Case Name: Lowell Holbrook v. Wm. S. Wilson and Francis Brown
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1859-01-22
Citations: 4 Bosw. 64
Docket Number: 
Parties: Lowell Holbrook v. Wm. S. Wilson and Francis Brown.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 17
Pages: 64–80

Head Matter:
Lowell Holbrook v. Wm. S. Wilson and Francis Brown.
1. Where, in an action by an indorsee against the makers of a note, the defense is that it was made and delivered to an Insurance Company, at its request, and without consideration, solely by reason of false representations made by the officers of the Company, that the Company fraudulently misappropriated it, and that the plaintiff took it with knowledge of such facts ; and it appears at the trial that the defendants made the note at the solicitation of Rich & Knowlton, who had subscribed §2,500 to “ a subscription of §400,000 in premium notes (to be given to such- Company) to be written against,” and “to be binding when §300,000 was subscribed”; to enable Rich & Knowlton to give such note to said Company in lieu of their o vvn note for that sum, in payment of a like amount of their said subscription, and that Rich and Knowlton, on soliciting and obtaining such note, stated to the defendants the terms of the §400,000 subscription, and that in procuring such note they were acting in their own behalf; evidence of the representations made by Rich and Knowlton, to the defendants, as to the condition of the Company, are inadmissible.
2. To make them admissible, under such pleadings, it is necessary to show that Rich & Knowlton were then acting as agents of, or on behalf of said Company, -or that the latter took the note with notice of such representations-
3. In such an action, the defendants must, at least, show that the condition, on which the subscriptions to the $400,000 subscription were to be binding, had not been complied with by a subscription of §300,000, assuming that such a defense would be equally open to them as to Rich & Knowlton, on a note given by the latter, in pursuance of their subscription.
4. If a note be voluntarily given in payment of such a subscription before $300,000 is subscribed, and with knowledge of that fact; it cannot be set up as a defense to a suit on the note, that §300,000 was not in fact subscribed, when such note was made and delivered to the Company.
5. The fact, that such Insurance Company, a few days after the defendants’ note was taken by it, sent to them a written receipt, (in terms like those sent to the actual subscribers,) which receipt stated that such Company had received from the defendants, the note in question “being their subscription to the Atlas Mutual Insurance Company, to be held and used by the Company for the purpose of paying the losses of the Company, or to be used in raising money to be applied to the payment of said losses. Five per cept to be paid by the Company on the payment of said note, according to the terms of the charter, ” is of 'itself no defense to an action by the Company on such note; or by one to whom it has been transferred by order of the Company as security for the payment of money loaned on its credit to the Coinpanyl
6. When there is no conflict of evidence, the question, whether the facts-' which it tends to establish constitute a- defense, it is for the Court to determine' and not the jury.
7. The fact, that §37,000 in amount, of the $300,000 subscription, was subscribed by other insurance companies, does not tend to show a noncompliance with the condition on which the subscriptions to the §400,000 subscription were to be binding, it not appearing what the names of those companies are, and that they had not legal capacity to so subscribe.'
8. The refusal of the judge, at the trial, to adjourn the'cause to a subsequent' day, to enable either party to obtain further testimony, cannot be made the subject of an exception.
(Before Hoffman, Pierrepont and Moncrief, J. J.)
Heard, November 10, 1858;
decided, January 22, 1859,
This case comes before the Court, on questions of law arising at the trial, and there directed to be heard in the first instance at the General Term. The action was tried on the 8th of April, 1858, before Mr. Justice Bqsworth and a jury, when a verdict was ordered in favor of the plaintiffs for the amount claimed. It' is brought by the plaintiff as indorsee of a note,-of which the de-' fendants are the makers.-
The coinplaint (verified November 26th, 1856,) states' that-the defendants, as partners, composing' the firm of- Wilstiri & Brown, on or about the 8th of November, 1855, made their ribtfeof that date for $500, payable twelve months from its’date, tb'their own order, for value received, and indorsed it in blank, and delivered- it to the Atlas Mutual Insurance Company; that after-wards and before its maturity, the plaintiff became the lawful holder of it for value, and still is; that it is past-due, arid wholly unpaid, and práys judgment for $500, with interest from No* vember 11th, 1855.
The answer (verified December 26th, 1856,) first, denies that on or about the 8th of November, 1856, the defendants made or indorsed the note, or delivered it-to said Insurance Company, or that it was transferred to the plaintiff for value before its maturity, or any time, or that he-became or is the lawful holder of it."
Second. It alleges as a separate and distinct defense, that on or about the 8th of January, 1856, the defendants executed such a note as that described in the complaint; that this was done at the request and solicitation of said Company, and the note, at the like request, was dated the 8th of November, 1855. That it was so made, and indorsed and delivered to said Company, “ upon an agreement with said Company, that said note should be held by it, and appropriated in payment of premiums upon insurance, which said Company agreed to make for these defendants, and for which policies were to be issued by said Company, and not be used or applied otherwise: that at the time said note was so made and delivered, the officers of the said Company stated and represented to the defendants that the said Company was in good condition and standing, and was perfectly solvent, and would be able to issue all the policies to which the defendants would be entitled by the payment of premiums to the amount of the said note, and to meet and pay all the liabilities they might thereby incur'; that it was entirely upon the faith of, and in full belief and confidence in the said representations, that these defendants made and delivered the said note, and they received no consideration whatever for the same.”
That the Company was then utterly insolvent, without means to meet any of its engagements; that this was known to its officers when said representations were made; that said representations were false and fraudulent, and that solely by reason thereof the defendants were induced to deliver the note to said Company. That said Company, soon thereafter, and without having issued any policies to these defendants, suspended business, was declared -insolvent, and a receiver of all its effects was appointed. That if the note was ever transferred to the plaintiff, he took it with notice of all these facts.
Third. It alleges as a further and distinct defense, that “ at or about the time of the'insolvency of the said Company, certain persons who were or had been trustees and officers of the said Company, in violation of law, and in fraud of the rights of the receiver of said Company, and with knowledge of the insolvency of said Company, took possession of certain notes given in advance payment of premiums to said Company, and among others the • said note of these defendants was transferred by said persons to the plaintiff. That the possession of said trustees and transfer to said plaintiff, was fraudulent and without considerationand the defendants aver that the said note is held, and this action prosecuted by the plaintiff, solely for the benefit and advantage of the said trustees.”
At the trial, the plaintiff read the note in evidence and rested.
William. S. Wilson, one of the defendants, testified, in substance, that the note, in suit, was signed by his partner Browm on the 8th of January, 1856, and was delivered to Mr. Hinclcley, an officer of the Company, at its office. “ When we first saw it it was all filled up, it was banded to me by Mr. Rich," of the firm of Rich & Knoiulton, “ a firm with which we had business connections."
“Q. State whether any statements were made to you by any agent or officer of the Company as to the reason for ante-dating the note.
A. “ When I handed the note in, I said to Mir. Hinckley I thought the notes were made too short; Mr. Rich had stated that it was ante-dated to correspond with other subscriptions; Mr. Hinckley, in answer to my remark to him, said it was made short to facilitate the operations of' the Company; the note was given to be used up in premiums and to be used by the Company, and in consideration of five per cent to be allowed to us as to other parties making subscriptions; there was no other consideration for it; no representations were made to us by any officer of the Company.”
He further testified, that a “ few days after we gave the note ” a paper was sent to them from the office of said Insurance Company, which reads thus, viz.:
“ Office of the Atlas Mutual Insurance Company,)
New York, Dec. , 1855. f
Received of -Messrs. Wilson & Brown their note for five hundred dollars at 12 months, from Nov. 8, 1855, in favor of themselves being their subscription to the Atlas Mutual Insurance Company, to be held and used by the Company for the purpose of paying the losses of the Company, or to be used in raising money to be applied to the payment of said losses. Five pel cent, to be paid by the Company on the payment of said note, according to the terms of the charter.
Geo. H Tract, Secretary.”
That not long after the delivery of this note to the Company, the defendants obtained a general policy from it, had four or five risks indorsed on the policy, in all about $200; soon thereafter we heard the Company was insolvent, “ and we canceled the risks and. re-insured j” we re-insured in February or March of that year. The defendants then offered to prove the representations made by Mch, relating to the Company, at the time he brought the note to them to be signed. The Court ruled, “that the witness could not state conversations between him and Rich, unless it were shown that Rich was acting in that matter in behalf of the Company ” and excluded the evidence, and the defendants excepted.
Josiah Rich was then sworn, and testified that his partner, Knowlton, was a trustee of the Company; that his firm were original subscribers for stock to the amount of $5,000, which was increased to $10,000, which was put in two notes. Before they fell due the firm subscribed $1,000 to the $40,000 subscription. It was after that “proposed to raise, in subscriptions, $400,000 When, that was to be done, our firm subscribed for $2,500, with the understanding that we might procure other notes than our own to make it up. We got these two notes from Wilson & Brown and put them in under this understanding, that the Company would take them in place of our own notes for $1,000 of •our $2,500 subscription. I communicated to Wilson & Brown the terms of the $400,000 subscription, and the circumstances under which I asked them for their notes. (The defendant offered to prove by.this witness thé statements and representations made by Mr. Rich to the defendants, on procuring the notes.) (The Court ruled that the testimony was inadmissible, unless the defendants- should first show that the witness was acting in that matter, on behalf of the Company, and that it could not be admitted upon the evidence then before the Court. To which ruling the defendants excepted.)
“ Q. When you went to Wilson & Brown to get them to sign these notes, for whom were you acting?
“ A. When I saw Wilson & Brown before they gave the notes I was acting for myself and the firm of Rich and Knowlton, and so told them; I don’t remember precisely how long after this time the Company continued business; I was a trustee some time after transaction.”
George H. Tracy was then called as a witness, and testified that he was Secretary of the Company, from May, 1852, to about February 12, 1856. He produced the book of minutes of the Company, the defendants read therefrom a resolution of the 8th of Hovember, 1855, as follows, viz.:
“William Street, Hew York, Hov. 8, 1855.
“ The trustees of the Atlas Mutual Insurance Company met pursuant to notice. On motion, it was resolved that a subscription of $400,000 in premium notes, to be written against, be obtained, subscription to be binding when $300,000 is subscribed, including the $40,000 already subscribed.”
That according to his estimate, $300,000 of the $400,000 subscription was made up. When the Company got notes under it, receipts were given similar to those given to Wilson & Brown. The latter were not subscribers. “ Their notes were received on account of the subscription of Rich & Knowlton. The subscription which they signed was produced and marked A,’ and is as follows:
“We, the subscribers hereto, agree to give to the Atlas Mutual Insurance Company our notes, in advance of premiums of insurance at six and twelve months, for the sums set over opposite our names respectively, it being understood that in consideration thereof the subscribers are to be allowed, by the Company, at the maturity of their notes, five per cent on the amount thereof. This subscription is towards the $400,000 subscription authorized by a resolution of the Board of Trustees, of this date, and is not to be binding until the sum of $300,000 is subscribed.
“ Hew York, Hovember 8, 1855.
“Rich & Knowlton,......................... $2,500.”
(This was also signed by various other persons and firms.)
That the subscription of $40,000 was previously made, and was included in the computation made, to make up the $300,000. (It was produced and read, and marked “ B,” and is as follows:)
“ We, the subscribers, hereby agree to give our notes for the amount opposite our names, at four months, in advance of premiums to the Atlas Mutual Insurance Company. Notes to be given when $40,000 is subscribed.
“New Yokk, October 12,1855.”
(It was signed by persons and firms, for amounts, footing up $40,000.)
He further testified, that of the $800,000, other Insurance Companies subscribed $37,000. That the receipt given to Wilson & Browm was not given at its date. That no notes were received until after November 30, 1855. “Receipts of this character were given to some parties who were not subscribers. Wilson & Brown.” The receipts for the $40,000 were different, they were all written out. An injunction was served on the Company March 5, 1856. For a day or two before that, no policies had been issued. The Receiver commenced his duties about the 26th of March, 1856. The resolution of the 30th of October, 1855, was then read from the books of the Company, as follows:
“ Tuesday, Oct. 30, 1855.
At an adjourned meeting of the Trustees of the Atlas Mutual Insurance Company, held at office of E. B. Litchfield, the following'resolution was, on motion, adopted: That any arrangement made by the Finance Committee in paying or arranging for funds to pay the pressing liabilities of the Company, and to sustain the institution till other means can be provided, if tfyey shall make themselves liable or their friends personally liable, the same shall be considered and treated as confidential, in any event equal in all respects to the amount of $40,000 already subscribed by the friends of the Company for its relief.”
Of the $40,000 subscription only $36,000 was actually paid. In November, 1855, Mr. Hinckley was President. Mr. Nelson, a partner of the plaintiff, succeeded him on the 29th of Decern ber, 1855, and resigned on the 18th. of February, 1856. He did not take risks. Mr. Hinckley did, and so did the witness.
Mr. Nelson attended-the meetings of the trustees, held December 29, 1855, and January 14th and 29th, and the 12th of February, 1856. None of the subscribers who subscribed to the $40,000 subscription were repaid out of the assets of the Company. “ The note of Wilson & Brown was delivered to Nelson & Sturges, as special Trustees, for the purpose of paying persons who had made loans to the Company. The trust deed was in writing; it was made under a resolution adopted January 29, amending one adopted January 14, 1856, and reading thus, viz.: “ The minutes of the last meeting being read, it was, on motion, resolved to amend by inserting the following resolution:
“Resolved, That the officers of the Company be and are hereby authorized, to arrange with any parties in or out of the Board of Trustees, for the use of their names, either as makers or indorsers of such paper, as it will be necessary for the Company from time to time to have; and they may give any security and make such allowance as they shall think proper for the use of such paper.”
He also testified, that the note in suit “ was delivered in pursuance of that resolution.” “ Rich and Knowlton paid $1,500 of their subscription.”
The defendants then called the plaintiff as a witness, who testified that he bought the note from Mr. Sturges, and could not tell when he bought it .or how much he gave for it, without referring to his books; that he knew the note was one of those held by Mr. Sturges, under the trust deed and resolutions spoken of by Mr. Tracy.
Thomas S. Nelson was next sworn as a witness for the defendants, and testified: “I was elected President of the Atlas Mutual Insurance Company on the 29th December, 1855; * * I so acted until the 14th of February, 1856; * * I acted as trustee, under the appointment of the Company; the trust was in writing; I have not got it-now with me; * * we were authorized to take advances of notes from parties, and take notes from the Company, and use them to secure those parties; Mr. Sturges was associated with me; * * this note was handed to us, with others, to secure us for the money we were raising for the Company; my partner, Mr. Holbrook, I presume knew * * that I was acting as special Trustee for those parties—twelve or fifteen—who had advanced money to the Company; the amount to be raised was about $50,000; a number of notes were collected; * * the money advanced to the Company was never repaid; some of it was collected from proceeds of these notes.”
‘■‘The defendants applied to the Court for an adjournment, for the purpose of bringing the trust deed spoken of by the witness into court. The motion was denied and they excepted.
They then put in evidence the proceedings in the Supreme ■Court, by which a receiver was appointed to wind up the affairs of said Company, and rested. (Ko other witnesses were examined, and the foregoing is the substance of all the testimony given or offered at the trial.)
“ The Court inquired of defendants’ counsel what questions of fact he desired to have submitted to the jury, and as to which there was, in his opinion, any conflict of evidence making such submission proper? to which he replied that he desired that the following questions should be submitted to the jury:
“1. Whether the receipt given for the note in suit to the defendants, by the Insurance Company, places these defendants in a situation to take advantage of all the defenses that a subscriber to the $300,000 subscription could interpose ?
“ 2. Whether the Company took the note with knowledge of circumstances impeaching its validity ?
“3. Whether the plaintiff did not take it with knowledge of the circumstances under which it originated, and was delivered to the Company ?
“ The defendants insisting that the Insurance Company was estopped to deny it was a subscription note under the $300,000 subscription, or that the defendants have not all the legal and equitable defenses of an actual subscriber. The Court stated that the evidence did not require the submission of these questions to the jury,” and thereupon directed a verdict for plaintiff.
“ The defendants excepted to the ruling and decision of the Court, as last stated, and to every part thereof.
“The jury, under the direction of the Court, found a verdict for the plaintiff for $546.60, being the amount of the note and interest.”
The Court then ordered that the questions of law arising on the exceptions taken be first heard at the General Term, and that the entry of judgment be in the meantime suspended.
The cause was submitted to the General Term without argument, on a case containing the exceptions, and on printed points. The points were as follows:
Charles N. Emerson, for the defendants.
I. The Court erred in instructing the jury that there was nothing for their consideration; that the facts proved did not constitute a defense.
It should have been submitted to the jury, upon the evidence, whether the Company did or did not receive the note as a “ subscription note,” and whether the defendant did not give the note with the understanding that it was to be used and applied under the terms and stipulations of the receipt which was given to the defendants for it.
II. The Company would have been estopped from saying that the note was not a subscription note, if the action had been in the name of the Company, or in the name of the Trustees of the Company.
III. Had the case been submitted to the jury, all the legal and equitable defenses arising out of the illegal subscription of $300,-000, made under the resolution of November 8, 1855, would have been open to their consideration. But the Court, while admitting the defendants to offer the same defenses in this suit as would have been admissible in a suit upon the note by the Company, deprived the defendants of all benefit of this defense, by passing upon the questions of fact, independent of the jury.
IY. The note in the hands of the Company or their Trustee was void, for non-compliance with the terms of the subscription upon which it was given, and, as the defendant claims, received by the Company through Mr. Rich. [Berry, receiver, v. Yates et al., N. Y. Times, April 25, 1857; Stewart v. Hamilton College, 2 Denio, 403; E. Anglian R. Co. v. Eastern Co. R. Co., 7 Law and Equity R., 505.
Y. The note was given to the Company. Rich & Knowlton had made a subscription to the amount of $2,500. He, Rich, applied to defendants to assume $1,000 of that subscription, by their notes. It was not a loan of monej to Rich & Knowlton, but an assuming on the part of the defendants of a part of Rich & Knowlton’s liability under that subscription. And the same defense which Rich and Knowlton would have had, to a suit upon the note, was open to these defendants.
VI. The plaintiff was a holder of the note, and received the same with full knowledge of all the legal and equitable defenses to its collection. He received it unlawfully, it being a diversion of the funds of the Company from the legitimate purpose to which they should have been applied, and also in fraud of the agreement under which the note was given, as contained in the receipt.
VII. The Company and the plaintiff, as privy with the Company, are estopped by the receipt given for the note, to deny that it was a note suchas is. described in the receipt, “being a subscription note to the Atlas Mutual Insurance Company, to be used by the Company for the purpose of paying the losses of the Company, or to be used in raising money to be applied to the payment of said losses."
The note was applied to an entirely different purpose. (Drury v. Fay, 14 Pick., 326; Chapman v. Searle, 3 id., 38; Tremble v. The State, 11 Blackf., 435; Love v. Kidwell, id., 553; Layoze v. Priman, 3 Miss., 529; Jackson v. Parkhurst, 9 Wend., 209; Rogers v. Haines, 3 Green, 362; Stewart v. Buller, 2 S. & R., 881.)
A party is estopped from denying the truth of a recital, which goes to the substance of the contract or the consideration of the contract in question, upon the faith of which recital another party to the contract has acted, knowing at the same time that the other’s conduct was materially influenced by a reliance upon the truth and good faith of the recital. (Hicks v. Crane, 17 Vt., 449; Rangeley v. Spring, 8 Shep., 130.)
VHI. On the 8th November, 1805, The Atlas Mutual Insurance Company-voted that a subscription of $400,000 be obtained in premium notes to be written against—the subscription to be binding when $300,000 is subscribed. The subscription was commenced, and these defendants, through Rich & Knowlton, on the same day, gave, the note in suit. It never became a valid note, from the non-compliance with the condition upon which it was given. $300,000 was not subscribed by persons entitled by law to subscribe, and the consideration of the note utterly failed. (See Testimony of Tracy; Berry, receiver, v. Yates, before cited, 24 Barb. S. C. R., 199.)
The defendants submit that the direction of the Court, to the effect that there was nothing for the jury to pass upon, and that a verdict should be returned for the plaintiff, was erroneous, and that a new trial should be ordered.
William Britton, for the plaintiff.
FACTS.
1. This action is upon a promissory note given by the defendants, in accordance with an agreement with Mr. Rich, acting for and on behalf of Rich & Knowlton.
2. Rich & Knowlton induced defendants to make the note and deliver it to the Atlas Mutual Insurance Company, towards a subscription 'made by the said Rich & Knowlton, by which they agreed to give their notes, or substitutes to be procured by them in advance of premiums, and for other considerations.
3. No representations were made by the Company to obtain the note.
4. The Company gave a receipt for the note after delivery to them, expressing that the note was “to be held and used by the Company for the purpose of paying the losses of the Company, or to be used in raising money to be applied in payment of said losses,” and expressing its consideration, to wit, that defendants would be entitled to insure against it, and to an allowance of five per cent.
5. Defendants did actually insure against it.
6. The note was transferred by the Company to Nelson & Sturges, as collateral security to a loan made by them to the Company, not paid when this suit was brought.
7. Nelson was a trustee of the Company, and acting President when the note was so. transferred.
8. Plaintiff is partner of Nelson, and then was, and bought the note of Nelson & Sturges (the latter in person) for full value paid, with knowledge .of the circumstances under which they held it.
POINTS.
Ho error was committed at the trial, and judgment was properly ordered for plaintiff; for—
I. The answer alleges (1) fraudulent representations on the part of the Atlas Mutual Insurance Company, by which they procured the note, and (2) a fraudulent misappropriation of the said note, with notice to the plaintiff.
II. Under these issues, no error was committed in the exclusion of the representation of Rich. Rich was not acting for the Company, but for his own firm, and had no authority to, nor did he seek to bind the Company by any representations. He so stated expressly.
IH. Ho error was committed in declining to submit to the jury the propositions requested at the conclusion of the trial to be submitted, for—
1. There was no conflict of testimony in the case. Every witness examined was sworn on behalf of the defendants, and there was, for this reason, nothing for the jury to pass upon.
2. The first proposition involved merely a question of law.
The second assumes that there was evidence showing or tending to show circumstances impeaching the validity of the note in its inception, which there was not; and
The third, if answered affirmatively, could not avail the defendants, the circumstances of its inception furnishing no defense.
IY. Judgment for the plaintiff was properly directed; for—
1. The note was given in accordance with an agreement made with Rich & Knowlton and for their benefit, and not for that of the Company, for Rich & Knowlton procured it to consummate an arrangement made between the Company and them, and not the defendants, and defendants gave it for a valuable consideration received by them.. (Brouwer v. Appleby, 1 Sandf. R., 158.)
2. Defendants were therefore no parties to the agreement between Rich & Knowlton and the Company, and could not be affected by the conditions of such agreement.
3. But if they were, there is no evidence even that the conditions of the agreement between Rich & Knowlton and the Company were not performed, or that Rich & Knowlton themselves would have had any defense if their note had been given by them, and defendants can be in no better position.
4. The note was transferred to Kelson & Sturges by the Company, in exact accordance with the stipulation contained in the receipt given by the Company, to wit: “ to be used in raising money to be applied in payment of losses of the Company.”
5. There is no evidence whatever of any fraud on the part of any one either in procuring or using the note.
6. The plaintiff took the note, for value, from Kelson & Sturges, and in absence of fraud known to him, is entitled to recover.
7. Judgment should be ordered for plaintiff in accordance with the verdict.
The answer states that “ the officers of said Company" made certain false representations to the defendants to induce them to give the note; that they gave it, relying on the truth of those representations. The Judge excluded evidence of representations made by Rich to defendant, Wilson, “unless it were shown that Rich was acting in that matter in behalf of the Company and may have excluded it on the ground that no such defense, as was offered to be proved by Rich, had been set up in the answer. (Brazil v. Isham, 2 Kern., 9.) Wilson, before evidence of the representations made to him by Rich had been excluded, had testified “that no representations were made to us by any officer of the .Company," (Ante, p. 67.)—Rep.

Opinion:
By the Court—Hoffman, J.
The defendant, Wilson, being examined as a witness, on behalf of the defendants, it was offered to prove certain representations made to him by one Rich, as to the affairs of the Atlas Insurance Company, when the defendants gave the note in question. The offer was ruled out, unless it was shown that- Rich was acting in that matter on behalf of the Company.
We think this ruling was correct. The plaintiff was making title througlithe Company. He could not be bound by declarations or statements, not made by them or their authorized agents.
The like remark applies to the next exception, to the rejection, by the Judge, of questions addressed to the witness Rich, himself, when he was produced as a witness to the same point. Rich is in no way connected with the Company so as to make his statements equivalent to their own.
To understand the exceptions as to the refusal to submit the specified questions to the jury, some facts should be noticed.
Rich & Knowlton were original subscribers to the stock of the Atlas Mutual Insurance Company. A proposition to increase the stock, having been made among the parties interested, Rich & Knowlton subscribed $2,500, with the understanding that they might procure other notes than their own to make it up. They got two notes from the defendants; one of which is that in suit. The Company agreed to take those notes in place of Rich & Knowlton's notes for $1,000, part of the $2,500. The defendants knew of these circumstances. Receipts were given to the subscribers, similar to the one in evidence given to the defendants. By the agreement made upon the new subscription, (which was to be for $400,000,) no subscription was to be binding until the sum of $800,000 was subscribed. Testimony was, given as to this subscription being filled up to that amount. All the evidence'was produced by the defendants. The defendants contended that the subscription was not full; that their's was a subscription note; that the condition had not been complied with; that the Company could not have collected the note; and, as the plaintiff took with knowledge, he was in no better position.
The defendants, then, must be taken to have made out, by their own uncontradicted and unquestioned evidence, the best case they were able to make; and the question, whether they have established a legal defense on that evidence, becomes a question of law. There was nothing of contradictory or discrepant testimony for the jury to weigh.
The effect of the receipt as tending to constitute a defense was of this nature: The inquiry, whether the Company took the note with knowledge of circumstances impeaching its validity, was not a question for the jury. A jury should be asked to pass upon the question of knowledge of particular facts; but whether, if known, they impeach the validity of a note, is for the Court to determine.
The third question was, in point of fact, answered in favor of the defendants, by the admission of the plaintiff and the other testimony.
None of the exceptions being tenable, the question arises upon the case, whether the judgment on the verdict ought to be for the plaintiff or the defendants. (Code, § 265.)
It has been decided in this Court that, where a note, given on a subscription like the present, had been transferred before matu rity to a bank to be discounted, with other notes, for the general purposes of the Company holding it, the bank could recover, unless' chargeable with notice of an intended and actual misappropriation. (The Central Bank of Brooklyn v. Lang, 1 Bosw. R., 202.)
The Company, in the present case, knew that the note was given as part of Rich & Knowlton's subscription, and the defendants were apprised of the nature and object of this arrangement. Nelson took the note, either as trustee for parties who had previously loaned money to the Company, or to use for the purpose of securing parties who should lend their notes as makers or indorsers, for the benefit of the Company.
I shall assume that Nelson stood in no better position than the Company; nor the plaintiff in a better one than Nelson. Then if the Company could not recover upon one of Rich & Knowlton's notes, given for the remaining $1,500 of the subscription, the plaintiff cannot recover on the present note.
This brings us to the question: Have the defendants shown that the condition was not fulfilled ? They have given a promissory note; have failed to establish any fraudulent representations, which could defeat the Company's claim upon it; and if they could avail themselves of an exemption arising from the failure of a condition upon which they alleged the note was given, they must make out that failure fully and explicitly. It is similar to the rule declared in The Bank of the United States v. Davis. (2 Hill, 459.)
The defendants have fallen short of doing this. The Secretary of the Company, called by themselves as a witness, states that $300,000 was made up, not including the amount marked in pencil on the subscription books. The previous subscription of $40,000 was included in this estimate. Why it should not be so does not appear. He adds, that of the amount of $300,000, the sum of $37,000 was subscribed by other Insurance Companies; but there is no evidence to show what Companies subscribed, nor that they were prohibited from subscribing, or could not lawfully do so. The witness says, also, that the $40,000 was not all paid in notes or cash; $36,000 only was. He included the $40,000 in his estimate; that it wras payable in four months; $36,000 was paid in notes.
This is the whole of the evidence; all supplied by the defendants themselves. They have not proved that the subscription was not filled up to $300,000, as required.
But again, if this were doubtful, there is another view of the case, which seems decisive against the defendants. Have not the parties waived the objection that the subscription was incomplete by giving their notes ? It may be that had they been sued for the subscription money, the defense would have availed them ; but the delivery of the notes was either a waiver of the condition or an admission that it had been complied with.
It is sworn to by Rich, that when he got the notes of the defendants, he informed them of the terms of the $400,000 subscription. The note was given and made on the 8th of January, 1856, though dated the 8th of November, 1855, and the receipt was given after the note, though dated in December, 1855. The terms of the resolution of November 8, 1855, were, that the subscription was to be binding when $300,000 was subscribed. There was nothing as to restoring notes or refunding cash if the subscription fell short; and 1 think that the giving of the notes, two months after the resolution, and with a knowledge of its terms, was an implied admission of the defendants being satisfied as to the filling up of the stock.
The plaintiff must have judgment upon the verdict.
Ordered accordingly.