author: By the Court—Bosworth, Ch. J.

text:
    Life Smith and John Boynton, Plaintiffs and Appellants, v. George V. Hall, Defendant and Respondent.
    1. An Insurance Company, incorporated by the laws of New York, cannot make a valid transfer of its notes, amounting to over §1,000 in the aggregate, unless it is authorized by a previous resolution of the Board of Directors, if such transfer be made merely as security for a precedent debt, and to a person knowing that there is no such resolution authorizing the transfer.
    2. When the transfer is made to a firm, one of whose members is a Trustee of the Company, the firm has constructive notice of the non-existence of such a resolution.
    3. Where the complaint alleges an indorsement of the note by such Company to the plaintiff, and the answer denies the fact of such indorsement, and avers that the transfer was made by some officer or officers of the Company, when it was insolvent, to secure a precedent debt, proof is admissible that there was no resolution authorizing the transfer.
    4. Where a promissory note, payable to the order of The Atlas Mutual Insurance Company, was transferred and delivered to the plaintiffs as security for a debt due to them by the Company, and the indorsement was in form: “ Pay........for account of The Atlas Mutual Insurance Company,” G-. H. T., Secretary, the restrictive form of the indorsement forms no obstacle to the plaintiffs’ recovery on the note against the maker. The collection of the note, and the application of it to the payment of the debt of the Company, would be according to the right of the plaintiffs, and it would be a.paj'ment for account of the Company.
    (Before Boswortu, Ch. J., and Woodruff and Moncrief, J. J.)
    Heard, June 10th;

    decided, November 5th, 1859.
    This is an appeal by the plaintiffs from a judgment dismissing their complaint with costs. The action was tried before Mr. Justice Slosson, without a jury, in March, 1856.
    The complaint states that the. defendant made his note, dated the 10th of December, 1855, whereby he promised to pay, six months after its date, to the order of The Atlas Mutual Insurance Company, at the Atlantic Bank, $150; that said Company “indorsed the same to said plaintiffs” before its maturity; that it is past due and wholly unpaid; and that the plaintiffs are the lawful owners and holders of it, and defendant justly owes them thereupon $150, and interest from June 13th, 1856, and prays judgment accordingly.

      The answer avers that the note is wholly without consideration and void; denies that said Insurance Company indorsed it to the plaintiffs, or that they are the lawful owners and holders of it; and alleges that it was transferred to the plaintiffs by some officer or officers of said Company, when the Company was insolvent, to the knowledge of the plaintiffs, for a prior indebtedness of the Company, with intent to give a preference to the plaintiffs over other creditors of the Company, contrary to the statute, and that the plaintiff, Boynton, was at the time a Trustee of the Company.
    It alleges that the Company owes the defendant $300, “ for moneys due on losses and reinsurance on policies of insurance heretofore issued by said Company to said defendant,” which sum the defendant claims to set off.
    It was proved on the trial that the note in suit, and another note of the same amount maturing June 8, 1856, were given by the defendant to this Insurance Compan}', upon an open policy, for premiums in advance. The defendant subsequently took risks, the premiums on which amounted to $236.72. It did not appear whether the other note had or had not been paid. The note in suit, with other notes belonging to the Company, amounting in all to $1,153.33, were delivered to the plaintiffs on the 15th of January, 1856, and the plaintiffs gave a receipt therefor, which described the notes and stated that they were “guaranteed by the Company.” They were transferred to the plaintiffs as security for the payment of money which they had loaned to the Company previously thereto, (loans having been made from time to time from May, 1855, until shortly prior to the transfer of the note in question.)
    It did not appear whether the balance due to the plaintiffs was more dr less than the amount of the notes so transferred, or was just that amount, unless it appears from the testimony, uncontradicted, “ that this note was indorsed to the plaintiffs for their own exclusive use, and in no part for the use of the Company.”
    George II. Tracy, the Secretary of the Company, indorsed and delivered the notes so transferred. The Secretary, to the knowledge of the Trustees, had been in the habit of indorsing the notes of the Company. .This note, and those transferred with it, were indorsed and delivered to the plaintiffs with the knowledge and approbation at the time of the President and Assistant President.
    The form of the indorsement was: “ Pay........for account of The Atlas Mutual Insurance Company.
    “ Geo. H. Tract, Sec'y.”

    '• The words of the indorsement, except the name of the Secretary, were printed; and this form of indorsement was printed on many of the notes belonging to the Company.
    . This and the notes transferred with it, as testified, were “ indorsed to the plaintiffs for their own exclusive use, and in no part for the use of the Company.”
    • It did not appear that there was any resolution of. the Board of Trustees authorizing the transfer of the 15th of January, 1856, and there was some evidence that no such resolution had been passed.
    The plaintiff, Boynton, was a Trustee of the Company .and had been from the time of its organization. The Company stopped payment on the 5th of March, 1856.
    The Court found as facts:
    “ 1. That the said note was made by the defendant, as alleged in the complaint.
    “ 2. The it was indorsed by said Atlas Mutual Insurance Company as follows: ‘Pay........for account of The Atlas Mutual
    Insurance Company,’ and delivered to the plaintiffs, with other notes, to secure to them the repayment of loans of money made by the plaintiffs to said Company at different times from May, 1855, to some time prior to January 15, 1856, and that the payment of said note was guaranteed by the Company.
    “ 3. That the said note, with others, in all exceeding $1,000 in value, were at one time indorsed as above and delivered to the plaintiffs, and that there was no resolution of the Board of Trustees of said Company authorizing said transaction, or in relation thereto.
    “ 4. That said note was a premium note on an open policy, and given for premiums in advance, and that the Company was in the habit of using such notes, and selling and transferring them for the payment of its debts.
    “ 5. That by the 12th section of its charter, said Company was authorized in the following words, viz.: ‘ The Company, for the better security of its dealers, may receive notes for premiums in advance, of persons intending to receive its policies, and; may negotiate such notes for the purpose of paying claims or otherwise in the course of its business; and on such portions of said notes as may exceed the amount of premiums paid by the respective signers thereof, at the successive periods when the Company shall make up its annual statement, as hereinafter provided for, and on new notes taken in advance thereafter, a compensation to the signers thereof, at a rate to be determined by the Trustees, but not exceeding five per cent per annum, may be allowed and paid from time to time.’
    “6. The plaintiff, John Boynton, was at .the time of this transaction, .and had. been from the organization of The Atlas-Insurance Company, one of its Trustees.
    “7. The said note was not taken by the plaintiffs in- payment of the. indebtedness of The Atlas Insurance Company to said plaintiffs.”
    The Court held as conclusions of law:
    “1. The indorsement of said note was restrictive in form, and did not. transfer the title thereof to the plaintiffs absolutely.
    “ 2. The transfer of said note was void under the 8th section of the act to prevent insolvency of moneyed corporations, as said transfer was not authorized by a previous resolution of the Board of Trustees.
    “ j. That said note was not such a note as is described in said 12th section.
    4. That the plaintiffs could not maintain this action.”
    The plaintiffs’ counsel thereupon excepted to the said conclusions of law, and to each of them separately.
    Judgment having been entered upon the decision, the plaintiffs appealed from it to the General Term.
    J*. L. Jernegan, for appellants.
    Contended, first, That the form of the indorsement created no obstacle to the plaintiff's’ recovery; and cited 2 Doug., 687; 5 Bing., 525; 3 Youngs & Jervis, 220; 1 Mood. & M., 158.

      Second. That the answer did not set up as a.defense that there was no previous resolution of the Board of Trustees authorizing the transfer, and therefore that fact could not be proved.

      Third. That the note was one within the 12th section of the Company’s charter, and therefore that a valid transfer could be made without a previous resolution of the Board, and :cited 1 Sand. S. C. R, 629; 2 id., 180; 5 id., 591; 3 Comst., 290.

      0. Dean, for respondent.
    The indorsement was restrictive, and passed no title to the note. (8 Barn. & Cress., 622; 5 Mass., 543.)
    This corporation is subject to the provisions of the Revised Statutes, to prevent the insolvency of moneyed corporations. (See its charter, § 22, and 5 Seld., 589.) The transfer in .question is directly prohibited by 1 Revised Statutes, 591, § 8. (3 Kern., 116.)
    The plaintiffs took with notice, and are not holders for value; and the transfer being prohibited by law, they cannot recover. (3 Kent’s Com., 80; 16 N. Y. R., 129; 7 Barn. & Cress., 278; 6 Mann. & Grang., 766; 16 N. Y. R, 330.)
   By the Court—Bosworth, Ch. J.

The note in question is proved to have been made upon consideration. Even if the. note of §150, maturing June 8, 1856, has been paid, there are §86.72 due on this note. No set-off has been proved, or attempted to be.

The Company actually owed the plaintiffs the amount of the notes transferred on the 15th of January, 1856, for money loaned to it. There is not a particle of evidence that the note, was transferred when the Company was insolvent, or contemplated insolvency, unless the mere fact that it stopped. payment on the 5th of March, 1856, furnishes some evidence to; that effect.

The terms of the indorsement do not alone present- any obstacle to the plaintiffs’ recovery.. A collection of the note, or payment of it to the plaintiffs,, to reimburse them the moneys they have loaned to the Company,, would be a collection or payment for the purposes designed . y the indorsement and transfer of it to the plaintiffs. (Lloyd v. Sigourney. 3 Youngs & Jervis, 220; Nelson et al. v. Wellington, July, 1859, Superior Court.)

• The Secretary is the officer of the Company who, frequently, if not usually, indorsed its notes on a negotiation of them by the Company.

The only important question is, whether the fact that there was no resolution authorizing the transfer can be set up as a defense to this ’action ?

It is objected, first; that such a defense is not admissible under 'the pleadings. The answer not only denies that the Atlas Insurance Company indorsed the note to the plaintiffs, but avers that it was transferred to them by some officer or officers of the Company when it was insolvent, with intent to give to the plaintiffs a preference over other creditors of the Company contrary to the statute.

These allegations are to the effect, in substance, that the transfer was an unauthorized act of some officer or officers of the Company, and sufficiently import that it was not authorized in any ihanner by the Board of Trustees, and consequently not by any resolution passed by it. The allegation in the complaint, that" the Company indorsed the note to the plaintiffs, being denied by the answer, it is essential to prove, in order to establish this allegation, that the making of the indorsement was authorized by law and the charter and by-laws of the Company. The word indorsed, as here used, imports a delivery of the note, as well as an authorized writing of the payee’s name on the back of it. (Griswold v. Laverty, 3 Duer, 690.) It follows that if 1 Revised Statutes, 591, § 8, applies to such a transaction, then it is essential to the plaintiffs’ title that it should appear, either directly or presumptively, that the transfer was authorized by a previous fesolution. We think that there is no obstacle presented by the pleadings to the interposition of this defense.

Is the absence of a previous resolution of the Board of Trustees authorizing the transfer, a bar to this action?

Howland v. Meyer, (3 Comst., 290-293,) presented the case of a note within the 12th section of the act of incorporation, and the President of the Company was authorized 'by its by-laws “to "transact all its ordinary business, and to perform whatever belongs to the executive department."”

The note in suit is not one within the provisions of the 12th .■section, and the Secretary who .transferred it is not shown to have been authorized by the by-laws of the Atlas Mutual Insurance Company to transact its ordinary business. . i

There was not, therefore, in the present case, even such a previous resolution of the Board authorizing the transfer as would be implied by a preexisting by-law authorizing the Secretary of the Company to transact its ordinary business.

The article of the Revised Statutes to prevent the insolvency of moneyed corporations, (1 R. S., 589,) is, by the statute itself, made applicable to corporations “ authorized by law to make insurances.” (Id., 598, §54,) [sec. 51.] Even conceding that, where any charter granted subsequent to the passage of these statutes contains a section or sections in conflict with these provisions of the statutes, the general statute must yield to such sections in a subsequent act; yet, as the note in question is not one provided for by the 12th section of the Company’s charter, that section does not exempt this transfer from the operation of section 8 of 1 Revised Statutes, 591. (Laws of 1843, 67-69, § 8, and Laws of 1842, 261, 263, § 12.)

Notwithstanding the opinion of G-ardiiter, J., in Howland v. Meyer, that notes given under the 12th section might be transferred by the Company to a creditor as security for his claim, he giving time until such notes matured, and notwithstanding he reaffirmed that proposition in his dissenting opinion in Brouwer v. Harbeck, (5 Seld., 596,) yet it is evident that the former case presented no such question; and the latter case holds, in effect, that the article of the Revised Statutes, before cited, applies to the assets of such an Insurance Company as the Atlas Mutual Insurance Company, excepting notes made under the 12th section of their charter.

The present plaintiffs are not purchasers for a valuable consideration without notice. The transfer was made to secure a precedent debt, and Mr. Boynton, one of the plaintiffs, was a Trustee of the Company when the transfer was made, and had been from the organization of the Company. He signed the receipt given on the transfer of the notes to the plaintiffs. They are not protected by the exception made by the last clause of section 8, 1 Revised Statutes, 591. (Gillet, Receiver, v. Phillips, 3 Kern., 114-117.) They knew the transfer was not authorized by a previous resolution, and that the note was not given under the 12th section, and they took it as security for a precedent debt. ,

We think the transfer was prohibited by law and was illegal, and that the plaintiffs acquired no title to .the note, and that payment of it to them, with knowledge of all the facts, would not protect the defendant against a subsequent action by the receiver brought to recover the amount of the note. The judgment should be affirmed.

■ Judgment affirmed.

       Ante, page 178.


source: Caselaw Access Project

license: Public Domain

text:
    Amory Houghton, Plaintiff and Appellant, v. William M. Dodge and Charles B. Knudson, Defendants and Respondents.
    1. Where property of a moneyed corporation (viz.: a note made by third persons) is wrongfully taken by one of its officers, and all its claims against Such officer, including its claim for the taking of such note, are subsequently settled, and a release given to such officer ón taking his note for a balance agreed upon; although the persons acting in behalf of the Company in making the settlement and giving the release acted without competent autho-
    ■ rity to bind it, yet if the Company thereafter, with knowledge of such settlement and of its terms, indorses absolutely and appropriates to its own use the note received on such settlement, it thereby ratifies the settlement and vests . in such officer title to the note so wrongfully taken, and he or his vendee can maintain an action on it against the makers.
    2. When the proof is, that “ the Company used the note ” taken on such settlement, and “ paid it to ” a creditor “in payment of a debt which they owed to ” such creditor, and there is no other evidence in respect to such transfer; the presumption is, that such transfer was made in a manner authorized by law and the charter and by-laws of the Company.
    3. The owner of a promissory note can maintain an action on it, under the ' Code, in his own name against the makers, although not so indorsed that he can sue as indorsee by the rules of the common law.
    (Before Bosworth, Oh. J., and Woodruff and Moncrief, J. J.)
    Heard, June 16th;
    decided, November 5th, 1859.
    ' This is an appeal by the plaintiff from a judgment dismissing his complaint. The action was tried before Mr. Justice BosWORTH and a jury in May, 1858.
    The complaint states that on or about the 21st of August, 1855," the defendants made their note of that date for $1,000, payable twelve months after its date to the International Insurance Company or order, at the Irving Bank, and delivered it to the Company-; that the Company indorsed it in blank before maturity and transferred it for a valuable consideration; that the plaintiff afterwards became and now is the holder and owner of it; that it.is past due and unpaid; and prays judgment for its amount with interest from the 23d of August, Í856.
    The defendants admit, in their answer, the making of the note, and say on information and belief that there was not then, and has not been since then, such an incorporation; and they also say that the Company never indorsed the note in blank, nor transferred it for a.valuable consideration. They put in issue the allegations of the plaintiff’s ownership, and aver that he had ho interest or property in it when it fell due, and that if he has any interest in it, he acquired it since its maturity.
    They set up as a third defense that the note was taken from said Company “ by the unauthorized act of one of the officers thereof, who converted the same to his own use, and that the property therein has never passed to the plaintiff or to any other person.”
    “Fourth. And these defendants for further and separate answer say, that they have a defense by way of set-off to the said note, as against the International Insurance Company, for money due to them, amounting to $357 with interest, which amount they claim as a set-off against said note in this action.” The note in suit was produced at the trial, and (including the indorsements on it) reads thus, viz.:
    “$1,000. ' New York, August 21st, 1855.
    “ Twelve months after date we promise to pay the International Insurance Company or order, for value received, one thousand dollars. Payable at Irving Bank.
    (Signed) “ Dodge & Co.”
    (Indorsed.) “ International Insurance Co.

      “ By War. E. Rollo, Sec'ty. “P. J. Avery, Pi.”
    " The handwriting of Rollo, and that he was Secretary of the Company from its organization to January 17, 1856, and the .•handwriting of P. J. Avery, and that he had been President of the Company subsequent to the date of the note, having been proved, the note was read in evidence without objection.
    • The only evidence as to the origin and consideration of the note, and in relation to any set-off against it, is that of Charles W. Ogden who was Vice-President of the Company from the 20th of October', 1855, to the dissolution thereof in March, 1856, and that of Starbuck, who was elected President February 5, 1856.
    Ogden says, “I think Dodge had a claim against the Company at the time this note fell due.” * * “I think some six or seven or eight hundred dollars was taken up in premiums on this note before the claim of Dodge accrued.” Starbuck says, “ the note in suit was insured against. I do not recollect the amount earned on it.”
    In relation to the plaintiff’s title, it was proved that the note in suit was in the possession of the Company during the Presi; dency of Marsh. He testified, “I am clear in my recollection of having seen that note in the possession of the Company after I became President. It was kept in a pocket book in the safe; I first found that it had been taken out some three or four weeks after I came in.” He became President on the 15th of September, 1855.
    It was also shown that in January, 1856, C. W. Ogden, who was elected Vice-President in October, 1855, got possession of the pocket book in which the Company kept its bills receivable, “ and found a memorandum that this note and eight others, were in the possession of Avery, (P. J. Avery,) to be accounted for by him.”
    An account was produced with this caption: “ 1855, P. J. Avery in account with the International Insurance Company.” Then follows a series of debits beginning with the date of May 7, 1855, and ending with October 31, 1855, amounting in all to $42,903.49, and which include the note in question. Then follow's a series of credits amounting to $38,542.49, among which is the following, viz.: “C. Expenses, $25,000.”
    At the foot of the account is the following, viz.:
    “ Received of Perez J. Avery, his note at thirty days, for the sum of four thousand three hundred and sixty-one dollars in full, for the above accounts, and in full satisfaction and discharge of all and every claim, of every name, nature and description, on the part or behalf of the International Insurance Company, against the said Perez J. Avery, and also in full satisfaction and discharge of all and every claim, of every name, nature and descriptions against William E. Rollo, late Secretary of the said Company.
    “In witness whereof, the said International Insurance Company has caused this discharge to'be signed by the officers of the said Company, at the office of said Company, this 21st day of April, A. D. 1856.
    “ The International Insurance Company,
    “By M. Starbuck, President

    “ 0. W. Ogden, V. P.

    “ Attest, Leo. Del Banco, Secretary.”
    A resolution on page 105 of the minutes of the proceedings of the Financial Committee of the Company was also read by the defendants’ counsel, as follows:
    “We, the undersigned, Financial Committee of the International Insurance Company, having had under investigation and examination the value of the charter of the International Insurance Company, procured and furnished the Company, by Perez J. A very, as well as all charter expenses in procuring the same, and obtaining the amendment by the last Legislature, do report the same at twenty-five thousand dollars, ($25,000,) and agree to give the said Avery credit for that sum.
    “New York, October 29th, 1855.
    “ Alanson Marsh, Pres't.

    “ James A. Requa,
    “ Wm. E. Rollo.”
    The gentlemen who signed this resolution continued as the Finance Committee, and acting as such after Starbuck became President; Mr. P. J. Avery was also one of the Finance Committee.
    It was proved that, at the date of that paper, Starbuck was President, Ogden Vice-President, and Del Banco was Secretary of the Company, and that they severally signed the same, and that Del Banco signed it as Secretary, and not as a witness..
    Of the try-laws of the Company, the following were read in evidence, viz.:
    “ 1st. It shall be the duty of the President to attend daily to the affairs of the Company, at the office of the Company.
    “ 2d. He shall be the financial officer of the Company, and, together with James A. Requa and William E. Rollo, shall constitute a Financial Committee. But all moneys for stock and for premiums shall be kept on deposit in some bank, either in the city of New York or Brooklyn; and no moneys shall be drawn out except on the checks signed by the President, and countersigned by the Secretary.
    “ 5th. All papers required to invest and reinvest the funds of the Company, to collect, discharge, and cancel any papers appertaining thereto, shall be signed by the President, and countersigned by the Secretary, and shall be effectual in law to that end, and binding on the Company.
    “10th. All accounts and liabilities of said Company, before the same can be paid, shall be audited by the Financial Committee, and whenever either of said committees are interested in any claim, the report, which in all cases shall be made and recorded by said committee, shall be signed by the two not interested.”
    In relation to. the settlement between the Company and P. J. Avery, Moses Starbuck, who was then President of the Company, testified: “ The settlement with him was an expedient; we made it as the cheapest way to get out of a' scrape; he had got the notes, and we wanted this agreement made in order to get the balance due from him.” * * “ If he had not had the notes, I would-not have made the settlement; I would have stricken out the $25,000; it had been discussed, but not before the Board, but by the parties in interest; Mr. Dodge, one of the defendants, was a Trustee at the time; he was a Trustee when I was elected President,” (which was the 5th of February, 1856.) * * “ The Directors were frequently in the office, and this settlement was frequently the subject of conversation; no attempt was made to keep it private; the items of the settlement were entered in the account books of the Company, not in the book of minutes.” * * “ The Company had sixteen or eighteen Directors;” * "* “I think seven Directors constituted a quorum; no action was ever taken by the Board of Directors in opposition to that resolution,” (the resolution of the 29th of October, 1855.) “No formal demand was ever made by the Company upon Avery for the notes; the Company used the note which Avery gave for the balance of the account; they paid it to the Globe Insurance Company in payment of a debt which they owed to the Globe Company.” (It did not appear whether Avery did or did not pay this note at maturity.)

      O. W. Ogden testified: “There .was no resolution of the Board of Directors authorizing me to sign the agreement of April 21, 1856. It was never brought before the Board until after its execution; I had threatened to advertise the notes; Avery was threatening, and as there was an amount due from him over what he claimed, the President assented to it, and so did I, in consideration that he would resign as Trustee; it was a final settlement to get rid of him;” * “ when I signed that agreement, I did
    not consider I was perpetrating a fraud on the Company;” * ® “ I did not conceal it from the Board of Directors; it was not my duty to bring it before the Board; it was the President’s duty; it was known to some of the members of the Board.”

      Del Banco testified that he signed the paper of April 21, 1856, as Secretary, and not as a witness.

      Starbuch also testified: “Some of the Trustees knew of this transaction at the time, but as a Board I do not think they knew of it until May; the Board was divided upon the subject; some of them thought it best- to let it alone, and did not want it disturbed ; others were opposed to it; I don’t know whether the Company owed defendants for a loss.”

      Ogden further testified: “ The Board never knew of it until some time afterwards," (until some time after the settlement;) “they were opposed to it; the Board then adjourned, and before another meeting were enjoined ; Mr. Dodge did not know of the transaction until the 24th of June, 1856;” * * “ at the meeting of the 24th of June no resolution was arrived at about this agreement, or at any other time; before the next meeting, the Company was enjoined.”
    It was proved that the words indorsed on the note, “Internation Ins. Go., by,” were in the handwriting of W. J. Avery, a brother of P. J. Avery, as is also the agreement of the 21st of April, 1856, and that “ he acted for P. J. Avery in effecting that settlement” with Starbuclc & Ogden.
    Also, that the names of Rollo and P. J. Avery were not indorsed on the note when the latter took it from the pocket book of the Company, and that those names were not indorsed while Avery was President; and the evidence tended to show that the letters “Pt.,” at the end of Avery’s name, were not written by him.
    It was also proved that the uniform mode of indorsing the notes of the Company is to add the name of the President to the words, “ International Ins. Co., by,” and that the Secretary never indorsed them.
    It was proved by Charles N. Mills and Josiah Oakes that the former sold this note to the latter, in April, 1856, at a discount of one and a half per cent a month, and that the note was then indorsed in the precise form in which it appeared at the trial, and that it was sold by Oakes to the plaintiff shortly after its maturity.
    When the testimony was concluded, the defendants’ counsel “moved the Court to dismiss the plaintiff’s complaint, on the ground that there was not sufficient evidence of the transfer of the note by the Company, and that the plaintiff had shown no sufficient title to the note.
    “The Court granted the motion, and the plaintiff’s counsel excepted.”
    A judgment having been entered in favor of the defendants, the plaintiff appealed from it to the General Term.

      Wm. H. Leonard, for plaintiff, (appellant.)
    I. The note in question must be considered as a business note, and that the defendants are liable, as makers, for the payment thereof. The whole case for the defendants rests on the alleged defect of the plaintiff’s title.
    II. The indorseemnt cannot now be disputed by these defendants, nor by the payee.
    The settlement between the Insurance Company and Mr. Avery, of April 21st, 1856, is a ratification of the indorsement and transfer.

      1. The Company have never repudiated that settlement by any action. They have adopted and sanctioned it by receiving and using the note of Avery for $4,361.
    2. The note in suit was charged to Avery on the books of the Company, and a memorandum was in their pocket book show-, ing that all the notes mentioned in the settlement of April 21st, 1856, were in his possession.
    As respects third parties, the Company must be deemed to have acquiesced in and adopted the transfer .of the note in suit. (Angell & Ames on Corp., 167, 168; Conover v. The Mutual Ins. Co., 1 Comst. R., 290; New Hope and Del. B. Co. v. The Phoenix Bank, 3 id., 156; The Bank of Genesee v. Patchin Bank, 3 Kern. R., 309; The Mechanics' Bank v. N. Y. and N. H. Railroad, id., 622, 626 ; Curtis et al. v. Leavitt, 15 N. Y. R., 12.)
    III. The indorsement and transfer being obligatory upon the Company, the defendants are necessarily precluded from any defense on the ground of an alleged defect in those respects.
    IV. Mr. Oakes was a bona fide purchaser of this note for value, and the Company and the defendants are precluded from disputing the transfer, in which the Company are shown to have acquiesced.
    V. The plaintiff has succeeded to and is entitled to enjoy and enforce all the rights which Mr. Oakes acquired in the notes in question. The Court erred in dismissing the complaint.

      G. Dean, for defendants, (respondents.)
    I. No matter what may be the decision of the Courts as to the necessity of a previous resolution of the Board of Directors, to the transfer of the assets of banks incorporated under the General Banking Law, this Insurance Company was, by its charter, made subject to the provisions of the 8th section of the statute to prevent the insolvency of moneyed corporations. (1 R. S., 4 ed., 1122, §54; Laws of 1844, 233.)
    II. The alleged transfer to the plaintiff was illegal and void, because contrary to statute, and also against public policy.
    1. The transfer was contrary to statute. (1 R. S., 592, §8; Gillet v. Phillips, 3 Kern., 116.)

      (a.) Avery being a Director and officer of the Company, precludes him from saying that he had no notice of the want of a resolution of the Board. (3 Kern., 116; id., 599 ; Hood v. N. Y. and N. H. Railroad Co., 22 Conn. R., 502, 508, 512; Wyman v. Hallowell and Augusta Bank, 14 Mass. R., 58, 62.)

      (b.) The plaintiff is not within the exception to the 8th section, because he took the note with notice of the want of authority in Avery to transfer it.
    2. The transfer was against public policy, which forbids an officer of a Company to transfer -its assets to pay himself. “A Trustee can never appropriate the- trust funds to Ids own use."

    “ This rule is of univeral application, and to be enforced with unrelenting rigor.” (Hill on Trustees, 159, 536; 12 Ves., 372; Conger v. Ring, 11 Barb., 356.)
    («.) A trust will be implied against one who purchases at his own sale.

      (b.) Our statutes, which renders one liable to imprisonment for moneys received in a fiduciary capacity, is a legislative declaration of the settled conviction of all minds of the impolicy of permitting a Trustee to deal with the trust funds, except in strict accordance with the terms of the trust.
    III. The plaintiff in this action took the note in suit, with notice of the defect of title, and cannot recover, unless Avery himself, could have sustained the action.
    1. To bring a party within the protection of the law merchant, he must not only be a holder for value, but also without notice. (3 Kent Com., 80.) Here there was no transfer in form by the Company, and the defect was patent.
    2. A citizen who deals directly with a corporation, or who takes its negotiable paper, is presumed to .know the. extent of its corporate power.” (16 N. Y. R, 129.)
    3. He is also bound to know the manner in which the law requires these powers to be exercised.
    4. When a party takes a note, indorsed by a person by virtue
    of a special power, he takes it upon the credit of the person who indorses it, and Ji^sonly reasonable prudence to require the production ty. (Attwood v. Mannings, 7 Barn. & Cres., 278; Alexander v. McKenzie, 6 Mann., Grang. & Scott, 766; Dows v. Perrin, 16 N. Y. R., 830.)
    5. This note did not purport to have been transferíed or indorsed by the corporation.

      IV. The transaction between Avery and some of the officers of the corporation was not only void but illegal. No right of action accrued either to him or to any person who received the note through him, while it was not indorsed by the corporation.
    V. There was no ratification by the corporation of this remarkable transaction.
    Ratification or not was a question of fact, which was passed upon by the Judge who tried the cause.
    VI. A corporation, or its stockholders, or Receiver, may, in every case, impeach any contract made by Directors or other officers or agents, in the name and professedly by such corporation, by showing that such contract was made in a manner or for a purpose not authorized by its charter or the laws of the land. (Hodges v. City of Buffalo, 2 Denio, 110 ; McCullough, v. Moss, 5 Denio, 567; 3 Barn. & Ald., 1; 1 Hill, 11; 4 id., 442; 8 Comst., 430; 1 id., 19.)
    1. The defendants can set up this want of title; because,

      (a.) They are members of the Company, and have an interest in its assets. (§ 6 of Charter.)

      (hi) They are creditors for the return premium.
    (c.) The transfer being contrary to law and public policy, is void, and there is defect of title in the plaintiff. (Johnson v. Bush, 3 Barb. Ch. R, 207; Code, § 111.)
    VIL The fact that the note in suit is for less than $1,000 is immaterial, because the evidence is imcontradicted that Avery, at the time he appropriated it, transferred eff. cts of the corporation exceeding $1,000 in value. (Gillet v. Phillips, 3 Kern., 116.)
   By the Court—Bosworth, Ch. J.

On the evidence presented at the trial, the note in suit must be assumed to be a business note. The evidence tends to show that six, seven or eight hundred dollars of its amount had been received in premiums upon policies issued to the deilndants by the Company. To this extent, at least, it was a valid note in the hands of the Company, without any d.-fense against it. The sale by Mills to Oakes, even though made at a rate of discount exceeding seven cent per atmnrn, would not make the transaction usurious, as the note a vas a business note, made upon a valuable consideration. '

Treating the note as not so indorsed that the plaintiff can, by the rules of the common law, sue in his own name, the important question is, did P. J. Avery acquire such a title to it as would enable him to recover upon it upon the evidence before us, if he were the plaintiff in this action ? If he acquired a valid title to the note, he or his vendee can sue in his own name (under the Code) as being the actual party in interest. The 10th of the by-laws authorized the Finance Committee to settle and audit all,accounts and liabilities of the Company.

.■ As early as the 29th of October, 1855, the Finance Committee audited and allowed the claim of P. J. Avery, for his services and expenses in procuring the charter and amendments to it, at $25,000. A formal resolution to that effect, and of that date, signed by the Finance Committee, was entered on the book of the minutes of its proceedings, (at page 105.) That committee was competent to audit and settle this claim, and was the appropriate committee to make a legal decision in respect to it, which, at the least, would be, prima facie, valid as against the Company.

No action was ever taken or initiated by the Board of Trustees to disapprove of this settlement, much less to rescind or reopen it. None has been taken by the Receiver, if a Receiver has been appointed, nor does it appear by the evidence that he makes any claim to the note.

No testimony was given on the present trial with a view to question the propriety or justice, in whole or in part, of any other'item of credit allowed to P. J. Avery in the settlement of the 21st of April, 1856.

If it be assumed, for the purposes of this trial, that the settlement of the 29th of October, 1855, was valid, then it follows, for aught that has been shown, that the final settlement of the 21st of April, 1856, was just as between Avery and the Company.

At and prior to that time, Avery was possessed of the note in suit, and the fact of such possession, and the manner in which he acquired the note, and his refusal to restore it to the Company, constituted part of their claim against him.

There was not any transfer made or attempted to be made in form by the Finance Committee of the note in suit, and the eight other notes of which Avery had previously possessed himself, and which he insisted upon retaining. In the account with him, as settled on the 21st of April, 1856, they are charged to him under the date of October 81, 1855. It is not an unnatural inference that he had them as early as that date, if not prior thereto. Indeed, the testimony of Mr. Marsh tends to show that Avery had the note at as early a day as that on which it is charged to him.

An action could have been maintained against him for the conversion of these nine notes, or to recover the possession of them. The liability of P. J. Avery for these notes constituted a part of the claim of the Company against him.

On the 21st of April, 1856, all claims, either of Avery against the Company, or of the Company against him, were fully and finally settled. Many of the Trustees were parties to discussions in relation to it, and knew at the time of the terms of the settlement. The settlement was laid before the Board in May, but at how early a day does not appear. Whatever the date, the Trustees, as a Board, were then officially informed of the fact of the settlement and of its details. As a part of the terms of the settlement, P. J. Avery gave his .note, payable thirty days thereafter, to the Company, as, and it was received by the officers acting in its behalf in that matter, “ in full satisfaction and discharge of all and every claim of every name, nature and description, on the part or behalf of the International Insurance Company against the said Perez J. Avery.” This note was for the sum of $4,361.

' Subsequently to this, “ the Company used the. note which Avery gave .for the balance of the account They paid it to the Globe Insurance Company in payment of a debt which they’ owed to the Globe Company.” There was no attempt to prove that this note was not paid at maturity. It matured on the 24th of May, 1856.

Such a use of this note by the u International Insurance Companjq” with a knowledge of the circumstances and agreement under which Avery had given it, and the officers of the Company had accepted it, was a ratification by the Company of the settlement made with Avery on the 21st of April, 1856.

The note thereby became his property, if not previously his. The Company could not compel him to surrender it; certainly’ not without restoring him to the position he was in when the settlement was made.

Proof, uncontradicted and unexplained, that “the Company used the note which Avery gave for the balance of the account that “they paid it to the Globe Insurance Company, in payment of a debt which they owed to the Globe Company,” imports that such transfer was made in a manner authorized by law and the charter and by-laws of the Company. The amount of the note so transferred is $4,361. If a previous resolution of the Board of Directors was essential to a legal and valid transfer of it, the passage of such a resolution authorizing the transfer must be presumed upon such evidence as is above stated.. If the Board of Directors passed such a resolution, then, inasmuch as it appears that some of the Directors knew for what the note was given at the time it was- made, and considering the evidence tending to show that all of them probably knew the nature and particulars of the settlement made with Avery, the act of the Company in transferring the note is such a ratification of such settlement that these defendants- cannot succeed on the mere ground that it was a. nullity as between Avery and the Company. As the case is now presented, that is their only defense; and if that defense is not established, they have no defense.

It must be borne in mind- that no- evidence wa§ given tending to show that any person has preferred any claim against the defendants as makers of the note in question, and that their whole and only defense is that the note in suit “ was taken from* the International Insurance Company by the unauthorized act of one of the officers thereof, who converted the same to his own use, and that the property therein has never passed to* the plaintiff or to any other person.”

The evidence given not only fails to establish the alleged fact on which the defense is rested, but, on the contrary, it proves am ownership of the note by Avery on the 21st of April, 185-6, prima facie valid.

A suit, instituted by the Receiver of the International Insurance Company, on the 31st of October, 1856, (the time this suit was brought,) to recover the possession of this note from Avery, (if he had then held it,) on the ground that it belonged to the Company, could not be maintained on the evidence given in this action, if there were no other evidence in support of such action.

The case of Houghton v. McAuliff et al., (decided in February, 1859,) is unlike the present in this respect. In that case there was no evidence that the Company had ever negotiated the note received from Avery, or had done any act by which they had treated or recognized it as the property of the Company, or as having been accepted with the sanction or by the authority of the Company.

The note, although not indorsed by the Company, could be sold to Avery and made his property; and although not indorsed so that an action would lie, at common law, in his name or in the name of a subsequent holder, yet any such holder, who was the actual owner, could sue upon it, in his own name,, under the Cbde. (§111.)

It cannot be denied that it is competent for such a Company to sue any person who has- wrongfully converted a note which belongs to it. Nor can it be denied that such a suit, followed by a judgment in favor of the Company and payment of the judgment, would vest in the person thus converting it, (after judgment and payment of the judgment,) exclusive property in the note as owner of it.

If he were to sue the1 maker subsequently,, it cannot be possible that the maker could set up, as a defense, that it had been transferred to such plaintiff without the authority of a previous resolution of the Board of Trustees authorizing the transfer.

It was not intended by 1st Revised Statutes, (p. 591, § 8,) to incapacitate a moneyed corporation from settling claims for a conversion of or injury to its property, as natural persons may do; or through the action of such committees or officers as the Company might select forthat purpose; or in any manner which, by the rules of the common law, would be obligatory and conclusive upon both parties.

The time of the transfer by the International Insurance Company to the Globe Company of Avery’s note of the 21st of April, 1856, is not stated. The inference from the testimony given is, that the transfer was made before the maturity of the note, as the evidence is that it was transferred “ in payment of a debt which they owed to the Globe Company.” The testimony is that the International Insurance Company transferred it; and the only presumption admissible is, that .the transfer was regular and in all respects according to law, and valid. The inference must also be, as the contrary was not alleged, that the' note was paid at maturity.

It is difficult to conceive of any act of ratification more explicit and decisive, short of a formal resolution of the Board of Trustees, in terms approving of and confirming the settlement.

We think that the negotiation of this note by the Company, according to law and its charter and by-laws, with a knowledge of the circumstances under which, and of the particulars of the settlement as part of which, it was given and accepted, perfected Avery’s ownership of it.

At all events, it establishes, prima facie, that the title to the note was in Avery on and after the settlement between him and the Company; and more evidence is necessary than was given to prove the fact that the Company was never divested of its title to such note.

[ The title of P. J. Avery to the note being, as between him and ■; the Company, prima facie, absolute and perfect, the title of the present plaintiff is apparently complete.

There is, certainly, no such defect of title as will enable the defendants to succeed on that ground alone. As the case is now presented, the only defense that can be pretended is that the title to the note is still in the Company, or in the Receiver of its property and effects, if one has been appointed. That defense •not having been proved, the dismissal of the complaint was erroneous.

We reverse the judgment, on the grounds that, upon the evidence given, it must be deemed to be proved that the Company ■negotiated the note received from Avery, with a notice of the terms upon which it was given and accepted, and thereby ratified the settlement made between its officers and Avery, and vested :in him a title to the note in suit, prima facie valid; and that no evidence was given to impair the prima facie title thus established.

Judgment reversed and new trial granted, with costs to abide -.the event.


author: By the Court—Hoffman, J.

text:
    John F. Butterworth, Receiver of the Island City Bank, Plaintiff and Respondent, v. Zachary Peck and Nathaniel Terpenny, Defendants and Appellants.
    1. The drawing of a check on a Bank by one who keeps an account in it, and has, at the time, moneys to the same or a larger amount to his credit on its books, and a delivery of the check to the person named in it as payee, do not, of themselves, operate as an assignment to such payee of the title to any of the moneys thus standing to the credit of the drawer of the check.
    (Before Hoffman, Pierrepont, and Moncrief, J. J.)
    Heard, November 1;
    decided, November 12, 1859.
    This is an appeal by Zachary Peck and Nathaniel Terpenny, (the defendants,) from a judgment in favor of John F. Butter-worth, Receiver of the Island City Bank, (the plaintiff,) entered on a verdict rendered on a trial had before Mr. Justice Wood-ruff and a jury, March 10, 1859.
    The action is on a note for $1,000, dated July 16, 1857, made by Peck, and payable to the order of Terpenny three months after its date.
    The Bank discounted the note for Terpenny, and $280 of its proceeds were standing to Terpenny’s credit on the books of the Bank, when it become insolvent—he being a stockholder of the Bank, and keeping an account in it. It was, admitted to have become insolvent on or before the 25th of September,. 1857, and that Butterworth was then appointed a Receiver of its effects.
    The note was made without consideration,, and solely to accommodate Terpenny. Before the maturity of the note,, the Bank declared a dividend of $70 in favor of Terpenny, and this sum and the $280 were standing to his credit on the books of the Bank when the note matured. . On the 2d of September, 1857, Terpenny drew his two several checks on said Bank, and delivered them to Peck—one being for-the $280, and the other for the $70; and at the same time indorsed and delivered to Peck a check of the same date, drawn on said Bank by one Thomas J. Mooney to Terpenny’s order, for $700! The last named check was drawn against funds on deposit to. Mooney’s credit in said Bank.

      PecK presented these three cheeks to the Bank on the 2d or 3d of September, 1857, for payment, and payment was refused. At the maturity of the note, he offered them at the Bank of the Republic, where the note in suit then was, in payment of said note; and made a like offer of them to the Receiver before this action was commenced, and both offers were declined. The defendants offered these three checks in evidence: the Judge admitted the checks for $280 and $70; and the plaintiff excepted. The Judge excluded the check for $700; and the defendants excepted. The Judge charged the jury that the checks for $280 and $70 “were properly chargeable against the note,” but that the check for $700 was not, and that it could not be allowed as a set-off, or counterclaim: that they should render a verdict for the plaintiff for the amount of the note and interest, less the two checks for $280 and $70. The defendants excepted to so much of the charge as relates to the Mooney check: the plaintiff did not except to any part of it. The jury rendered a verdict for the plaintiff for $712.44; and, from the judgment entered on that verdict, the present appeal is taken. No question arose upon the pleadings.

      Gf. Gflark, for appellants,
    Insisted that the drawing of the check by Mooney in favor of Terpenny operated as an assignment to Terpenny of that amount of Mooney’s funds held by the Bank, and cited 3 J. C., 264; id., 5; 6 Cow., 484, 485; 3 Kent Com., 104, note a; 2 Story’s R., 502, 516, 517; 1 Barb. R., 454; 1 E. D. Smith, 273; 1 Hill, 583-585; 1 Ves., 280, 332; 9 Cow., 414.

      C. A. Peabody, for respondent,
    Contended that a check drawn on a person having funds of, or being indebted to the drawer, does not, alone, transfer them to the payee of the check; and cited and commented on 5 Duer, 574; 26 Penn. R, 85; 11 Paige, 612; 3 Comst., 93; id., 243; 3 J. C., 5.
   By the Court—Hoffman, J.

The only question presented to the Court relates to the check of $700, drawn by Mooney in favor of Terpenny upon the Bank, and transferred to Peck. Is this check, or the amount expressed in it, a proper set-off, or counterclaim, against the note sued upon ?

The case of Chapman v. White, (2 Seld., 412,) seems to me to cover the present question entirely. It involves the position that the Island City Bank became the owner of the fund deposited by Mooney, and the latter had only a right of action against that Bank, and was in truth its creditor. The check was not an appropriation of a specific fund. It gave no right of action, as against the Bank, without acceptance; and if it gave no right of action, it cannot constitute a right of set-off, or counterclaim.

It may be that, when the Receiver shall wind up the affairs of the Bank, the holder of Mooney’s check may claim a pro rata dividend of what the Bank owed Mooney, and the proportion of the assets coming to him. It is impossible, in the present action, to liquidate accounts so as to ascertain what this sum would be, and thus allow an offset to that sum.

The case of Dykers v. The Leather Manufacturing Bank, referred to by Justice Gardiner, was first before Assistant Vice-Chancellor Hoffman, in December, 1841. He held that the drawing of a check upon a bank was not a specific appropriation of the funds of the borrower to the payment of that particular debt, in preference to holders of checks subsequently drawn. The drawer, therefore, might countermand the order at any time before his draft was actually paid or accepted by the bank. This proposition was recognized by the Chancellor. (11 Paige, 617.) Without acceptance, or some act, such as certifying the check to be good, no liability is created between the Bank and the holder of the check.

The line of reasoning which the case of Chapman v. White appears to warrant, might seem to extend to the cases of the other checks given by Terpenny, which were allowed to be deducted by the learned Judge below. But the distinction is this: The Bank had, in discounting the note, expressly appropriated its avails to the demand of the party on whose account it was discounted. It was a fund specially set apart. Terpenny had not withdrawn the whole of this sum by the amount of the check for $280. He gave Peck this particular sum by his check.

So as to the dividend of $70, the Bank had declared the right . of Terpenny to this specific amount, as a specific fund. Terpenny, therefore, had a right to say that the Bank held so much money on these two accounts particularly belonging to him, and applicable to the reduction of the note for which he was principally liable.

Had Terpenny drawn out these two funds and then redeposited them in one sum, the case would have been different. The judgment must be affirmed, with costs.

Judgment affirmed.

       As to the main point discussed, see 6 Duer, 463, 483,484, and 19 N. Y. R., 499. As to the charge in respect to the two checks of $380 and $70; it may he suggested that the plaintiff did not appeal; and therefore the appeal taken did not involve the question of its accuracy. But if the Receiver stood in no better situation in this respect than the insolvent Bank would if plaintiff (2 R. S.,464, [§42] 469, [§§68-74,] id., 41, [§7] 47, [§36] 6 Paige 320, 2 id., 581, 9 Cow., 409, 212 N. Y. R., 159,) it is difficult to see why Terpenny, whose moneys the Bank held and to whom the moneys were due at the time the Bankhecame insolvent to the extent of the $280 and $70, had npt a clear right of set-off, and if he availed himself of that right as he did on the trial, it would necessarily avail to the ‘same extent in favor of the other defendant, an accommodation maker of the note in suit. Reporter.