IJAMS et al. v. ANDREWS, 151 F. 725

SEAMAN, Circuit Judge (after stating the facts). The facts in this controversy, as found by the trial court, are not challenged, and error is assigned alone upon the conclusions of law. It is contended on behalf of the plaintiffs in error that no individual liability was created against them under the facts stated, and that the money was loaned either upon corporate credit, or upon the credit of the purported notes of Miller and West.

On the other hand, the defendant in" error contends that recovery is authorized upon the. conceded facts of the association of the plaintiffs in error, as co-adventurers, both in procuring the franchise from the city of Terre Haute and the site for a plant, for the mutual benefit of the associates, and in obtaining and using the means advanced by the Vigo County National Bank to that end. If the .findings establish such state of facts, the associates have received the moneys of the bank which, ex sequo et bono, they ought to repay, and, under the general rule at common law (Cary v. Curtis, 3 How. 236, 246, l5 L.

Ed. 576; Nash v. Towne, 5 Wall. 689, 702, 18 L. Ed. 527; White v. National Bank, 102 U. S. 658, 661, 26 L. Ed. 250; Louisiana v. Wood, 102 U. S. 294, 298, 26 L. Ed. 153), the recovery in assumpsit is authorized.

If the plaintiffs in error, together with Conzman and West, the other associates, acted or appeared to act as individuals, for individual benefit, in these steps, and were not recognized by the bank as mere representatives of a purported corporation in its transaction, their obligation to the bank' is unaffected by the question discussed in the briefs, whether they had formed a corporation either de facto or de jure, and whether the corporators became liable through abandonment of their venture.

Obligation predicated upon the equitable doctrine referred to does not involve inquiry as to the liability incurred by stockholders for corporate indebtedness, arising from want of complete organization, abandonment, or other cause, either statutory or at common law. The question in this aspect is whether the plaintiffs in error obtained the benefits of the money advanced by the bank through mistake or imposition (Louisiana v. Wood, supra, and 9 Notes U. S. Rep. 1083), or other circumstances which oblige them “by the ties of natural justice and equity to refund” (Cary v. Curtis, 3 How. 247, 15 L.

Ed. 576); and for its solution the facts are neither complicated nor doubtful, as we believe, under the findings. The project of procuring a franchise from the city of Terre Haute to supply the citizens with refrigerating fluids and heating and illuminating gases was the joint undertaking, for mutual benefit, of the several plaintiffs in error and Conzman and West. All of the associates, except West, attended the meetings of the board of public works of the city, and took

part in the negotiations for such franchise and in making the offer to pay the municipality $10,000 therefor, and all were alike active in procuring approval of the contract by the common council. In furtherance of the project, the associates executed "and filed articles, purporting to form a corporation to become the grantee of the proposed franchise, under the name of “Terre Haute Pipe Line Service Company,” the articles stating that the capital stock “shall be five hundred thousand dollars,” and naming the several associates as directors for the first year.

Officers were elected, Conzman being chosen secretary and treasurer. While the findings state that the parties became associated for the purpose of procuring the franchise from the municipality, “late in December, 1899, or early in January, 1900,” the above-mentioned corporate form was adopted March 1, 1900, and their negotiations for the franchise commenced on the following day.

No capital was paid in and no capital stock was subscribed for or issued at any time, and neither of the associates contributed any funds to the purported corporation, nor was any subscription or cash payment for stock intended by either of the associates.

Issues of stock and of bonds was contemplated, but not carried out, whereby shares of stock, “fully paid and nonassessable,” were to be apportioned to these associates for their services as promoters, and bonds were to be sold to provide funds for the purchase of lands, erection of plant, and operation of the business; and “out of the first moneys realized” from such sale it was expressly agreed that “all moneys which had been advanced to the service company by the parties to the agreement, or by other parties, should be refunded.” With no funds raised for. the purpose, therefore, the individual associates not only solicited the franchise, but promised the payment of $10,000 and performance of other conditions precedent to the grant, arid understood and discussed the necessity to have means provided for such cash payment, and that, “as evidence of good faith, they woitld also have to purchase probably a lot upon which to construct the plant,” to sécure approval by the common council.

There is no finding that they made aqy express agreement or direction for providing these means.

It is found, however, that the associate Conzman, who was, as well, cashier of the Vigo County National Bank, was actively engaged with the plaintiffs in error, as co-adventurer, throughout the project, both in the efforts to obtain the franchise and in their meetings to carry out the objects; that, at the close of their conference which “decided upon a plan of campaign for getting the contract approved by the qommon council,” Ctmzman produced “two blank printed forms of notes used by the Vigo County National Bank,” which were then signed by the associates West and Miller, in blank, upon Conzman’s suggestion and stateihent “that it was not yet known what amount it ■would take to purchase the site for the plant, and that he would get both notes signed by some of the other defendants before they were used.” The means for both requirements were obtained from the bank referred to, in this wise: (l) Ón April 3d, Conzman drew a check for $10,000, signed by himself with the appellation “Treasurer,” payable to the order of the city treasurer, which was indorsed by and placed to the credit of the payee on the books of the bank April 7th; on April 12th an account was opened on the books of the bank, in the name of “G.

A. Conzman, Treasurer,” with credit and debit for $10,000, and Conzman at the same time filled one of the above-mentioned blank notes with that amount, dated it April 10th, made it payable on demand, and placed such note in the bank—“all without the knowledge or consent of either West or Miller.”

(2) On May 31, after the purchase of a proposed site for the plant, Conzman paid the purchase money, $5,600, from funds of the bank, by filling out the remaining blank note with that amount (no consent being given), placing the note in the bank, opening an account therein in the name of “G. A. Conzman,” with a credit and debit covering the payment. It thus appears that both sums were procured by Conzman at the bank through his relation as cashier, no concurrence appearing upon the part of any other bank official.

The funds, however, were procured and used on behalf and for the benefit of all the associates, including himself, and Conzman was in no sense the representative of the bank in the contrivance to accomplish those objects. The purported corporation which was formed to take the franchise, was not only without substance in funds or property when the associates made their offers for the franchise and discussed the need to raise means to meet their promises, but no suggestion appears that such means were to be sought on corporate paper or credit.

That they delegated to Conzman the making of arrangements for such means, for joint use and benefit, is unmistakable. With no capital provided for their embryonic corporation, it could not have been expected that any bank or money lender would advance the large amount required upon the strength alone of corporate credit, nor is it reasonable to infer that either of the parties understood the delegation to be so limited.

Moreover, the subsequent agreement of the associates (May 28th), in reference to division of stock and issue of bonds for the enterprise, indicates their understanding that they were liable to be called upon for personal advances to meet these payments, as it was expressly provided that “all moneys which had been advanced to the service company .by the parties to the agreement, or by other parties, should be refunded” out of the “first moneys realized from sale of bonds.” As none of the associates offered to furnish the money out of hand, and all were to share the benefits of its use, it was reasonable for the delegate to assume, as he appears to have assumed, that any ultimate burdens would be borne by all; and in any view Conzman was plainly authorized to use the money when obtained for the intended joint benefit.

So, in obtaining the money from the bank and applying it for their use, Conzman was exclusively their agent and representative—-not acting as cashier, or on behalf of the bank—and the methods he employed for the transaction at the -bank, whether with or without their sanction, furnish no ground for their defense in this suit.

They are of force, however, by way of evidence (1) that Conzman and at least two of the other associates understood that the money was not to be raised upon corporate credit, and (2) that the transaction at the bank disclosed neither loans upon corporate credit, nor entries to charge the bank with acquiescence in a loan upon such credit. Whether there was express agreement between the. associates to join in notes for these loans does not appear, nor is such agreement essential upon this issue.

The finding, in effect, that Conzman proceeded upon that view, to the extent of obtaining the signatures of West and Miller to blank forms of notes, with the promise to have them signed by others before use, but failed to carry out his promise, and made unauthorized use of such signatures, as purported vouchers for loans, in taking the moneys from the bank, establishes the fact that the bank was imposed upon, whatever the intention was on the part of Conzman respecting other signatures.

The money thus taken, with or without the sanction of other officers of the bank, as a loan, was directly applied by Conzman to the intended use and benefit of the plaintiffs in error as co-adventurers. Under the well-settled doctrine at common law, exemplified in the leading cases above cited, the money was obtained at their instance and applied for their use, and recovery is rightly awarded against them. The judgment of the Circuit Court is affirmed.