Borough Bank v. Lamphear — 154 A.D. 177

Majority

p. 177

Borough Bank of Brooklyn, Appellant, v. Amos Lamphear, Respondent.

Second Department,

December 6, 1912.

Headnote

Bills and notes — demand note given to pay stock subscription—use of proceeds to return fund stolen to enable corporation to begin business— consideration moving to maker—appeal—when Appellate Division will order new trial.

The plaintiff bank sues to recover on a demand note made by the defendant payable to its order. The defendant subscribed for shares of the capital stock of a trust company at the instance of one M., who was president of the plaintiff and also chairman of the organization committee of the trust company for which he solicited stock subscriptions. M. issued a receipt for full payment of the stock, which by the terms of the note was made collateral security for payment. The defendant left the note and the receipt with M., and the plaintiff loaned H. the face value of the note on the security of the same, which moneys he deposited to his account in the plaintiff bank as chairman of the organization committee of the trust company. Having made this deposit M. withdrew a sum of money from his chairman account and deposited it to an account in the plaintiff bank standing in the name of a third party to partially restore a sum of money which M. had stolen from said account and had deposited with another bank in order to make up the capital and surplus necessary to enable the trust company to begin business. Thereafter M. transferred other moneys from his chairman account to the account from which the money had been stolep.

Held, that although the identical money advanced by the plaintiff on the security of the defendant’s note was not directly paid to the trust company on the defendant’s stock subscription, the trust company had received the benefit of it, and that the plaintiff’s payment to M.’s chairman account on the credit of the defendant’s note constituted a consideration for the note so as to render the defendant liable thereon;

That the Appellate Division in reversing a judgment for the defendant entered by direction of court should not direct final judgment for the plaintiff but should order a new trial.

Appeal by the plaintiff, the Borough Bank of Brooklyn, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Kings on the 24th day of June, 1909, upon the verdict of a jury rendered by direction of the court, and also from an order entered

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in said clerk’s office on the 7th day of June, 1909, denying the plaintiff’s motion for a new trial made upon the minutes.

Edward M. Grout [James F. McKinney with him on the brief], for the appellant.

Conrad Saxe Keyes [T. Ellett Hodgskin with him on the brief], for the respondent.

The action is to recover on a demand note executed and delivered by the defendant to the plaintiff for the sum of $2,000. On October 9, 1907, the defendant was induced to subscribe for ten shares of the capital stock of the International Trust Company by one Howard Maxwell, who at that ■time was both president of the plaintiff and chairman of the organization committee of the trust company, in which latter capacity he was intrusted with the duty of soliciting subscriptions for stock. The defendant executed the demand note in question for $2,000, the price of the stock, and the note was made payable to the order of the plaintiff. Thereupon Maxwell issued and delivered to the defendant a receipt in full payment of ten shares of the capital stock of the trust company, which receipt expressly provided that it was exchangeable for engraved certificates of stock when the same should be completed. The demand note was in form a collateral note, stating that the security therefor was the ten shares of trust company stock subscribed for by "the defendant. The defendant left the note and receipt with Maxwell, who took them- to the plaintiff bank, which loaned $2,000 on security of the same. That money was deposited to the account of Howard Maxwell, chairman, the same being an account kept by Maxwell in the plaintiff bank as chairman of the organization committee of the trust company.

On the day that this deposit was made Maxwell withdrew $105,000 from his said chairman account and deposited it to the credit of an account in the plaintiff bank standing in the name of Oarrie M. McGuire. His action in so doing was owing to the fact that theretofore the sum of $145,000 had been stolen from the McGuire account and deposited by him with the

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Oriental Bank in order to make up the full amount of the capital and surplus necessary to enable the trust company to begin business. Subsequently to the repayment of this $105,000 to the McGuire account, Maxwell transferred $12,000 from the chairman account to the McGuire account in further partial reimbursement of his misappropriations, leaving a balance in the chairman account of only $900. The defendant has never demanded his ten shares of stock in exchange for the temporary receipt.

The learned trial justice directed the jury to find a verdict in favor of the defendant, on the sole ground that there had been no consideration moving to the defendant on the note. This, I think, was error. Since the decision and entry of judgment herein, the First Department of this court has passed upon certain facts growing out of the organization of the International Trust Company, in the case of Higginbotham, v. International Trust Co. ( 141 App. Div. 535 ). That was an action to recover money paid Maxwell by the plaintiff as a subscription to' the trust company’s capital stock. It appeared that Maxwell had used such money in precisely the same manner as he employed the $2,000 in the case at bar, namely, to partially reimburse the McGuire account for his previous withdrawals therefrom on behalf of the trust company. The court reversed a judgment dismissing the complaint, and held that it was immaterial that the identical money paid by the plaintiff to Maxwell had not been received by the trust company, in view of the fact that such money had been used to replace money of which the trust company had received the benefit and for which it was liable. Mr. Justice Miller, writing for the majority of the court, said (p. 539): “It is of no consequence that the identical money collected on the plaintiff’s check did not reach the defendant. The money which was first stolen went into the defendant’s treasury, and the defendant received the benefit of it. If that theft had not been made good the defendant could have been compelled to repay the sum stolen. Maxwell repaid it by using $117,000 of the money received by him in payment for subscriptions to the defendant’s stock. How the other $28,000 was refunded is now of no consequence. Thus the defendant’s liability was

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discharged in part with the plaintiff’s money, and. it seems to me that it is refining altogether too much to say that the defendant did not have the benefit of that money. If it had in fact gone .directly into the defendant’s treasury the case would be plain.. That was the result of the transaction if regard be had to substance rather than form.”

I think that the same rule must apply in the case at bar, and that the fact that the money advanced by the plaintiff on the security of the defendant’s note was not directly paid to the trust company is immaterial in view of the fact that the trust company has received the benefit of it. Upon these facts the trust company could be compelled to deliver the ten shares of stock to the defendant or to restore the purchase price thereof, and, therefore, the payment by the plaintiff to Maxwell’s chairman account on the credit of defendant’s note and receipt has resulted in some benefit to the defendant and constitutes a sufficient consideration for the note'.

The. appellant asks to have final judgment directed in its favor on this appeal. As additional evidence might throw other light on the questions of over-subscription and its real relation to the transaction, the proof of over-subscription not being as clear -and strong as it might be, and also knowledge on the part of the plaintiff beyond that which has been assumed because of Maxwell’s dual capacity, I think a retrial should be had.

The judgment and order should, therefore, be reversed and a new trial granted.

Jenks, P. J., Burr, Thomas and Carr, JJ., concurred.

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