Chemical National Bank v. Colwell — 29 N.Y. St. Rep. 726

Majority

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The Chemical National Bank, Resp’t, v. Augustus W. Colwell, Impleaded, App’lt.

(New York Common Pleas, General Term,

Filed February 10, 1890.)

Headnote

1. Business corporations—Power op president to make contracts.

Where the by-laws of a business corporation provided that the president should make, sign and execute all contracts in the name of the company, and also that all notes shall be signed by the treasurer, Heid, that the president had the right, without the authority of the board of directors, to make contracts and such negotiable paper as was necessary for the business, and that the signature of the treasurer was not necessary to make such notes valid.

2. Same—Negotiable paper. ■

A note of such company drawn to its own order and signed and endorsed by the president when presented for discount, although so presented by a director some time after its date, does not on its face suggest that it was an accommodation note, nor does the possession of it by the director tend to show that it was used for a dishonest purpose.

S. Same—Directors—Resignation.

To constitute a valid resignation of a director, his communication must express a definite and present intention to withdraw from the office, and must be addressed to the company or board of directors,- or to an officer as such, with the explicit purpose of having it reach the company or board through him. Merely stating to an officer that he has nothing further to do with the company is not sufficient.

Appeal from judgment in favor of plaintiff, entered upon verdict directed by the court.

The action was against the defendant as a director of the New York Lumber Auction Company, Limited, a corporation organized under the act of the legislature of this state, passed June 21, 1875 (chap. 611), to recover $2,200, the amount of a promissory note of that company, transferred to and held and owned by the plaintiff, on the ground that no annual report had been made or filed as required by § 18 of that act.

The defendant attempted to show that he had resigned as director of the company some time in November, 1885. He never sent to the company any written resignation, and did not give a notice of resignation at a meeting of the board of directors. His claim that he resigned rests wholly upon what he said to Latimer E. Jones, a co-director, at the office of the company, on the 5th day of November, 1885, and what he did at that time with his certificate of stock.

The court below delivered the following opinion:

Yan Hoesen, J.—I think that the plaintiff is entitled to judgment on the verdict.

This case differs from those on which the defendant relies. The statute (§ 10), provides that the business shall be managed by a board of directors, and “ by such officers, to be elected from the directors, as the by-laws shall prescribe.”

The by-laws preclude the idea that the ordinary business of the company was to be managed by the board of directors, for they provide that the directors shall only meet semi-annually unless the president or the secretary shall call a special meeting. They then provide that the president shall make, sign and execute all

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contracts in the name of the company. He is not merely to sign and execute, he is to make all contracts.

This clause makes the president the general agent of the company, with power to transact all business that the company could lawfully do. It implies, if it does not expressly confer, the power to make such negotiable paper as was necessary or convenient in the business of the company.

There is another clause of the by-laws which declares that all notes shall be signed by the treasurer, but I do not regard that as tantamount to a declaration that a note shall not be valid unless the name of the treasurer be signed to it. The by-laws are in several places contradictory, for one clause provides that the corporate seal shall be attached only to certificates of stock unless special directions to the contrary be given by the president or the treasurer, and the clause makes it the duty of the secretary to attach the seal to all contracts.

I believe that the president had the right, without the authority of the hoard of directors, to make contracts, and to make the contract that is the subject of this action.

There is nothing in the evidence to show that the contract is one that the president ought not to have made, though there is evidence that the money obtained upon the note was used by one Jones, who was a director of the company, for his own private purposes.

The fact that Jones was a director of the company, and that the proceeds of the note were applied by him to his own use, does not show that the note was made for his accommodation, nor did the possession of the note by him naturally give rise to the question as to whether he was not confederating with the president of the company to make an improper use of the credit and the paper of the company. The note was signed: “ New York Lumber Company, Limited, D. C. Wheeler, Pres.,” and was drawn to the order of “ New York Lumber Co., Lim.,” and it was endorsed exactly as it was signed. Such a note, so endorsed, though presented for discount by a director of the company twenty days after it bore date, did not, upon its face, suggest that it was an accommodation note; nor did the possession of it by a director argue that it was used for a dishonest purpose. If, in point of fact, the proceeds of the note went into the company business; or, if the note, after having been used in the business of the company, had found its way into the hands of a director (and the bank had nothing before it to show that either state of affairs was unlikely), what reason was there why it should not be discounted ? The so-called resignation of the defendant did not terminate his duties as a director. It was never accepted, Boone on Corporations, § 136; Angelí & Ames, § 433 and 434, nor do I think that he absolutely and irrevocably resigned, though he talked of resigning. No successor had ever been chosen, nor had the resignation ever been brought to the notice of the board. His term had not expired by its own limitation. There should be judgment on the verdict

J. Alfred Davenport and Edward 0. Perkins, for app’lt; Jones & Poosevelt, for resp’t.

I concur in the conclusion reached by Judge Yan Hoesen, and in the reasons assigned by him in his opinion, filed upon the denial of defendant Colwell’s motion for a new trial. It will be unnecessary to further consider the questions which are fully discussed in such opinion. It may be well, however, to pursue the discussion a little further on the questions of appellant’s alleged resignation as a director, and the transfer of his stock in the “New York Lumber Auction Company, Limited.” Accepting the version of the transaction supplied by appellant’s witnesses, the facts are as follows: On the 5th day of November, 1885, appellant said to Latimer E. Jones, the secretary and treasurer, at the office of the company, at the time of executing an assignment to said Jones, individually, of the eighty shares of stock which appellant then owned.

“ Now J ones that severs all my connection with the Lumber Auction Company; I have got nothing further to do with it; you have got father’s stock; he is dead, and that settles that, and I have given you mine, and that clears up all that, and I have nothing further to do with the company.”

Mr. Jones was appellant’s brother-in-law, and the above conversation is what appellant relies on to establish a resignation. Ap-Eellant admitted that he did not tell Mr. Jones to communicate is resignation to the board of directors, saying, however, that he had told Mr. Jones previously that he wished to resign.

Granting that the right of a director to resign is absolute, and admitting that no writing, and no particular form of words is essential, it is nevertheless true that any communication, in order to constitute a valid resignation, must express a definite and present intention to withdraw from the office in question, and must be addressed to the company, or the board of directors, or to an officer, as such, with the explicit purpose of having it reach the company or board of directors through him. I do not think the facts relied on to establish a resignation here are as strong as they were in Kindberg v. Mudgett, 24 W. Dig., 229. In that case it appeared that the defendant had stated orally to several trustees that he would have nothing more to do with the company, besides writing a note to that effect to one of them. Yet even under those circumstances the court held that defendant’s declarations could not be construed as a resignation.

Appellant further contends that he ceased to be a director under § 10 of the act, because on November 5th he executed an assignment of all the stock he held to Jones. The facts are that he executed such assignment in the blank upon the back of his certificate on November 5th, but that the actual transfer on the books was not made until November 14th, when seventy-five of the shares were transferred to Jones, and a new certificate for the remaining five shares was made out in appellant’s name. Appellant’s witness, Atchison, says on this point:

“ I suggested to Mr. Jones that it would be bad policy for Mr. Colwell to leave the company entirely, and that he persuaded him to accept the requisite number of shares to remain as a director, which was afterwards done."

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It does appear that appellant actually took back the certificate for such five shares, presumably, as Mr. Atchison testifies, with the intention of remaining a director. The trial judge was therefore justified in inferring that appellant concluded to ratify the act of Jones and Atchison, in keeping him eligible for, and actually in the board. In contemplation of law I think appellant was the holder of said five shares throughout his term of office. He intended originally to assign all his shares, but only seventy-five of them actually were transferred; and, as he consented afterwards to retain the five shares which all the time stood in his name, it would be putting a most unnatural and technical construction upon the conceded facts to hold that he was not continuously a stockholder.

My conclusion is that appellant was legally a director of the corporation at the time of the failure to file the annual report, and of the inception of the debt, and that he is hable as sued in this action.

Bookstaver and Bischoff, JJ., concur.