GROMMES et al. v. SULLIVAN, 81 F. 45

WOODS, Circuit Judge, after making the foregoing statement, delivered the opinion of the court. We are of opinion that, under the law of its creation, the American Building, Loan & Investment Society had power to execute negotiable paper.

The rule is well established that corporations authorized to. do a particular business, unless especially denied the power, have implied authority to contract debts in the legitimate transactions of the business authorized; and the right to contract debt, it is the equally well settled American rule, carries with it the power to give negotiable notes or bills in payment or security for the debts, unless that power is expressly denied. Rees, Ultra Vires, § 100; Green’s Brice, Ultra Vires, p. 253; Daniel, Neg. Inst. §§ 381, 382; Mor. Priv. Corp. §§ 350, 351.

The decisions upon the subject are numerous, and many of them are cited in the footnotes to the texts referred to. With respect to municipal corporations the supreme court of the United States has established a different doctrine (Police Jury v. Britton, 15 Wall. 566; Merrill v. Monticello, 138 U. S. 673, 11 Sup. Ct. 441); but for further exception to the rule as stated there seems to be no authority in this country.

In the usual course of its business the American Building, Loan & Investment Society was empowered, expressly or by implication, to incur debt in various ways, — as, for example, to its secretary for his services, to withdrawing members, to the representatives or beneficiaries of deceased members, and to others, strangers to the association, for stationery, office supplies, office rent, for real estate to be used as a place of business; and by express provision it was authorized “to purchase at any sheriffs or other judicial sale, or at any other sale, public or private, any real estate” in which it had an interest, “and the real estate so> purchased, to sell, convey, lease, or mortgage, at pleasure, to any person or persons whatsoever.” This power to mortgage its real estate imported, necessarily, the power to borrow or in some way to become indebted.

It had power, also, to receive from its vendees negotiable notes for the price of real estate sold, and from its members like notes for loans made to them, and the notes so acquired it had the right to sell, to pledge, and to indorse. In short, its right to incur debt and to execute the customary evidences of indebtedness was not exceptional or extraordinary, but pertained to the ordinary line and scope of the business which it was organized to do.

It was competent, and doubtless would have been wiser, for the legislature to have provided that such societies should not have power to bind themselves by negotiable promises or contracts, into the consideration of which, when in the hands of a good-faitli purchaser, there can be no inquiry; but it is not for the courts to put upon the powers granted a restriction which would be inconsistent with an established rule of construction, from which, presumably, the legislature intended no departure.

The power of the society to execute notes or bills for the various purposes suggested being conceded, and there being no ground for questioning the authority of Módica as vice president to sign the name of the society to such obligations executed in the regular course of business, the case comes within the rule that, when a corporation has power — “under any circumstances,” as some of the cases say, and certainly when it has power under ordinary circumstances, or in the usual course of its business — to execute negotiable obligations, the bona fide purchaser of a particular obligation has a right to presume that it was executed under circumstances which gave the requisite authority.

Gelpcke v. City of Dubuque, 1 Wall. 175; Railway Co. v. McCarthy, 96 U. S. 258-267; County of Macon v. Shores, 97 U. S. 272-279; Bissell v. Railway Co., 22 N. Y. 258; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Webster v. Machine Co., 54 Conn. 394, 8 Atl. 482; Bank v. Young, 41 N. J. Eq. 531, 7 Atl. 488. It is admitted in the answer that the appellants received the acceptance in question of Montgomery “for a bona fide indebtedness,” and, whether that be regarded as meaning in discharge of or only as collateral security for the debt, it made the appellants purchasers for value (Swift v.

Tyson, 16 Pet. 1-18; Railroad Co. v. National Bank, 102 U. S. 14); and, in the absence of proof that they purchased with knowledge or notice that the acceptance was without consideration, or was otherwise wrongfully obtained, gave them the rights of good-faith purchasers. King v. Doane. 139 U. S. 166, 173, 11 Sup. Ct. 465; Bank v. Holm, 34 U. S. App. 472, 19 C. C. A. 94, and 71 Fed. 489.

The chief contention of the appellee is that the American Building, Loan & Investment Society is not a trading or manufacturing corporation, that building and loan associations are essentially corporate partnerships, and that the officers thereof have no more authority to bind them by negotiable paper than has a member of a nontrading partnership to make such paper in the firm name. Numerous authorities are cited in support of these propositions.

Of the English cases referred to it is enough to observe that they proceed upon the theory that a corporation, without special authority, express or implied, cannot make, accept, draw, or indorse bills or notes. That is not the American rule. The only American cases cited, which need be mentioned, are State v. Oberlin Building & Loan Ass’n. 35 Ohio St. 263, and Christian’s Appeal, 102 Pa. St. 184. These cases are not in point.

In the first, the procedure was by quo warranto against the society for an abuse of its powers, and involved no question of the validity of a corporate obligation in the hands of an innocent purchaser. The Pennsylvania case had reference to the rights of the members in the distribution of the assets of an insolvent company, and contains nothing which can be regarded as bearing upon the question now under consideration. See Davis v. Building Union, 32 Md. 285.

It follows that the decree below must be reversed, and, accordingly, it is ordered that the decree entered be set aside, and a decree given for the interveners for the amount of the acceptance, with interest.