#### Aspinwall and others *v.*Meyer.(a)

A promissory note, given to a mutual insurance company as a subscription or premium *note, in*advance, for the security of dealers, as provided by its charter, is to be regarded as a valid promissory note, liable to be used to pay the losses of the company.

Such a note may be transferred by the president of the company alone, in payment of a loss, in the usual way and according to the common practice of the company, without his being authorized to do so *by*a previous resolution of the board of trustees.

It was the design of the statute “ to prevent the insolvency of monied corporations” to guard against *collusive*transfers of the effects of such corporations. It was not meant to interfere with honest transfers, made in order to pay their just debts.

A person taking from the officers of an insurance company, the note of a third person, in payment of a loss sustained by him, will be held to be a bona fide purchaser thereof for a valuable consideration and without notice, under the provision of the revised statutes prohibiting certain transfers of corporate effects except upon a previous resolution of the board of directors.

And the maker of such note, in a suit brought thereon by the holder, cannot be permitted to allege that the plaintiff did not pay value for it, or that the trustees of the company did not authorize its officers to transfer the same'; unless he can show that he was defrauded, or lost some defence he might have had against the payees, had they retained it.

It is not enough for the maker of a note, when sued thereon, to say that it was transferred to the plaintiff without a valuable consideration ; but, to defeat a recovery upon it, he must show that it was transferred in fraud, or to the prejudice of. his rights. *Per*Vanderpoel, J.

It is no defence to an action on a promissory note, that the *property*of the note is in a third person, and not in the plaintiff. Unless the possession of the note by the plaintiff is *mala fide,*and may work some prejudice to the defendant, the latter is not entitled to be heard on the subject. *Per*Vanderpoel, J.

Sept. 29 ;

Nov. 11, 1848.

. This was an action of assumpsit, brought to recover the amount of a promissory note for $3698 40, dated May 1st, 1846, payable twelve months after date, made by the defendant to the order of The Alliance Mutual Insurance Company, and alleged to have been indorsed by the company to Howland & Aspinwall, the plaintiffs. The cause was tried before Judge Sandford, without a jury, on the 6th day of June, 1848, and *181by consent of the respective parties, a verdict was taken for the plaintiffs for the sum of $3973 81, subject to the opinion of the court. The defendants counsel admitted the signature of defendant and the endorsement of the company by James D. P Ogden, as president of The Alliance Mutual Insurance Company, and the fact of his being president at the time of such indorsement ; and also that the firm of Howland & Aspinwall was composed of William H. Aspinwall, William A. Howland, and John L. Aspinwall, the plaintiffs. The plaintiffs then rested.

The act incorporating The Alliance Mutual Insurance Company, passed April 10th, 1843, and the act incorporating The Atlantic Mutual Insurance Company of the city of New York, passed April 11th, 1842, were read in evidence by the defendant.

The defendant proved by Lewis Benton, formerly secretary of the company, that the note in question was originally a a note for $5000, dated May 1, 1845 ; that it was not one of the original subscription notes of the company, but was given to be taken out in premiums; that on the 1st of May, 1846, there had been charged against the note $671 74, for insurances, whereupon the defendant gave a note for these premiums, $671 74. He then gave, for the balance, a new note for $4398 40, and the $5000 note was given up to him. That on the 30th of Nov. 1846, a new note was given, dated back, May 1, 1846, the note in controversy for $3698 40, and another note for $700, in lieu of the note of $4398 40.

James D. P. Ogden testified that he was the president of The Alliance Mutual Insurance Company in 1847; that it was the duty of the president and the secretary to adjust losses and to pay them ; that he settled with the plaintiff in respect to the policy upon the Mary Ann ; that in case a vessel insured was not heard from, it was the custom of the company to take a year to pay the loss; that the Mary Ann was not heard from for six months, but a vessel arrived at New Orleans, reported to have passed a week, on which the name of the Mary Ann was seen, after which the company could not claim a year’s credit; that the witness then gave to the plaintiffs the note in suit, in *182payment of the loss, and turned out other notes as collateral security ; that he hoped the note would come back to the company, and that they could pay the loss in cash ; that he considered the company solvent at the time the note was transferred ; and that he considered the claim a valid one, it being a total loss. The other facts established on the trial, sufficiently appear from the opinion of the court.

*J. Brice*Smith, and *D. Lord,*for the plaintiffs.

I. The note was given under the charter, as the real capital of the company, in renewal of one for $5000. This was one of $150,000 subscribed for by the defendant with others as additional capital, and the notes delivered to the company. It was not without consideration in the hands of the company. If it remained in the company’s hands after its failure, the com pany could sue for it, to pay creditors.

II. The note was passed to the plaintiffs before due, by the authorized agent of the company, for valuable consideration. The policy was cancelled, and the note was applied by the company for one of the purposes for which the company was created, and without notice. Aspinwall resigned on the 19th of December, 1846. No equities or offsets between the company and the defendant could affect the plaintiffs.

III. The company was not insolvent in May, 1846, or February, 1847. Nor was the note passed by way of preference, or in contemplation of insolvency.

IY. The transfer to the plaintiffs by the company, was not void. The plaintiffs were *bona fide*purchasers for a valuable consideration. No notice is charged or proved against them of any want of a previous vote of the board. They dealt with the authorized officer of the company in the usual mode, without notice. Again, the defendant cannot set up this defence. The act does not make the transfer void. If the note is a valid note in the hands of the company, he must pay it. He has received no notice from the company not to pay. If the transfer is void, the plaintiffs are trustees of the company, and will hold the fund for their benefit. The suit can be brought in the • name of any person.

*183*W.*Kent, for the defendant.

I. The transfer of the note in suit, being for the payment of $3698 40 to the plaintiffs, on the 19th of February, 1847, not authorized by a previous resolution of its board of directors, was illegal and void, and passed no right or title therein or thereto, to the plaintiffs. It was made by the president alone, without the concurrence of any other officer of the company. The by-law does not authorize this transfer. But the by-law must conform to the statute, (2 R. S. 599,) or it is void.

II. The plaintiffs having taken the note in question as collateral security for a pre-existing debt, without surrendering any valuable consideration, and Wm. H. Aspinwall having been one of the directors of the Alliance Company when the note was taken, and for a long time subsequent, they, the plaintiffs, are not *bona fide*purchasers without notice, and took the note subject to all existing equities.

Nothing was surrendered by the plaintiffs ; no receipt given. *(Stalker*v. McDonald, 6 Hill, 93.)

III. The transfer of the note to the plaintiffs was fraudulent and void. s

(1.) At common, law the transfer of a note to a person who had just ceased to be a director, by a company then about to fail, would be fraudulent; or the question whether fraudulent or not, should be decided as a question of fact. (1 R. S. 592, § 12.)

(2.) The transfer is void under the revised statutes. (1 R. S. 591 and 601, § 64.) Or at least, the question should be distinctly decided. The testimony shows the company was then insolvent.

(3.) This presumption is made positive by § 14 of 1 R. S. p. 591 and 592. And see sections 12, 13, 14, 15, 16, 17, pages 594, 595.

That the defendant may take advantage of the illegality of the transfer, see *Gage*v. Kendall, (15 Wend. 640.) He shows the plaintiff’s possession is *mala fides. (Olcott*v. Rathbone, *5*Wend. 494.) A judgment against us here, would be no defence in a suit against us by the receiver on this note.

*184*D.*Lord, in reply.

I. Does the statute relied upon, apply to this kind of corporations? Banking associations are clearly within the letter of the statute ; yet it has been held, because these bodies have no boards of directors, that they are not within its provisions. *(Gillett*v. Campbell, 1 Denio, 520.) So here, these corporations have no stockholders, as those mentioned in the Revised Statutes must have ; and other circumstances show they do not apply. Here the creditors and the managers, or those in place of stockholders, are the same persons. The sections of the statute from 19 to 25, are excluded from application. But sections 14 to 18, and many others, are also totally inapplicable, because there are no stockholders, no surplus profits, and the like.

II. If the revised statutes be applicable, this act is not prohibited by the 8th section. The first clause provides only for absolute transfers. The proviso shows the protection is not limited to one who pays money or property on the faith of it. It means one who takes the transfer in ignorance that it is not authorized; being intended to prevent collusive transfers and dispositions. The conveyance in the hands of the purchaser, not the property, is to be affected. The *notice*refers only to misbehavior of the officers or directors. So here, we took this by an ordinary corporate transfer, regular on its face, for a valuable consideration, and in ignorance of any wrong or want of authority of the officers. A contrary rule would cripple all active business corporations.

III. This defendant cannot take advantage of it, if invalid. The statute does not make it void, but makes the directors liable. And if illegal, the transfer being executed, a third person cannot take advantage of the defect. *(Hall*v. *Gird,*7 Hill, 586 ; *Guernsey*v. *Burns,*25 Wend. 411.) The security of the plaintiffs was given up and cancelled. The policy was brought to the company, and their receiver produces it.

(a)

**Oakley, Ch. J. absent by reason of ill health.

By the Court. Vanderpoel, J.

The note in suit was transferred to the plaintiffs on the 19th day of February, 1847, by Mr. Ogden, the president of the Alliance Mutual Insurance *185Company, under the following circumstances. On the 28th day of August, 1846, the plaintiffs took from the company a policy on the brig Mary Ann for $9600 ; the voyage to be from Baltimore to Port Maria, Falmouth, and Jamaica, to either first. On the day of the transfer of this note, the vessel had not been heard from for six months; but a vessel arrived at New Orleans, reported to have passed a wreck, and the name “ Mary Ann” was reported to have been seen on it. Mr. Ogden says, that he then gave to the plaintiffs for their los.s, the note in suit, with other notes as collateral security. He says his hope was, that the note would come back to the company, and that they would be able to pay the loss in cash; but in May, 1847, the company failed, and all its assets were passed over to a receiver. Aspinwall, one of the plaintiffs, had been a trustee of the company, and resigned on the 19th day of December, 1846.

The first question is, for what purpose was the note given *1*We consider it as having been given as a subscription note, or a premium note in advance, under the twelfth section of the charter of that company. Under the decisions we have made in a number of cases, affirmed by the court of appeals, this note must be regarded as a note liable to be used to pay the losses of the company. We so informed the counsel on the argument, and under this intimation, the discussion of that point was waived.

It is contended, that the transfer of the note was made by the president alone; and was not authorized by a previous resolution of the board of directors ; that it is therefore void, and passed no right or title therein to the plaintiffs. Without here considering the point, whether it lies in the mouth of the defendant to question the validity of the transfer, for the reasons assigned by him, we will inquire, whether the president had a right to make the transfer; and this involves the inquiry, whether this case comes within the provisions and prohibitions of the portions of the revised statutes relied upon by the defendant.

The revised statutes, (vol. 1, 591, § 8,) provide that “ no conveyance, assignment or transfer, not authorized by a previous resolution of its board of directors, shall be made by any such *186corporation of any of its real estate, or of any of its effects, exceeding the value of one thousand, dollars ; but that this section shall not apply to the issuing of promissory notes or other evidence of debt, by the officers of the company, in the transaction of its ordinary business; 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.” This provision is found in the statute “ to prevent the insolvency of monied corporations and it may well be doubted whether it extends to mutual insurance companies of this description. *(Gillett*v. *Campbell,*1 Denio, 520.)

At all events, we are quite clear, that this act of transfer does not come within the mischief against which it was the object of the statute to guard. The act or charter creating the company, provides that *“*all the corporate powers of the company shall be exercised by a board of trustees, and such clerks and agents and other persons, as said trustees may appoint from time to time.” The trustees appointed a president, and by a by-law, which it was competent for them to make, they provided, that the president and vice-president should have authority to pay claims upon the company, in full, or by compromise. It is in evidence that this loss was paid by the president, in the usual way, and that it was common for him to pay losses with notes. There is nothing in the case, to warrant the suspicion, that the claim was not fair, or that there was any collusion between the president and the claimant, to whom the note was transferred. It is, to be sure, alleged, that Aspinwall had been a trustee, and hence, it is argued he must have known that the company was insolvent, when he took a transfer of notes, in payment of his claim. The contrary, however, satisfactorily appears. The transfer was made on the 19th of February, 1847. Aspinwall resigned as trustee on the 19th of December, 1846, and the company continued to take risks and do business till it failed, in May, 1847. We are not, on the evidence in the case, authorized to conclude that the company was in point of fact, insolvent when the note was transferred; nor can we yield to the idea, that Aspinwall’s previous connection with the company, as trustee, can in any manner invalidate the transaction.

*187The whole scope of the statute “ to prevent the insolvency of monied corporations,” shows that its design, by the eighth section was, to prevent *collusive*transfers of the effects of such corporations. It surely could not have meant to interfere with honest transfers, made to pay their just debts. The ninth section, p. 591, clearly shows the penal effect which is to flow from the acts there prohibited. It provides, that “ no conveyance, assignment, or transfer by any such corporation when insolvent, or in contemplation of insolvency, shall be valid in law.” In the section next preceding, which prohibits a transfer without a previous resolution of the board of directors, the transfer is not declared void, if made without such authority. According to the familiar rule, *11inclusio unius est exclusio*alterius,” there is a strong implication, that the legislature did not intend to declare all transfers void, if not authorized by a resolution of the directors. The implication is stronger, when the clause omitted is, as here, somewhat penal. The object of the eighth section was to guard against fraudulent transfers. The section employed to effect this object, seems to be rather directory in its character, than otherwise. But, if we are wrong in this view, we think another clause of the section shows that the transfer of the note in suit is not one of the transfers or assignments intended to be guarded against.

The concluding part of the eighth section provides, “ that the section shall not be construed to render void any conveyveyance, assignment, or transfer, in the hands of a purchaser for a valuable consideration, and without notice.” We consider the plaintiffs such purchasers. If a previous vote of the board of trustees were necessary, there is no evidence that they knew that such vote had been dispensed with. Though the president says, the notes were transferred to the plaintiff's as collateral security, yet they were transferred and applied as the twelfth section of the charter intended they should be applied. They were taken “ for the better security of dealers,” and were “ negotiated for the purpose of paying a claim ;” the very end which the charter intended they should serve. The consideration was not only valuable, but derives additional strength from the fact, that it is regarded by the charter as the principal *188one to warrant a transfer. Though the president says, his hope was, that the note would come hack to the company, and that they would be able to pay the loss in cash, yet it does not appear that the policy of insurance was retained by the plaintiff, or that the original claim continued alive. The most that the president can be understood to mean is, that he hoped to be able to pay the claim in money before the note matured ; a proposition to which the plaintiffs would, no doubt, have very readily acceded. We think it fairly inferrible that the policy was given up to the company, and that the plaintiffs parted with enough, within the case of *Stalker*v. *M’Donald,*(6 Hill, 93,) to make them purchasers for value, if the defendant were in a position to object that he came by it otherwise.

But, does it lie in the mouth of the defendant to urge the objection here urged to the manner in which the plaintiffs came by the note ? Can he ask protection as the maker of the note, on the ground that it was transferred to the plaintiffs, in fraud of the legal or equitatile rights of the defendant *%*How has he been defrauded *1*His note has served the very purpose for which he gave it to the company. It has served to pay a just claim of the company. It is not enough for the maker of a note *to*say, that it was transferred to the plaintiff who prosecutes it, without a valuable consideration; but to defeat a recovery on it, he must show that it was transferred in fraud, or to the prejudice of his rights. It is no defence to an action on a promissory note, that the *property*of the note is in a third person, and not in the plaintiffs. Unless the possession of the note by the plaintiffs, is *mala fide,*and may work some prejudice to the defendant, the latter is not entitled to be heard on the subject. *(Guernsey*v. *Burns,*25 Wend. 411. *Hall*v. *Gird,*7 Hill, 587.)

In the latter case, it was held, that it was no defence to a suit in chancery, instituted for the foreclosure of a mortgage, that the complainants solicitor, by an agreement between him and his client was to have part of the demand when collected, by way of compensation for his services ; and that even at law, the fact that the demand has thus been illegally bought or sold, constitutes no defence to the debtor, in the appropriate *189sense of the term. If the payees of the note here have authorized the plaintiffs to collect it, (which authority is involved in the transfer,) we cannot perceive on what sound principle the maker can be permitted to allege (the plaintiffs being in possession of the note,) that the plaintiffs did not pay value for it, or that a board of trustees did not vote for its transfer, unless he can show that he was defrauded, or lost some defence he might have had against the payees, had they retained it. Here, the defendant had no defence whatever against the insurance company, as the note was given for the purpose of enabling the company to pay claims. How were the defendants rights, in any respect, prejudiced by the transfer? It was not transferred in fraud of any of his rights ; and it does not lie with him to object to the manner in which the plaintiffs came by the note. We think the plaintiffs are entitled to judgment.

Judgment for the plaintiffs.(a)

(a)

**Affirmed in the Court of Appeals, April 17, 1850.