Perry v. Council Bluffs City Water-works Co. — 74 N.Y. Sup. Ct. 456

Majority

p. 456

MARSDEN J. PERRY, Respondent, v. COUNCIL BLUFFS CITY WATER-WORKS COMPANY, Appellant.

Headnote

Implied authority of the financial manager of a corpoi'ation — liability of the corporation on notes made by him — limit of recovery on the notes.

Where tlie treasurer of a business corporation is also permitted to become and act as its sole financial manager, the corporation will be chargeable, irrespective of the question of authority, in fact, with liability for acts done by him within the apparent scope of the authority conferred upon him by the corporation.

The treasurer of a water-works company had been permitted, through the omission of its other officers to direct its financial management or supervise his acts, to ■become and act as its sole financial manager, and had made and negotiated some fifty promissory notes in its name, during a period extending over about a year and a half:

Held, that the company was liable to a bona fide holder for value of a promissory note executed in its name by such treasurer, which matured while he was still treasurer, and the proceeds of which, so far as received by him, had been applied to the use of the corporation, although the note was not specially authorized. One who has loaned money upon the security of a promissory note, not valid as a legal obligation against the maker in the hands of the prior holders, but which when transferred to him became in his hands a legal obligation, is limited in his recovery thereon against the maker to the amount loaned by him, with legal interest from the date of his loan.

Appeal by the defendant, the Council Bluffs City Water-works Company, from a judgment of the Supreme Court, in favor of the plaintiff for $J,350.03, damages and costs, entered in the office of the clerk of the city and county of New York on the 29th day •of January, 1891, upon the decision of a referee.^[1]

p. 457

James L. Bishop, for the appellant.

George B. Ashiey, for the respondent.

As stated by tbe referee in Ms opinion, this action is brought upon a promissory note, which reads as follows:

“ $5,000. New YoeK, Nov. 23d, 1886.

“Four months after date we promise to pay to the order of Allen & Stead five thousand dollars at the treasurer’s office, 44 Broadway, New York. Yalue received.

“ COUNCIL BLUFFS CITY WATER-WORKS CO.,

“HeNey AlleN, Treasurer.”

It was indorsed by Allen & Stead and sent by Allen to one Bradford, a person in Providence, Rhode Island, who claimed to have facilities for obtaining the discount of mercantile paper. Bradford took the note in December, 1886, to plaintiff at Providence, Rhode Island, and asked for a loan upon it. Plaintiff, remembering that a bank, wherein he was a director, had discounted such a note for Bradford, got that note from the cashiey and compared it with the one in suit and found them similar in form, and the president of that bank also told him there was another such note held by a savings bank in Providence, and that it was a good loan. Plaintiff, therefore, lent to Bradford $4,500 on the note, and he sent $2,500 to Allen, the maker, who entered the fact of the issue of the note

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and the receipt of the money on the books of Allen & Steadin an account therein kept as the Council Bluffs Water-works account, and he testified that lie applied the proceeds to that company’s use.

The questions presented for review are, whether the defendant corporation is liable upon the note, and, if liable, to what extent %

Upon the former, as to defendant’s liability, we might content ourselves with resting the case upon the reasonings contained in the

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opinion of tbe learned referee, wbicb, upon tbe evidence, disposed of tbe defenses that plaintiff is not a tona fide bolder for value, and that tbe note 'in suit was issued without authority of tbe defendant and was not its obligation, and points out tbe distinction between this case and that of First National Bank of Middletown v. This Same Defendant ( 56 Hun, 412 ). It is not claimed that tbe evidence is insufficient to support tbe findings of fact made by the referee,

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and upon such evidence we think he has correctly interpreted the decisions and drawn, correct legal conclusions.

lie finds that during the period from sometime in the month of October, 1885, to February 27, 1887, Iiarry Allen, as treasurer of the defendant corporation, made and issued in the name of the defendant, and to which the name of the defendant was signed by himself as treasurer thereof, some forty or fifty promissory notes,

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to the order of, and indorsed “Allen & Stead,” which were negotiated, and money obtained thereon ; that the reason for the making of such promissory notes to the order of Allen & Stead was that they were acting as the financial agents of the defendant, and it was to give additional credit to such notes, the credit of the corporation itself being poor; and, although the by-laws of the defendant required the countersigning by the president, none of these notes so

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issued was so countersigned; that the note in suit was, in form, similar to these others; that during all this period, with the exception of one in May, 1886, no meetings of the board of directors were held, and at the one meeting no business was transacted other than the re-election of officers of the defendant; that Allen, though he sought to consult and advise with the president of the corporation, was referred to the latter’s law partner, who was also a director in

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the corporation; that none of the officers or directors used or exercised any official supervision over Allen or his acts and transactions as treasurer, except the director who was the president’s law partner, and who, it would appear, was not only consulted with respect to the making of the promissory notes,, and the obtaining of money thereon, but concurred in the very beginning with the making of such promissory notes; that further, he not only advised the making

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and. issuing of such notes from time to time, but personally indorsed a large number of them, and one with the name of his firm, of which the president was a member.

A review of the evidence supporting these findings will sustain the referee and justify his conclusion that Allen was practically the corporation, and that the case is brought within the principle laid down in Fifth National Bank v. Navassa Phospate Company

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( 119 N. Y., 256 ), because he was not only the treasurer of the defendant, but, as said in that case, “ he was consciously invested by the company with the broad general power inseparable from the position in which it placed him as the sole manager of its affairs at its principal place of business.” Acting, therefore, within the apparent scope of the authority conferred upon him by the corporation, the latter is charged with liability, irrespective of the question of

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•authority in fact. It would serve no useful purpose to traverse the •grounds so carefully gone over by the learned referee, it being suiB- ■ cient upon this branch of the case to say that we concur in his ■ reasoning, and in the conclusion reached.

The question, however, as to the extent of the defendant’s liability, remains to be considered. This note in suit, as shown, was delivered ¡as collateral security to a loan of $4,500 made by plaintiff to one

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Bradford, under an agreement that the loan was to be paid in a few days witlx interest at the rate of five dollars a day until such time as the loan was paid. If the recovery upon this note were to include the $4,500 and interest as agreed upon, then it would amount to more than the principal and interest upon the note itself.

But the appellant insists that neither of these, measure the extent, if answerable at all, of defendant’s liability, but that all that plaintiff

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can claim is the $4,500 advanced on the faith of defendant’s note, with interest thereon from the date of the loan, at the rate of six per cent. In Todd v. Shelbourne ( 8 Hun, 512 ) it was held “ that the indorsee of commercial paper, not valid as a legal obligation in the hands of the payee negotiating it, must be restricted in his recovery to the value with interest advanced by him to the payee upon the faith of it.” This and other cases are authority for the proposition that where a negotiable instrument is not enforceable between the parties a bona fide holder can only recover what he or some prior holder through whom-he derived his title paid for it, with interest. (Randolph on Commercial Paper, § 994.) Taking the facts here, we think that this note was not valid as a legal obligation in the hands of the payee negotiating it or in the hands of Bradford who delivered it to the plaintiff as collateral security for a loan made by him, but that when transferred to the plaintiff it became, in his hands, a legal obligation against the defendant, but only to the extent of what was advanced upon the faith thereof. We-think the principle of the eases, which, under such circumstances would prevent a profit being made out of the transaction, is applicable, and that, while the plaintiff is entitled to protection to the extent of the moneys he advanced and legal interest from the date of the loan, he cannot recover either the face value of the note, with interest thereon, nor the amount loaned, with interest at the rate agreed upon by Bradford of five dollars a day. The difference, however, in the amount is easily computed, and, when ascertained, should be deducted from the judgment, and. the judgment, as so modified, should be affirmed, without costs.

YaN BküNT, P. J., and Follett, J., concurred.

Judgment modified as directed in opinion, and, as modified, affirmed, without costs.