Drake v. New York Iron Mine

Headnote

Equitable Assignment—Dividends—Signing Note in Name of Corporation.

A director who, without authority, executed notes in the name of the corporation, and procured them to be discounted by a bank for his own benefit, and afterwards charged the notes against himself on the books of the corporation, does not thereby make an equitable assignment to the bank of the dividends on his stock, where the notes contain no direction for payment out of the dividends, and were not accompanied by any instrument to that effect

Appeal from special term, Queens county.

Action by John R Drake against the 2Tew York Iron Mine and others to establish and enforce an equitable assignment of, or lien on, a certain fund. The complaint was dismissed on the merits, and plaintiff appeals.

Affirmed.

The opinion of Mr. Justice BARTLETT at special term is as follows:

The transactions which are the subject of the controversy in this suit grow out of the relations of the late Samuel J. Tilden and of the defendant William L. Wetmore to a corporation organized under the laws of Michigan, and doing business in that state, and in the state of New York, under the name of The New York Iron Mine. In the year 1877 nearly all the stock of the New York Iron Mine, save a few shares which were necessary to enable persons to act as directors, was owned by Messrs. Tilden and Wetmore, Mr. Tilden owning a controlling interest. In April and May of that year, Wet-more, being in Michigan, made three promissory notes, for five thousand dollars each, in the name of the New York Iron Mine, and procured them to be discounted by the First National Bank of Negaunee. Wetmore bad no authority either to make or deliver any of these notes. His intention was, when there should next be a dividend by the New York Iron Mine, to pay these notes out of the share of the profits then coming to himself as a stockholder in the corporation. This intention, however, he did not divulge to any one. When that dividend came to he made, Tilden insisted on the application of Wet-more’s share to the payment of other claims. The notes were dishonored, and in July, 1877, Wetmore went into' bankruptcy. After the filing of his petition he made entries in the books of the defendant corporation, kept by himself in Michigan, charging the notes against himself, as a debt due from him to the New York Iron Mine. The present plaintiff sues as the owner, through successive transfers, of the three notes in question, and as, also, owning all liens and assignments pertaining to them. His purpose is to reach certain dividends of the New York Iron Mine, in which the estate of Wetmore was entitled to share, which were declared in 1889. The theory of the case, in his behalf, as I understand it, is that Wetmore made an equitable assignment to the First National Bank of Negaunee of all dividends which might thereafter be declared on his stock in the New York Iron Mine, or that he created an implied trust, whereby such dividends were made applicable to the payment of these notes. Unless the plaintiff can establish such an equitable assignment or implied trust, he must fail in the action. It is to be noted that the Negaunee Bank never entertained the idea of any

assignment or trust whatever. Its officers were informed that the notes were made without authority, but nevertheless the bank sued the New York Iron Mine upon them. If Wetmore ever intended to make any equitable assignment, or constitute any trust, it is tolerably plain that the bank at this time did not know it. But the evidence fails td disclose anything which amounts to an equitable assignment. What Wetmore meant to do was to pay these notes, which he had issued wrongfully, out of the dividends which he should thereafter receive from the New York Iron Mine, but he never meant at any time to transfer to the Negaunee Bank any right to those dividends as such. The bank never regarded him as its individual debtor, by reason of having made the notes, and I do not see how it can be held that its officers accepted an assignment of a fund to pay a debt which it did not suppose existed as an individual obligation of Wetmore. Wetmore declares that he did not think that he was making the Negaunee Bank his creditor, and that when he found that he had got to go into bankruptcy he wished the bank to share with all his other creditors, and did not want to give it any preference. His acts, as proved, do not contradict his intent, as thus stated. An intention to make an equitable assignment cannot be inferred from signing the notes in the name of the New York Iron Mine, and procuring them to be discounted, without any authority on his part so to do. The notes contained nothing, nor were they accompanied by any instrument indicating a desire or direction for payment out of a particular fund. Wetmore did nothing at any time which put the dividends out of his dominion or control, and put them under the dominion or control of the Negaunee Bank. His action in charging the notes against himself on the books of the New York Iron Mine in Michigan had no effect, as to the bank, though it may be deemed an acknowledgment on his part that, as between himself and the New York Iron Mine, the notes were to be treated as his individual obligations. It is argued that these entries are evidence of a prior assignment, and amounted to a lawful declaration of trust; but it would be going very far, I think, to hold that this was evidence of a prior assignment, in the face of Wetmore’s declaration to the effect that he did not intend to make any, and in view of the fact that the bank had no knowledge or expectation of such an assignment. On the subject of “implied trusts,” Mr. Perry, in his well-known treatise, says: “Any agreement or contract in writing made by a person having the power of disposition over property, whereby such person agrees or directs that a particular parcel of property or a certain fund shall be held or dealt with in a particular manner, for the benefit of another, in a court of equity, raises a trust in favor of such other person against the person making such agreement, or any other person claiming under him, voluntarily or with notice.” 1 Perry, Trusts, § 82. But here there is nothing to show that the entries made by Wetmore gave any direction whatever for the payment of his future dividends to the Negaunee Bank, or to anybody else. My conclusion, as matter of fact, that the proof does not establish an equitable assignment, or implied trust, renders it unnecessary to determine the other interesting questions discussed by counsel in their briefs. There must be judgment for defendants with costs.