Connecticut. Supreme Court of Errors.

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company, as its president, to any paper or obligations of any
kind, with the knowledge of the company, or of its officers,
which they recognized as binding on it, except when it was



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MAY TERM, 1882. 171

JStna Nat. Bai^k v. Charter Oak Life Ibs. Co.



understood that the defendant was to receive the proceecte
or direct benefit thereof.

Walkley was president of the railroad company froa
October 1st, 1869, to April, 1876. He was also president
of the defendant company from 1858 to April, 1876.

The plaintiffs claimed the r^bt to prove a special contract
bj the indorsement different from what is implied by law,
and by order of the court, made at the request of the
defendants, the following special contract was written over
the indorsement : — *^ On default of payment of the within
note according to its tenor, the Charter Oak Life Insurance
Company, on due demand and notice of dishonor, promises
to pay said note according to its tenor to the iBtna National
Bank or bearer." But I do not find that such special con-
tract was made, nor any contract different from that implied
by law.

By the 11th section of the defendants* charter it is pro-
vided that "all policies of insurance or other contracts,
authorized by this act, may be made with or without the
9eal of said corporation, and shall be signed by the president
and secretary, and being so signed and executed shall be
binding and obligatory upon said corporation according to
the true intent and meaning of such policies.''

At the time the note above described was executed by
Clark, Walkley, as president of the railroad company, and
of the defendant company, and also individually, executed
and delivered to Clark an agreement in writing to the effect
that the note was made for the benefit of the railroad
company, and that they would pay it at maturity, and
wholly save liim from all loss thereon. But I do not find
that this agreement was made by Walkley in pursuance
of any authority from the defendant company, express or
implied, and it was not proved that the plaintiffs bad any
knowledge of it till long after the note became due.

The note in suit is a renewal in part of one made and
executed by Clark, June 29th, 1875, as an accommodation
note for five thousand dollars, payable to the order of the
Connecticut Valley Railroad Company at the plaintiff bank,



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172 HARTFORD DISTRICT-

JStna Nat. Bank v. Charter Oak Life Ins. Co.

four months after date, and indorsed precisely in the same
way as the present note. At the time the original note was
executed, Walkley, as president of the defendant company,
as president of the railroad company, and individually,
executed and delivered to Clark an agreement of the same
tenor with that above described.

The plaintiff bank discounted the note June 80th, 1876,
for the accommodation and benefit of the railroad company,
although the cashier supposed, from what Walkley said to
him at the time, that it was virtually for the benefit of the
defendants, and was to be used by the railroad company for
payment of the coupons of the first mortgage bonds.

At this time the railroad company had outstanding one
thousand first mortgage bonds, bearing date December 31st,
1870, each of the denomination of one thousand dollars,
payable thirty years from date, with interest coupons
attached at seven per cent., payable on the first day of
January and July in each year. These bonds at this time
were worth about ninety per cent. The railroad company
had also outstanding second mortgage bonds of the nominal
value of $1,260,000 ; but their real value was not proved.

At this date, June 80th, 1876, the railroad company was
largely indebted to the defendants, (how much was not
shown,) for which the defendants held all the second mort-
gage bonds, and had held a large amount of the first mort-
gage bonds, as collateral security.

In 1871 the defendants borrowed $280,000 of the Norwich
Savings Society, and with the consent of the railroad com-
pany pledged $380,000 of the first mortgage bonds as
collateral security therefor. By an arrangement of all the
parties all these bonds except seventy-six had been disposed
of before June 30th, 1876, and the proceeds applied towards
the principal and interest of the loan. The coupons on the
seventy-six bonds were not paid either on July 1st, 1875, or
January 1st, 1876, and in June, 1876, when the lien was
fully paid and settled, were returned to the defeiidants with
the coupons attached.

Prior to June 80th, 1876, the defendants had generally



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MAY TERM, 1882. ITS

^tna Nat Bank o. Charter Oak Life Int. Co.

provided for the payment of the coupons of the first mort-
gage bonds by loaning the money to the railroad company.
But I do not find that there was any agreement between
them and the railroad company to pay the coupons falling
due July 1st, 1875,

The railroad company, at this time, had no available funds
with which to provide for the payment of the coupons due
July 1st, 1875; and the defendants at this time were
embarrassed in consequence of the then recent failure of
Allen, Stewart & Co., of New York, with which company
they had extensive dealings. The coupons due July Ist,
1875, amounted to $85,000.

The defendants at this date had money on deposit in bank
amounting to from $145,000 to $148,000, and it was not
proved that they had any payments falling due at that time,
although their expenses and obligations were very large.

At the time the plaintifik discounted the five thousand
dollar note, June 80th, 1875, Walkley said to the officers of
the bank that the maker of the note was good ; that the
railroad company could not then meet the payment of the
coupons falling due July 1st, 1875, yet 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 defendants would pay it ; and that it was for
the interest of the defendants to have the coupons paid
promptly in order to keep up the value and credit of the
bonds, and that the defendants had ample security.

At this time, and for several years previously, the railroad
company kept its bank account with the plaintiffs. The
defendants had no bank account with the plaintiffs, but
kept their account at other banks. The plaintiffii opened
no special account with the defendants at the time of dis-
counting the note, and did not agree to pay any coupons
with the proceeds of the note, and did not in fact pay any.

At the time this note was discounted the account of the
railroad company was overdrawn $5,086.87. The proceeds
of the note were $4,868,84, and were credited to the general
account of the railroad company, leaving still an overdraft



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174 HARTFORD DISTRICT.

JElua Nat Bank v. Charter Oak Life Ini. Co,

<rf iS28.0B. Walkley said to the cashier, when informed
by him tiiat the note had been discounted, that he might
place it to the credit of the railroad company, and that the
treasurer of that company would want to check out some
money for paying coupons on the first mortgage bonds ; and
on July 1st, 1876, the railroad company was allowed by the
plaintiffs to overdraw its account $8,859.70. But I do not
find that any portion of this over-draft came directly or
indirectly into the hands of the defendants.

Coupons to the amount of $82,340 were paid on the first
mortgi^ bonds July 1st, 1876, of which the plaintiffs
furnished $8,000. I do not find that this payment affected
the. value of either the first or second mortgage bonds.

During the trial William R. Cone, president of the plain-
tiff bank, and who was such president at the time the note
in suit was discounted, being called by the plaintiffs as a
witness, was asked the following question: — "Will you
state whether or not the note in suit was discounted by
your bank on the credit of the Charter Oak Life Insurance
Company? " It had been proved on the trial, and admitted,
tiiiat when the original note was discounted Mr. Cone was
absent in Europe, and had no personal knowledge of what
was said or done at that time, and that when the renewal
note in suit was discounted, nothing was said except that
the new note was a renewal of the old one in part. The
defendants objected to the question on the ground that the
witness should be allowed to state only what was said or
done at or before the time of the discount, and the court
mstained the objection.

The plaintiffs also offered to prove by Mr. Cone 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. On objection of the defendants the court exclu-
ded the evidence.

The plaintiffs asked Mr. Walkley, who presented the note
in suit for discount, to state whether or not, when the note
was discounted, it was his purpose to make a contract



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MAT TERM, 1882. ITO



^tna Nat. Bank v. Charter Oak Life Ins. Co.



between the insurance company and the bank. The defen-
dants objected to the question on the ground that the
witness should be allowed to state only what wtm said or
done at the time of the discount, and that his secret or
unexpressed purpose was not admissible. It not being
claimed that the purpose was communicated at the timd,
the court excluded the evidence.

John W. Stedman was called as a witness by the plain-
tiffs, and after testifying that he was insurance commissioner
in 1874, and part of the year 1875, was asked the following
question: — "What was the condition of the defendant
company, as to solvency, between January and May, 1875? "
The defendants objected to the question, on the ground
that the witness could not state his mere opinion or the
conclusions to which he had come, from the examination he
had made of the company, unless accompanied with the
facts upon which that conclusion was based. The court
sustained the objection.

The plaintiffs asked Walkley the following questioA : —
«* Whether or not, when you indorsed the note for the Charter
Oak Life Insurance Company, you intended to assume the
obligation of an indorser to the bank?" The defendants
objected to the question on the gpround that the unoommu-
nicated intent of the witness could not avail unless evi*
denced by what was said or done at the time. It not being
claimed that his intent was communicated at the time, the
court sustained the objection.

The plaintiffs offered to show by Walkley that the non-
payment of the coupons of the first mortgage bonds due
July 1st, 1875, would have greatly diminished the value of
these bonds and would have rendered the second mortgage
bonds of little or no value. The defendants objected to
this question on the gpround that it called for the opinion of
the witness, who did not profess to be an expert in such
matters, and who claimed no special knowledge or means of
judging of such probable effect* The court sustained the
objection.

The plaintiflb offered Mr. Cone, the president of the baidci



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^ J



176 HARTFORD DISTRICT.

^tna Nat Bank v. Charter Oak Life Ins. Go.

to show that Samuel H. White, secretary and treasurer, and
a director of the defendant company, after the note in suit
was given, and before it fell due, said to him as such presi-
dent, that the indorsement of the note by Walkley as
president, was a binding obligation on the defendant com-
pany, and promised that it should be paid by the company
when it fell due. It was proved and admitted that at the
time the original and renewal notes were discounted White
was absent in Europe, and it was not proved or claimed
that he had any personal knowledge of the circumstances
under which the discounts were made. On objection of the
defendants that it did not appear that Whit« had any
authority to bind them by his admissions, the court exclu-
ded the evidence.

The plaintiffs claimed, as a matter of law, that on the
facts found the defendants were estopped to assert that the
contract was ultra virea^ and that Walkley had no authority
to make the indorsement, but the court did not so rule.

Upon these facts the court rendered judgment for the
defendants. The plaintiffs moved for a new trial for errors
in the rulings of the court, and also filed a motion in error.

ff. Willey and (7. J. Cole^ in support of the motions.

1. Mr. Walkley was authorized by the insurance com-
pany to make the indorsement on the note, and the act was
the act of the company. When one has the actual charge
and management of the business of a corporation with the
knowledge of the members and directors, this is evidence of
his authority, without showing any vote or other corporate
act constituting him the agent of the corporation, and the
company will be bound by his contracts made on their
behalf within the apparent scope of the business thus
intrusted to him. A. & A. on Corp., § 288 ; Goodwin v.
Union Screw Oo.^ 84 N. Hamp., 878; Northern Central
Railroad Co. v. Bastian, 15 Md., 494; Lester v. TFeJJ, 1
Allen, 34 ; Fay v. Noble, 12 Gush., 1 ; Olcott v. Tioga B. B.
Co,, 27 N. York, 546 ; Perry v. Simpson Waterproof Manfg.
Co^ 87 Conn., 584. Corporations may make themselves



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MAY TERM, 1882. 17T

^tna Nat Bank 9. Charter Oak Life Ins. Co.

liable on instruments executed in a different mode from
that provided in their charter. Bulkley v. Derby Fishing
Co., 2 Conn., 252; White v. DerJy Fishinff Co., id. 260;
Topping v. Bickford, 4 Allen, 120. White, the secretary
and treasurer, was absent in Europe when the note in suit
and the original note were given and indorsed, so that there
was no person but Walkley who had any pretence of
authority to sign notes or make indorsements for the
oompany.

2. The writing on the back of the note, " Charter Oak
Life Ins. Co., by J. C. Walkley, Pros.," was an indorsement
in the commercial sense, and not a guaranty. The purpose
for which the indorsement was made, was not to become a
surety for the maker, but " it is found that Walkley made
the indorsement for the purpose of getting the note di9-
«ounted at the plaintiffis' bank, and the plaintiffs thereupon
discounted the note on the credit of the indorsements and
of the maker. Clark was an accommodation maker; it
was 80 understood and agreed by the railroad coitipany and
the insurance company, they giving him their written guar-
anty to pay the note at maturity. They could not have
understood that they contracted to pay the note only after
the payee or holder had exercised diligence to collect the
same of the maker. The law of Connecticut is unquestion-
ably settled, that ^^ the indorsement in blank of a negotiable
note by a third person for the better iecurity of the payee,
implies a contract on the part of the indorser that the note
is due and payable according to its tenor, that the mak^
shall be of ability to pay it when it comes to maturity, and
that it is collectible by the use of due diligence. Perkins
v. CatUn, 11 Conn., 223; LaffUn v. Pomeroy, id., 446;
ReoMom v. Sherwood, 26 id., 441. All these are cases where
the indorsement was made, not for the purpose of getting
4he note discounted at bank, but as surety for the maker
ior the better security of the payee. In Cane. v. Spavlding^
'24 Conn., 578, the court held that the contract could be
«hown, and that a name on the back of the note written
before the payee could be shown not to have been placed
Vol. l.— 12



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178 HARTFORD DISTRICT.

JStna Nat Bank 9. Charter Oak Life Ins. Co.

there as surety for the payee, but to enable the payee to
obtain the note to be discounted at bank, and so he was
treated as indorser and not as guarantor. Both the defen-
dants and the plaintiffs understood it to be an indorsement
in the commercial sense, and treated it as such. There is
no law in Connecticut which conflicts with the following
rule laid down in Rey v. Simpson^ 22 How., 341 : — " If the
note was intended for discount, and he put his name on the
back of it with the understanding of all the parties that
his indorsement would be inoperative until it was indorsed
by the payee, he would then be liable only as second
indorser in the commercial sense." See also Good v.
MaHin, 95 U. S. Reps., 90.

8. The insurance company was an indorser for value,
not an accommodation indorser. "An accommodation bill
is a bill to which the acceptor, drawer, or indorser, as the
case may be, has put his name without consideration for the
purpose of benefiting or accommodating some other party
who is to provide for the bill when due." Byles on Bills,
100. There was a consideration for the indorsement, and
the indorser agreed to provide for the note when it became
due. The court has found that " the cashier of the plaintiff
bank (at the time the original note was discounted) sup-
posed, from what Walkley said to him at the time, that it
was virtually for the benefit of defendants, and was to be
used by the railroad company for the payment of coupons
of the first mortgage bonds." Also that Walkley said at
the same time to the officers of the bank, " that the maker
of the note was good, that the railroad company could not
then meet the payment of the coupons falling due July 1st,
1875, yet 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 railroad company the defendants would
pay it ; that it v)a% for their interest to have the coupons paid
promptly in order to maintain the credit of the bonds^ and
that the defendants had ample security,^* The insurance
company in 1870 and 1871 was doing a large business, and
was in .receipt tof large sums of money from premiums paid«



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MAY TERM, 1882. 179

JStna Nat Bank o. Charter Oak Life Ins. Co.

It was its right and duty to invest these funds, and it did
invest a large amount in the bonds of the Connecticut
Valley Railroad; they took a large amount of its first
mortgage bonds, and all of its second mortgage bonds,
$1,250,000, in payment of or as security for advances made
and to be made to the railroad company. There was no
question as to the legal right of the insurance company to
invest its funds in this manner, and prior to June 80th,
1875, it had generally provided for the payment of the
coupons of the first mortgage bonds by loaning the money
to the railroad company. The insurance company found
itself from these investments on that day the owners of
$76,000 in first mortgage bonds, and $1,250,000 in second
mortgage bonds, and it was bound to do what a prudent
individual would do to protect its interest in these bonds.
The interest coupons of the first mortgage bonds (there
were $1,000,000 of these bonds outstanding) were due
July 1st, 1875; if not paid it was certain that the first
mortgage bonds would decliue in value, and the second
mortgage bonds become of no value in the market ; and if
the first mortgage coupons were not paid in six months the
treasurer of the state would take possession of the road,
and if not paid within the year the road would be fore-
closed and the second bonds become entirely worthless.
The railroad company had no funds to pay the interest
coupons, and the insurance company was embarrassed in
consequence of the then recent failure of Allen, Stevena &
Co., with which company it had extensive dealings. In
these circumstances it could not spare the money to pay the
interest, and Walkley, as its president, obtained the accom-
modation note of Clark, and it was indorsed by the insur-
ance company to procure money at the plaintiff bank to pay
the interest, and the money was obtained by means of the
indorsement, and was applied to pay the interest, and
thereby the value of the bonds was kept up in the market.
Would an intelligent business man have done otherwise?
And is there anything in the charter of the insurance com*
pany, or any law, which would prevent it from protecting



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tiO HARTFORD DISTRICT.

^tna Nat. Bank v. Charter Oak Life Ins. Co.

its property from deterioration and loss. We say then that
it was not an accommodation indorsement.

4. The indorsement was not ultra vires. A corporation
may transact all such business and make all such contracts,
where ancillary to its primary business, as may be transac-
ted and made by ordinary individuals under similar circum-
stances. Brown v. Winninmmet Co.y 11 Allen, 834;
Milledge V. Boston Iron Co.^ 5 Cush., 175; Converse V.
Horwieh ^ JV. F. TVansportation Co,y 88 Conn., 180 ; JR<nU
road Co. v. Howard^ 7 WalL, 412 ; Thompson v. Lambert^
44 Iowa, 289.

5. If the indorsement was ultra vires^ the defendants
are estopped from denying their liability. They procured
the note to be discounted on the representation that their
interest would be promoted thereby, that they would pay
it, and that they had ample security ; and it was discounted
by the plaintiffs in good faith on the credit of their indorse-
ment and representations. State Board of Agriculture v.
Citizens^ SPreet Raihvay Co.^ 47 Ind., 407 ; Zalriskie v. C.
G. ^ C. R. R. Co., 23 How., 881 ; Madison ^c. R. R. Co. v.
iforwich Savings So., 24 Ind., 457 ; Monument Nat. Bh. v.
Qiohe Works, 101 Mass., 57 ; Bissell t. Michigan Southetn
R. R. Co., 22 N. York, 258 ; Perry v. Simpson Waterproof
Mamf. Co,, 87 Conn., 520; Oil Creek ^c. R. B. Co. v. Penn.
TranspoHation Co., 88 Penn. St., 160 ; Bradley v. Ballard^
55 m., 418 ; Thompson v. Lambert, 44 Iowa, 289 ; Pierce on
Ittttlroads, 516 to 519, and cases there cited. It is a familiar
principle thftt " where a party has by his declarations orcon-
dnbt induced another to act in a particular manner, he will
not afterwards be permitted to deny the truth of his admis-
firidn if tii6 consequence would be to work an injury to sucfti
oth^t person." Bezell r. Oddl, 8 Hill, 215; Pall River
Itat. Bank y. Buffington, 97 Mass., 498.

6. If it should be held that by the peculiar law of Coil-
necticut, (and it would be law different from that of any

*Aher state) this was a guaranty and not a commerdiEil
'iMbfeement, the plaintitfis will be entitled to recover on the
7iMirfii count of the declaration ; fdr it would be a guaranty



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MAY TERM, 1882. 1«



JStna Nat. Bank v. Charter Oak Life Ids. Co.



of an accommodation note^ and there was no obligation on
the part of the holder to use diligence to collect it of the
maker, for the reason that the guarantor, having agr^d
with the maker to save him harmless from the payment of
the note, can suffer nothing from the laches of the bolder
in not pursuing his remedy against the maker. Edwards p^
Bills, 454, 638 ; Mechanic9 Bank v. &ri$wold, 7 Wend., 168;
JSvans V. Norris^ 1 Ala., 511 ; Torrey v. Fo%%^ 40 Maine, 74,
80; Sharp v. Bailey^ 9 Barn. & Cress., 44. The Ixability
of the guarantor continues unless he can show that he bsus
sustained prejudice by reason of the failure of the holder Ijo
collect of the maker.

7. The orders as to designating the count yelied on, and
writing the contract claimed over the indorsement, were
erroneous. It is the right of a plaintiff to set forth his
cause of action in different counts, and the court has ao
i^uthority to order that he shall designate the count on
which he relies ; for the purpose of different counts i? '* to
accommodate the statement of the cause as far as may h^ to
the possible state of the proof to be exhibited on the trial,
to guard, if possible, against the hazard of the proof's v^u:y-
i^ materially from the statement of the cause of action, QO
that if one or more of the several counts should not be
adapted to the evidence some other of them may be so."
Gould PL, ch. 4, sec. 4. There is no confusion or uncer-
t9.inty as to the claims set forth in the different counts of
the declaration. The case of Cattle v. Candecy 16 Conn.,
223, differs materially from the present case.

8. The court erred in excluding the testimony of Mr.
Cone, president of the plaintiff bank, " that it is the usage of
banks generally to require all paper discounted by them tp
be bankable or commercial paper, and all persons indorsing
the same to be bound thereby." He was an expert, qualified
to testify to the usage of banks, and it was evidence to
show that the -Etna Bank understood that the writing on
the back of the note was an indorsement in the commercial
sense. By showing this, and that Walkley for the insur-
ance company understood and intended it as an indorsement.



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