National Park Bank v. German Am. Mutual Warehousing & Security Co.

Majority

p. 675

The National Park Bank of New York, Resp’t., v. The German Am. Mutual Warehousing & Security Co., Impl’d, Appl’t.

(Court of Appeals, Second Division,

Filed October 8, 1889.)

Headnote

Bills and notes — Manufacturing- corporation cannot become accommodation ENDORSER.

Defendant having the general power to bind itself by notes arid endorsements, its president, who was also a director of plaintiff, for a consideration, endorsed notes for S. and T. in the defendant’s name, hut without the' knowledge of its directors, and S. and T. had them discounted by plaintiff. Held, that the fact that the maker of the notes had them discounted was notice to the bank that it was accommodation paper, and defendant had no power to bind itself by accommodation endorsement and plaintiff' could not recover.

Appeal from a judgment of the general term of the superior court of the city of New York, affirming a judgment entered on the report of a referee.

The plaintiff was incorporated in 1865 under the national banking act, and the defendant was incorporated in 1872 under chapter’ 701 of the Laws of New York, passed May 14, 1872.

Both corporations were engaged in business in the city of New York, the defendant at No. 45 Broad street, and both still exist, though the defendant discontinued all business in May, 1879.

Squires, Taylor & Co. (individual partners, Robert C. Squires,, Charles E. Taylor and Burnet Forbes) commission merchants dealing in tobacco at No. 45 Broad street, New York, began business. October 1, 1876, and failed December 80,1878.

Robert Squires was a director and the president of the defendant from a date prior to November 1,1876, until his death in February, 1879, and he was a director of the plaintiff from January 15, 1875, until his death. He was the father of Robert C. Squires, of the firm of Squires, Taylor & Co., a brother-in-law of Burnet. Forbes of that firm, and when Squires, Taylor & Co. failed they owed Robert Squires $25,000.

-August 27, 1878, Squires, Taylor & Co. made their promissory note, of which the following is a copy:

“ New York, August 27, 1878.

“ Four months after date, for value received, we promise to pay to the order of ourselves, at the National Park bank in New York, $10,000, having deposited with said bank, as collateral security for payment of this or any other liability or liabilities of ours to said bank, due or to become due, or that may be hereafter contracted, the following property, viz.: in the store of the German American Mutual "Warehousing & Security Company, one hundred hhds. tobacco; the market value of which is now $12,500; with the right to call for additional security should the same decline, and on failure to respond this obligation, shall be deemed to be due and payable on demand, with full power and authority to sell and

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assign and deliver the whole of said property or any part thereof) or any substitutes therefor, or any additions thereto, at any brokers’ board, or at public or private sale, at the option of the said bank, or its president or cashier, or its assigns, and with the right to be purchasers themselves at such brokers’ board, or public sale, on the non-performance of this promise, or the non-payment of any of the liabilities above mentioned, or at any time or times thereafter, without advertisement or notice ; and after deducting all legal or ■other costs and expenses for collection, sale and delivery, to apply the residue of the proceeds of such sale or sales so to be made, to pay any, either or all of said liabilities as said bank, or its president or cashier,_ shall deem proper, returning the overplus to the undersigned.

“ Squires, Taylor & Co.”

Squires, Taylor & Co., the makers and payees of said note,endorsed in blank, and thereupon the president of the defendant endorsed it as a second endorser in form following: “ German American Mutual Warehousing & Security Company, Robert Squires, president” This note was then, August 27, 1878, discounted by the plaintiff for and the avails credited to said firm.

September 2, 1878, Squires, Taylor & Co. made a second note dated that day for the same amount, time, and in precisely the same form as the first note and which was endorsed by said firm and by the defendant, in the same manner, and it was discounted by the plaintiff September 11, 1878, for and avails credited to said firm.

September 11, 1878, Squires, Taylor & Co. made a third note ■dated that day for $12,000, for the same time and in precisely the same form of the first note, except 120 hogsheads of tobacco, stated to be of the value of $15,000, were pledged as security. Said firm and this defendant endorsed said note in the same manner in which the first note was endorsed, and it was then, September 11, 1878, discounted by the plaintiff for and the avails credited to said firm.

November 27, 1878, Squires, Taylor.& Co. made a fourth note dated that day for $4,000, for the same time and in precisely the same form of the first note, except forty hogsheads of tobacco, stated to be of the value of $5,000, were pledged as security. Said firm and this defendant endorsed said note in the same manner in which the first note was endorsed, and it was, on that day, November 27,1878, discounted by the plaintiff for and the avails credited to said firm.

Squires, Taylor & Co. paid the president of the defendant $360 for endorsing said four notes, being at the rate of one-fourth of one per cent per month for every month of the time said notes run.

In December, 1878, said firm pledged to said bank forty hogsheads of tobacco as security for the four notes in addition to those pledged as security for each note. The four notes were dishonored and 'duly protested. Upon a sale of the tobacco pledged, the first and second notes were paid and such sums applied on the third

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and fourth notes that there was due on them May 7, 1879, $12,621.63, for the recovery of which this action was brought against the members of the firm of Squires, Taylor & Co., who did not defend, and against the appellant, which defends on the grounds:

(1) That the board of directors of the defendant was without power to authorize its president to bind it by contracts of endorsement, made for the accommodation of others, for a consideration paid by them.

(2) That its board of directors never authorized its president to make these or like endorsements.

(3) That its president being a director of the plaintiff — an officer of both corporations — the contracts of endorsement are void, and that the plaintiff had knowledge of the facts constituting the alleged defenses when it discounted the notes.

Upon the trial before a referee the defenses were overruled and a judgment ordered for the amount claimed, which was entered and was afterwards affirmed by the general term.

Francis C. Barlow, for resp’t; William H. Ingersoll, for app’lt.

The statute by which the defendant was incorporated provides that, in addition to the powers therein enumerated, it shall possess all the powers and privileges of corporations organized under the manufacturing act, chap. 40, Laws 1848, and the acts extending and amending the same, except wherein such acts are inconsistent with the provisions of the incorporating statute.

The litigants agree that the defendant’s board of directors had power to authorize its president to make and endorse promissory notes for the purpose of transacting the business it was authorized to engage in, and that such power was conferred by the board on its president.

The powers of corporations are those enumerated in the statutes under which they are incorporated, in general statutes, in the articles of association, and like instruments executed in pursuance of the statutes (denominated by Mr. Brice “ construing instruments,” Ultra Vires, 2 Am. Ed., 27), and also such powers as flow from, or are incidental and necessary to the exercise of the enumerated powers. 1 R. S., 599, §§ 1, 2 and 3. Counsel have not directed our attention to, nor have we found in any of the statutes referred to, a provision empowering the defendant to bind itself by making or endorsing promissory notes for the accommodation of the makers for a consideration paid.

It is well settled that such a power is not incidental to the powers expressly conferred on corporations organized under statutes authorizing the formation of corporations for banking, insuring, manufacturing, and like business corporations. Central Bank v. The Empire Stone Dressing Co., 26 Barb., 23 ; Bridgeport City Bank v. Same, 30 id., 421; Farmers & Mechanics' Bank v. Same, 5 Bosw., 275 ; Morford v. Farmers' Bank of Saratoga, 26 Barb., 568 ; Bank of Genesee v. Patchin Bank, 13 N Y., 309 ; Ætna National Bank v. Charter Oak Life Ins. Co., 50 Conn., 167 ; Mon

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ument National Bank v. Globe Works, 101 Mass., 57 ; Davis v. Old, Colony R. R. Co., 131 id., 258;. Culver v. Reno Real Estate Co., 91 Penn., 367 ; Hall v. Auburn Turnpike Co., 27 Cal., 255 .

The defendant having the general power to bind itself by promissory notes and. contracts of endorsement, the plaintiff is entitled to recover, if it is a holder of the notes for value and without notice that they were endorsed for the accommodation of the makers, and not in the usual course of business.

The referee finds that in consideration of one-fourth of one per cent per month for every month of the time on which the notes were given, the defendant endorsed for Squires, Taylor & Co., between November 10, 1876, and August 27, 1878, the date of the first note in suit, nineteen notes precisely like the four in suit, except dates and amounts, aggregating $170,000, which were discounted by the plaintiff for and the avails placed to the credit of Squires, Tlaylor & Co.

The referee also finds that defendant’s president was never authorized by its board of directors to endorse commercial paper for the accommodation of makers, or to endorse such paper for a consideration paid by the makers, and that none of them knew that such endorsements had been made until this action was brought. 14 and 23 findings of fact, pages 384-386; 39, 40 and 41 findings of fact, pages 52-53.

The fact that the maker of a promissory note procures it to be discounted for his own benefit, is, if unexplained, notice to the discounter that the endorsement is not in the usual course of business, but is for the accommodation of the maker. Stall v. Catskill Bank, 18 Wend., 466 ; Fielden v. Lahens, 9 Bosw., 436 ; 3 Trans. App., 218; 2 Abb. Ct. App. Dec., 111 ; 6 Abb., N. S., 341; 1 Ames Cases on Bills and Notes, 738; Bank of Vergennes v. Cameron, 7 Barb., 143 ; Hendrie v. Berkowitz, 37 Cal., 113 ; Lemoine v. Bank of North America, 3 Dillon, 43; Bloom v. Helm, 53 Miss., 21 ; Daniels Neg. Ints. (2d ed.), 297, § 365; Edwards on Bills (3d ed.), 98, § 105.

Ex parte Estabrook, 2 Lowell’s Dec. 547, is opposed to these authorities, but this case is in conflict with the decisions in this state, and we believe it to be without the suport of any well considered case.

The endorsements having been made for the accommodation of the makers, and the plaintiff having discounted the notes with notice of that fact, cannot recover.

The judgment should be reversed and a new trial granted, with costs to abide the event

All concur.

Footnotes

1 Reversing 21 J. & S., 367.