St. Nicholas Insurance v. Howe — 20 N.Y. Super. Ct. 450

Majority

p. 450

The St. Nicholas Insurance Company v. John W. Howe.

Headnote

1. The defendant subscribed for (80) shares of the plaintiffs’ capital stock, and afterwards, by his authority, other (66) shares were subscribed for in his name, and certificates for the whole (146) shares, were issued to him; and as security for payment of his note for §2,000, he assigned 46 shares, and delivered, with the assignment , a certificate for such shares, to a bank which became insolvent; and the receiver of such bank sued the defendant and obtained judgment for the sum due on the note, and subsequently sold the (46) shares, and applied the proceeds on the judgment; and the purchaser of the 46 shares applied to have them transferred on the plaintiffs' books to him, when it was discovered that (130) shares had already been transferred by the defendant in person, or by attorney; whereupen the plaintiffs transferred to the purchaser 16 shares, and paid to him for the remaining (30) shares, §301.25, the sum he paid therefor, and took a surrender of the certificate; and defendant subsequently, with knowledge of all the facts, promised to pay to the plaintiflh the said sum of $301.25; held, that-he was bound by said promise, and that an action would lie against him thereon, to recover the sum-so promised to be paid.

2. That the facts, that the person who, by his authority, subscribed in his name, for the (46)-additional shares, and as his agent, sold and transferred them/was-the president of the plaintiffs, and at the time of being authorized to subscribe for the additional stock promised, that “ he would take care of it for the defendant,” did not affect his liability to the plaintiffs, under the facts proved in this case.

3. Whatever such person did in subscribing for stock and transferring it in the defendant’s name, must be deemed to have been done by him as the defendant’s agent, and not as president of the plaintiffs, or their agent.

4. The payment by the plaintiffs, of the $3 01.25, under the circumstances, was not voluntary merely. If not to be deemed as made at the defendant’s request, it was made for his benefit and in discharge of a liability on his part; and this was a sufficient consideration for his subsequent promise to repay the amount so paid. 1

(Before Bosworth, Ch. J., and Woodeuit and White, J. J.)

Heard November 7,

decided December 29, 1860.

Exceptions ordered at the trial, to be heard in the first instance, at general term.

This action was brought to recover the sum of $301.25, and interest thereon, alleged to be due to the plaintiffs, on the following grounds, viz: one hundred and forty-six shares of the capital stock of the plaintiffs, stood in the tiame of the defendant. Certificates for the whole number

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in different parcels, had been issued to him, and the plaintiffs had his receipts therefor, signed by him. One of those certificates being for forty-six shares, was held by the Knickerbocker Bank, as security for the payment of the defendant’s note, under an assignment executed by him. The assignment and certificate were as follows :

“ Exhibit C.

“Power of attorney, with certificate annexed thereto.

“ Know all men by these presents, that I, John W. Howe, for value received, have bargained, sold, assigned, and transferred, and by these presents do bargain, sell, assign, and transfer unto , forty-six shares of the St.

Nicholas Insurance company’s capital stock, standing in my name on the books of the said insurance company, and do hereby constitute and appoint my true and

lawful attorney irrevocable for me and in my name and stead, but to his use, to sell, assign, transfer, and set over, all or any part of the said stock, and for that purpose to make and execute all necessary acts of assignment and transfer, and one or more persons to substitute with like full power, hereby ratifying and confirming all that my said attorney or his substitute or substitutes, shall lawfully do by virtue hereof.

“ In witness whereof, I have hereunto set my hand and seal the 14th day of August, one thousand eight hundred and fifty-two.

“ JOHN W. HOWE, [l. s.]

“ Sealed and delivered in ? the presence of $

“ St. Nicholas Insurance Company, ? Of the city of New Tork. )

“ No. *71. 48 shares.

“ This certifies, that John W. Howe entitled to forty-six (46) shares of twenty-five dollars each, in the capital stock of the St. Nicholas Insurance company, transferable on the books' of said company only by the said John W. Howe, or his attorney, on surrender of this certificate.

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“ In witness whereof, the. president and secretary have hereto subscribed • their names this twenty-fourth day of August, 1852.

“ H. HOPPER MOTT, Pres’t.

“Chas. 0. Richardson, Secretary.”

The Knickerbocker Bank became insolvent, a receiver was appointed; the receiver took possession of the pro-* perty, and among other, of the defendant’s note and the assignment of stock held as security, and -brought suit on the note, (which was originally for $2,000, but payments had been made thereon,) and recovered judgment for $690.52, besides costs.

The receiver also sold the forty-six shares of stock, and delivered to the purchaser the certificate and assignment, and the latter presented the same to the plaintiffs and required them to allow a transfer on their books to his name. Upon examination, it appeared that transfers had already been made by the defendant in person, or by attorney, so that only sixteen shares stood in his name, (such transfers having, in fact, been made without a return of the certificate, for forty-six shares, which, as was known to the plaintiffs’ president, were held by the Knickerbocker Bank as security for the defendant’s note.) The whole amount of stock which, by the charter, the plaintiffs were at liberty to issue, having at that time been issued to bona fide holders, the plaintiffs consented to pay, and did pay to the purchaser, for the deficiency, (30 shares,) what he had paid therefor, $301.25, and he surrendered the certificate and re'ceived a transfer and certificate for the 16 shares, which, to that time, remained in the defendant’s name.

The defendant was then called on by the plaintiffs to indemnify them. He at first denied that he had held so many shares as appeared to his credit, and that he had transferred so many as appeared to his debit; but after examination, his various receipts for certificates and his transfers by himself or attorney being seen, he promised the plaintiffs to pay to them the $301.25 which they had so paid. He also afterwards promised to give the plaintiffs

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his note therefor; but he having failed either to give his note or pay, this suit was brought to recover upon allegations of all the material facts thus detailed.

The defendant insisted and gave testimony to show, that he consented, prior to the organization of the plaintiffs, to take 80 shares of stock only; but that M. H. Mott, who was active in organizing the company and procuring subscriptions, and who, after the organization, became the plaintiffs’ president, informed him after such organization, that “ he had taken the liberty of putting some more shares in his (the defendant’s) name;” and said, that “he would take care of it for the defendant;” to which the defendant replied, that “he had no objections, provided it was so arranged that he (defendant) should not be called upon io pay for any more stock.”, After this, Mott called on the defendant with some blank powers of attorney, and stated that he “ had a chance to work off the stock in such lots as he might have opportunity;” and being asked if it was for the surplus, (i. e., the shares exceeding the 80 shares,) he said yes, and the defendant then signed the powers of attorney ; and afterwards Mott told him he had sold some of the stock which had been put down to him, and asked him to signa “receipt” on the transfer book, which he did.

The defendant testified, that he first signed an assignment with power and delivered it, with a certificate for the 80 shares he had taken to the Knickerbocker Bank, as security for his note for $2,000 ; and it was not distinctly shown by whose negotiation the assignment of the 46 shares was substituted ; but the certificate for 80 shares was surrendered, and a receipt signed by Howe for the 46 shares, Avas produced by the plaintiffs, and he executed the assignment thereof above set forth.

The defendant testified, that he had only sold and transferred for his own account and benefit, 40 shares; so that it was to be inferred that the other transfers were made under the blank powers of attorney which he had given to

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Mott, by persons whose names were inserted therein by Mott.

But on the settlement by the defendant of his indebtedness to the Knickerbocker Bank, the receiver credited him with the proceeds of the 46 shares, sold as above stated. The defendant accepted the credit, and paid the balance remaining due in satisfaction of the judgment against him.

Mott was president of the plaintiffs from their organization until after the transfers in question were made, by which the defendant’s stock was reduced to 16 shares ; and the defendant was a director of the plaintiffs, and also of the Knickerbocker Bank.

The plaintiffs are a corporation organized under the “ Act to provide for the incorporation of insurance companies,” passed April 10, 1849, Laws of 1849, chap. 308, page 441.

The action was tried on the 1th of December, 1859, before Mr. Justice Pierrepont and a jury, and upon the facts in substance, above recited, and some others stated in the opinion of the court at general term, the judge, on the trial, decided that no cause of action had been proved by the plaintiffs, and ordered judgment of non-suit, to which the plaintiffs excepted; and he thereupon directed that the exceptions be heard, in the first instance, at the general term, and that judgment be in the meantime suspended.

The defendants now moved for judgment in'pursuance of the order so made, and the plaintiffs, insisting that the ruling was erroneous, demanded a new trial.

E. Ji. Doolittle, for the Plaintiffs.

Charles Tracy, for the Defendant.

—It is shown by receipts produced on the trial signed by the defendant himself, that he actually received certificates for one hundred and forty-six shares of the stock of the plaintiffs. His own testimony

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shows, that, although he relied upon the promise of M. H. Mott, that he “would take care of it for” him, i. e., would take care of the number of shares exceeding eighty, yet, that he did in truth consent to the subscription therefor by Mott in his name, or sanctioned it after it was done, and the same having been subscribed, certificates were issued by the plaintiffs, and the defendant received them.

In the evidence bearing upon this branch of the case, that is to say, the history of the defendant’s ownership of the one hundred and forty-six shares, there is nothing whatever, showing any fraud or misrepresentation to induce him to subscribe or take the stock.

We have no hesitation in saying, therefore, that in this case, the defendant is to be treated (as between him and the plaintiffs) as the holder and owner of one hundred and forty- six shares of their capital 'stock. The fact that he had Mott's promise as to sixty-six shares, that he “would take care of it for him, does not, and cannot effect the plaintiffs. The language of the promise is itself vague and obscure ; it may mean that Mott would find a purchaser for it, or that he would procure some one to take it off his hands and pay for it, so that the defendant should not be required to do so. In some such sense as last stated, the defendant appears to have understood it. But it is obvious, that after the stock had been entered to the defendants’ name, and he had actually received the certificates therefor, he was (as against these plaintiffs, and as against Mott also,) entitled to hold it, and enjoy and exercise all the rights of a stockholder to the number of shares designated.

And in our judgment, it is equally certain, that he could not, as against these plaintiffs, have refused to pay the subscription price for the whole of the stock. Mott, in making the agreement referred to, was not the agent of the plaintiffs. He had no authority by virtue of his office of president to bind the plaintiffs, to an agreement, that a stockholder should not be required to pay for his stock. His promise was not in the plaintiffs’ name, nor ostensibly made on their behalf. It was in every aspect in form, in

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fact, and in law, Mott’s individual promise to take care of the stock for the defendant, and upon that, the defendant must be deemed to have relied in authorizing or ratifying the subscription for the sixty-six shares exceeding the subscription for eighty shares, which the agreement did not embrace.

Had Mott assumed to act on behalf of the plaintiffs, and had promised for them, that the defendant should not be required to pay for the stock, they would not have been bound; first, because he had no authority to make such a contract; second, such an agreement on behalf of the corporation, to reduce a subscription to its stock, would be a fraud upon bona fide subscribers, contrary to public policy, and a fraud upon the statue, authorizing the creation of such corporations. It could not be tolerated that, in organizing and taking subscriptions for stock in corporations, formed under the statute, the proposed officers, or the officers actually agreed upon or appointed, should be permitted to contract with subscribers for stock, that they shall not .be required to pay in the amount subscribed.

The defendant is then to be treated in reference to the question before the court, as any other holder of one hundred and forty-six shares would be, or as he would be if the promise of Mott to take care of a part of his stock had not been made.

Again, the transfers subsequently made of the stock so held by the defendant, are to be deemed made upon his responsibility. They were made by him in person, or by his duly constituted attorney. His attorney is his representative, and not the plaintiffs’ agent. If, in either of the transfers, Mott made the transfer, which does not distinctly appear, he was not in that, acting as president of the plaintiffs ; it was no part of the power or duty of the president as such, to transfer the shares held by the shareholders, and any authority to him from a shareholder to make a transfer, was a private matter between the latter and the president, as a merely private individual. And such attorney, though at the time holding the office of president,

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acts upon his private responsibility to the stockholder who gives him the authority. The corporation have no concern in or responsibility for the act of the president, in the exercise of such an authority.

If, therefore, the defendant thought proper to confide in Mott, so far as to give to him powers of attorney, or other general authority to control or sell, or transfer his stock, he made him his private agent, and he must look to him for indemnity for any transfer made in violation of any agreement with Mott, or not in conformity with the intention of the defendant. The transfers of stock which were made must, therefore, be treated (as between the plaintiffs and the defendant) as they would be, if made by the defendant in his own proper person.

In this view of these questions, which are in some part preliminary to the main question, how does the case appear ?

The defendant had received from the .plaintiffs on the 5th of August, 1852, a certificate for eighty shares of stock which belonged to him, and stood in his name upon the .plaintiffs’ books. He hypothecated those eighty shares (by delivery of the certificate with an assignment of the stock therein mentioned, and a power of attorney authorizing the transfer thereof) with the Knickerbocker Bank as security for two thousand dollars loaned to him upon the credit of his note so secured. He thereafter, on the 24th of August, 1852, received from the plaintiffs one certificate for twenty shares for B. F. Howe, (to whom he had transferred them,) and another for forty-six shares in his own name; these last two being the exact number of sixty-six shares which he claims Mott was to take care of, and the three making up the whole of his stock, viz: one hundred and forty-six shares.

By whose hands the certificate for the forty-six shares came to the possession of the Knickerbocker Bank, it is not distinctly shown; but it does appear that the defendant received it from the plaintiffs, and that it was delivered to the Knickerbocker Bank, with an assignment coupled with

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a power of attorney to transfer the shares signed by the defendant, and that the bank surrendered the certificate for eighty shares theretofore held. The language of the defendant, after speaking of forty shares sold to his brother and Coleman, viz: “ the other forty shares were left with the bank as collateral security for my note,” sufficiently indicates that he was cognizant of this substitution, though he was perhaps mistaken in describing the last certificate as for forty, when it was for forty-six shares.

It thus appears that on and after the 24th of August, 1852, the defendant held one hundred and twenty-six shares of stock, and that forty-six of those shares were hypothecated with the Knickerbocker Bank as security for the defendant’s note. Afterwards, -and without surrendering the certificate for forty-six shares, the defendant transferred (in person or by attorney) one hundred and ten shares, and the question first arising is, whether that transfer destroyed the title of the Knickerbocker Bank to thirty of the forty-six shares for which they held a certificate ?

Without considering that precise question, it will, perhaps, be sufficient to consider whether the defendant was, after the transfer of- the one hundred and ten shares, under any responsibility in respect of the deficiency thus created.

On this subject, two propositions are, we think, clear: First. His transfer was a violation of the rights of the Knickerbocker Bank. Although (the transfer being made by his attorney) if he did not knowingly consent to it, he was guilty of no intentional wrong" the transfer was a fraud upon the bank, and he was bound to make them good. In equity, they had against him a clear title to have those shares, and to compel him to remove all impediments to their appropriation to the purpose for which they were held, or to pay them the full value thereof. And, Second. He was under the like obligation to return the certificate for forty-six shares to the plaintiffs, or at least to indemify them against any claim under the same by reason of his own previous assignment thereof to the bank. The plaintiffs might, perhaps, so far waive the return of

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the certificate and permit a transfer as to give to the transferee receiving a transfer and certificate in good faith, in his own name, a valid title as against them to the number of shares so transferred; but if so, that would not waive a claim upon the defendant either to return the outstanding certificate or indemnify them against it.

It follows that the defendant, after the transfer by which his stock was reduced to sixteen shares, was under a clear liability to the Knickerbocker Bank to the extent of the value of the thirty shares, and to the plaintiffs to indemnify them against any claim on account thereof.

We think, moreover, that inasmuch as the president, Mott, and the defendant, a director, were both fully aware that the stock had been hypothecated with the Knickerbocker Bank, where the transfer was made which reduced his shares' to sixteen, it was by no means clear that the plaintiffs could have protected themselves against the demand of the bank, or its receiver or assignee, to recognize their title and permit a transfer thereof; or if, by reason of the transfer already made in fraud of the rights of the bank an actual recognition of the title of the bank, was impossible, because it would increase the number of shares beyond the number of actual shares of its capital, then it is not clear that the plaintiffs were not bound to indemnify the bank or its assignee.

Be this as it may, the plaintiffs consented to give such indemnity by refunding to the purchaser the sum he paid for the thirty shares. That sum had been applied in discharge of the conceded indebtedness of the defendant to the Knickerbocker Bank, and the defendant sanctioned that application, and so indirectly received to his own use the precise amount which the plaintiffs had paid.

The claim, therefore, which the purchaser made upon the plaintiffs for the thirty shares under and by virtue of the defendant’s assignment and power, may properly be treated as a request by the defendant addressed to the plaintiffs to deliver to such purchaser thirty shares of stock, and the payment of its value (under the circum

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stances) as an equivalent, as the payment of so much money to his use. Had not the plaintiffs acceded to such request, the purchaser would have had recourse to the defendant, and it is not for the latter to object that the plaintiffs did not engage in a litigation with such purchaser before doing what the defendant’s assignment and power of attorney, as against him, authorized them to do.

But, in our judgment, the subsequent promise of the defendant, which was clearly proved, to repay the money, removes all doubt on the subject. The defendant was liable to that very amount to the bank or to the purchaser, and the payment by the plaintiffs operated to discharge him to that extent. It was paid by the plaintiffs, and. on notice thereof, he agreed to refund the amount paid.

We think it was not a merely voluntary payment under the circumstances in which the plaintiffs were placed. That it may properly be deemed, as already suggested, a payment by his request. But especially, that it was a payment for his benefit in discharge of a plain liability which he was under to a corresponding amount, (the sum paid by the purchaser having been, with his assent, applied to his debt, and so he having unequivocally sanctioned the sale,) and that this was a good and sufficient consideration for his agreement to refund the amount paid. (See Stewart v. Eden, 2 Caines, 152 ; Comstock v. Smith, 7 J. R. 86 ; Hicks v. Burhans, 10 Id. 243; Beach v. Vandenburgh, Id. 360 ; Everts v. Adams, 12 Id. 352 ; Oatfield v. Waring, 14 Id. 191; Doty v. Wilson, Id. 381; Gourley v. Allen, 5 Cow. 644 ; Forsyth v. Ganson, 5 Wend. 558 ; Addison on Conts. 19, 20 ; Story on Conts. § 473; Parsons on Mer. Law, 39, 40 ; Wing v. Mill, 1 Barn. & Ald. 104. See also Miller v. Watson, 4 Wend. 267 ; Russell v. Cook, 3 Hill, 504 .)

For these reasons, we think that upon the facts proved the defendant was liable, and that the non-suit ordered at the trial was erroneous.

• A new trial should be ordered, with costs to abide the event of the suit.

Ordered accordingly.

Cases cited

Gourley v. Allen 5 Cow. 644 N.Y. p. 460
Forsyth v. Ganson 5 Wend. 558 N.Y. Sup. Ct. p. 460
Miller v. Watson 4 Wend. 267 N.Y. Sup. Ct. p. 460