author: Parker, J.:

text:
    The People of the State of New York, Respondent, v. Thomas A. Welch, Appellant.

      A crime under both Federal and, State statutes — concurrent jurisdiction — jurisdiction of the State courts to punish a violation of the State statute — manslaughter committed by a pilot while managing a vessel — twice put in jeopardy.

    The .charge in an indictment that the defendant willfully and feloniously propelled and ran a tugboat into a yacht and did thereby willfully and feloniously cast a person from the said yacht into the river, and, by the means aforesaid, willfully and feloniously did kill and slay the said person, constitutes manslaughter in the second degree under either the second or third subdivision» of section 193 of the Penal Code.
    The meaning of the provision of section 5328, in title 70 of the Revised Statutes of the United States, entitled “ Crimes,” to the effect that “nothing in this title shall be held to take away or impair the jurisdiction of the courts of the several States under the laws thereof,” is that where an act, which is declared to be an offense against the laws of the United States by any of the provisions of that title, also constitutes an offense against the laws of the State within the territonal jurisdiction of which the act was committed, the jurisdiction of the State courts' to try the offender for the violation of its law shall not in anywise be impaired or held to be taken away, notwithstanding the provision of section 711 of the same Revised Statutes, that “ The jurisdiction vested in the courts of the United States, in the cases and proceedings hereinafter mentioned, shall be exclusive of the courts of the several States: First — Of all crimes and offenses cognizable under the authority of the United States.”
    Section 711 of the Revised Statutes of the United States operates to give the Federal courts exclusive jurisdiction to try offenders charged with violations of the Federal law, thereby necessarily depriving the State courts of jurisdiction thereunder, while section 5328 was intended to enable the State courts to try tho same offender, providing the act charged against him constituted a violation of the statutes of the State.

      When an act constitutes an offense against both the laws of the United States and the laws of the State where the act was committed, the offender may be punished either in the United States court or in the State court having jurisdiction, but the proceeding in either tribunal must be based exclusively on the law of the sovereignty under which the tribunal sits; that is, the proceeding in the Federal court must be based on the Federal law, and that in the State court on the State law.
    Such concurrent jurisdiction does not constitute a violation of the constitutional provision “that no person shall be subject for the same offense to be twice put in jeopardy of life or limb.”
    When an act, committed on the waters of the Hudson river, within the boundaries of the city and county and State of New York, constitutes the crime of manslaughter in the second degree under section 193 of the Penal Code of the State of New York, the Court of General Sessions in and for the city and county of New York is not deprived of its general jurisdiction thereof, by reason of the fact that the act was committed by a pilot in the management of a steamboat under his control, and, therefore, also constituted an offense against the laws of the United States, being made manslaughter and cognizable by the Circuit Court of the United States, by section 5344 in title 70 of the Revised Statutes of the United States.
    Appeal by the defendant, Thomas A. Welch, from a judgment of conviction rendered against him by the Court of General Sessions of the Peace in and for the city and county of New York on the 22d day of December, 1891, adjudging him guilty of manslaughter in the second degree.
    Section 711 of the Revised Statutes of the Hnited States, so far as material to this case, is as follows : “ The jurisdiction vested in the courts of the Hnited States, in the cases and proceedings hereinafter mentioned, shall be exclusive of the courts of the several States.

      “ First. Of all crimes and offenses cognizable under the authority of the Hnited States.”

      Lorenzo Semple, for the appellant.

      Delancey Nicoll and Henry B. B. Stapler, for the respondent.
   Parker, J.:

The defendant was convicted of manslaughter in the second degree, under an indictment charging him with willfully and feloniously propelling and running a tugboat into a yacht, and “ did thereby willfully and feloniously cast the said Jenkins from the said yacht into the river, * * * and by the means aforesaid, willfully and feloniously did kill and slay tbe said Jenkins.” The form in which the offense was charged by the indictment would constitute manslaughter iu the second degree under either the second or third subdivisions of section 193 of the “ Penal Code.” The section reads as follows:

Such homicide is manslaughter in the second degree when committed without a design to effect death either
“ (1) By a person committing or attempting to commit a trespass or other invasion of a private right, either of the person killed or of another not amounting to a crime; or,
“ (2) In the heat of passion, but not by a dangerous weapon, or by the use of means either cruel or unusual; or,
“ (3) By any act, procurement or culpable negligence of any person, which, according to the provisions of this chapter, does not constitute the crime of murder in the first or second degree, nor manslaughter in the first degree.”

The place where the crime was committed was within the territory described in section 1442 of the Consolidation Act, which provides that “ The whole of the Hudson river southward of the northern boundary of the city of New York, and the whole of the bay between Staten Island and Long Island, shall so far be deemed within the jurisdiction of the city and the county of New York that all offenses shall be cognizable in the courts of criminal jurisdiction, held in and for the said city and county.”

Section 1 of the same act also provides that the boundaries of the said city and county include all of the Hudson river ” within the boundaries of the State. By section 51 of the Code of Criminal Procedure ” it is provided that “ the Court of General Sessions of the city and county of New York and the Court of Sessions of the ‘ county of Kings5 have jurisdiction to try, determine and punish all crimes cognizable within their respective counties, including crimes punishable with death and imprisonment in the State prison for life!” And as the court named in the section last quoted was one in which the defendant was tried and convicted it follows that the defendant was convicted by a' court having jurisdiction of all crimes cognizable by the courts of this State, within the territory in which the offense charged was committed, which offense is declared by the statute of the State to.be manslaughter in the second degree.

But the appellant, not denying the general jurisdiction of the court to punish offenders for crimes committed on the Hudson river within the boundaries of the city and county of New York, contends that defendant’s act furnishes an exception to the rule, because it constitutes an offense against the laws of the United States," and, therefore, jurisdiction to punish for it belongs exclusively to the courts of the United States. That while prior to the recent revision of the statutes of the United States the offense might have been punished by the courts of the State, because Congress had not at that time reserved to the United States courts exclusive jurisdiction of all offenses which could be tried and determined under the authority of the United States, yet such authority was taken away from the State courts by section 711,‘ incorporated at the time of such revision, by which exclusive jurisdiction was vested in the courts of the United States of all crimes cognizable under the authority of the United States.

The facts relied upon by the appellant to present this question were established upon the trial, and appear in the record as follows:

“That the defendant, Thomas A. Welch, was duly licensed to act as a second-class pilot on steam vessels, hy the United States Local Board of Inspectors of Steam Yessels for the District of New York.
“ That while said license was in full force and effect, and while said defendant was engaged in the actual performance of his duties as a pilot under said license, a collision occurred June 15, 1891, on the Hudson river, in the county of New York, between the steam towboat F. W. De Voe, upon which the defendant was employed, and which was at the time under the defendant’s control and management as pilot, and the sloop yacht Amelia, which collision was caused by the willful misconduct, negligence and inattention to his duties on said F. W. De Voe of the said defendant, Pilot Thomas A. Welch. The said collision, caused by the willful misconduct, negligence and inattention of the said Thomas A. Welch, resulted in the sinking of the yacht Amelia and in the destruction of the life of Francis Jenkins, who was at the time on board of the yacht Amelia, by drowning.”

Witnesses called on behalf of the People, and of the defendant for other purposes, were permitted to testify, without objection or exception, as to the rules of navigation adopted by the United States local board of inspectors of steam vessels.

These facts, it is readily apparent, constitute the crime of manslaughter, under section 5344 of the Revised Statutes of the United States, which reads as follows:

“ Every captain, engineer, pilot or other person employed on any steamboat or vessel by whose misconduct, negligence or inattention to his duties on such vessel, the life of any person is destroyed * * -x- siaau he deemed guilty of manslaughter, and upon conviction thereof before any Circuit Court of the United States shall be sentenced to confinement at hard labor for a period of not more than ten years.”

And it is not questioned but that the facts proved establish the crime charged in the indictment. As the indictment charges an offense against the statutes of the State, it follows that the act of defendant violated both the laws of the United States and of the State of New York. But appellant insists that, as the act constituted a crime against the laws of the United States, the courts of the State of New York have been ousted of jurisdiction to try the offender, notwithstanding the same act constitutes, and for forty-six years before the insertion of section 711 in the United States Revised Statutes constituted, an offense against the statutes of the State of New York, and prior to that time was recognized as a criminal offense under the common law, constituting the crime of manslaughter.

Section 5344, above quoted, is found in title 70 of the Revised Statutes of the United States, entitled “ Crimes,” and among the introductory and general provisions of that title may be found section 5328, which reads as follows: “Nothing in this title shall be held to take away or impair the jurisdiction of the courts of the several States under the laws thereof.”

In the same title then in which the act of defendant is declared to be a crime against the laws of the United States, it is provided that nothing in the act shall have the effect to impair or take away the jurisdiction of State courts under the laws of the State. How is this provision to be given any effect unless it be’construed to mean that where an act which is declared to be an offense against the laws of the United States by any of the provisions of that title, also constitutes an offense against the laws of the State within the territorial jurisdiction of which the act was committed, the jurisdiction of the State courts to try the offender for the violation of its law shall not in anywise be impaired or held to be taken away ?

Prior to such enactment, the general rule on the subject of concurrent jurisdiction in cases where the act constituted an offense against both the laws of the United States and the laws of the State where the act was committed was as stated in Holt on Concurrent Jurisdiction, page 26 :

“ In such cases the offender may be punished either in the United States court or in the State court having jurisdiction, but the proceeding iu either tribunal must be based exclusively on the law of the sovereignty under which the tribunal sits, that is, the proceedings in the Federal court must be based on the Federal law, and those in the State court on the State law.”

Following that rule, the several sections under consideration are capable of harmonious construction. Section 711 operates to give to the Federal courts exclusive jurisdiction to try offenders charged with violations of the Federal law, thereby necessarily depriving the State courts from taking jurisdiction thereunder, while section 5328 was intended to assure the State courts that Congress had no intention to interfere with their rights to try the same offender, providing the act charged against him constituted a violation of the statutes of the State. We have asserted that the rule as quoted from Holt on Concurrent Jurisdiction ” is well established, and some reference to the authorities upon which that assertion is based will now be made. In Fox v. State of Ohio (5 How. 432) it was held that a State may punish the offense of uttering or passing false coin, and in the case of United States v. Marigold (9 How. 560), that a Federal court, in the proper exercise of its authority, may punish the same act as an offense against the United States. In the latter case the court said :

With the view of avoiding conflict between the State and Federal jurisdictions this court, in the case of Fox v. The State of Ohio, have taken care to point out that the same act might, as to its character and tendencies, and the consequences it involved, constitute an offense against both the State and Federal governments, and might draw to its commission the penalties denounced by either, as appropriate to its'character in reference to each. We thinlc this distinction sound, as we hold to be the entire doctrines laid down in the case above mentioned, and regard them as being in no wise in conflict with the conclusions adopted in the present case.”

Subsequently, in Moore v. Illinois (14 How. 13), the court had under consideration the validity of a statute of the State of Illinois, in pursuance of the provisions of which the plaintiff in error had been indicted and convicted of harboring and secreting a negro slave. It was contended that the statute was in conflict with an act of Congress on the same subject. Mr. Justice Grier, in delivering the opinion of the court, said: But admitting that the plaintiff in error may be liable to an action under the act of Congress, for the same acts of harboring and preventing the owner from retaking his slave, it does not follow that he would be twice punished for the same offense. An offense, in its legal signification, means the transgression of a law. A man may be compelled to make reparation in damages to the injured party, and be liable also to punishment for a breach of the public peace, in consequence of the same act, and may be said, in common parlance, to be twice punished for the same offense. Every citizen of the United States is also a citizen of a State or Territory. He may be said to owe allegiance to two sovereigns, and may be liable to punishment for an infraction of the laws of either. The same act may be an offense or transgression of the laws of both. Thus, an assault upon the marshal of the United States, and hindering him in the execution of legal process, is a high offense against the United States, for which the perpetrator is liable to punishment; and the same act may be, also, a gross breach of the peace of the State, a riot, assault or a murder, and subject the same person to a punishment, under the State laws, for a misdemeanor or felony. That either or both may (if they see tit) punish such an offender cannot be doubted. Yet it cannot be truly averred that the offender has been twice punished for the same offense, but oidy that by one act he has committed two offenses, for each of which he is justly punishable. He could not plead the punishment by one in bar to a conviction by the other.”

Chief Justice Taney in the case of United States v. Amy, reported in the Quarterly Law Journal (Vol. 4) for July, 1859, at page 163, and referred to in Jotts case (18 Gratt. 945), concludes his opinion as follows: In maintaining tlie power of the United States to pass this law, it is, however, proper to say that, as these letters with the money in them were stolen in Virginia, the party might undoubtedly have been punished in the State tribunals, according to the laws of the State, without any reference to the post office or the act of Congress, because, from the nature of our government, the same act may be an offense against the laws of the United States and also-of a State, and be punishable in both. This was considered and decided in the case of Fox v. State of Ohio (5 How. [U. S.] 410) and in the ease of United States v. Marigold (9 id. 560), and the punishment in one sovereignty is no bar to his punishment in the other.”

In Ex parte Siebold (100 U. S. 371-390) the petitioners were judges of election at different voting precincts in the city of Baltimore, at an election held in that city, at which representatives in Congress were voted for, and which positions they held in pursuance of the statute of the State of Maryland. They were afterwards, convicted in a Circuit Court of the United States for the district of Maryland for offenses alleged to have been committed by them respectively whilst acting as judges at such election.

The petition was denied, the court, at page 389, saying : “ Another objection made is that if Congress can impose penalties for violation of State laws, the officer will be made liable to double punishment, for delinquency, at the suit of the State and at the suit of the United States. But the answer to this is that each government punishes for violation of duty to itself only. Where a person owes a duty to. two sovereigns he is amenable to both for its performance, and either may call him to account. Whether punishment inflicted by one can be pleaded in bar to a charge by the other for the same identical act need not now be decided, although considerable discussion bearing upon the subject has taken place in this court, tending to the conclusion that such a plea cannot be sustained.”

This was followed by a brief consideration of the cases to which we have referred, and their approval.

In Cross v. North Carolina (132 U. S. 131) the plaintiffs in error were convicted, under section 1029 of the Code of North Carolina, of the forging of a promissory note, made payable to a National bank. A writ of error was sued out upon the ground that the ■offense of which they were convicted was cognizable only in the ■courts of the United States. ' It is true that the court held that the crime charged in the indictment was not included in section 5418 of the United States Revised Statutes, but the court, speaking through Mr. Justice Harlan, said: “ The argument in behalf of the plaintiffs in error fails to give effect to the established doctrine that the same act or series of acts may constitute an offense equally .against the United States and the State, subjecting the guilty party to punishment under the laws of each government. This doctrine is illustrated in United States v. Marigold (9 How. 560, 569); Fox v. Ohio (5 id. 410, 433); Moore v. Illinois (14 id. 13), and Ex parte Siebold (100 U. S. 371-390).”

The cases cited, it will be observed, not only assert concurrent jurisdiction in certain cases, but answer the contention that the application of the rule would be a violation of the constitutional provision, “ Nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb.”

The cases cited by the appellant are not in conflict with the position taken in those we have referred to.

They hold that it is within the constitutional power of Congress to coniine to the courts of the United States jurisdiction of crimes arising under the laws of the United States. (Claflin v. Housemam, 93 U. S. 130; The Moses Taylor, 4 Wall. 411.)

And that section 711 of the Revised Statutes of the United States -vested exclusive jurisdiction in the courts of the United States to try all offenders against the laws of the United States. (People v. Fonda, 62 Mich. 401; Commonwealth v. Fenton, 101 Mass. 204; Ex parte Dock Bridges, 2 Woods [U. S.], 428.)

But they do not decide that if the act which constitutes an offense ugainst the laws of the United States be also an offense against the laws of a State that the State court is thereby deprived of the right to try the offender for his violation of the State law. ■

•Indeed, it could not be so decided with reference to such acts as ;are declared to be crimes by title 70 of the Revised Statutes , of the United States, and at the same time give any effect whatever to ■ ■section 5328 of that title.

In Dashing v. State (78 Ind. 357) the court had under consideration tlie sections now ' before us, and it held that section 711, construed with section 5328, does not operate to divest the States of the right and jurisdiction to enact and enforce their own criminal laws, though the acts made criminal thereby might also be made ■criminal by the laws of the United States.

The judgment of conviction should be affirmed.

Van Brunt, P. J., and Follett, J., concurred.

Judgment of conviction affirmed.


source: Caselaw Access Project

license: Public Domain

text:
    Edward M. Knox, Respondent, v. Eden Musée Americain Company (Limited), Appellant.

      Certificate of stock — how fit/)' negotiable paper — estoppel — negligence — by-laws of a corporation — violation thereof by its officers.

    When certificates of stock are regularly signed by the president and treasurer of a corporation, bear the corporate seal of the company and are regularly issued to the individuals named in the several certificates, who have indorsed thereon in blank an assignment with a power of attorney to execute a transfer thereof upon the stock books, and such indorsements are witnessed, such certificates may be taken by lenders or purchasers without inquiry or other formality than that of delivery, because of the recognized assurance that the stock which the certificates represent cannot be transferred except upon the delivery and cancellation of the certificates.
    A purchaser of the certificates of stock of a corporation containing its promise that a new issue of stock will not be made without a surrender of the certificates purchased is in the same position as a purchaser of a promissory note, payable to bearer, before the maturity thereof.
    Choses in action generally pass by assignment, subject to equities, while negotiable instruments pass free from all equities, and secure to a bona fide purchaser the entire legal and equitable title.
    The law of estoppel protects a purchaser of stock in a corporation not only against the rights of previous holders thereof but against the claims of the corporation itself
    The owner of a certificate of stock indorsed by him in blank, which is subsequently wrongfully converted to the use of another, is estopped from asserting his title as against a bona fide purchaser.
    A statement on a certificate of stock that the shareholder named therein is entitled to a certain number of shares of stock transferable upon the books of the company only upon the surrender and cancellation of such certificate, is a ■ notification to all pei’sons interested that whoever m good faith buys such stock and produces to the corporation the certificate regularly signed and with a power of attorney to transfer the same, is entitled to have the stock transferred to him, and it assures the holder thereof that the corporation will not transfer the stock to any one not in possession of the certificate, and if a person, acts upon the faith of such assurance, the corporation cannot be permitted to show that it was not true.
    Negligence is a well-recognized foundation upon which to rest an estoppel in cases arising out of the wrongful transfer of stock.
    The neglect by the officers of a corporation to obey a by-law thereof which directs the cancellation of all certificates of stock surrendered before the issuing of new certificates, is wrongful as against one who, were it not so held, would suffer from such neglect. In failing to comply with such a by-law, (lie-corporation neglects to perform a duty which it owes to the public, and if its. neglect results in injury, there is secured to the person injured the right to be indemnified by the corporation.
    One dealing with an officer of a corporation is put upon inquiry where the act of the officer would be illegal unless actually authorized, as, e. g., where securities, offered for sale or as security by the officer are apparently the property of the corporation. ,
    The possession of a certificate of stock in a corporation regularly issued to a shareholder named therein (and by him indorsed, in blank), by an officer of tlie corporation other than one having a part to perform in the execution of the certificate, is not, however, of itself sufficient to charge a buyer with the duty of inquiry.
    Where a party attempts to assert, as against the corporation issuing them, the validity in his hands of certain certificates of stock under circumstances which require that he should succeed, unless his failure to observe an indorsement on the back of a certificate not in suit, but delivered at the same time, operates t'o prevent it, there is no basis upon which to charge his carelessness or omission to observe the indorsement on such other certificate with such consequences in an action upon the certificates actually indorsed in blank, nor can he be charged with contributory negligence for failing to observe the indorsement on the certificate not in suit, lie having at the time supposed it to have been indorsed in blank.
    Appeal by the defendant, The Eden Musée Americain Company (Limited), from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the city and county of New York on the 21st day of June, 1893, upon the report of a referee.
    This action was brought against the defendant corporation to recover the damages resulting from the defendant’s refusal to transfer to the plaintiff fifteen shares of its capital stock. In May, 1891, one Reynolds, an employee of the defendant, applied to the plaintiff for a loan of $2,500 upon his note indorsed by one Jurgens. Jurgens was also an employee of the defendant, the general superintendent of its business. The plaintiff knew that Reynolds and J urgens were in the employ of the defendant and supposed that Jurgens was its managing director. lie refused to lend the money without security, and Reynolds told him that they (meaning himself and Jurgens) owned twenty shares of the capital stock of the defendant, and he agreed to lend the money on that as collateral. Subsequently Reynolds brought to the plaintiff four certificates of five shares each — one issued to Mrs. Eva M. Chase, one to Seligsberg & Co. and two to Mrs. Hattie Z. Blisli. They were in all respects regular in form and genuine certificates; they were all indorsed in blank by the persons in whose favor they were issued, except, that in the case of the certificate issued to Mrs. Eva M. Chase the name of Seligsberg & Co. was inserted as the attorney to make transfer on the books. The plaintiff examined the certificates and the indorsements, but did not observe that in the certificate issued to Mrs. Chase the blank was filled in as to the attorney to transfer. He made the loan on the note of Reynolds, indorsed by Jurgens, and the four certificates as collateral. Afterwards the loan was paid in part and renewed, and there remains still due to the plaintiff $L,S00, with interest from March 2, 1892, on $800, and on $1,000 from January, 1892. The renewed notes being dishonored, the plaintiff applied to the defendant for a transfer of fifteen shares represented by the certificates, other than that to Mrs. Chase, on which he makes no claim. The defendant refused to make the transfer, and thereupon this action was brought.
    The facts relating to the certificates are as follows : The twenty shares had been purchased by the firm of Seligsberg & Co., of which Mr. Heilman, the president of the defendant corporation, was a member. In April, 1891, J urgens informed Mr. Heilman that one Siebrecht wished to buy twenty shares at $114 per share, and Mr. Heilman agreed to sell him these twenty shares. He took the certificates to the defendant’s place of business, which was under the immediate charge of Jurgens, subject to Mr. Heilman’s general supervision, and finding that Siebrecht was not ready to complete the purchase left the certificates in the company’s safe in the office, giving instructions to Jurgens that when Siebrecht paid the money the transfer should be made. About three weeks later Jurgens sent to Mr. Heilman at his office in New York city a new certificate for twenty shares made out to Siebrecht, complete except as to the signature of Heilman as president. This certificate was signed by Heilman, returned to Jurgens and delivered to Siebrecht, who paid the price of the shares, which was received by Mr. Heilman. The old certificates were not in fact canceled, but in the month of May, 1891, were used by Reynolds and Jurgens as collateral security for the loan made on Reynolds’ note by the plaintiff as above related. In December or January following it was discovered that Jurgens was a defaulter, and soon after he disappeared. It does not appear that Reynolds knew of the fraudulent withdrawal of the certificates or knowingly participated in the fraud of Jurgens.
    The defendant corporation was formed under the Business Corporation Act. (Laws 1875, chap. 611.) It had adopted a by-law that “ all certificates exchanged or returned to the company shall he canceled by the secretary, and such canceled certificates pasted in their original place in the certificate book, and no new certificate shall be issued until the old certificate has been thus canceled and returned to its original place in said book.” By the by-law's the certificates were to he signed by the president or vice-president and the treasurer. Mr. Heilman had been president from the formation of the company, and had always signed the certificates, except when he was for a short period out of the country. The certificate and transfer books were kept at the company’s" office in the safe, of which Jurgens alone had the combination. He had in effect had sole charge of these hooks, receiving old certificates and preparing new ones, obtaining the signatures of the treasurer and presenting them to the president for his signature. In every other instance in which Mr. Heilman, as president, had signed a new certificate, he had had presented to him the old certificate, and saw that it was canceled in fact before the new one was issued. In this particular case Jurgens did not send with the new certificates the old ones, canceled as was usual. The secretary had never attended to the canceling of the old certificates, and neither he nor the president, nor, so far as appears, any officer, had ever been in the habit of examining the stock transfer or certificate hooks or the returned certificates at the company’s office. Their duties in this respect seem to have wholly devolved upon Jurgens, the general superintendent and manager of tlie business. The business was the carrying on of a show in West Twenty-third street in a building occupied by the-company for that purpose. Its capital stocn was $400,000, of which $330,000 was actually issued. The receipts at the door were deposited in the bank by Reynolds. Jurgens did not handle the money, but he had been trusted with large amounts of jewelry and other valuables, and nothing had excited the suspicions of the officers o£ the company as to hjs honesty.
    Erom the time the certificates in question were last seen by Mr;. Heilman in the company’s safe till Reynolds delivered them to the-plaintiff as collateral to his and Jurgens’ note, there is no evidence as to where they were. This was on the 8th day of May, 1891.

      Charles Steele, for the appellant.

      Henry D. Hotchkiss, for the respondent.
   Parker, J.:

The certificates of stock which lie at the foundation of this controversy are regularly signed by the. president and treasurer of the-corporation, bear the corporate seal of the company, and were regularly issued to the individuals named in the several certificates, who indorsed in blank an assignment with a power of attorney to execute a transfer upon the stock books, which indorsements were witnessed.

That the stock was properly issued, and the transfer indorsed thereon duly signed in blank by the shareholder is unquestioned, and thus, according to the established usage in the commercial world, they were acceptable to lenders or purchasers without inquiry or other formality than that of delivery, because of the recognized assurance that the stock which the certificates represented could not be transferred except upon the delivery and cancellation of the: certificates.

It is true that the president of the company, who had become the; holder and owner of the shares, surrendered them to the company-in order that new shares might be issued in their place to one who> had purchased the stock of him, and of right the stock should have been canceled.

But it was not, and later for value it passed into the possession of one whom, for the purpose of the present inquiry, we shall speak of as a bona fide holder.

While they had been delivered to the officers of the corporation for cancellation, nothing had been written or stamped upon the certificates which evinced that fact, and they came first to the attention, ■and next to the possession, of the plaintiff without anything upon them which in the least tended to disclose that other certificates had been issued in their place. -

It is' difficult to see any reason why the purchaser of a certificate ■of stock under such circumstances should not be held to be in the same legal position as if he were the purchaser of a promissory note, payable to bearer, before maturity.

. Both are transferable by delivery, and the certificate bears upon its face the promise of the corporation that a new issue of stock in its stead would not thereafter be permitted without a surrender of the certificate.

The object of the assurance was to induce the public to purchase them more readily, because of their easy convertibility. And when we consider the volume of daily transactions in stocks, and have in mind that stocks of railroad corporations in this country alone aggregate a little over $4,600,000,000, with shares in banking, business .and other corporations almost without number, it would seem to be of the highest importance that the public should be reliably assured that certificates of stock purchased by them in good faith, with a transfer indorsed in blank, entitles them to protection, not only against a claim by a prior owner that he has not parted with it (McNeil v. Tenth National Bank, 46 N. Y. 325), but also from a ■claim by a 901'poration that the stock is invalid, because surrendered for cancellation and new stock issued in its place.

There seems to be no good reason why, to such an extent, at least, such certificates should not be deemed to have so much of the attributes of negotiable securities as to make them unassailable in the hands of purchasers in good faith and for value.

It must be admitted that the weight of authority, numerically considered at least, has pronounced against the applicability of the word negotiable, as describing the quality of stock certificates. (Beach on Private Corporations, § 677; Cook on Stock and Stockholders, § 412.)

Mr. Beacli in his work on Private Corporations, as well as some other text writers, has manifested a disposition to regard the expression quasi negotiable as more aptly descriptive of the character of the instrument, which carries with it to its purchaser in good faith assurance of protection grounded on the doctrine of estoppel — the foundation upon which the estoppel is rested being that the title of an innocent purchaser necessarily comes through acts of the real owner — which makes it possible for any one to purchase the certificates in the belief that his vendor is vested' with title and authority to make a valid and effective sale, and do not depend upon the rights of the apparent owner in any degree.

This doctrine has been so extended that a bona fide purchaser of stock for value is protected by estoppel in almost every case in which he would be as the holder of a negotiable instrument.

If this be a correct statement of the rule, the necessities of the commercial world in dealing in stocks are as fully recognized, in so far as the protection of the bona fide purchaser is concerned, as if certificates of stock “were treated as or termed negotiable.

Protection of the bona fide purchaser is the matter of moment; what it may be termed is not of the least account.

Morawetz in his work on Private Corporations (2d ed., § 185) bases the statement following, on the decisions mainly of New York courts: “ By general mercantile usage shares in a corporation are assignable by indorsement and delivery of the certificate issued to the owner as evidence of his rights. It is well settled that, after a certificate for shares has been indorsed by the holder, with an assignment and power of attorney to execute a transfer upon the stock books, the name of the transferee and attorney being left blank, the certificate thus indorsed may be passed from hand to hand, and the last owner will be entitled to fill up the assignment and power of attorney and complete the transfer by entry upon the books of the company.”

Among the early cases in this State, where a stock certificate, after an indorsement in blank upon the back of it by the holder, for the purpose of having it used as collateral security for a loan, was pledged by the party to whom it was delivered to obtain a loan in his own behalf, was Kortrright v. Buffalo Commercial Bank (20 Wend. 91).

Tlie certificate was for 100 shares of bank stock, and the bank refused to transfer tlie certificate on its books when requested to do so, notwithstanding that the assignment and power of attorney over the signature of the original owner of the stock had been duly filled out. The court said that the assignment and power of attorney was in “strict conformity with the universal usage of dealers in the negotiation and transfer of stocks according to the proof in the case.

“Even without the aid of this usage there could be no great difficulty in upholding the assignment. The execution in blank must have been, for the express purpose of enabling the holder, whoever he might be, to fill it up. * * * The filling up is but the execution of an authority clearly conveyed to the holder, is lawful in itself, and convenient to all parties, as it avoids the necessity of needlessly multiplying transfers upon the books.”

N. Y. & N. H. R. R. Co. v. Schuyler (34 N. Y. 30) was a suit in equity to have certain alleged false and fraudulent certificates and pretended stock of the corporation adjudged void, and to compel the certificates to be brought into court and canceled.

The court, in discussing the character of stock corporations, said, at page 82: “Now, while the corporation could not give to a certificate of this kind negotiability in its legal commercial sense, it could and did approximate to that characteristic, as nearly as legally possible, for the purpose of making its stock more valuable by the ease with which its certificates could p>ass from hand to hand by simple deliveiy. * * * But it was essential to make these certificates in a form to secure public confidence, and this could only be done by making them solemn assurances of rights. Hence, by its by-laws, the corporation declared that the stock represented by them should never be transferred, except upon the delivery and cancellation of the certificates; and this provision, in effect, is embodied in the certificate itself. * * * ” To the purchaser of the stock from its stockholders it “assured safety in purchasing the certificates, by declaring that the stock should only be transferred upon its surrender and cancellation.”

In McNeil v. The Tenth Nat. Bank (46 N. Y. 325) the plaintiff delivered to his brokers a certificate of certain shares of stock to secure any balance of account, having previously indorsed thereon the form of an assignment and a power of attorney to make all necessary transfers.

The name of the transferee and attorney and the date were left blank. Subsequently the brokers, without authority, and without plaintiff’s knowledge, pledged the scrip to secure a loan to tliein- ' selves; defendant paid the loan and received the securities. It was held that it was estopped from asserting its title as against the plaintiff.

Judge Bapallo, speaking for the court, said: “ The holder of such a certificate and power possesses all the external indicia of title to the stock, and an apparently unlimited power of disposition over it. He does not appear to have, as is said in some of the authorities cited concerning the assignee of a chose in action, a me;e equitable interest, which is said to be notice to all persons dealing with him that they take subject to all equities, latent or otherwise, of third parties, but, apparently, the legal title and the means of transferring such title in the most effectual manner.”

Judge Bapallo thus makes the distinction which obtains between what is assignable, as are dioses in action generally, and instruments which contain certain elements of negotiability. The one passes by assignment and is taken subject to equities, while that which is negotiable is taken free from all equities, and secures to the bona fide purchaser the entire legal and equitable right. This element of negotiability was presented in another form- in Leitch v. Wells (48 N. Y. 585).

The doctrine of constructive notice by lis pendens filed in a pending action was sought to be made applicable to a subsequent purchaser of certain stock. Plaintiff’s contention was not upheld, the court saying, at page 613 : Stocks are articles of commerce, and the dealings in them every business day of the year far surpass in value the dealings in any other species of personal property. They pass from hand to hand in commercial transactions like negotiable notes or bills of exchange. They are sold and pledged, and in many ways form the basis of credit.”

Since the .-decision of the case of McNeil v. Tenth National Bank, above cited, certificates of stock with blank assignments and powers of attorney attached must be nearly as negotiable as commercial paper. The doctrine of constructive notice by lis pendens. has never been applied to such property. ,

In tlie case of The Fifth Avenue Bank v. R. R. Company (137 N. Y. 231) the court recently said: “ While certificates of stock in ■railroad and other business corporations do not possess the qualities of commercial paper in the full sense of the term, yet, as evidence of title, when the transfer indorsed thereon is signed in blank by the shareholder, they become in effect, so far as the public is con■eerned, as if they had been issued to bearer. They are then readily transferable by delivery and have an element of negotiability which renders them an important factor in the financial and commercial transactions of the country. * * The plaintiff must, therefore, be accorded whatever advantage belongs to a holder in good faith of a chose in action of this character.” While protection to the bona fide purchaser of stock indorsed in blank has been worked ■out by means of the doctrine of estoppel, it seems to have at last reached a point in process of development which justifies the statement following which we take from Cook on Stock and Stockholder^ section 16 :

“ This law of estoppel protects the purchasers of stock in a corporation, against not only the rights of previous holders, but against the claims of the corporation itself. Indeed, to such an extent has the law of estoppel been applied to protect a bona fide purchaser of stock, that he is protected now in almost every instance where he would be protected if he were purchasing a promissory note or other negotiable instrument.”

The holder of a certificate of stock who indorses it in blank, which is subsequently wrongfully converted to the use of another, is ■estopped from asserting his title as against a bona fide purchaser. For the same reason this defendant would seem to be estopped from •challenging the validity of this certificate. Under the seal of the corporation, supported by the genuine signatures of two of its officers, the present holder was informed, by statements appearing upon the face of the certificate, that the shareholder named therein was entitled to a certain number of shares of stock, which could be transferred upon the books of the corporation in person, or by attorney, whenever the certificates should be surrendered, but not •otherwise.

In the language of Davis, J., in Bank v. Lanier (11 Wall. 378): “ This is a notification to all persons interested to know that whos ever in good faith buys the stock and produces to the corporation the certificates regularly assigned, with power to transfer, is entitled to have the stock transferred to him, and the notification goes further, for it assures the holder that the corporation will not transfer the stock to any one not in the possession of the certificates.” It is difficult to see how it is possible for the corporation 'to make a statement calculated to more thoroughly persuade a purchaser that the stock was still outstanding and valid. And the plaintiff having acted upon the faith of such assurance, the corporation cannot be permitted to say that it was not true.

If the position thus taken be correct, there remains for consideration the question whether plaintiff is a bona fide holder. The learned referee, however, predicated defendant’s liability upon the ground of negligence, which is a well-recognized foundation upon which to rest an estoppel in cases arising out of the wrongful transfer of stock.

His finding of negligence on the part of the officers of the corporation, if it has support in the evidence, commands the conclusion reached by him, that the defendant is estopped from challenging' the validity of the certificates in controversy. That the finding is justified by the evidence adduced is readily apparent. It has for a long time been the rule with corporations to provide that where certificates of stock were exchanged or returned to the corporation, such certificates should be first canceled and returned to their original place in the certificate books before a new certificate should be issued in their place. This, experience had taught to be necessary:

F-vrst. In order to protect the corporation against the returned certificates being wrongfully put into circulation again by officers, employees or others, who might in some way obtain access to them.

Second. As the public are invited to purchase securities, it is the policy of corporations to have them regarded as equally as safe to deal in as negotiable securities. The protection of the corporation was attempted to be secured by a by-law requiring surrender and cancellation before the issue of a new certificate. But to assure the public against any possible apprehension of difficulty lest a new certificate should have been issued in the place of the one offered for sale, the certificates on their face declared that a new certificate should only issue after the surrender, cancellation and return to its place in the certificate book of tbe old one. Now, this corporation bad a similar by-law, and made a like representation on tbe face of tbe stock certificates issued by it.

Tbe occasion for it was well understood. It constituted a part of tbe business learning of tbe time. Tbe necessity of carrying out tbe by-law and tbe promise of tbe certificate was as apparent as that tbe occasion required both tbe by-law and tbe promise. Neglect of •#ie officers to follow the by-law under such circumstances could not be otherwise than wrongful as against one who, were it not so held, would suffer from tbe neglect. Tbe situation is not one where the ■officers of a corporation can say, “ it never happened to us before ; .and, therefore, we had no reason to apprehend it,” for it was tbe experience of other corporations, which they knew so well that they •attempted to guard against misadventure in tbe manner described. But, while tbe by-law was duly made, it was not enforced.

And in failing to comply with this rule of well-recognized necessity, which it pledged itself to comply with on tbe face of its certificates, it neglected to perform a duty which it owed to this plaintiff as one of tbe public. That neglect having resulted in injury to this plaintiff by reason of it, there is secured to him the right to be indemnified by tbe defendant.

This brings us to tbe question whether the plaintiff was a bona fide bolder.

It was so fully discussed by the referee as to require but little more than a statement that his conclusion is indorsed. The plaintiff was applied to by Reynolds for a loan upon the notes of Jurgens and himself. He refused to make tbe loan without security. Thereupon the certificates in question were offered and accepted as such. He had no actual notice of any want of title on the part of Jurgens and Reynolds.

But it is urged that as Jurgens was the general superintendent of the defendant, and Reynolds an employee, of which fact plaintiff had knowledge, that be was put on inquiry touching the validity of tbe certificates. In other words, that if an intending purchaser of stock knows that tbe would-be seller is an officer or employee of the corporation which issued tbe stock, he is put on inquiry and thus becomes chargeable with constructive notice of everything to which that inquiry would reasonably have led. ■

In Wilson v. M. E. R. Co. (120 N. Y. 115) the party discounting the notes of the corporation had knowledge that the proceeds were being applied to the personal use of the president of the corporation. And it was held that prima facie the act was unlawful, and unless actually authorized, the purchaser would be deemed to have taken them with notice of the rights of the corporation — a rule which accords with a sound public policy, for corporations have no authority to loan their notes or securities to their officers for use in their own personal transactions. So, when a person is invited to buy, or loan money to an officer of a corporation, upon the faith of securities, and such securities or obligations appear to belong to the corporation, he is charged with the duty of inquiry, because agents do sometimes exceed their authority, and when the' situation presented is such as to lead an ordinarily prudent man to question the right of the agent to do a certain act, he who deals with him does so at his peril. Public policy requires such a ride. If it were otherwise, so that it would be sufficient to shut the eyes and say, “ I did not see,” dishonest, although trusted, agents would have no difficulty in finding ready capital to aid them in enterprises undertaken on the strength of the assets of corporations.

A type of the cases which call for the application of the rule is furnished by Bank of New York National Banking Association v. The American Dock & Trust Co. (53 N. Y. St. Repr. 905). But, as the rule is well grounded in reason, it has never been so far extended as to embrace such a case as this.

These certificates do not purport to belong to the corporation. On the contrary, they appear to have been, as was the fact, issued to the shareholder named in each of them, and by her indorsed in blank so as to be readily transferred by delivery from person to person, until some holder should desire a new certificate.

They contain nothing which would induce the suspicion that new certificates had been issued in their place; on the contrary, they severally have the assurance of the president and treasurer that this could not be done until the certificates should be canceled.

As neither Reynolds nor Jurgens occupied the position of either president or treasurer, it was evident that they were without the opportunity to issue new stock. But further discussion of this question need not be indulged in. It is apparent that the possession of a certificate of stock of a corporation, regularly issued to a shareholder named therein, and by him indorsed in blank, by an officer of the corporation, other than one having a part to perform in the execution of the certificate, is not of itself sufficient to charge a buyer with the duty of inquiry.

There ivas a fourth certificate not in controversy here, which was not indorsed in blank, but regularly filled out, and it is said that plaintiff was thus put in possession of a fact which should have led him to doubt the ownership of the certificate by Jurgens and Reynolds. In the first place, the evidence which the referee fully credits is to the effect that plaintiff did not observe that it had been filled out. That being so, the situation presented is that of a party attempting to assert, as against the corporation issuing them, the validity in his hands of these certificates of stock, under circumstances which command his success, unless his failure to observe an indorsement upon the back of a certificate not in suit, but delivered at the same time, operates to prevent it. It is difficult to see any basis upon which to charge his carelessness with such consequences.

The appellant contends that he cannot recover because of his contributory negligence. Here were four certificates presented toliim. He found some of them, and he supposed all of them, indorsed in blank. In that he was mistaken. His examination was not sufficiently careful. By reason of it he took one certificate which he cannot enforce against the corporation, but does that deprive him of the right to enforce Ms cause of action upon each of the other certificates ?

There was no negligence as to them or any of them. They proved to be indorsed as he had supposed.

The situation does not admit of the application of the doctrine of constructive notice. The appellant suggests otherwise, but does not support the suggestion with decisions.

The judgment should be affirmed, with costs.

Van Brunt, P. J., and Follett, J., concurred.

Judgment affirmed, with costs.


text:
    Samuel W. Milbank, Receiver, etc., of Alexander Barney & Chapin, Plaintiff, v. John W. Welch and Luke A. Burke, as Trustees for P. H. Alexander and Others, Defendants.

      Invalid assignments or transfers by corporations — section 48 of chap. 688 of 1892, the Stoclc Corporation Law — distinction between transfers to officers or stockholders and those to other persons.

    The directors of a stock corporation loaned it money, and the corporation executed its notes therefor and also an agreement assigning certain accounts to trustees, as security for the notes, and providing that other accounts might he substituted at any time when the corporation should not be in default on the notes, and that from time to time or at the maturity of the notes the trustees should apply the moneys in their hands to their payment; the trustees did not so apply the moneys in their hands on the notes at maturity, but turned the same over to the corporation, and the notes remained past due and unpaid. Thereafter, and at a time when the corporation had refused to pay certain of its matured obligations, the corporation made a new assignment of accounts to the trustees to take the place of those which had been collected by them.

      Held, that such latter assignment was invalid as to such beneficiaries as were then officers, directors or stockholders of the corporation, under the provisions of section 48 of the Stock Corporation Law (Laws of 1892, chap. 688), providing that “no corporation which shall have refused to pay any o'f its notes or other obligations when due * * * shall transfer any of its property to any of its officers, directors or stockholders, directly or indirectly, for the payment of any debt.”
    That if, however, certain of the persons, for whose benefit such an assignment of accounts was made, after the corporation had refused to pay its notes or other obligations, when due, had ceased to be officers, directors or stockholders of the corporation before the assignment, the same was not invalid as to them unless shown to come within the further provision of said,section 48, that “no conveyance, assignment or transfer of any property of any such corporation * * * when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation, shall be valid.”

      Qucere, whether, if the agreement had provided for the transfer of accounts at any time until the notes were paid, the transfers could not have been legally made after a refusal to pay a matured indebtedness, coming due after the execution of the agreement.
    The invalidity of a transfer of property by a corporation to a person who is not an officer, director or stockholder of the corporation is not made out by merely showing a transfer of property to a creditor in payment of a just debt, after the corporation has failed to meet at maturity one or more of its obligations, but tlie proof must go further and show facts from which the inference must be drawn that the officers of the corporation making the transfer of the property did so with the intent of giving the creditor a preference at a time when the corporation was insolvent or its insolvency was imminent.
    Submission of a controversy on an agreed statement of facts, pursuant to section 1279 of tbe Code of Civil Procedure.

      Geo. Putnam Smith, for the plaintiff.

      Otterbourg, Jenks & Springs, for tbe defendants.
   Parker, J.:

Plaintiff, as receiver of the property of Alexander Barney & Chapin, a corporation organized under the laws of the State of New York, demands judgment that an assignment of accounts made by it September 1, 1893, be adjudged invalid, because in violation of section 48 of chapter 688 of the Laws of 1892, which reads as follows:

“No corporation which shall have refused to pay any of its notes or other obligations when due, in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, directors dr stockholders, directly or indirectly, for 'the payment of any debt, or upon any other consideration than the full value of tlie property paid in cash. No conveyance, assignment or transfer of any property of any such corporation by it, or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it, or by any officer, director or stockholder, when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation, shall be valid.”

On the 16th day of July, 1891, the corporation being in need of funds, live of its stockholders and directors, P. II. Alexander, C. E. Chapin, A. A. Patton, John W. Welch and Luke A. Burke, entered into an agreement to loan it the sum of $10,000 in cash, each of said directors furnishing $2,000 of the money loaned.

An agreement in writing was executed by the corporation, reciting its intention to borrow the money ; to give therefor its promissory notes payable on the 16th day of July, 1892, with interest payable semi-annually; to secure the payment of the notes by an assignment and transfer to Welch and Burke as trustees, of certain accounts, amounting in the aggregate to not less than $15,000 ; and providing that the trustees should, have the right to receive any and all moneys paid or collected upon said accounts at any time, and to hold the moneys as part security for the notes, or apply the same from time to time in payment thereof; “ it being agreed, however, that the company may from time to time, there being no default on the notes or any of them, substitute other accounts in the place of any accounts so transferred and assigned.” On the same day, and after the execution of the agreement, the directors loaned to the corporation the sum of $10,000 in cash, and received its notes executed in conformity with the agreement. At the same time the corporation assigned to Burke and Welch, the trustees named in the agreement, accounts amounting to $15,000, in accordance with the stipulation contained in the contract. The trustees never applied any of the moneys received from the accounts in payment of the notes, but instead it was turned over to the corporation, which from time to time made new assignments of accounts to take the place of those which had been collected and applied to the use of the corporation. The last assignment was made September 1, 1893, at which time the corporation had refused to pay certain of its matured obligations.

The notes to the directors became due July 15,1892, more than a year prior to the last assignment of accounts of which plaintiff complains, at which time, according to the express provisions of the agreement, it was the duty of the trustees to apply the moneys in their hands to the payment pro rata of said notes.

This, as we have observed, they did not do, but instead turned •over the moneys to the corporation and took new assignments of accounts in place thereof. For this there was no authority in the agreement, which only provided for the substitution of other accounts, while the corporation was not in default on the notes. The situation in which the parties found themselves on the 1st day •of September, 1893, was that the defendants were the holders of past due notes, which the trustees, by virtue of the agreement and transfer of accounts, had had an opportunity to secure the payment of, but had not availed themselves of it. So a further transfer of .accounts was. made, and thus they attempted to bring about that which seemed to them equitable and just, because merely a transfer of accounts to take the place of those which had been collected and applied to the use of the corporation, but which was, nevertheless, in violation of that provision of the statute which forbids a transfer of any of the corporate property to any of its officers, directors or stockholders, directly or indirectly, for the payment of any debt, when at the time of doing it the corporation shall have refused to pay any of its matured obligations.

A very different question would be presented if the agreement, instead of limiting the period within which substitution of accounts could be made to the time when the corporation should not be in. default on the notes, and providing that at maturity the trustees should at once apply the money in their hands towards their payment, had provided that such substitution should continue .from time to time until the notes were actually paid.

Were such the case the question would be presented whether a transfer of the property of a corporation to one of its directors or stockholders, after its refusal to pay any of its notes or other obligations when due, if done in pursuance of a previous agreement, is in violation of the statute.

But, as we have already observed, at the date of the transfer made, there was no agreement under wdiich the parties could enforce further transfer of accounts. The one made was, therefore, voluntary, and in so far as it was made for the benefit of directors and stockholders of the corporation it was in violation of the statute.

Three of the directors, Alexander, Patton and Chapin, prior to the maturity of the notes, and on February 16, 1892, ceased to be either directors or stockholders in such corporation. The provision of the statute last above referred to does not, therefore, apply to them. The statute distinguishes between a transfer to an officer or stockholder and one to a person holding neither of such positions. To a stockholder or director a transfer of corporate property is forbidden, if the corporation shall have refused to pay any of its notes or obligations when due, but to other creditors a transfer of corporate property in payment of its debts is only prohibited, “when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation.”

In the latter case the plaintiff does not sustain the burden of proof resting upon him by merely showing a transfer of property to a creditor in payment of a just debt after the corporation has failed to meet at maturity one or more of its obligations. It is necessaiy for him to go farther and show facts from which the inference is required that the officers of the corporation making the transfer of the property did so with the intent of giving the creditor a preference at a time when the corporation was insolvent or its insolvency imminent. ■ ■

It is obvious from the agreement, and the conduct of the parties under it„ that the transfer of accounts was the natural result of a legitimate effort to secure payment of a debt contracted under an agreement that it should be secured, but which failed of its purpose, owing to the neglect of the parties to strictly conform to its provisions.

Under these circumstances, it is not unlikely that the officers of the corporation regarded themselves as bound in equity, if not in law, to make such a transfer of accounts as would comply with the conditions on which the money was originally loaned. If such were the case the inference vroidd not necessarily be required that the intent with which the act was done was that of giving preference to particular creditors over other creditors within the meaning of the statute.

If the views expressed are correct, it follows that, upon the facts as here presented, the plaintiff is entitled to a judgment directing a reassignment to him of such accounts, or the proceeds thereof, as shall remain after a sufficient sum shall have been collected to pay the sums due, with principal and interest on the notes, belonging to Alexander, Chapin and Patton.

In determining the amount due on the Chapin note, there should he first credited thereon $1,176.69, the value of certain goods for which he is indebted to the corporation.

Judgment is directed accordingly, without costs.

Yak Brunt, P. J., and Follett, J., concurred.

Judgment for plaintiff, as directed in opinion, without costs.


author: Follett, J. :

text:
    Francis W. Lestrade and Another, Appellants, v. Horace F. Burroughs, Jr., Respondent, Impleaded with Others.

      Preferences by an insolvent limited, partnership. .

    What payments "by an insolvent limited partnership are not in contravention of the statute forbidding preferences by such partnership.
    Appeal by the plaintiffs, Francis W. Lestrade and another, from a judgment of the Supreme Court in favor of the defendants dismissing the plaintiff’s complaint on the merits, entered in the office of the clerk of the city and county of New York on the 18th day of November, 1892, upon a decision of the court rendered after a trial at the New York Special Term.

      Thomas P. Wickes, for the appellants.

      Luke A. Lockwood, for the respondent.
   Follett, J. :

This action was brought to recover from the defendant Horace F. Burroughs, Jr., the sum of $2,957.23, which the plaintiffs allege was derived from the sale of their property by G. De Cordova & Co., and by them wrongfully paid to him;

The plaintiffs are, and for several years have been, partners under the name of Lestrade Brothers, and engaged in business at the city of New York, and for several years before January 18, 1890, Gonzalvo De Cordova, Winchester B. Smith and Frederick Berenbroick were partners under the name of G. De Cordova & Co., and engaged in business'at the city of New York. The partnership was a limited one, organized under the laws of this State. De Cordova and Smith were the general partners and Berenbroick the special partner. January 12, 1888, these firms entered into the following contract:

“ Memorandum of Agreement, made at the City of New York the twelfth day of January, one thousand eight hundred and eighty-eight, by and between the firm of Lestrade Brothers of said city, and G. De Cordova & Co. of the same place.
“ Wliereas, the parties to this agreement have had business transactions with each other for several years last past, and G. De Cordova & Oo. are largely indebted to the firm of Lestrade Brothers, etc., to change such business arrangements as follows :
“ G. De Cordova & Oo. will open a new account in their books with Lestrade Brothers, wherein and whereby G. De Cordova & Oo. will account to Lestrade Brothers as their agents for all merchandise ordered by G. De Cordova & Co., or delivered for their account subsequent to the date of this agreement, and that G. De Cordova & Co. will furnish an account sales for such merchandise so ordered from or delivered by Lestrade Brothers, with the amounts due therefor and the time of payment, which amounts G. De Cordova & Oo. shall receive for and pay to Lestrade Brothers, with the understanding and agreement that G. De Cordova & Co. have and hereby do guarantee the payment for all goods ordered or shipped under the terms of this agreement, and in accordance with the account sales rendered every fifteen days for said shipments.
“ And that the said G. De Cordova & Co. shall retain the right to make such sales and bill such goods in their own names, but nevertheless as undisclosed agents of said Lestrade Brothers.
“ Witness our hands and seals at the place and time first above mentioned.
“ G. DE OORDOYA & CO.
“LESTRADE BROTHERS.
“ In presence of i witness, i
“H. D. SeaMAN.”

G. De Cordova & Oo. were engaged in shipping butter, cheese, lumber and other merchandise to the island of Jamaica, where they had ail agent. Lestrade Brothers were dealers in butter and cheese, and it is alleged in the complaint, and found as a fact, that between November 1, 1889, and January 10, 1890, they, pursuant to said contract, shipped butter to firms and persons at the city of Kingston in said island of the value of $3,116.40, for which sum G. De Cordova & Co. became indebted and were bound to pay pursuant to said contract.

Horace F. Burroughs, Jr., was engaged in furnishing G. De Cordova & Co. with lumber for shipment to Kingston under a contract like the one hereinbefore set forth. It is also alleged in the complaint and found as a fact that on January 16,1890, the agent of G. De Cordova & Oo. at Kingston transmitted to that firm by cable $14,465.95, which was collected from persons and firms to whom property had been shipped; $867.58 of this sum was collected from persons and firms who were indebted to G. De Cordova & Co. for butter shipped by the plaintiffs. This fact was found by the court upon the testimony of Gonzalvo De Cordova, a witness called by the plaintiffs. The remainder was collected from persons indebted to G. De Cordova & Co., some of it being for lumber furnished them by Horace F. Burroughs, Jr. Upon the receipt of said sum ($14,465.95), it was deposited in the Commercial Bank of New York to the credit of G. De Cordova. From this sum the plaintiffs were paid $1,819.56, and to Horace F. Burroughs, $5,200, and the remainder was paid out to various creditors of the firm of G. De Cordova & Co.

On the 18th of January, 1890, G. De Cordova & Co. became insolvent, and an action was brought to wind up the affairs of the firm, in which a receiver was appointed.

Only $867.58 of this remittance of $14,465.95 was derived from butter shipped by the plaintiffs under the,contract, and they, having received $1,819.56 out of this remittance, have no title to or equitable claim on that part of the remittance which was paid to Burroughs on account of just debts owing to him by the firm. The payment to Burroughs was not in contravention of the statute forbidding preferences by insolvent limited partnerships. Part of the money was derived from the sale of lumber furnished by Burroughs to G. De Cordova & Co. under a contract similar to the plaintiffs’, and the remainder in payment of a sum which Burroughs had paid in satisfaction of the notes of G. De Cordova & Co. upon an express agreement thar they should be paid out of the next remittance from Jamaica.

The judgment should be affirmed, with costs.

VAN BeuNt, P. J., and PaRKeb, J., concurred.

Judgment affirmed, with costs.