as a new obligation, but a mere change of creditors;38 and also that such a partner may renew a note, or give a note for an outstanding debt. 40

39

But copartners may, by agreement prior to dissolution, or by subsequent ratification or assent, make themselves liable on negotiable paper given by a liquidating partner in the name of the firm; such an assent or ratification may be inferred from circumstances pertaining to the transaction.41

After a dissolution of the partnership it has been held that all the partners must join in the transfer of a partnership security, such as a draft or promissory note, in order to vest the title in the transferee.42

1. Notice of dishonor; presentment.- Where the persons to be notified of the dishonor of a negotiable instrument are partners, notice to one partner is notice to the firm even though there has been a dissolution.43 Where the persons primarily liable on a negotiable instrument are liable as partners, and no place of payment is specified, presentment for payment may be made to any one of them, even though there has been a dissolution of the firm.**

31. Corporations.

a. Power to execute commercial paper. A corporation having the power to contract for the purchase of articles has also the power to make a negotiable promissory note or accept a bill of exchange in payment of the price agreed upon in such contract.

38. Estate of Davis and Desauque, 5 Whart. (Pa.) 530, 34 Am. Dec. 574; Robinson v. Taylor, 4 Pa. St. 242; Heberton v. Jepherson, 10 Pa. St. 124; McCowin v. Cubbison, 72 Pa. St. 358; Lloyd v. Thomas, 79 Pa. St. 68; Siegfried v. Ludwig, 102 Pa. St. 547.

39. Fulton V. Central Bank of Pittsburgh, 92 Pa. St. 112; Eason v. Mackey, 106 Pa. St. 452.

40. Robinson v. Taylor, 4 Pa. St. 242; Brown v. Clark, 14 Pa. St. 469.

41. Kelly v. Crawford, 5 Wall. (U. S.) 788; Draper v. Bissell, 3 McLean (U.S.), 275; Bower v. Douglass, 25 Ga. 714; Easter v. Farmers' Nat. Bank, 57 Ill. 215; Leonard v. Wilde, 36 Me. 265; Eaton v. Thayer, 10 Mass. 54; Yale v. Eames, 1 Metc. (Mass.) 486; Graves v. Merry, 6 Cow. (N. Y.) 701, 16 Am. Dec. 471.

(N. Y.) 224; Geortner v. Trustees of
Canajoharie, 2 Barb. (N. Y.) 625.

66

Edwards, in commenting (Bills and Notes, p. 120) on this ruling, says: However, it is clear that either of the partners, in the absence of any special agreement as to who shall close up the business, may collect such demands and apply them to the payment of the partnership debts; and it is not easy to state a reason why he may not also sell such securities for money, without indorsing them so as to render the firm liable; since this is only a shorter mode of collecting and realizing such choses in action, belonging to the firm.

43. Neg. Inst. Law (N. Y.), § 170. As to notice of dishonor see post, chap. IX, § 108, (h).

44. Neg. Inst. Law (N. Y.), § 137. As to presentment for payment see 42. Sandford v. Mickles, 4 Johns. post, chap. VIII.

4

1

An ability to make a contract implies an ability to make a promissory note.45 As the court said in Moss v. Averell:46 "No question is better settled upon authority than that a corporation, not prohibited by law from doing so, and without any express power in its charter for that purpose, may make a negotiable promissory note payable either at a future day, or upon demand when such note is given for any of the legitimate purposes for which the company was incorporated." 47 In England it is held that there is an

"47

Kentucky.- Commercial

Bank of New Orleans v. Newport Mfg. Co., 1 B. Mon. 13, 35 Am. Dec. 171.

Louisiana.-Brode v. Firemen's Ins. Co., 8 Rob. 244; Brown v. Union Ins. Co., 3 La. Ann. 177.

Maine. Came v. Brigham, 39 Me.

45. Parsons, in his work on Notes Iowa, 239; Des Moines Gas Co. v. and Bills (p. 164), says: In this West, 50 Iowa, 26. country, however, it may be regarded as settled, that the power of corporations to become parties to bills of exchange or promissory notes is coextensive with their power to contract debts. Whenever a corporation is authorized to contract a debt, it may draw a bill or give a note in payment of it. Every corporation, therefore, may become a party to bills and notes for some purpose. Thus a mere religious corporation may need fuel for its rooms, and as an economical measure may buy a cargo of coal, and give its note for it; and such a note would undoubtedly be valid in this country."

46. 10 N. Y. 457.

47. The following cases among a great number of others may be cited as upholding this doctrine:

United States.- Vallette v. White Water Val. Canal Co., Fed. Cas. 16,820, 4 McLean, 192; Mahony Mining Co. v. Anglo-Cal. Bank, 104 U. S. 192; Gromnes v. Sullivan, 81 Fed. 45.

Alabama.- Kelly v. Alabama & C. R. Co., 58 Ala. 489; Talladega Ins. Co. v. Peacock, 67 Ala. 253.

California.- Temple St. Ry. Co. v. Hellman, 103 Cal. 634, 37 Pac. 530; Smith v. Eureka Flour Mills Co., 6 Cal. 1.

Georgia.-Mitchell v. Rome Ry. Co., 17 Ga. 574; Butts v. Cuthbertson, 6 Ga. 166.

Illinois. Millard V. St. Francis Xavier Female Academy, 8 Ill. App. 341; Ward v. Johnson, 95 Ill. 215.

35.

Maryland.-Heironimus v. Sweeney, 83 Md. 146, 34 Atl. 823.

Nat.

Massachusetts.- Merchants' Bank v. Citizens' Gas Light Co., 159 Mass. 505, 34 N. E. 1083; Monument Nat. Bank v. Globe Works, 101 Mass. 58, 3 Am. Rep. 322; Kneeland v. Braintree Street Ry. Co., 167 Mass. 161, 45 N. E. 86; Bird v. Daggett, 97 Mass. 494; Morville v. American Tract Co., 123 Mass. 136, 25 Am. Rep. 40.

Michigan. People v. River Raisin & L. E. R. Co., 12 Mich. 389, 86 Am. Dec. 64; Odd Fellows v. Sturgis First Nat. Bank, 42 Mich. 461, 4 N. W. 167.

Minnesota.-Sullivan v. Murphy, 23 Minn. 6; Auerbach v. Le Sueur Mill Co., 28 Minn. 291, 9 N. W. 799, 41 Am. Rep. 285.

Missouri.- Preston v. Missouri & P. Lead Co., 51 Mo. 43; Hayward v. Graham Book & Stationery Co., 59 Mo. App. 453; Donnell v. Lewis Co. Sav. Bank, 80 Mo. 165; Sparks v. Dispatch Transfer Co., 104 Mo. 531, 24 Am. St. Rep. 351, 15 S. W. 417.

Nebraska - Paxton Cattle Co. V. Arapahoe First Nat. Bank, 21 Neb. 621, 33 N. W. 271, 59 Am. Rep. 852.

New Hampshire.- Richards v. Merrimack, etc., Ry. Co., 44 N. H. 135. Indiana.- Hamilton v. New Castle New Jersey-Lucas v. Pitney, 27 & D. R. Co., 9 Ind. 359; James v. N. J. L. 221; Fifth Ward Sav. Bank Rogers, 23 Ind. 451; Lebanon, etc., v. First Nat. Bank, 48 N. J. L. 513, Gravel Road Co. v. Adair, 85 Ind. 7 Atl. 318.

244.

New York.- Barker V. Mechanic Iowa.- Thompson v. Lambert, 44 Fire Ins. Co., 3 Wend. 94, 20 Am.

54

50

48

implied power of issuing bills and notes possessed by corporations incorporated for the purposes of trade, but this power is not to be implied in the case of a railroad company," a water-works company," a gas company,51 a mining company,52 or any other company not primarily incorporated for the purpose of buying and selling.53 The reason for the American rule is well expressed by Judge Comstock of the New York Court of Appeals in a leading case as follows: "When a corporation can lawfully purchase property or procure money on loan in the course of its business, the seller or the lender may exact, and the purchaser or the borrower must have the power to give, any known assurance which does not fall within the prohibition, express or implied, of some statute. The particular restriction must be sought for in the charter of the corporation, or in some other statute binding upon it; but if not found in that examination we may safely assume that it has no existence."

The power to issue bills and notes may be either expressed in the charter of a corporation, or implied from the nature of its business or the purposes for which it is organized. If the business of the corporation is such that the issuance of bills and notes would not be necessary for its transaction or usual in the case of other persons or corporations transacting the same business, an implied power for such purpose will not be vested in such cor

Dec. 664; Moss v. Oakley, 2 Hill, 265; Attorney-General v. Life & Fire Ins. Co., 9 Paige, 470; Kelley v. City of Brooklyn, 4 Hill, 263; Partridge v. Badger, 25 Barb. 146; Moss v. Averell, 10 N. Y. 449; Mead v. Keller, 24 Barb. 20; Bank of Genesee v. Patchin, 13 N. Y. 315; Olcott v. Tioga R. Co., 27 N. Y. 546, 84 Am. Dec. 298; Curtis v. Leavitt, 15 N. Y. 66; Barnes v. Ontario Bank, 19 N. Y. 152.

Ohio. Strauss v. Eagle Ins. Co., 5 Ohio St. 59; Larwell v. Hanover Sav. Fund Soc., 40 Ohio St. 282.

Pennsylvania.- Wright V. Pipe Line Co., 101 Pa. St. 204; Orr v. Mercer Co. Mut. F. Ins. Co., 114 Pa.

St. 387.

Rhode Island. Clark v. School District No. 7, 3 R. I. 199.

Tennessee.- Union Bank v. Jacob, 6 Humph. 515.

Virginia.-Richmond, F. & P. R. Co. v. Snead, 19 Gratt. (Va.) 354, 100 Am. Dec. 670.

Wisconsin.- Rockwell V. Elkhorn Bank, 13 Wis. 653.

48. Bateman v. Mid-Wales Ry. Co., L. R., 1 C. P. (Eng.) 512; In re General Estates Co., 3 Ch. App. (Eng.) 758; In re Land Credit Co., 4 Ch. App. (Eng.) 460; Broughton v. Manchester Water-Works Co., 3 B. & Ald. (Eng.) 1, 22 R. R. 278.

49. Bateman v. Mid-Wales Ry. Co., L. R., 1 C. P. (Eng.) 512.

50. Broughton v. Manchester WaterWorks Co., 3 B. & Ald. (Eng.) 1, 22

R. R. 278.

51. Bramah v. Roberts, 3 Bing. N. C. (Eng.) 963.

52. Dickinson v. Valpy, 10 Barn. & Cr. (Eng.) 128; Gilbert v. McAnBurmester v. Norris, 6 Exch. (Eng.) nany, 28 Up. Can. Q. B. 384. See also 796.

53. Bult v. Morrell, 12 Ad. & El. (Eng.) 745; Neale v. Turton, 4 Bing. (Eng.) 149; Thompson v. Universal Salvage Co., 1 Exch. (Eng.) 694.

54. Curtis v. Leavitt, 15 N. Y. 66.

poration. Nor will a corporation be possessed by implication with the power to issue bills and notes for a purpose not within the scope of its authorized business.56 Where there is no power to contract there can be no power to execute a note or accept a bill. It has been held, for instance, that a railroad company had no power to establish a steamboat line to run in connection with its road, but beyond its terminus, and that a note, therefore, given for the price of a steamboat purchased by it, could not be recovered upon." 57

b. Defense of ultra vires.— If a corporation has power to make a note for any purpose, it cannot, as against a bona fide holder, set up as a defense that it had no power to make a note for a particular purpose." Where a corporation is prohibited by its

58

55. Police Jury V. Britton, 15 Wall. (U. S.) 566.

56. Monument Nat. Bank v. Globe Works, 101 Mass. 57, 3 Am. Rep. 322; National Park Bank v. German-American Mut. Warehousing, etc., Co., 116 N. Y. 281, 22 N. E. 567; People v. River Raisin & L. E. R. Co., 12 Mich. 389, 86 Am. Dec. 64; in the last case a railroad corporation for its own convenience and that of its employees and patrons attempted to issue bills to circulate in the form and similitude of bank notes, and it was held to be an act of banking and unlawful for a corporation formed for the purpose of maintaining a railroad; Strauss v. Eagle Ins. Co., 5 Ohio St. 59; James's Admr. v. Rogers, 23 Ind. 451.

57. Pearce v. Madison & Indianapolis R. Co., 21 How. (U. S.) 441. Ultra vires acts. A promissory note, executed in behalf of a manufacturing and trading corporation, by all of its directors, who are also all of its stockholders, in payment for the shares owned by one of such stockholders purchased by and for the benefit of the others, cannot be repudiated by the corporation as an ultra vires transaction. Soloman Solar Salt Co. v. Barber, 58 Kan. 419, 49 Pac. 524.

may have a defense against the payee, and the directors may have abused their authority in directing its execution. Kneeland v. Braintree St. R. Co., 167 Mass. 161, 45 N. E. 86.

58. Commercial Bank v. St. Croix Mfg. Co., 23 Me. 280; Genesee Co. Sav. Bank v. Michigan Barge Co., 52 Mich. 438, 18 N. W. 206; Auerbach v. Le Sueur Mill Co., 28 Minn. 291, 9 N. W. 799, 41 Am. Rep. 285; National Bank of Republic v. Young, 41 N. J. Eq. 531, 7 Atl. 488; Lehigh Valley Coal Co. v. West Depere Agricultural Works, 63 Wis. 45, 22 N. W. 831.

the

Note apparently valid.-In case of Willmarth v. Crawford, 10 Wend. (N. Y.) 341, it was held that a note given to an incorporated company for stock is valid in the hands of an indorsee without notice, notwithstanding the statutory provision forbidding directors of such companies to receive a note or other evidence of indebtedness in payment of any stock actually called in and required to be paid, where it is not affirmatively shown that the note was given for stock called in and required to be paid.

A note, on its face valid, issued by a corporation, came to the hands of A corporation has the power to is an innocent holder for value; it was sue notes when authorized by its held that the corporation could not board of directors; and a negotiable defend a suit on the note by showing note of a railroad corporation, exe- it to have been given for the purchase cuted by authority of its board of of stock of another corporation; such directors, is not ultra vires, and the purchase being prohibited by its charcorporation cannot defend against it ter, and the stock having been delivin the hands of a bona fide indorsee ered. Wright v. Pipe Line Co., 101 for value, before maturity, though it Pa. St. 204, 47 Am. Rep. 701.

4

charter or by statute from issuing negotiable paper under any circumstances, such paper is absolutely void, even in the hands of a bona fide holder for value; "since what is absolutely void ab initio cannot acquire validity by being transferred to a third person any more than a forged instrument could acquire validity in that way." 99 59 Where a corporation has received the benefit of the proceeds of a bill or note it cannot set up the defense of ultra vires in an action on such bill or note.6 60

c. Power to make or indorse for accommodation. While a corporation has, under certain circumstances, the general power to bind itself by promissory notes and contracts of indorsement, made in the general course of its business, it has no power to make or

If a corporation that has no power An accommodation indorsement for

to make notes or to take them ex- the sole benefit of another is ultra cept for certain purposes, takes them vires. But if the indorsement is shown for unauthorized purposes and trans- to be for the benefit, partially, of the fers them to an innocent purchaser, corporation, as for the purpose of he may enforce them, unless the stat- enabling its creditor to raise money ute expressly declares them void. to be partially used in discharging Blunt v. Walker, 11 Wis. 334, 78 Am. its debt, the corporation will be esDec. 709; Cornell v. Hichens, 11 Wis.

353.

59. Thompson on Corporations, § 5737. See Elliott Bank v. Western, etc., R. Co., 2 Lea (Tenn.), 676; Smead v. Indianapolis, etc., R. Co., 11 Ind. 104; Dewey v. Toledo, etc., R. Co., 91 Mich. 351, 51 N. W. 1063.

60. National Park Bank v. GermanAmerican Mut. Warehousing & Sec. Co., 116 N. Y. 281, 22 N. È. 567, 5 L. R. A. 673; citing Central Park Bank v. Empire Stone Dressing Co., 26 Barb. (N. Y.) 23; Bridgeport City Bank v. Empire Stone Dressing Co., 30 Barb. (N. Y.) 421; Morford v. Farmers' Bank of Saratoga, 26 Barb. (N. Y.) 568; Bank of Genesee v. Patchin Bank, 13 N. Y. 309; Etna Nat. Bank v. Charter Oak Life Ins. Co., 50 Conn. 167; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Davis v. Old Colony R. Co., 131 Mass. 258; Culver v. Reno Real Est. Co., 91 Pa. St. 367; Hall v. Auburn Turnpike Co., 27 Cal. 255, 87 Am. Dec. 75; Louisville Banking Co. v. Eisenman, 94 Ky. 83, 21 S. W. 531, 42 Am. St. Rep. 335; Blake v. Domestic Mfg. Co. (N. J. Eq.), 38 Atl. 241.

topped, after receiving the money, to deny the validity of its contract. Lyon, Potter & Co. v. First Nat. Bank, 85 Fed. 120, 29 C. C. A. 45. See also Pick v. Ellinger, 66 Ill. App. 570.

The indorsement of negotiable paper for the accommodation of others, by a mercantile corporation, is ultra vires, and its powers in this regard are not enlarged by an amendment to its bylaws, made with the unanimous consent of its stockholders, whereby its president is authorized "to sign all notes or bonds, as principal, security, or indorser, which he may deem to the interest of the corporation." Steiner v. Steiner Land & Lumber Co. (Ala.), 26 South. 494.

Previous transactions.— A corporation cannot evade liability on negotiable paper indorsed with their name, by their agent, for the accommodation of a third person, on the ground that the agent had no authority so to indorse it, if it appears that the agent had frequently before indorsed their paper, and procured it to be discounted by the plaintiff, and received the avails, and that the corporation had recognized the validity of such previous transactions. Bank of Auburn

But see

The treasurer of a manufacturing company has no implied authority to bind the corporation as an accommo- v. Putnam, 1 Abb. Dec. 80. dation indorser. Usher v. Raymond Webster v. Howe Mach. Co., 54 Conn. Skate Co., 163 Mass. 1, 39 N. E. 416. 394, 8 Atl. 482.