Case Name: W. Edson Andrews, Respondent, v. Cosmopolitan Bank, Appellant
Court: New York Supreme Court, Appellate Term
Jurisdiction: New York
Decision Date: 1917-12
Citations: 101 Misc. 672
Docket Number: 
Parties: W. Edson Andrews, Respondent, v. Cosmopolitan Bank, Appellant.
Judges: 
Reporter: New York Miscellaneous Reports
Volume: 101
Pages: 672–682

Head Matter:
W. Edson Andrews, Respondent, v. Cosmopolitan Bank, Appellant.
(Supreme Court, Appellate Term, First Department,
December, 1917.)
Banks — impairment of capital — duties of directors of — superintendent of banks — evidence — actions — Statute of Limitations.
Statute of Limitations — waiver of — banks.
Where in consequence o£ a letter from the superintendent of banks, calling attention to the fact that the capital of the defendant bank was impaired and requiring the same to be made good, the board of directors held a meeting, at which the letter was read, and unanimously adopted a resolution that the directors put in enough to make a surplus account exceeding' the amount of such impairment, a contribution by plaintiff, one of the directors, to said account constitutes a gift and not a loan, and he is not entitled to recover the same by an action against the bank.
The fact that plaintiff subsequently received a receipt signed by the cashier of the bank, who was not shown to have any authority to sign anything more than a mere acknowledgment of the receipt of the money, stating that plaintiff’s payment was a loan, is not sufficient- to change the character of the transaction, nor could any understanding of the other directors as to their own payments, if competent for any purpose, justify the conclusion that plaintiff’s payment was a loan.
Where the court, over defendant’s objection and exception, admitted in evidence a letter from one of the other directors written after the adoption of said resolution to show that the writer understood the transaction to be a loan, but refused to admit a letter also written after said resolution by the president of the bank in his official capacity to the superintendent of banks, stating that the directors would “ donate to the bank the amount (of theb payments for surplus) as they originally intended,” to which exclusion defendant' excepted, the contrary and inconsistent rulings cannot be regarded as harmless.
The formal waiver of the Statute of Limitations by the directors of the bank more than six years after the adoption of the resolution in question, though probably sufficient to meet that defense if there was shown to have been an original obligation to repay the money, could not create an obligation where none had ever existed. If it can be treated as an admission of the existence of such an obligation it was not conclusive and being inconsistent with the conceded facts did not justify a finding that the original transaction was a loan.
Bijub, J., dissents.
Appeal by defendant from a judgment of the Municipal Court of the city of New York, borough of The Bronx, second district, in favor of plaintiff, after a trial by a judge without a jury.
Choloney & Weinberger (Nathaniel Choloney, of counsel), for appellant.
Raymond B. Stringham, for respondent.

Opinion:
Ordway, J.
Plaintiff sues to recover the sum of $125 claimed to have been loaned by him to the defendant. The defendant pleads a general denial and the Statute of Limitations. Plaintiff at the time of the transaction, August, 1906, was one of the directors of the defendant bank. At that time the capital of the bank was impaired to the extent of about $1,600, and the superintendent of banks, on August 13,1906, wrote to the bank a letter calling attention to that fact and requiring the stockholders or directors of the bank to make good the impairment. In consequence of this letter a meeting of the board of directors of the bank was held on August 16, 1906, at which the letter from the superintendent of banks was read; thereupon " Mr. Knox suggested that there be a surplus account opened on the books of the bank, and after due consideration Mr. Williamson moved and Mr'. Knox seconded the motion that the directors put in enough to make a surplus account of $2,000, which was unanimously adopted."
Apparently the plaintiff was not present at the meet ing, since the minutes of the meeting do not show that he was. Thereafter, apparently on August 17, 1906, plaintiff paid to the bank $125 and received a receipt therefor " on account of fund loaned to bank by directors to create a surplus fiind to be repaid as soon as bank's earnings will permit," signed by the cashier of the bank, who was not shown to have any authority to sign a receipt in that form. It was also proved that other directors sent similar contributions accompanied by letters addressed to the bank, in one of which it was stated, for example, that the $125 was to be used as a " private fund of loan to bank by directors to be repaid to me from the bank's earnings as soon as practicable." One of the other directors testified that he understood that his own payment was a loan. On August 17, 1906, defendant's president wrote to the superintendent of banks that the directors had ' ' voted unanimously to have a surplus fund of $2,000 and that the same be contributed pro rata by all the directors of the Bank. It is a pleasure to inform you that the action of the Board was spontaneous, and each member present paid in his contribution so as to make $2,000 which will be in by Monday, August the 20th instant." It was conceded that the defendant has had a surplus .and has been in a position to repay the money since about 1910, and on September 19, 1912, the board of directors adopted a resolution " that the Statute of Limitations shall not apply to the $2,000 principal advanced by the directors of the Bank under resolution passed at meeting held August 16, 1906, in accordance with instructions from Banking Department of the State."
The facts as stated above were not disputed. The court below was of the opinion that they showed that the transaction was a loan and entered judgment for the plaintiff, from which defendant appeals.
In. my opinion the plaintiff's payment to the defendant must be regarded as a contribution or gift, and not as a loan. When we take into consideration the letter of the superintendent of banks and the resolution of the board of directors of August, 1906, of both of which plaintiff must be presumed to have had knowledge, since he was a director of the bank, and is conceded to have sent in his check for his share of the amount to be u put in " and the letter of the president of the bank of August 17,1906, it seems to me clear that it was the directors' duty to take steps to make the impairment good; that payments by the directors could not " make a surplus account of $2,000," unless the payments were outright donations and not loans, and that plaintiff's payment must therefore be regarded, as a gift and as so intended, at least in the absence of any evidence of his own to show that he did not so intend it. See Leask v. Hoagland, 205 N. Y. 171; Levy v. Friedman, 83 Misc. Rep. 445. The fact that plaintiff subsequently received a receipt signed by the cashier of the bank, who was not shown to have any authority to sign anything more than a mere acknowledgment of the receipt of the money, stating that this payment was a loan, is not sufficient in my opinion to change the character of the transaction as shown by the record. Nor do I think that the understanding of the other directors as to their own payments, if competent for any purpose, can justify the conclusion that plaintiff's payment also was a loan.
If the transaction is to be treated as a loan, it not only nullifies the directors' formal resolution of August 16,1906, but also implies bad faith on the part of the directors towards the superintendent of banks.
In addition to this, the learned trial justice erred in rulings on evidence which in themselves would require a new trial. He admitted, over defendant's objection and exception, a letter from one of the other directors, written, after the resolution of August 16,1906, to show that that director understood the transaction to be a loan, but he refused to admit a letter, also written after that resolution, by the president of the bank, who was also a director, in his official capacity, to the superintendent of banks, stating that the directors would " donate to the bank the amount (of their payments for surplus) as they originally intendedto the exclusion of which the defendant excepted. If the former of these letters was admissible the latter certainly was, and as they related to the crucial question in the case these contrary and inconsistent rulings cannot be regarded as harmless error.
The formal waiver of the Statute of Limitations by the directors of the bank in September, 1912, although probably sufficient to meet that defense if there was shown to have been an original obligation to repay the money, could not create an obligation where none had ever existed. If it can be treated as an admission of the existence of such an obligation, it is not conclusive, and being inconsistent with the conceded facts does not justify a finding that the original transaction was a loan.
Judgment reversed and new trial ordered, with thirty dollars costs to appellant to abide the event.