Case Name: The Chemical National Bank of New York, Respondent, against Augustus W. Colwell, Impleaded with De Witt C. Wheeler et al., Appellant
Court: New York Court of Common Pleas
Jurisdiction: New York
Decision Date: 1890-02-10
Citations: 16 Daly (N.Y.) 28
Docket Number: 
Parties: The Chemical National Bank of New York, Respondent, against Augustus W. Colwell, Impleaded with De Witt C. Wheeler et al., Appellant.
Judges: 
Reporter: Daly's Common Pleas Reports
Volume: 16
Pages: 28–34

Head Matter:
The Chemical National Bank of New York, Respondent, against Augustus W. Colwell, Impleaded with De Witt C. Wheeler et al., Appellant.
(Decided February 10th, 1890.)
A by-law of a limited liability company providing that the president shall make, sign, and execute all contracts in the name of the company, makes him general agent of the company, with power to transact all business that the company could lawfully do, and implies the
power to make such negotiable paper as is necessary or convenient in the business of the company, notwithstanding another by-law declares that all notes shall be signed by the treasurer ; the by-laws being contradictory in other particulars.
A note made by a limited liability company to its own order and indorsed by it, and presented for discount by a director twenty days from its date, does not on its face suggest that it is accommodation paper, nor that it is used for a dishonest purpose.
Defendant, on executing an assignment in blank of all his stock in a limited liability company, of which he was director, to another director, told the latter that he severed all his connection with the company and would have nothing further to do with it. Held, that such declaration, not accompanied with any request to communicate it to the board of directors, was not a valid resignation. •
Before the transfer of defendant’s stock was. made on the books of the company, he consented to retain five shares, on the suggestion that it would be bad policy for him to leave the company entirely, and a new certificate for such five shares was issued to him. Held, that he had not ceased to be a director under the requirements of section 10 of the limited liability companies act of 1875, that “ directors shall be stockholders to the extent of at least five shares.”
Appeal from a judgment of this court entered upon a verdict directed by the court and from an order denying a motion for a new trial.
The action was brought against the directors of the New York Lumber Auction Company, Limited, to charge them, on their statutory liability for the debts of the company for failure to file an annual report, with the amount of a promissory note for $2,200 made July 2d, 1886, by the company, to its own order, and indorsed by the company and by L. E. Jones and B. L. Luddington, and discounted at plaintiff’s bank, the proceeds being placed to the credit of L. E. Jones’ individual account. Defendant Colwell set up as defenses that he ceased to be a director November 5th, 1885, and that the note was not a valid note, not being signed by the treasurer of the company. The court directed a verdict for plaintiff. Defendant Colwell moved for a new trial, and on the hearing of his motion at. the Special Term, the court delivered the following opinion.

Opinion:
Van Hobsbn, J.
I think that the plaintiff is entitled to judgment on the verdict.
This case differs from those on which the defendant relies. The statute (§ 10) provides that the business shall be managed by a board of directors, and " by such officers, to be elected from the directors, as the by-laws shall prescribe." The by-laws preclude the idea that the ordinary business of the company was to be managed by the board of directors, for they provide that the directors shall only meet semiannually, unless the president or the secretary shall call a special meeting, They then provide that the president shall make, sign and execute all contracts in the name of the company. He is not merely to sign and execute, he is to make all contracts. This clause makes the president the general agent of the company, with power to transact all business that the company could lawfully do. It implies, if it does net expressly confer, the power to make such negotiable paper as was necessary or convenient in the business of the company.
There is another clause of the by-laws which declares that all notes shall be signed by the treasurer, but I do not regard that as tantamount to a declaration that a note shall not be valid unless the name of the treasurer be signed to it. The by-laws are in several places contradictory, for one clause provides that the corporate seal shall be. attached only to certificates of stock unless special directions to the contrary be given by the president or the treasurer, and the clause makes it the duty of the secretary to attach the seal to all contracts.
I believe that the president had the right, without the authority of the board of directors, to make contracts, and to make the contract that is the subject of this action.
There is nothing in the evidence to -show that the contract is one that the president ought not to have made, though there is evidence that the money obtained upon the note was used by one Jones, who was a director of the company, for his own private purposes. The fact that Jones was a director of the company, and that the proceeds of the note were applied by him.to his own use, does not show that the note was made for his accommodation, nor did the possession of the note by him naturally give rise to the question as to whether he was not confederating with the president of the company to make an improper use of the credit and the paper of the company. The note was signed: "New York Lumber Company, Limited, D. C. Wheeler, Pres.," and was drawn to the order of "New York Lumber Co., lim.," and it was indorsed exactly as it was signed. Such a note so indorsed, though presented for discount by a director of the company twenty days after it bore date, did not, upon its face, suggest that it was an accommodation note; nor did the possession of it by a director argue that it was used for a dishonest purpose. If, in point of fact, the proceeds of the note went into the company business; or, if the note, after having been used in the business of the company, had found its way into the hands of a director (and the bank had nothing before it to show that either state of affairs was unlikely), what reason was there why it should not be discounted ?
The so-called resignation of the defendant did not terminate his duties as a director. It was never accepted (Boone on Corporations, § 136; Angel & Ames, § 433, 434) ; nor do I think that he absolutely and irrevocably resigned, though he talked of resigning. No successor had ever been chosen, nor had the resignation ever been brought to the notice of the board. His term had not expired by its own limitation. There should be judgment on the verdict.
From the judgment entered on the verdict in accordance with this opinion, and from the order denying his motion for a new trial, defendant Colwell appealed.
J. Alfred Davenport and Edward O. Perkins, for appellant.
Jones & Roosevelt, for respondent.
Larremore, Ch. J.—I concur in the conclusion readied by Judge Van Hoesen, and in the reasons assigned by him in his opinion,, filed upon the denial of defendant Colwell's motion for a new trial. It will be unnecessary to further consider the questions which are fully discussed in such opinion. It may be well, however, to pursue the discussion a little further on the questions of appellant's alleged resignation as a director, and the transfer of his stock in the " New York Lumber Auction Company, Limited." Accepting the version of the transaction supplied by appellant's witnesses, the facts are as follows: On the 5th day of November, 1885, appellant said to Latimer E. Jones, the secretary and treasurer, at the office of the company, at the time of executing an assignment to said Jones individually of the 80 shares of stock which appellant then owned:—
" Now, Jones, that severs all my connection with the Lumber Auction Company; I have got nothing further to do with it; you have got father's stock; he is dead, and that settles that; and I have given you mine, and that clears up all that; and I have nothing further to do with the company."
Mr. Jones was appellant's brother-in-law, and the above conversation is what appellant relies on to establish a resignation. Appellant admitted that he did not tell Mr. Jones to communicate his resignation to the board of directors, saying, however, that he had told Mr. Jones previously that he wished to resign. *
Granting that the right of a director to resign is absolute, and admitting that no writing, and no particular form of words is essential, it is nevertheless true that any communication, in order to constitute a valid resignation, must express a definite and present intention to withdraw from the office in question, and must be addressed to the company, or the board of director's, or to an officer, as such, with the explicit purpose of having it reach the company or board of directors through him. I do not think the facts relied on to establish a resignation here are as strong as they were in Kindberg v. Mudgett (24 N. Y. Week. Dig. 229). In that case it appeared that the defendant had stated orally to several trustees that he would have nothing more to do with the company, besides writing a note to that effect to one of them. Yet, even under those circumstances, the court held that defendant's declarations could not be construed as a resignation.
Appellant further contends that he c'eased to be a director, under section 10 of the act, because, on November 5th, he executed an assignment of all the stock he held to Jones. The facts are that he executed such assignment in the blank upon 'the back of his certificate on November 5th, but that the actual transfer on the books was not made until November 14th, when 75 of the shares were transferred to Jones, and a new certificate for the remaining five shares was made out in appellant's name. Appellant's witness, Atchison, says on this point:
" I suggested to Mr. Jones that it would be bad policy for Mr. Colwell to leave the company entirely, and that he persuaded him to accept the requisite number of shares to remain as a director, which was afterwards done."
It does appear that appellant actually took back the certificate for such 5 shares, presumably, as Mr. Atchison testifies, with the intention of remaining a director. The trial judge was therefore justified in inferring that appellant concluded to ratify the act of Jones and Atchison, in keeping him eligible for and actually in the board. In contemplation of law I think appellant was the holder of said five shares throughout his term of office. He intended originally to assign all his shares, but only 75 of them actually were transferred, and, as he consented afterwards to retain the five shares which all the time stood in his name, it would be putting a most unnatural and technical construction upon the conceded facts to hold that he was not continuously a stockholder.
My conclusion, is that appellant was legally a director of the corporation at the time of the failure to file the annual report, and of the inception of the debt, and that he is liable as sued in this action.
Bookstaver and Bischoff, JJ., concurred.
Judgment affirmed.