16 N.Y.S. 545 | N.Y. Sup. Ct. | 1891
Lead Opinion
This is an appeal by plaintiff from a judgment dismissing the complaint before the conclusion of the plaintiff’s testimony. The plaintiff is a corporation, under the act of 1848, for carrying on the seed business; capital, $50,000, divided into 2,000 shares, $25 each. The defendant originally had 1,200 shares. The buildings were destroyed by fire in June, 1886, and about $23,000 was received in cash from the insurance before the annual meeting in July, 1886. There was evidence that prior to this meeting the defendant had agreed to make one Howland and one Dunning trustees, and to make Howland treasurer, ata salary of $7,000; that Howland was to lend money to defendant, “and fix it in such a way that it .would not be visible on the books, and still appear to be all legal. ” At this meeting defendant stated that he had been obliged to raise money, and had sold some stock to Howland and Dunning, on condition that they should be made trustees. This was done. The business was moved to New York, and from that time defendant was the active manager, or, as the trustees, said, “he was the company in effect.” At a meeting of the trustees in New York, July 23, 1886, defendant was president, and was elected president; Howland, treasurer. It was voted: “There being a larger cash balance in the bank than ■will be required to be used fora long time, resolved that the treasurer be authorized to loan such surplus as in his judgment is to the advantage of the company, taking good and sufficient security for the amount loaned.” How-land, as treasurer, gave defendant checks of the company as. follows: July 24tb, $2,000; July 28th, $1,000; August 4th, $3,000; August 19th, $1,150. Theseehecks weredrawn lo order of cash. Thestub was marked, “Onaecount of loan;” the name of the borrower not given. Onthe books the amounts are' charged to “cash for bills receivable;” for whom is not stated. July 24, 1886, defendant made his note to plaintiff’s order for $6,000, stating that there was deposited as collateral 1,000 shares of the stock of the company. August 19, 1886, he. gave another similar note, for $1,150, reciting the deposit as collateral of 200 shares of the same. This is all the stock defendant had ever held. There are other circumstances tending to characterize the •transactions as fraudulent. This pretended loan to defendant was plainly not authorized by the vote of the board. This was not a loan of good and sufficient security, and defendant must have known this, as is evidenced by the concealment of the transaction and other proof. In April, 1889, some of the stockholders, having heard of these transactions, had an interview with ■defendant, in which he admitted the transactions, and produced the notes from an iron box in the safe, which was locked, and to which he only had a key. In June, 1889, a meeting of the trustees was held, at which defendant and Howland were present. It was “resolved, that the treasurer of this ■company be directed to call the loan made to A. C. Nellis, and solicit cash offers for the hypothecated stock, and report to the next meeting.” Pursuant .thereto the stock was sold at auction, and brought about $520, which went into the treasury. This action is brought to recover the money received by ■defendant, on the ground that it was unlawfully converted. The learned justice dismissed the complaint on the ground that by foreclosing and selling
The defendant -claims, as we understand, that, if the plaintiff would recover against the defendant for the wrongful taking of its money, it must first surrender to him the security which he gave for the money thus wrongfully taken; that when one under the pretense of borrowing obtains by fraud money from another, and pledges security therefor, the lender cannot keep the security and enforce it and recover for the fraud. We do not know whether the defendant would insist that, if no security had been given, and if he had afterwards made a payment on his note, the reception of the money so paid would have prevented a recovery for the fraud. If a thief steals money, and afterwards returns a part, does the acceptance of that part prevent a suit for the conversion? There can be little doubt that this money was wrongfully taken. The statute forbids a loan to a stockholder. Section 14, c. 40, Laws 1848. The fact that there is by that section a special liability of the officers to creditors does not take away the prohibition. And the facts •of this case are sufficient to satisfy a jury that the transaction was a'fraudulent conversion. Indeed, this was not denied in the nonsuit. It is not disputed that the -trustees who voted at the meeting of June, 1889, knew then •of the original transaction, and knew that the stock was by defendant attached to his -notes as collateral thereto; and the question is whether selling that stock estops the company from treating defendant’s acts as a conversion. It is plain that a board of trustees cannot ratify an act which they could not lawfully do in the first instance. The statute says: “Ho loan of money shall be made by any such company to any stockholder therein.” The principal object of that provision is to prevent a reducing of the capital under cover of loans to stockholders. It is intended for the protection of creditors. How, if Howland, the treasurer, was forbidden to make these loans to defendant, so were the trustees. But that which they are by the statute forbidden to do, they cannot ratify after it has been done. If any authority is needed for this, see Peterson v. Mayor, 17 N. Y. 449; Brady v. Mayor, 20 N. Y. 312. Whether, under the decision in Billings v. Trask, 30 Hun, 315, this transaction with defendant was a loan, so that the officers would be liable to creditors, we need not inquire. In that ease there was plainly no loan. But the defendant urges that the plaintiff, by selling the stock, has ratified the contract, in spite of the statutory prohibition. He cites the familiar doctrine stated, with numerous authorities, in Baird v. Mayor, etc., 96 N. Y., at 598. “The law not only requires a disaffirmance of the contract at the earliest practical moment after the discovery of the cheat, but a return of all that has been received under it, and a restoration of the other party to the condition in which he stood before the contract was made. To retain any part of that which has been received under the contract is incompatible with its rescission. ” This doctrine was there applied to executory contracts for the sale of personal property, and the question related to the rescission of the contract, not to a case where the transaction was the fraudulent obtaining of property from the plaintiff. The defendant here took plaintiff’s money. Whether he took it lawfully or unlawfully, in either case it was his duty to repay it; and it was right for him to secure that repayment, whether he was a mere borrower or a fraudulent converter of plaintiff’s property. Perhaps the obligation was even stronger in the latter case. Why, then, should not the plaintiff avail itself of these securities, whatever was the nature of the transaction? It is true, as held in Terry v. Munger, 121 N. Y. 161, 24 N. E. Rep. 272, that where personal property has been converted, if the owner sues for the value on an implied contract to pay for the goods and recover judgment, he treats the title as having passed to the defendants, and therefore he cannot, in another action, recover damages for the conversion. The taking of money is not entirely analogous with the taking of chattels. There was no specific money taken in
Concurrence Opinion
I concur with the presiding justice. It might have been found as a fact that the defendant had for a short time the practical control of the corporation, and did then abuse his temporary power by converting its funds to his own use under the guise of a loan, colorably secured by inadequate collaterals. The corporation subsequently did try to mitigate its loss by'selling these collaterals. But this was no ratification of the transaction. An individual, competent to contract, may be beguiled and cheated, and subsequently ratify the voidable contract he was thus induced to make. But in this case, when the defendant took the money, he did not beguile or deceive the corporation. He effaced its power and will and capacity to act for itself. He held its hands, and spoiled its treasury. Such a transaction cannot be ratified, since it never could have been originally authorized. After applying the proceeds of the collaterals, the balance unsatisfied represents the damages sustained by the corporation from defendant’s wrong; and, upon the case assumed, plaintiff ought to recover these damages.
Statement of facts by Mayiiam, J., dissenting:
This action was prosecuted to recover $10,000 for the alleged wrongful conversion by the defendant of certain moneys belonging to the plaintiff. The complaint alleged the incorporation of the plaintiff under the act authorizing the formation of corporations for manufacturing, mining, mechanical, and chemical purposes, and that the defendant was a trustee and stockholder in such corporation, and charged that in violation of his duty as such trustee and stockholder, and without lawful authority therefor, the defendant took, received, fraudulently misapplied, and converted to his own use, the money of the plaintiff, in the aggregate, to the amount of $7,150. The answer admits the existence of the corporation, and that defendant was a trustee and stockholder in the same, and alleges that the plaintiff loaned the money specified in the complaint to the defendant, took and held his notes for the same, with 1,200 shares of stock in the company belonging to
Dissenting Opinion
(dissenting.) If this action were prosecuted between individuals competent on both sides to contract, the transactions upon which this action was brought would not amount to a conversion of these funds; •and an action for conversion of the same would not be sustained, and a complaint sounding in tort would be properly dismissed. Allen v. Allen, (Sup.) 5 N. Y. Supp. 518; same ease affirmed, 26 N. E. Rep. 756. In that case it was held that in a complaint sounding in tort, the tortious act must be proved, to entitle the plaintiff to recover, and that proof of a breach of contract was not sufficient to justify a recovery; and the complaint was dismissed by the trial judge, and that determination was sustained on appeal. ' But it is insisted that the transaction in this case was tortious from the beginning; that the plaintiff, by its trustees, had no power through its treasurer to make such •contract as was made with the defendant; and that they were alike incapacitated from ratifying such a contract after it was made; and that the defendant is not, therefore, protected from the charge of a wrongful conversion by the contract, and by the giving of his note with the collaterals; and that the adoption of that act by the plaintiff, by receiving the interest paid, and the payments on the principal, and finally by the foreclosure of the lien on the stock pledged as collateral to this advancement to the defendant, did not estop or preclude them from treating the contract as absolutely void, and as if it had never been made, and holding the defendant liable as for a wrongful taking •and conversion of this money. This contention is based on the provisions of •section 14 of chapter 40 of the Laws of 1848, which provides as follows: “ N othing but money shall be considered as payment of any capital stock, and no loan shall be made by any such company to any stockholder therein; and if any such loan shall be made to a stockholder the officers who shall make it, or who shall assent thereto, shall be jointly and severally liable to the extent of such loan and interest for all debts of the company contracted before the repayment of the sum so loaned.” While the statute prohibits the stockholders and officers of this company, which was organized under the provisions of the chapter above referred to, from loaning its funds, it does not in express terms declare that such loan shall be void; but it imposes upon a stockholder or officer taking part in such unauthorized loan a liability for all of the debts •of the corporation contracted before such loan is paid. This is, in effect, a recognition of the validity of the loan, and imposing a penalty for the illegal •act upon the officer or stockholder making such loan. The act itself furnishes
But it is insisted by the defendant that the plaintiff, by its present board' of trustees, ratified this act of its treasurer and the defendant, by accepting-the stock hypothecated as security, and foreclosing its lien upon the same, and retaining and appropriating to its own use the proceeds thereof. To this proposition the plaintiff makes answer that the trustees of a corporation can no-more ratify an illegal act of its officers than it can perform the original illegal act. The contention of both parties upon this subject may under certain conditions be sound in the abstract, but not when applied to the same state of facts. We have seen that the loan to a stockholder did not render the act absolutely void. It being in violation of law, it might have been voidable if the-company had moved promptly, and tendered back the collaterals and notes, and demanded the return of the money, but as no such course was pursued,, it is not necessary to determine that question here; but the plaintiff elected, to retain the notes and collaterals, and realize on the securities held as collaterals, after full knowledge of the illegal acts of the defendant and the treasurer of the plaintiff in making this loan; and we think that by that acquiescence, coupled with the benefits which they received and retained under this-contract, they are estopped from now claiming that the contract was void. ab initia, and from recovering against the defendant in an action for the-wrongful conversion of the money loaned. Herman, in his Law of Estoppel,, lays down the rule that corporations as well as individuals may be estopped by their acts. “A corporation may become bound and estopped otherwise-than under a corporate seal, and their undertakings and admissions may be evidenced otherwise than by records, resolutions, by-laws, ordinances, or other-written documents. Technical as well as equitable estoppels apply to corporations as well as to individuals. The ratification of a contract by a corporation may be inferred from facts attending the transactions; and where persons assuming to act as agents of a corporation, but without legal authority,.
We are referred by the plaintiff to Thomson v. Sanders, 118 N. Y. 252, 23 N. E. Rep. 374, as an authority that restoration was not necessary to entitle a plaintiff to recover. But that was an action for damages for fraud, and not an action for a wrongful conversion, and, as we think, stands upon a different principle. On the whole case, I think the learned trial judge was right in holding that this action, in the form in which it was prosecuted, cannot, under the facts proved on this trial, be maintained, and that the nonsuit was properly granted.
