author: Leakned, P. J.: Mayham, J. Landon, J.

text:
    EDWARD A. DURANT, Jr., Respondent, v. HENRY R. PIERSON, as Survivor of the Firm of HENRY R. PIERSON & SON and Another, Appellants.

      General assignment—a preference, payable out of firm assets, of money advanced, after the dissolution of the firm, to the surviving pa/i'tner, for the purpose of paying firm debts, is illegal.

    By a general assignment for the benefit of creditors of the individual estate of the assignor, and also of the firm assets of a firm of which the assignor was the sole surviving partner, a preference was given, to be paid out of the firm assets, of an advance of money which had been made subsequent to the dissolution of the partnership by the death of the senior, and only other, partner, by a bank which had credited the amount thereof to an account kept in such bank in the name of the late firm, with the understanding that such money was asked for and was to be applied, and, in fact, such money was applied thereafter, to the payment of certain firm debts.
    At the time that this money was credited to the account kept in the name of the firm the assignor and sole surviving partner gave a demand note to the bank for the amount of the loan, and signed it with the name of the firm, which was followed by the name of the assignor as survivor.

      Held, that the claim of th? bank was a claim existing against the surviving partner alone, and that the assignment, in so far as it directed this claim to be paid out of the firm assets, was fraudulent as against the firm creditors. (Landon, J., dissenting.)

      Appeal by tbe defendant Henry R. Pierson, as survivor of the firm of Henry R. Pierson & Son, and Robert C. Pruyn, as assignee of Henry R. Pierson, as survivor of the firm of Henry R. Pierson & Son, from the judgment of the Supreme Court, entered in the office of the clerk of the county of Albany on the 15th day of August, 1890, upon the report of Samuel W. Jackson, Esq., referee, with notice of an intention to bring up for review upon such appeal the report and findings of said referee, and the judgment entered thereon, the appeal being taken both upon questions of law and upon the facts.
    The action was brought for the purpose of obtaining an adjudication that the general assignment for the benefit of creditors made by the defendant Henry R. Pierson, survivor of the firm of Henry R. Pierson & Son, a firm composed of himself and Henry R. Pierson, deceased, was fraudulent as to the creditors of said firm by reason of certain provisions therein directing that certain claims mentioned in said assignment should be paid out of the firm assets.

      Marcus T. Man, for the appellants.

      Gf. I. Stedman, for the respondent.
   Leakned, P. J.:

The defendant Pierson and one Henry R. Pierson, his father, were copartners, doing business as bankers and brokers in Albany, under the firm name of Henry R. Pierson & Son, during the year 1889 and prior thereto, and until January 1, 1890, when Pierson, senior, died.

The firm kept their account with the National Commercial Bank, of Albany, of which Mr. Pruyn, one of the defendants, was president. At the time of the death of said Pierson, senior, the firm was insolvent.

On the ninth of January, the defendant Pierson came to the defendant Pruyn, as president of the bank, and said that he needed immediately $15,000. Mr. Pruyn knew at that time of the death of Pierson, senior. Mr. Pruyn asked him what collateral he had, and he said none at present. Mr. Pruyn told him that they were frequently obliged to help their customers over hard places, and they simply depended on their honor to see that the amount was returned, and asked him if he thought it would be paid in a short time, to whiclí he answered yes. Pierson then asked how he should sign the note. Mr. Pruyn told him that as this was for the firm, he should sign whatever was the proper and legal way. He said Mr. Hun had told him to sign H. R. Pierson & Son, H. R. Pierson, Survivor. Thereupon Pierson signed a note, of which the following is a copy:

$15,000. Albany, N. Y., January, 9, 1890.

On demand after date I promise to pay to the order of the National Commercial Bank of Albany, N. Y., fifteen thousand dollars at the National Commercial Bank of Albany, value received, with interest.

H. R. PIERSON & SON,

H. R. Pierson,

Survivor.'

The amount was credited to the account of H. R. Pierson & Son in the bank. Other sums amounting to $24,000 were credited to this account on and before January fifteenth; and on the fourteenth or fifteenth $20,000 was paid from that account to the Commercial Bank. Besides this, there was paid to depositors $10,000, and for use of telegraph wire some $400; these being debts of the firm. Such payments were made by checks of defendant Pierson, signed by him as survivor.

The purpose of Pierson, in applying for this loan, was to procure money to pay obligations of that firm; and this was understood by the bank to be the purpose at the time of such application.

On the 16th of January, 1890, the defendant Pierson, as survivor, immediately before executing the assignment hereafter to be mentioned, gave to said bank his check on said bank for $4,850, as collateral security for payment of said $15,000 note. Said check was charged against the account of H. R. Pierson & Son in the bank, and a certificate of a deposit purporting' to be made by H. R. Pierson & Son, payable to the bank for the like amount, was given by the bank to the bank, and is held by the bank. This is called by the bank collateral to the note.

On the same 16th day of January, 1890, the defendant Pierson, as survivor and individually, made a general assignment to Mr. Pruyn. This provides, after paying wages and expenses, first for the payment' of this note of $15,000 and interest.

Tlie plaintiff, a judgment creditor for a debt due by said firm prior to the death of Pierson, senior, brings this action to set aside the assignment. The learned referee who tried the case held the assignment to he void by reason of its preference of this $15,000 note, which is to be paid out of the assets of the firm.

Another ground of alleged invalidity was the preference of a debt said to be owing to the receiver of certain insurance companies, of which said Pierson, senior, had been receiver up to the time of his death. It was urged that this was only a liability of the firm to said Pierson, senior, personally. But this view was not sustained by the referee, and, therefore, is not considered on this appeal.

It seems plain that the $4,850 was a payment on this note, so far, at least, as defendant Pierson had a right to apply firm funds on an individual debt. The bank charged that amount against the account of H. R. Pierson & Son, and thus took the benefit of that amount by a reduction of its liability on the account. The making and holding of a certificate of deposit, signed by the bank officers and payable to the bank, did not alter the effect of 'the payment. But although the assignment provides for the payment of the note of $15,000» without mention of this payment, probably this would not make the assignment fraudulent as matter of law.

The important question in the present appeal is upon the correctness of the learned referee’s doctrine.

The note of $15,000 was only the individual note of defendant Pierson. Whatever intent he may have had as to the use of the money, the legal effects of the note was to bind himself, and no one else. (Van Keuren v. Parmelee, 2 N. Y., 523; National Bk. v. Norton, 1 Hill, 575.) It was not a firm obligation, nor was it payable out of the firm assets as such. Nor does the fact that neither he nor the bank knew at the time that the firm was insolvent at the deatli of Pierson, senior, affect the character of the note. Nor did the manner in which the defendant Pierson signed the note make it anything more than his own individual liability. (Haynes v. Brooks, 42 Hun, 530.) Nor did this become a partnership indebtedness, because, as claimed, the avails were applied to the payment of partnership debts. (National Bk. of Salem v. Thomas, 47 N. Y., 15.) So that, in any view, this note was only the note of defendant Pierson.

If the assignment can be maintained, it must be on the ground of some equitable principle, not on the note simply. The defendants, therefore, seek to establish some equity through the alleged rights of defendant Pierson, and through his acts subsequent to the giving of the note; claiming to be subrogated to his rights or the rights of creditors of the firm.

On the death of one or two partners the assets of the firm vest in the survivor. Put this does not take from the firm creditors their right to be paid out of the assets before any creditor of an individual partner in case of insolvency. (Bulger v. Rosa, 119 N. Y., 465.) If an insolvent firm, or if the surviving partner of an insolvent firm, should assign film assets for the payment of an individual debt in preference to the debts of the firm, this would be a fraud under the statute of Elizabeth, and not merely a violation of the equitable rights of the firm creditors. (Bulger v. Rosa, ut supra.) And the plain reason for this is that the debt is the debt of only one partner, and not of the other, and such assignment takes property which belongs not solely to the debtor, but to himself and to another, who does not owe the debt. (Wilson v. Robertson. 21 N. Y., 587.)

And although by the death of one partner the assets vest in the other, still the same rights of firm creditors remain. A firm creditor would be defrauded by such a transfer, and after judgment and execution could have the assignment set aside. (Haynes v. Brooks, 116 N. Y., 487.) And this, too, even if the surviving partner and the assignee believed that the debt thus fraudulently preferred was a firm debt. (Importers and Traders' National Bank of New York v. Burger, 25 N. Y. St. Rep., 136.)

It is important to notice that in Bulger v. Rosa this rule is placed upon the statute of Elizabeth, and not on merely equitable principles. That is, it is a fraud upon firm creditors to assign firm property to pay individual debts before firm debts are all paid.

These principles are all so well settled that it has, perhaps, been unnecessary to cite authorities. For it does not seem to be claimed that the bank could have recovered upon this note in any way so as to reach the firm assets But it is urged that the voluntary act of the defendant Pierson, in giving the bank this preference, can be maintained. That is, that defendant Pierson can give what the bank could not obtain by any legal proceedings, namely, a preference of an individual debt over firm debts in respect to firm assets.

The defendants urge that on the death of a partner the surviving partner becomes owner, and may sell or mortgage the assets. ( Williams v. Whedon, 109 N. Y., 338.) Hence, they say, he may give preference in an assignment.

Now, it is true, as held in that case, that the surviving partner, in performance of his duty of closing up the affairs of the firm, may sell assets, and may mortgage them to secure debts of the firm.

Thus it was said in Bradford Commercial Banking Company v. Cure (L. R., 31 Ch. Div., 324), cited by defendants, that the surviving partner can give a valid lien on property of the partnership by way of security for a debt incurred by the partners during the life of the deceased partner.

That qualification shows the limit of his power. The defendant Pierson could not lawfully have given security on assets of this firm to secure his individual debts. And the $15,000 note was his individual debt.

The case of Fitzpatrick v. Flannagan (106 U S., 648), cited by defendants, arose in Mississippi. The surviving partner was continuing the business, not winding it up. And in its decision the court cite a Mississippi case, holding that when one of the two partners, with the assent of the other, transferred the whole business and stock to a third person in payment of an individual debt, the transaction was not fraudulent as to creditors of the firm. Ve can hardly think that such is .the law of this State. (Bulger v. Rosa, as before.)

But again it is urged by the defendants that, inasmuch as defendant Pierson used the moneys thus borrowed by him to pay firm debts, he was entitled to repay himself for this money out of the firm assets, and that the bank should be subrogated to his right.

Now, this view seems to assume that defendant Pierson was only a surety for the debts of the firm, and, therefore, that if he paid those debts he should be reimbursed. It is very true that a surety who pays the debt of a principal debtor is entitled to be reimbursed. He becomes the creditor in the place of the creditor whose debt he has paid. But that rule does not apply to one of several joint debtors, or to the survivor of a partnership. He is not a surety for the debt. He is himself the debtor. If he pays a debt which he and his partner owe, such payment might give him a claim against his partner, or his partner’s estate on final settlement, but could give him no claim upon the firm assets as against firm creditors.

Let us suppose that defendant Pierson,' without borrowing from the bank, had taken his own money and with it had paid debts of the firm, he could not have repaid himself out of the assets. It would not have been unlawful for him to devote individual property to the payment of firm debts. (Cook v. Rindskopf, 105 N. Y., 476.) And the payment of the firm debts, which it was his duty to pay, would not entitle him to be indemnified therefor out of firm assets.

To make this more clear, suppose that, during the existence of the firm, defendant Pierson had, from his own- funds, paid debts of the firm, thus entitling himself to credit as against his partner. If the firm afterwards became insolvent and made an assignment, this claim of- one partner could not be paid before debts of the firm. It would be only a liability to be settled between him and his partner on a final adjustment of the business after all firm debts should have been paid. Or, in the present case, if defendant Pierson, befoi’e making the assignment, had paid this note from hi's individual funds, and then had directed the assignee to pay to him, Pierson, the amount thus advanced next after wages and expenses, there could be no doubt that the assignment would have been fraudulent.

It is true that in Haynes v. Brooks (8 N. Y. Civ. Pro. Rep., 106, 113) -there is a remark that if a firm obligation- was retired by the use of money loaned by Brown & Go., the surviving partner would have- been entitled to be repaid out of the 'firm' property. But Haynes, the plaintiff, was an individual' creditor, • and, therefore, had no ground of complaint. He had no right to preference in the firm property, and, therefore, could not maintain the actibn. That case was- affirmed in 42 Hun (528)-and in 116 New York (487). But- in this- affirmance no notice 'was taken of this remark, and the affirmance is'on entirely different grounds. The ease-of Fitzpatrick v. Flannagan, supposed"to-favor the-¡same-'view, has been already spoken of.

All the firm property and all the property of the partners individually are liable for the firm debts. And when a partner has paid a firm debt with his own funds, he can have no right as against firm creditors to be preferred. He has only devoted individual property to firm debts, as he may do. (Cook v. Rindskopf ut supra.) And as said in that case at page 486:

“ The law would require, in the event of an assignment by a firm of two persons, that after the payment of firm debts the residue should be divided into two funds for the payment of individual creditors.”

Thus it is only after firm debts are paid that the residue can be applied, and then not to the individual partners, but to their individual creditors. But it is said that if defendant Pierson had not borrowed this money then, in his assignment he might have preferred those debts of the firm, which by means of this money he paid, and, therefore, it is fair that he should prefer the bank whose money enabled him to make such payment. ■ But the difficulty with this view is that those debts were firm debts, contracted before the death of Pierson, senior, therefore he-might prefer them if they were unpaid. But he could not prefer a debt created by him after the dissolution, because that was not a debt of the firm. •

It is the right of every firm creditor that when an assignment is made the firm assets shall be applied solely to such unpaid debts as were owing before the firm ceased its existence. The assets must not be applied to debts since created; nor must they be applied to pay again debts which havb been paid already. The bank note is the individual noté of defendant Pierson'; and there was no'connection between the bank and these creditors who were paid by defendant Pierson. The bank did not purchase those claims and knew nothing about them. Defendant Pierson was under no obligation to the bank to apply the money he had borrowed to any specific objects. He could have used it for his own purpose or could have paid his individual debts with it. This money was not kept distinct. It was deposited in the general account, from which account $20,000 were afterwards paid to the bank before the day when the assignment was made. The bank, therefore, in no way stands in the place of the paid creditors. (Matter of Cavin v. Gleason, 105 N. Y., 263.)

Those debts thus paid no longer exist; for the money was paid to the creditors by the debtor, not by a surety. And there is no indebtedness of tbe firm to defendant Pierson for wbat he bad paid. Nor did be for snob payment bave any claim upon tbe assets of tbe firm until every existing firm debt bad been fully paid and satisfied. ¥e must bear in mind that tbe individual partners may lawfully prefer firm debts. (Cook v. Rindskopf, ut supra.) Therefore, tbe payment of firm debts by defendant Pierson,- considering it as bis individual payment, was lawful; and was not fraudulent as to bis individual creditors. Whether or not tbe bank wbicb loaned bim tbe money can collect it from bim does not affect the question before us. Defendant Pierson, if be bad paid tbe bank this note from bis individual money, could not bave secured himself tbe repayment of tbe amount by a preference in tbe assignment over firm creditors. And as be could not bave done this for himself, be cannot do it for bis individual creditors. There is no hardship in this case other than that wbicb always exists when a creditor makes a loan to one who proves to be unable to pay. Tbe bank knew that tbe firm was dissolved. It knew that it was trusting tbe responsibility of defendant Pierson only, because it knew that Pierson, senior, was dead. It probably supposed tbe defendant Pierson to be solvent, and, therefore, made tbe loan.

Judgment affirmed, with costs.

Mayham, J.

(concurring):

If this debt, wbicb was preferred under tbe assignment, was a firm debt, then it was allowable for tbe assignor to prefer it and direct its payment, as a preferred claim, out of tbe firm assets.

If, on tbe contrary, it was tbe individual debt of tbe surviving partner, then it could not be paid out of tbe firm assets until all the partnership debts were paid, and its preference would be a fraud upon tbe firm creditors.

The death of ITenry R. Pierson, Sr., dissolved, ipso facto, tbe partnership, and no partnership transactions could be performed after that event.

Tbe legal title to tbe assets of tbe partnership vested in Henry R. Pierson, Jr., and to tbe extent of the partnership assets be, as such survivor, became charged with tbe payment of the firm’s liabilities. He could not charge or incumber such assets to pay or secure any debt contracted by him after such dissolution.

That being so, the debt contracted by him and the note given thereafter to the National Commercial Bank was. necessarily his individual debt, and the note, although in form a partnership obligation, was an individual note, and the bank, having knowledge of the dissolution of the firm by the death of Henry B. Pierson, Sr., was charged, in law. with the knowledge of the survivor’s inability to charge the firm by the execution of the firm note.

But it is urged that, as the firm creditors were paid out of this fund, and the gross amount of the firm debts were correspondingly reduced, such creditors are not injured by this preference, as the right to create preferences was inherent in the assignor, and he could have preferred those on whose debt this money was applied and the remaining creditors could not object.

If the surviving partner or the bank had paid this money as surety, the right to be subrogated would seem to be clear; but that is not this case.

A surviving partner who pays the debt of the firm does not occupy the relation of surety of the firm as to other creditors of it. He is the principal debtor, and in paying the debt of the firm, pays, as to other creditors of the firm, only his own debt. Then, after the partnership debts are all paid, in an accounting with the estate of the deceased copartner, he could be reimbursed out of his estate; but he could have no such claim against the other creditors of the firm, nor do we think he could be equitably reimbursed out of the firm property to the exclusion of the claims of other firm creditors, and to allow this preference would be indirectly extending to him that privilege. If he could not claim this immunity for himself, we do not see how he could voluntarily confer it upon his individual creditors by a preference in his assignment. As we have seen, his power to bind the property of the firm as partner had ceased, and his dealings with the Commercial Bank in negotiating this loan and giving this note must be regarded as his individual acts. As an individual he had a right to borrow money, and with it to pay partnership debts; but we do not see how that created any equity in favor of the bank against the partnership assets, especially as the bank was bound to know that his power to bind the partnership had ceased, and he was dealing with the bank as an individual, and not as a partnership.

•Upon the principles which seem to underlie this case, and upon the authority cited by the learned referee, and those cited by my brother Learned, I am inclined to concur in his opinion, that the judgment entered upon the report of the referee should be affirmed.

Landon, J.

(dissenting)

This ease does not depend upon the question whether the bank could recover the note against the survivor out of the assets of the firm estate, but whether the survivor could, under the circumstances, lawfully provide for its payment to the bank. It may be conceded that without the assignment the bank could not recoverbut if before the assignment the survivor could have paid himself out of the firm property, it would not be a fraud for him to transfer by the assignment his right to the bank.

The note given by Pierson, the survivor, to the National Commercial Bank was his individual note, simply because the firm had ceased to exist. The property of the late firm by the death of the senior partner became the survivor’s individual property. That'is, his legal title to it was absolute and complete. (Nehrboss v. Bliss, 88 N. Y., 600; Williams v. Whedon, 109 id , 333.) Because of th'e insolvency •of the firm the firm creditors had equities to prevent such a disposition of it by-him as Would ^operate as a fraud upon them. But, as shown in the case last cited, his absolute legal title gavé him, for' the purposes of the proper settlement of the firm business, absolute •dominion over the property. Although the note which he gave the bank was his individual note, nevertheless, he gave it to obtain money to pay firm' debts, and' he did pay such debts with all the money which he obtained upon th'e note, except the portion which he refunded to the bank, thus reducing the amount of the note. He gave the note, therefore, in the course of the honest settlement of the business of the late firm. As the property was his for the purpose of settling the firm business, he gave the note for the same purpose and was protected in giving it by his ownership of the firm property. Because of that ownership he could, upon realizing the money upon the firm assets, reimburse himself in the amount of his private advances upon the firm debts, and, of course, with the money thus obtained pay the bank the amount due upon the note. The operation of paying firm debts from the proceeds of firm assets would then, and not until then, be complete with respect to the debts paid from the proceeds of the note. No firm creditor conld intervene to prevent such a completion of the transaction, because the completed transaction would have achieved an honest result and would in no way have operated as a fraud upon him.-

The surviving partner as well as the firm creditor is entitled to have all the firm assets applied to the payment of the firm debts. True, he may. pay the firm debts from his .individual property, but when it is plain that he intended nothing of the kind, equity, which scorns trickery, will not-impute such an intent to him. Equity will perceive the mistake under.which he acted, and in. the absence of estoppel or anything like it, will-assist him in.retrieving his mistake. Here the junior Pierson should be permitted to' .reimburse himself from the firm assets in the amount which he mistakenly paid upon the firm debts.. ... ,

This was distinctly said in Haynes v. Brooks (8 Civil Pro. R., 106, 113), at Special Term. The case was-affirmed. (42 Hun, 528; 116 N. Y., 487), upon other grounds, but the proposition follows from the principles already stated. It was, in .substance, so held in Fitzpatrich v. Flannagan (106 U. S., 648). Otherwise the firm estate would be so much the richer by the honest eagerness of the survivor to hasten the payment of the firm, debts, and the survivor injured.

Assuming the right of the survivor to reimbursement from the firm assets, we proceed to consider whether he could 'not protect that right in the general assignment. By the assignment he directed the assignee to pay the bank out of the firm assets. The bank was the creditor of Pierson individually, but not as survivor. But it was competent for Pierson to direct that the reimbursement from the firm assets which was due to himself should be made to the bank, not in -satisfaction of any debt from the firm to the bank, but in satisfaction of Pierson’s lien upon the firm assets, or right to protection from them. Pierson, in effect, said to the assignee: Pay the bank, and thereby pay me. B owes A, and 0 owes B. B may direct C to pay A, and if C does it, both A and B are paid.

Moreover, the assignee, should complete the work his assignor begun and left unfinished, namely, the payment of the partnership debts to Durant and others out of the firm assets. Pierson did not go so far as to complete the payment out of the firm assets. He personally made the payment for the firm before he had realized upon the firm assets, and left the work of such realization and making the firm make the payment unfinished.

What the survivor could lawfully do he could lawfully direct the assignee to do, and the assignee, by obeying the direction, will simply complete the payment to Durant and others out of the firm assets.

The fact that the bank, before the direction in the assignment, had no equitable claim upon the firm assets, but only against Pier-son personally, in no wise makes it fraudulent for Pierson to direct that the bank shall be paid instead of himself. It may be conceded that, without the assignment, no right of subrogation existed in favor of the bank to the property which protected Pierson in making the note. If Pierson had been surety for the firm in making the note, the bank would, if necessary for its protection, have been entitled to subrogation.

But every right which' subrogation could confer in such a case Pierson has now.attempted to confer by the assignment. The firm ought to pay Pierson or the bank, and Pierson has waived his right and directed that the bank should have the benefit of it. It is difficult to see wherein such an attempt to do justice is fraudulent.

Again, whether an assignment is fraudulent is usually a question of fact. When the dispositions made in an assignment are certain to result in defrauding a class of creditors, the law, assuming that every man intends the natural and obvious consequences of his acts, imputes the fraudulent purpose which is sure to be accomplished, and will not permit a jury to hold otherwise. But in this case it is respectfully submitted that the plaintiff’s claim is unconscionable; that the bank’s claim under the assignment is meritorious; that the survivor’s preference to the bank is consonant with scrupulous honor, and that to carry out the assignment with respect to the bank is to do right.

The plaintiff’s claim, if within the strict letter of the law, offends its spirit. Equity respects the substance rather than the name of a transaction. It should not condemn this assignment as fraudulent.

I advise a reversal of the judgments in both actions.

Judgment affirmed, with costs.


source: Caselaw Access Project

author: Learned, P. J.:

license: Public Domain

text:
    MURRAY N. RALPH, Appellant, v. LOREN D. ELDREDGE and Others, Respondents.

      Oua/ranty to pay all notes which should “prove to.he uncollectible”—not enforceable until judgment and execution retu/rned unsatisfied.

    One partner sold to another the stock in trade of the partnership and received himself from his copartner certain notes, accounts and demands owing to the firm, and also received a bond conditioned that his partner would pay to him one-half of all notes, accounts and claims of the late firm assigned to him “ that shall prove to be uncollectible, if any such there be.”

      Held, that no right of action arose upon the bond as to any claim until the same had been prosecuted to judgment, and an execution had been issued upon such judgment and returned unsatisfied.
    Appeal by the plaintiff from a judgment of the Supreme Court, entered in the office of the clerk of the county of St. Lawrence on the 5th day of December, 1889, after a trial before a referee.

      John O. Keeler, for the appellant.

      A. Z. Squires, for the respondent Eldredge.

      V. P. Abbott, for the respondent Seymour.
   Learned, P. J.:

The plaintiff and defendant Eldredge had been copartners. On the 25th of November, 1884, the firm dissolved; plaintiff sold to Eldredge the stock, and Eldredge conveyed to plaintiff his interest in the notes, accounts and demands owing the firm. At the same time Eldredge executed to plaintiff a bond, with defendant Seymour as surety.

The condition of the bond was that Eldredge should pay to plaintiff one-half of the amount of notes, accounts and claims of the late firm assigned by Eldredge to plaintiff, “ that shall prove to be uncollectible, if any such there be,” with interest from the date ■of the bond.

On the trial the plaintiff produced a list of claims which he claimed to be uncollectible, and testified, or offered to testify, as to each, that he was personally acquainted with the financial ability of each, and that since the assignment not one of them has had sufficient ability to pay the claim.

This testimony was objected to as incompetent, and the referee so held. And the referee made his report that no right of action arose on the bond until the prosecution of the claims to judgment and the issue and return unsatisfied of execution thereon.

From the judgment thereupon entered the plaintiff appeals. The question here is, whether it was necessary for plaintiff thus to prosecute to judgment and execution before he could recover on the bond. That question must depend on the meaning of the condition of the bond. Because there is no other liability of either defendant to the plaintiff.

It seems to be settled in this State that a guaranty of collection is an undertaking to pay the sum of money guaranteed, provided the principal debtor is prosecuted to judgment and execution with due diligence, and the same cannot be collected of him. (Northern Ins. Co. v. Wright, 76 N. Y., 445; Craig v. Parkis, 40 id., 181.) The plaintiff urges that the bond does not guarantee the collection of these claims, but is only a contract to pay plaintiff one-half of the amount of those which should turn out bad. But the bond uses the word uncollectible,” and the question must be, what is the legal meaning of that word. That word has a definite meaning, as decided in the cases above cited. And that meaning should be here enforced.

The plaintiff urges that the amounts are small and it could not have been intended • that they should be sued. But it would be incorrect to hold that “ uncollectible ” meant one thing as to small amounts and another thing as to large. The language “prove uncollectible ” strengthens this view. Some process was in view by which it should be legally ascertained that the amounts were uncollectible. That process is prosecution to judgment and execution. The defendants might have bound themselves to pay half of such amounts as should not be voluntarily paid. But they did not do so. And as they were under no obligation to plaintiff except upon the bond, we think that he cannot recover without showing judgment and execution returned unsatisfied. To hold otherwise would be contrary to a familiar and settled rule of construction.

The judgment must be affirmed, with costs.

Landon and Mayham, JJ., concurred.

Judgment affirmed, with costs.'


author: Learned, J.

text:
    THE STATE OF NEW YORK NATIONAL BANK, Appellant, v. SAMUEL D. COYKENDALL, Respondent, Impleaded, etc.

      A party taking an accommodation note as collateral'for a past-due check is not a bona fide holder for value—it does not extend the time of payment of the check.

      A bank receiving an accommodation note, which has been diverted from the purpose for which it was intrusted to the payee, as collateral security for a past-duo check, does not acquire the right of a hona-fide holder thereof for, value. Railroad Company v. National Bank (102 U. S., 14) disapproved.
    The taking of a note payable in the future, by a bank, as collateral security for a past-due check, does not extend the time of payment of the check, and thereby make the receiver'of the note a Iona, fide holder thereof for value, in the absence of evidence of an. agreement to extend such time of payment.
    Appeal by tbe. plaintiff, tbe State of New York National Bank, from a judgínent of the Supreme Court, entered in the Ulster county clerk’s office, in favor of the defendant Samuel D. Coykendall against the plaintiff, on May 2, 1890;. and also from an order denying the plaintiff’s motion to set aside the verdict of the jury, in favor of the defendant Coykendall, and for a new trial made on the minutes- of the court.
    The action was tried at the Ulster Circuit before the court and a jury, at which a verdict was rendered- in favor of the defendant Samuel D, Coykendall.

      F. L. Westbrook, for the appellant.

      A. T. Clearwater, for the respondent.
   Learned, J.

This is an appeal by the plaintiff from a judgment, entered on a verdict rendered for the defendant and from an order denying a new trial.

The.action,is to recover on a note of $5,000 made by The Emerson Manufacturing Company, by F. A. Waters, treasurer, to the order of E. E. Waters, dated February 22, 1887, payable at six months. The indorsements are as follows:

Edw’b- E. Waters,
43 Park Place, New York.
E. A. Waters,
Kingston.
This last indorsement being erased by lines drawn through it.
S. D. Ooykendall, Kingston, N. Y.
Pay to the order of
E. A. Waters.
E. A. Waters,
Kingston, N. Y.

The jury found a verdict for Ooykendall and against the other defendants.

Erancis A. Waters, had been cashier of plaintiff. On January • 11, 1888, Charles W. Deyo was made such cashier, and Waters became clerk, acting- as teller. About a week after Deyo became cashier he found among the cash items a check as follows:

[Memorandum.]
“New York, January 9, 1888.
“ North River Bank pay to the order of E. E. Waters, five thousand dollars.
“ F. H. FORBES.”

Indorsed: E. E. Waters.

It was counted as cash. He directed F. A. Waters to take it up. It had been put there by him. On the twenty-sixth of January Deyo was informed that Waters had directed a clerk to charge that check as a loan. Deyo then took the note in question as collateral to the check. The check remained still in the bank, until it was produced at the trial. Waters testifies that when the cashier was unwilling to accept the Forbes check, Waters said he would give them the note in question as collateral to the check. He further testifies that two or three months after the check was given (viz., in January, 1888), he gave notice to the bank about the collection of the check, told them he wanted them to collect it and that the cashier wrote to Forbes and received a reply.

This shows, as the cashier stated, that the check remained in the possession of the bank after the note was turned out as collateral thereto. In connection with this we must refer to the testimony of Coykendall, which is that the note in question was indorsed by him at the request of Francis A. Waters, and that at the time Waters told him that he desired to use the note to take up other paper which Coykendall had indorsed for him.

The question raised by the plaintiff on this point of the case is, whether the taking of the note by the bank as collateral security for the check, gave the bank the right of a bona fide holder for value. The plaintiff relies on Grocers’ Bank v. Penfield (69 N. Y., 502) and Continental National Bank v. Townsend (87 id., 8).

But the ground of the decision in these cases is that the accommodation note was held “without restriction as to the mode of using it.” And the distinction is made between such cases and those in which “ the note has been diverted from the purpose for which it was entrusted to the payee.” In the latter class of cases an antecedent debt is not a sufficient consideration to make a person a bona fide holder for value, as against the party whose indorsement has thus been wrongfully diverted. (Stalker v. McDonald, 6 Hill, 93; recognized in Grocers’ Bank v. Penfield, ut supra.)

It is well known that the Supreme Court of the United States holds a different view from that of the highest court of this State. (Railroad Company v. National Bank, 102 U. S., 14.) But we must follow our own decisions, and it is unnecessary to examine the cases in other jurisdictions; especially when our own rule has been maintained in late decisions. (See Lawrence v. Clark, 36 N. Y., 128; Taft v. Chapman, 50 id., 445; Phoenix Ins. Co. v. Church, 81 id., 218.)

It would seem that there could be no question that the note was indorsed by Coykendall for the specific purpose of meeting indorsements of his already existing. If that, however, were in dispute the matter was fairly submitted to the jury, and there is no ground to question the correctness of their decision. The note was not used to take up previous indorsements of Coykendall, but was used as collateral to an instrument on which he was in no way liable. This was a plain diversion of the note and brings the case within the rule above cited in our decisions.

It is urged by the plaintiff that the taking of this note by the bank as collateral to the Forbes check was an extension of time, and lienee that plaintiff is a bona fide holder for value. But no-agreement to extend time was shown; an'd merely taking security as collateral does not extend the time of the principal debt, even if-the security is payable at a day subsequent- to the- time when the principal debt became payable. Men very frequently borrow money for a month or two,- giving as collateral railroad bonds, or the like, not payable for many years. But the time for payment of the debt is not thereby-extended. There was a dispute of fact in this case, whether the indorsement of F. A. "Waters,, which was before that of Coykendall, had been erased before' Coykendall signed, or was-erased afterwards. This question was submitted to the jury.

There was also submitted to the jury the question whether this'erasure, if an erasure was thus made, was made intentionally and fraudulently, or whether it was -made by accident. The court charged, in substance, that if an erasure was made in a material part and fraudulently, Coykendall would be discharged. Now, in the-charge on this point, it seems to us that the learned court was very favorable to the plaintiff.

It would probably not be claimed that a merely accidental and' not intentional alteration of a note would render it void. As, for instance, if ink were accidentally spilled upon the note so as to efface a material part. But if the alteration is in a material part and is intentionally made, it is said that it is not necessary to show a fraudulent intent. When the intent is not fraudulent it would seem that the party may resort to the original indebtedness. (Booth v. Powers, 56 N. Y., 22; Meyer v. Huneke, 55 id., 412.) That right-is of no consequence here, because there was no original indebtedness, since the indorsement was simply for accommodation. - But here the alleged alteration was material. It released F. A. Waters from the position of prior indorser. It must have been intentional, because-it was made by drawing lines across-the name. Therefore, we see-no error in the charge of the learned court injurious to the plaintiff. It is jilain that if an alteration is made in an instrument affecting the rights of a signer thereto without his consent, he' cannot be bound by the instrument. Because the instrument sued upon was' never executed by him.

That the note in question was altered at some time or other is not questioned. The bank took it with' these- lines drawn through; F. A. Waters’ name. If they had sued Waters as first indorser, he could have shown that his name was erased. And the mere fact that his name could still be read would not disprove the erasure.

There are some questions made as to the nature and effect of the Forbes check; as to the meaning of the word “ memorandum.” But we do not see that these questions affect Coykendall. The action was against all the parties to the note; but this appeal is only against Coykendall, who was successful bn the trial.

The court held that if the maker of the check had no funds in the bank on which it was drawn, and was insolvent, the neglect of plaintiffs to forward the check for collection would not discharge the parties to the note.

The court charged the jury that if they came to the conclusion that the bank was guilty of neglect in not presenting the check in proper time, all the defendants in the action would be exonerated. The jury found for the plaintiff against all the defendants except Coykendall. Therefore, they could not have found that there was neglect on the part of the bank in not presenting the check. And they must have found that the check was a valid obligation.’ Therefore, it is not material on this appeal to inquire as to the correctness of the charge in respect to the neglect of the bank to present that check. The jury must have placed the verdict in Coykendall’s favor on one or the other of the grounds previously discussed. We do not see any error in the case requiring a new trial on this appeal

The judgment and order must be affirmed, with costs.

Landon, J., concurred; Mayham, J., not acting.

Judgment and order affirmed, with costs.


text:
    GEORGE C. PRESTON, as Receiver of the ULSTER COUNTY AGRICULTURAL SOCIETY, Respondent, v. ROBERT LOUGHRAN, Appellant.

      Á corporation organized under chapter 425 of 1855, and chapter 394 of 1867 —power to mortgage its property to a director — enforcement of a mortgage foreclosure judgment against property in the hands of a receiver.

    A corporation, organized under chapter 425 of the Laws of 1855, and chapter 394 of the Laws of 1867, has power to mortgage its property when authorized by a vote and by the consent of two-thirds of the stockholders.
    The director of such a corporation is not prohibited from loaning money to it, and . receiving from it security, in the form of a mortgage upon its property, for the repayment of the amount loaned, and under a foreclosure of such mortgage he may purchase in and obtain title to the property mortgaged.
    While a party having a judgment, which is a lien upon property in the hands of a receiver, will not be permitted to take the property out of the possession of the •. receiver and sell it under an execution issued upon such judgment, yet a plaintiff, who has obtained a judgment of foreclosure of a mortgage, is differently situated and may sell the mortgaged property thereunder.
    A judgment, in an action brought by the attorney-general to dissolve a corporation on the ground that it has suspended its business for more than a year, provided that “nothing in this decree contained shall be deemed in any way to prejudice the legal rights of Charles Burhans under the mortgage held by him, and under the decree of foreclosure and sale heretofore made in an action brought by said Charles Burhans to foreclose said mortgage; * * * nor shall it be necessary for the said Charles Burhans or the said'Robert Loughran to bring said receiver as a party into their respective actions; nor shall this decree operate as a stay in either of said actions of said Charles Burhans and Robert Loughran.”

      Held,, that this provision of the decree was a permission, if any was needed, to Burhans to sell the mortgaged premises under his decree of foreclosure of the mortgage. J
    Appeal by tbe defendant Robert Lougbran from a .judgment of tbe Supreme Court, entered in tbe office of tbe clerk of tbe county of Ulster on tbe 9tb day of May, 1890, in favor of tbe plaintiff, for tbe recovery of certain real property described in said judgment, and for the sum of $300 for tbe rents and income thereof, and for tbe costs and disbursements in tbe action, after a trial at tbe Ulster Circuit before tbe court without a jury.
    Tbe judgment decreed that George C. Preston, receiver of the Ulster County Agricultural Society, recover of Robert Lougbran, the defendant herein, the possession of the property and real estate described in the complaint.

      F. L. Westbrook, for the appellant.

      Charles A. Fowler, for the respondent.
   Learned, P. J.:

This, is an action of ejectment tried before the court without a jury. The property in question on or prior to June 6, 1874, belonged to the Ulster County Agricultural Society, a corporation organized under chapter 425, Laws of 1855, and the special provision of chapter 394, Laws of 1867.

On that day a meeting’ of the stockholders was held, and by a two-thirds vote it was resolved to mortgage the property to the amount of $1,300, to pay existing debts. Such bond and mortgage to be executed by the president, secretary and treasurer of the .society, or a majority of them. A written consent of the same date, signed by two-thirds of the stockholders, to the same effect was proved on the trial. The directors had voted to the same effect October 4, 1873.

Pursuant to authority herein given, a bond and mortgage, dated the 15th day of June, 1874, was executed, as authorized by said vote, by the president, secretary and treasurer, to Robert Loughran, the defendant, to secure $1,300, payable in one year with interest. On the 13th day of July, 1887, Loughran assigned the bond and mortgage to Charles Burlians, the object of the assignment being to have the mortgage foreclosed. On the 10th day of August, 18S7, Burhans commenced an action of foreclosure on the bond and mortgage against said society and other defendants.

The summons and complaint were duly served on the society by delivery to the president, and were duly served on tho other defendants. The usual proeceedings were taken on default, and a judgment of foreclosure and sale was granted October 8, 1887.

On the 4th day of November, 1887, the referee advertised, and on the 30th of June, 1888, sold the premises to defendant for $1,600. His report was made, dated July 2,1888, and was confirmed July 21, 1888. The referee’s deed was executed and delivered to defendant, dated June 30, 1888.

This is an abstract of defendant’s title. On the 15th of September, 1887, an action was commenced by tbe People against tbe Ulster County Agricultural Society to have tbe corporation dissolved on tbe ground that it had suspended its business for many years. No defense was made; and on October 8,1887, a judgment was entered dissolving tbe corporation and appointing tbe plaintiff a receiver of tbe property. Under tbis judgment tbe receiver took possession of tbe books of tbe corporation. Tbis judgment, wbicb it will be seen was granted tbe same day witb tbe aforesaid judgment, contained tbe following provisions:

“ Nothing in tbis decree contained shall be deemed in any way to prejudice tbe legal rights of Charles Burhans, under tbe mortgage held by him, and under tbe decree of foreclosure and sale heretofore made in an action brought by said Charles Burhans to foreclose said mortgage.”
“Nor shall it be necessary for tbe said Charles Burhans, or tbe said Robert Lougbran, to bring said receiver as a party to their respective actions, nor shall tbis decree operate as a stay in either of said actions of said Charles Burhans and Robert Loughran.”

On November 2, 1887, upon affidavits of Preston, tbe above plaintiff, and of bis attorney, notice was given to tbe attorney of Burhans, of a motion for an order opening tbe foreclosure decree and allowing Preston, as receiver, to be let in to defend in tbe interest of all creditors and stockholders, and a stay of proceedings in tbe foreclosure action for twenty days was granted to enable Preston to make tbe motion. A reference was bad to take evidence in said motion, and tbe motion was finally beard June 16, 1888, and was denied, witb costs and disbursements to be paid out of tbe proceeds of tbe sale.

Tbis, however, was without prejudice to Preston, receiver, to bring an action to recover for alleged claims asked to be set up as to tbe cause of action recovered by plaintiff in tbe foreclosure action. Tbis order was made by tbe consent of Preston’s attorneys. A reference to tbe affidavit of Preston shows what tbe claims are on wbicb be was thus allowed to sue Lougbran. His affidavit alleges that Lougbran was an officer of tbe society; bad been in receipt of all tbe income and bad never accounted therefor. Of course, if true, tbis might show a counter-claim for moneys received which would have been available against tbe foreclosure.

And, as the court denied the right to come in and defend, it very properly declared that the decision should not prejudice his right to bring an action himself on these claims. Of course, the present action is not brought under that provision. For Loughran then had no title to the land, and ejectment against him was not contemplated in the order. It was also declared that the question of the validity of the mortgage was not passed upon.

This is ' an abstract of plaintiffs title to the land; that is, the plaintiff makes four claims:

First. That the society had no power to mortgage.

Second. That the complaint in the foreclosure avers an assignment to Burhans of the mortgage, but does not aver an assignment of the bond.

Third. That Loughran, being an officer of the company, could not buy for himself.

Fourth. That, after the appointment of plaintiff as receiver, the sale under the foreclosure was absolutely void.

The learned court held with the plaintiff on the third and fourth points.-

The complaint in the foreclosure action was sufficient. The mere omission of the words “bond and” did not make the complaint invalid. It would hardly be demurrable; the meaning was plain. The assignment of the mortgage with the bond was on record July 29, 1887. The reference was to compute what was due on the bond and mortgage, and the referee reported accordingly, referring to the record of the assignment. The judgment was valid.

Next, as to the power of the society to execute the mortgage.

The general act, chapter 425, Laws of 1855, does not provide for stock companies. The payment of ten dollars makes one a life member, and the payment of fifty cents annually a so-called stockholder. But there is no capital stock. The power to sell land is to be obtained on application to the court after a vote at an annual meeting following a notice published for three months previous. But the society in question was 'organized into a stock company (chap. 394, Laws of 1867) with shares of twenty-five dollars each. And section 6 provides that, by authority of a vote of two-thirds, the officers might sell and dispose of the property of the society in the manner directed by such vote and distribute the same after payment of debts.

Tlie section of the general act providing for 'an application to the court was, as to this society, superseded by this provision. And, inasmuch as the society had become a stock corporation, it was proper, unless some restriction appeared, that it should have control of its property, to sell aud dispose of the same.

“ Corporations, unless restrained by their charters, have the power to mortgage their property to secure borrowed money or their debts.” (Carpenter v. Black Hawk Mining Company, 65 N. Y., 43, 48.) “ By the common law the power to alien and mortgage lands in the course of its business, inhered in corporations capable of acquiring and holding them, as in natural persons, as an incident of ownership.” (Rochester Savings Bank v. Averell, 96 N. Y., 467, 472.)

Whatever, then, may be the powers of societies organized under the general act, this society has no restriction placed upon its power to dispose of its property except the requirement of a vote of two-thirds. It owed debts and it borrowed the money in question to pay them.

In this case there was a vote of the directors, and subsequently, on due notice of the object, a two-thirds vote of the stockholders, and finally a written consent of two-thirds of the stockholders. We think that the society had the power to mortgage, and the proceedings therefor were regular. If there were any irregularity in those proceedings the society had the opportunity to set it up when it was sued in foreclosure, and no such defense was set up.

The next question is whether, on the sale under the foreclosure," Loughran could lawfully purchase on his own account. It might also be argued by the plaintiff, on the same general principle, that the mortgage could not properly have been made to Loughran. But the rule is decided adversely to the plaintiff in Twin-Lick Oil Company v. Marbury (91 U. S., 587, 589, 590). The director of a corporation is not exactly in the position of a trustee having the title to property held in trust for another. He has no title to the property of the corporation ; the title is in the company itself. It is true he is in a position where he must manage the affairs of the corporation for its good. But he is not absolutely excluded from the right of dealing with it. He can loan money to it and become its creditor, and he can receive by the act of the corporation security for his debt.

If he has a mortgage security he may foreclose the mortgage, and it follows, almost of necessity, that if he can foreclose he may pror. tect himself by bidding at the sale. Of course, if he takes any: undue advantage, another question arises. But when his acts are fair and open they are not invalid. In the present case more than six months elapsed between the advertising and the sale., During-this time the present plaintiff was carrying on his motion to open the judgment. He had abundant notice of the intended sale and could have- bid for the property had he chosen to do so. There is no pretense that there was any actual fraud or unfairness in the purchase by defendant.

In the case of Hoyle v. Plattsburgh and Montreal Railroad Company (54 N. Y., 314), the Commission of Appeals stated, in the-course of - its opinion, that a director of a railroad company could not become a purchaser- of property of the corporation, except subject to the right of the corporation to elect to disaffirm the sale and have a resale. But it was not said that the sale was void, only, that the: corporation might ask for a resale if they believed the property would sell for more. And it was further stated that where-the director himself was the judgment-creditor, he had a clear right to sell the property of the corporation, and it was not decided that-he might not then purchase in his own right.

Nor was it proved in this case that Loughran assigned toBurhans only for the purpose of foreclosure. Loughran had a subsequent judgment against the society, and was advised by counsel that for-that reason he would better assign his mortgage. The foreclosure, sale was then for his benefit as creditor.

In such a case he must plainly have a right to protect his interest, both under the mortgage and under the judgment, by bidding. Otherwise the property might be sacrificed. And he must have a right to bid for himself.

If the mortgagor, the society, should think that the property sold for too little, they might move for a resale. And perhaps, on such a motion, the court would consider the fact that the purchaser was an officer in the company. But the sale would be valid and could only be set aside in equity. (Harrington v. Erie County Savings Bank, 101 N. Y., 257.)

There remains to be considered the fourth question, whether a valid sale could be made after the appointment of a receiver. The cases on which the learned court relied as establishing the negative are Wiswall v. Sampson (55 U. S. [14 How.], 52), and Walling v. Miller (108 N. Y., 173). Both of these were cases of a sale under the ordinary execution against property. To understand what the Court of Appeals decided we must quote a few words. There had been a levy under execution on property as personal. Two days afterwards a receiver was appointed. Afterwards a sale was made under the execution, and under that sale plaintiff claimed title. Still later the receiver sold and the purchaser took the property. The purchaser under the execution sale sued the receiver and the purchaser at his sale. The court said : The lien of the execution was not destroyed by the appointment of a receiver, but the rights and interests of all parties in the property were thereafter to be adjusted by the court which appointed the receiver, and the property could not be taken out of the possession of the receiver and sold upon the execution without leave of the court.”

Persons having liens upon the property had no right to interfere with its possession by the receiver, and without any application or adjudication of the court sell and dispose of it and thus dissipate it and deprive the court of jurisdiction to administer it.”

Now, the first thing to notice is that these remarks apply to executions on judgments. In the case of such executions there is no action of the court directing a sale of specific property. They are issued by the party on his own motion without any special authority of the court. A decree of foreclosure is very different. In that the court itself on hearing the facts of the case orders that the property be sold by a person appointed by the court. The judgment of the court that the property be sold is as authoritative as the judgment of the same court that a receiver be appointed. The mortgaged property is not sold “ without leave of the court,” but is sold by direction of the court. It is not sold “ without any application or adjudication of the court,” but is sold by the adjudication of the court. The plaintiff does not deprive the court of jurisdiction to administer, but administers under the judgment of the court.

We think, therefore, that a judgment of the court directing the sale of specific property and the sale thereunder do not come within the condemnation applied by the court to ordinary executions issued by the party without special authority.

Suppose, for instance, that a mere judgment-creditor asked leave of the court to issue an execution, when a receiver had been appointed, and that the court granted leave, would not the sale be regular and valid ? Now, when the court itself orders a sale of specific property by a person appointed by itself, is not that sale valid ?

But the present case goes farther.. The judgment appointing the receiver expressly refers to the judgment of foreclosure made the same day, and declares that the judgment shall not in any way prejudice the legal rights of Burhans under his decree of foreclosure and sale, and that it shall not be necessary to bring in Burhans as a party, and the decree shall not operate as a stay in the action of Burhans. What does this mean but a permission, if permission was needed, to Burhans to go on with his sale ? Iiis legal rights were to sell, and these rights are not prejudiced. The decree is not to operate as a stay. Then he may lawfully go forward. It would be unjust, after declaring that his rights are not prejudiced, and his proceedings are not stayed, when Burhans goes on in the faith of this provision and sells the property, then to hold that the sale was- void; void, because made without the leave of the court. Such a construction is a fraud on Burhans. He was most emphatically told in the judgment which appointed the receiver that his own judgment in foreclosure was not stayed or prejudiced. And when the referee sells, as that foreclosure judgment directed, the court is asked to say that the act was an improper interference without leave of the court, and the sale was void.

Further still, the receiver afterwards obtained a temporary stay for the purpose of making his motion to open the judgment of foreclosure. The motion was made and denied. The temporary stay ceased with the denial of the motion (if not before). And again the court, by its order putting an end to the stay, allowed the foreclosure sale to go on. And yet the receiver says that the sale was “ without leave of the court.” If the court then thought that it was best to have the receiver sell, why did not the learned justice, who denied the receiver’s motion, stay the proceedings in the foreclosure action on the grounds now urged by the receiver %

Both Burhans and the receiver were before tbe court on that motion, and if the present position of tbe receiver on tbis point was good, it might have been urged then. Or tbe court might have been asked, in its discretion, further to stay tbe proceedings in tbe foreclosure until tbe receiver could advertise and sell. Instead of that Burhans went on in good faith; and after tbe sale bad been-made and confirmed tbe purchaser has to meet tbe expense and trouble of tbis ejectment action. Another circumstance confirms this view. When tbe motion made by the receiver to- open tbe foreclosure judgment was denied, an order was made by tbe consent of his attorneys. That order directed that tbe. motion costs of Burhans and tbe fees of tbe referee who bad taken evidence on tbe motion should be paid out of tbe proceeds of the mortgage sale, and they were so paid. ■ /.

Now, here is again a recognition by tbe court, and a consent by tbe receiver’s attorneys, that the property should be sold under foreclosure ; and that tbe costs and disbursements which tbe receiver had caused, and for which, as tbe defeated party, be would ordinarily be liable, should be paid from tbe avails of that sale.

Tbe judgment should be reversed and a new trial granted, costs to abide tbe event.

Landón, J., concurred; Mayham, J., not acting.

Judgment reversed, new trial granted, costs to abide event.


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    In the Matter of the Application of the ATTORNEY-GENERAL for a Writ of Mandamus Addressed to THEODORE W. MYERS, as Comptroller of the City of New York, Appellant.

      Duty of the Comptroller of the city of New York to issue revenue bonds to pay the proportion of the State tax chargeable to that city — no deduction is proper, of the tax on the amount added to the assessed valuation by the State Board of Nqualization, nor of the amount raised in the State tax levy and not appropriated, nor of the amount of a deficiency in the city tax levy to meet such bonds.

    In a proceeding, instituted for the purpose of obtaining a mandamus to compel the Comptroller of the city of New York to issue-and negotiate Revenue Bonds, and from the avails thereof to pay to the Treasurer of the State the amount owing for State taxes from said city for the tax imposed in 1889, it is.no defense to the Comptroller that the Board of Estimate and Apportionment of the city of New York, in December, 1889, deducted from their estimate of the amount which was to be raised by tax to meet such Revenue Bonds, that proportion of the tax which was imposed upon an amount added by the State Board of Equalization to the assessed value of real estate in the city of New York; and also that proportion of the State tax which, it was claimed, had been imposed to meet several items in the State appropriation bill, which, after its passage by the legislature, had been vetoed by the Governor..
    The amount certified by the Comptroller of the State of New York for the State tax in the city of New York, cannot be changed by the Comptroller of that city and made to conform to the appropriation made by the Board of Estimate and Apportionment of that city for that purpose; and the Comptroller of the city of New York is obliged to issue sufficient revenue bonds to enable him to pay from the proceeds thereof the amount of the State tax, although the Board of Estimate and Apportionment has not provided a sufficient amount in the tax levied upon the city to pay them.
    The Comptroller of the State of New York, under such circumstances, is not required to apply for a mandamus against the Board of Estimate and Apportionment to compel them to make a new assessment for a proper amount.
    A law imposing a tax, which is otherwise valid, is not impaired or rendered invalid under section 20 of article 3 of the Constitution of the State of New York by the fact that the appropriation bills, by reason of their reduction by the veto of certain items thereof by the Governor, do not appropriate all tfie money which will probably be received under such tax.
    Appeal by Theodore ~W. Myers, as Comptroller of the City of New York, from an order made at a Special Term of the Supreme Court held in Ulster county, dated May 10, 1890, aud entered in the office of the clerk of the county of Albany on July 28, 1890.

      David J. Dean, for Myers, as Comptroller, appellant.

      William A. Poste, for the Attorney-General, respondent.
   Learned, P. J.:

This is a proceeding for a mandamus to compel the Comptroller of New York City to issue and negotiate revenue bonds, in order that from the avails thereof he may pay to the treasurer of the. State $5,685,660.41, alleged to be owing for- State taxes from said city for taxes imposed in 1889. (Chaps. 309, 311, 335.)

Of this sum it appears that the sum of $4,519,641.83 is not disputed, and it was conceded on the argument before, the Special Term that this sum would be immediately paid. The brief of the defendant on this appeal states that since then it has been paid.

The residue may be conveniently divided into two sums, since the grounds on which payment of these sums is resisted are different; first, the sum of $359,839.65 is the proportion of the State tax imposed on $119,425,063, which is the amount added by the Board of Equalization of 1889 to the assessed valuation of the city of New York; second, the sum of $818,767.41, is claimed to be the proportion of the State tax which was imposed by reason of certain items which were in the supply bill as it passed the legislature, but which were vetoed by the governor, and, therefore, never became valid.

The decision of the Special Term, as to the first of these sums, was that the affidavits of the defendant have put in issue the regularity of the proceedings of the Board of Equalization, and that a peremptory writ of mandamus would not issue. An alternative writ was ordered. As to the second, the Special Term ordered a peremptory mandamus. The Comptroller appeals from the whole of the order, but the argument has been directed to that part which ordered a peremptory mcmdamus.

Chapter 309, above mentioned, imposes a tax of twenty-three one hundredths of a mill for canal purposes. Chapter 311 imposes a tax of one mill and eighty-one one hundredths of a mill for the general fund; three-tenths of a mill for canal purposes and ninety-seven one hundredths of a mill for school fund. Chapter 335 imposes a tax of twenty-one one hundredths of a mill for the canal sinking fund. These make an aggregate of three mills and fifty-two one hundredths of a mill. This required a levy of State tax on the city of New York for the fiscal year beginning October 1, 1889, of $5,685,660.41.

When the board of estimate and apportionment acted in December 31,1889, instead of including the above amount in their estimate, they deducted two sums, viz., that proportion of the tax which was imposed on the sum of $119,425,063, the amount added by the State Board of Equalization to the assessed value of real estate in New York, making $359,839.65 ;• and also that proportion of the State tax which is .alleged to have been imposed on account of several items in the State appropriation bill, which did not become valid because vetoed by the governor. (See chaps. 569, 570 of the year 1889.) Those items are stated to amount to $1,808,550.13, for which the tax would be $818,767,41.

The State tax is by law payable, one-half on the fifteenth of April, and the other half on the first of. May; that is, the taxes now in question would be payable on those days in 1890.

In the city of New York, however, as appears by chapter 410, Laws of 1882 (§§ 814, 817, 833, etc.), the assessment-rolls are delivered to the receiver of taxes the first of September, and taxes are then payable. Such rolls, therefore, cannot include the State tax to be levied for the fiscal year beginning with October first next succeeding. Hence it is that, practically, the payment of the State tax is, in New York city, about a year behind. For the purpose of meeting this difficulty it is provided by the law last cited, in section 153, that to enable the city to make payment of its quota of the State tax at the proper time, the Comptroller of the city shall issue revenue bonds, and from the proceeds pay the tax, and the amount thus paid shall be levied in the then next annual levy.

One point urged by the appellant is, that the Comptroller cannot be compelled to issue revenue bonds and pay the State tax for any amount in excess of the sum which has been appropriated by the Board of Estimate and Apportionment and levied for that purpose. But the statement above made shows that this cannot be correct. This State tax was to be paid on or before May 1, 1890. And the duty of the Comptroller to issue bonds for that purpose arose before that day. The appropriation by the Board of Estimate and Apportionment in respect to that tax could not lawfully change the amount certified by the Comptroller of the State. For the board is to include the amount necessary to pay the State tax (§ 189). Section 154 gives a general authority to the Comptroller of the city to anticipate its revenues to meet expenditures under the appropriation. But section 153 is specific; and it not only authorizes, but it requires the Comptroller to issue revenue bonds, and from the proceeds to pay the State tax.

It is true that, by the refusal of the Board of Estimate and Apportionment to put in their final estimate the proper amount, there will not be raised in the then next annual levy ” enough to meet these revenue bonds. But we think that the neglect of certain officials to do their duty should not prevent the Comptroller of the city from doing his. If the Board of Estimate and Apportionment had a discretionary power to determine how much should be paid to the State for its tax, the question would be very different. But that determination belongs to the Comptroller of the State. (Laws 1859, chap. 312, §§ 8 and 9, as amended by chap. 351, Laws of 3871.)

It is undoubtedly true, as urged by appellant, that if the State tax could be paid only from money already collected and in the hands of the Comptroller of the city, and if such money had not been collected, mandamus would not lie. • But in the present case the Comptroller of the city has the power to raise the money and.the statute requires him to do so. Therefore, payment is in his power.

The appellant urges that by section 9, last cited, the remedy of the Comptroller of the' State is by mandamus against the Board of Estimate and Apportionment to compel them to make a new assessment. That would probably be his remedy if it were not for the peculiar provision authorizing the Comptroller of New York city to issue revenue bonds and from their avails to pay the tax. If it is his duty to do this, then it will be for the Board of Estimate and Apportionment, under section 190; to provide for the payment of these obligations of the city. Vo think, therefore,'that this first objection against the mandamus is not valid.

The next point is that the legislature had no constitutional power to raise monéy by tax for items in the supply bill which were subsequently vetoed by the Governor:

This argument assumes as its basis that the tax of one mill and eighty-one hundredths of a mill for the general fund and for those claims and demands which shall constitute a lawful charge upon that fund, imposed by chapter 311, would 'raise exactly the amount afterwards appropriated from the general fund by chapters 569 and 570 as they passed the legislature; and, therefore, would raise more than enough to meet the appropriations of those acts as they finally became laws. This was assumed by the Board of Estimate and Apportionment. But we see no proof. It may be that a calculation of the amount which would be produced by this tax would show it to be in excess of the total of appropriations made in those bills. But as there is no evidence as to the condition of the bills when they passed the two houses of the legislature, we cannot assume that this tax would have produced exactly the amount of the appropriations then contained in those bills. Nor is there even any evidence as to the amount of appropriations vetoed by the governor. But passing this difficulty we come to appellant’s argument. He urges that, by article 3, section 20 of the Constitution, every law imposing a tax shall distinctly state the tax and the object to which it is to be applied. The tax in question states that it is for the general fund “ and for the payment of those claims and demands which shall constitute a lawful charge upon that fund during the fiscal year,” etc.

The only question is whether that states the object to which the tax is to be applied. That is settled in the affirmative in People ex rel. Burrows v. Supervisors of Orange (17 N. Y., 235). That decision and the subsequent constant practice of the legislature must be deemed conclusive. A contrary construction would produce great embarrassment, as is well pointed out in the opinion then delivered.

Now, if this law is valid under the Constitution; its validity is not impaired by the failure of the legislature subsequently'to appropriate all of the money which would probably be received under the tax. Yet that is the appellant’s argument. He urges that because the legislature did not, by a valid law, appropriate, all the money which (as he says) this tax will raise, therefore, the law imposing the tax is invalid. Or, rather, he says that the City of New York may compute how much of the law imposing the tax is valid and how much is invalid. For the city does not object to paying a part of the amount imposed by this chapter 311 for the general fund. That is to say, the City of New York may determine that the tax of one mill and eighty-one one hundredths is valid only to the extent of about one mill and thirty one hundredths of a mill.

This is the position of the appellant. Because he proposes to reduce the tax which the city is to pay, on this ground (exclusive of the other proposed reduction), to what would be produced by a tax for the general fund of about one mill and thirty one hundredths of a mill, in addition to the tax for schools and canals. It seems to us that this evidently cannot be done. The legislature must be permitted to levy such tax for the general fund as it determines to be necessary. And though it fails to appropriate a part of the money which it maybe supposed will be thereby raised, such failure does not make the law imposing the tax void wholly or fractionally.

It may be noticed that the session of 1889 ended May sixteenth, and that all the bills which have been above referred to were approved by the governor subsequently to that date. But this does not affect the argument as to the constitutionality of the act imposing a tax.

The order is affirmed, with fifty dollars costs and disbursements.

Landón and Mayham, JJ., concurred.

Order affirmed, with fifty dollars costs and disbursements.


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    THE PEOPLE OF THE STATE OF NEW YORK ex rel. GEORGE W. VAN HISE v. THE BOARD OF POLICE COMMISSIONERS OF THE VILLAGE OF GREENBUSH AND THE MEMBERS OF SAID BOARD.

      Policeman—when tried entitled to counsel.

    A policeman, tried upon charges before a hoard of police commissioners, is entitled to have counsel.
    Certiorari to review the proceedings of the Board of Police Commissioners of the Yillage of Greenbush, Rensselaer county, New York, taken May 27, 1890, for the removal of the relator from the position of superintendent of the police department and dismissing him from the police force.

      Eugene Burlingame, for the relator.

      James H. Ryan, for the Board of Police Commissioners, respondent.
   Learned, P. J.:

The relator was the Chief of Police of the Yillage of Greenbush. Proceedings were had prior to May, 1890, before the board of police commissioners, by which the relator was removed from his office. At the term of this court, held in May, 1890, those proceedings were reversed. Notice of the order was given to the attorney of the board May twenty-third. On the evening of that day the board met and reinstated the relator as Chief of Police. At the same meeting two of the commissioners filed charges against him, and the'board at once suspended him-pending the hearing of-the charges. On the twenty-seventh day of May the board again removed the relator after a-hearing of evidence • to ■ support the charges, or some' of them. On' the hearing the relator, in person1 and by his counsel, claimed the'right to be heard by counsel on-the-trial of said charges. This was refused by the board. The board also refused to permit counsel for the- relator' to be present at the hearing. Thereupon the counsel, in obedience to the order' of the board, retired from the room where the trial was to be had, followed soon after by the relator, and neither' relator nor his counsel were present at the trial. The relator now brings the writ of certiorari to review the proceedings. The principal ground is the refusal to permit the relator to appear by counsel. The relator, however, insists, in addition, that while, there were six distinct, .charges, against the relator, and he was found guilty of all, there was no evidence whatever as to three of the charges.

The question as to the right to have counsel on such a hearing was before this court in People ex rel. Campbell v. Hannan (56 Hun, 469 ); and it was there decided that it was the right of a policeman on such a hearing to have counsel. It is not necessary for us to go over the argument for- that decision. The counsel for the defendant cites People ex rel. Flanagan v. Board of Police Commissioners (93 N. Y., 97). The principal question in that case was whether the testimony could be taken before one commissioner. And while the court said that the board was not confined to strict legal rules, they held, in regard to the case before them, that the board publicly heard the proofs and allegations; ” that “ the case was fairly heard, the right of the relator fully protected.” Nothing was decided as to the right to appear by counsel. In the present case the matter was not publicly, heard. Every one was excluded except the board, them attorney, the witnesses, the relator and the stenographer.

The statute under which the relator was appointed (Laws 1870, chap. 701) provides that policemen shall hold office during good behavior, but may be removed on proof of charges for cause preferred in writing. He has, therefore, a legal right to the office. Removal deprives Mm of a valuable possession. It was evidently tbouglit by tbe legislature that it was best that the board should not have an arbitrary power of removal.

The right to appear by counsel is almost necessary to a fair trial. The testimony of witnesses who cannot be cross-examined is very often unfair, to say the least. Truth is ascertained only when the knowledge of the witness has been sifted by cross-examination. We see no reason to change the views stated in the case above cited.

Proceedings reversed, with fifty dollars costs and disbursements.

Landon and Mayham, JJ., concurred.

Proceedings reversed, with fifty dollars costs and disbursements.


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    JENNIE LANGLOIS, Appellant, v. THE CITY OF COHOES, Respondent.

      Bridge railing—giving way when leaned, against—liability of the city to the party injured—statutory width of streets not applicable to a bridge.

    In an action to recover damages for injuries sustained by the plaintiff in falling from a bridge, which had been accepted as a public highway by the city of Cohoes, it appeared that on the northerly side of the bridge there was a railing against which the plaintiff leaned, whereupon it bent around to the north and the plaintiff fell into the river.
    Upon the trial the court granted a nonsuit on the ground that the defendant’s duty was limited to the erection of a railing which would render the bridge reasonably safe for public passage, and for such things as were incident to public passage, and that the plaintiff, in leaning against it, was putting the railing to a use for which it had not been designed.

      Held, that the nonsuit was improper; that a man, who instead of walking across a bridge pauses for a moment and rests upon its railing, does not lose his right to protection against the negligence of the party charged with its maintenance, and that it was the duty of the city of Cohoes to maintain upon, the bridge a railing sufficient to meet all those incidental uses to which it would reasonably be put by persons crossing the bridge, certainly so far as concerned their leaning against it.
    It was claimed by the city of Cohoes that, by statute, the streets of the city must be sixty feet wide; that the bridge was only thirty feet in width, and that the city, consequently, had no right to accept it.

      Held, that the statute referring to streets and highways did not embrace bridges.

      Appeal by the plaintiff from a judgment of the Supreme Court, entered in the office of the clerk of the county of Albany on the 25th day of January, 1890, after a trial at the Albany Circuit before the court and a jury, at which the plaintiff was nonsuited.
    The action was brought to recover damages alleged to have resulted to the plaintiff by reason of her falling into the Mohawk river from a bridge in the city of Cohoes, the railing of which • gave way when leaned against by her.
    jP. D. If ¿ver, for the appellant.

      O. J. Buchanan, for the respondent.
   Learned, P. J.:

This is an action to recover damages for injury to plaintiff, caused by her falling off a bridge which crosses the south waters of the Mohawk. The plaintiff was nonsuited at the circuit and appeals.

The bridge was originally private property. On the 10th of March, 1886, the common council of the city voted that this bridge be accepted and declared open to public travel. The bridge is thirty feet wide inside, including the sidewalk, which is five feet wide. On the northerly side of the bridge there had originally been a railing of three iron pipes running through posts eight? feet apart. The first pipe was a foot above the bridge, the second a foot above that, and the third a foot above the second.

In March, 1887, a freshet took away the iron post at the extreme westerly end of the bridge, together with the top rail between that post and the next. There remained two rails which, it would seem, being about sixteen feet long, passed through the first post which remained standing and into the next. The west end of the upper rail of the two which remained rested on a wooden post. The plaintiff had been accustomed to cross this bridge three or four times a day for a few years.

On the evening of March fifteenth, about seven o’clock, she was going from the city across to the island by this bridge and came to the westerly end. She there met three girls and stopped to talk. While they were talking two young men, Mort and Nolan, came from the opposite direction and joined them. After talking a little while the plaintiff sat down on the top rail near to its west end; Maria-Peat sat down next to her, Mort next- and Nolan next to him. After sitting there a short time- the- plaintiff got up and went in front and spoke to Mort. She- then turned' and - went back to the place she- started from and put.-her hand: on the railing. It bent' around to the north and she fell-into the river with- all the others.

This is the account given by one witness. The plaintiff does not state that she had sat on the rail, but says that she was leaning against it with her hand upon it,, and it sprang out and they all fell in. At the close of the plaintiff’s case the defendant moved for a nonsuit on thirty-one grounds. The court granted the nonsuit on the ground that the defendant’s duty was limited to the erection of a railing which rendered the bridge reasonably safe for public passage and for such things as are incidental to public passage, and that the plaintiff was putting.it to a use for which it was not designed.. The plaintiff appeals. As the plaintiff is entitled to the most, favorable view, we must assume that she had not been, sitting on the rail, :but had been standing by it, leaning against it and resting her hand thereon. The learned justice in nonsuiting, r.elied upon Stickney v. Salem (3 Allen, 374) with the similar cases of Richards v. Enfield (13 Gray, 344); Orcutt v. Kittery Point Bridge Company (53 Me., 500); Stinson v. Gardiner (42 id., 248); Peck v. Ellsworth (36 id., 393).

Now, in regard to the .cases in those States, it is to be noticed that there the liability of towns is statutory, while with us the liability is held to arise at common law. To show the difference, we may refer to Stinson v. Gardiner (ut supra), holding that where children used a part of the public road for- play, the. town is not liable for injury sustained by defects in the road. With this we may compare Kunz v. Troy (104 N. Y., 344), where the city was held liable for- injury to a child playing in the street, caused by the fall of a counter placed on the sidewalk for sale. In McGuire v. Spence (91 N. Y., 303) this difference between the law of some other. States and that of our own, in respect to highways, is mentioned.

In that case a child returning from school joined others - in their amusement of jumping the rope. While so engaged she .fell -into an open area. It was held' that the fact that she was1 playing, instead/ of simply passing along the street, did not prevent a recovery. (See McGarry v. Loomis, 63 N. Y., 108.)

Now, the doctrine which holds that the same duty of a city which exists as to travelers exists also as to a child playing in -the street, applies by analogy to this case. The man who, instead of walking with unresting and undeviating step across a bridge, pauses for a moment and rests against the railing, does not lose his right to protection against negligence, any more than does the child who plays in the street instead of walking sedately home.

In Orcutt v. Kittery, etc (ut supra) the captain of a- company, to which plaintiff belonged, called -a halt upon a bridge. Plaintiff leaned his back against the railing to rest and wait for further orders. As he sprang forward to take his place in the ranks, the rotten railing broke and' he fell off the bridge. „

'It was held -that it was for passengers only that the- corporation was obliged to maintain the railing; and that he could not recover; that his use of the railing was ’unauthorized. If that is the law of this State, the nonsuit was proper. But we think that such is not our law.

The railing of the bridge should be sufficient to meet all those incidental uses to which it would reasonably be put by persons •crossing. We say nothing about sitting on the rail. We speak merely of that- leaning against- it, which is the common act of a person stopping a moment for any purpose on the sidewalk of a bridge.

The learned justice excluded the idea of contributory negligence, and placed the nonsuit on the ground that the defendant was not liable because the plaintiff was putting the railing to an unauthorized use. We cannot’agree with this view.

The defendant urges'further that, ’ by' si atúfe, 'the1 Streets of the city must be sixty feet wide, and that this bridge is'only thirty, and, .therefore, the city had no.right to accept.it,. .Evidently the statute cited refers not to bridges, but to streets and highways, strictly so-called, because it speaks of opening, working, laying out and grading; expressions not applied to a bridge.

The defendant further urges that defendant had no- right to construct-or keep a bridge over this branch of the Mohawk, and would have 'been á trespasser in going on the bridge to make repairs. This position rests .'on ‘the. cases of Carpenter v. Cohoes (81 N. Y., 21) and Veeder v. Little Falls (100 id., 343). But these- are quite dif- ' feren-t from this. - - There it was held that the city was not bound to go upon an approach to a bridge and put a railing thereon, where the approach and the bridge were State property.

Now, in this case, Adams built this bridge in 1876 from an island owned by him to vaeant land on the west side of the south branch of the Mohawk. He sold building lots on his island, and houses were built thereon. People used the bridge in crossing from his island to the other part of the city.

The bridge was within the city limits. In 1886, as above stated, the common council passed a vote accepting this bridge and declaring it open to public travel. After the freshet of 1887, above mentioned, the street superintendent repaired the bridge, putting in new floor timbers. His attention was then called to this defective railing.

Whether the State might not cause this bridge to be removed we need not say. It had been allowed to remain some twelve years, and had been used by the public during that time. The case comes, within that of Sewell v. Cohoes (75 N. Y., 45).

The judgment should be reversed and new trial granted, costs to abide the event.

Landon and Mayham, JJ., concurred.

Judgment reversed, new trial granted, costs to abide event.