Case Name: HIGGINBOTHAM v. INTERNATIONAL TRUST CO.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-12-30
Citations: 126 N.Y.S. 366
Docket Number: 
Parties: HIGGINBOTHAM v. INTERNATIONAL TRUST CO.
Judges: 
Reporter: West's New York Supplement
Volume: 126
Pages: 366–373

Head Matter:
HIGGINBOTHAM v. INTERNATIONAL TRUST CO.
(Supreme Court, Appellate Division, First Department.
December 30, 1910.)
1. Corporations (§ 408 )—Subscriptions for Stock—Authority of President to Receive Payments.
The president of a corporation has authority to receive payment of subscriptions for its stock, though the corporation is a trust company, which cannot transact business until all its capital stock is paid in.
[Ed. Note.—For other cases, see Corporations, Cent. Dig. § 1678; Dec. Dig. § 408.*]
2. Corporations (§ 408*)—Authority of President—Receiving Payments of Subscriptions to Stock.
As subscriptions to its stock are assets of the corporation upon which it can sue, the president binds the' corporation in receiving payments of subscriptions and in issuing receipts agreeing to exchange them for engraved certificates when prepared, and, such officer having received money from a subscriber after the entire authorized capital stock had been allotted and issued a receipt, the corporation was bound thereby, and was liable to the subscriber for the amount so paid.
[Ed. Note.—For other cases, see Corporations, Cent. Dig. § 1678; Dec. Dig. § 408.*]
3. Corporations (§ 426*)—Unauthorized Acts of Officers—Reception of Benefit.
It appearing that the corporation did not have the necessary amount of its capital stock paid in, so as to entitle it to begin business, and that the president, to make up the difference, procured a cashier’s check from a bank of which he was also president, payable to the order of the corporation, so that it could procure the certificate of the superintendent of banks enabling it to commence business, and that, to keep his account straight, the cashier of the president’s bank at the president’s direction charged the amount of the check to a depositor’s account, and subsequently the president transferred to such depositor’s account money paid him by subscribers to the corporation’s stock which included plaintiff’s subscription, the corporation must be deemed to have received the benefit of plaintiff’s subscription, since the corporation was liable for the money taken from the depositor’s account by the president which liability was discharged in part with plaintiff’s money.
[Ed. Note.-—For other cases, see Corporations, Cent. Dig. §§ 159G, 1702-1704, 1708, 1710, 1716; Dec. Dig. § 426. ]
Ingraham, P. J., and Scott, J.. dissenting.
Appeal from Trial Term, New York County.
Action by E. Gaston Higginbotham against the International Trust Company. From a judgment for defendant, and an order denying a new trial, plaintiff appeals.
Reversed, and new trial granted.
Argued before INGRAHAM, P. J., and CLARKE, SCOTT, MILLER, and DOWLING, JJ.
George C. Austin, for appellant.
Eugene A. Philbin, for respondent.
For other cases see same topic & § number in Dec. & Am, Digs. 1907 to date, & Rep’r Indexes
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
MILLER, J.
The
action is for money had and received; the claim being that the defendant accepted and retained $5,000 of the plaintiff's money in payment of a subscription for 25 shares of its stock after the entire authorized capital stock had been allotted. The certificate of incorporation of the defendant was filed in the office of the superintendent of banks on the 25th day of March, 1907. On the 26th day of September, 1907, the first meeting of its board of directors was held, at which one Howard Maxwell was elected president. He had theretofore acted as chairman of the incorporators. On the 27th day of September, Maxwell, as president, and Bouker, as secretary, verified an affidavit stating who the officers and stockholders of the defendant were, but not including the plaintiff's name in the list of stockholders, and another affidavit that the whole amount of the capital stock had been in good faith subscribed and paid in in cash. The defendant was organized with a capital and surplus of $1,000,000. On the 30th of September a bank examiner certified that the books of the Oriental Bank showed a credit to the defendant of $1,000,000, the amount of its capital and surplus, and thereupon the superintendent of banks issued his certificate, authorizing the defendant to transact business. The plaintiff had subscribed for 25 shares of stock. The date of the subscription does not appear, as the subscription agreement is not dated. But it was made on one of the regular forms, and is No. 25, from which it may be inferred that it had been signed prior to the 26th day of September for the receipt book; which was the only record kept by Maxwell, either as chairman of the incorporators or as president of the defendant, showing the payments of subscriptions, indicates that there were at least 44 subscriptions prior to September 27th. It may be said in passing that that book is not a record of the subscriptions to stock, as is asserted in the brief of the learned counsel for the respondent, but is a record of the receipts of payments of subscrip tions. That record shows that on October 2d $1,000,000 had been paid in. Thereafter Maxwell received the payments of four subscriptions, including the plaintiff's, made October 15, 1907. The subscription agreement contained this provision:
"I hereby authorize Howard Maxwell, as attorney for me, to enter upon the proper subscription book my subscription for said shares, or for any shares that may be allotted me in the event of over subscription."
The plaintiff paid his subscription by a check payable to the order of "Howard Maxwell, Chairman," and in return received the following receipt:
"International Trust Company, Broadway and Fulton Street.
"Hew York, Oct. IS, 1907.
"Received of E. G. Higginbotham five thousand dollars in full payment for twenty-five shares of stock of the International Trust Company.
"This receipt will be exchangeable, on surrender, for engraved certificate when same are completed. Howard Maxwell,
"International Trust Co.,
"President."
The words "Chairman Organization Com.," .after his signature, were stricken out, and the word "President" written in by said Maxwell. While, no doubt, the subscription agreement constituted Maxwell the agent of the subscriber to enter his subscription, the receipt purports to have been the receipt of the defendant, and the agreement to exchange engraved certificate for the receipt purports to be the agreement of the defendant. The 'question, then, is whether Maxwell had actual or apparent authority to bind the defendant. It seems to me that the president of a corporation has authority to receive the payment of subscriptions for its stock, even though the corporation is a trust company which cannot transact business until all its capital stock is paid in. The defendant's board of directors had met and elected officers, as they obviously had to do before the affidavits could be made, upon which the certificate of the superintendent of banks could, issue. While the officers had no authority actually to transact business before obtaining said certificate, they did have authority to take the steps necessary to obtain the certificate, one of which was the receipt of payments of subscriptions. It cannot be doubted that the president had authority to issue the stock certificates. If so, it seems to follow that he had authority to issue the substitutes for the engraved certificates pending the preparation of them. There is no claim that the plaintiff knew when he paid his subscription that the entire amount of the defendant's capital and surplus had been paid in, or even that the certificate, authorizing the defendant to do business, had then been issued. He denied such knowledge in his complaint, but apparently forgot to do_ it on the trial. However, the mere receipt of payments of subscriptions to the entire amount of the authorized capital stock and surplus would not necessarily preclude.the receipt of other payments, because the subscription agreement contemplated that, in case of oversubscription, there shbuld be an allotment.
Subscriptions to stock are assets of the corporation, and there -can be no doubt that a corporation can maintain actions to recover such sub scriptions. It must follow that in receiving payments of subscriptions and in issuing receipts, agreeing to exchange them for engraved certificates when prepared, the president has authority to, and does, bind the corporation. Maxwell was the plaintiff's agent to enter his subscription upon the subscription books of the company; but he was the defendant's agent to receive payment of subscriptions, and to issue therefor the defendant's receipts, exchangeable for engraved certificates of stock.
However, the plaintiff did not rest upon the receipt alone, but proved that the defendant got the benefit of his subscription. On the morning of the 30th of September the defendant still lacked $145,000 of having the necessary $1,000,000 to its credit in the Oriental Bank. The respondent suggests that that shortage included Maxwell's subscription of $125,000. But the only evidence in the record with respect to his subscription is the receipt book which shows that it was paid September 27th. In order to get the necessary $145,000 which was lacking, Gow, one of the defendant's directors, requested the cashier of the Borough Bank of Brooklyn, of which Maxwell was president, to send a cashier's check for that amount. The cashier communicated with Maxwell who authorized that to be done, and thereupon drew a cashier's check for $145,000, payable to the order of the defendant, which was deposited by the defendant in the Oriental Bank, and thereby the defendant' was enabled to procure the certificate of the superintendent of banks, enabling it to commence business. To keep his accounts straight, the said cashier upon the direction of Maxwell charged $145,000 to the account of a depositor, and credited that amount to the cashier's acr count. Maxwell, as chairman, kept an account in the Borough Bank in which he deposited certain moneys paid him by the subscribers to the defendant's stock. On the 10th of October there was a credit to that account of $105,000, and on that date the cashier, at his direction, transferred $105,000 of that amount to the credit o'f the account from which the $145,000 had been taken, and on the 16th of October the further sum of $12,000, which included the plaintiff's $5,000, was likewise transferred. Thus $117,000 of the money misappropriated to enable the defendant to" begin business was repaid from the money collected by Maxwell from subscribers, including the plaintiff: It seems to me that the case is precisely the same as though the said $117,000 had in the first instance been deposited in the Oriental Bank to the credit of the defendant. It is of no consequence that the identical money collected on the plaintiff's check did not reach the defendant. The money which was first stolen went into the defendant's treasury, and the defendant received the benefit of it. If that theft had not been made good, the defendant could have been compelled to repay the sum stolen. Maxwell repaid it by using $117,000 of the money received by him in payment for subscriptions to the defendant's stóck. How the other $28,000 was refunded is now of no consequence. Thus the defendant's liability was discharged in part with the plaintiff's money, and it seems to me that it is' refining altogether too much to say that the defendant did not have the benefit of that money. If it had in fact gone directly into the defendant's treasury, the case would be plain. That was the result of the transaction if regard be had to substance-father than form.
The judgment and order should be reversed, and a new trial granted,, with costs to appellant to abide the event.
CLARKE and DOWLING, JJ., concur.