Case ID: ad_108/html/0078-01.html
Source: Caselaw Access Project
Author: {"author": "Houghton, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The First National Bank of Binghamton, Respondent, v. The Commercial Travelers’ Home Association of America, Appellant.
    
      Validity of a promissory note given by a corporation to its president—•delegation of authority to malte promissory notes by .a board, of managers to- an executive committee thereof— ratification by the stockholders of unauthorized acts ■ of the officers of a corporation — obligation to disaffirm a transaction after knowledge thereof. ■
    The president of .a corporation, in the absence of bad faith, has the right to take obligations or security from his corporation for an actual indebtedness to himself. ■
    
      It is only discretionary powers respecting the affairs of a corporation that a board of directors or a board of managers thereof is prohibited from, delegating to a Sub-committee or to &n agent: Such a board may vest the performance of merely ministerial duties in a! committee of their own members or in an individual.
    The board of directors of a business corporation have power to appoint an executive committee of their own number to transact the business of their corporation during the interval between meetings of the board of directors, even though such business might involve the giving of negotiable notes of the corporation for legitimate indebtedness incurred by it.
    Stockholders of a membership or of a stock corporation may ratify and validate unauthorized transactions of its officers.
    The rule that where a principal has not disaffirmed an unauthorized act of his agent within a reasonable time after it came to his knowledge, he will be deemed to have ratified it, applies to corporate bodies as well as to individuals.
    When a membership corporation is liable upon a promissory note, in which its president is named as payee, which, pursuant to the direction of a majority of the executive committee of its board of managers, was signed by its treasurer on behalf of the corporation and was delivered to the payee in payment of a just debt due from the corporation to the payee, considered.
    Smith, J., dissented.
    Appeal by the defendant, The Commercial Travelers’ Home Association of America, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Broome on the 10th' day of April, 1905, upon the verdict of a jury rendered by direction of the court, and also from so much of an order entered in said clerk’s office on the 10th day of April, 1905, as denies the defendant’s motion for a new trial made upon the minutes.
    _ Robert E. Whalen, for the appellant.
    
      Maurice E. Page, for the respondent.
   Houghton, J.:

The action is upon a negotiable note for $4,000, dated February 4, 1899, signed by the defendant by its treasurer, payable to the order of George E. Green, and transferred to the plaintiff by him before maturity.

Green was the president of the defendant at the time of the giving and the negotiating of the note. The defense is want of consideration and lack of authority in the treasurer to sign.

At the close of plaintiff’s case the defendant made a motion for dismissal of the complaint; this being denied, it rested without submitting further proof. Thereupon the plaintiff made a motion for a direction of- verdict, in its behalf, which was granted. We are of the opinion that the verdict was properly directed.

With respect to the consideration, irrespective of any presumption which arises in plaintiff’s ' favor by reason of the negotiability of the. instrument and the taking of it without notice, there is no question.

The plaintiff did not see fit to rely wholly on any presumption in its favor, hut proved upon the trial that at the time of the giving of the note to Green he had advanced to the defendant moneys and paid its subsisting notes indorsed by him and upon which he was liable to the amount of $4,032.61. At what is termed the Annual Convention of the defendant association, held in October, 1899, this indebtedness, consisting of moneys loaned by Green and notes given to various parties, made by the treasurer and indorsed by him, was exhibited to the finance committee and reported by it to the convention as .subsisting and existing obligations. The total debts amounted to from $5,000 to $7,000, incurred largely in the running of a magazine devoted to the interests of the association, in which amount was included the actual and contingent liability to Green, and after discussing the ways and means for meeting- the obligations^ the convention adopted a resolution that the Board of Managers be instructed by the Convention to raise the - money or secure the indebtedness in any manner that is deemed advisable by them, and for the association, even to the extent of mortgaging the real estate, if necessary.” In the February following, Green haying paid the notes indorsed by him, they with his own advancements were merged in, the note in controversy. The president of a corporation, in the absence of - bad . faith, has the right to take obligations or security from his corporation for an actual- indebtedness to himself. (Duncomb v. N. Y., H. & N. R. R. Co., 88 N. T. 1.)

Defendant’s board of managers consisted of fifteen members, and that body appointed from its number an executive committee of five, authorized by resolution to transact business in behalf of the board of managers when it was not in session. It was by a majority of this executive committee, at a meeting held-at the office of the defendant, that the treasurer testifies- he was authorized and directed to execute and deliver the note in question.

It is urged that the board of managers could not delegate the authority conferred upon them by the resolution to the executive committee, and hence the treasurer could receive no authority from it to sign the note. Of course the board of managers could direct the treasurer’, in pursuance of the authority conferred upon them by the resolution, to sign a negotiable note and deliver it to Green. Whether this was properly done through the medium of the executive committee, authorized to transact the business of the corporation when the board was not in session, is the only question involved. It is only discretionary powers respecting the affairs of the corporation that a board of directors or board of managers is prohibited from delegating to a sub-committee or an agent. They may vest the performance of merely ministerial duties in a committee of their own members or in an individual. (10 Cyc. 772.)

The defendant was incorporated by chapter 59 of the Laws of 1892. This act was not put in evidence, and the appellant insists that it is a private act and that this court cannot take-judicial notice of its provisions. Whether that be so or not, enough appears in the record .to show that the defendant 'was a membership corporation, without stock, and that it held annual conventions at which the members elected officers, appointed a board of managers, received the report of a finance committee which examined the treasurer’s and secretary’s report and accounts, and passed upon the same, discussed the affairs of the association and adopted resolutions, and that in 1898 it had been engaged in. the business of publishing a magazine devoted to the plan of building a home for indigent commercial travelers.

If the defendant can be deemed a business corporation there can be no question but its board of managers would have power to appoint an executive committee of their own number to transact the business of the corporation during the interval between meetings of the board, and that this business might involve the giving of negotiable notes for legitimate indebtedness incurred. (Sheridan Electric Light Co. v. C. N. Bank, 127 N. Y. 522.)

The record further shows that in this business of magazine publishing, at the time of the holding of the convention in 1898, notes given for expenditures therein were outstanding, and ■ were signed in the corporate name, by the same treasurer who signed the note in controversy to.the knowledge of the board of managers'; and that these notes formed a part of the indebtedness referred to in the resolution; and that the treasurer had general charge of the business of the defendant. Under such state of facts the question of the treasurer’s authority even to borrow money for the corporation and give its note therefor, would be one of fact. (First National Bank v. N. P. Co., 119 N. Y. 256.)

In addition, the record discloses substantial ratification by the members of the association of the act of its treasurer. At the annual convention held in October, 1899, the secretary and treasurer (both offices being held by one person) reported to the duly appointed finance committee of the convention, and in such report included the Green loan. The report of the finance committee to the convention stated that it had examined all the books, papers and vouchers pertaining to the association, and found them to agree and correspond with the report of the secretary and, further, that they had found that the President (Green) has advanced to the Commercial Travelers’ Home Association * * * sums amounting to $4,032.61,” and recommended that' he' be given ample security for the same. This report was approved in open convention. In addition, the generosity of Mr. Green in thus, loaning money was commented upon, and as he was about retiring as president it was insisted, for his own-protection, that he be placed upon the board of.managers, and a vote to that effect was unanimously carried, as well as a vote of thanks for the loan of the money and the efforts which he had made in- behalf of the association.

The only criticism which can be made of this as a complete ratification, is that the loan made by Green was mentioned instead of the giving of the note to him. Stockholders of a corporation may subsequently ratify the acts and validate the originally unauthorized transaction of its officers. (Kent v. Quicksilver Mining Co., 78 N. Y. 159; Martin v. N. F. P. Mfg. Co., 122 id. 165, 172:) If this be so of the stockholders of an ordinary stock corporation, it is doubly true of a membership association.

In addition, Green testified that it was his recollection that' the giving of the note was brought before a full meeting of the board of managers, after its execution. It is fair to assume from the testimony that this occurred at no great length of time after the note was given ; and, if so, the defendant would be estopped, for the rule that where a principal has not disaffirmed an unauthorized act of his agent within a reasonable time after it came to his knowledge he will be deemed to have acquiesced in such act, applies to corporate bodies as well as to individuals. (Sheldon H. B. Co. v. Eickemeyer H. B. M. Co., 90 N. Y. 607.)

. The-defendant had had Green’s money. It had obtained credit by his indorsements of its notes. Those notes as well as the money advanced by him were recognized as subsisting obligations against the corporation. Payment of the money loaned and of the notes outstanding could have been enforced. The giving of the note to him upon his paying the outstanding obligations upon which he was liable as indorser, cast no additional burden upon the corporation and took away none of its property. The board of managers had been authorized to even execute a mortgage upon the defendant’s property to secure the same indebtedness. Instead of doing that a man was found willing to take a simple promissory note, which it would appear in fairness the defendant should pay.

On all the facts proved, we think the direction of the verdict was justified, and that the judgment should be affirmed, with costs.

All concurred, except Smith, J., dissenting.

Judgment and order affirmed,_ with costs.