Miners & Merchants' Bank v. Ardsley Hall Co.

113 A.D. 194, 99 N.Y.S. 98, 1906 N.Y. App. Div. LEXIS 1398

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: May 18, 1906
• Status: Published

Opinions

Laughlin, J.:

The action is upon two promissory notes purporting to have been " made by the defendant. Each note is for $2,500, bears date the : 31st day of March, 1903, was written, with the exception of the day ' of the month in the date and the words “ with" interest,” -by Thomas Cochran, Jr., who was the treasurer of the company :and was signed by him, “ Ardsley Hall Co. by Thomas Cochran, Jr., Treas.,” was made payable to his order as treasurer four months after date and ; was indorsed by him as treasurer. The defendant denied the making of the notes and alleged as defenses that they were hot signed •: or executed according to the by-laws or- authorized, and that if never received any of the proceeds thereof;

The defendant corporation owned and conducted ah apartment--' house in the city of Mew Yoi’lt, and in the month of March, 1903,’-it became necessary for it to borrow money to pay certain pressing obligations. The notes were made by the treasurer and delivered to the president,* Frank J. Kohler, to be negotiated for the purpose of raising the money required. Kohler was also secretary a/ncl treasurer of the City Trust and Banking Company of Baltimore, Md., which for brevity will be referred to as the trust company, and spent most of his time in that city. The defendant had an account with the trust company .and the interest coupons on its second mortgage bonds were payable there. The plaintiff, as its name implies, conducted á banking business at • Lonaconing, Md. The plaintiff frequently purchased negotiable paper of the trust company with which it had an account and ■ which was its correspondent and. had been for several years. In these business transactions it had correspondence with ■ Kohler almost daily. It appears that this letter was signed by Kohler individually,, but that he was accustomed to sign sometimes individually and sometimes in his official capacity. -

On the 20th day of April, 1903, which was before maturity, the . plaintiff received the notes inclosed with a letter written by Kohler from Baltimore on the stationery of the trust company, which letter related to other business between the plaintiff and the trust company and requested that it discount the notes, stating in the body of the letter that he, Kohler, was going to charge the notes to plain-' tiff’s account, and that if it was not all right he would take them up when he returned from Hew York; but in a sentence at the end of the letter he said he would not charge them to plaintiff’s account, and requested it to §end a draft to him for them if it was all right. The plaintiff immediately discounted' the notes and' forwarded a draft-on the trust company, addressed to Kohler at the office of the . trust- company, but payable to him individually. The draft was paid the next day. Kohler received the money, but it does" not appear what he did with it. The plaintiff’s cashier says -that. ordinarily drafts were drawn payable to Kohler in his official capacity with the trust company, but that this one was drawn payable to him individually because he inferred from the letter that Kohler desired it so drawn. The plaintiff knew that Kohler was -president of the defendant; but counsel for defendant showed by the cross-examination of the cashier of the plaintiff, who discounted the notes, over an objection interposed by the plaintiff, that he did so in the belief that the notes had been negotiated to the trust company. After Kohler had possession of the notes, and eight days after they were discounted by the plaintiff, the account of the defendant with the trust company was credited with $4,135. ' The treasurer of the defendant testified that the credit came from the deposit of a certificate of deposit issued by the trust company to Kohler and indorsed by him to defendant. It Was' shown that shortly prior to the receipt of this certificate of deposit by the defendant from Kohler it had advanced for him the sum- of $2,000, and the court excluded evidence that might have shown that he was further indebted to it and defendant excepted.- If the judgment can be sustained, therefore, it must be upon the theory that it is immaterial whether or not the defendant received any of the proceeds of' the discount of the notes. ' • '

The trust company suspended business about the 6th of June, 1903; Kohler’s accounts with it were involved. ' He • disappeared about the time of the failure of the trust company and his testimony was not obtained on the trial of the action. ' The treasurer' of the defendant testified, without objection, that he' was informed by Kohler on or about April 12, 1903, that the notes had not been negotiated, and a few days prior to the time that Kohler disappeared he received back from- him a $10,000 note which had been delivered to Kohler at the same time and for the same purpose as the two notes in question, but which had not been negotiated-, and that Kohler then informed him in reply to a demand for the return of the tWo notes in question that he had “ given it to the Miners & Merchants’ Bank.” The foregoing seems to be the only e’xpress evidence on the question as to whether the notes had been first discounted by the trust company. Counsel for-the appellant states in his points that they were first negotiated with the trust company and by it transferred to the plaintiff, and •counsel, for respondent seems to deem it immaterial. It is, therefore, not necessary to consider the sufficiency or the éfféct ofithe evidence on that point.

The defendant showed that it never received any of the proceeds of the discount of the notes,' and that the issuance thereof was not authorized by the board of directors. The appellant, in its first point, contends, that it was error to receive the; notes, in evidence without proof that their execution by the treasurer was authorized. In its second point, however, it concedes that the proper construction' of the by-laws of the company is that the treasurer is the proper - officer to sign notes, but contends that the by-laws require that- notes shall be countersigned by the president, which was not done. The by-laws, so far as material, ar.e as follows :

Section 2. The President shall preside at all meetings . of the Board of Directors, and shall act as temporary chairman at and call to order all meetings of the stockholders; he shall-sign certificates of stock, sign and execute all contracts in the name of the company, when authorized so to do by the Board of Directors; countersign all checks drawn by the treasurer; appoint and discharge agents and employees, subject to the approval of tlie Board of Directors, and he shall have the general management of the affairs of the corporation and perform all the duties incidental to his office. * * *.

“ Section 4. The treasurer shall have the earn and custody of' all the funds and securities of the corporation and deposit same in the name of the corporation in such bank or banks as the directors may elect; he shall sign all checks, drafts, notes and. ordérs for the payment of money which shall be countersigned by the president.”

While it does not appear that Cochran, as treasurer, had ever made notes for the purpose of negotiating a loan without the countersignature of the president or vice-president and authority from the board of directors, it does appear that-he'had made notes, not authorized by resolution of the board of directors, seven or eight in number, for the payment of the company’s bills. Sometimes the payment of interest on coupons was authorized by resolution of the board of directors, and sometimes payment was made without such authorization. A sale of second mortgage bonds to Kohler was made without authority of the board of directors, and it also appeared that Cochran, as treasurer, was in the habit of indorsing defendant’s-■checks and drafts for' deposit in the - trust company without any - formal authority. The notes were entered on the books of the defendant and its vice-president had notice thereof, but it does not appear how soon after their execution.

.At the close of the evidence both sides moved for a direction of a verdict. This submitted the question of fact tó the court for determination. The verdict having been directed in favor of the plaintiff, the defendant excepted. This exception entitles the defendant to a reversal if the evidence was insufficient as a matter of law to sustain any essential finding, and the motion, for a new trial entitled it to a reversal if any material finding is against the weight of the evidence.

The evidence was clearly insufficient to justify or .sustain a finding- that the defendant held its treasurer out as authorized to make promissory notes, or its president to negotiate notes so made or that it ratified the acts of the treasurer in issuing or of the president in negotiating this note. There was no course of dealing or " holding out these officers as authorized by which the defendant could be "held liable on the theory of implied authority or on the theory of estoppel. It is doubtful whether the by-laws conferred authority on the treasurer, to issue promissory notes of the company, even when countersigned by the president, with action of-the board of directors; but that point need not be decided for it is quite clear that, in any event, it only authorized the issuance of its promissory notes when signed by the treasurer and countersigned by the president. There seems to be a distinction between actions on promissory notes of business and religious. corporations with respect to what evidence is sufficient to establish a prima facie case that the paper was issued by authority of the defendant. (People's Bank v. St. Anthony's R. C. Church, 109 N. Y. 512; Karsch v. Pottier & Stymus Mfg., etc., Co., 82 App. Div. 230.) The weight of authority, however, in this jurisdiction is to the effect that a recovery cannot be had against either a religious or a business corporation on com? mercial paper unless the evidence taken as a whole shows' or warrants a finding not only that the paper was issued by officers of the corporation, but that its issuance was authorized by the by-laws, or by a resolution of the board of directors, or- by a course of dealing by which the corporation held them, out as authorized to issue it and would be deemed estopped from questioning their authority or of ratification by the acceptance and retention of some benefit or advantage from the unauthorized act or otherwise. (Dabney v. Stevens, 2 Sweeny, 415, 425; affd. on this point, 46 N. Y. 681 ; People's Bank v. St. Anthony's R. C. Church, supra ; Bangs v. National Macaroni Co., 15 App. Div. 522; National Bank of Newport v. Snyder Mfg. Co., 107 id. 95 ; National Bank v. Navassa Phosphate Co., 56 Hun, 136 ; McCullough v. Moss, 5 Den. 567 ; Greene v. Iroquois Hotel & Apartment Co., 84 N. Y. Supp. 591 ; Davis Sewing Machine Co. v. Best, 105 N. Y. 59.) Proof of such authority in the case of a corporation is what is shown in the case of an individual or copartnership by proof of the genuineness of the signature. The rule is deemed essential to protect corporations against the unauthorized and fraudulent acts of its officers;. and those taking negotiable- paper purporting to be the paper of a corporation must ascertain at their peril, if they take 'it relying upon the credit of the maker, whether it was authorized. (De Bost v. Albert Palmer Co., 35 Hun, 386 ; Cheever v. Pittsburgh, etc., R. R. Co., 150 N. Y. 59, 65.) Of course if the' issuance of negotiable paper is authorized' by a corporation and .the obligation of the corporation is executed in the form and manner required'by the authority conferring the power, the corporation will be liable even though its officer or agent should divert it and appropriate the proceeds of the discount to his. dwn use (Ring v. L. I. R. E. Exchange, 93 App. Div. 442) ; but this is for the protection of those dealing in such securities who could have no knowledge of the dishonest intentions o.f the officer or agent, and could not protect themselves against the same while the corporation, may by requiring' indemnity. There being no sufficient evidence of holding out, estoppel or ratification, no recovery can be had unless it be shown that it was the paper of the defendant. It never became the authorized paper of the defendant, because not having been' countersigned by the defendant as required by the by-laws, it never became completely executed. (Davis Sewing Machine Co. v. Best, 105 N. Y. 59 ; De Bost v. Albert Palmer Co., supra.) The case of Martin v: Niagara Falls Paper Mfg. Co. (44 Hun, 130 ; affd., 122 N. Y. 165), is distinguished on the ground of the absence here of tire holding out or ratification' which were the controlling features in . that case. The case of Patterson v. Robinson (116 N. Y. 193) does not seem in’harmony with some of the prior and subsequent decisions already cited on the question of burden of proof ;■ but it is not inconsistent with the views here expressed tliat a corporation cannot be held liable upon a contract unless it either authorized its execution, ratified it or has done some act by which it should, be deemed estopped, , ,

If follows that the judgment and order should be reversed and a new trial granted, with costs to the appellant to abide the event.

O’Brien, P. J., dissented.