Case ID: ny-st-rep_5/html/0470-01.html
Source: Caselaw Access Project
Author: {"author": "Haight, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Hobart F. Atkinson, as Receiver of the City Bank of Rochester, Resp’t, v. The Rochester Printing Co., Appl’ts.
    
      (Supreme Court, General Term, Fifth Department,
    
    
      Filed January 25, 1887).
    1. Banks and banking — tbansfeb of pbopebty in violation of Laws 18S2; ch. 409, § 186 — Intent not matebial.
    Defendant was a depositor in the City Bank of R., and made deposits in the bank on December 16th, 17th, 18th, 19th, 1882, and on the close of business on the 19th there was a balance due the defendant from the bank of §3.004.22. During those days the bank was insolvent to the knowledge of its financial officers. On the evening of the 19th there was a meeting of the directors, who resolved to discontinue business and apply for a receiver. The cashier on the morning of the 20th, knowing of the insolvency and of the directors’ action, called for an officer of defendant and on his arrival at the bank, gave him drafts belonging to the bank, and amounting in the aggregate to $ 3.180.32,taking defendant’s check therefor,dated as of the 19th. The bank was not again opened for business. The people commenced an action on the 20th for the dissolution of the corporation, and judgment was entered on the 23d, dissolving the corporation on account of its insolvency, and appointing plaintiff as its receiver. No resolution was ever passed by the board of directors auhtorizing the transfer of the drafts to defendant. No one of the drafts so transferred amounted to §1000; all were paid to defendant but one, which was protested and action brought thereon by defendant. After plaintiff’s appointment as receiver, and before knowledge of the facts ■ of the transfer of the drafts, he called upon defendant for the amount of the over draft paid and subsequently demanded return of the drafts, which was refused. This action was, thereupon brought to recover back the drafts.
    
      Meld, that as defendant was not paid in specie or current money, and did not part with any valuable consideration on the receipt of the drafts, the case was within the prohibition of Laws 1882, Chap. 409, § 186, which forbids the transfer by a corporation of any of its effects exceeding one thousand dollars in value, unless authorized by a previous resolution of its board of directors. That under this section the question of intent was not material. That the fact that no one of drafts exceeded §1000 was unimportant.
    2. Same — Laws 18S2, cl. 409, § 1S7 — What evidence considered sufficient to show intent of tbansfeb.
    
      Held, that under § 187 of said laws, providing that the transfer by a corporation when insolvent, or in contemplation of insolvency, with intent of giving a preference tq7any particular creditor, the question of intent was involved and was ordinarily a question for the jury, but that in this case the transfer by the cashier and insolvency of the bank being undisputed, and the cashier knowing of the insolvent condition of the hank and the action of the board of directors, and the transfer of the drafts necessarily preferring defendant over other creditors the questions were properly withheld from the jury.
    3. Fraud — Corporation may be guilty op fraud through an opfcee— Identity op property with that obtained by fraud must be SHOWN TO RECOVER.
    
      Meld, that a bank might be guilty of fraud, and that whei'e one had been induced to part with property by fraud of an officer, the defrauded party might on discovery of the fraud rescind the contract and recover the property or proceeds thereof unless in the hand of a bona fide holder; but that the right to restoration depended upon the identity of the property which it is sought to have restored as did also the right to defend the possession there-, of, and that the drafts transferred to defendant not being those previously owned and deposited by it in the bank, the court properly excluded evidence of fraud and properly refused to submit this branch of the case to the jury.
    4. Account stated — What does not constitute. „
    It appearing that plaintiff at the time of the repayment of the over draft did not know the circumstances under which the drafts were transferred to defendant. Meld, that it could not be regarded as a settlement between the parties of plaintiff’s right as receiver to have the drafts or the proceeds restored.
    5. Commercial paper — Measure op damages — Kule as to not subject por expert testimony.
    One of the drafts transferred to defendant had been presented for payment, and payment refused. It was offered to prove the value of the draft by one professing to be an expert on commercial paper. Held, that such testimony was incompetent, that in cases of the conversion of commercial paper the measure of damages is the nominal or full value of the paper, unless it be reduced by showing payment, insolvency or some fact to invalidate the paper.
    6. Same — answer alleging defense competent evidence to show THAT PAPER IS WORTHLESS.
    
      Meld, That an answer set up in an action on such- draft was competent evidence to show the fact that there was a valid defense to the action and that the draft was consequently worthless. . The defendant had a right to show that an action had been brought, that a defense had been interposed, what the defense was, and that it was true.
    Appeal from a judgment entered upon a verdict directed by the court in favor of the plaintiff, at the Monroe circuit, and from an order of the Monroe special term denying motion for new trial. °
    
      J. & Q. Van Voorhis, for appl’t; Smith Briggs, for resp’t.
   Haight, J.

This action was brought under the statute to recover back the value of certain drafts, amounting in the aggregate to the sum of -13,180.82, which it is claimed were transferred to the defendant in violation of the statute, and with the intent of giving a preference over other creditors of the bank, of which the plaintiff is the receiver.

It appears from the evidence taken upon the trial that the defendant was a depositor in the City Bank of Rochester, and that it made deposits in the bank on the 16th, 17th, 18th and 19th. days of December, 1882, and that on the close of business on the-19th there was a balance due the defendant from the bank of 13,004.22. That during these days the bank was insolvent, and. tbis fact was known to its financial officers. That on the evening of the 19th of the December there was a meeting of its directors, who resolved to discontinue business, and apply for a receiver. That on the morning of the 20th the cashier, knowing of the insolvency and of the action of the directors, telephoned for an officer of the defendant, and when that officer arrived at the bank, gave him certain drafts belonging to the bank, which amounted in the aggregate to $3,180.32, and took the defendant’s check therefor, dated December 19th. That the bank was . not again opened for business. On the 20th of December an action was commenced by the people for the dissolution of the corporation, and on the 23rd of December judgment was entered in that action, dissolving the corporation on the ground of its insolvency, and appointing the plaintiff its receiver. No resolution was ever passed by the board of directors authorizing, the transfer of the drafts to the defendant. No one draft amounted to one thousand dollars, but altogether amounted to the sum before stated. All of the drafts so transferred were paid to the defendant but one, which went to protest, and action was brought by the defendant to recover the amount thereof. After the plaintiff was appointed receiver and before knowledge of the facts of the transfer of these drafts on the morning of the 20th, he called upon the defendant for the amount of the overdraft which was paid to him and subsequently, on discovering the facts, demanded- of the defendant the return of the drafts, less the amount repaid, which was refused. At the conclusion of the evidence the court directed a verdict in favor of the plaintiff for the amount of the^-drafts with interest, less the amount repaid as an overdraft. The appellant took numerous exceptions to the rejection and admission of evidence, and to the refusal to submit certain questions to the jury.

It is contended in the first place that the court erred in refusing to submit to the jury the question of the intent with which thh drafts were transferred to the defendant.

The statute under which this action is brought provides as follows:

Section 186 : “ No conveyance, assignment or transfer not authorized by a previous resolution of its board of directors, shall be made by any such corporation of any of its real estate, or any of its effects, exceeding the value of one thousand dollars ; but this section shall not apply to the issuing of promissory notes, or other evidences of debt by the officers of the company in the transaction of its ordinary business, nor to payments ■in specie or other current money, or in bank bills made by such officers; nor shall it be construed to render void any conveyance, assignment or transfer in the hands of a purchaser for a valuable consideration and without notice.”

Section 187 : “ No such conveyance, assignment or transfer, nor any payment made, judgment suffered, lien created, or security given by any such corporation when insolvent, or in contemplation of insolvency, with the intent of giving a preference to any particular creditor over other creditors of the company, shall be valid in law; and every person receiving by means of any such conveyance, assignment, transfer, lien, security or payment, any of the effects of the corporation, shall be bound to account therefor to its creditors or stockholders, or their trustees, as the case shall require.” [Laws of 1882, chap. 409.]

It will be observed that under the first section of the statute quoted an assignment or transfer of the effects of a bank, exceeding the value of one thousand dollars, not authorized by a previous resolution of the board of directors, is prohibited except in the cases reserved by the statute. The defendant was not paid in specie or other current money, and did not part with any valuable consideration on the receipt of the drafts. It was consequently not within the exceptions, and as we do not understand that under this section the question of intent is involved. The transfer of the drafts was one transaction. They were all enclosed in one envelope. The amount of them exceeded one thousand dollars. The fact that no one draft exceeded that sum is unimportant, for the statute evidently intended to protect the bank from the illegal and unauthorized acts of its officer or agent, and to limit the power of transfer < f any of its effects. To hold otherwise would in fact nullify the statute and permit the cashier to transfer, in one body and to one person, every note, draft or other paper under a thousand dollars in value, held by the bank, even though the aggregate value exceeded one hundred thousand dollars.

The other section of the statute prohibits the conveyance, assignment, transfer or payment by the corporation, when insolvent or in contemplation of insolvency, with the intent of giving a preference to any particular creditor, etc. Under this section the question of intent is involved and ordinarily becomes a question for the jury. But in this case the evidence as to the transfer by the cashier of the bank is undisputed, and the rule is that a party must intend the necessary consequences of his own act. It was conceded upon the trial that the bank was insolvent and had been for some days. The cashier knew this fact and of the action of the board of directors the evening before. The taking from the bank of the drafts in question and transferring them to the defendant, of necessity preferred their claim over that of the other creditors. Whether or not the defendant knew of the insolvency of the bank or the purpose of. the cashier in transferring the drafts was immaterial. The evidence upon this subject being undisputed, the court properly refused to submit the questions to the jury. National Security Bank v. Price, Rec’r, 22 Federal Reporter, 697.

Upon tbe trial the defendant proved that it had no knowledge of the embarrassed condition of the bank when it made its deposits, and sought to prove that it would not have made the deposits or left its money in the bank if it had known that the bank was insolvent. This evidence was excluded and exception taken. The defendant also asked to go to the jury upon the question of the fraud of the officers of the bank in obtaining and retaining the defendant’s deposits, knowing the bank to be insolvent ; which was refused and exception taken.

Undoubtedly a bank may, in a legal sense, be guilty of a fraud. And where one has been induced to part with property by the fraud of an officer thereof, the party defrauded may, upon discovery of the fraud, rescind the contract and recover the property or the proceeds thereof, unless it has come to the possession of a bona fide holder. Cragie v. Hadley, 99 N. Y., 131; The National Bank v. Insurance Co., 104 U. S. R., 54, The People, etc., v. The City Bank of Rochester, 96 N. Y. 32; The Metropolitan National Bank v. Loyd, 90 N. Y., 530. But the difficulty of the appellant’s position is that it was not following the property deposited in the City Bank or defending the possession of such property. The drafts that were transferred to the defendant were not drafts deposited by it in the bank. Had they been, a different question would have been presented. The right of the defendant to restoration of the property deposited or to defend its possession, is founded upon ownership. If a fraud was practiced upon the defendant to induce it to make the deposit, the bank obtained no title to the deposit by reason of the fraud, and consequently the defendant would have the right to a restoration of that which belonged to it, and, had the property been returned to it, it could properly have defended its possession. The right to restoration also depends upon the identity of the property which it is sought to have restored, and the right to defend the possession of the property must also depend upon such identity. The drafts transferred to the defendant not being those previously owned by it and deposited in the City Bank, the trial court properly excluded the evidence offered and refused to submit this branch of the case to the jury.

It is also claimed by the appellant that the plaintiff’s statement in reference to the account of the bank and the payment of the overdraft, was an account stated between the plaintiff and the defendant, and by that act the plaintiff’s claim was settled. The plaintiff had recently been appointed the receiver of the corporation, and had had to acquaint himself with the affairs of the bank. As we have seen, the defendant’s check that was given upon the receipt of the drafts, was dated back to the 19th day of December, the day upon which the bank did'business. The plaintiff, it appears, did not know at the time of the repayment of tbe overdraft tire circumstances under which the drafts were transferred to the defendant. It consequently cannot be regarded as a settlement between the parties of the right of the plaintiff: as receiver to have the drafts or their proceeds restored.

Among the drafts transferred to the defendant was one drawn on Loomis & Woodworth for 198.363. dated the 19th of December, 1882. This draft had been presented for payment by the defendant and payment refused. ' An action had been brought to recover the amount thereof and an answer had been interposed by Loomis & Woodworth. Upon tire trial the defendant sought to show the value of this draft, by Mr. Pond, a witness. He was asked if he was acquainted with the value of commercial paper and if he had owned and known of its being bought and sold; he answered that his experience was teaching him something of the worth and worthlessness of commercial paper. He was also asked whether in his judgment the draft was worth its face at the time the defendant got it, under; the circumstances which have since been disclosed. This was objected to as immaterial and incompetent and the objection sustained. The defendant’s counsel offered to show by the witness that he was acquainted with the value of such paper, and that this paper was not worth thirty-five cents on the dollar, in his opinion. This was also excluded.

The rule is that where promissory notes or commercial paper is converted, the measure of damages is the nominal or face value of the paper, unless it be reduced by showing payment, insolvency or some fact to invalidate the paper. Ingalls v. Lord. 1 Cowen, 240; Allen v. Boyd, 20 Wendell, 321; Becker v. Matthews, 5 Sandford, 439; Thayer v. Manley, 8 Hun, 550. It is undoubtedly proper to show the value of property by witnesses who are familiar with the property and its value; but as to choses in action, such as commercial paper, a different rule exists. The paper itself is of no value, but it is the evidence of debt or an agreement to pay. The question is therefore as to the ability to pay of the maker or person who, by the terms of the instrument is to pay the same, and as to whether the instrument is valid. It would have been competent for the defendant to have shown the insolvency of Loomis & Woodworth, or that the draft had been paid, or that it' was worthless by reason of a valid defense existing thereto. But in the absence of such evidence, the presumption is that the paper was worth the amount called for by it. Potter v. The Merchant's Bank, 28 N. Y., 641-655. It appeared, as we have seen, that Loomis & Woodworth had interposed an answer in the action brought by the defendant to recover the amount of the draft. The defendant offered the summons and complaint and answer in evidence; they were objected to and tbe objection was sustained by the court and the defendant excepted.

We are inclined to the opinion that this evidence was competent. The defendant had the right to show that an action had been brought, that a defense had been interposed, what the defense was, and that it was true. If Loomis & Woodworth had any defense to the draft, such defense would necessarily be disclosed by the answer. After the defense had been disclosed, the defendant might have shown that it was true, and that the draft was consequently worthless. It appearing that an answer had been interposed by Loomis & Woodwor-th, they were bound by the defense set forth in their answer. The defendant in this action had the right to'show what the defense was, for the purpose of establishing the fact that it was not attempting to show or rely upon defenses not actually made, by the parties charged with its payment.

For these reasons the judgment should be reversed, and anew trial granted, with costs to abide the event unless the plaintiff stipulates within twenty days that the judgment may be reduced in the amount of the Loomis & Woodworth draft, to wit, $988.63, and interest thereon from' December 19th, 1882, in which event the judgment be so modified, and as so modified, affirmed, without costs of this appeal to either party.

So ordered.

BRADLEY & ANGLE. J J., COnCUl’.