Summary
In Squire, the superintendent of banks for the State of Ohio brought suit against the defendants, the makers of a promissory note payable to the Union Trust Company of Cleveland, to hold the defendants liable on the note.
Summary of this case from F.D.I.C. v. FranksOpinion
No. 26670
Decided February 16, 1938.
Banks and banking — Corporate affairs administered primarily by board of directors or executive committee — Sections 710-61 and 710-62, General Code — Vice-chairman of board cannot release makers of promissory note, when — Burden on makers to prove authority of vice-chairman, when.
1. Under Sections 710-61 and 710-62, General Code, the control, government and management of the affairs of an Ohio banking corporation rest primarily with its board of directors and the executive committee appointed by the board.
2. The vice-chairman of the board of directors of an Ohio banking corporation has no inherent power to release, otherwise than in due course and upon payment, the makers on a promissory note payable to the bank. If such vice-chairman undertakes to do so on his own initiative and without authority, he is acting outside the scope of his apparent powers and not according to usage, practice or the usual course of business, and the bank will not be bound thereby.
3. In a suit brought against the makers on a promissory note payable to a bank, if the defense interposed is a release from liability through a novation, it is not enough for the defendants to show that such novation was approved by the vice-chairman of the bank's board of directors, but defendants must also show by affirmative proof that the vice-chairman had express authority from the board of directors or the executive committee to make such agreement, or that he had been allowed to exercise independent authority in the same or similar matters on other occasions, or that such agreement had been brought to the attention of the board or committee and duly ratified.
APPEAL from the Court of Appeals of Cuyahoga county.
On May 7, 1935, S.H. Squire, superintendent of banks of Ohio, in charge since June 15, 1933, of the liquidation of The Union Trust Company of Cleveland, an Ohio corporation, took judgment in the Court of Common Pleas of Cuyahoga county against Margaret T. Frasier and Kate W. Frasier, in the sum of $11,762, on a cognovit note with warrant of attorney to confess judgment attached, executed by them under date of May 12, 1926, and made payable to The Union Trust Company.
Following the procedure outlined by Section 11635, General Code, the Misses Frasier obtained a suspension of the judgment and were granted leave to answer.
Their answer set out that the note in question had been secured by a mortgage on real estate, and that they had been completely and fully released from all liability on the note by the bank, pursuant to an agreement whereby they had secured the payment of certain delinquencies and had conveyed the mortgaged premises to a purchaser, satisfactory to the bank, who assumed and agreed to pay the mortgage indebtedness, and who had been accepted by the bank as sole debtor or obligor.
Upon the trial, Margaret T. Frasier testified as to such agreement, which was oral. She stated it had been made in the early part of 1932 between herself and George Coulton. Mr. Coulton was then vice-chairman of the board of directors of The Union Trust Company. He died April 18, 1933. There was no other evidence on this particular point.
At the conclusion of all the evidence, the trial court took the case from the jury and rendered judgment for the Superintendent of Banks on the ground that the evidence failed to show any authority on the part of Mr. Coulton to cancel the obligation against the Frasier sisters. Later, by entry, the court reinstated and restored the judgment of May 7, 1935, and made it the final judgment.
On appeal to the Court of Appeals, the judgment below was reversed by a divided court, without opinion, and the case remanded to the Court of Common Pleas for further proceedings.
The case is now before the Supreme Court by reason of the allowance of a motion to certify the record.
Mr. Herbert S. Duffy, attorney general, Mr. E.S. Lindemann and Mr. Sylvester Marx, for appellant.
Messrs. Howell, Roberts Duncan, for appellees.
Under Sections 710-61 and 710-62, General Code, the control, government and management of the affairs and transactions of a banking corporation like The Union Trust Company rest primarily with its board of directors and the executive committee appointed by the board.
The pertinent part of the Code of Regulations of The Union Trust Company, effective from 1931 until the bank closed, and read into the evidence, provided:
"The board or executive committee shall appoint such officers as may from time to time be required for the proper conduct of the business of the company. * * * The duties and authorities of the officers shall be those usually pertaining to their respective offices, subject to the supervision and direction of the board and the executive committee."
This court recently held, in the first paragraph of the syllabus in Kroeger, Supt. of Bldg. Loan Assns., v. Brody, Trustee, 130 Ohio St. 559, 200 N.E. 836, that:
"A corporation is bound by the acts of its president only to the extent that such acts are within the express powers conferred upon him, or can be implied from the powers expressly conferred, or are within apparent powers he has knowingly been permitted to exercise."
"It is a general rule recognized by the great majority of the cases, that the president or cashier or any other similar executive officer of a bank has no authority, simply by virtue of his office, to bind his bank by an agreement made with the maker or endorsers of commercial paper payable to the bank, that their liability on such paper will not be enforced. The rule applies whether the agreement is made before the paper has been signed, or after." 28 L.R.A. (N.S.), note at page 501, and cases cited.
Furthermore, an officer of a bank has no inherent power to release a debtor from an obligation due the bank, such as a promissory note, otherwise than in due course and upon payment. If he undertakes to do so on his own initiative and without authority, he is acting outside the scope of his apparent powers and not according to usage, practice or the usual course of business, and the bank will not be bound thereby. 1 A.L.R., annotation beginning at page 702; 67 A. L. R., annotation beginning at page 976; Cozad State Bank v. McLaughlin, 128 Neb. 87, 258 N.W. 36; Security National Bank of Tulsa v. Bohnefeld, 131 Okl., 66, 267 P. 631; First National Bank of Hooversville v. Sagerson, 283 Pa. 406, 129 A. 333; Goodenough's Admx. v. Vermont People's National Bank, 106 Vt. 5, 168 A. 914; 7 American Jurisprudence, 185, Section 250; 7 Corpus Juris, 549, Section 158. Compare 108 A. L. R., annotation beginning at page 715.
Counsel for the appellees contend that their case is predicated upon a novation, and definite evidence thereof having been introduced, the burden of proof shifted to the appellant. With this we cannot agree.
Under the circumstances disclosed in the instant case, the burden was on the appellees to show affirmatively that Mr. Coulton had express authority from the board of directors or the executive committee of The Union Trust Company to make an agreement such as the one alleged, or that he had been allowed to exercise independent authority in the same or similar matters on other occasions, or that such agreement had been brought to the attention of the board or committee and duly ratified.
We have read the entire record in search of evidence tending to indicate the existence of any of the above conditions, without success. The appellees were, therefore, not entitled to prevail as a matter of law.
It follows that the judgment of the Court of Appeals must be reversed and that of the Court of Common Pleas affirmed.
Judgment reversed.
WEYGANDT, C.J., MATTHIAS, DAY, MYERS and GORMAN, JJ., concur. WILLIAMS, J., not participating.