Sheridan Electric Light Co. v. Chatham National Bank — 24 N.Y. St. Rep. 622

Majority

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The Sheridan Electric Light Co., of New York, App’lt, v. The Chatham National Bank, Resp’t.

(Supreme Court, General Term, First Department,

Filed May 24, 1889.)

Headnote

1. Corporations—Power to appoint executive committee to transact ORDINARY BUSINESS.

A manufacturing corporation may appoint an executive committee to transact the usual ¡and ordinary business of the company.

2. Same—Parol Evidence admissible to show powers oe committee.

The powers of such a committee may he shown by paroi evidence.

3. Same—Power oe executive committee to delesate authority to INDORSE CHECKS.!

A committee halving the power to indorse and negotiate paper, payable to the order of the company, can delegate the power to indorse certain checks, which wele the proceeds of a contract made by them on behalf of the company. |

4. Same.

The fact that the delegation of such authority included a power of subitution, and otherwise exceeded the committee's power, did not invalidate the power properly granted.

5. Same—Ratification of committee’s acts.

The discussion and ratification of the transaction at a regular directors’ meeting hound the company as against this defendant, which cashed the checks in good faith, relying on the endorsement, although the directors present were the ¡very ones that carried out the transaction, as the misconduct alleged consisted in misappropriating the proceeds, and not in cashing the checks.

6. Same. j

The act of thej plaintiff in receiving and retaining a part of the proceeds of the checks, and acquiescing for a period of four years without bringing suit for the balance, was also a ratification of the endorsement.

Appeal from ja, judgment recovered on trial before the court. ,

Edward D. McCarthy, for app’lt- Sanford H. Stele, for resp’t. |

The cía m made by the plaintiff was for the conversion of checks and drafts amounting to the sum of about $57,358.36. The plaintiff is a corporation created under the manufacturing laws of this state. A prominent object of its creation was the organization, under its authority, of electric light companies in other states and territories. It authorized two persons to organize such a company at Cleveland, in the state of Ohio. They succeeded in organizing the company there with a capital of $1,000,000.

By the authority conferred upon these two persons it was provided that each company organized under the authority of the plaintiff must purchase treasury stock of it to the

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amount of five per cent of the capital of the company organized, before licenses would be granted to use and employ the inventions owned by the plaintiff. And that the company so organized would also pay to the plaintiff twenty-five per cent of its full paid non-assessable stock. It was provided, further, that in case the capital of the company organized under this authority should be $100,-000, then it should purchase of the plaintiff, at its par value, $5,000 of its treasury stock. “And, in the same proportion, be the capital more or less, provided, however, that no single company shall be obliged to purchase more than $10,000 worth of the aforementioned stock.”

In organizing the company at Cleveland, the two persons to whom the authority was committed, obtained the drafts and checks now in dispute. They were made payable to the plaintiff, and these two individuals claimed the entire excess, over $10,000, under an agreement with-them declaratory of the effect of the contract empowering them to act in the organization of the company in the city of Cleveland. This final agreement declared, “That the contract made with you on the eighth of February, specifies the amount to be paid this company. Any excess, whether in stock of this company, or in cash, or stock of branch companies, belongs to you, and should the same be received by us, it will be immediately transferred to you.” And it was under this stipulation that the agents claimed the entire amount of the checks and drafts which had been obtained in Cleveland on the organization of the company, there, exceeding the sum of $10,000. This claim was disaffirmed by this action, the plaintiff asserting that the securities obtained in this manner, were its own property under the provision of the agreement already referred to, that the company organized should purchase $5,000 of the treasury stock of the defendant for every $100,000 of its capital, subject, however, to the proviso already mentioned that the company itself should not be obliged to purchase more than $10,000 of the treasury stock. Where the company organized did not avail itself of the privilege secured by this proviso, but actually extended its purchase so far as to include $5,000 for every $100,000 of the capital of the new company, there the plaintiff insisted that the securities obtained in that manner was its own property. And that was considered to be the effect of the agreement entered into, when the ¿rafts and notes were obtained in its name, and for it, from the persons interested in the organization of the new company, in Sheridan v. Sheridan Electric Light Co., 38 Hun, 396 .

But when these checks and drafts were obtained in this manner and taken by the two agents to the city of New York, to obtain a settlement with the plaintiffs, these agents were unwilling to pay to the plaintiff more than the sum of $10,000 mentioned in the proviso. They had at

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that place on the 8th of May, 1882, upwards of $36,000 in amount of these checks and drafts, payable to the order of the plaintiff. Apd, _ prior to any disposition of them, these two agents met William A. Shepard, who was a witness on behalf of the defendant in the action, and one of the trustees of the plaintiff. And in the interview which took place between them, the two agents made this claim to the witness, insisting! that they were entitled to the benefit of-all the securities over and above the $10,000, and that they desired to settle with the plaintiff upon that understanding. His testimony is jihat he laid the subject before two other trustees, who, with himself, had been constituted an executive committee ¡of the plaintiff. And that he explained to them the position taken by these persons, who had been instrumental in the organization of the company at Cleveland. And that ¡ they then empowered him by a written power of attorney, executed by themselves, to settle and adjust the business with these other persons, obtaining for the company in the adjustment only this sum of $10,000. For that object, they joined in a power of attorney to the witness, authorizpg him to sign all papers and checks, or endorse the samej, necessary to carry out the transactions, which it was the object of the parties to refer to. This trustee empowered to act in this manner, met the two persons from Cleveland at the defendant’s banking office, and the power of attorney was produced and exhibited to the president and the cashier of the bank. And they, considering it to be sufficient for the purpose, received and discounted the checks and drafts upon the endorsement made by this attorney thereupon.

Ten thousand dollars of the proceeds was carried to the credit of the plaintiff, and the residue was secured to, and obtained by, the two Cleveland agents.

The theory upqn which the action was prosecuted and tried was, that this power of attorney did not authorize the bank to receive and act as it did in accepting and discounting the paper, but that what it did was without authority, rendering the bank liable for the conversion of these checks and drafts. And .whether that is its legal position is the point, the disposition of which, must determine this appeal. The power of attorney did in plain language authorize William A. ShepaJrd, the trustee to whom it was given, to indorse this paper! And if that was legally delegated, the bank is to be protected in acting upon it, although in other respects, having no connection with the indorsements to be made, the power may have exceeded the authority which the persons subscribing it could exercise on the part of the company, and may have also been untruthful in its recitals. If this specific authority was legally delegated by the instrument, then the fact that it contained further authority upon which the power to indorse was in no manner dependent, would not, so far as the indorsements made under it were concerned, invalidate the action of the agent. It was

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not an illegal instrument made in violation of statutory restraint, or prohibition, but its validity and binding effect upon the plaintiff depended entirely upon the power of the two members of the executive committee executing it, to delegate the authority contained in it. And if they exceeded their power in providing for a further substitution of authority, that fact would not deprive the agent of the authority to indorse the paper, if these persons were in such a relation to the company as authorized them to confer that power, or if the use of it was afterwards ratified, or confirmed by the company itself.

The trustees of the company were five in number. One, however, never qualified or acted, and another is stated to have been present at only an early meeting of the board. It was stated, in the course of the evidence, that he had not been present at any meeting after the first, and had not been notified or required to be present when the meetings were held. But upon this subject the testimony of the secretary, who was not a stockholder, was, that, “ The meetings of the board of trustees were always called by a written notice, or in pursuance of an adjournment.”

And as he apparently had no other duties to perform than those strictly appertaining to his office of secretary, it is probable that his statement as to this fact was more re-' liable than that of the trustee who was examined as a witness upon the trial. Each of these witnesses, however, do agree that soon after the plaintiff was incorporated, a motion, or resolution, was carried, by which three of the members of the board of trustees were elected, or appointed, as an executive committee of the company.

This committee is shown to have consisted of Henry Ellis, the president and treasurer of the company; William A. Shepard, the witness, and Samuel P. Smith, another of the trustees, and they continued to act as such, and to manage the business of the company, throughout the period of these disputed transactions. Their selection as an executive committee had the sanction of the statute, although it was provided by section 3 of chapter 40 of the Laws of 1848, that the stock, property and concerns of the company should be managed by not less than three nor more than thirteen trustees, for by section 26 of the same act the corporation possessed the general powers and privileges mentioned in title 3, chapter 18 of the first part of the Revised Statutes, and by subdivision 5 of section 1 of that title, it was empowered “to appoint such subordinate officers and- agents as the business of the corporation shall require.” And the appointment of the executive committee was an appropriate exercise of this authority. Olcott v. Tioga R. R. Co., 27 N. Y., 546 .

And when it was appointed, even though its authority may have been too broadly stated by the witness Shepard, it still did have the power, as its appointment was de

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scribed by the secretary himself, to transact the ordinary, or usual, business of the plaintiff. And the indorsement of commercial paper of this description was within that part of its business, for á leading object of its organization was the acceptance and! receiving of funds from subordinate companies incorporated under its authority, and the usual mode of transmitting and receiving such funds would be by the use and indorsement of commercial paper. Hoyt v. Thompson's Exr., 19 N. Y., 207 .

The plaintiff was a trading corporation, a part of whose business would necessarily be transactions of this description, and they would naturally and legitimately fall within the scope of the duties of an executive committee. Not only, therefore, did! this committee possess the authority of endorsing and transferring the paper in controversy, but the treasurer himself, who was also president of the corporation, had that power, by virtue of his office as treasurer. Narragansett Bank v. Atlantic Silk Company, 3 Met., 282 .

The stock of the company was substantially owned by the three members of the committee, and Mr. Sheridan, for the employment of1 whose inventions it was incorporated. And, where that is: the nature of the corporation, it is not essential that the selection of the committee should be, by formal resolution of the board of trustees, entered in their minutes. For it ha's been held that “when a corporation consists of a small ¡number of persons, like a partnership, they may transact all their business by conversation, without formal notes; and it would be a violation of the plainest principles of justice to hold those who deal with them to prove all their acts by regular votes.” Melledge v. Boston Iron Co., 5 Cush., 158 .

It does not accordingly detract from the authority of the committee that no formal resolution has been found in the minutes of the proceedings of the board, defining and declaring the limits or its authority.

The committee, having itself the power to endorse and negotiate paper payable to the order of the company, could delegate the same ¡power, by its united action, to the witness Shepard through the instrumentality of the power of attorney, for that involved no exercise of judgment or discretion on his part. The business to be transacted is stated, and so the fact has been found, to have been communicated by this ¡trustee to the other two members of the committee, and they had agreed upon what should be done.

That was to accede to the claims of the Cleveland agents, allowing them to detain for their own benefit the entire proceeds of the checks and drafts over the sum of $10,000 they were willing to pay to the plaintiff. That position received the assent and approbation of the committee; and, after that, there wop no more to be done than to indorse the

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name of the company upon the paper, and receive the sum of $10,000 in its behalf. These acts included no exercise of judgment or discretion on the part of the agent selected to do the business ; and for that reason it was competent for the other two members of the committee to empower him to make these indorsements and to receive this sum of $10,000 for the plaintiff. Com. Bk. of Lake Erie v. Norton, 1 Hill, 504 ; Emerson v. Providence Hat Co., 12 Mass., 237 ; Renwick v. Bancroft, 56 Iowa, 527 .

What was to be done, was the performance of no more than ministerial acts; and the power to perform those acts could in this manner be confided by the committee to one of their number. The case of People’s Bank v. St. Anthony’s Church ( 39 Hun, 498 ) has been referred to as an authority inconsistent with this disposition of the power of the committee; but it has no application to their action, for the reason that its members acted together as a committee in determining and deciding what should be done, and providing the manner in which their determination should be carried into effect. Here, there was unity of action, while in that case the trustees acted individually and separately. In receiving the paper with the indorsement made in this manner, the bank acted upon the faith and effect of the power of attorney ; and it had the right so to act, inasmuch as the power contained this lawful delegation of authority from the other members of the committee to the person who conducted the business with the bank. He had been legally empowered to indorse and transfer the paper to the bank, and it could not be made liable for a conversion of the paper when that was received by virtue of this authority. And that the authority was vested in. the committee, is further authenticated by the proof that the business which had previously been done for the company was performed by the committee.

The agreement made with the two Cleveland agents was made by its members, and the drafts and checks were obtained in the exercise of that authority. And no more than the consummation of the same business resulted from the action of the committee through which these drafts and checks were endorsed and disposed of.

After that was done, the evidence of this witness is that the business was brought to the attention of a meeting of the board of trustees. This meeting is stated to have taken place on the 25th of May, 1882. And it is then said that what had taken place was fully discussed by the board; that the transaction was talked over, and all the facts in the possession of the witness were laid before the trustees, and no dissent whatever appears to have been expressed. It is probable that no more than these three members were at the time present, but they were a majority of the board of trustees, and, according to the testimony of the secretary, notice of the meeting must have been given, and as a

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majority, their action was binding upon the corporation. 2 R. S., 6th ed., 391, § 6.

It has been insisted that the disposition made of this paper, being in violation of the rights of the corporation, could not be confirmed, or ratified, by the action of the persons through whose conduct it was disposed of. And that will be the qase as to the accountability, or liability, of trustees acting in violation of their duties to the corporation. But the defendant cannot be made liable by reason of such action orí the part of the trustees, when it is made to appear as it was upon the trial, that it received this paper in good faith, and under the exercise of lawful authority for its endorsement. The misconduct of the trustees consisted in ¡permitting an appropriation of the proceeds of the paper to the use of the Cleveland agents, and not in the endorsement, or transfer made of the paper to the defendant. And it was within their power to ratify and confirm that ‘endorsement, even though by their further action they may have rendered themselves liable for the misuse, or misappropriation, of the proceeds of the paper itself. With that, the defendant had nothing to do.

For its protection, all that was necessary was, that the power should exist, as it has been held to exist, for the endorsement of the paper, and its transfer to the bank. The misuse of thb proceeds after that, is an act for which the bank was not accountable, but rests wholly between these individuals and the plaintiff. And the conduct of the bank cannot be impeached by the further circumstance that out of the proceeds received by the Cleveland agents, they loaned and advanced as a cover for a gift to the trustee, acting under the power of attorney, the sum of twenty-five hundred dollars.

A further act of, ratification arises out of the fact that the company, through the endorsements, received this sum of $10,000, and it wa,s afterwards appropriated to its use and benefit. And it could not receive and dispose of this fund, knowing, generally, as the trustees, and the executive committee, did, that it was obtained in this manner, and after-wards disaffirm iihe transactions through which the money was secured. This principle was applied in Castle v. Bullard, 23 How. U. S., 173, to affirm a disposition of property, by receiving the profits of a fraudulent sale in the shape of commissions. And it was further sanctioned in Peoples’ Bk. v. Nat’l Bk. ( 101 U. S., 181 ), where it was said that, “All the parties engaged in the transaction, and the privies, were agents of the defendant. If there were any defect of authority on their part, the retention and enjoyment of the proceeds of the transaction by their principal, constituted an acquiescence as effectual as would have been the most formal authorization in advance, or the most formal ratification afterwards)” Id., 183 . Both the power of attorney executed, and the! approval of what was done by the trustees themselves, and the acceptance and retention of this sum of money, fully exonerate the defendant from liability

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for the paper endorsed and transferred, on the 8th of May, 1882. The residue of tlie paper was, in like manner, endorsed, received by the bank, and discounted, on the 5th of June, 1882. That amounted to upwards of $18,000. As to that, the evidence tended to show the understanding of the committee to be that the proceeds were claimed by, and to go wholly to the Cleveland agents. And when that paper was taken to the city of New York, it was, in like manner, endorsed, transferred to the bank, and discounted, as that which was received and disposed of on the eighth of the preceding month. 3STo further or more special action was taken concerning the disposition made of the second, installment of paper on the 5th of June. As to that, no direct ratification took place. But there was acquiescence on the part of these trustees, and this committee, in what was done for the transfer and endorsement of this paper to the bank.

And that remained unquestioned until the meeting of the board, on the 10th of July, 1882, when Mr. Sheridan, who owneá the greater part of the stock of the company, insisted upon it that proceedings should be taken to recover the money, in this manner, retained by the Cleveland agents. Even then it was not claimed by him, or any other person present, that the bank was liable, but that the persons to whom the money had been paid, and who had retained it, should be made accountable for it to the company. But, even without any further ratification than arose out of the acquiescence of the board in what had been done on the fifth of June, the bank was exonerated from liability, for it acted under a lawful authority binding upon the corporation, in receiving and discounting the paper. That was sufficient for its protection as to this part of the transaction. Upon neither branch of the case was a liability made out against the bank. It had the right to act as far as it did act upon the apparent, as well as the real, authority delegated to the witness, Shepard.

It is unimportant to consider the rulings rejecting evidence offered on behalf of the plaintiff, or whether other findings of fact, assailed by the appellant, were, or were not, supported by the evidence. For, as the defendant was protected in receiving the paper upon the indorsement of the trustee, to whom the power of attorney was made, the case would, in no manner, be changed if the other evidence had been received, or if the findings complained of were not founded upon a legal measure of proof. And the judgment in the case should be affirmed, with costs.

Van Brunt, Ch. J., and Brady, J., concur.