present and does not act with the board or committee when the note is purchased or discounted is not imputable to the bank [citing New York cases]. We think, however, that, if the distinction is sound at all, it has no application where the director is transacting business with his bank for himself, and in its transaction fraudulently conceals facts which if made known to the bank would defeat his purpose."' 79 A leading case on this phase of the subject was decided in Massachusetts in 1885 wherein the court said: "In some of these cases, weight appears to be given to the fact that the director was not actually present at the meeting when the transaction was concluded; but this cannot be of importance. If it were shown that Burgess urged the loan upon the board of directors and actually voted in favor of it, his associates not seeing fit to intervene or object to this conduct, he would still have acted on his own behalf, and of those whose interests and efforts were of necessity adverse to those of the corporation. To assume that, under such circumstances, the facts he knew were communicated to the directors, and that he laid before them the fraud he was committing in wrongfully pledging property, would be a presumption too violent for belief, and would do great injustice to the remaining directors and the interests they represented."' 80 Of course the rule would be otherwise if the interested directors constituted a majority or, perhaps, if their votes were necessary to conclude the deal. In Massachusetts, where a note was discounted, according to custom, by the cashier and one director acting together, it was held that knowledge of the director was imputable to the bank.81 In North Carolina, where the president of a bank discounted a note payable to him, it being the custom for himself and the cashier to constitute the discount committee, and he actually participated as a member of such committee in the discounting of the note, his knowledge of defenses to the note was held imputable to the bank.82 §2253. Qualification of exception in case of fraud perpetrated by officer upon third person for his own benefit but acting in official capacity. When the act of an officer of a corporation constitutes a fraud upon a third person, or upon another corporation of which he 79 Lilly v. Hamilton Bank of New York, 178 Fed. 53, 58, 29 L. R. A. (N. S.) 558, approving Terrell Branch Bank, 12 Ala. 502. V. Nat. 80 Innerarity v. Merchants' Bank, 139 Mass. 332, 335, 52 Am. Rep. 710, 1 N. E. 282. Contra, Union Bank 82 Le Duc v. Moore, 111 N. C. 516, 15 S. E. 888. is also an officer, the first-mentioned corporation is chargeable with notice of the nature of the transaction, although the fraud is perpetrated for his own benefit, where he also represents the corporation in the transaction.83 In a Massachusetts case, where the treasurer of a corporation paid his deficit to it by drawing checks upon another corporation, of which he was also treasurer, no other officer of either corporation having knowledge of the true nature of the transaction when it occurred, it was held that the knowledge of the treasurer was imputable to the corporation receiving the checks, as he represented it in the transaction; and the receipt of the checks was therefore treated as wrongful, and as imposing a liability on the corporation to repay the amount 83 California. Tafft v. Presidio & F. R. Co., 84 Cal. 131, 11 L. R. A. 125, 18 Am. St. Rep. 166, 24 Pac. 436. Connecticut. First Nat. Bank of New Milford v. Town of New Milford, 36 Conn. 93. Kentucky. Mutual Life Ins. Co. of Kentucky v. Chosen Friend Lodge No. 2, I. O. O. F., 29 Ky. L. Rep. 394, 93 S. W. 1044. Atlantic Cotton Massachusetts. Michigan. Detroit Motor Co. v. Missouri. Leonard v. Latimer, 67 Mo. App. 138; Withers v. Lafayette County Bank, 67 Mo. App. 115; Steam Stone-Cutter Co. v. Myers, 64 Mo. App. 527; St. Louis Union Society v. Mitchell, 26 Mo. App. 206. New York. Holden v. New York & E. Bank, 72 N. Y. 286; Fishkill Sav. Institute v. Bostwick, 19 Hun 354; Van Leuvan v. First Nat. Bank of Kingston, 6 Lans. 373. Pennsylvania. In re Millward-Cliff Cracker Co.'s Estate, 161 Pa. St. 157, 28 Atl. 1072. Texas. Smith v. Boatman Sav. Bank, 1 Tex. Civ. App. 115, 20 S. W. 1119. Virginia. Barksdale v. Finney, 14 Gratt. 338. "Where an officer or agent of a corporation takes advantage of his official position to perpetrate a fraud upon a third person, acting at the time in his official character upon a matter within the sphere of his duty, the eorporation must be presumed to have notice of all facts within his knowledge affecting the validity of his act: 6 Southern Law Review, 821. Although in cases where there is no fiduciary relation, it will not be presumed that a person will disclose his own fraud, no such presumption can be indulged here against the counter presumptions that an agent has communicated to his principal all material facts known to him affecting a transaction in which he is acting as such agent in the line of his duty. For the protection of third persons it must rather be presumed that the principal has authorized the agent's act, with notice of the fraud." Note by Mr. A. C. Freeman in 36 Am. Dec. 188, 194. The knowledge of the general manager of a bank and his fraud is imputable to the bank although he took some personal benefit from the fraud. Williams v. Hasshagen, 166 Cal. 386, 393, 137 Pac. 9. "The fact that those agents committed a fraud cannot alter the legal effect of their acts or of their knowl to the other corporation.84 So where a general manager attempts to relocate a claim for his company, which is a fraud on another company, his knowledge of the fraud is imputed to the first-named corporation.85 This rule has also been applied in an Oklahoma case to a reissue of the majority of the stock of a corporation by the president without the surrender of the original certificates, although the president in reissuing the stock was acting in his individual capacity, where the stock could not be reissued without his own official act, and he reissued it with knowledge that it was fraudulent as to the rights of bona fide holders of the stock.86 Other illustrations are given in the note below.87 On the other hand, fraud of a corporate edge with respect to the company in obtain a loan to himself. Fishkill regard to third parties who had no Sav. Institute v. Bostwick, 19 Hun connection whatever with them in re- (N. Y.) 354. See also In re Millwardlation to the perpetration of the Cliff Cracker Co.'s Estate, 161 Pa. St. fraud, and no knowledge that any 157, 28 Atl. 1072. Compare Gunster such fraud had been perpetrated." Scranton Illuminating, Heat & Armstrong v. Ashley, 204 U. S. 272, Power Co., 181 Pa. St. 327, 59 Am. 283, 51 L. Ed. 482. St. Rep. 650, 37 Atl. 550. 84 Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 9 Am. St. Rep. 698, 17 N. E. 496. 85 Argentine Min. Co. v. Benedict, 18 Utah 183, 55 Pac. 559. 86 First Nat. Bank of Sulphur Springs v. Stribling, 16 Okla. 41, 86 Pac. 512. 87 A bank is chargeable with notice of facts invalidating the title to securities obtained by the collusion of its teller with an officer of another bank, by certifying the check of an irresponsible person, which is taken up by the other bank. Atlantic Bank v. Merchants' Bank, 10 Gray (Mass.) 532. Where a town treasurer gave his note, as treasurer, to raise money for his own use, and discounted the same as cashier of a bank, it was held that the bank was chargeable with notice of the fraud. First Nat. Bank of New Milford v. Town of New Milford, 36 Conn. 93. The same is true where the treasurer of a corporation fraudulently pledges securities of the corporation to a bank of which he is cashier, to V. Where a person who was alone able to represent a corporation, of which he was president and sole manager, purchased for the company property which he had previously purchased as an individual, it was held that his knowledge that there was a balance due on the original purchase was imputable to the corporation. Steam Stone-Cutter Co. v. Myers, 64 Mo. App. 527. Knowledge by a member of a firm of the true consideration of a certificate of deposit, which the firm discounted at a bank in payment of individual notes of one of its members, and which had been negligently altered in making out a duplicate certificate, was held to be imputable to the bank, where the other member of the firm was its president, and acted as its sole representative in accepting the certificate. Niblack v. Cosler, 80 Fed. 596, aff'g 74 Fed. 1000. And where the president and cashier of a bank, being also members of a partnership composed of themselves and another person, to the capital of which they had, under the partner agent, practiced on a third person, is not imputed to the corporation where he was acting adversely as an individual or as the agent of the other party, as distinguished from acting for his corporation.88. §2254. Rule where act is ratified by corporation. If a corporate officer or agent acquires knowledge or is given notice, and the corporation adopts or ratifies the act in connection with which the knowledge was obtained or the notice given, notice is imputed to the corporation, although the circumstances are such that otherwise the corporation would not be chargeable therewith. If a corporation ratifies an unauthorized contract or other transaction by an officer, it is chargeable with his knowledge of fraud, illegality or other facts in the transaction.89 This rule is often applied in case of fraud upon the part of the corporate officer or agent.90 Thus, the New Hampshire court recently said, in distinguishing certain decisions claimed to be contrary to the general rule, that "in both cases the principals were seeking to hold an advantage acquired through the fraudulent acts of their agents, and were chargeable with the fraud by virtue of the ship articles, agreed to contribute a certain sum, executed and delivered to the bank, without the knowledge of the other partner, a note in the name of the partnership, for the purpose of raising the money they had agreed to contribute to the partnership, it was held that the bank was affected with notice that the transaction was for their private benefit, and that it could not hold the other partner liable on the note. Brobston v. Penniman, 97 Ga. 527, 25 S. E. 350. 88 Innerarity v. Merchants' Nat. Bank, 139 Mass. 332, 52 Am. Rep. 710, 1 N. E. 282. 89 Singleton v. Bank of Monticello, 113 Ga. 527, 38 S. E. 947. The knowledge of the president of a bank that certain stock is not fully paid up is imputable to the bank, where he, acting for it, accepts a transfer of the stock, and it retains the same. Fouche v. Merchants' Nat. Bank of Rome, 110 Ga. 827, 36 S. E. 256. A bank, by bringing an action upon a contract of loan made by an officer without authority, ratifies the contract, and is chargeable with knowledge possessed by the officer that the lean was in furtherance of an illegal purpose. Singleton v. Bank of Monticello, 113 Ga. 527, 38 S. E. 947. 90 Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 9 Am. St. Rep. 698, 17 N. E. 496; Brookhouse v. Union Pub. Co., 73 N. H. 368, 2 L. R. A. (N. S.) 993, 111 Am. St. Rep. 623, 6 Ann. Cas. 675, 62 Atl. 219, explaining First Nat. Bank v. New Milford, 36 Conn. 93, and Holden v. New York & E. Bank, 72 N. Y. 286, on this ground. Where the cashier of a bank, having a stockholder's certificates of stock to sell or pledge for him, and pay over to him the proceeds, deposits the proceeds in the bank, and the bank appropriates the same to an indebtedness of the stockholder, it is chargeable with notice of the cashier's fraud, and cannot make the appropri ation. Winslow v. Harriman Iron Co. (Tenn. Ch. App.), 42 S. W. 698. familiar principle that a person cannot ratify acts and disaffirm the fraud that is a constituent part of them."91 Moreover, in such a case, it seems, it is immaterial, so far as notice being imputed is concerned, whether the officer having knowledge acquired it in transactions where he was acting in good faith for the corporation or in transactions where he was acting in bad faith.92 If a corporate agent really acts for himself with intent to defraud a third person, his knowledge is that of the corporation, to the extent at least of requir ing the corporation to restore what has come into its hands through the fraud.93 § 2255. Stipulation against communication of knowledge. There is no presumption of notice to a corporation of facts communicated to an officer, where it is expressly stipulated or understood that the facts shall not be communicated. Where the cashier of a bank, by direction of the president, made a loan to a person known by them to be insolvent, but with the understanding that this fact should not be communicated to the bank, it was held that the bank was not chargeable with notice.94 § 2256. Knowledge as imputed to officer-Notice to one officer or agent as notice to other officers or agents. It has been held that "where a corporation has two agents of equal power and authority, notice to one is constructive notice to the other, and, therefore, notice to the corporation." 95 As to this, of course, there is no question. § 2257.- Knowledge as officer as imputed to himself as individual. Whatever knowledge a director or other officer has or ought to have officially, he has or will be conclusively presumed to have as a private individual.96 § 2258. - Knowledge of officer as imputed to another officer as an individual. While it seems to have been held in North Dakota that knowledge of one officer of a corporation which is imputed to the 91 Brookhouse v. Union Pub. Co., 73 N. H. 368, 2 L. R. A. (N. S.) 993, 111 Am. St. Rep. 623, 6 Ann. Cas. 675, 62 Atl. 219. 92 Farmers' Bank v. Saling, 33 Ore. 394, 54 Pac. 190. 93 White Plains Coal Co. v. Teague, 163 Ky. 110, 173 S. W. 360. 94 First Nat. Bank of Sturgis v. Reed, 36 Mich. 263. 95 Perry v. Simpson Waterproof Mfg. Co., 37 Conn. 520, 538. 96 McCarty v. Kepreta, 24 N. D. 395, 48 L. R. A. (N. S.) 65, Ann. Cas. 1915 A 834, 139 N. W. 992. |