*

He said his price was $11,000.00. Q. Did you, in consequence of that conversation, say, 'All right; go ahead'? A. No; I told them after that that we concluded to go on with the contract. That was the result of the conversation, -and finish the vessel. * **Q. When Captain Cherry reported to you on the first day that the vessel was worse than he thought, and that her condition was rotten, was it your desire to replace with sound all the rotten wood? A. Certainly; that was the object in repairing the vessel. Q. Did you express to Captain Cherry that desire and intention when he spoke to you of the rotten condition of the vessel? A. No. The understanding was that Captain Cherry should be present for the purpose of seeing what wood was rotten taken out, and no wood put back except such as was sound. Q. After this rotten condition of affairs was reported by Captain Cherry, was it your wish and intention, with the work that went on after that, that all the rotten wood should come out, and be replaced by sound wood? A. Certainly. Q. What was the object of the work being done on the vessel? A. Repairing her. Q. What for? A. Making her seaworthy. Q. To run her as a passenger boat in June and July? A. Yes. Q. Were you not hurrying to get the boat for the 1st of June? A. It was desired to have the vessel ready by the specified time. Q. You intended to run the boat the 1st of June as a passenger boat, without taking all the rotten wood out, and replacing it by sound wood? A. Of course not. ** * * Q. And further, in July, didn't you run the boat? A. I suppose that was the time. Q. Did you care? A. As a matter of course I cared. If I had known there was rotten wood in there, I would have taken it out. ** * Q. Did you see any knees that were rotten? A. Oh, yes; I saw some ribs,-knees, I suppose they were. I don't know what you call a rib or what you call a knee. Q. Did you see any of the deck that was rotten? A. Yes, I saw a portion of it. Q. What did you say about those knees? A. Nothing in the world. What should I have said? ** Q. What did you expect Mr. Pregnall to do in the event of his having extra work outside of the written contract? A. I expected him to take the chances whether we would pay him or not. Q. If he did it? A. Yes, of course. If he did any, he did it at his own risk. He certainly didn't do it with my consent." It will be observed that this statement of President Witte is not a denial of what the libelant Pregnall stated. The question under consideration was between building a new hull or repairing an old one, and they both agree that the offer of $11,000 for the new hull was rejected, and Mr. Witte admits that he said, "Go on with the contract," which must have referred to repairing the old hull under its newly-discovered condition, and not to carrying out of the original contract of the 25th of February, 1897, to repair the steamer when, the utter unseaworthiness of the hull was not known of. The execu tion of the written contract without change or modification on the part of libelant would have been impossible, and, so far as respondent is concerned, would have been to have done a vain and foolish thing, namely, to have expended nearly $7,000 in repairing, a ship without a hull. Libelant swears that the agreement was to repair the old hull, and that was what he proceeded to do, and President Witte's action in appointing Capt. Cherry to superintend the taking out of the rotten wood and supplying it with sound instead sustains this idea.

W. M. Bird, one of the directors and secretary of the respondent company, and the libelant in the second of these causes, testifies that Capt. Cherry talked with him about building a new hull to the boat, and explained that he had talked with Mr. Witte, and that the latter had told him to go ahead, and do what work was necessary,—to repair the boat, and put her in thorough order. This was done after the foregoing interview between libelant Pregnal and President Witte. Work was immediately begun on the hull, under the direction

*

of Capt. Cherry as superintendent, who stayed at the work, and directed personally what rotten wood and timbers should be taken out and what work should be done, and how it should be done, until the steamer was completed; and, in the language of the United States inspector of hulls: "She was in first-class order. I never saw a boat in better. * * I think she was better than when she was brought here in 1876. I think she had better timbers in her." While this work was being done, President Witte was frequently at the steamer, and saw for himself what was being done; the evidence being that he would drive down about once a week. His own superintendent, specially designated by him for the purpose of looking after the work, was there all the time. The secretary of the company and its superintendent, Mr. Armine Witte, were frequently there, as were also Messrs. Lapan and Thompson, two directors of the company. In all, six officers of the company, several of whom had full knowledge of all that was being done, and all of them abundant opportunity to see what was done, and they one and all stood by and allowed the work charged for to be done and services performed, and the respondent company acquiesced therein by weekly supplying, according to the contract, sums necessary to pay off the employés for the labor performed. Under these circumstances, the work, in our opinion, should be paid for, and it will not do for President Witte to say that the contractor "did the work at his own risk," and that "I expected him to take the chance of whether we would pay him or not." Under such circumstances the law implies a contract, and a promise to pay. It is not in dispute that the services were properly and seasonably rendered, and it is equally clear that the work was necessary; and to allow, under the circumstances, the respondent company to have the benefit of libelant's money and labor without compensation, would be grossly unjust and inequitable. When the president of the company, upon being told that the contract could not be performed, so as to make the steamer seaworthy, without replacing the rotten material discovered in her hull, directed Pregnall to go on with the contract, and had his superintendent overlook and direct the replacing of the rotten knees and timbers, Pregnall, from his words and conduct, had a right to understand that the president consented to his doing the necessary extra work, no matter what the president may have had in his mind, undisclosed to Pregnall, with regard to the effect of the contract.

In what we have said we have not been unmindful of the clause in the written contract as to the conditions on which extra work could be done. This clause is carefully worded, and is sweeping in its terms, but, nevertheless, in our opinion, can be and was waived by what took place between the parties. Authorities to show that such clauses can be waived by the subsequent acts and conduct of the parties are abundant. Wood v. City of Ft. Wayne, 119 U. S. 320, 321, 7 Sup. Ct. 219; West v. Platt, 127 Mass. 367, 372; O'Donnell v. Chinton, 145 Mass. 461, 463, 14 N. E. 747; Bartlett v. Stanchfield, 148 Mass. 394, 19 N. E. 549; Cunningham v. Fourth Baptist Church, 159 Pa. St. 620, 28 Atl. 490; Bowe v. U. S., 42 Fed. 777.

The contention made, or, rather, suggested, that the liability should

be escaped because the respondent is a corporation, and did not formally, by its board of directors, agree to the making of a new contract, or authorize, assent to, or acquiesce in the performance of the additional work in question, is equally without merit. Corporations only act by and through agents, and in Pittsburgh, C. & St. L. Ry. Co. v. Keokuk & H. Bridge Co., 131 U. S. 371-381, 9 Sup. Ct. 773, it is said:

"When a contract is made by any agent of a corporation in its behalf, and for a purpose authorized by its charter, and the corporation receives the benefit of the contract without objection, it may be presumed to have authorized or ratified the contract of its agent. Bank v. Patterson's Adm'r, 7 Cranch, 299; Bank v. Dandridge, 12 Wheat. 64; Zabriske v. Railroad Co., 23 How. 381; Gold-Min. Co. v. National Bank, 96 U. S. 640; Gas Co. v. Berry, 113 U. S. 322, 327, 5 Sup. Ct. 525. This doctrine was strongly stated by Mr. Justice Story, delivering the judgment of this court in each of the first two of the cases just cited."

ces.

The supreme court has passed upon this question in many instanIn Railroad Co. v. Howard, 7 Wall. 413, it is said:

"Corporations, as much as individuals, are bound to good faith and fair dealing, and the rule is well settled that they cannot, by their acts, representations, or silence, involve others in onerous engagements, and then turn round and disavow their acts, and defeat the just expectations which their own conduct has superinduced."

The second case involves the question of whether libelants William M. Bird & Co. have a lien under the statute of South Carolina, enforceable by libel in rem in a court of admiralty against the steamer for materials furnished the general contractor, Pregnall, in making the repairs aforesaid to the steamer. The learned judge of the court below was of opinion that such lien existed, and was enforceable in a court of admiralty by libel in rem against a domestic vessel for materials and supplies, maritime in their nature, such as were furnished in this case (The Planter, 7 Pet. 343; The Lottawanna, 21 Wall. 568; The J. E. Rumbell, 148 U. S. 1, 13 Sup. Ct. 498; The Kate, 164 U. S. 470, 17 Sup. Ct. 135; The Glide, 167 U. S. 610, 17 Sup. Ct. 930), but held that it was necessary to prove that the debt was contracted upon the credit of the steamer, and not of the owner or contractor making repairs; and, believing that the libelants' claim was not one incurred on the faith of the ship, dismissed the libel. With our view of the evidence, we deem it unnecessary to do more than pass upon the question of fact involved in this decision. Our conclusion upon the whole evidence is that the materials were furnished upon the credit of the steamer, and not to the contractor individually. The libelants so testify. Many of the articles were ordered by the master of the steamer, placed in charge of the work thereon by the respondent company, and the others by the respondent's general contractor, who was himself without credit; and there is no claim but that the supplies were furnished to, and used in the repair of, the steamer, and that they have not been paid for, either to the libelants, who furnished them, or to the general contractor, who used them in rebuilding respondent company's vessel. 1 Rev. St. S. C. § 2504, is very comprehensive in its terms, and a lien is expressly given to any person for labor performed, materials used, or labor and materials

36 C.C.A.-26

furnished in the construction, launching, repairs of, or for provisions, stores, or other articles furnished for or on account of a ship or vessel by virtue of a contract, expressed or implied, with the owners of a ship or vessel, or with the agents, contractors, or subcontractors of such owners, or any of them, or with any person having been employed to construct, repair, or launch such ship, or to assist them. We think the libelants William M. Bird & Co. have a lien upon the steamer for the supplies so furnished and used in its construction.

For these reasons, the decrees appealed from are reversed, and the causes remanded to the lower court, with instructions to enter a decree therein in favor of the libelants in the second-named libel for the sum of $868, with interest at the rate of 6 per cent. per annum from the 22d day of May, 1897, until paid, with costs, and a like decree in favor of the libelant Samuel J. Pregnall for $1,184.37, with interest from May 22, 1897, until paid, with costs. Reversed.

(94 Fed. 582.)

COOPER et al. v. HILL.

(Circuit Court of Appeals, Eighth Circuit. May 9, 1899.)

No. 1,145.

1. LIMITATION OF ACTIONS-ACCRUAL OF CAUSE OF ACTION.

A cause of action against the directors of a bank for fraudulently diverting its funds for their own benefit accrues as soon as the diversion is complete, in the absence of concealment of the facts on their part; and where such facts are shown upon the records of the bank, and become known to a cashier who succeeds the one involved in the transaction, and who has no interest in the matter adverse to the bank, his knowledge is notice to the bank.

2. NATIONAL BANKS-REPAIRS OF PROPERTY ACQUIRED-PERSONAL LIABILITY OF DIRECTORS.

A national bank which has lawfully acquired the title to property in payment of a debt has implied authority to make reasonable repairs thereon for the purpose of putting it in salable condition, and its directors cannot be held personally liable for money so expended in good faith,

3. SAME-PROSECUTION OF OUTSIDE BUSINESS.

A national bank, however, has no power to prosecute a mining business on property which it has acquired, much less, to expend its funds in prospecting for mineral on such property; and directors who authorize such expenditure are personally liable therefor to the bank or its receiver.

4. SAME-SUIT AGAINST DIRECTORS-JURISDICTION OF EQUITY.

A suit by the receiver of an insolvent national bank against its officers and directors to compel restitution of funds unlawfully diverted by them is one to execute a trust, and involves an accounting as to trust funds, and hence is of equitable cognizance.

5. SAME JOINT LIABILITY.

When a loss has been caused to a national bank by the appropriation of its funds to a purpose unauthorized by law, or by culpable negligence or conversion of its funds, the officers who participated in or consented to the act are jointly and severally liable for the entire amount.

6. SAME-FAILURE TO PROVE ALLEGATION OF FRAUD.

A bill by the receiver of a national bank against its officers and directors for the unlawful diversion of funds of the bank is sufficient to support a recovery, when the diversion is proved, although a further allegation that

such diversion was fraudulent is not proved. The gravamen of the bill is the fact of unlawful diversion.

7. SAME-INTEREST.

When the directors and officers of a bank have misappropriated its funds, they are liable for interest on the amount from the date of the misappropriation, as damages; and no statute is necessary to authorize the allowance of such interest by a court of equity.

8 SAME-SUIT against DIRECTORS-LACHES.

The directors of a national bank are not trustees of an express trust, with respect to the property or funds of the bank, but of an implied or resulting trust created by the operation of the law upon their official relation to the bank; and the statute of limitations and the doctrine of laches may be invoked in their defense, when sued for a breach of such trust. Such an action is maintainable either at law or in equity, and a court of equity will follow the statute of limitations, unless unusual or extraordinary circumstances render its application inequitable in a particular case.

9. SAME.

The officers and directors of a national bank without authority of law used its funds in prospecting and attempting to develop mining property which had been acquired by the bank. Their action was not fraudulent, but was taken in good faith for the benefit of the bank, but resulted in the loss of the funds so diverted. They subsequently sold their interests in the bank, and retired from its management, leaving it solvent and prosperous. Under the new management it subsequently became insolvent, and its receiver brought a suit in equity against the former directors to recover the amount so diverted by them. Such suit was not brought until more than six years after the last of the expenditures in the mining venture had been made, which was the limit of time, under the statutes of the state, within which an action at law for the recovery of the money could be maintained; but subsequently, and within the six years, the defendants, as directors, had repaid to themselves from the funds of the bank certain advances made by them individually in aid of such venture. Held, that the court would follow the statute, and as to the amounts originally expended the suit was barred by laches, but was maintainable for the recovery of the amounts subsequently withdrawn without legal authority.

Appeal from the Circuit Court of the United States for the District of Colorado.

This is an appeal from a decree for the payment of the sum of $35,093.45, interest thereon, and costs, by John J. Reithmann, George Tritch, Job A. Cooper, D. C. Dodge, and John Good, to the appellee, Zeph. T. Hill, as receiver of the German National Bank of Denver, on account of the misappropriation of the funds of that bank in 1888 and 1889. All the parties against whom this decree was rendered have appealed to this court except Reithmann, who appears to be content with the result below. The decree rests upon this state of facts: In the years 1888 and 1889 Reithmann, Tritch, Cooper, Dodge, and Good were directors of the bank. Tritch was its president, and Cooper was its cashier. The bank had acquired the ownership of certain mining claims under an execution sale upon a judgment in its favor of about $4,500, and by virtue of certain conveyances which it had procured to be made to Cooper, its cashier, in an endeavor to collect its judgment. The legal title to this property was in Cooper, but he held it for the benefit of the bank. Upon the property was some mining machinery. A shaft had been sunk upon it more than 100 feet, and some drifts had been made from this shaft in an endeavor to discover and mine ore. But the former owners had abandoned the undertaking, the machinery was still, and the shaft and drifts were full of water. In February, 1888, the five directors of this bank against whom the decree below was rendered caused a corporation called the Cassandra Consolidated Mining Company to be organized for the purpose of acquiring, developing, and operating mines. They had the certificates of all the stock of this corporation, except a few qualifying shares which were written to its officers, written to themselves, on July 11, 1888, but they never took them out of the stock book of the company. On