Court Opinion

ID: 5231216
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:56:47.311249+00
Date Added: 2024-06-11T08:27:40.027369
License: Public Domain

Ingraham, P. J. (dissenting):
The action was brought on a promissory note, dated December 30, 1911, of the John J. Mitchell Company, by M. V. Quinlan, treasurer, Herman A. Newman, vice-president, whereby the defendant the John J. Mitchell Company, on *337June 20, 1912, promised to pay to the order of Herman A. Newman $833.34 at the G-arfield National Bank, New York, value received, with interest at six per cent. This note was duly indorsed by the payee, Herman A. Newman, and before maturity delivered to the plaintiff for value. The answer denied that the note was duly delivered to Herman A. Newman for value or for any consideration whatever, and that the note was duly indorsed and delivered to plaintiff for value or for any consideration whatever, and for a special defense alleged that prior to December 30, 1911, the defendant Herman A. Newman, payee of the note, had advanced to the defendant the John J. Mitchell Company the sum of $1,500, which sum on said date remained unpaid; that on said date and at the request of the said Herman A. Newman the defendant made, executed and delivered to him three promissory notes aggregating $2,500, of which the note referred to in the complaint is one; that of the said sum of $2,500 the sum of $1,000 thereof was a gratuity given to the said Herman A. Newman without consideration whatsoever, and that of the said three notes two thereof were given in payment of the aforesaid advance, together with the additional sum of $166.66, part of the aforesaid gratuity; that the said two notes last referred to given in payment for the moneys so due the said Herman A. Newman, and in part for the said gratuity, were duly paid and discharged; and the said note referred to in the complaint is for the balance of the said gratuity as aforesaid, and the said note was made, executed and delivered to the said Herman A. Newman without any consideration whatsoever; and as a counterclaim the defendant asked for judgment against the plaintiff for the sum of $1,000, with costs. To this counterclaim the plaintiff served a reply.
The case came on for trial before the court, a jury being waived. The court found that the defendant the John J. Mitchell Company made, executed and delivered the said note to Herman A. Newman on December 30, 1911; that prior to maturity of said note the payee, Herman A. Newman, indorsed the note in blank, and for value received duly delivered said note to the plaintiff; that said note was pre*338sented for payment according to its tenor, and payment thereof demanded and refused, whereupon said note duly protested for non-payment and due notice of such non-payment, protest and dishonor was given to the defendants herein, and that no part of said sum of $833.34 and protest fees has been paid. The court further found that prior to December 30, 1911, Herman A. Newman was an officer of the John J. Mitchell Company and had advanced to said company the sum of $1,500, which sum on said date remained unpaid, and on said date and at the request of said Herman A. Newman the defendant the John J. Mitchell Company made, executed and delivered to him three promissory notes aggregating the sum of $2,500, of which the note referred to in the complaint is one; that of the said sum of $2,500 the sum of $1,000 thereof was a gratuity given to the said Herman A. Newman without consideration whatsoever, and that of the said three notes, two notes thereof were given in' payment of the aforesaid advance, together with the additional sum of $168.66, part of the aforesaid gratuity; that the said two notes last referred to, given in payment for the moneys so due the said Herman A. Newman, and in part for the said gratuity, were duly paid and discharged, and the said note was made, executed and delivered to the said Herman A. Newman without any consideration whatsoever; that said obligation of the defendant the John J. Mitchell Company for payment of said sum of $1,000 was without consideration, and said the John J. Mitchell Company was without power or authority to make gifts to its employees or officers or any person, and the same was illegal and void; that the said Herman A. Newman indorsed said promissory notes in blank and delivered them to the plaintiff, who took the same without inquiry into the power of said defendant the John J. Mitchell Company to make the same; that thereafter the two notes first falling due and payable were presented for payment and were paid in full with interest by the John J. Mitchell Company, and that the payment thereof was without power and right of the defendant the John J. Mitchell Company to make and was illegal and void, and the plaintiff had due notice thereof and received the payment. As conclusions of law the court *339found that the said note set forth in the complaint was executed and delivered without consideration and was invalid and ultra vires the defendant; that said note by its form cast upon plaintiff the duty of inquiring of the defendant the John J. Mitchell Company as to its validity and as to all matters of defense thereto; that by reason of not inquiring, the plaintiff is not a holder in good faith and is bound by all the infirmities therein; that the plaintiff by receiving from said defendant the John J. Mitchell Company and upon collection of said notes the sum of $166.66, holds the sum of $166.66 to the use of said defendant as money had and received from it, and that the said the John J. Mitchell Company should have judgment against the plaintiff for the sum of $166.66. Upon that decision judgment was entered in favor of the defendant against the plaintiff, and from that the plaintiff appeals.
The defendant Herman A. Newman was called as a witness and produced the check of plaintiff, dated April 20, 1912, and made to his order, for $861.65 in payment of this note, and he testified that he received the money on the check from plaintiff. On cross-examination he testified that he had also delivered to plaintiff the other two notes before he delivered to him the note in suit, and when he delivered these notes to plaintiff he received check from the plaintiff for $1,500. The plaintiff having rested, the defendant called the president of the John J. Mitchell Company, and he said the plaintiff never made any inquiry from him in regard to the manner in which the note was issued; that Herman A. Newman was both an employee and officer of the company in the month of December, 1911; that he was vice-president and employed under a contract for five years to expire on the last day of June, 1912, at a salary of $5,200 a year; that on or about September 30, 1911, he had a conversation with the payee regarding the making of the note in suit and the two other notes dated December 30, 1911; that the three notes were all made at the same time and they were all part of one transaction; that Herman A. Newman prior to the making of the notes had advanced to the company the sum of $1,500. Michael Y. Quinlan, who also signed these notes as treasurer of the John J. Mitchell Company, was also called by the defendant and *340testified that he was the secretary and treasurer of the company and that Herman A. Newman received a salary from the company of $150 a week, and upon this testimony the court made the decision before mentioned.
We have here a promissory note made by a corporation, executed by its officers — its treasurer and vice-president — payable to the order of its vice-president, duly transferred to the plaintiff before maturity and for value, without notice of any infirmity or defense. The sole ground upon which the right of the plaintiff to enforce this note has been denied is, that because one of the officers of the corporation executing the note was the payee, the plaintiff was put upon inquiry as to the consideration for which the note was given, it being assumed that such inquiry would have developed the fact that the payee had only advanced to the company $1,500 for which he had received notes aggregating the sum of $2,500, and that, if the plaintiff had been aware of that fact, he could not have enforced the note as against the corporation. The defendant offered in evidence the articles of incorporation of the John J. Mitchell Company, but they contained no restrictions upon the officers of the company issuing the promissory notes in the ordinary course of business, and the defendant also offered in evidence section 6 of the by-laws, but that was excluded and as it is not part of the record we are without knowledge of its contents. There is, however, absolutely no proof in the case that the officers executing these promissory notes were not authorized to execute promissory notes on its behalf, no evidence that the note was not executed in pursuance of an existing contract or obligation of the company, no evidence that this note was executed without the consent of the president of the company, and nothing to show that the note was ultra vires or void. The only testimony as to the circumstances under which this note was executed was of the president, who says that on or about September 30, 1911, he had conversation with Herman A. Newman regarding the making of these three notes; that these three notes were all executed at .the same time and were all part of the same transaction; that Herman A. Newman had given $1,500 to the company some short time prior to the making of the notes; that he gave nothing *341else at the tune these notes were made and given to him other than the $1,500, and that he rendered no services other than those provided in his contract of employment. A fair inference from this is that these three notes were given to the payee in consideration of the payee’s advancing to the company the sum of $1,500; that they were given with the assent of the president of the company, who was one of the hoard of directors, and seems to have been in control of the company. I do not see how in any way this can be said to be an ultra vires or void contract. Assuming that it was a loan of money to the company for which the company had agreed to pay $1,000 interest for the use of the money, that contract was not void or ultra vires, and if the plaintiff had been informed of that fact when he received the notes from the payee, I do not see how it could have been a defense to the corporation. Of course, such a contract would have been grossly usurious, but the defense of usury is not available to a corporation. If the amount that was to have been paid was a bonus or interest for the loan of $1,500, no one would claim that the notes made by the corporation were void because the interest had been charged at a rate exceeding six per cent; and the mere fact that the amount paid for this loan was grossly excessive could not, I think, avoid the contract to pay the loan with excessive interest.
Nor do I think that the form of this note threw upon the plaintiff any duty of inquiry. The note was executed by the treasurer and vice-president of the company. There is nothing to show that the treasurer was not a proper person to sign promissory notes on the part of the corporation; nothing to show that a promissory note signed by him without the signature of the vice-president would not be a binding obligation on the corporation, and nothing to show he was not authorized to execute promissory notes binding on the corporation. It did appear that the payee was an officer of the corporation, or, in other wolds, the corporation had agreed to pay to the payee in three installments of $833.34 the sum of $2,500 in six months. Certainly the officers of a corporation are not prevented from loaning money to it and taking therefor obligations from the corporation for money so loaned to it. The fact that an officer of a corporation has in his possession a note of the corporation *342payable to his own order carries with it no presumption of illegality or lack of consideration. The corporation is authorized to give to its officers obligations for money due to it, and the payee of the obligations of a corporation, payable to one of its officers, is under no greater duty of inquiry as to the validity of the obligation than if the instrument were payable to a third party.
My brother Latjghlin concedes that the authorities on which the defendant relied (Ward v. City Trust Co., 192 N. Y. 61, and Wilson v. M. E. R. Co., 120 id. 145) do not apply. But I think the whole trouble with the defendant’s case is that, to hold this note void, we must assume a fact that was not proven, i. e., that there was no consideration for the note in suit. The form of the note itself imports consideration. As between the plaintiff and the defendant, the burden would have been upon the defendant to show there was no consideration. What the defendant has shown is that there was a loan to the corporation of $1,500, and for a sum in excess of that amount the notes were given, there being no evidence of the terms of the agreement. I can see nothing in these facts to overcome the presumption of consideration, and nothing to prevent a bona fide holder for value and before maturity from enforcing the note because he made no inquiry as to consideration from the payee to the maker at the time the note was given. Consideration of a negotiable instrument is presumed. No fraud is alleged, no misappropriation of funds is charged, no lack of power to sign the notes is pleaded. The simple fact is, that when the three notes were given aggregating the sum of $2,500, the payee had paid to the company for these notes $1,500. It may be that the payee would be responsible to the company for the excess between the amount the notes called for and the amount that the payee paid actually to the corporation for them. But that is not a defense to the note when held by a bona fide holder before maturity and for value. For, if he had known that the sum of $1,500 was all the payee had paid to the corporation at that time, he was justified in assuming that the corporation’s vice-president would account to the corporation for any additional amount he had received for the notes.
*343The plaintiff certainly had the right to assume that the vice-president, who had received the note from the company, had either paid to the maker the consideration therefor or would account to it for the amount that he had received. Assuming, a fact not proved, that the note was not issued in pursuance of a valid contract between the payee and the corporation by which the amount of the three notes was due and owing to the corporation by the vice-president, there was nothing in the form of the note or in the transaction as it appeared upon its face that threw the burden upon the plaintiff of inquiring as to just what the payee had paid for the note or how much of it he had accounted for to the corporation of which he was vice-president. But, certainly, on no theory could the defendant recover the amount that the plaintiff had received on the two promissory notes that had been paid in full before the trial and in excess of $1,500. These notes were duly issued by the defendant, were presented to the defendant, and the defendant duly paid them. There was no fraud or duress, but a pure voluntary payment which certainly the defendant could not recover back. All of the facts were known to the defendant when it paid these notes. The first note was payable April 20, 1912, and it seems to have been paid April 22, 1912. The second note was payable May 20, 1912, and it seems to have been paid May 22, 1912. The note in suit was purchased from the payee by plaintiff, and his check to the payee is dated April 20, 1912, the date on which the first note was payable. There is no evidence that the plaintiff had any knowledge of the defense to these notes when they were paid. The defendant had all the knowledge it has now at the time of the payment of the notes. It was clearly a voluntary payment, and by the plainest principles of law the defendant was not entitled to recover any amount thus paid to the plaintiff.
I think, therefore, the judgment appealed from should be reversed and judgment directed for plaintiff for the full amount of the note, with interest and with costs in all courts.
McLaughlin, J., concurred.
Determination affirmed, with costs.