120 N.Y. 134 | NY | 1890
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *136
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *137
This is an action against the directors of a corporation for fraudulently issuing and negotiating promissory notes in its name, which, on reaching the hands of bona fide purchasers for value, became legal obligations against the company. The substantial question presented by the demurrer is, whether such an action can be maintained upon an allegation of liability to pay without an allegation either of payment or of actual loss. In an action for the conversion of a promissory note by wrongfully negotiating it to a bona fide holder for value, the maker need neither allege nor prove that he has paid it, but it is sufficient if he avers that he is legally liable to pay it. (Decker v. Mathews,
This case was relied upon by the court when it rendered judgment in Farnham v. Benedict (
In Thayer v. Manley (
In Betz v. Daily (3 N.Y.S.R. 309), it was held that in an action by a partner against his copartner and certain third persons for fraudulently making notes in the name of the firm and negotiating them so that bona fide holders could compel the plaintiff to pay them, the cause of action was completed when the wrong was done and that payment of the notes was not essential to a recovery. Some of the notes were paid by the plaintiff after the commencement of the action and before trial, but a verdict for the amount of all the notes fraudulently negotiated was sustained. The court said: "The plaintiff was not injured to the amount of money which he had paid out in taking up these fraudulent notes at the time of beginning the action. The injury to him was done when the notes were first negotiated."
In Town of Ontario v. Hill (33 Hun, 250), the defendants were held liable for wrongfully issuing the negotiable bonds of a town, some of which had fallen into the hands of *142
innocent holders for value. It was determined that the cause of action accrued immediately upon the passing of the bonds into the hands of bona fide purchasers who could enforce them against the town. "In a legal sense," it was said, "the plaintiff had sustained damages by the action of the defendants when the bonds passed into the hands of persons who could enforce their payment against the town. The plaintiff's alleged right of action springs out of the defendant's breach of duty as public officers, and is in the nature of an action on the case for consequential damages." This case was subsequently reversed, but not on this point. (
While the case presented by this appeal may not be a strict action of conversion, it bears a close analogy to actions of that character when brought by the makers of negotiable promissory notes for the conversion thereof. What is the nature of the injury for which such an action lies? It is not the loss of the material substance of the note, which is simply a small piece of paper with a few words written thereon. Neither is it the loss of a contract, or of the evidence of a contract, that the maker could enforce, because it is his own engagement, in form, but not even that in fact. The wrongful destruction of an article is ordinarily a conversion thereof, but the destruction of a note, that had had no inception, would not be a conversion as to the maker, unless it might be deemed a conversion of the material substance only, which is not now important. The injury consists in the negotiation of the note, so that according to the law merchant it becomes a valid and enforceable contract against the maker, or, as in Thayer v. Manley (supra) in retaining possession after demand made so that the wrong doer had the power to put it into lawful circulation. Wrongfully aiding in the negotiation of a note, or wrongfully making a note to be negotiated by others would appear to be injuries of the same character.
What was the nature of the tortious act of which the defendants by their demurrer admit they were guilty? Those who voted for the resolution which in form authorized one of *143
their number to issue and negotiate notes of the plaintiff, assumed to authorize and, by authorizing, caused some of the notes in question to be issued and negotiated. They had no power, express or implied, to pass that resolution, or its predecessor which provided a salary for the president. They could not thus give away the property of the corporation. They could not bind the stockholders by voting to appropriate the assets of the company to an illegal purpose. (Butts v. Wood,
Their action, as admitted on the record, was a violation of their duty as directors, a breach of trust and a fraud upon the plaintiff. The result of their action was to cause notes to be made, purporting to be valid obligations of the plaintiff, although in fact void. While not the notes of the company, they appeared to be such, as they were issued by those having apparent authority. If nothing further had been done, however, the wrong would doubtless have been injuria absque damno, but the defendants who adopted the second resolution thereby authorized the negotiation of the notes, and some of them were negotiated accordingly and reached the hands of bona fide holders for value. These notes, as is here admitted, the plaintiff has become liable to pay in consequence of the fraudulent conduct of those defendants. Thus the dead pieces of paper were, to this extent, given life and converted into contracts, binding upon the company without its consent. In what respect do these wrongful acts differ from those which, in the cases cited, were held to authorize an action for conversion, or an action in the nature of conversion? Do they differ in the character of the injury inflicted or loss sustained? Is there not in each the same presumption of damage springing from a liability wrongfully imposed? Were not all of these actions founded upon the fact that the maker, real or apparent, *144 of a negotiable instrument, had, through the wrongful acts of another, become chargeable, so that he could be compelled to pay such instrument, which would not have ripened into a valid obligation against him but for such wrongful act?
We think that the cases relating to this subject rest upon the principle that a person who fraudulently places in circulation the negotiable instrument of another, whether made by him or by his apparent authority, and thereby renders him liable to pay the same to a bona fide purchaser, is guilty of a tort, and, in the absence of special circumstances diminishing its value, is presumptively liable to the injured party for the face value thereof. As the case under consideration fairly comes within this principle, it should be governed by it. The essential injury, common to all cases of this character, is the fraudulent imposition of liability. Hence, there should be a common remedy, whether it is called an action in conversion, or in the nature of conversion, or a special action on the case. These views lead to a reversal of the judgment as to all of the defendants who voted for the resolution authorizing the president of the company to issue and negotiate its notes for the purpose of paying him a salary to which he was not entitled. The defendants Slayback and Duggin, who demur separately, but through the same attorneys and upon the same grounds as the other defendants, except Kneeland, did not vote for said resolution, although they voted for the resolution to pay the president a salary. This act, although wrongful, was harmless, so far as appears, until supplemented by further action in which they did not participate, and for which, upon the record as presented, they cannot be held responsible. The passage of the resolution for the payment of a salary, without specifying how it should be paid, did not bring the notes into existence nor put them into circulation. No cause of action was set forth, therefore, as to those defendants, who are not alleged to have had any connection with the act that resulted in making and negotiating the notes.
The judgment should be affirmed as to the defendants Slayback and Duggin, but under the circumstances without costs. *145 As to all the other defendants the judgment should be reversed and the demurrer overruled with costs, with leave to such defendants to withdraw their demurrer and serve an answer within thirty days upon payment of costs.
All concur, except POTTER, J., not sitting.
Ordered accordingly.