of these trustees, which had been pledged as collateral for loans made the company, and. his title to them had been fully recognized by the company. The power of the officers to negotiate the loan and, as incidental to this power, to pledge the property of the company, is not disputed. The trustees in delivering the bonds, as they had before delivered similar bonds, were acting within the scope of their apparent authority. Conceding that the directors could act only as a board, and that the trustees were not duly authorized to make delivery, we have only the case of agents exceeding their actual authority. It is repugnant to every sense of justice and fair dealing that a principal shall avail himself of the benefits of an agent’s act, and at the same time repudiate his authority. A corporation may not avail itself even of ultra vires as a defense where a contract has been entered into and executed in good faith by the other party and the corporation has received the benefit of the performance: Oil Creek, etc., Railroad Co. v. Penna. Transportation Co., 83 Pa. 160; Boyd v. American Carbon Black Co., 182 Pa. 206.

The contention that the appellant’s title was defective because the trustees had not executed a power of attorney for the transfer of the bonds, is without force. The delivery of the bonds was an equitable assignment of them which could be enforced to protect the consideration paid to the company. It was the ordinary case of loaning money on collateral security. The clear intention of the parties to the transaction was that the legal title should be vested in the appellant, and he had at the time blank powers of attorney which had been delivered to him with the bonds accompanying the notes which he bought, which could be used for the purpose of transferring these bonds. There was no necessity for making new powers.'

We are of opinion that the appellant is entitled to recover from the fund in court the amount of the loan he made, with interest thereon.

The order of the court affirming the auditor’s report is reversed, and it is directed that distribution be made as indicated in this opinion.