Bangs v. National Macaroni Co. — 15 A.D. 522

Majority

p. 522

L. Bolton Bangs, Respondent, v. National Macaroni Company, Appellant.

Headnote

Corporate notes, issued in contemplation of insolvency, how avoided—evidence of authority to make a corporate note.

The fact that certain promissory notes given by a defendant corporation were executed by it in contemplation of insolvency and with an intent to prefer the payment of a debt due from it to its officers, is no defense in an action brought by the holder of the notes to enforce the maker’s liability thereon. Relief against such a preference must be had either by a motion or by an action brought by the receiver of the corporation to set aside the lien of the judgment or of the execution issued thereon.

p. 523

Proof that a promissory note purporting to be made by a corporation was signed by its president and secretary, does not show that it was the note of the corporation, or prove that it was made by its authority.

The by-laws of a corporation, containing a provision that the treasurer may incur indebtedness in the regular course of business for supplies and merchandise to a limited amount, do not authorize that officer to issue promissory notes for such indebtedness, and in order to establish the liability of the corporation upon notes so given, it is necessary to show either acquiescence or ratification by the trustees of the power assumed by the treasurer to issue them, or such a course of dealing hv that officer, and such negligence on the part of the trustees, as would estop the corporation from denying the treasurer's authority. Evidence that the only benefit derived by the corporation from the notes in suit was the satisfaction and discharge of similar obligations of the corporation to other parties, as it is insufficient to show any liability of the defendant on the notes retired, does not prove that the corporation received any benefit from the notes issued to retire them.

Appeal by tbe defendant, the National Macaroni Company, by Frank Adams Acer, its ancillary receiver, and Frank Adams Acer, ancillary receiver of the defendant, the National Macaroni Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 29th day of June, 1896, upon the verdict of a jury directed by the court, with notice of an intention to bring up for review upon such appeal an order entered in said clerk’s office on the 13th day of July, 1896, denying the defendant’s motion for a new trial made upon the minutes.

This appeal was transferred from the first department to the second department. ’

Ferdinand E. M. Bullowa, for the appellant.

George W. Wickersham and George Coggill, for the respondent.

The action was brought to recover the amount of two promissory notes alleged to have been made by the defendant. The answer, in substance, denied the authority of the defendant’s officers to make the notes, and set up that the notes were made and delivered while the defendant corporation was insolvent, with intent to prefer the payment of certain debts due from it to its officers.

As to the second defense, that the notes were executed in contemplation of insolvency and for the purpose of giving preference,

p. 524

we have held in the case of Welling v. Ivoroyd Co. ( 15 App. Div. 116 ) that these facts do not constitute a defense to the action, and that relief against such preference, if illegal, must be had either by a motion or by an action brought by the receiver to set aside the lien of the judgment or of the execution issued thereon.

. As to the first defense, we think that the plaintiff failed to establish authority in the defendant’s officers to execute the note in suit. " Proof that a promissory note, purporting to be made by a corporation, was signed by its president and secretary, does not show that it is the note of the corporation, without proof that it was made by its authority.” (People's Bank v. St. Anthony’s R. C. Church, 109 N. Y. 512 ; De Bost v. Albert Palmer Co., 35 Hun, 386 .)

The by-laws of the defendant corporation were put in evidence. As we construe them, they conferred no authority to issue promissory notes, but, on the contrary, expressly forbade their execution. The exception, that the treasurer might incur indebtedness in the regular course of business for supplies and merchandise, for a sum not exceeding $1,000 in any single contract, nor in excess of $5,000 in any single month, did not authorize that officer to issue promissory notes for such indebtedness. In this state of the by-laws it was necessary for the plaintiff, in order to establish the liability of the defendant upon the notes, to show either acquiescence or ratification by the trustees- of the pqwer assumed by the treasurer to issue notes, or such a course of dealing by that officer and such negligence on the part of the trustees as would estop the defendant from denying the treasurer’s authority. (National Bank v. Navassa, Phosphate Co., 56 Hun, 136 .)

The evidence, we think, in this case is insufficient for this purpose. At most, it presented no more than a question of fact for the jury. It was, therefore, error to have directed a verdict for the plaintiff.

This case is to be distinguished from that of National Spraker Bank v. Treadwell Co. ( 80 Hun, 363 ). It was there held that the corporation was liable because it had received the proceeds of the note, although the president was without authority, under the by-laws, to make such an obligation. In this case the only benefit derived by the defendant from the notes in suit was the satisfaction and discharge of similar obligations of the defendant to other parties. In fact, the evidence shows that the money borrowed on these

p. 525

notes was loaned for the express purpose of taking up notes of the defendant on which the plaintiff’s brother, the president of the defendant, was liable as indorser.

The evidence, if insufficient to show any liability of the defendant on the notes in suit, was equally insufficient to establish any liarbility of defendant on the notes retired by the proceeds of the notes in suit. Hence, it was not shown conclusively that the defendant received the benefit of these last notes.

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

All concurred.

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

Cases cited

Welding v. Ivoroyd Manuf'g Co. 15 App. Div. 116 N.Y. App. Div. 1897-03-19 p. 524
People's Bank v. St. Anthony's Roman Catholic Church 109 N. Y. 512 N.Y. 1888-06-05 p. 524