Holmes, Booth & Haydens v. Willard — 24 N.Y. St. Rep. 260

Majority

p. 260

Holmes, Booth & Haydens, App’lts, v. Samuel H. Willard, Resp’t.

(Supreme Court, General Term, First Department,

Filed May 24, 1889.)

Headnote

1. Corporations—Recovery cannot be bad bob acts ob obbiceb of CORPORATION UNLESS FRAUD BE SHOWN.

Where a corporation places the whole management of its business for the purpose of expedition in the hands of a single individual, and gives him a general authority to act, as under the circumstances may to him seem best, unless absolute fraud is shown on his part, a recovery cannot be had against him for any such acts.

3. Same—Ultra vibes.

A loan of money by a trading corporation to a person dealing with it, is not ultra vires.

Appeal from judgment entered on dismissal of complaint upon trial by the court without a jury.

W. H. Harris, for app’lts; M. P. Stafford, for resp’t.

This action was brought by the plaintiff, a manufacturing company, against its former treasurer, to recover damages for the indorsement made by him in plaintiff’s name of a promissory note which he negotiated to an innocent purchaser for value. The defendant at the time of indorsing the note in question, and five years prior thereto, was the treasurer and general

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manager of the plaintiff; as such general manager he was allowed to exercise his discretion in managing plaintiff’s business. During all the years that defendant was plaintiff’s manager, the plaintiff’s board of directors left the direction and management of the business to his judgment, and habitually held no meetings except an annual meeting. The plaintiff was organized as a corporation, under the laws of Connecticut, for the purpose of manufacturing and dealing in all kinds of brass, copper and germon silver goods, plated ware, and all articles composed wholly, or in part, of copper, brass and germon silver, and all articles composed in whole, or in part, of metal, and to do such other things as were incident to the transaction of said business, and to exercise such mercantile powers as might be convenient and necessary for the prosecution of said business. It had been the practice of the plaintiff to extend financial assistance to parties" with whom it had business relations. In fact, the whole management of the business was entrusted to the discretion of the defendant during this time. The defendant having, upon behalf of the plaintiff, made a contract with the Forest City Carbon Manufacturing Company, by the terms of which the plaintiff was to receive and sell the greater part of the carbons manufactured by that company for prices to be determined. by the market, the said company being in want of facilities for the purpose of increasing its manufacture of carbon, applied to the defendant, as representing the plaintiff, for assistance, and made its promissory note for $10,000 payable to the order of the plaintiffs, which note was indorsed by the defendant in the plaintiff’s name, and was procured to be discounted by him, and the proceeds of the discount handed over to the Forest City Carbon Company.

Upon the maturity of the note, the company was unable to pay the same, and gave notes renewing the same. The subsequent events attending the notes, it is not necessary to mention, except the fact that finally the plaintiffs were compelled to pay the same, and this action was brought to recover the damages sustained thereby, upon the ground that the endorsement of the note was ultra vires of the plaintiff, and that the defendant was liable upon the endorsement, because not authorized to make the same.

■ A very brief examination of the legal situation of the parties to this transaction, shows that the claim upon the part of the plaintiff, that this note was an accommodation endorsement by its treasurer, and therefore ultra vires is not well founded. The transaction, as it took place between the Carbon Company, and the defendant representing the plaintiff, was simply a loan of money. The Carbon Com-

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pony gave its note payable to the order of the plaintiff, and the plaintiff loaned the money upon the note. How it got the money was immaterial; whether by having the note discounted upon its own credit, or otherwise, does not alter . the relations of the parties. It was a loan made between the plaintiff and the Carbon Company, by and through its treasurer, and there is nothing in the case going to show that there was any accommodation endorsement or anything of the sort. The question raised here, therefore, is whether a loan of money by a corporation is ultra vires.

We have not been referred to any authority or principle, under which such a transaction can be held ultra vires of a corporation, particularly a trading corporation which has the right to exercise such mercantile powers as may be con.venient and necessary for the successful transaction of its business, which clearly gives it the authority to extend mercantile facilities to the persons dealing with it if in its judgment it thinks it for the benefit of its business so to do. The transaction therefore, between the plaintiff and the Carbon Company, was in no respect ultra vires.

But it is claimed that the defendant had no power to make such use of the credit and money of the corporation. It is sufficient to say that the evidence shows conclusively that it had been the practice of this corporation to lend money and extend financial assistance to parties with whom it had business relations. It is true that it is claimed that the only evidence of any such course is that the defendant, during his administration, often gave financial assistance to customers, but that such acts were not reported to the board of directors. B,ut the evidence fails to establish this proposition. It is true that the subsequent treasurer says that such accommodations were not extended to any but customers by him, but there is no' evidence but that it had been the practice, prior to this time, to give financial assistance to others than customers, strictly speaking, in the shape of extending their paper, as is claimed to have been only done by Mr. Wayland. And it appears, without contradiction, that it was not customary for the board of directors to give the manager directions in these matters; that he always exercised the authority, and it was not customary to bring it before the board of directors.

In other words, the whole detail of the management of the corporation was, as above stated, committed to the general manager.

Under this state of things it is difficult to see how the defendant can be held liable because of his action in conducting the business in precisely the same way in which it had heretofore been done, and extending aid to persons with whom the plaintiff had dealings. If corporations choose to

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place the whole of the management of their business, for the purpose of expedition, in the hands of a single individual, and give him a general authority to act as, under the circumstances, may seem best to him, unless absolute fraud is shown on his part, there seems to be no ground upon which a right of recovery can be had against him for any such acts. Certainly a mere mistake in judgment does-not render him hable.

Trading corporations are necessarily managed in a more informal way than those of a different character. They are voluntary copartnerships, having a right of survivor-ship, not dissolved by reason of the death of any one of the parties in interest, and a director or officer or manager with whom is entrusted all the business of the corporation can exercise all the powers which the board of directors could exercise under the same circumstances in the general management of the corporation business. Hoyt v. Thompson, 19 N. Y., 209 .

Even if we concede that the corporation had no power to lend its money, yet when it is found that it had been in the habit of so doing, and that it had been the course of business of the corporation, certainly an officer cannot be held liable, simply because he has continued the practice.

We fail to see any ground upon which the defendant can be held liable for this step in the management of the plaintiff’s business, and the judgment should be affirmed with costs.

Cullen, J., concurs.