Case Name: Samuel K. Wilson, Resp't, v. The Metropolitan Elevated Railway Company, App'lt
Court: New York Court of Common Pleas
Jurisdiction: New York
Decision Date: 1887-02-07
Citations: 6 N.Y. St. Rep. 234
Docket Number: 
Parties: Samuel K. Wilson, Resp’t, v. The Metropolitan Elevated Railway Company, App’lt.
Judges: 
Reporter: New York State Reporter
Volume: 6
Pages: 234–239

Head Matter:
Samuel K. Wilson, Resp’t, v. The Metropolitan Elevated Railway Company, App’lt.
(New York Common Pleas, General Term,
Filed February 7, 1887.)
3. Promissory note—Corporation—Liability op upon its notes issued • IN PAYMENT OF SALARY—EXTENT OF INQUIRY REQUIRED OF PERSON CASHING THEM.
A note of a corporation, signed by its president, endorsed by him in blank and presented by him, does not put the party cashing it upon inquiry as to whether or not it was given for his salary, nor whether or not the salary had been earned, nor whether there was any by-law or resolution giving the salary named before the services were rendered, nor whether the directors had exceeded their powers or had done any wrong, but should put him on inquiry as to whether or not the president was using the obligations of the corporation in his individual business and thus committing a breach of trust, and nothing else whatever.
2. Same—Representations of an agent of extrinsic facts.
One who takes a note or check, purporting to be given by a corporation for goods bought or services rendered, is not bound to inquire whether the goods were bought or services wrere rendered, for those are extrinsic facts peculiarily within the knowledge of the agent, and a party dealing with an agent may take the representations of the agent, as to any extrinsic fact which rests peculiarily within the knowledge of the agent, and which ■ cannot be ascertained by a comparison of the power with the act done under it.
Appeal from a judgment entered against the defendant ©n-a verdict rendered by direction of the court at trial term.
Barlow & Wetmore, for resp’t; Davies, Cole & Rapallo, for app’lt.

Opinion:
Bookstaver, J.
Plaintiff sued on a promissory note for $2,500 made by the defendant to its own order.
At the close of the testimony each party moved for a direction of a verdict in its favor; both parties thereby conceding that the facts in the case raised questions of law only to be determined by the court, and that there were no questions of fact to be passed upon by the jury.
Upon such request, the court directed the jury to render a verdict in favor of the plaintiff: and against the defendant, subject to the opinion of the court.
Thereafter, and during the same term, the court, after hearing counsel for the respective parties, sustained the verdict, and judgment was entered thereon for.$3,117.21.
Defendant made a motion for a new trial, which was denied. Defendant appealed from both the judgment and order.
As far as the making of the note is concerned, the material facts to be considered upon this appeal are as iollows:
The defendant is a duly organized domestic corporation.
Ón the 20th of May, 1879, it leased its railway, franchises, etc., to the Manhattan Railway Company, a duly organized domestic corporation, which thereupon, took possession of defendant's railway, and has, ever since, with unimportant exceptions, operated the same.
Sylvester H. Kneeland was a stockholder, a director and the president of the defendant from the 8th of November, 1882, until August, 1884.
What services he rendered, if any, as such president, does not appear.
The office of president, up to about the time of making the note in question, had never been a salaried one.
No agreement was made by the defendant to pay Knee-land a salary, or to give him any compensation for his services, before the 5th of June, 1884. Shortly after three o'clock, on the day last named, committees representing the defendant and the Manhattan Railway Company, entered into a memorandum agreement for the merger and consolidation of the two companies.
This agreement that "the Manhattan company consolidated to assume all liabilities" (of the defendant) "and to receive all assets" (of the defendant.).
Subsequently the two corporations were consolidated substantially on the basis stated in the memorandum.
About 3:30 p. m. on the same day, at a meeting of the board of directors of the defendant, regularly appointed, the committee of that company presented the memorandum agreement so entered into and it was unanimously adopted. At the same meeting the following resolution was unanimously adopted: "Resolved, That S. H. Kneeland, the president of the company, shall be paid a salary of $25,000 per annum from time of his election as such." Mr. Knee-land presided at this meeting and put the resolution to vote.
On the 18th of June, 1884, another duly appointed meeting of the directors of the defendant was held, at which the following resolution was unanimously adopted: " That the president be, and he is hereby authorized to use the credit of the company by issuing and negotiating its notes or otherwise for paying the salary of said president, said notes to be signed by the president and counter-signed by the treasurer in the usual way and form and not fro exceed the limit of the amount heretofore authorized." Mr. Kneeland presided at this meeting and put the question to vote.
In accordance with the provisions of the last resolution notes were issued signed by S. H. Kneeland, as president of the defendant, and counter-signed by the treasurer, made to the order of Mr. Kneeland, and endorsed by him, aggregating, as it is claimed, $48,950.
These notes matured at various dates from August 8 to October 31, 1884. This suit is brought upon one of such notes, which was transferred directly to the plaintiff by Kneeland under the following circumstances:
On May 26, 1884, plaintiff cashed for Mr. Kneeland a check for $7,650, drawn by the Mercántile Trust Company on itself, by giving him the full value thereof. Plaintiff held the check uncollected until June 28, 1884, on which day Kneeland sent to him the note in suit and two others of the notes issued as above stated of like amount and tenor and varying slightly in dates.
The plaintiff then discounted the three notes, giving Kneeland, as the proceeds of the discount, the check of the Mercantile Trust Company instead of cash, and charging him with the $7,650 advanced to him on May twenty-five, together with interest to the date of the discount, and crediting him with the three notes discounted, less the interest thereon, to their maturity. This left a balance against Kneeland of $283, which the latter paid to the plaintiff in cash.
We think this was the same in effect as though the plaintiff had collected the Trust Company's check, for which he had paid value, and which he then owned, and had paid cash to Kneeland on the discount of the three notes.
Two of the notes thus discounted were paid; the one in suit was not, and hence this action.
It thus appears that the plaintiff obtained the note before maturity and for value, and he would not be affected by a failure or want of consideration between Kneeland and the defendant, unless he had notice of it.
When a corporation gives a note for goods bought or services rendered, it cannot be possible that a person who takes the note for value, before maturity,- is bound to inquire whether the goods were bought or the services were rendered, and we think this an elementary principle of law.
Indeed, defendant's counsel virtually conceded, on the argument, that plaintiff paid full value for the note in controversy, before maturity; but claims that he had notice of irregularities in the inception of the notes, or the circumstances attending the making of the same, and the transfer to him were such as to put him on inquiry as to their validity.
It is not claimed that plaintiff had actual notice of any such irregularities or infirmity in the notes, but it is claimed that the note in suit was signed by the president of the corporation, and indorsed directly to himself, its president and trustee; and that the plaintiff was thus notified that it was a contract between the corporation and one occupying towards it a fiduciary or trust relation, which defendant could repudiate at its option.
An examination of the note shows that it was not indorsed directly to Kneeland himself, but was indorsed in blank, which was equivalent to making it payable to bearer.
The notes being thus presented to plaintiff, we think did not put him on inquiry as to whether or not they were given for his salary, nor whether or not the salary had been earned; nor whether there was any by-law or resolution giving the salary passed before the services were rendered; nor whether the defendant's directors had exceeded their powers or had done anything wrong in the premises, but should have put him on inquiry as to whether or not Mr. Kneeland was using the obligations of the defendant in his individual business, and thus committing a breach of trust, and of nothing else whatever. And, if the fact had turned out according to the appearances, and he had diverted the notes of the company to his own use, without authority, the plaintiff could not have recovered on them. But the fact was that Kneeland was not misapplying the paper of the corporation, but was using it exactly in accordance with the resolution of June 18, 1884.
It is analogous to the case where one partner uses firm paper, apparently for his individual purposes. If such use was unauthorized, and the person taking it knew it was unauthorized, there could be no recovery by him on such paper; but if the firm authorized such use, or if it should turn out that the- business although, in form, for the benefit of the individual, was in reality a copartnership transaction, then the holder of such paper could recover.
Appellant also contends that one who purchases a note from an agent or trustee of a corporation, must at his peril, see that its issue and negotiation are within the authority under which the agent can legally act, and that the plaint-, iff, therefor, was bound to inquire by what authority Kneeland signed and negotiated the note in suit.
Granting that this is so, then had plaintiff made inquiry on this subject, the resolution before mentioned would have clearly shown by what authority Mr. Kneeland signed and negotiated the noté; and that apparently, it was within the legal power. of the directors to pass. Such inquiry would not have shown that there was no authority in the directors to make this provision for salary; nor that' the salary had not been earned.
But if the plaintiff knew, or was bound to know, that the notes were given for defendant's salary, he was not bound to enquire whether the salary was earned, or was legally payable; for one who takes a note or check, purporting to-be given by a corporation for goods bought, or services rendered is not bound to inquire whether the goods were bought or the services were rendered; for these are extrinsic facts, peculiarly within the knowledge of the agent; and it has been held that a "party dealing with an agent may take the representation of the agent, as to any extrinsic fact, which rests peculiarly within the knowledge of the agent, and which cannot be ascertained by a comparison of the power, with the act done under it." Butchers and Drovers' Bank case, 16 N. Y., 135.
In that case the teller of the bank had authority to certify checks, when the drawer had funds, and he certified a Check where the drawer had no funds; but the bank was-held bound, because the question of ' funds or no funds " was an "extrinsic fact peculiarly within the knowledge of the agent." In that case the natural way in which the person taking- the check could have ascertained that fact, was -to inquire of the teller and he, by the act of certifying the check, had already represented that there were funds. North River Bank v. Aymar, 3 Hill, 262.
An agent who had authority to make notes in the business of his principal, made them in his own business and had them discounted. It was held that the- mere act of making the notes, and procuring them to be discounted, was an assertion, by the agent, that the acts were done in the business of his principal, although the agent made no representations on that subject, other than presenting - the notes for discount.
This principle is held in many- other cases, and rests upon the fact that the doing of the act, and the exercising the authority by the agent, is- an assertion by the principal, that the proper conditions exist; and we think that this principle applies to this case.
Having arrived at this conclusion,-it is unnecessary to examiné the other questions argued upon the appeal.
If the directors excéeded their authority, or were guilty of fraud or conspiracy in granting the salary, or authorizing-the execution or negotiation- of the notes, they would be liable to the parties injured,--in- a proper - action, brought to recover for such injuries. We therefore think that the judgment should be affirmed with costs.
Larremore, C. J., and Daly, J., concur.