Bade v. Ferncliff Cemetery Ass'n

The defendant Ferncliff Cemetery Association has not shown facts requiring or permitting its present directors to repudiate now the written acknowledgment of the association’s actual indebtedness to John C. Witte, executed and delivered in behalf of the association on February 8, 1904. The plaintiff, Anna C. Bade, and the defendant John C. Witte are therefore entitled to judgment upon the promise to pay contained in that instrument, according as their respective interests thereunder admittedly appear. The material facts of the case are hardly controverted, and its issues are not so intricate as counsel have made them, appear, through efforts to establish or avoid the controlling effect of the several decisions in which affairs of cemetery corporations have been under consideration. Palmer v. Cypress Hills Cemetery, 122 N. Y. 429 , 25 N. E. 983 ; Thatcher v. Hope Cemetery Association, 126 N. Y. 507 , 27 N. E. 1040 ; Seymour v. Spring Forest Cemetery Association, 144 N. Y. 333 , 39 N. E. 365 , 26 L. R. A. 859 ; Id. 4 App. Div. 359 , 38 N. Y. Supp. 726 , affirmed on opinion below 157 N. Y. 697 , 51 N. E. 1094 ; Tyndall v. Pinelawn Cemetery, 198 N. Y. 217 , 91 N. E. 591 ; American Exchange National Bank v. Woodlawn Cemetery, 194 N. Y. 116 , 87 N. E. 107 . In point of fact, leaving out, perhaps, certain observations by Judge Gray in the case last cited, I find no reported ruling that may be regarded as decisive of the present issue—certainly none adverse to liability of the defendant association upon the instrument which it admittedly uttered in attestation of a fact indubitably true.

The assumption, on the part of those now administering the affairs of the Ferncliff Association, that without judicial direction they ought not to devote its funds to defraying this obligation, is based upon a reasoned belief that the Court of Appeals, in the Woodlawn Case, has so far emancipated cemetery associations from the ordinary rules of law fixing the liability of corporations for their own acts and debts as to relieve this association from liability upon a debt and promise evidenced by a certificate of this character. The governing board of the association was perhaps justified in asking for an adjudication of their duty in the premises, but I am clear that nothing decided in the Woodlawn Case imposes on them any duty of nonpayment. In that action, the plaintiff bank sought to hold the cemetery association liable in damages for the loss which the bank sustained through the larcenous act of one Knevals, treasurer of the association. The association had undertaken to issue certificates of shares, although cemetery associations had no right or power to issue certificates of that kind or in that form. Certain of these certificates were in Knevals’ possession, signed in blank; but the association had in no way authorized him to do anything except retain them. He embezzled some of them, filled them out in his own favor, and deposited them with the plaintiff bank as security for a personal loan to him. The association, of course, received no benefit or return from Knevals’ act, and the certificates were, as against it, spurious and fraudulent, and in excess of the number of certificates the association had undertaken to authorize. The learned Appellate Division held, nevertheless, in application of the rule of New York

The bulk of the record at bar is documentary, and convenience may be served by a summary of the salient facts as found. The Ferncliff Cemetery Association was incorporated oh February 20, 1902, pursuant to section 40 (now section 60) et seq., of the Membership Corporations Law (Laws 1895, c. 559 [Consol. Laws, c. 85]). The site of its cemetery was and is in the town of Greenburg, Westchester county. Permission to the defendant to acquire and use such lands for cemetery purposes was granted by the board of supervisors of Westchester county on April 7, 1902, following the required period of the public advertising of the application, beginning on February 14, 1902. The defendant John C. Witte took an active part in the promotion of the cemetery project, the acquisition of the necessary land and consents, and the organization of the cemetery corporation. Title to the land acquired for cemetery purposes was not in the first instance taken in the name of the cemetery association. On June 5, 1902, the defendant Witte and four others, of whom at least Zebulon G. Wood and Joel Gray Barri were also incorporators of the Ferncliff Association, in which all were interested, incorporated the Ferncliff Realty Company under the Business Corporations Law (Consol. Laws, c. 4). Two days later, Ulrich Simon, the original owner of the land, conveyed it to Wood and the defendant Witte. Wood and Witte subsequently deeded the land to Witte and Henry Meyer, also an incorporator of the realty company, and Witte and Meyer deeded it to the realty company.

The statute under which the defendant cemetery association was incorporated provided that “at least one-half of the proceeds of the sales of the use of all lots and plats shall be applied to the payment of the purchase money of the real property acquired by the corporation until such purchase money is paid, and the residue thereof shall be applied to preserving, improving and embellishing the cemetery grounds and the roads and avenues leading thereto, and to defraying the incidental expenses and liabilities of the corporation.” Membership Corporations Law, § 70 (Consol. Laws, c. 35). The act also provided that “if a cemetery corporation be indebted for lands purchased for cemetery purposes, or for services rendered or materials furnished in preserving or improving its cemetery, the directors * * * may, with the consent of the creditor, * * * issue certificates * * * for the amount of such indebtedness.” Membership Corporations Law, § 74. For at least six or seven months prior to the actual incorporation of the cemetery association, Witte had been devoting both time and money to the promotion and organization of the cemetery project—looking up and purchasing land, obtaining consents from property owners and county legislature, developing plans, taking prospective participators in the project out by train and carriage to look over the site, making arrangements for the public advertising required by law, and similar activities. These services continued for several months after the filing of the charter, and all were rendered under a manifest understanding on the part of Witte’s associates that Witte would be reimbursed for the moneys paid out by him for the benefit of the corporation and reasonably compensated for the time which he put in. For example, the' public advertising required by law as notice of the application to the Westchester supervisors for permission to use the land for cemetery purposes was begun two weeks before the incorporation papers of the cemetery association were filed, and continued up to April following the incorporation. For all this Witte arranged and paid. An itemized bill of his expenditures and time was furnished the company, and soon after its affairs were organized Witte was placed on a salary of $900 per year, for “office services and general supervision of the association’s affairs.”

On April 20, 1902, an attempt was apparently made to reimburse Witte, for the amount he had paid out, by issuing a certificate of indebtedness in his favor for $1,297.33, which sum, with interest thereon to February 8, 1904, was that for which, on the latter date, was issued the certificate under which suit is brought. The attempted issuance in April, 1902, was without formal action of the corporate trustees, and the certificate was never signed by the proper officers or delivered to Witte. When the company’s books were opened later, its journal of liabilities showed the following entry: “Franchise: John

I think the cemetery association has failed to show facts or rules of law relieving it from obligation to meet the liability evidenced by this so-called “certificate of indebtedness,’’ the salient provision of which was as follows: “Ferncliff Cemetery Association, a membership corporation, hereby certifies that it is indebted unto John C. Witte in the sum of fourteen hundred and eighty-three dollars and twenty-eight cents, for money expended for and on account of cemetery, which amount it hereby promises, covenants and agrees to pay at its office in said city of New York five years from the date hereof. * * * ”

In the first place, learned counsel for the cemetery association has contended that the requirement as to transfer only on the books of the company destroys the negotiability of the certificate (Zander v. N. Y. Security & Trust Co., 178 N. Y. 208 , 70 N. E. 449 , 102 Am. St. Rep. 492 ), that the certificate does not even possess the virtues of quasi negotiability attaching to stock certificates, of business corporations (New York & New Haven R. R. Co. v. Schuyler, supra), and that accordingly Witte and his transferee hold subject to all equities existent between Witte and the association. In the Wood-lawn Case, as we have seen, the Court of Appeals held that the certificates of shares were, by reason of form, inherently nonnegotiable; that no prerogatives of quasi negotiability could be claimed for certificates of a cemetery association, issuance of which the latter had not authorized, had no power to authorize, and had lost possession of only through larceny, and that accordingly the bank acquired no better title to the spurious certificates than Knevals had, and was subject to all equities operative between the association and its embezzling officer. Whether the salutary rule of the Schuyler Case .would nevertheless be held to shield from possible equities a bona fide purchaser of a bona fide certificate of a kind and in a form which a cemetery association had power to issue, and which it had in fact issued by formal authorization of its directorate, need not be here discussed or decided, although the record contains no indication that the plaintiff was anything but a purchaser in good faith without knowledge of any equities "or disposition on the

In the second place, counsel for the association has urged that recovery may not be had upon the debt and promise evidenced by this certificate, because section 74 of the Membership Corporations Law provides only that certificates of indebtedness may be issued by cemetery associations to defray indebtedness “for lands purchased for cemetery purposes, or for services rendered or materials furnished in preserving or improving its cemetery.” The correctness of the contention of plaintiff’s counsel that the association has not shown that the certificate was not in fact issued, as the face of the certificate indicates, as evidence of a debt incurred for purposes fairly within the purview of the statute, I do not deem it necessary to pass upon this connection. Witte’s expenditures were made and his services rendered, as we have seen, for association purposes. The association not only adopted his acts and reaped the benefit of them, but from the outset acknowledged its obligation to reimburse and recompense him. The debt to Witte thus became undeniably a corporate liability, and the statute explicitly authorized the use even of the proceeds of the sale of lots for “defraying the incidental expenses and liabilities of the corporation (Membership Corporations Law, § 70; American Exchange Bank v. Woodlawn Cemetery, 194 N. Y. 116 , at page 125, 87 N. E. 107 . Assuming that the certificate in suit was not issued to defray an indebtedness in fact incurred for one of the two purposes enumerated in section 74, the law and policy of this state recognizes no phase of the plea of ultra vires which could prevent recovery on this certificate. The association concededly issued it to pay a debt assumed .by the association, a debt which the association had a right to assume. The association had the benefit of the services and expenditures which created the debt, and had the benefit of the settlement with Witte on February 8, 1904, which canceled a larger certificate and led him to accept only the amount of his original bill, with interest. The association may not be heard now to claim that this debt did not fall strictly within the statute, and that accordingly its own act in issuing the certificate imposes on it no liability to those who have parted with value on the strength of the association’s act. As was trenchantly said by Judge Finch in Seymour v. Spring Forest Cemetery Association, 144 N. Y. 833 , at page 341, 39 N. E. 365 , at page 366, 26 L. R. A. 859 , where a cemetery association had issued bonds in excess of its statutory authority for property which the corporation had retained: “These [bonds] * * * were its promise to pay, which it could not justly repudiate. That kind of plunder which holds onto the property, but pleads the doctrine of ultra vires against the obligation to pay for it, has no recognition or support in the law of this state." A liberal rule of subsequent statutory sanction and ratification “by the long-continued recognition of the corporation” was applied, and it was held that the bonds were “valid corporate obligations in the hands of the original holders, who were at liberty to enforce them, or had full power and authority to transfer them.” And Judge Finch concluded: The corporation “must therefore pay, or its possession (of the benefits retained) becomes a robbery.” See, also, Jarvis v. Manhattan Beach Co., 148 N. Y. 652 , 43 N. E. 68 , 31 L. R. A. 776 , 51 Am. St. Rep. 727 ; Leslie v. Lorillard, 110 N. Y. 519 ,

I find nothing in the Woodlawn Case which declares this rule inapplicable to a cemetery association which has regularly issued a certificate, of a kind which it had power to issue for at least some purpose, promising to pay a debt incurred or assumed by the corporation for its own benefit. The essential basis of the decision in that case was the safeguarding of moneys paid in by lot owners from being diverted from the intended purposes through spurious or larcenous issues of association certificates. Funds of a cemetery association are to go out only for expenditures made by it or in its behalf, for strictly association purposes. The suit at bar, however, as I have pointed out, proposes no depletion of the corporate treasury for benefits not received. The certificate relates to a legitimate subject of corporate liability; it bears on its face evidence that it was issued in reimbursement of “money expended for and on account of the cemetery” ; the association by it acknowledged its liability in the sum named, and promised to pay the same. Assuming that the instrument could have none of the special rights and immunities possessed by a certificate put out under full statutory protection, was not the power to make such an acknowledgment of actual debt and promise to pay it inherent in the very existence of the corporation? Pusey v. New Jersey R. R. Co., 14 Abb. Prac. (N. S.) 437; Attorney General v. Life & Fire Ins. Co., 9 Paige, 470. Assuming that the paper was not in any sense a negotiable instrument, it was nevertheless a certificate issued by the association, which thereby attested the existence of a fact, and made a promise on which Witte and the plaintiff relied and acted and parted with value. Under these circumstances, is not the association estopped from denying the existence of the fact and fulfilling the promise? Jarvis v. Manhattan Beach Co., supra. In the Woodlawn Case, spurious certificates, larcenously hypothecated by Knevals, the issuance of which the association had not authorized, and which it had no right or power to authorize or issue, were held to be, in law and fact, "nonnegotiable promises to pay money,” which the bank took from its assignor (Knevals) “with no other rights against the defendant than he possesses,” which, of course, was in that case no right of action at all. The certificate held by the plaintiff is, at least, a “nonnegotiable promise to pay money.” The defendant association issued it to Witte, and has proved no equities or defenses between itself and Witte. The plaintiff and Witte may therefore have judgment thereon, pursuant to their respective interests under the assignment.

Submit findings on 3. daj's’ notice. The defendant may have 10 days’ stay of execution and 30 days within which to make a case on appeal.