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Butterworth, Receiver, &c., v. Kennedy.

JOHN F. BUTTERWORTH, Receiver, &c., Plaintiff and Respondent, v. JOHN KENNEDY, Defendant and Appellant.

1. Where a moneyed corporation discounts the note of a third person on the security of shares of its own capital stock, owned by him and pledged therefor, and such note is not paid at maturity, and the directors of such corporation do not sell such stock, neither their omission to sell it, nor their omission to charge such shares at the amount actually paid thereon as a reduction of the capital stock of the Company, affects the liability of such third person to the Company.

2. Such facts do not, by force of 1 R. S., 590, § 6, either extinguish the stock or the liability of the pledgor for the amount of his note secured thereby. 3. The effect of the charge which that section requires to be made is, that no dividends shall thereafter be made, "until the deficit so created be made good from the subsequently accruing profits of the Company."

(Before BOSWORTH, Ch. J., and WOODRUFF and MONCRIEF, J. J.)
Heard, June 17; decided, July 9, 1859.

THIS is an appeal by the defendant from a judgment entered against him on the verdict of a jury. The action was tried before Mr. Justice WOODRUFF and a jury, in March, 1859.

The plaintiff was duly appointed a Receiver of the property and effects of the Island City Bank, on the 25th of September, 1857, (it being then an insolvent moneyed corporation.) The suit is brought on a note alleged to be parcel of the assets of said bank, of which note the following is a copy:


NEW YORK, Aug'st 24th, 1856. "Six months after date, I promise to pay to Wm. Stebbins, Cash'r, or order, four hundred dollars, for value received, having deposited with him as collateral security, with authority to sell the same at the Brokers' Board, or at public or private sale or otherwise, at his option, on the non-performance of this promise, and without notice. Payable at Island City Bank.


"Twenty shares of the Island City Bank.

"Feb. 27."

Butterworth, Receiver, &c., v. Kennedy.

The answer, so far as it is material, is as follows:

"And this defendant, for a further and distinct defense to the alleged cause of action set forth in said complaint, saith, that on or about the 3d day of October, 1853, he subscribed for twenty shares of the capital stock of said Island City Bank, and paid five hundred dollars, the par value of the same, therefor; that afterwards, and on or about the 8th day of May, 1854, the said Island City Bank discounted for this defendant his certain promissory note for the sum of four hundred dollars, payable at a time subsequent thereto, and as security for the payment of said sum of four hundred dollars this defendant assigned to the President of said Island City Bank, (for the benefit of said Bank,) said twenty shares of said capital stock, with a power to sell the same in case of non-payment of said sum of four hundred dollars, according to the terms of said note; that said stock so assigned was entered and transferred on the books of said bank on the twenty-seventh day of December, 1854, and was never afterwards reässigned to this defendant. That said note was not paid at maturity, but was renewed from time to time, until the said note mentioned in said complaint was given, (which was a renewal of a note given in said succession of renewals for said original amount of four hundred dollars,) and that when said note became due this defendant abandoned said stock to the said Island City Bank in satisfaction of said amount payable by said last mentioned note; and said Island City Bank possessed itself of said stock and converted the same to its use.

"Wherefore this defendant prays that said complaint may be dismissed, with costs."

A reply was interposed, denying all the material allegations contained in the answer.

At the trial, the note was produced and read in evidence. The due appointment of the plaintiff as Receiver was admitted, and the plaintiff then rested.

The defendant then produced a paper writing, dated May 8, 1854, signed by himself, by the terms of which he assigned twenty shares of the stock of the Island City Bank, standing in his name on the books of said Bank, to "James O'Brien, President," and by the terms of which he appointed "William Stebbins" his attorney to sell and transfer the stock.

Butterworth, Receiver, &c., v. Kennedy.

He also proved that a transfer was made on the stock transfer book of the Island City Bank, on the 27th of December, 1854, of the said twenty shares of stock, to "James O'Brien, President," by "John Kennedy, per William Stebbins, attorney," by virtue of said power of attorney.

It was admitted that the said twenty shares are the same shares mentioned in the note in suit.

The defendant, as a witness in his own behalf, then testified, that on the 3d of October, 1853, he subscribed for twenty shares of the stock of this Bank, at $25 per share, and paid $500 therefor.

That on the 8th of May, 1854, his note of that date for $400 was discounted by that Bank, on his pledging (by the assignment and power of attorney of that date above mentioned) the twenty shares of stock as security for its payment, with power to sell it if the note was not paid at maturity. The note was not paid, but was renewed from time to time, and the note in suit is the last of the renewals. That he never received but one dividend on the stock, and never got the stock back.

As evidence of the value of the stock, he proved that in 1855 and 1857, and as late as February, 1857, stock of the Island City Bank was sold at $75 and $80 on the $100, and rested.

James O'Brien, for the plaintiff, testified that he was President of the Bank from the time it was organized until after the note was given; that the stock was transferred on the books of the Bank, to be held as security only; that it had never been sold or disposed of by the Bank, but was still held as security; and that if the defendant had paid his note, the stock would have been reïssued to him at any time.

It was admitted that the shares so transferred on the books of the Bank to the name of the President, had never been reïssued to the defendant or sold by the Bank, but stood in the name of the President as security for the Bank until its failure.

The parties having rested the case upon this evidence, the defendant moved to dismiss the complaint, on grounds substantially covered by the points made by him on the present appeal. The Judge directed a verdict in favor of the plaintiff, for $457.47, to which direction the defendant excepted. From the judgment entered on the verdict, the defendant appealed to the General Term.

Bosw.-VOL. V.


Butterworth, Receiver, &c., v. Kennedy.

Francis Byrne, for appellant.

I. The Bank had power to receive shares of its stock in payment or satisfaction of any debt due to it. (1 R. S., p. 590, old paging, § 1, subd. 6.)

And the shares having been transferred on the books of the Bank, the stock as stock became extinguished, and the money paid by the defendant therefor should, from the date of transfer, be considered as having been separated from the capital paid in, and as actually held by the Bank. (Dykers v. Allen, 7 Hill, 497; Wilson v. Little, 2 Comst., 443.)

II. The debt so secured not having been paid when due, and for sixty days thereafter, and the Bank having converted the stock, the debt, (because of such conversion, and of the debt being less than the amount paid on such stock,) became extinguished, and the note not available to the Bank or the plaintiff. (1 R. S., 591, §6; Peake's N. P., 30.)

The duty imposed by the statute to sell, and the omission so to do, and conversion of the stock by the Bank to its use, and the defendant's adoption of (by not dissenting from) their acts, sufficiently make an agreement to accept the stock in satisfaction. The stock represented $500 in the possession of the Bank. The transfer of the stock amounted to an appropriation of the money to its own use. The conversion of the stock was equivalent to a conversion of the money. (Zachrisson v. Ahman, 2 Sandf. S. C. R., 68.)

III. His honor, the Justice, should have dismissed the complaint on the grounds specified by the defendant's counsel, and the judgment should be reversed and a new trial granted, with costs, &c.

C. A. Peabody, for respondent.

BY THE COURT-BOSWORTH, Ch. J. The note in suit was discounted by the Island City Bank, for the defendant, on the secu rity of a pledge of twenty shares of its own capital stock.

The note has not been paid, and the pledgee, or its legal representative, still holds the stock and owns the note.

There is no rule of law or equity which declares these facts to be a defense, either total or partial.

Holbrook v. Basset et al.

The 6th section of 1 Revised Statutes, 591, did not make it the absolute duty of the directors of the Island City Bank to sell this stock, even though the note was not paid within sixty days after its maturity.

The charge that is to be made, to satisfy the last clause of that section, is a charge which is to preclude the making of any dividends thereafter by the Company, "until the deficit so created be made good from the subsequently accruing profits of the Company."

The stock is not thereby actually extinguished, nor the debt of its pledgor satisfied.

It does not affect the rights of the pledgor or pledgee, though the pledgee be a moneyed corporation, and the pledge be shares of its own capital stock.

The judgment must be affirmed.
Judgment affirmed.

LOWELL HOLBROOK, Plaintiff and Respondent, v. ZENAS D. BASSET, Jr., and others, Defendants and Appellants.

1. A Mutual Insurance Company took up a subscription, by which the subscribers agreed to give their notes for premiums in advance of insurance to be effected by them, the subscription not to be binding until the sum of $300,000 was subscribed. That sum was in form subscribed, the defendants being subscribers, and the defendants voluntarily gave their notes for the amount of their subscription. All parties acted in good faith, and without any fraud, misrepresentation or concealment: Held, that such notes were, in the hands of the Company, valid binding notes, which the Company had a right to negotiate for the purpose of paying claims or otherwise, in the course of its business, notwithstanding it ultimately appeared that some of the subscriptions were not valid binding subscriptions, and notwithstanding, if the notes had not been given, the defendants might have legally refused to give them on the ground that the condition of the subscription had not been in fact satisfied.1

1Brookman v. Metcalf, post.

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