Willard v. . Holmes, Booth Haydens

37 N.E. 480, 142 N.Y. 492, 60 N.Y. St. Rep. 89, 97 Sickels 492, 1894 N.Y. LEXIS 780

Opinion

Gray, J.

This action was brought to recover damages for the malicious prosecution of a civil action. Whether such an action may be maintained, regardless of whether the plaintiff in the former action had interfered with either the person or property of the defendant therein, is a question we are not called upon to determine. The general rule at common law that an ordinary action, maliciously brought and without probable cause, which had terminated in favor of the defendant, gave rise to a right of action, certainly seems to have disappeared in England with the enactment of statutes giving costs to successful defendants. (3 Blackst. Com. 126 [Chitty’s notes] ; Quartz Hill, etc., Co. v. Eyre, L. R. [11Q. B. Div.] 674, 683.) In this country the authorities are not agreed upon the doctrine governing such actions; as may be seen by reference to the cases collated in the American and English Encyclop. of * Law (vol. 14, p. 32). But I am prepared to assume that there may be satisfactory authority for holding that where a party has been subjected to some special, or added, grievance, as by an, interference with his person, or property, in a civil action, brought without probable cause, he may maintain a subsequent action to recover any legal damage, which he avers, and is able to show, to have been occasioned to him. (See Bump v. Betts, 19 Wend. 421; Whipple v. Fuller, 11 Conn. 582; Potts v. Imlay, 4 N. J. L. 330; Mayer v. Walter, 64 Penn. St. 283, and Cooley on Torts, p. 187.) The action generally is not to be viewed with any favor; for, in theory of law, the costs awarded by the statute to the successful defendant are an adequate compensation to him for all damages. There is no reason, of course, why the action, in a proper case, should not be maintained against a corporation. The motive for the corporate suit is imputable to the corporation and not to the individual directors. In this case it appears that plaintiff’s property was attached, in the former action against him, and if it has been shown that it was instituted without probable cause and that there was an abuse of the processes of the law in the procuring of the attachment, furnishing the ground ' for an inference of malicious interference, the action may be , said to have been attended with a special grievance; which, by adding to the expenses some injury to property, differentiated it from an ordinary action. The attachment issued upon the affidavit of the plaintiff’s (this defendant’s) president; alleging the non-residence of the defendant in the action. It was a process which the statute authorized and which is usual in such cases, and its use subjects this defendant to no unfavorable criticism, if it accompanied the institution of an honest suit. The complaint and the affidavit in the former action contain no charges of fraud, or of a defamatory character," and they, as well as an examination of the facts connected with its bringing and maintenance, seem to disclose only an effort to recover a sum of money, which the plaintiff’s directors supposed to have been lost to the company, through the unauthorized act of the defendant, while its treasurer and managing officer. Under such circumstances, every intendment should and will be against this plaintiff upon reviewing the case presented. Such an action as the present one comes very near to being, if it is not actually, a re-trial of the former case, and, for its justification, requires the plaintiff to make out a very glaring case of the commencement of an action against him without any reasonable ground, at the time, for a belief that he had rendered himself liable thereto. The circumstances to sustain this right of action must appear to have been such, that no reasonable man could have been influenced thereby to the belief that the plaintiff had unauthorizedly committed the company, whose officer he had been, to a liability which it should not have incurred and which was foreign to its chartered purposes. It is our judgment that the facts did not justify the trial court in submitting the case to the jury and that, upon all the evidence, it was error to deny the defendant’s motion to dismiss the complaint. The material facts were not in dispute and whether there was probable cause for the prosecution of the former action became a question of law, solely, for the court. (Wesson v. Southard, 10 N. Y. 236.)

A review of the facts will make this clear and seems justified by the magnitude of the recovery at. the Circuit and the subsequent affirmance of the judgment by the General Term.

In 1886 the plain tiff, Willard, was the treasurer and the general manager of the defendant, a Connecticut corporation styled Holmes, Booth and Haydens, which was chartered for the purpose of manufacturing and dealing in brass, copper and German-silver goods etc. etc. Willard had been intrusted by the directors with a management of the company’s business, which was, practically, uncontrolled. He had executed a contract between the company and the Forest City Carbon Company, a corporation in Ohio, engaged in manufacturing cai’bons for electric lighting purposes; under which the latter company was to sell all of its manufactures to the Holmes etc. Company. The Carbon Company desired to increase its facilities and to extend its plant and, in July 1886, made an arrangement with Willard, who undertook to procure the means by lending his company’s credit. It made its promissory note to the order of the Holmes Company for $10,000; which Willard indorsed in the name of the payee and procured to be discounted; remitting the proceeds to the Carbon Company. Before the maturity of this note, Willard resigned from the Holmes Company. In Hovember 1886, the Carbon Company, being unable to meet its maturing note, sent on another note for $10,000, made to the order of the Holmes Company, to Adams, then the agent of the latter company. Adams indorsed the note with the payee’s name and procured its discount. The company’s check for $10,000 was then sent to the Carbon Company; which that company used to take up its July note. During and prior to .these transactions Willard and Adams were also interested, as stockholders, in the Carbon Company. After Willard left the service of the Holmes Company, Way land, its president, succeeded him as treasurer and general manager, in the latter part of January, or early in February. Being made aware of the outstanding liability of the company as indorser upon the note, and being informed that the maker was unable to provide for its payment, he procured the discount of another note-of the Carbon Company, for the same amount, at the bank and the proceeds being credited to the Holmes Company, the ¡November note when due was charged to its account. At the time, Way land was ignorant of the facts attending the making of the note, and supposed it related to the renewal of some customer’s note. Upon investigation, he discovered the history of the matter and that, at the time when Willard, in July 1886, had agreed to lend the credit of the company in aid of the Carbon Company, in the manner mentioned, that company, with a capital of only $25,000, was already indebted to the Holmes Company in the sum of $22,338.4J, and that a first note had been paid with funds furnished by his company.- He at once consulted with the company’s attorney and was advised that the company could recover damages against Willard, measured by the amount which the company had had to pay upon the note. A complaint was prepared and sworn to; which charged Willard with having indorsed the company’s name upon the Carbon Company’s note, without consideration received by the former company and without authority; with having remitted the proceeds of the discount thereof to the sole benefit and use of the Carbon Company and that the Holmes Company had been obliged to pay the same at maturity. Judgment was demanded against Willard for damages to the amount of the note. An affidavit was also prepared, and sworn to; which set forth the defendant Willard’s non-residence •, the cause of action and that the source of the information of Wayland, the deponent, was in an inspection of the books and records of the plaintiff company. Prior to the actual commencement of the action, however, Wayland had an interview with Willard ; in consequence of which Willard consented to attend at a meeting of the directors of the Holmes Company, and he then explained to them the purpose of the note transaction in July 1886 ; namely, to enable the Carbon Company to supply them with carbons in larger quantities and he claimed to have acted legitimately. He was asked to secure the company against loss by assigning some of his securities ; but he declined to do so and the directors, refusing to excuse him, advised Wayland to proceed with the action; which was at once done. When the action came on for trial, the complaint was dismissed and judgment ordered in favor of Willard; which was, eventually, affirmed in this court. (125 H. T. 15.) We held that the dealings with the Carbon Company were ultra vires the Holmes Company; but, as there was no proof to the effect that any director, or stockholder, was ignorant of these business transactions with the Carbon Company, it must be assumed that they were acquiesced in and, hence, no action should be maintained against the managing officer, for any resulting damage. If the company was, in fact, carrying on an illegitimate business to the knowledge of the directors, the general manager had the same authority and discretion as he had in the legitimate business. The failure of the company in its suit against Willard was due to the necessary assumption that, in the absence of all proof to show a want of knowledge on the part of the directors and stockholders of the business, which Willard was conducting with the Carbon Company, they must have known of and acquiesced in it. Upon the trial of the j>resent action, it appeared that of the directors of the Holmes Company only Willard, Adams and McGill were pecuniarily interested in the Carbon Company; and that beyond Willard and Adams none >of the directors had any knowledge of these transactions with the Carbon Company, until discovered by Way land. Willard,, by virtue of his position, and Adams, by virtue of express powers, conferred by resolution upon him as agent of the company, to indorse commercial paper and to sign checks, in the company’s business, were enabled to conduct these transactions with the Carbon Company and, being left practically, if not actually, without supervision by the other directors, they were not discovered until brought to Wayland’s attention by the failure of the Carbon Company to meet its note in March 1887 and the resulting investigation into the books. Therefore, while it is possible that, despite the ignorance of the directors concerning the full extent of Willard’s transactions, with the Carbon Company, due to their official inaction and blind confidence in his and Adams’ management of affairs,, the company itself might have been precluded from maintaining an action against Willard to recover any damages, the question was mainly one of law, and a mistaken belief as to-bis liability to the company, upon the supposed facts, should not have exposed the company to a suit for malicious prosecution. The burden in this action was upon the plaintiff to-prove a want of probable cause for the institution of the legal proceedings against him and that necessitated that he should show that the directors had authorized and acquiesced in his. methods of corporate management. He not only did not do-this; but precisely the contrary was established as the truth. In the opinion of the learned General Term judges, it was-deemed conclusively established that Willard had- been prosecuted without probable cause ; “ since,” to quote from it, “ it-would imply stultification by defendant to urge that it did not know what authority it had given plaintiff,” and that knowledge of the fact was chargeable to it, because of Willard’s-explanation, made upon the occasion of his meeting with the directors, at the instance of President Wayland. The diffir culty with the view of the General Term is that it fails to appreciate that, whatever the knowledge attributable to the corporation as matter of law, in this action Willard utterly failed to prove, as he was bound to do, that, in fact, the disin terested directors and stockholders ever either authorized, or knoAvingly acquiesced in, these transactions of his. This Avas necessary to be shown, in order to prove that the company’s suit should never have been brought, when its directors became cognizant of the transactions complained of. The proof was that Willard never was authorized to make advances to the Carbon Company and that he made them without the knowledge of the directors; other than Adams, who was interested with him in the matter. Willard was protected against liability to his company, for the reasons stated in our former opinion; (125 H. T. at p. 81) which applied to his case an exception to that rule which prohibits corporations from engaging in transactions ultra vires and subjects corporate officers, committing them to such, to a liability to respond in damages. For the respondent, Willard, it is argued that the former action had no reasonable cause ; for the reason that its allegations of an unauthorized.indorsement, made without consideration to the company, and of the payment by the company of the indorsed notes and of the consequent loss were all false. They were not. The indorsement was made without authority expressly given; and the fact that the company failed in its action against its officer does not affect the question, for reasons already stated. That the indorsement was made to extend the facilities of the Carbon Company, in supplying goods under its contract, may have been perfectly true ; but the contract between the companies did not call for adAranees of money and whether there was any consideration moving to the Holmes Company Avas questionable. That may have been Willard’s opinion; but it Avas open to the directors to question and deny the existence of any consideration. The note in question in the other action was, in fact, paid by the Holmes Company, its indorser. It Avas only in form paid by the Carbon Company, its maker; for, before it became due, the check of the Holmes Company was forwarded and furnished the means wherewith the former company took it up. That the moneys proceeded from the discount of a new note of the Carbon Company does not alter the matter. It was the fact, too, that, in the end, the $10,000 advanced to that company were not repaid and the Holmes Company had to take up the renewal notes from the bank. Except in the fact that the plaintiff in the former action mistook the law of the case and did not» anticipate the decision of the courts, upon the question of the defendant’s legal liability, there was no ground for alleging that its action was without probable cause. Hpon that question, of whether a cause of action existed, the company had the advice of respectable counsel, and the directors authorized the suit; relying upon it and in good faith believing the facts to warrant them in holding Willard in damages. It may be observed in this connection, as evidencing their consideration for Willard, that though the president was advised by counsel that the company might proceed against Willard upon the ground of fraud, for a misappropriation of funds, and would be entitled to arrest him, he refused to take a proceeding, which might oppress and disgrace him. The advice of counsel was given with all the facts known to the president; except that it is said the exact mode in which the note was paid by the company, and the explanations of Willard as to the transactions, were not communicated. The respondent’s counsel, in his brief upon the evidence, asserts that the attorneys “ were perfectly well aware of the true state of facts.” But, assuming any doubt in that respect, as to the attorneys’ knowledge of all the circumstances, it does not alter this case. The note was paid from the company’s funds and Willard’s explanation to the directors, while it evidenced his belief that he had been acting in the interests of the company, did not alter the question of his lack of actual authority. The mistake of the attorneys was upon the legal questions.

Without going further into the evidence, we think the plaintiff failed to show that this defendant was without reasonable grounds for the belief that he was liable in damages. There was reasonable ground, in the discovery by the directors of the facts connected with Willard’s transactions, upon which to found a genuine belief that a cause of action existed against him and, with the advice of counsel, there was justification for their proceeding; in the facts, if not in the law. They were bound to predicate their action upon facts, real, or honestly supposed; but they were not to come under legal condemnation, for not having anticipated the legal conclusion of the court from the facts as proved. In this, as in every such case, the question is not what the actual facts were upon which the action was taken; but what the defendant had reason to believe they were, and if they furnished reasonable cause for instituting the proceeding complained of, its failure is no evidence of want of probable cause or of malice.- (Stewart v. Sonneborn, 98 U. S. 187 ; Fagnan v. Knox, 66 N. Y. 525 ; James v. Phelps, 11 Ad. & El. 483.) Judge Cooley, in his work on Torts (p. 181), after referring . to definitions of what constitutes probable cause, says “ there must be such grounds of belief as would influence the mind of a reasonable person ” under like circumstances. “ The complainant,” he says, “ cannot be required to act with the same impartiality and absence of jii'ejudice, in drawing his conclusions as to the guilt of the accused, that a person entirely disinterested would deliberately do.” In Lindsay v. Larned (17 Mass. 190), it was complained that an action had been commenced to recover upon some promissory notes and the person of the plaintiff had been arrested and his property attached in the province of East Florida; when, at the time, a judgment had been recovered in a suit brought in Massachusetts upon the same notes, wherein an attachment had also issued, aud that, because of the action so pending, the Florida suit was dismissed. A non-suit at the Circuit was upheld and in the opinion of the court language was used, which may, not inappropriately, be referred to in connection with this case. Judge Putnam said, referring to the defendant’s action: “Anxious to recover a considerable debt, he took those measures, and those only, which, under the best advice, he supposed .adapted to that purpose, without any apparent desire to harass or vex his debtor. Undoubtedly the present plaintiff has sustained considerable loss, in consequence of the suits which the defendant instituted. But it must not be forgotten, in this part of the case, that the defendant has never- to this day obtained }iayment of his debt notwithstanding all his exertions. The misfortunes of the plaintiff have arisen from his pecuniary embarrassments, and. not from any abuse of the processes of law, to which the defendant had recourse.” Although it may be without legal bearing upon the discussion of the question, whether the evidence showed such a want of probable cause as to warrant the submission of the case to the jury upon the question of malice, it is not altogether out of place to observe that this record Contains no outward evidence of the existence of .malice in the prosecution of the former action. The issue of the attachment was with the purpose of securing the payment of a claim, which the company was supposed to have against the defendant therein; a perfectly legitimate use of a statutory process. Nor should the court be influenced, in determining the question of the defendant’s liability to such an action as this, by a consideration of any subsequent statements by its officers, which may have reflected discreditably upon Willard’s character or capacity. They may have furnished material for individual suits; but could not help out the cause of action here; which turned solely upon the existence of probable cause for instituting the former suit. . It may be further observed that, as matter of fact, the favorable result to this plaintiff in the former action might have been regarded by him as a vindication of his fair fame. Whatever reasons the directors had for the allegations in the complaint against him, in a state of facts which might reasonably operate upon the minds of men of ordinary prudence, the action went against the company and judgment was awarded to this plaintiff upon the issues. He was without justification, in instituting the present action to recover damages for the prosecution by the company of its action, and in re-opening a litigation, which had terminated successfully for him. The result has been to fail in making out any cause of action and to enable the defendant to establish the existence of probable cause for the maintenance of its action against him to recover the amount of the note for $10,000 ; upon which he had indorsed the company’s name, in a matter not within the scope of its legitimate business, and which, now, appears not to have been authorized, or known to the disinterested directors.

The judgment appealed from should be reversed and a new trial ordered: with costs to abide the event.

All concur.

Judgment reversed.