Chem. Nat. Bank of New York v. Col Well

• Decision Date: 22 March 1892
• Citation: 132 N.Y. 250,30 N.E. 644
• Parties: CHEMICAL NAT. BANK OF NEW YORK v. COL WELL et al.
• Court: New York Court of Appeals Court of Appeals

132 N.Y. 250

30 N.E. 644

CHEMICAL NAT. BANK OF NEW YORK

v.COL WELL et al.¹

Court of Appeals of New York, Second Division.

March 22, 1892.

Appeal from common pleas of New York city and county, general term.

Action by the Chemical National Bank of New York against Augustus W. Colwell and others. From a judgment of the general term of the common pleas of New York city and county, entered on an order affirming a judgment of the trial term of that court in favor of plaintiff, defendant Augustus W. Colwell appeals. Reversed.

BRADLEY, J., dissenting. 9 N. Y. Supp. 285, 288, reversed.

Edward C. Perkins, for appellant.

Charles Jones, for respondent.

PARKER, J.

The debt which lies at the foundation of the judgment under review is alleged by the plaintiff to have been incurred by the New York Lumber Auction Company, Limited, a corporation organized pursuant to chapter 611 of the Laws of 1875. The corporation has no money with which to pay the obligation, and the assertion of defendant's liability to respond therefor is based on the default of the corporation in making the annual report required by statute. The defendant's denial of liability is placed on three grounds: (1) That the note having been made by the corporation, payable to its own order, the plaintiff, by discounting it for the personal benefit of Jones, a director and secretary and treasurer of the company, became burdened with the necessity of proving that the note was issued for the benefit of the corporation making it, which it failed to do; (2) that the defendant resigned as director November 5, 1885, and before the arrival of the time for making the annual report, in respect to which default was made; (3) that before the time came to make the report the defendant had ceased to be a stockholder, and therefore, by operation of the statute, had ceased to be a director. As we have reached the conclusion that the last position is well taken, and calls for a reversal of the judgment, the other questions will not be considered.

The corporation was created in July, 1885. The annual report, omitted, should have been made within 20 days after the 1st day of January, 1886, and the note in suit bears date July 2, 1886. The defendant was one of the subscribers to the capital stock of the company, and was elected a director. Subsequently, he informed Jones, the secretary and treasurer of the corporation, that he wished to resign all connection with the company, assigning as a reason the duties imposed by the executorship of his father's estate. After several conversations of the same general character, and on November 5, 1885, he, accompanied by his co-executor, Mr. Milne, went to the office of the company, and met Jones, the secretary and treasurer, and a Mr. Atchinson, an employe. The defendant asked for his stock, and received a certificate for 80 shares, which he indorsed as follows: ‘For value received, I hereby sell, transfer, and assign to Latimer E. Jones eighty shares of stock, within mentioned, and authorize L. E. Jones to make the necessary transfer on the books of the company. Witness my hand and seal this 5th day of November, 1885. A. W. COLWELL. In presence of T. S. ATCHINSON.’ After executing this assignment, he gave the stock certificate to Jones, at the same time saying: ‘Now, Jones, that severs all my connection with the Lumber Auction Company. I have got nothing further to do with it. You have got father's stock. He is dead, and that settles that, and I have given you mine, and that clears up all that; and I have nothing further to do with the company.’ Jones accepted the stock, and the defendant asked for the transfer-book, but the company did not have one, and he was told that it was not necessary. Some days later a transfer-book was obtained, and the stock transferred; but as Jones, at the suggestion of Atchinson, issued a new certificate to himself for 75 shares, and to the defendant, but without his knowledge, for the remaining 5 shares, and a few days later induced him to accept it, but not with the understanding that he should be a director, we are led to inquire whether the defendant did not cease to be a stockholder on the 5th of November. The importance of that inquiry rests in the requirement of the statute that the directors, ‘at their election, and throughout their term of office, shall be stockholders in such corporation, to at least the extent of five shares.’ If, then, defendant ceased to be a stockholder in the corporation on November 5th, the statute put an end to his official relation with the company. It should be observed that on the occasion of the assignment of the stock to Jones, and his acceptance thereof, it was understood to be an absolute disposition of all of the defendant's shares. The subsequent issue of five shares to him was not in pursuance of any understanding had at the time of such assignment, and was done at the instance of Atchinson, who made out the certificate, and suggested to Jones that he persuade Colwell to accept it.

The consideration of the undisputed testimony to which we have referred is not embarrassed by any question as to the good faith of the defendant, or the propriety of his action. The corporation was solvent when he sought to terminate his relation with it as a stockholder and director, and the indebtednesswhich induces this controversy was created months afterwards. That he intended to make an effectual transfer of his stock is not questioned, nor is it asserted that he omitted to do anything which the situation permitted to effectuate his purpose. The contention is that he did not accomplish his desire because the transfer was not made on the books of the company that day. He sought to have that done, but it was not, because the company had failed to provide books for the purpose, as provided by its by-laws. It has been frequently held that such provisions are intended solely for the protection of the corporation;...