O'Brien v. East River Bridge Co.

• Decision Date: 06 February 1900
• Citation: 56 N.E. 74,161 N.Y. 539
• Parties: O'BRIEN et al. v. EAST RIVER BRIDGE CO.
• Court: New York Court of Appeals Court of Appeals

161 N.Y. 539

56 N.E. 74

O'BRIEN et al.

v.EAST RIVER BRIDGE CO.

Court of Appeals of New York.

Feb. 6, 1900.

Appeal from supreme court, appellate division, First department.

Action by Miles M. O'Brien and others, receivers of the Madison Square Bank, against the East River Bridge Company. From a judgment of the appellate division (55 N. Y. Supp. 206) reversing a judgment dismissing the complaint, defendant appeals. Reversed.

Bartlett, Haight, and Vann, JJ., dissenting.

Eugene Treadwell, for appellant.

Louis Marshall and Samuel Untermyer, for respondents.

O'BRIEN, J.

The plaintiffs, as receivers of the Madison Square Bank, brought this action to compel the defendant to account and pay over to them $50,000 which the defendant had deposited in the bank, but drew out by check on the day the bank closed. The cause was tried before a referee, who dismissed the complaint, but this judgment has been reversed by the appellate division. The facts upon which the judgment depends are undisputed. They are fully stated in the learned opinion below, and that statement can by very safely adopted as it there appears: ‘On the 8th of August, 1893, the defendant was a depositor in the Madison Square Bank, and it had standing to its credit on the books of the bank on that day the sum of $50,000. As to that amount, the ordinary relation of debtor and creditor, and no other, existed between the bank and the depositor. On the night of the 8th of August, 1893, it became known to Frederick Uhlman, a director of the Madison Square Bank, and also the president of the East River Bridge Company, that the bank was insolvent, or in imminent danger of insolvency, and that it would be closed the following day. Frederick Uhlman also knew that the St. Nicholas Bank was the agent at the clearing house of the Madison Square Bank, and that on the 8th of August, 1893, the St. Nicholas Bank had in its possession a large amount of securities belonging to the Madison Square Bank, and that it held such securities as collateral for any and all obligations as agent of the Madison Square Bank. He also knew that the St. Nicholas Bank had notified the clearing house that it would cease to act for the Madison Square Bank, and that the St. Nicholas Bank, by the rules and regulations of the clearing house, was responsible for all checks of the Madison Square Bank that would be presented at the clearing house in the exchanges on the morning of the 9th of August. All this knowledge was acquired by Frederick Uhlman as a director of the Madison Square Bank. On the night of August 8th, Simon Uhlman, who was largely interested in the stock of the East River Bridge Company, learned of the imminency of insolvency of the Madison Square Bank, and that it would probably be closed the following morning. Thereupon he caused a check to be filled up, drawn upon the Madison Square Bank, for $50,000, and took it to the treasurer of the defendant at Brooklyn, where it was signed by such treasurer at about eleven o'clock at night. That being done, Simon Uhlman returned to New York City with the check, and handed it to Frederick Uhlman, who also signed it, as president of the East River Bridge Company, and retained it in his possession overnight. Early on the morning of the 9th of August, Frederick Uhlman took the check to the Hanover National Bank, and instructed the authorities of that bank to have it presented at the clearing house that morning, so that it might be paid by the St. Nicholas Bank in the exchanges of that morning, and thus be credited to the East River Bridge Company, and a withdrawal effected of so much from the funds and moneys or securities of the Madison Square Bank under the control of the St. Nicholas Bank. The check was presented at, and passed through, the clearing house. The East River Bridge Company received a credit with the Hanover Bank, and thus the transfer of the $50,000 was completely made from the Madison Square Bank to the defendant. The Madison Square Bank was closed on the morning of the 9th of August, or, more properly speaking, was never opened for business after the 8th, and went into insolvency.’

There is no dispute about these facts, nor are they open to different inferences. The only question is with respect to the law, or, in other words, whether the transaction was forbidden by the statute. Hence the judgment is reviewable in this court, notwithstanding the statement in the order that the reversal was upon the law and the facts.

The only authority claimed in behalf of the plaintiffs to sustain the judgment is section 48 of the stock corporation law, which reads as follows: ‘No corporation which shall have refused to pay any of its notes or other obligations when due, in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, directors or stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash. No conveyance, assignment or transfer of any property of any such corporation by it or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it or by any officer, director or stockholder when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation shall be valid. Every person receiving by means of any such prohibited act or deed any property of the corporation shall be bound to account therefor to its creditors or stockholders or other trustees. No stockholder of any such corporation shall make any transfer or assignment of his stock therein to any person in contemplation of its insolvency. Every transfer or assignment or other act done in violation of the foregoing provisions of this section shall be void.’ It will be seen that the money drawn from the failing bank belonged to the defendant, and the check drawn against the deposit was the check of the defendant. The defendant's president, being also a director in the failing bank, owed certain duties to the defendant and its shareholders and creditors, as well as to the bank, its shareholders and creditors. It is obvious that the judgment of reversal cannot be sustained without holding that the two following propositions are law: (1) That the statute quoted forbids a director in a bank, who has knowledge of its insolvency, from communicating this knowledge to a depositor, even though the depositor happens to be a corporation in which the director is interested, and of which he is president; (2) that the statute forbids a corporation having money on deposit in a bank about to fail from drawing its check against the deposits, on learning that the bank was about to fail, from a director of the bank, who was also president of the corporation and communicated the knowledge to the latter with the intent that it...