Patterson v. Robinson — 26 N.Y. St. Rep. 685

Majority

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Charles E. Patterson, as Receiver of the Merchants and Mechanics’ Bank of Troy, App’lt, v. Daniel Robinson and James E. Pinkham, Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed October 8, 1889.)

Headnote

Manueacturing corporations — Trustees—Laws 1848, chap. 40, § 23.

A manufacturing company being indebted to a bank in excess of its capital, one V., who was president of both corporations, agreed with R., who was a trustee of the company, that the old debt should be treated as dead or suspended ; that V. should draw drafts on the treasurer, the proceeds of which should be used to purchase wool to manufacture into cloth, and the proceeds of the sale used to run the mill and pay such paper to the exclusion of the old debt. Both the defendants assented to the new debts. The bank charged up the old debt as fast as possible, so that when it failed the old debt was paid, but the new drafts were held by it. Held, that the contract was one which the boards of the corporations had power to authorize their presidents to make or to ratify, and the burden was on the plaintiff to show that it was not so authorized, and as he failed to do so, it was binding, and under it the new drafts, as to the defendants, were paid, and no liability existed against them under § 23 of the act.

• Appeal from a judgment of the general term of the third judicial department, affirming a judgment which dismissed the complaint and was entered on the report of a referee.

Since 1865 the “ Schaghticoke Woolen Mill” has been a manufacturing corporation, duly incorporated under chapter 40 of the Laws o£ 1848, with a capital stock of $250,000. Its affairs have been managed by five trustees. Daniel Eobinson was a trustee from its organization until its failure, in ¡November, 1878; and James E. Pinkham was superintendent of the mill from 1866 until its failure, and June 18, 1878, he also became a trustee and the treasurer of the corporation, and so remained until its failure.

For several years before May 1, 1875, the woolen mill kept its account with the Merchants & Mechanics’ Bank of Troy; and, under a mutual arrangement, the bank paid the checks and commercial paper of the mill when presented, without regard to the state of its bank account. When the account showed a

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balance to the credit of the mill the previously paid checks would be first charged to the account, and after they were -charged the oldest past due commercial paper was charged as rapidly as it could be without causing an apparent overdraft. Checks and paper paid when the account was not good were carried by the bank as cash items until they were charged up. May 1, 1875, the mill owed the bank $300,776, which was $50,776 in excess of its capital stock, and it was owing other creditors such sums that its indebtedness then exceeded its capital stock by more than $185,000. At this date D. Thomas Yail was the president and a director of the bank, and the president and a trastee of the mill. On the date last mentioned, Mr. Yail, assuming to act as president for both corporations, entered into the following oral contract with Daniel Robinson:

“That the debt of the Schaghticoke Woolen Mills, then due to the Merchants and Mechanics’ Bank of Troy, should be treated as dead or suspended debt, that said Yail, as president of the woolen company, should make drafts on the treasurer of said company, which, after acceptance by him, should be endorsed by Yail and Robinson individually, that they should also individually guarantee other paper of said company when advisable, which paper so endorsed and guaranteed should be used in the purchase of wool for the mills in manufacturing cloth; that such wool and the cloth manufactured therefrom should .be the property of Yail and Robinson until the cloth was disposed of, and that the proceeds thereof should be applied to the payment of the supplies, labor and current expenses of the mills and of the paper so endorsed and guaranteed, and no part of such proceeds were to be applied to the payment of the old or suspended debt held' by the bank until all outstanding claims dor such paper, supplies, labor and current expenses were satisfied.”

Between May 1,1875, and November 1,1878, the business of the mill was carried on under this contract, Yail and Robinson endorsing for the accommodation of the mill such paper as it made in the course of its business. This paper was presented to and paid by the bank; but instead of cancelling and charging it to the account of the mill, the bank held the paper as a liability against the mill. No notice of the dishonor of this paper was given to the endorsers. After May 1,1875, the bank charged to the account of the mill its current checks, but instead of charging to its account its commercial paper made and paid after that date, it charged up to the account, as rapidly as could be done without producing an apparent overdraft, the indebtedness which had accrued prior to May 1,-1875; so that when the bank failed the debt ($300,776), existing May 1,1875, had been wholly paid, and the bank had in its possession the commercial paper of the mill made and paid since May 1, 1875, to the amount of $419,361, which had been endorsed by Yail and Robinson.

October 31, 1878, the bank failed, and November 27,1878, the plaintiff was duly appointed its receiver. In November, 1878, the

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woolen mill' failed, and Mr. Julliard was appointed its receiver. The receiver of the bank found this commercial paper of the mill, representing $419,461, and Januai-y 24, 1879, began this action to recover of the trustees of the mill the sum by which its indebtedness exceeded its capital stock, upon the ground that they were liable for the excess under the twenty-third section of chapter 40, Laws of 1848, which provides:

“ Sec. 23. If the indebtedness of any such company shall, at any time, exceed the amount of its capital stock, the trustees of such company assenting thereto shall be personally and individually liable for such excess to the creditors of such company.”

Edwin Countryman for app’lt; Esek Cowen, for resp’ts.

The plaintiff asserts that the claims, amounting to $300,776, held by the bank against the mill, on the 1st day of May, 1875, have been fully and legally paid; and that between May 1, 1875, and the date of the failure of the bank, a new indebtedness, amounting to $419,361, was incurred by the mill to the bank with the assent of the defendants, and that they are liable to the receiver of the bank for the sums by which the indebtedness exceeds the capital stock of the mill The referee found as a fact:

“ VIII. That to the creation of the debt of the Schaghticoke Woolen Mills to the Merchants & Mechanics’ Bank of Troy, existing on the 1st day of May, 1875, or to any part thereof, the defendant, Daniel Eobinson, did not assent.”

As a conclusion of law: “ 1. That neither of the defendants are liable for any part of the indebtedness of the Schaghticoke Woolen Mills in excess of its capital stock existing on the 1st day of May, 1875.” The plaintiff insists that the eighth finding of fact is without any evidence tending to sustain it, that it is a ruling upon a question of law, and that the referee erred in finding it, and the general term in sustaining it.

If the plaintiff’s position is, in fact, well taken, he should have excepted to the eighth finding pursuant to § 993 of the Code of Civil Procedure. Brush v. Lee, 36 N. Y., 49 , 53; Gidley v. Gidley, 65 id., 169, 171 ; Sickles v. Flanagan, 79 id., 224; Mead v. Smith, 28 Hun, 639 . But no exception was taken to this finding, nor was an exception to the conclusion of law above quoted, which seems to be a sequence to the finding of fact above quoted. Neither did the plaintiff request the referee to find the converse of this finding of fact, pursuant’to § 1023 of the Code of Civil Procedure. It does not appear that the case contains all of the evidence, or all bearing upon the eighth finding; and on such a record this court must presume that the finding was sustained by the evidence. Porter v. Smith, 107 N, Y., 531 ; 12 N. Y. State Rep., 479; Billings v. Russell, 101 N. Y., 226 ; Cox v. James, 45 id, 557. However, it is quite unnecessary to determine whether Eobinson assented, within the meaning of the section, to the creation of the debts existing May 1, 1875, for the referee finds as a fact (sixth finding of fact) that on that date he knew the amount of the indebtedness then outstanding, and, as a conclusion of law (eighth con

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■elusion) that he assented, within the meaning of the section, to the •creation of all debts which were incurred by the mill after that •date. The other defendant, Pinkham, did not become a trustee until June 18, 1878, and was without power to assent, or dissent, within the meaning of the section, to the creation of the debts incurred before that date, but he knew (seventh finding of fact) the amount of the indebtedness outstanding June 18,1878, and assented within the meaning of the section (eighth and ninth conclusions of law) to the creation of all "debts which were incurred by the mill after that date.

Thus, the liability of the defendants depends upon whether the commercial paper found in the bank after its failure, and amounting to $419,861, was then an existing indebtedness in favor of the bank, and against the defendants. Had this paper remained unpaid in the hands of the person to whom it was given, the liability ■of the defendants, as assenting trustees, for the excess, could not have been successfully denied.

The referee does not find whether the existence of the contract of May 1, 1875, was known, or unknown to the boards of the two corporations, nor is it disclosed by the evidence; but if does appear that the board of directors of the bank consisted of four members, D. Thomas Yail, a director and president, Charles E. Church, .a director and vice-president, Francis Sims, a director and cashier. The name of the fourth director does not appear. Church was a partner of Eobinson and an endorser on some of the paper made by the mill after May 1, 1875. The board of trustees of the mill consisted of five members, D. Thomas Yail, a trustee and president, Daniel Eobinson, a trustee, Chester Griswold, a trustee, William Howard Hart, a trustee, and Thomas A. Knickerbocker, a trustee from.May 1, ,1875, to June 18, 1878, when James E. Pinkham succeeded Knickerbocker as a trustee, and from that date until the failure of the mill its trustees were Yail, Eobinson, Griswold, Hart and Pinkham.

There is no evidence that the financial transactions between-the bank and the mill prior, or subsequent to May 1, 1875, were unknown to, or disapproved by the board of either corporation, and this court will not, for the purpose of reversing the judgment, pre■sume that the transactions were unauthorized by the boards. The contract does not appear to have been entered into for the personal benefit of Yail or Eobinson, but solely for the benefit of the then involved corporations, and there is no evidence that Yail or Eobinson pi’ofited, or sought to profit by the contract. The contract was one which the boards of the corporations had power to authorize their presidents to make, or to ratify after it had been made, and the burden was on the plaintiff to show that the contract was not authorized or ratified by the boards. Bank of Vergennes v. Warren, 7 Hill, 91 ; Gillett v. Campbell, 1 Denio, 520 ; Elwell v. Dodge, 33 Barb., 336 ; Chemical National Bank v. Kohner, 85 N. Y., 189 , 193; Smith v. Hull Glass Co., 11 C. B., 897 , 929; Lee v. Pittsburgh Coal & Mining Co., 56 How., 373 ; aff’d, 75 N. Y., 601 ; Morawetz on Corp. (2 ed.), §§ 336, 538, 593. The plaintiff failed to rebut the presumption that the contract was entered into

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or ratified by the authority of the boards of the corporations, and it must be held to be binding on both. Under it the commercial paper made by the mill and paid by the bank after May 5, 1875, was as to these defendants paid, and. no cause of action was established against them under the 23rd section in respect to it.

The judgment should be affirmed, with costs.

All concur, except Parker, J., not sitting.