In re Troy & Cohoes Shirt Co.

• Decision Date: 12 April 1905
• Docket Number: 1,464.
• Citation: 136 F. 420
• Parties: In re TROY & COHOES SHIRT CO.
• Court: U.S. District Court — Northern District of New York

136 F. 420

In re TROY & COHOES SHIRT CO.

No. 1,464.

United States District Court, N.D. New York.

April 12, 1905

H. D Bailey, for trustee.

Dillon & Hubbard, for claimant.

This is the review of an order made by Edwin A. King, as referee in bankruptcy, on the 7th day of January, 1905, disallowing the claim of International Trust Company against the estate of said bankrupt, Troy & Cohoes Shirt Company, for the sum of $25,010.50, presented and proved February 26, 1904. The claim is upon five promissory notes of $5,000 each, made by said Troy & Cohoes Shirt Company, payable to its own order, and indorsed by it and others, and finally discounted by the said International Trust Company. The defense of the trustee sustained by the referee was and is that the maker of the notes received no consideration therefor; that the notes bore upon their face notice that they were accommodation notes that the making and indorsement was ultra vires; and that said International Trust Company, at the time it discounted the notes, was charged with full knowledge of the invalidity of the notes as against the bankrupt, Troy & Cohoes Shirt Company.

RAY District Judge.

To understand the case and the legal principles applicable, it is necessary to fully state the material facts.

(1) The maker of the notes in question, Troy & Cohoes Shirt Company was, before its bankruptcy, a manufacturing corporation of the state of New York, with its principal place of business at Cohoes, N.Y., engaged in making and selling shirts, etc. Its officers were Frederick Beiermeister, Jr., president Charles F. Beiermeister, vice president, and John M. Beiermeister, secretary and treasurer. These gentlemen were stockholders in, but not the only ones, and the only directors of the company. The affairs of the company were conducted by them as its board of directors, but no record was kept of their transactions. Section 10 of the general corporation law of the state of New York (Laws, 1892, p. 1804, c. 687) provides as follows:

'No corporation shall possess or exercise any corporate powers not given by law or not necessary to the exercise of the powers so given.'

The by-laws of the Troy & Cohoes Shirt Company provided as follows:

'No official or agent of this company shall have power to indorse in the name or in behalf of the company any note, bill of exchange, draft, check or any written instrument for the payment of money, save only for the purpose of collection of said instrument, unless thereunto duly authorized by the vote of the directors of this company duly held at a regular or monthly meeting of the board of directors and entered on the minutes of said board.'

'No officers or agents of the company shall singly or together, unless thereto specially authorized, contract or cause to be contracted, any debt or liability in the name or on behalf of the company beyond the ordinary legitimate business and current expenses thereof.'

(2) Beiermeister Bros. & Co. was a firm and copartnership at Cohoes, N.Y., carrying on a distinct and separate business from that of the Troy & Cohoes Shirt Company. Such copartnership was composed of said Frederick Beiermeister, Jr., and John M. Beiermeister, and said Charles F. Beiermeister. It had no other member.

(3) Said International Trust Company was and is a corporation of the state of Massachusetts, duly authorized, etc., and was authorized to do and was doing a general banking business. John M. Graham was the president of said company, who did all the business for said company in connection with the discounting of the notes in question. He and said company knew that Frederick, Jr., and John Beiermeister were members of the firm of Beiermeister Bros. & Co. He and said company knew that said Frederick Beiermeister, Jr., was president, and that said John M. Beiermeister was secretary and treasurer, of said Troy & Cohoes Shirt Company. That fact appeared on the face and back of each of the notes in question. The negotiable instruments law of the state of Massachusetts, being chapter 73 of the Revised Laws of said state, contains the following provisions:

'Sec. 46. An accommodation party is one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party.'

'Sec. 69. A holder in due course is a holder who has taken the instrument under the following conditions: (1) That it is complete and regular upon its face. (2) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored if such was the fact. (3) That he took it in good faith and for value. (4) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.'

'Sec. 73. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.

'Sec. 74. A holder in due course holds the instrument free from any defect of title or prior parties, and free from defences available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.'

'Sec. 76. Every holder is deemed prima facie to be a holder in due course: but when it is shown that the title of any person who was negotiated the instrument was defective the burden is on the holder to prove that he or some other person under whom he claims acquired the title as holder in due course. But the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.' (4) On the 10th day of March, 1903, the Troy & Cohoes Shirt Company at Cohoes, N.Y., without consideration, and not for any purpose connected with its own business, and, so far as appears, without any meeting of or action by its board of directors, authorizing such action, made its promissory note of which the following is a copy, viz.:

'$5,000.00

March 10th, 1903.

'Six months after date, we promise to pay to the order of ourselves, Five Thousand Collars 00/100, payable at the International Trust Co., Boston, Mass., value received.

Troy & Cohoes Shirt Co. 'F. Beiermeister Jr. Prest. 'John M. Beiermeister Treas.'

The name 'Troy & Cohoes Shirt Co.' and 'F. Beiermeister Jr. Prest.' were signed thereto by the president, and 'John M. Beiermeister Treas.' was signed thereto by such treasurer. Said note was thereupon and without consideration indorsed as follows: Said president of said company first wrote the name of said company on the back thereof, and his own name with the word 'Prest.' following, thereunder, and then said treasurer wrote his name under the name of the president, adding 'Treas.' Said F. Beiermeister, Jr., and said John M. Beiermeister then indorsed said note individually by writing their names in the order named thereunder. The said note, without consideration, was then delivered to said Charles F. Beiermeister, vice president of said shirt company, and also a member of the firm of Beiermeister Bros. & Co., who indorsed said note by writing his name thereon as follows: 'C. F. Beiermeister,' and said note was then delivered to said F. Beiermeister, Jr. (a member of said last-named company, the copartnership, and also president of said shirt company), who indorsed same, without consideration, by writing the name of such copartnership thereon as follows: 'Beiermeister Bros. & Co.' Such indorsements then read as follows and in the following order, viz.:

'Troy & Cohoes Shirt Co.

'F. Biermeister Jr., Prest.

'John M. Beiermeister Treas.

'F. Beiermeister Jr.

'John M. Beiermeister.

'C. F. Beiermeister.

'Beiermeister Bros. & Co.'

The note was not made or given for an advance or advances made, or any consideration whatever given or paid, by any one or more of such indorsers.

(5) The Troy & Cohoes Shirt Company was not indebted to said partnership, nor to said F. Beiermeister, Jr., but said partnership and said F. Beiermeister, Jr., each were indebted to Troy & Cohoes Shirt Company.

(6) Beiermeister Bros. & Co. had an account with said International Trust Company, from which it drew money on check from time to time.

(7) Henry Beiermeister was the agent of said firm Beiermeister Bros. & Co.

(8) On the day of the date of the said note, March 10, 1903, said agent of said copartnership, known and representing himself to be such agent, presented the said note to said International Trust Company at its place of business in Boston, Mass., the place where payable, for discount, and he then and there stated and represented to the said International Trust Company, and directly to its said president, John M. Graham, who was doing the business for said trust company, that such note was made, executed indorsed, and delivered on account of advances of money made by said Beiermeister Bros. & Co. to the said Troy & Cohoes Shirt Company. The said International Trust Company, so represented by its president in the transaction, believed such representations, and thereupon discounted such note for, and placed the proceeds thereof to the credit of, the firm of Beiermeister Bros. & Co. No part of such proceeds was paid to or for the benefit or use of the maker, Troy & Cohoes Shirt Company. It is not shown that the directors of said company, acting...