to be charged to Mr. Helm?" and answered: "Mr. Helm said, "That Wright note is mine, and in paying interest charge it to me.' He said, 'I will protect that note at all hazard.'" Mr. Richards also testified that there was no order of the board of trustees authorizing the renewal of the note of 1879 or 1886 by the president and secretary; that he had never notified the stockholders of the signing of the note of 1886, or that such a note was in existence; that, so far as he knew, Helm and himself were the only stockholders that knew of the existence of the note of 1886, and Mr. Helm and himself had never met as a board of trustees to issue the note of 1886. "The circumstances under which I signed the note of 1886,-Mr. Helm brought that note to me, saying he wished to take up the other note, and saying that he had secured a reduction in the interest from 1 to 14 per cent. He wished to take up the note that Mr. Wright held, because he had secured a reduction in the interest. It was at the request of Mr. Helm that I signed that note."

H. M. Yernigton testified that he was now, and had been since 1889, president of the Carson Water Company; that he first became acquainted with and interested in said company in 1877, that he owned two-thirds of the stock; that he had been a trustee of the company since 1877; that it has always been the custom of the company, when it wished to borrow money, to do so by resolution of the board of trustees, introduced and passed at a meeting thereof; that the corporation never authorized the renewal of the note of 1875 with the note of 1879 and the note of 1886, and he never knew nor heard of the renewal of the notes, nor the giving of the notes of 1879 and 1886, until after he was elected president, in 1889. The following is the manner in which Mr. Yernigton says he found out about this transaction: "About two and a half or three years ago I asked the secretary of the company to give me a balance sheet showing the affairs of the company in full. I had not had any, and I was not posted with regards to the affairs of the company, and I wanted to see what we were doing. Mr. Richards then came to my office, I think, and he told me about the existence of this note of 1886, and I was very much surprised about it, as I didn't think we owed anybody anything. We had borrowed a large amount from the Firemen's Fund in San Francisco in 1881, I think, and paid off the debts of the company. We had paid the Bank of San Jose a large sum, and we also paid some debts in town here, and the current receipts of the company were sufficient to pay the interest on the debt and any other indebtedness. So I was surprised to find a note against us in favor of Mr. Wright; but Mr. Richards said that was the way it stood. I then found out that the interest had been paid to Mr. Wright by the secretary, and charged to Mr.

Helm, for a number of years, and of course 1 was very much surprised to see that, but 1 finally got to the bottom of the affair. A few days after that I met Mr. Wright, and I found that he owed the company for water six or seven hundred dollars, and Helm had explained to me that Wright's water bill had not been collected because Wright insisted that he had a note against him personally. However, when I met Mr. Wright, I said to him, 'You owe this money to the company, and I want you to pay it;' and he said that Helm owed him, and I said that I could not help that, that the company did not owe him anything. and I told him he must pay his water bill. I said, 'You must pay us this bill, as we owe money ourselves.' Then the conversation returned to the $2,000 note, and I said to him, 'You loaned that money to Helm, and we will not pay it, as we don't owe it.' I went to the secretary and told him not to pay any more money to Mr. Wright for Mr. Helm or for anybody else."

To repeat in part, Mr. Wright emphatically denies that he ever had any such conversation as testified to by Mr. Helm in relation to the note of 1879. He also denies that Mr. Yernigton, in his conversation with him, denied but what the company owed the money to him, but Yernigton complained about the amount of interest the company had paid on the note. In this respect the testimony is conflicting. It is conceded that there was no order or resolution made or entered at any time authorizing the officers of the company, or any one of them, to execute the notes of 1879 or 1886 in renewal of the note of 1875. The appellants contend and take the position that it was not necessary for the trustees of the corporation to have met and passed a resolution or order authorizing the president and secretary, or either of them, to execute and deliver the notes of 1879 and 1886 in renewal of the note of 1875 or that of 1879 in order to make them corporation notes, and binding upon the corporation; and in support of their position they argue (1) that the president and secretary were a majority of the board of trustees, therefore it would be useless for them to call a meeting of the trustees merely for the purpose of adopting a resolution and spreading it upon the minutes, authorizing themselves to renew the notes; (2) that the corporation, having the use of the money, is now estopped to deny the indebtedness; and (3) that the stockholders, having an opportunity to inform themselves as to the liabilities of the company from the balance sheets, they cannot now be heard to say that they had not been informed as to this particular note.

A corporation is an artificial person, created by the statutes of the different states. and is vested with the power and capacity to make contracts within the scope of the powers conferred upon it by the act of in

corporation and the by-laws which the organizers thereof may see fit to adopt for the government of the corporation and its officers. College v. Woodward, 4 Wheat. 636; Bank v. Bulings, 4 Pet. 561. Angell & Ames, treating of private corporations, and of what acts are necessary to create and constitute a corporation, and of its actions, powers, etc., at section 110 say, among other things: (5) "To make by-laws, which are considered as private statutes for the government of the corporate body." In 2 Kent, Comm. (13th Ed.) p. 300, it is said: "Where

a corporation was created for the purposes of trade, it resulted necessarily that they must have power to accept bills and issue notes. But if a company be formed, not for the purpose of trade, but for other purposes, as, for instance, to supply water, the nature of their business does not raise a necessary implication that they should have power to make notes and issue bills; and it seems to be doubted whether there must not be an express authority to enable them to do it. The acts of corporation agents are construed with equal strictness, and it is the doctrine that, though a deed be signed by the president and cashier of a corporation, and be sealed with its corporate seal, yet the courts may look beyond the seal, and, if it be affixed without the authority of the directors, and that fact be made affirmatively to appear, the instrument is null and void." It was the rule of decisions in years gone by that corporations could only be held responsible for their contracts and agreements made under seal. This was before the modern era of trade and commerce, which has given birth to corporations organized for the purposes of carrying on and engaging in all branches of business, trades, and speculations, and as a rule are incorporated under a general law of the state, and, if not prohibited by statute or by its by-laws, and the nature of its business is such as to render the borrowing of money necessary for the purpose of accomplishing the object for which it was incorporated, courts have usually held that they would imply in the corporation, and those who had control of its affairs, who were, according to the provisions of its charter carrying on the corporate concerns, an authority to borrow money for the use of the corporation to carry into effect the purposes for which it was organized, and without which it could not subsist. Ketchum v. City of Buffalo, 14 N. Y. 363. and cases cited; Rockwell v. Bank, 13 Wis. 655. The Carson Water Company was organized for the purpose of purchasing and laying in place water pipe, and keeping and maintaining such pipes, leading to and through the town of Carson City, and elsewhere in the county of Ormsby, state of Nevada, for the purpose of supplying the people of the aforesaid town and others with water, and for the purpose of acquiring such real and personal property as might be necessary for

the purposes above mentioned. The affairs of the company were to be managed by three trustees, and its principal place of business was to be Carson City, Nev. There is no provision in the articles of incorporation nor in the by-laws that would indicate that the corporation, or any officer thereof, was authorized to borrow money or execute notes, nor is there anything therein contained from which we could infer that such a power is vested in the president and secretary of the company, without first being authorized so to do by the board of trustees. The president of the Carson Water Company is to preside at all meetings of the board of trustees, and call special meetings at such times as he may deem necessary for the interest of the company. The secretary of the company shall keep a record book, in which he shall transcribe the proceedings of all meetings, and issue stock, and keep a list of the names of persons from and to whom stock is transferred. Before a corporation can be held responsible for the contracts of its officers or its agents, it must affirmatively appear that the officer or agent was authorized to enter into the contract by the company, or that the company received the benefits derived from the transaction; nor is there anything in the record to indicate that there was a recognized course of dealings whereby these officers were held out as possessing any such power; but, upon the contrary, Mr. Yernigton testified "that when the company had to borrow money they always held a meeting, and discussed the advisability of doing so, and, if agreed upon, would then authorize the officers to execute the papers." When it is within the implied powers of a corporation to borrow money, execute and put in circulation negotiable paper, and where there is evidence that in the course of its business it has been in the habit of executing and circulating its note made by its officers, and this mode of raising money has been recognized by the corporation, in such case a note, so indorsed by the proper officers, would be held binding upon it when in the hands of a bona fide holder; but these incidental powers are not to be lightly inferred, nor are the officers authorized to go beyond the instructions given them by the board of trustees or those contained in the by-laws.

In the view we take of the case, it is unnecessary for us to review the facts in relation to the giving of the note of 1875. If Wright purchased the Warren note, he did so at the earnest solicitation of Mr. Rice, one of the trustees; and if he advanced the money of the company to retire the Warren note, the company had the use of the money, and the transaction, whichever way it may have been, was afterwards ratified by the board of trustees. Seeley v. Lumber Co., 59 Cal. 23. The renewal of the note of 1875 by the note given in 1879 stands on a different footing. There is nothing in

the records of the proceedings of the board of trustees showing or tending to show that the officers of the company were authorized or instructed to renew the note. But it is not denied but what the company owed the money at the date of the renewal in 1879, and courts have usually held that a contract entered into by a corporation or its officers may not be within the scope of the powers conferred upon it by its charter or by-laws, yet if the corporation receives the benefit therefrom in money it will not be allowed to deny the indebtedness on the ground that its officers were not empowered to make the contract. Union Gold Min. Co. v. Rocky Mt. Nat. Bank, 2 Colo. 260; Bradley v. Ballard, 55 Ill. 413, 419; Arms Co. v. Barlow, 63 N. Y. 69. There is also an increase in the rate of interest mentioned in the note of 1879 over that of 1875. In the resolution passed by the board of trustees on the 2d day of August, 1875, authorizing the executing of the note of that date, the rate of interest was fixed at 14 per cent. per month. By the one made in 1879, without any authority whatever, interest was provided to be paid at the rate of 11⁄2 per cent. per month. The renewal of the note of 1886 does not come within either of the above-mentioned rules in this: there was no order or resolution of the board of trustees, nor a majority thereof, authorizing the president and secretary to execute the note. The renewal of the note must be considered in connection with the powers and duties of the officers who renewed the same, the circumstances under which it was renewed, and the benefits derived therefrom by the corporation. The evidence in the case, as it now stands, is such as to show that the president of the company has made use of his official position to secure to himself the use of money, by issuing what purported to be the company's note, without the knowledge or consent of the board of trustees or the stockholders of the Carson Water Company. Mr. Helm and Mr. Yernigton testified that in 1881 the corporation borrowed a large sum of money to pay off the outstanding indebtedness of the company, including the $2,000 due Mr. Wright on the 1879 note. Mr. Helm testified that he had the check to pay the Wright note, and went to the bank of Wells, Fargo & Co. with Mr. Wright to pay it, and while there had the conversation with Mr. Wright as testified to above; and, if the same is to be taken as true, Helm induced Wright to let him retain the money that had been intrusted to Helm by the company to pay off the Wright note of 1879, which Helm says he did use for his individual benefit in paying off his own debts with some, and purchased stock with the balance. The corporation not owing Wright at the time of the renewal of the note of 1886, and Mr. Helm instructing the secretary to charge the interest thereafter paid on the Wright note to his individual account, supports the statev.34r.no.4-25

ment of Helm; and the fact that the secretary drew the checks thereafter "payable to the order of S. C. Wright on account of A. Helm" was a notice to Wright, and he should have inquired into the cause of the change of payment of interest from the name of the company to that of A. Helm if the statement of A. Helm was not correct. In answer to a question asked Helm, "Who was present when this conversation took place between yourself and Mr. Wright in the bank?" he answered: "Nobody was present. I took pains not to say anything when anybody was around, as I didn't care to expose my condition at that time." The invalidity of the note of 1886 springs-First, from issuing the same without being authorized so to do by the board of trustees; second, the corporation was not indebted to Wright at the time of the giving of the note, and the same was given without any consideration being received by the corporation. It was not sufficient in this action for the plaintiff to say, "I supposed it was all right, and the officers had authority to renew the note." Persons dealing with corporations are chargeable with notice of the extent of the agent's powers, and Wright was bound to know that Helm and Richards could not act beyond the powers vested in them by the board of trustees, and the by-laws. Mechem, Ag. § 276; 1 Pars. Cont. 40-42; Smith v. Association, 12 Daly, 305; Mining Co. v. Fraser, (Colo. App.) 29 Pac. Rep. 668; Owings v. Hull, 9 Pet. 628. The action of Helm in drawing up the note of 1886, and signing the same as president of the Carson Water Company, and inducing the secretary to sign the same, giving as his reason for such request that there was to be a reduction in the rate of interest, was in excess of their powers. Instead of acting for the corporation, they executed a note purporting to be a valid obligation to the company, when in fact it was to secure the individual indebtedness of its president for money which the corporation had intrusted to him to pay its debts, and which he testifies he was permitted to retain to his own use, with the knowledge and consent of the debtor, Wright. Under such circumstances, at the time of the giving of the note of 1886, Helm was acting for himself, and he was not, with respect to the transaction, an agent at all; and the corporation is not, as to that matter, bound by his acts, nor is it chargeable with his knowledge.

In the case of Frenkel v. Hudson, 82 Ala. 162, 2 South. Rep. 758, Somerville, J., in speaking of the general rule that the knowledge of the agent must be imputed to the principal, said: "It has no application, however, to a case where the agent acts for himself, in his own interest, and adversely to that of his principal. His adversary character and antagonistic interests take him out of the operation of the general rule, for

two reasons: First, that he will very likely, in such case, act for himself, rather than for his principal; and, secondly, he will not be likely to communicate to the principal a fact which he is interested in concealing. It would be both unjust and unreasonable to impute notice by mere construction under such circumstances, and such is the established rule of law upon this subject.' Mechem, Ag. § 723; Ang. & A. Corp. §§ 308, 309. It is a cardinal principle in the law of agency that the powers of the agent are to be exercised for the benefit of the principal, and not for the agent or third parties, and a person dealing with one whom they know to be an agent, and to be exercising his authority for his own benefit, acquires no rights against the principal in the transaction. Such transactions are usually spoken of by the courts as fraudulent, because circumstances known to both parties make the contract or agreement absolutely void. Mechem, Ag. $$ 797, 798. It is a well-settled rule in equity that, when the relationship of principal and agent exists, the agent will not be permitted to make use of his position for his own personal interests. This rule is strict in its requirements, and inflexible in its operation. It extends to all transactions where the agent's personal interests may be brought into conflict with his acts in the fiduciary capacity; and it is immaterial as to whether there was fraud, or as to whether the transaction was entered into with the best of intentions. When the possibility of a conflict exists, there is the danger to be guarded against by the absoluteness of the rule. It is a violation of duty for any officer of a corporation to enter into a contract with himself, or to so manage the affairs of the company as to enrich himself at the expense of the stockholders. Pomeroy, in his work on Equity Jurisprudence, (volume 2, § 959,) says: "The underlying thought is that an agent should not unite his personal and his representative characters in the same transaction; and equity will not permit him to be exposed to the temptation, or brought into a situation where his own personal interest conflicts with the interest of his principal, and with the duties which he owes to his principal." See, also, sections 1050, 1051, and notes therein referred to. 1 Beach, Priv. Corp. §§ 236, 240, et seq.; Pickett v. School Dist., 25 Wis. 553. In the case of People v. Township Board of Overyssel, 11 Mich. 225, the court said: "So careful is the law in guarding against the abuse of fiduciary relations, that it will not permit an agent to act for himself and his principal in the same transaction, as to buy of himself, as agent, the property of his principal, or the like. such transactions are void, as it respects his principal, unless ratified by him with full knowledge of all the circumstances." 2 Field, Briefs, § 193. A corporate body can only act by agents, and the directors or trus

All

tees of a corporation occupy a position of the highest trust and confidence. The ut most good faith is required in the exercise of the powers conferred upon them. They have no right, under any circumstances, to use their official position for their own benefit or profit, or for the benefit of any one except the corporation. This is one of the reasons given why an officer has no right nor authority to vote upon or represent the corporation in a transaction in which he is personally interested in obtaining an advantage at the expense of the other stockholders. Therefore, if the testimony of Helm be true, the company did not owe Wright any money in 1886, when the note was given, but Helm did; and, if such was the case, then the information given by Helm to Richards, upon requesting him to sign the note, as the interest was to be reduced, was misleading, and not in accordance with the facts in the case. Under such circumstances, the signing of the note cannot be deemed a corporate act, for the acts of officers of corporations are to be tested by the principles of the law of agency; and no agent whatsoever can bind the corporation if such agent fails to act in accordance with the purposes and objects of the corporation, and within the scope of his authority. Lyndon Mill Co. v. Lyndon Literary & Biblical Inst., (Vt.) 22 Atl. Rep. 576; Reynolds & Henry Const. Co. v. Police Jury, (La.) 11 South. Rep. 238; Miner v. Ice Co., (Mich.) 53 N. W. Rep. 222; Johnson v. Signal Co., (N. Y. App.) 29 N. E. Rep. 966; Ang. & A. Corp. § 291; Dispatch Line of Packets v. Bellamy Manuf'g Co., 12 N. H. 231; Hoffman v. Insurance Co., 92 U. S. 164; Nelligan v. Campbell, (Sup.) 20 N. Y. Supp. 234; Field, Corp. § 271.

In the case of Coal Co. v. Lotspeich, (Ky.) 20 S. W. Rep. 378, the president of the company entered into a contract with one of the stockholders to deliver to him a quantity of coal, the pay therefor to be applied on the payment of the individual indebtedness of the president to the stockholders. In an action by the plaintiff to enforce the contract and be permitted to apply the price of the coal on the debt, in passing upon this question the court said: "The pleadings do not present the question of fraud by way of defense, but nevertheless, in construing a contract made between officers of a corporation, by which a corporate liability is attempted to be created to the one officer or the other, that construction should be placed on its terms most favorable to the corporation; and particularly when the great weight of the evidence, and in fact all of it, shows that corporate property was being used, by reason of this contract, to pay an individual debt of one director to the other." In the case of Hardin v. Construction Co., 78 Iowa, 729, 43 N. W. Rep. 543, the board of directors authorized the officers of the company to execute a note for $9,000, and a chattel mort

gage upon the rolling stock of the company to secure the payment of the same. The officers executed the note and mortgage and stipulated therein for attorney's fees in case of suit for the collection of the same. The plaintiffs commenced suit to foreclose the mortgage. The district court refused to allow attorney's fees, and the plaintiffs appealed. In passing on this question, the supreme court said: "This was an explicit direction to execute a note for $9,000 and interest, and no more. The company did not, by any official action, authorize the execution of a note in any amount exceeding said sum in any event. We think the court cor rectly held that the measure of liability was $9,000 and interest." Pacific R. M. Co. v. Dayton S. & G. R. Ry. Co., 7 Sawy. 61, 5 Fed. Rep. 852. In the case of New York Iron Mine v. Negaunee Bank, 39 Mich. 648, Judge Cooley, in speaking of the powers of corporations and agents to borrow money by issuing notes, at page 651 says: "It is not disputed by the defense that the corporation, as such, had power to make the notes in suit. The question was whether it had in any manner delegated that power to Wetmore. We cannot agree with the plaintiff that the mere appointment of a general agent confers any such power." In McCullough v. Moss, 5 Denio, 567, the subject received careful attention, and it was held that the president and secretary of a mining company, without being authorized by the board of directors so to do, could not bind the corporation by a note made in its name. Murray v. East India Co., 5 Barn. & Ald. 204; Benedict v. Lansing, 5 Denio, 283; and The Floyd Acceptances, 7 Wall. 666,—are authorities in support of the view. The plaintiff, then, cannot rest its case on the implied authority of the general agent. The issuing of promissory notes is not a power necessarily incident to the conduct of the business of mining, and it is so susceptible of abuse to the injury, and, indeed, to the utter destruction, of a corporation, that it is wisely left by the law to be conferred or or not, as the prudence of the board of directors may determine." Judge McCrary, in charging the jury in the case of Foster v. Mining Co., 17 Fed. Rep. 130, said: "Upon the first question,-as to whether this is the note of the defendant corporation,that is to be determined upon the question whether the person who executed the note on behalf of the corporation, Mr. Penn, the treasurer of the company, was authorized to execute such an instrument. The law upon this subject is that the authority is not presumed from the mere fact that the person assumed the right to give a note in the name of the corporation. A corporation is an artificial person, which must act within certain limits. It differs from a natural person. If an individual gives his note, it is not necessary to prove anything in the way

of authority; but a corporation must act by way of agents, and the authority of the agent who acts for it is not presumed. It may, however, be shown, either by showing an express authority,-as, for example, a resolution of the board of trustees authorizing a certain party to execute a note on behalf of the corporation,-or by a provision of the constitution or by-laws of the corporation authorizing a certain officer to execute promissory notes. It might be shown in that way, but I believe it is not claimed that there is anything of this kind here. It may also be shown by the course of dealings of the corporations, and by facts and circumstances which are sufficient, in the judgment of the jury, to show that the party who executed the note had the authority. If it was the custom of this corporation to permit the treasurer to execute its promissory notes, and if he was in the habit of doing so, with the knowledge of the trustees or of the corporation, which means, of course, the trustees, they had, by recognizing that custom, and acting upon it, themselves become bound by it, and especially if they received the benefits of transactions of this sort, which they permitted the treasurer to enter into. It is only, therefore, necessary for you, in considering this branch of the defense, to inquire whether the evidence here establishes the fact that Mr. Penn, the treasurer, was in the habit of acting for and on behalf of the corporation in executing promissory notes and other instruments of like character, and whether the corporation was aware of that fact, and made no objections to it. If you find this to be so, then you will come to the conclusion that the note was executed by the corporation, and you will proceed then to the other question; that is, whether the corporation was indebted to Mrs. Foster in the amount of money for which this note was given." In the case at bar it was necessary for the plaintiffs to prove that the president and secretary were authorized by the board of trustees to renew the note in 1886, or that it had been the custom of the company to transact business in that way, and that the trustees were knowing to the fact, and acquiesced in such procedure. It was also a question of fact to be determined from the evidence as to whether the Carson Water Company owed S. C. Wright the sum of $2,000 when the note of 1886 was executed, or was it the individual indebtedness of A. Helm? If the president and secretary of the Carson Water Company did not have the power to borrow money and execute a note in the first in stance without being authorized so to do by the board of trustees,-which we think they did not, they did not possess the power to renew the same without authority from the board so to do; for when the adoption of any par ticular form or mode is necessary to confer authority upon agents of corporations in