Case ID: ny-st-rep_36/html/0500-01.html
Source: Caselaw Access Project
Author: {"author": "Earl, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Frank Rudd, Receiver, Resp’t, v. George H. Robinson, App’lt.
    
    
      (Court of Appeals,
    
    
      Filed March 20, 1891.)
    
    1. Manufacturing companies—Fiduciary relation of trustee.
    There is no rule of law which charges a director or stockholder of a corporation with actual knowledge of its business transactions merely because he is such director or stockholder.
    2. Same—Evidence—Books of corporation.
    The books of account of a corporation are not competent evidence of themselves to establish an account or claim against a trustee or stockolder in an action brought in behalf of the corporation
    This is an appeal from an order of the general term of the supreme court, first department, denying a motion for a new trial made upon a case ana exceptions under § 1001 of the Code of Civil Procedure. The facts appear sufficiently in the opinion.
    
      Thos. Darlington, for app’lt; Benj. F. Blair, for resp’t
    
      
       Reversing 27 N. T. State Rep., 98.
    
   Earl, J.

The plaintiff is receiver of the Goodwillie-Wyman Company, an insolvent manufacturing corporation organized under the laws of this state. The action was brought in equity to charge the defendant as a trustee of the corporation for the unlawful receipt and appropriation of the money and property of the corporation. An interlocutory judgment was rendered against him charging him with a large amount of money thus improperly received and appropriated.

The liability of the defendant for this money was, in the main, established by the account books of the corporation, and the principal contention on his behalf upon this appeal is that those books were improperly received as evidence against him.

The capital of the corporation was $50,000, of which Robinson, Briggs and. Innet, three of the directors, owned $1,000 each, and the balance of the stock was owned by Fisk and Groodwillie, the two other directors. Goodwillie was president, Fisk treasurer, and Briggs vice-president and secretary of the corporation.

There was no proof that the defendant had actual knowledge of the entries contained in the books which were used as evidence against Mm, or that he authorized such entries or caused them to be made. There was no proof from which the law would raise a legal presumption that he had knowledge of the entries, unless he is chargeable with such knowledge from the mere fact that he was a stockholder and trustee of the corporation.

There is no rule of law which charges a director or stockholder of a corporation with actual knowledge of its business transactions merely because he is such director or stockholder. In this case the broad claim is made that in an action by a corporation against one of its members to enforce a personal liability of the member to the corporation, its books are competent evidence against him to show the condition of the accounts between him and it, and to establish the extent of his liability to it upon their simple production and proof that they are the books of the corporation kept as such by its officers and agents. The proposition is thus announced in the points of the learned counsel for the plaintiff: “ Between a corporation and its members all its books regularly kept by its officers and agents for the purpose of recording its transactions and properly conducting its business are per se evidence.”

The cases reported in this country and England bearing upon this question are very numerous, and the general expressions of judges contained in their opinions are not entirely harmonious. The conflict, however, is mainly in the dicta of judges, and not in decisions actually made.

The books of corporations for many purposes are evidence, not only as between the corporation and its members, and between members, but also as between the corporation and its members and strangers. They are received in evidence generally to prove corporate acts of a corporation, such as its incorporation, its list of stockholders, its by-laws, the formal proceedings of its board of directors and its ' financial condition when its solvency comes in question. But we have not been able, after a careful examination of the authorities cited by the counsel for the plaintiff, and many others, to find any case in which it has been decided that the books of account of a corporation are competent evidence, of themselves, to establish an account or claim against a trustee or stockholder in an action brought in behalf of the corporation; and it has been repeatedly said by judges and text-writers that they are not competent for that purpose.

In Wharton on Evidence, 3d ed., § 662, it is said that even in suits by a corporation against its members its books cannot be used as “ proving in behalf of the corporation self-serving entries.” In Angell & Ames on Corporations, 11th ed., § 679, it is said: Entries in the books of a corporation of private pecuniary transactions with a stockholder are not admissible against him, -especially when it does not appear by whom the entries were made.” See, also, 2 Waterman on Corporations, 646. In Hager v. Cleveland, 36 Md., 476, in an action by a creditor of a manufacturing corporation against a stockholder to enforce his individual liability for a debt contracted by the company, it was held that the books of the corporation relating to its private transactions were not admissible in evidence. In Hill v. Manchester, etc., Water Works Co., 5 B. & Adol., 866, by a clause in the charter of the defendant, it was enacted that its clerks should, in a book provided by the company, keep an account of all acts, proceedings and transactions of the company, and that every proprietor should have liberty to-inspect the same and take copies of the entries; and it was held that entries of the proceedings in the books thus kept by the clerk were not admissible in evidence on behalf of the company against one of their own members suing them. Denman, Ch. J., writing the opinion and speaking of certain facts to be proved, said: These points of fact, however, could only be established by the books kept by the clerk of .the company, and the question now to be decided is whether they are evidence against the plaintiff. It is argued that they were because he was a proprietor, and the books of a partnership are evidence against any one of the partners ; and more particularly as the act requires such books of the proceedings to be kept, and that all the proprietors shall have free access to them at all reasonable times. We are, however, of opinion that the principle on which partnership books are evidence against the partners is that they are the acts and declarations of such partners, being kept by themselves, or by their authority by their servants and under their direction and superintendence. But the clerk of the company, once appointed, is subject to the control of no individual member; and the free access provided for is only for the purpose of inspection. A proprietor entering into a contract with the company must be deemed a stranger, and can be affected by no entry made undér orders from the entire body.”

In Haynes v. Brown, 36 N. H., 545, the action was by a creditor of a corporation to recover against a stockholder; and it was held that the books of the corporation were not admissible against a member of the company as evidence of his private transactions or dealings with the company, and that in respect to them he was to be regarded as a stranger. That case has been frequently cited by text writers and judges, and its authority for the rule thus announced has never-been questioned, so far as we can discover. In Chenango Bridge Co. v. Lewis, 63 Barb., 111, it was held that the books of a bridge company, proved by its treasurer to have been received by him as the company books upon his accession to the office, containing an account of the tolls received for the bridge for several years previous to that time, were not admissible as against the defendant, a stockholder of the company, to prove the amount of the tolls received during that period, without the necessary and preliminary proof as to such tolls ; hut that such books proved by its treasurer to have been kept by him, and to contain correct entries of tolls, as given to him by the toll gatherer, coupled with the proof by the toll gatherer that he had made correct returns of the tolls received by him, were admissible, because proved by the treasurer who kept them. See, also, Olney v. Chadsey, 7 R. I., 224; Wheeler v. Walker, 45 N. H., 355. In Pearsall v. Western Union Telegraph Co., 35 N. Y. State Rep., 307, decided in the second division of this court on the 22d day of last January, the plaintiff was a stockholder of the defendant, and brought the action to recover damages against the defendant for not properly transmitting a message; and it was offered to be proved in defense of the action that the board of directors had adopted a resolution that it would not be liable for mistakes or delays in the transmission or delivery of unrepeated messages, and would not be liable for damages arising from delays in the transmission or delivery of a repeated message beyónd an amount specified; and it was insisted that a shareholder was chargeable with notice of this resolution.

The resolution was excluded and the defendant excepted; and it was held that in this there was no error ; that a shareholder in a corporation is not chargeable with constructive notice of resolutions adopted by the board of directors, or by provisions in the by-laws regulating the mode in which its business shall be transacted with its customers, and that the plaintiff’s rights arising out of defendant’s contract to transmit the message were in no wise limited by its regulations or by-laws not brought to his knowledge. That case is ample authority to show that the defendant in this case was not chargeable with knowledge of the entries made in the books of this company; and that such books were not competent evidence against him of such entries. The principle at the foundation of chat decision is that the business transactions of a corporation with its members are .on the same footing as its transactions with strangers, and that the business entries in the books of a corporation are no more evidence against the members than they are against strangers.

After a careful consideration of all the cases which have come to our attention we can perceive no principle upon which the account books of a corporation can be evidence against a member of the corporation of the accounts and entries therein made in a suit brought by the corporation, or its representatives, against him to enforce his liability upon such- account. The officers and book-keepers of a corporation are in no sense his agents. Individually he has no control over their acts, and has no responsibility therefor; and in making the entries they do not, in any legal sense, represent or bind him. As to the competency of such books, directors and stockholders of a corporation stand upon the same footing. It is quite true that a director stands in a more favorable position, to know what is going on within the corporation and to be more familiar with its books in some cases than a stockholder. He has the right to inspect the books of the corporation, and so has a stockholder. A stockholder having the ability is just as able to become familiar with the contents of the books of a corporation to which he belongs as a director ; and there is no principle of law by which a director can be charged with knowledge of the entries in the books of a corporation which is not- equally applicable to its stockholders.

It is frequently easier to charge a director with knowledge of the books than it is to charge a stockholder, because he usually has an active part in the management of the corporation; but, as a general rule, many directors in corporations are just as ignorant, and necessarily so, of the particular accounts contained in its books as the stockholders are. It would be quite a dangerous, and we think startling, proposition to hold that a clerk or other officer in a business corporation could enter charges in its books of account against a director or stockholder which could be proved in favor of the corporation by the mere production of the books, thus throwing upon him, or his personal representatives after his death, the burden of explaining the entries or showing them to be untrue; and we believe the doctrine has no support in principle or authority. A corporation seeking to enforce a claim against one of its directors or stockholders, must establish it by the application of the same rules of evidence which are applied in an action brought by an individual to enforce a claim against any defendant

It was admitted on the argument of this case that thfe evidence furnished by the account books was vital to the plaintiff’s case, and we, therefore, do not deem it important to examine the other points zealously and ably argued before us.

For the error pointed out the judgment should be reversed and a new trial granted, costs to abide event.

All concur.