Ætna National Bank v. Charter Oak Life Insurance

Stoddard, J. *

The defendant is a life insurance eom *183 pany, with no unusual powers respecting the subject of this action. A judgment is demanded against it grounded upon an indorsement made in its name upon an accommodation note. The note was made by one Oliver H. Clark, for the accommodation of the Connecticut Valley Railroad Company, was made payable to the order of the railroad company and bore the following indorsements:—“ The Charter Oak Life Ins. Co., by J. C. Walkley, President.” “J. C. Walkley.” “The Conn. Valley Railroad Co., by J. C. Walkley, President.” The note was discounted by the plaintiff bank and the proceeds placed by the plaintiff, by direction of Walkley, to the credit of the railroad company upon the books of the bank. When the discount of the original note (the note in suit being a renewal,) was made the railroad company had overdrawn its account with the plaintiff, and after applying the proceeds of the discount upon that account there still remained an overdraft of $228.08.

It is not claimed by the plaintiff that there is any express authority in the charter of the defendant to authorize the use of its name by way of accommodation indorsement to pay the debts or to raise money for the use of the railroad company, nor that the indorsement in question was made by any express authority of the board of directors of the defendant corporation. Of course it is entirely clear that the Charter Oak Life Insurance Company was not chartered to pay the debts, or to raise money for the use, of the Connecticut Valley Railroad Company, and that any use of its name by any agent by way of accommodation indorsement to that end is wholly unwarrantable, illegal, and ultra vires. The plaintiff having discounted such accommodation paper, and appropriated the ^proceeds to the payment of a preexisting indebtedness of the railroad company, must hold the indorsement in question subject to all the ordinary limitations upon the power of an agent of such a corporation to •use the name of the principal.

Two considerations are urged by the plaintiff to avoid the application of that salutary principle which forbids an *184 agent of a corporation to use its property for ends, purposes and objects foreign to the intent of the incorporating act. •

First, it is contended that the indorsement of the defendant was made by a person having general authority to use the name of the defendant corporation by way of indorsement without restriction; secondly, that the indorsement in question was not an accommodation indorsement, but was for value and in regular course of business.

Relative to the first contention, the case states that the indorsement was made by J. C. Walkley, who Avas president of the life insurance company from 1853 and of the railroad company from 1869, to April, 1876, and that “the plaintiff - did not claim that Walkley had any express authority from the defendant to make the indorsement as president of the defendant company, but claimed that he had an implied authority by having been in the habit of indorsing paper and other obligations as president of that company; and from 1871 till after the date of the note in suit, he Avas the acting business manager of the defendant company, Avith the knowledge and consent of its directors, and signed and indorsed notes, checks and other obligations of the defendant to a large amount as its president. But the court is unable to find that he had made any signature or indorsement of the name of the company, as its president, to any paper or obligations of any kind with the knowledge of the defendant company or of its officers, which they recognized as binding on it, except when it was' understood that the defendant was to receive the proceeds or direct benefit thereof.” This finding of the court beloAV disposes of this claim of the plaintiff. As president and general manager of the defendant corporation there is nothing in his acts or otherwise to show that Walkley was invested with power to use the name of the defendant except to promote the purposes of its creation and in regular course of its business. Being permitted to sign and indorse the defendant’s name upon paper in cases where it ‘‘was to receive the proceeds 1 or direct benefit thereof,” does not empower such agent to indorse accommodation paper to pay the debts of a third *185 party. Perry v. Simpson Waterproof Manf. Co., 37 Conn., 534 ; Swazey v. Union Manf. Co., 42 id., 559 .

It is also said by the plaintiff that this indorsement was for value, in the regular course of business, and therefore that the act of Walkley in making the indorsement was authorized. And in this relation it is found that the defendant held the amount of $76,000 of an issue of a million dollars of first mortgage bonds of the railroad company, and all its second mortgage bonds, amounting to $1,250,000, as collateral security for a large indebtedness to the defendant from the railroad company; the amount of which indebtedness is not found. The interest coupons of the first mortgage bonds were due July 1st, 1875; the railroad company at this time had no available funds with which to pay them, and the defendant was embarrassed by the failure of a New York concern with which it had financial dealings. Prior to June 30th, 1875, the defendant had generally provided for the payment of the coupons by loaning the railroad company the money, but it is not found that there existed any agreement on the part of the defendant to pay the coupons due July 1st, 1875, or to provide for their payment. Walkley, at the time of the discount of the note, said to the officers of the plaintiff that the maker (Clark) was good; that the railroad company could not their meet the payment of the coupons, but that he hoped it would be able to pay the note at its maturity from earnings of the road, but if not paid, either by the maker or the railroad company, the defendant would pay it; that it was for the interest of the defendant to have the coupons paid promptly in order to keep up and maintain the value and credit of the bonds, and that the defendant had ample security. The cashier of the plaintiff bank supposed from what Walkley said to him at the time the note was discounted, that it was virtually for the benefit of the defendant, and was to be used by the railroad company in payment of interest coupons of the first mortgage bonds. The defendant at the time of this discount had on deposit in bank from $145,000 to $148,000 subject to check. The railroad company then and for years *186 prior thereto kept its account with the plaintiff; the defendant never had any account with the plaintiff, did not agree to pay any of the coupons, and did not pay any. Under these circumstances, there being no contract by the defendant to pay the debts of the railroad company, the plaintiffs claim that the indorsement in question was not an accommodation undertaking, must be based upon the assumption that the bonded indebtedness of the railroad company had in some other way become actually the debt of the defendant, and that the defendant was bound to pay the coupons, for under the 'facts disclosed in the finding it certainly was not for the interest of the defendant to pay these coupons. Holding but $76,000 of the first mortgage bonds as collateral security, there could be no other object in paying the coupons upon the entire issue of a million dollars except to preserve the speculative value of the entire issue. The real value to the defendant of the $76,000 held by it would be seriously impaired by the payment by it of the coupons due July 1st, 1876, and would have been entirely annihilated by its payment of the coupons due January 1st, 1876. There is nothing to found this claim of the plaintiff’s upon, no contract express or implied on the part of the defendant to pay the debts of the railroad company, and no facts in the case to warrant the inference that the payment of these interest coupons would affect the value of the second mortgage bonds directly or indirectly. Indeed it is left doubtful by the finding whether the second mortgage bonds had any value to be protected. It does not appear that they had any value whatever. And without further touching the question of the power of this defendant, chartered for a special purpose, and holding its funds and property in trust for a particular object, to assume as principal debtor the payment of interest coupons to the extent of seventy thousand dollars a year for the purpose of protecting the market value of bonds held as collateral security for an indefinite and unascertained sum, is is sufficient to remark that this act of Walkley’s was not in the regular course of business and that he had no power to involve the defendant corpora *187 tion in such obligations. Further, it may be noted that when the note was discounted Walkley said to the officers of the plaintiff bank, “that the maker of the note was good, * * that he hoped the railroad company would pay the note at its maturity, * * but that if not paid -either by the maker or railroad company the defendant would pay it.” Here is a direct, unequivocal statement made to the officers of the plaintiff at the time of the discount that the defendant was to be regarded as a mere accommodation indorser, and that the obligation of the defendant was not to be relied upon except upon the failure of both the maker and the railroad company to pay the note. Again, the form of the indorsement of the defendants’ name upon the note was by Connecticut law notice to the plaintiff that the defendant was not primd fade an indorser for value or in regular course of commercial business. Riddle v. Stevens, 32 Conn., 387 .

These considerations, with the fact heretofore stated, that the proceeds of this discounted note were appropriated by the plaintiff and applied in payment of a pre-existing indebtedness from the railroad company to the plaintiff, make further comment on this point superfluous.

Neither is there anything in this case to permit the application of the doctrine of equitable estoppel. The plaintiff was in no wise misled; it had full knowledge, it has parted with nothing.

Another consideration exists equally conclusive against the plaintiff’s right to recover in this action. The indorsement in question in the defendant’s name is a blank indorsement of a negotiable note by a person not a party to that note. In Connecticut such an indorsement has a peculiar but absolutely settled import. It is found that no contract different from that implied by law existed, and it is further found as follows:—“ It was not proved nor claimed by the plaintiff that it had ever taken any steps to collect the note of the maker, nor that he was not of sufficient ability to pay'it when it fell due, nor that the same could not have been collected of him by the use of due diligence; ” thus *188 negating the breach of the contract implied by law from such an indorsement. There is no reason why this rule of law should not govern this case. It is true that it is found that Walkley at the time the note was made, as president of the railroad company and of the defendant company, and individually, executed and delivered to Clark, the maker, a writing to the effect that whereas Clark had made the note to the order of the railroad company, in the sum of $4,500, for the benefit of the railroad company, the undersigned agreed to pay the note at maturity and save Clark from all loss thereon. The record however states that the court “does not find that this agreement was made by Walkley in pursuance of any authority from the defendant company, express or implied, and that it was not proved that the. plaintiff had any knowledge of it till long after the note became due.” This is an attempted use by Walkley of the defendant’s name upon an agreement declared in express terms to be wholly for the benefit of the railroad company. When Clark took this agreement and signed the note he had full knowledge that it was a scheme to pledge the credit and property of a life insurance company to secure the payment of a debt of a railroad company without consideration. This was manifestly beyond the powers of Walkley, and Clark had full information regarding all the facts. As-the defendant company was not liable on this agreement to Clark, the plaintiff certainly has no rights through an invalid agreement the existence of which was unknown to it. The plaintiff undertakes to draw a distinction between such-an indorsement by a third person “ for the better security of the payee,” and such an endorsement made for the “ purpose of getting the note discounted at bank.” This distinction is without foundation; no substantial reason is suggested to support it. The person discounting a note is practically the payee; the nature of the transaction with reference to the indorsement is the same; in the one case the payee named in the note refuses it unless he has the indorsement for his “better security,” in the other the person refuses to discount the note for the same reason.. *189 Hone of the decided cases countenance this attempted distinction, and in several the language used by the judges is inconsistent with its existence. By way of illustration see Riddle v. Stevens, 32 Conn., 387 , and Holbrook v. Camp, 38 id., 24. That of Case v. Spaulding, 24 Conn., 582 -3, cited by the plaintiff counsel, supports no such distinction. That case merely determines the real and true relation of the parties to a note, presents a question of good faith as between indorsers, and was well decided conformably to the doctrine since laid down in Dale v. Gear, 38 Conn., 18 , and Graves v. Johnson, 48 id., 164 , and in similar eases. The fact is that in the state of Connecticut the rule of law applying to indorsements of this character is no part of the law merchant. See remarks of Dutton, J., in Riddle v. Stevens, 32 Conn., 386 . The rule is peculiar to our state. Eminent judges while admitting have regretted its anomalous existence. See the language of Waite, J., in Castle v. Candee, 16 Conn., 238 , and of Dutton, J., in Riddle v. Stevens , cited above. A line of adjudications from the earliest history of our jurisprudence to the present time forbids further discussion in the courts as to the existence of this peculiar law, and warns us that the office of courts is “ jus dicere ” and not “ jus dare; ” to interpret law and not to make law. Although it may be that in the vast increase in recent years of commercial intercourse between our own and other states and countries, this rule, confined and peculiar to Connecticut, operates to declare a contract in most instances different from the actual intent of the parties, relief is to be had only through legislative action.

At the September term, 1880, of the Superior Court, the defendant moved for an order requiring the plaintiff to write over the blank indorsement of the defendant any contract which the plaintiff might claim to prove differing from that implied by law. The plaintiff objected to the making of such an order. The court however made the following order: “ The plaintiff has leave to amend by adding a new count on or before January 15th, 1881, and at the same time to designate the count on which it relies, or in the alterna *190 five, to write the contract which it claims on the back of the note over the indorsement of the defendant.” In compliance with this order the plaintiff, on the 14th day of January, 1881, filed the following:

“ Ætna National Bank v. Charter Oak Life Ins. Co. Hartford County; Supreme Court.

“ In the above entitled cause the plaintiff, in compliance with the order of the court, but protesting that said order is illegal and irregular, hereby gives notice that it intends to claim a recovery under the fourth count of the declaration, but does not hereby waive its right to offer evidence to support any other count of the declaration, and does not hereby waive its right to recover upon any other count of the declaration if the facts warrant such recovery.”

At the September term, 1881, of the court, at the commencement of the trial, the plaintiff upon request of the defendant refused to designate any one count of the declaration on which it intended to rety, and the plaintiff’s counsel read to the court the whole declaration, consisting of four counts, and claimed the right to offer evidence under each of the counts. Thereupon the defendant renewed its motion, and the court required the plaintiff to write over the indorsement on the note, before trial, any claimed contract differing from the one implied by law from such indorsement. This last order was in strict accordance with the rule stated in Castle v. Candee, 16 Conn., 234 , and with the settled practice in cases of this character. So long as the plaintiff relies upon the contract implied by law the defendant is apprised of the plaintiff’s claim, but when he seeks to avail himself of his right to prove another and different contract, then, in the language of the court in the case last cited, “ we think upon the principles of fair trial that it is the duty of the plaintiff, if required, to fill up the indorsement before trial with the agreement upon which he intends to rely in his proof.”

It is unnecessary to determine the effect of the order made in the first instance as limiting the right of a plaintiff to frame his declaration with different counts to meet the *191 exigency of his proofs, for the plaintiff refused, to conform to the order at the trial. That order was then abandoned and a new order made upon which the trial proceeded. The plaintiff was not affected by the original order. No question is here presented whether in a proper case the contract sought to be proved might not be stated alternatively. No claim was made that the plaintiff was uncertain as to what precise contract its evidence would tend to prove. The plaintiff simply refused to inform the defendant what agreement it claimed the defendant had made. It was very proper to require the plaintiff to do this.

Several questions of evidence arose upon the trial and are presented by the record, most of which are unimportant and are not pressed. Some however are insisted upon. William R. Cone, president of the plaintiff bank, was offered as an expert witness “ to prove that it is the custom and usage of banks generally to require all paper discounted by them to be bankable or commercial paper, and all persons indorsing the same to be bound thereby.” Unless this evidence was offered to contradict the contract implied by law from such blank indorsement, by substituting in place of the contract implied by law a contract implied from the usage and custom of banks, it was wholly immaterial. Nothing indicates that the paper was not “bankable or commercial,” or that the persons indorsing it were not “bound thereby.” The persons indorsing the note are “ bound thereby ” according to the rules of law applying to their indorsement and in no other way. If the evidence was offered to prove that banking people generally do not regard such blank indorsement as importing the contract which the Connecticut law implies, it was equally immaterial. Our peculiar rule of law in this particular did not spring into existence through, nor is it dependent upon, the understanding and custom of banks generally.

John W. Stedman, the insurance commissioner, was asked—“What was the condition of the defendant company as to solvency ? ” This was properly excluded. An inquiry as to the solvency of the defendant company as *192 bearing upon the necessity of indorsing this note in order to obtain money, is quite remote and inconclusive. And if the defendant, was commercially insolvent, that fact would not invest the president or any other agent with peculiar power to use its funds to pay the debts of the railroad company.

J. C. Walkley was asked whether, when he indorsed the note for the Charter Oak Life Insurance Company, he intended to assume the obligation of an indorser to the ¿Etna bank. This question was properly excluded on the ground stated in the ruling of the court below, that is, that the uncommunicated and unexpressed intent of Walkley was immaterial. Besides this there was properly no question as to whether he in fact “intended to assume the obligation of an indorser.” The controversy was as to the legal effect of that indorsement, and that is not to be controlled by his secret intent. His opinion was also properly excluded as to the effect of the non-payment of the interest coupons of the first mortgage bonds upon the value of the second mortgage bonds. If this was material to the issue, such effect could not be shown by the opinion of Walkley, not accompanied by any facts upon which the opinion proceeded. There is nothing to indicate that the witness had any special knowledge, or indeed that the subject was of a character upon which an expert’s opinion could be given. - The facts being shown it would seem that the court could .form an opinion as well as Walkley. Such opinion at the best would have been wholly speculative.

There is no ground for a new trial, and no error in the judgment of the court below.

In this opinion the other judges concurred.

In this case Judges Andrews and Stoddard, of the Superior Court sat in the places of Judges Carpenter and Pardee, who were disqualified by interest.