author: YaN BeuNt, P. J.:

text:
    SOPHIA FRICK HILLEN, Individually and as Executrix, etc., Appellant, v. ADRIAN ISELIN and Others, Respondents.

      Testamentary power of appointment — effect of its imperfect execution — ‘ ‘ descendants ” defined — rule in regen'd to perpetuities.

    A will devised, a portion oí the residuary estate to trustees in trust lor the testator’s daughter Emily during her life, and at her death in trust for such child or children of Emily, “ or his, her or their descendant or descendants,” as Emily should hy will appoint.

      Meld, that, from the manner in which the word “descendants” was used in the will, it was to he deemed that the testator intended only to confine the power of appointment to the descendants of Emily, as a class, in whatever degree they might stand, and hence that children of a living child of Emily might he the objects of the power.
    Emily, the donee of the above power of appointment, by her will appointed the estate to trustees in trust to pay one-half of the income to her son Thomas during his life (the other half being appointed in trust for a daughter), and at the death of Thomas directed, in default of appointment by him, that one-half, and in case the daughter died without issue the whole, of the principal should go to ail his children living at the time of his death per stirpes. Thomas as well as Emily was living at the death oí the testator.

      Meld, that the appointment did not violate the rule in regard to perpetuities, since the trust, under the will and the appointment together, could not continue for more than two lives in being at the death of the testator, namely, those of Emily and her son Thomas, the estate vesting absolutely in the issue of Thomas unon his death.

      It was objected that tbe above appointment by Emily was a departure from the power in devising to trustees, and to trustees of her own selection, and differing from the trustees under the will of her father which created the power.

      Held, that as Emily, the donee of the power, had plainly designated to whom the beneficial interest in the estate should go, if she was mistaken as to her power to appoint the means by which it should be transferred because of the provisions of bier father’s will, her appointment of transfer might be held void and the beneficial interest still remain intact.
    Appeal by the plaintiff, Sophia Frick Hillen, individually and as executrix of the last will and testament of Thomas Hillen, deceased, from a judgment of the Supreme Court, entered, upon a decision rendered at the New York Special Term, in the office of the clerk of the city and county of New York on the 8th day of May, 1892.

      J. G. Garter and A. W. Machen, for the appellant.

      J. H. Ghoate and i?. M. McSherry, for the respondents.
   YaN BeuNt, P. J.:

This action was brought by the plaintiff individually and as ancillary executrix of the will of Thomas Hillen, late of Baltimore» Maryland, deceased, to obtain a construction of certain provisions of the will of Columbus O’Donnell, and of an appointment made thereunder by the will of Emily Hillen.

The testator O’Donnell died in the year 1873, leaving a last will and testament bearing date the 27th day of August, 1866, which will was duly admitted to probate in Maryland on the 31st day of May, 1873. By his will said O’Donnell devised four-twentieths of his residuary estate to certain trustees in trust during the life of his daughter, Emily Hillen, to pay the net income to her for her sole and separate use; and by said will he further provided that, after her death, the property was “ to continue in further trust and be held by the said trustees and their successors to and for such child or children of my said daughter Emily, or his, her or their descendant or descendants, and in such proportion and for such estate and estates therein, either in fee or for a less estate, and with such limitations and conditions as my said daughter Emily may, by her last will and testament, or by any instrument of writing in the nature of a last will and testament, notwithstanding any coverture she may be under, execute in the presence of three or moi’e witnesses, name, limit and appoint to take tlie same.” In default of such appointment 'by bis said daughter Emily, the testator, by his will, declared and directed “ that from and immediately after the decease of my said daughter Emily the said trustees and their successors shall continue to hare and hold the said last-mentioned four-twentieth parts or shares of the said rest, residue and remainder of my estate as aforesaid, or the property, stock or funds of all kinds in which the same may be invested at the time of my said daughter Emily’s decease, in trust for the uses and purposes following, that is to say : First. In case my said daughter Emily shall leave living at her death any child or children, or any descendant or descendants of any child or children of her’s who may have died in her lifetime, then in trust for any and every such child or children of my said daughter Emily and any and every such descendant and descendants of any child of her’s living at her death, their heirs, executors, administrators and assigns, if but one, to take the whole, and if more than one, to be equally divided between them per stwpes and not per capita, and such descendant or descendants of any child to take only the part or share to which such child would have been entitled if then living.”

Emily Hillen died in February, 1888; also a resident of and domiciled in Maryland. She left her surviving two children, Thomas Hillen and Emily McSherry, who were living at the time of the death of the testator O’Donnell, and no descendant of any deceased child. Thomas Hillen married and had one son, born during the lifetime of Emily Hillen, who is the defendant Thomas O’Donnell Hillen. Emily Hillen left a last will and testament, which has been duly admitted to probate by which she attempted to execute the power of appointment conferred upon her by the will of the testator O’Donnell in the following words:

“8. I give all the rest of my estate of every kind, including herein all the estate over which I have a power of appointment under my father’s will to Adrian Iselin of the city of New York and Richard Fisher of the city of Baltimore, and the survivor of them, and the heirs, executors, administrators and assigns of such surviVto, in trust to collect the rents, issues and profits thereof and pay all necessary expenses thereout, including a commission of two and one-half per cent to said trustees on the income, and to pay one-half part of the net income to my said son for and during the term of his natural life, and the other half part to my daughter for and during the term of her natural life, without the power to my said son or daughter to contract any debt that may bind either the principal or said income or to make any assignment thereof, or in any manner to draw upon or anticipate the same, and so that the same shall not be in any manner liable for his or her debts, contracts or engagements, and shall be paid to him or her alone, and as fast only as it shall be received, and so that the share of my daughter shall be free from the power or control of her husband for her sole use.
“4. I empower my son, as to his share, that is to' sáy, one-half part of said rest of the estates and also as to the other half part also in case of the death of my daughter, without leaving a child or descendant living at her death, as hereinafter mentioned (and such power as to said other half part may be exercised, whether he sur. vive her or not), to appoint the remainder to and for such one or more child, children, descendant and descendants of him, and in such proportion and for such estate and estates therein, either in fee or for a less estate, and with such limitations and condition as my said son may, by his last will and testament name, limit and appoint.
“ 5. And upon default in the exercise of such power by my said son, I give at his death his share, that is to say, one-half part of said rest of the estates, and the other half part also in case of the death of my daughter without leaving a child or descendant living at her death as hereinafter mentioned to. all the children and descendants of my said son per stirpes who are living at his death, free from further trust.”

Thomas Hillen, upon the death of his mother, denied the validity of the appointment and claimed the said moiety as his own property by virtue of the devise in default of appointment contained in his grandfather’s will, and made a will devising it absolutely to his wife Sophia F. Hillen, the plaintiff. He died in the year 1888 and his will has been duly admitted to probate.

The plaintiff brought this action for the purpose, amongst other things, of obtaining a judgment of the court declaring invalid and void the attempted execution by Mrs. Hillen in her said will of the power of appointment conferred upon her hy the will of her father. The controversy thus presented is between the mother and the son, the mother claiming that by reason of the invalid execution of the power of appointment by Emily Hillen the property passed, under the will of O’Donnell, to her husband, Thomas Hillen, who, by his will devised and bequeathed the same to her, whereas the defendants claim that the power of appointment was duly executed and that the title under it came to the infant defendant, her son.

It is conceded that the will is to be construed according to the laws of Maryland, but, as suggested by the respondent’s counsel, so far as the construction of the two clauses of the wills in question is concerned, as the facts appear in this case, the law of Maryland does not appear to differ from the law of New York; the difference between the laws of the two States being that in New York the power to suspend alienation is limited to two lives in being, whereas in Maryland the rule as to perpetuities is that the power of alienation may be suspended for any number of lives in being at the death of the testator and for twenty-one years and a fraction of a year' thereafter.

Three grounds are suggested by the appellant upon each of which it is claimed that the appointment made by Emily Hillen of her son’s share of the four-twentieths of the residuary estate of O’Donnell is void.

The first ground is that children of a living child of Emily, the daughter of the testator O’Donnell, were not objects of the power. And this claim is based upon the phraseology of his will which declares that his trustees shall, at the death of Emily Hillen, hold the said four-twentieths in trust “ for such child or children of my said daughter Emily or his, her or their descendant or descendants ” as the said Emily shall by will appoint. And it is urged that the primary and proper meaning of descendants being issue of a deceased parent, it was plainly the understanding of the testator that the word “ descendant” necessarily imported the predecease of the ancestor; and other portions of the will, especially that providing for the disposition of the property in case of omission to exercise the power, are referred to for the purpose of supporting this contention.

But, we think, that an examination of the latter clause referred to, leads to an exactly opposite conclusion, and shows that the testator, when he desired that a party should take in a representative capacity, appreciated the fact that such representation was not secured by the úse of the word descendant,” which would have been the case had he understood that when he used the word “descendant” it necessarily presupposed the , decease of the-, ancestor.

His language, in providing for the case of a default of appointment, is: “ In case my said daughter Emily shall leave living, at her-death, any child or children, or any descendant or descendants of' any child or childen of hers who may have died in her Ufetime■, then in trust for any and every such child,” etc.

Now, if the word “descendant” necessarily implied in the testator’s mind the predecease of the ancestor, why should he have imported into this clause the words “who may have died in her lifetime?” He used the word “descendant” in connection with the words “ child or children,” as he had done in the prior clause, and he speaks of the descendant living at the time of the death of his daughter; and yet, in order to limit the devise to the descend- • ants of deceased children, he thought it necessary to add the words “ who may have died in her lifetime; ” thus, to our minds, clearly indicating that the testator did not understand when he used the words “ descendant of a child,” that it was necessary that such child should be dead in order that such descendant should come within the class. In the clause conferring the power of appointment where the testator does not intend to limit the power to take, except among the descendants of his daughter Emily, he uses no such language. He gives her a power of appointment to a child or children of his, her or their descendant or descendants, and not as in the subsequent clatise limiting the power of appointment tov descendants whose ancestor is dead.

In the case of Drake v. Drake (48 N. Y. St. Rep., 216 affirmed, 56 Hun, 590) the testator conferred the power to appoint certain property “ to all or any or either of my sisters, * * * or to all or any or either of the lawful issue of my said sisters from and after the death ” of the donee of the power.

The donee of the power, having appointed to the children of the sisters, to the exclusion of their living parents, it was contended that while the term “ issue ” might include all descendants of the sisters, yet, that they-became objects of the power only at the death of their respective parents, so that an appointment could not be 'made to the sisters and tlieir issue, or to parents and their children who would be more remote descendants of the sisters, all being considered concurrently as members of the same class. The court, in construing this power, held that the word “issue,” as employed, meant all descendants of the sisters named, and that it embraced concurrently all members of the unconfined class, “ lawful issue.” And we are unable to see why the language of the clause under discussion is not equally broad. And, indeed, taken m connection with the subsecpient clause providing for a default of appointment, the intention of the testator seems 10 be much more clear that he ■only meant to confine the power to the descendants of his daughter ■as a class in whatever degree they might stand.

The next ground upon which the invalidity of the appointment is claimed is that the limitation made in the will of Emily Bullen ■is void under the rule against perpetuities.

It is to be remembered that the will of the testator O’Donnell gave the property in question to trustees in trust for Emily Bullen •during her life, and on her death to such child or children, his, her •or their descendant or descendants, in such proportions and for such ■estates as the said Emily might appoint) and Emily by her will -appoints to trustees in trust to pay one-half of the net income to her •son, Thomas Bullen, and the other half to her daughter, Emily McSherry, during their respective lives, and at the death of Thomas his half of the principal is directed to go to all the children of Thomas living at the time of his death per stirpes. And the case of Routledge v. Dorril (2 Ves. Jr., 358) is cited by the appellants ■ as an authority almost conclusive upon the point. In that case by • a marriage settlement property had been settled in trust for the husband and wife during their lives, with power to the survivor to ■appoint to the children and grandchildren, or issue of the intended marriage, in such shares and proportions and under such restrictions, limitations and conditions, and at such time and times and in such manner and form as such survivor should by deed or will direct and appoint. The wife, Elizabeth Dorril, survived her husband, and by her will appointed a part of the projierty to a daughter, Elizabeth Edwards, for life, and after her death to all and every the child and children of Elizabeth Edwards, by her then or any future husband, In equal shares and proportions, if more than one. It was held that tbe appointment.to the children of Elizabeth Edwards was wholly void, because some of the children of said Elizabeth Edwards were born after the death of the donor of the power. We do not see, however, that in the case cited there was any question as to the violation of the rule against perpetuities. The case was decided upon a different and distinct ground, namely, that the appointees under the power were required to be in existence when the appointment took effect, namely, upon the death of the donee of the power. The language of the court was:

There is no doubt that, under the words of the original power, any issue of the intended marriage living at the death of the husband or wife would have been competent to receive a share; and there being three children of Elizabeth Edwards, living at the death of Elizabeth Dorril, if she had appointed to them, without doubt they might have taken. But she has appointed to Mrs. Edwards for life; and, instead of giving it to such of her children as should be living at the death of their grandmother, she has given to all the children her daughter might have during her life. Those that may be born after the death of their grandmother cannot be included among those in whose favor the power may be executed; and the question is, whether those children who might have been the proper objects shall take. At first I was of opinion that, as she might have appointed to the three children born before her death, when she appointed to all, these three might be considered as the sole object; but upon considering it farther, and particularly upon Gee v. Audley, I am of opinion that would be a forced construction; and that the grandmother, in affecting to give this to all the issues her daughter might have at any time, has transgressed the power ; and so far being ill executed, it is to be considered as not executed, and is totally void.”

It is evident that there was no question as to the suspension of the power of alienation, but as to whether in the attempt to exercise the power the donee had exceeded the authority conferred by the power.

If the appointment as made by Emily Iiillen to her son Thomas for life, and upon his death to his issue, had been incorporated in the will of tlie original testator, there would have been no violation of the rule against perpetuities,- for the reason that the trust estates created by the joint operation of the wills of Columbus O’Donnell and Emily Hillen could not possibly continue for more than two lives in being at the death of the testator, namely, those of Emily and her son Thomas, the estate vesting absolutely in the issue of Thomas upon his death.

The case of Thomas v. Gregg (not yet reported) was entirely different from the case at bar. In that case John Gregg, of Baltimore, devised half of his estate to trustees in trust for his daughter, Mrs. Thomas, with power to her to appoint by will to any of her children or grandchildren or to children of her sister. Mrs. Thomas, in the exercise of the power, made a will devising the property to her own children in equal shares, and directing that during the life of any child the share of such child should be held by trustees, whom she directed to collect the rents, income and profits and pay the net income to such child during his or her life. She died leaving three children, two of whom were born in the lifetime of her father. This appointment was held to violate the rule as to perpetuities, and to be wholly void. " And why? Simply because Mrs. Thomas attempted to have a portion of the estate held in trust during a life which was not in being at the time of the death of the original testator and grantor of the power. As has been already suggested in the will and appointment under consideration no trust w'as created for the life of any person who was not in existence at the time of the death of the grantor of the power, and, therefore, there was no violation of the rule in regard to perpetuities. But the question still remains : Could Mrs. Hillen, within the terms of the power, appoint to persons not in being at the time of her death ?

It is urged upon the part of the appellants that she could not, because the testator had selected one life as the limit of the period during which the vesting of the title should be suspended, which was the life of Emily Hillen, and any estate created by her under this power must be vested immediatly upon her death or before; that she had no power to reshape the testator’s limitations and recreate an estate which would not or might not vest until some period after her death ; that she might in executing the power create life estates with remainders, but these remainders must be vested at her death, and not then remain contingent; that she could have given a life estate to Thomas with remainder to his children living at her death, or to any other person living at her death, pvhereas in her actual will sbe limited a remainder after Ms death to all of Ms children, and this it is claimed she could not do.

But we fail to see why she could not do it. It seems to us that an examination of the testator’s will shows that he did not intend that a single life should necessarily be the limit of the period during which the vesting of the title should be suspended as is claimed. His language is that the property shall be held in trust by the trustees during the life of his daughter, Emily Hillen, to pay the net income for her sole and separate use; and after her death to be still held in trust to and for such child or children of his said daughter Emily, or Ms or her or their descendant or descendants, and in such proportion and for such estate and estates therein in fee or for a life estate, and with such limitations and conditions as his said daughter might appoint. Now if it was the intention of the testator to limit the period during which the vesting of the title should be suspended to the life of his daughter, what did he mean when he provided that she might appoint to any child or children or his or her or their descendant or descendants .for such estate and estates therein either in fee or for life with such limitations and conditions as to his daughter might seem proper. There seems to be an express power given within the limits of the law to add such limitations, under the appointing power to the vesting of the estate, as she might see fit; and it was not only not reshaping his limitations but was carrying out a power -which was expressly conferred upon her, the extent of which was only limited by the legal limitations imposed upon her action. It was the plain and evident intent of the testator that Emily Hillen in the execution of this power should have the right to suspend the vesting of the title to the same extent as he might have done by the provisions of his original will. Now, it cannot be claimed for one moment, as already suggested, but what the testator might have devised this estate for life to Emily, upon her death to her son Thomas if he survived her, and upon his death to his children then living, whether in being at the time of the death of the testator, or of the daughter or not; in which case the children of Thomas, as born, would take vested remainders subject to be divested by death before the termination of the intermediate estate, and also to open and let in children born subsequently. That is all that Emily Hillen did. She appointed the estate to her son during his life, and upon his death to all of his children. Upon her death, therefore, her grandson took a vested remainder. If there had been any intention shown by the testator that the power of alienation should be limited to one life, that of Emily, and that the estate should necessarily vest immediately upon her death, a different case might have been presented. But on the contrary, by the express terms of the will, the testator gave to Emily the power to continue the limitation as long as the law would permit.

But it is claimed that as under the power Emily had a right to appoint to children of hers which were unborn at the time of the death of the testator, she could not impose any additional limitation, because, as to unborn children, any additional limitation would be void; and further, that the donor sought to make every child of Emily, whether born after his death or not, an object of Emily’s possible choice, and Emily sought to make every child of Thomas a taker, and, therefore, postponed the vesting of their estates to the time of his death and that these two things could not stand together in the testator’s will.

It is undoubtedly true that among the objects of Emily’s possible choice were children unborn at the death of the testator. But, in considering the question as to the validity of Emily’s action under this power of appointment, it must be borne in mind that the power was to appoint to such members of the class mentioned in the testator’s will as Emily might see fit; and the validity of Emily’s action is not to be construed as if the appointment was to be among the members of a class in which case each one must have had a substantial, if not necessarily án equal share.

In other words, Emily had a right to appoint the whole of her estate to such child or children or his or her or their descendant or descendants as she might see fit. She might select any one to the exclusion of every other one. Such being the case when she made her selection and in the execution of the power she only placed such limitation upon her appointee as the original testator might have done had he made the same provisions in his will. She does not exceed the powers conferred upon her bylaw, and we can see no reason whatever why, under such a power of appointment, she could not appoint to one child living at the death of the testator, with limitations, and appoint to another child horn after the death of the testator in fee or that there is anything in this power which requires her to appoint to each appointee the same estate. In other words, under the general language of this power the donee could do anything in the disposition of the estate which the donor of the power* might have done himself.

The third ground upon which this appointment is attacked, is that it is a departure from the power in devising the property to trustees, and to trustees of Emily’s own selection, and differing from the trustees under her father’s will. If this appointment of trustees by her was'unauthorized, it seems to be an unimportant considera, tion, because of the familiar rule that where a power has been executed, equity will support the power so far as its execution was warranted, and treat the excess as void. As was said in the case of Alexander v. Alexander (2 Ves., 644), where there is a complete execution of a power, and something ex dbundanti added which is. improper, the execution shall be good, and only the excess void; but where there is not a complete execution, or where the boundaries between the excess and the execution are not distinguishable, it will be bad. In the ease at bar, tire donee of the power plainly desigated to whom the beneficial interest in the estate should go; and if she was mistaken as to her power to appoint the means by which it should be transferred because of the provisions of her father’s will, her appointment as to the means of transfer may well be held void, and the beneficial interest still remain intact.

~We are of opinion, therefore, that as the original testator could have done all that was done under the power conferred upon his daughter, no law has been violated, and there was a valid execution of the power by the daughter of the testator.

The judgment should, therefore, be affirmed, with costs.

O’Beibn and Follett, JJ., concurred.

Judgment affirmed, with costs.


source: Caselaw Access Project

author: O’Beieet, J.:

license: Public Domain

text:
    MARSDEN J. PERRY, Respondent, v. COUNCIL BLUFFS CITY WATER-WORKS COMPANY, Appellant.

      Implied authority of the financial manager of a corpoi'ation — liability of the corporation on notes made by him — limit of recovery on the notes.

    Where tlie treasurer of a business corporation is also permitted to become and act as its sole financial manager, the corporation will be chargeable, irrespective of the question of authority, in fact, with liability for acts done by him within the apparent scope of the authority conferred upon him by the corporation.
    The treasurer of a water-works company had been permitted, through the omission of its other officers to direct its financial management or supervise his acts, to ■become and act as its sole financial manager, and had made and negotiated some fifty promissory notes in its name, during a period extending over about a year and a half:

      Held, that the company was liable to a bona fide holder for value of a promissory note executed in its name by such treasurer, which matured while he was still treasurer, and the proceeds of which, so far as received by him, had been applied to the use of the corporation, although the note was not specially authorized. One who has loaned money upon the security of a promissory note, not valid as a legal obligation against the maker in the hands of the prior holders, but which when transferred to him became in his hands a legal obligation, is limited in his recovery thereon against the maker to the amount loaned by him, with legal interest from the date of his loan.
    Appeal by the defendant, the Council Bluffs City Water-works Company, from a judgment of the Supreme Court, in favor of the plaintiff for $J,350.03, damages and costs, entered in the office of the clerk of the city and county of New York on the 29th day •of January, 1891, upon the decision of a referee.

      James L. Bishop, for the appellant.

      George B. Ashiey, for the respondent.

      The opinion of the referee (George Putnam Smith, Esq.), referred to in the ■opinion at General Term, was as follows:
      This action is brought upon a promissory note, which reads as follows: *‘$5,000. New York, Nov. 23d, 1886.
      “ Four months after date we promise to pay to the order of Allen & Stead five thousand dollars at the treasurer’s office, 44 Broadway, New York.
      “Value received.
      " COUNCIL BLUFFS CITY WATER-WORKS CO.,
      “ Henry Allen, Treasurer.”

      It was indorsed by Allen & Stead and sent by Allen to one Bradford, a person in Providence, Rhode Island, who claimed to have facilities for obtaining the discount of mercantile paper. Bradford took the note in December, 1886, to plaintiff at Providence, Rhode Island, and asked for a loan upon it. Plaintiff, remembering that a bank, wherein he was a director, had discounted such a note for Bradford, got that note from the cashier and compared it with the one in suit and found them similar in form; and the president of that hank also told him there was another such note held by a savings bank in Providence, and that it was a good loan. Plaintiff, therefore, lent to Bradford §4,500 on the note, and he sent $2,500 to Alien, the maker, who entered the fact of the issue of the note and the receipt of the money on the books of Allen & Stead, in an account therein kept as the Council Bluffs Water-works account, and ho testified that he applied the proceeds to that company’s use.
      The defendant claims that this cause is res adju dicata, and is controlled by the decision of the General Term of this court (second department) in the cause of First National Bank of Middletown v. Council Bluffs City Water-works Company
        (56 Hun, 412), and if this is not so, that, upon the merits, this note is not a valid and binding obligation of the company.
      The Middletown Bank sued upon a note purporting to be that of the defendant. The testimony in that case was to the effect that on February 26, 1887, Allen made three notes in the same form as those in the case at bar, all due in four months from their respective dates, and amounting, in the aggregate, to $12,500, and these were delivered to one Yan Steenburgh February 28, 1887, upon an agreement that he should give in exchange therefor $4,600 in cash and $8,500 in bonds of a certain gas company. No time was fixed for the payment by Van Steenburgh, and it seems to have been conditioned upon getting the notes discounted. He, however, on February twenty-sixth, gave Allen two gas bonds for $500 each, which Allen said he needed to borrow money on for the company.
      February 28, 1887, Allen was removed from the treasurership of the company, but on March twenty-ninth Yan Steenburgh got the notes discounted, whereupon he paid over to Allen the $4,600 in cash and gave him the rest of the bonds, and the money and bonds so received were kept by Allen. The referee found that the board of directors never authorized Allen to make a promissory note for the company; that they never knew that he was issuing such notes, and that they never ratified his action in that respect.
      The General Term, therefore, held that, whether the notes had a legal inception before February twenty-eighth, when Allen ceased to be treasurer, was “ certainly very doubtful,” but that if they did the decision in plaintiff’s favor given by the referee rested “ upon a single point” that some of the proceeds of some of the previous notes had been used by Allen to pay the debts of the company without the knowledge of the company or its officers, and that, therefore, the company became liable for Allen’s acts in subsequently issuing the notes of the company and applying the proceeds to his own use. Upon an examination of the evidence bearing upon this point the court held that the referee had erred, that there was no indebtedness of the company, except its bonds, as Allen had personally assumed all its other obligations; that the prior notes were never authorized, and no part of the proceeds was ever used for the benefit of the defendant.
      While the decision in the Middletown Bank case may be recognized as controlling, upon the state of facts therein presented, the evidence in the case at bar is, in some important respects, more favorable to the present plaintiff. The note here sued on was made and discounted while Allen was treasurer, and such part of its proceeds as came to his hands was received by him as such. The relation between Allen and the company was more clearly defined than in the former case, and the “tripartite or Hopkins contract') was made part of the record, and its effect upon the parties thereto and the water company brought into consideration. I, therefore, cannot assent to defendant’s claim that the decision in this case is concluded by the General Term decision above referred to.
      The evidence in the present case shows that the defendant company was organized under the laws of Iowa to supply water in the city of Council Bluffs, in that State, and that this was done by pumping water from the Missouri river to a station in the city and thence conveying it by pipes to consumers. The necessary works were built by a construction company, which then sold them to the defendant company, which issued in payment therefor $500,000 in mortgage bonds upon its property. The moving spirit in the enterprise appears to have been Sidney W. Hopkins, who, in 1885, was the owner of 16,406 shares of the company’s stock and $345,000 of the bonds.
      Nearly all of the stock and bonds were held by persons who had made loans to Hopkins, and there was a number of outstanding claims against Hopkins, the construction company and the defendant. Hopkins made an agreement with Sewell, Pierce & Sheldon, a firm of lawyers in the city of New York, whereby, in consideration of a sum stated, he transferred to them his equity in the bonds, they agreeing to pay the before-mentioned claims, and he gave them an option to purchase his stock at a certain price on or before Septemher 1, 1886. He further agreed forthwith to transfer to Mr. Sewell, as trustee, 15,606 of the shares of the stock, and that he would secure the resignation of such officers and directors of the Water-works Company as the other parties to the agreement required, and the election in their place of such eligible persons as they should name.
      This contract was made by Mr. Sewell and his partners with no idea of carrying it out personally. They were lawyers in large practice and were fully occupied thereby. But it was an apparently profitable scheme to submit to their clients, and if they could get one of them to undertake it — to manage the details which were entirely out of their scope of business and to share the profits, if any there should be, it would be a lucrative enterprise. Mr. Sewell, therefore, laid the matter before one of his clients, Mr. Harry Allen, a banker in this city, and an agreement was made whereby Mr. Allen undertook to do, in whole or in part, what Mr. Sewell and his partners had agreed to do in discharging the before-mentioned claims.
      Mr. Hopkins carried out his part of the agreement by transferring to Mr. Sewell, as trustee, the 15,606 shares of stock, and by causing a special meeting of the board of directors of the Water-works Company to be held on May 8, 1885, at which meeting three of the directors resigned and Messrs. Sheldon, Pierce and Allen were elected in their place. Mr. Sheldon resigned tlife treasurership and Mr. Hopkins the presidency, and Mr. Allen and Mr. Sewell were chosen to fill the respective offices.
      On June 10, 1885, a stockholders’ meeting was held, whereat, by the vote of 16,360 shares of stock, including the 15,606 held by Mr. Sewell, as trustee, a board of seven directors, including Hopkins, Sewell, Pierce, Sheldon and Allen were elected.
      The by-laws required a monthly meeting of the directors, but the minutes show that but one meeting was held between May 8, 1885, and February 28, 1887, and that at this meeting no business was transacted, except the re-election of officers, including Sowell and Allen.
      At the meeting in February, 1887, Mr. Sheldon was made treasurer in place of Allen. Mr. Allen, therefore, was the duly appointed treasurer of the defendant, from May 8, 1885, until February 29, 1887. And during this period he had the entire management of its financial matters. He was not controlled by any resolutions of the board for they held no meetings. Mr. Sewell, the president, testified that he “ didn’t want them,” He was not supervised or assisted by the president for when he endeavored to consult Mr. Sewell he was told that the latter had his own business to attend to and Mr. Sheldon was named, as the person with whom he was to consult. The office of the company in this city was, at this time, a room forming part of the suite of offices occupied by the law firm Sewell, Pierce and Sheldon. Mr. Allen, as treasurer, did not use it, but conducted his official business at the office of his firm, Allen & Stead, using the books of that firm for his entries of receipts and payments in behalf of the company He had to act in a dual capacity — as financial manager of the “pool” under the Hopkins contract and as treasurer of the defendant. As manager he had to discharge the claims against Hopkins, the construction company and the defendant mentioned in that contract. As treasurer he had to pay the interest on outstanding bonds and to see that the running expenses of the company were met. The only means he apparently had for paying the Hopkins or “ pool ” claims was the sale of bonds and the testimony shows that he did sell a large number.
      The running expenses of the company were all incurred at Council Bluffs, but were not equaled by the payments from individual customers there. In addition the city paid to the water company $20,000 per year in equal semi-annual payments. These payments were in the form of tax warrants which were forwarded to Allen, who sometimes sold them at ninety to ninety-five per cent, but usually borrowed money on them and the proceeds were generally used to pay interest on the bonds.
      The company’s by-laws provided that the treasurer should sign and indorse all checks, drafts, notes and orders for the payment of money and should pay out the funds of the company under the direction of the board of directors, and that the president should countersign all checks, drafts, notes and other evidences of debt; that the board of directors might “borrow money for the purposes of the company and issue notes and bonds therefor,” and that “ no debt or liability beyond the necessary legitimate business and current expenses of the company should be contracted by any officer of the company without special authority of the board of directors.”
      Soon after Allen became treasurer he began to issue notes purporting to be the notes of the company and he continued so to do during his whole term. He issued some forty or fifty notes, all of the form of the note in suit, and the proceeds were used indiscriminately to pay off pool claims and the interest on the mortgage bonds of the Water-works Company and also the current expenses of the company not provided for at Council Bluffs. These notes were issued without the sanction of any resolution of the board and there is no proof that some of the directors ever heard of them.
      None of the notes were countersigned by Mr. Sewell, the president of the company, as the by-laws required; Mr. Sheldon, however, not only knew of the proceeding, but actively assisted therein, indorsing several of the notes himself, and in one case in the name of his firm. Among the notes so issued was the one which came into plaintiff’s hands at the time and in the manner I have stated..
      The elaborate briefs of the counsel for both parties, and my own search for reported decisions, do not disclose any adjudication upon the legal effect of such a state of facts, but the principles underlying the numerous and apparently conflicting decisions concerning debts of corporations, seem to be clear and decisive of this case.
      There is no general presumption that unsealed contracts purporting to have been made by the officers of a corporation in its name are corporate obligations, unless authority is implied from the nature of the office, or from previous similar dealings recognized by the corporation, or a ratification has been shown. (People’s Bank v. St. Anthony’s R., C. Church, 109 N. Y., 512, 525.)
      “ Every one knows that corporations are artificial creations existing by virtue of law, and organized for purposes defined in their charters; and he who deals with one of them is chargeabl e with notice of the purpose for which it was formed; and wlien lie deals witli agents or officers of one of them, he is hound to know their powers and the extent of their authority.” (Alexander v. Cauldwell, 83 N. Y., 485.)
      There was nothing in the nature of the business of this company which presumptively gave its treasurer power virtute officii to make its notes. (Craft v South Boston R. R. Co., 22 N. E. Rep., 920; Life and F. Ins. Co. v. Mechs. Fire Ins. Co., 7 Wend., 31; Mather v. Union Loan and Trust Co., 7 N. Y. Supp., 214; Bank of Attica v. Pottier & Stymus Mfg. Co., 17 N. Y. St. Rep., 328.)
      But the authority to make the note in question could he established either by proof of power given to the officer making the note by the hy-laws, or by resolution of the hoard of directors either directing this particular act, or generally authorizing the class of acts (Elwell v. Dodge, 33 Barb., 339), or in the absence of these by a ratification of the act by the directors, or by proof of their knowledge and .assent to similar acts by the same officer sufficiently numerous to have established a “course of dealing,” presumably by the corporation, which it would be unfair to repudiate in the special instance.
      It* is claimed that in the case at bar no such authority was established, and that the evidence fails to bring it even within the scope of Fifth National Bank v. Navassa Phosphate Company (119 N. Y., 256).
      In that case Lawton, who made the note, was not only president and treasurer of the company but also its general manager in the city of New York, where he had sole charge; the company had no cash capital, and for eight or nine years Lawton had managed its business by the issue of notes, and his transactions were entered on the cash-book and check-book. At the annual meetings held in New York, Lawton made a report to the directors, and laid the books before them. They looked them over, not critically, perhaps, but to some extent, and spread upon them was the truth of what Lawton was doing. The court say:
      “ The real difficulty which beset it, and which produced its defeat in the courts below, was in establishing that the directors knew that he was creating obligations against the company, and gave him authority by acquiescing in its exercise. But the circumstantial evidence, although by no means conclusive, tends to establish that knowledge. The directors knew that the business of the company was being carried on at New York by Lawton; that in the absence of cash capital it must have been done with borrowed money; and, therefore, that Lawton was creating obligations against the company which it would be called upon to reimburse. They knew too that no one of them had given a written consent to him as treasurer to create obligations, and so they must have understood that, to a greater gr less extent, lie was 'borrowing- money on the credit of the company, either acting as treasurer without the written assent, or acting as president without a specific authority expressly confei-red; to either process they assented by silent acqui'escence, and, while ignorant of details, it may well be urged that they were not ignorant of the material and fundamental fact.”
      There is a conflict of evidence as to whether the issue of notes by Allen was known to the directors other than Sheldon. Allen swears that he told Mr. Sewell, and Sewell emphatically denies it.
      The plaintiff claims that the proof is conclusive that Allen’s conduct as treasurer was known to the officers and a majority of the trustees of the defendant, and that they consented to it; that the by-laws show that the company expected to borrow money and issue notes in order to carry on its business, and that soon after Sheldon succeeded Allen as treasurer he reported to the hoard April 20,1887, that “in order to meet the requirements of the company for money and discharge its liabilities, the treasurer has been obliged to borrow the necessary amounts and obligate the company for the payment of the same.” Mr. Sewell admitted that Sheldon, whom he had deputized to represent him and the other trustees in relation to the financial management of the company, and who was actively engaged ■in the issue of the company’s notes, consulted constantly with him (Sewell) and Pierce in regard to the company’s affairs, and neither Sheldon or Pierce were called as witnesses to contradict Allen’s statements that they knew all about the matter.
      Plaintiff further claims that it is more than unlikely that Sheldon would have gone so far as to indorse a note in’the name of his firm without the knowledge and assent of his partners, and contends that Sewell was, to say the least, mistaken in his testimony that he was ignorant of the matter. I think that the rule, that where evidence would have weight in determining a disputed question of fact is withheld by the party who has control of it, the presumption is that the evidence, if produced, would be beneficial to his adversary, can be faiifiy applied here, and that the case is, therefore, brought within the scope of the decision in Fifth National Bank v. The Navassa Phosphate Company. The defendant claims, how. ■ever, that if the directors received notice of the issue of the notes the information did not charge the corporation, because it was not communicated to and received by them in the course of the business of the corporation.
      If this contention means that notice to members of a board when not in session is not information coming to them as officers of the company, I know of no authority to support it. A director or officer may be fully engaged in the business of the company when not present at a meeting of the board.

        We liave seen that the directors of this company held no meetings -whatever during the years 1885 and 1886, hut Mr. Sewell, when asked whether the directors of the company performed any services during those years, replied that he performed services and so did Mr. Hopkins, Mr. Sheldon and Mr. Pierce; and being asked what duties they performed, he replied that they consulted with him on the affairs of the company, advised and talked over matters.
      It is evident, therefore, that the mode in which the directors of this company chose to perform their duties as such, was not by holding formal board meetings, but by meeting together and consulting with the president, and if notice came to them while so engaged it must have been received while they were acting for the company.
      The defendant also claims that the individual action of the directors, in assenting to the issue of the notes, was not binding upon the corporation, upon the authority of Peoples’ Bank v. St. Anthony's Roman Catholic Church(109 N.Y., 512).
      It is true that in that case the court said : “Trustees of a corporation have no separate or individual authority to bind the corporations, and this, although the majority or the whole number acting singly and not collectively as a board should assent to the particular transaction,” but although this may be true concerning a religious corporation, whereof the statute creating it prescribed that the only method in which it could act at all was by the act of “ a majority of the trustees being lawfully convened.” I do not understand that the doctrine applies to business corporations having more general powers.
      But I think the plaintiff’s cause does not depend upon a preponderance of proof as to whether the directors knew of the issues of the notes, and if so, whether they knew of it as individuals or as officials. It can rest upon a broader ground, namely, that Allen, during his whole term of office, was not only the treasurer but the company itself. The directors had voluntarily resigned to him the -whole management of affairs, and this demanded the raising of money. The board never met to supervise his conduct, to learn the condition of the company, and to give him such authority as the by-laws directed and the emergency required in order to raise this money. The by-laws demanded that notes should be countersigned by the president, but the president refused to talk with Allen and appointed a representative for that purpose — the former treasurer of the company — who, instead of stopping Allen’s unauthorized proceeding, became an active partner in it. The defendant’s counsel, in his able argument, claimed that this was the result of the Hopkin’s agreement; that Allen issued these notes in order to finance the obligations therein set forth, but that in so doing he was acting as the representative of the parties thereto and not as the treasurer or manager of the defendant; that there was no necessity to borrow money for the defendant and that his actions in so doing without authority of the hoard were not binding upon the company.
      The answer to this is twofold. Among the obligations assumed by the Hopkins agreement were some of the company itself, and both Sewell and Allen testified that certain of the company’s creditors were urgent. To save the company, money had to be raised by some means. If Allen, as an individual, had engaged to do this, either wholly or in part, and, as an individual, had failed to carry out his contract, while this might give Hopkins or the company a claim against him for damages, it could not remove the company’s present necessities nor the emergency which called upon the treasurer to raise money for the company’s needs. And Allen’s testimony shows that there was need of money to meet the current expenses of the company.
      But another answer is this: The Hopkins contract was, by its terms, a secret agreement. No one was to know that the man, who had created the company built the water-works and owned the far greater part of the stock and bonds, was to sell out the enterprise to a legal firm in this city. No one was to know that upon his command the directors in the company were to resign their offices unconditionally in order that such persons as this firm might name should fill their places, and no one, except the parties concerned, did know that these new directors and officers did not fulfill any of their duties, except to meet in the president’s private office and talk over its affairs, while its actual business was wholly left in the hands of its treasurer.
      On the other hand, the public did know that for more than a year before the issue of the note in suit similar notes had been issued apparently by this company, sometimes with the indorsement of the banking firm who had been declared-in the pamphlet published under the direction of its president to be the company’s bankers; that these notes, as they matured, were promptly met so that the company’s credit was good; that the interest of its bonds was paid; that the bonds themselves were sold in large quantities, and that all this was done by one man, the treasurer of the company.
      Can it be said that as to third parties a course of dealing was not established which would justify the belief that the issue of these notes was valid?
      It was within the defendant’s power as a business corporation to issue notes; this could be done only through its officers, and the treasurer was apparently the proper officer to act in the matter. (Beers v. Phœnix Glass Co., 14 Barb., 358;
        Bank of Utica v. Pottier & Stymus Mfg. Co., 17 N. Y. St. Rep., 327; Fay v. Noble) 12 Cush., 1.) But Mr. Allen was more than a mere treasurer. He was announced to the world as the company’s banker, and was suffered to have full control of its financial affairs, and his conduct as such, within the scope of the business, binds the company, whether or not the directors knew of it at the time or ratified it afterwards. (Kraft v. Freeman Printing, etc., Association, 87 N. Y., 628; Fifth Nat. Bank v. Navassa Phosphate Co., supra; Caldwell v. Nat. Mohawk Valley Bank, 64 Barb., 342; National Park Bank v. German Am. M. W. and S. Co., 53 Supr., 367.,
      In a case befor the Court of Errors and Appeals of New Jersey, in 1886, the court held:
      “There are cases in which the powers of an officer of a corporation and his authority to act for the company, are enlarged beyond those powers which are inherent in his office. But those are cases in which the agency of the officer has arisen from the assent of the directors, presumed from their consent and •acquiescence in permitting the officer to assume the direction and control of the business of the company. Thus, when, in the usual course of the business of a ■corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to transact its business. These are dimply instances of the application of the principle that usual employment is •evidence of the powers of an agent, and a responsibility will be laid upon the principal for the acts of his agent, within the apparent authority so conferred upon the agent, a doctrine which has come to be applied to corporations in many respects ¡as well as to individuals, and with the same qualifications and limitations. In ¡such cases the authority of the officer does not depend so much on his title, or on ¡the theoretical nature of his office, as on the duties he is in the habit of performing.” (Stokes v. N. J. Pottery Co., 46 N. J. Law, 242; Martin v. Webb, 110 U. S., 7; Com. Mat. Marine Ins. Co. v. Union Mat. Ins. Co., 19 How. [U. S.], 318; Mining Co. v. Anglo-Cal. Bank, 104 U. S., 192; Taylor on Corporations, §§ 202, 236, 244; Angell & Ames on Corporations, §§ 229, 302.)
      “The trial judge charged the jury that neither the charter nor the by-lavra gave Boice, as treasurer, express power to borrow’money and give the company’s notes ■•and make a pledge of its securities for the payment thereof, nor was such power ’invested in him as treasurer virtute officii, but that if Boice was held out by the ’managers of the company in general course of dealings as agent of the company with such authority, his acts as to such agent were binding on the company, and that question the judge submitted as a question of fact for the determination of the jury.”

        And tlie court held that this instruction to the jury was proper.
      In the case of New York and New Haven Railroad Company v. Schuyler (34 N. Y., 58), the court say:
      ,“It is transparent throughout the case, that the hoard of directors, hy passive submission or active surrender, handed over to Schuyler the substance of all their authority relating to their business in New York, and then for nearly seven years laid down to sleep in supine indifference at his feet. Aroused by the shock of the calamity which their folly has induced, are they now to look calmly over the wreck with no answer to its innocent victims but that of Macbeth to the ghost of Banquo ?
      If the managers faithfully perform their duty,’ said Strong;, J., in Beers v. Phoenix Glass Company (14 Barb., 360), ‘ they exercise a constant and vigilant supervision over the acts of their officers, and where such acts are unauthorized, or in opposition to their will, they should, and probably do direct their discontinuance, and in case of willful and palpable violation of duty, dismiss the agent. If the directors of a company, no matter whether through inattention or otherwise, suffer its subordinate officers to pursue a particular line of conduct for a considerable period without objection, they are as bound to those who are not aware of any want of authority as if the requisite power had been directly conferred.’ ”
      The fact that the notes were not in the form required by the by-laws, and were issued without a previous direction of the board of directors, did not necessarily make them invalid. In a late case (Rathburn v. Snow, 123 N. Y., 343), the Court of Appeals held:
      “ Third persons may act upon the apparent authority conferred by the principal upon the agent, and are not bound by secret limitations or instructions qualifying the terms of the written or verbal appointment, that the defense based upon the limitation in the by-laws of the company, of which the plaintiff had no knowledge, cannot be sustained. By-laws of business corporations are, as to third persons, private regulations binding as between the corporation and its members or third persons having knowledge of them, but of no force as limitations per se as to third persons, of an authority which, except for the by-laws, would be construed as within the apparent scope of the agency. (Fay v. Noble, 12 Cush., 1; Bank v. Smith, 19 Johns., 115; Smith v. Smith, 62 Ill., 493; 2 Mor. on Cor., § 593, and cases cited.)” (See, also, Martin v. Niagara Nalls Paper Co., 44 Hun, 130; Walker v. Wilmington C and A. R. Co., 1 So. E. Rep., 366.)
      The plaintiff is not affected by the limitation of defendant’s power to contract debts under its by-laws or the laws of Iowa. (Bissell v. Mich. So. R. R. Co., 22 N. Y., 259; Curtis v. Leavitt, 17 Barb., 312; Steam Nav. Co. v. Weed, Id., 378.)
      And upon the whole case I am of the opinion that the plaintiff is entitled to Judgment.

   O’Beieet, J.:

As stated by tbe referee in Ms opinion, this action is brought upon a promissory note, which reads as follows:

“ $5,000. New YoeK, Nov. 23d, 1886.
“Four months after date we promise to pay to the order of Allen & Stead five thousand dollars at the treasurer’s office, 44 Broadway, New York. Yalue received.
“ COUNCIL BLUFFS CITY WATER-WORKS CO.,
“HeNey AlleN, Treasurer.”

It was indorsed by Allen & Stead and sent by Allen to one Bradford, a person in Providence, Rhode Island, who claimed to have facilities for obtaining the discount of mercantile paper. Bradford took the note in December, 1886, to plaintiff at Providence, Rhode Island, and asked for a loan upon it. Plaintiff, remembering that a bank, wherein he was a director, had discounted such a note for Bradford, got that note from the cashiey and compared it with the one in suit and found them similar in form, and the president of that bank also told him there was another such note held by a savings bank in Providence, and that it was a good loan. Plaintiff, therefore, lent to Bradford $4,500 on the note, and he sent $2,500 to Allen, the maker, who entered the fact of the issue of the note and the receipt of the money on the books of Allen & Steadin an account therein kept as the Council Bluffs Water-works account, and he testified that lie applied the proceeds to that company’s use.

The questions presented for review are, whether the defendant corporation is liable upon the note, and, if liable, to what extent %

Upon the former, as to defendant’s liability, we might content ourselves with resting the case upon the reasonings contained in the opinion of tbe learned referee, wbicb, upon tbe evidence, disposed of tbe defenses that plaintiff is not a tona fide bolder for value, and that tbe note 'in suit was issued without authority of tbe defendant and was not its obligation, and points out tbe distinction between this case and that of First National Bank of Middletown v. This Same Defendant (56 Hun, 412). It is not claimed that tbe evidence is insufficient to support tbe findings of fact made by the referee, and upon such evidence we think he has correctly interpreted the decisions and drawn, correct legal conclusions.

lie finds that during the period from sometime in the month of October, 1885, to February 27, 1887, Iiarry Allen, as treasurer of the defendant corporation, made and issued in the name of the defendant, and to which the name of the defendant was signed by himself as treasurer thereof, some forty or fifty promissory notes, to the order of, and indorsed “Allen & Stead,” which were negotiated, and money obtained thereon ; that the reason for the making of such promissory notes to the order of Allen & Stead was that they were acting as the financial agents of the defendant, and it was to give additional credit to such notes, the credit of the corporation itself being poor; and, although the by-laws of the defendant required the countersigning by the president, none of these notes so issued was so countersigned; that the note in suit was, in form, similar to these others; that during all this period, with the exception of one in May, 1886, no meetings of the board of directors were held, and at the one meeting no business was transacted other than the re-election of officers of the defendant; that Allen, though he sought to consult and advise with the president of the corporation, was referred to the latter’s law partner, who was also a director in the corporation; that none of the officers or directors used or exercised any official supervision over Allen or his acts and transactions as treasurer, except the director who was the president’s law partner, and who, it would appear, was not only consulted with respect to the making of the promissory notes,, and the obtaining of money thereon, but concurred in the very beginning with the making of such promissory notes; that further, he not only advised the making and. issuing of such notes from time to time, but personally indorsed a large number of them, and one with the name of his firm, of which the president was a member.

A review of the evidence supporting these findings will sustain the referee and justify his conclusion that Allen was practically the corporation, and that the case is brought within the principle laid down in Fifth National Bank v. Navassa Phospate Company (119 N. Y., 256), because he was not only the treasurer of the defendant, but, as said in that case, he was consciously invested by the company with the broad general power inseparable from the position in which it placed him as the sole manager of its affairs at its principal place of business.” Acting, therefore, within the apparent scope of the authority conferred upon him by the corporation, the latter is charged with liability, irrespective of the question of •authority in fact. It would serve no useful purpose to traverse the •grounds so carefully gone over by the learned referee, it being suiB- ■ cient upon this branch of the case to say that we concur in his ■ reasoning, and in the conclusion reached.

The question, however, as to the extent of the defendant’s liability, remains to be considered. This note in suit, as shown, was delivered ¡as collateral security to a loan of $4,500 made by plaintiff to one Bradford, under an agreement that the loan was to be paid in a few days witlx interest at the rate of five dollars a day until such time as the loan was paid. If the recovery upon this note were to include the $4,500 and interest as agreed upon, then it would amount to more than the principal and interest upon the note itself.

But the appellant insists that neither of these, measure the extent, if answerable at all, of defendant’s liability, but that all that plaintiff can claim is the $4,500 advanced on the faith of defendant’s note, with interest thereon from the date of the loan, at the rate of six per cent. In Todd v. Shelbourne (8 Hun, 512) it was held “ that the indorsee of commercial paper, not valid as a legal obligation in the hands of the payee negotiating it, must be restricted in his recovery to the value with interest advanced by him to the payee upon the faith of it.” This and other cases are authority for the proposition that where a negotiable instrument is not enforceable between the parties a bona fide holder can only recover what he or some prior holder through whom-he derived his title paid for it, with interest. (Randolph on Commercial Paper, § 994.) Taking the facts here, we think that this note was not valid as a legal obligation in the hands of the payee negotiating it or in the hands of Bradford who delivered it to the plaintiff as collateral security for a loan made by him, but that when transferred to the plaintiff it became, in his hands, a legal obligation against the defendant, but only to the extent of what was advanced upon the faith thereof. We-think the principle of the eases, which, under such circumstances would prevent a profit being made out of the transaction, is applicable, and that, while the plaintiff is entitled to protection to the extent of the moneys he advanced and legal interest from the date of the loan, he cannot recover either the face value of the note, with interest thereon, nor the amount loaned, with interest at the rate agreed upon by Bradford of five dollars a day. The difference, however, in the amount is easily computed, and, when ascertained, should be deducted from the judgment, and. the judgment, as so modified, should be affirmed, without costs.

YaN BküNT, P. J., and Follett, J., concurred.

Judgment modified as directed in opinion, and, as modified, affirmed, without costs.


author: Mayham, P. J.:

text:
    ELIZA BABCOCK, as Administratrix, etc., of FRED BENNETT, Deceased, Respondent, v. THE FITCHBURG RAILROAD COMPANY, Appellant.

      Negligence — escape of spa/rhs from a locomotive — extent of the rule requiring use of approved appliances.

    The rule of law applicable to cases of an injury caused by the escape of sparks from a railroad locomotive is that the railroad company is negligent if it does not adopt the most approved modes of construction and machinery in known use in the business, and the best precautions in known practical use for securing safety, and that if there is known and in use any apparatus which, applied to an engine, will enable it to consume its own sparks and thus prevent the emission of them, and the consequent ignition of combustible property, that a company is negligent if it does not avail'itself of such apparatus, but it does not require the company to use every possible precaution which the highest scientific skill might suggest, or to adopt an untried machine. Such rule is not confined to the case of persons having contractual relations with the company, but extends to the case of strangers and the general public whose property or persons may be injured by fire emitted from a locomotive.
    Appeal by the defendant, the Fitchburg Railroad Company, from a judgment, entered in the office of the clerk of Rensselaer county on the 18th day of October, 1892, on a verdict for -$3,000, in favor of the plaintiff, rendered at the Rensselaer County Circuit, and from an order denying a motion for a new trial made on the minutes, entered in said clerk’s office October 5, 1892.

      T. F. Hamilton, for 'the appellant.

      M. I. Townsend, for tbe respondent.
   Mayham, P. J.:

This is an appeal from a judgment entered upon a verdict in favor of the plaintiff.

The action was for the alleged negligence of the defendant in the use of a locomotive engine upon its railroad, from which sparks were emitted, which, it is alleged, ignited powder in a powder mill in which plaintiff’s intestate was employed, thereby causing his death. This case was before this court at a former term on an appeal from a judgment entered upon an order of the trial judge dismissing the plaintiff’s complaint. (46 N. Y. St. Rep., 796.)

The evidence on that appeal is, so far as we can discover, in all respects like that contained in the record on this appeal, and this court then reversed the judgment and ordered a new trial on the ground that there were two questions of fact which should have been submitted to the jury; one whether the spark-arrester on the smoke-stack of the defendant’s locomotive employed in drawing the train of cars up the grade past the powder mill, where plaintiff’s intestate was employed, was reasonably safe and suitable for the use to which it was applied, and whether there was not another and more safe smoke-stack and spark-arrester, disclosed by the evidence to be in use by railroad companies and which the defendant, in the exercise of reasonable care, bould and should have used, and thus minimize the danger to combustible material along its railroad. The other question for the jury was whether the sparlc*from defendant’s locomotive ignited the powder and thus produced the explosion which caused the death of plaintiff’s intestate.

This court then adopted and applied to this case the rule laid down by the Court of Appeals in the case of Steinweg v. The Erie Railway Company (43 N. Y., 123.)

It is now urged by the appellant that this court misconceived the-effect of that decision; and that as in that case contractual relations-existed between the plaintiff and defendant, the defendant owed a higher duty to the plaintiff to adopt the best and safest machinery and appliances reasonably attainable, than was required of the-defendant in this case towards the plaintiff’s intestate.

No authority is cited by the learned counsel for the appellant to sustain that proposition.

"While it is true that the case of Steinweg v. Erie Railroad Company was one between consignor and carrier, yet the cases referred to by Folger, J., in delivering the opinion were those arising between railroad companies and strangers whose property was damaged by fire dropped from a locomotive. (Field v. N. Y. C. R. R. Co., 32 N. Y., 346.)

Nor do we see how the contractual relation between a bailor and carrier increases the obligation of the carriers beyond that which they owe to the general public, to guard against damage by fire; a carrier is liable for loss by negligence, not by virtue of any contract against negligence. (Atlantic Ins. Co. v. McLoon, 48 Barb., 27.) In the absence of authority to the contrary, we see no reason for holding a railroad company to a greater degree of care in furnishing safeguards against the escape of fire to the-injury of its patrons than they should exercise towards the public, whose lives and property are equally exposed to injury from its. negligent escape.

On the question as to the origin of the fire which produced the-explosion, the jury found with the plaintiff, and we think their finding cannot be disturbed as unsupported by evidence. The question of negligence of the defendant in the case under consideration was. one clearly raised by the evidence and fairly submitted by the learned trial judge to the jury, and we see no error committed by him either-in the reception or rejection of evidence, or in his charge or refusals. to charge. Nor was his refusal to set aside the verdict on the motion of the defendant error.

The judgment and order must, therefore, be affirmed, with costs»

HebbicK, J., concurred ; PutNAM, J., concurred.in result.

Judgment affirmed, with costs.

       The rule referred to in the opinion as that laid down in Steinweg v. Erie Railway Company (43 N. Y., 123), and adopted by the General Term on the former appeal in the present action, is thus stated by the Court of Appeals in its opinion:
      ‘ The rule of law is that the appellant was guilty of negligence if it adopted not the most approved modes of construction and machinery in known use in business, and the best precautions in known practical use for securing safety. If there was known and in use any apparatus which, applied to an engine, would enable it to. consume its own sparks and thus prevent emission of them, to the consequent ignition of combustible property in the appellant’s charge, it was negligent if it. did not avail itself of such apparatus. But it was not bound to use every possible prevention which the highest scientific skill might have suggested or to adopt an. untried machine or mode of construction.” [Rep.


text:
    CORDELIA HARTWELL, Respondent, v. HALLECK YOUNG, Appellant.

      Statute of fra/uds — contract for services — part performance — abandonment by employee — recovery on quantum meruit — Justice’s Court —pleadings.

    A verbal contract for services for one year to commence in futuro, void under the statute of frauds, which has been entered upon and partly performed by the employee, and which does not involve the investment of capital further than the mere compensation for services, can be treated by the employee as void so that he may abandon performance without any fault of the employer and recover, upon a quantum meruit, for the services rendered with the permission of the employer upon the theory of an implied agreement that the employer will pay for such services what they are fairly and reasonably worth.
    The rule which requires the statute of frauds to be pleaded in order to be available as a defense, or to uphold a cause of action, does not apply to Justice’s Court pleadings.
    Appeal by the defendant, Halleck Young, from a judgment of tlie Ulster County Court, in favor of the plaintiff, entered in the office of the clerk of Ulster county on the 11th day of April, 1892, upon the report of a referee.

      JEldorous Dayton, for the appellant.

      F. A. Westbrooh, for the respondent.
   Mayham, P. J.:

This is an appeal from a judgment entered upon the report of a referee. The action was originally in a Justice’s Court and from the judgment rendered therein an appeal was taken to the County Court for a new trial in that court where the same was referred to a referee from the judgment on whose report this appeal is taken.

On. the trial before the justice it was objected that the court had no jurisdiction of the parties on the ground that neither the plaintiff or defendant resided in the town where the action was commenced or in an adjoining town in the same county as required by section 2869 of the Code of Civil Procedure.

The same question was raised before the referee and upon the proof on that subject the referee held that the justice had jurisdiction. We think the finding and determination of the referee on the question of plaintiff’s residence was sustained by the evidence and that the exception to the report on that point was not well taken. Nor do we think there was any error committed by the referee in the receipt or rejection of evidence for which this judgment can be reversed. The original complaint before the justice was for work, labor and service rendered and performed by the plaintiff and her infant son for the defendant.

The amended complaint in the County Court did not materially change the nature of the claim from that made before the justice. The answer of the defendant alleged, among other things, that the services of the plaintiff were rendered under a special contract by which the plaintiff was to work for the defendant for one year and that she quit said service before the expiration of the agreed time. Also that on the 20th of December, 1890, the plaintiff contracted and agreed with the defendant to work for him for one year from December 20, 1890, and that the plaintiff quit such service before the expiration of the agreed time to the damage of the defendant of seventy-five dollars, and demands judgment against the plaintiff for that amount.

The referee found that two or three days before December 20, 1890, the plaintiff and defendant made a verbal contract whereby the plaintiff and her infant son were to work for the defendant for one year from December 20, 1890, for the sum of $260.

That the plaintiff and her son worked for defendant from December 20, 1890, until May 16, 1891, when they quit the service of the defendant. That they worked twenty weeks, and that their services were reasonably worth five dollars per week, being $100, and that the defendant had paid the plaintiff sixty dollars for such services, leaving unpaid and still due forty dollars. The referee also finds, as a conclusion of law, tliat tlie verbal contract was void by the statute of frauds, and that plaintiff was entitled to recover on a quantum meruit for the value of the services of the plaintiff and her son for the time that they actually worked. The defendant excepted to this conclusion of lawj and upon this exception the principal contention in this case arises.

The question fairly presented by this exception, is whether a contract for services for one year to commence infutwro, which has been entered upon and partly performed by tlie employee, can be treated by such employee as void, so that such employee may abandon performance without any fault of the employer, and recover for tlie services rendered upon a quantum meruit, upon the theory of an implied agreement, that the employer will pay for such services what they are fairly and reasonably worth.

Clearly, the contract proved in this case and found by the referee, could not be performed within one year from the time it was made, and as it was not evidenced by any writing signed by the party .to be charged, was, within the statute of frauds, void. (3 R. S. [7th ed.], 2327, § 2.)

It was not, therefore, a contract which could be enforced by either party, and no action would lie for its breach. If, on the 20th day of December, 1890, the plaintiff had entered upon performance and the defendant had refused her and her son employment, she could not have maintained an action for a breach of the contract, and, on the other hand, if the defendant had demanded performance, and the plaintiff had refused, no action would lie for such refusal.

In Billington v. Cahill (20 N. Y. St. Rep., 615) the court held that an oral agreement to work for one year, made in the month of March to commence on the first day of the next April, was void under the statute of frauds, and that no action would lie. on such agreement by the employee against the employer for the discharge of the plaintiff, without any reason, before the expiration of the year. In William Oddy v. John B. James (48 N. Y., 685) it was held that: “ When a verbal agreement is entered into for work and labor, of one of the parties for a year, to commence in futuro, an entry upon the employment with the acquiescence of the employer, but without a new contract, does not take the case out of the statute of frauds, and the employer is not liable under the contract.” In Shute v. Dorr (5 Wend., 204) it was beld that: “A parol agreement by a parent, that liis cliild aged sixteen years shall serve a, third person until he arrives at the age of twenty-one years, when his master is to pay him $100, is within the statute of frauds, but if any services are rendered under such contract, there may be a recovery of the same upon a quantum meruit? It is true, that in the case last cited, the contract provided for its termination before the end of the time if the boy became dissatisfied. But the court held that the plaintiff might recover upon a qioantum meruit. Upon the ground either that the special contract was void under the statute of frauds, or that it had been terminated and abandoned by the parties.

In Turnow v. Hochstadter (7 Hun, 80) it was held that a verbal contract made in February to work one year from the following May was void under the statute, and that a partial performance did not take it out of the statute, and that in an action brought upon the void contract it was proper to allow the plaintiff to amend his complaint so as to allow a recovery for the value of the services actually rendered.

But it is insisted by the appellant that, before the plaintiff can recover in this action upon a quantum, meruit, arising out of an implied promise by the defendant to pay what the work done under this void agreement was worth, she must show that she was willing to perform the agreement in its entirety on her part, and that the reason of her failure to do so was some act of the defendant, and in support of that proposition he cites Galvin v. Prentice (45 N. Y., 162).

That was a case where the plaintiff contracted to work for the defendant for three years in learning the business and trade of hatter, and the price was graduated by the year, based upon the supposed proficiency which was made by the plaintiff, and for the third year he was, by the terms of the contract, to receive full journeyman wages. At the end of the second year he abandoned the contract. On the trial the plaintiff was permitted to amend the complaint SO' as to claim upon a quantum meruit for the services, and the only exception taken at the trial, and which was reviewed on appeal, was to the charge of the trial judge, in which he instructed the jury that “the contract, although void, might be considered prima faeie evidence of the value of the services.” To this part of the charge tbe defendant excepted, and that exception alone was presented on the appeal, so that whatever was said by the learned judge outside of that exception was obiter, and can scarcely be regarded as an authority on the questions raised here.

None of the cases cited by the learned counsel hold that, where labor is performed under a void contract, that the employee must perform the entire labor required by such void contract before a recovery can be had for the work actually performed.

In Erben v. Lorillard (19 N. Y., 302), one of the cases cited on this point in Galvin v. Prentice, Grovee, J., in discussing the question of contracts void by the statute of frauds, uses this broad language: The contract being void and incapable of enforcement in a court of law, the party paying the money-or rendering the services in pursuance thereof, may treat it as a nullity and recover the money or the' value of the services. * * * When the agreement fixing the compensation is void, it furnishes no evidence of value. The parties are presumed to know the law. and to understand that such compensation cannot be recovered. Their position is the same in a legal view as though no agreement had been made in fact as there has been none in law.”

This reasoning of the learned judge would seem to leave the parties precisely as if no contract had been made in fact, in which case there is little doubt that the person performing the service could recover upon an implied assumpsit to pay what they were fairly worth. But it must be conceded that the authorities on this subject do not appear to be all in harmony and that this question, upon authority, is not free from doubt.

I am, however, inclined to the opinion that where parties make a contract for labor not in any way involving the investment of capital farther than the mere compensation for services and work is performed under such void contract, that a party performing such labor is entitled to recover for so much labor as he performs, with the permission or consent of the other party to such void contract.

He would, at all times* be subject to discharge from such service and his void contract would give him no immunity against the dismissal from such service; and so long as he voluntarily, with the permission of the other party, performs service to his advantage and with his implied assent there is no reason apparent, either in justice or morals, why this void contract and his failure to fulfill its terms should be interposed as a defense to his recovery upon a quantum meruit.

It is also objected by the appellant that as the question of the statute of frauds was not raised by the pleadings it cannot be available as a defense or to uphold a cause of action. (Porter v. Wormser, 94 N. Y., 450; Wells v. Monihan, 129 id., 140.)

If the technical rules of pleadings obtained in Justices’ Courts, which prevail in courts of record, this objection would be available. But in a Justice’s Court pleadings are not required to be in any particular form and parties are not held to the observance of technical rules. (Code of Civ. Pro., § 2940.) On the whole case, I think the judgment of the County Court should be affirmed.

Judgment affirmed, with costs.

PutNAM and HebbicK, JJ., concurred.

Judgment affirmed, with costs.