Patterson v. Robinson

• Decision Date: 08 October 1889
• Citation: 22 N.E. 372,116 N.Y. 193
• Parties: PATTERSON v. ROBINSON et al.
• Court: New York Court of Appeals Court of Appeals

116 N.Y. 193

22 N.E. 372

PATTERSON

v.ROBINSON et al.¹

Court of Appeals of New York, Second Division.

Oct. 8, 1889.

Appeal from a judgment of ths general term of the third judicial department, affirming a judgment entered on the report of a referee, dismissing the complaint.

Since 1865 the ‘Schaghticoke Woolen Mill’ has been a manufacturing corporation, duly incorporated under chapter 40 of the Laws of 1848, with a capital stock of $250,000. Its affairs have been managed by five trustees. Daniel Robinson was a trustee from its organization until its failure, in November, 1878, and James E. Pinkham was superintendent of the mill from 1866 until its failure, and June 18, 1878, he also became a trustee and treasurer of the corporation, and so remained until its failure. For several years before May 1, 1875, the woolen mill kept its account with the Merchants' & Mechanics' Bank of Troy; and, under a mutual arrangement, the bank paid the checks and commercial paper of the mill when presented, without regard to the state of its bank account. When the account showed a balance to the credit of the mill, the previously paid checks would be first charged to the account, and, after they were charged, the oldest past due commercial paper was charged as rapidly as it could be without causing an apparent overdraft. Checks and paper paid when the account was not good were carried by the bank as cash items until they were charged up. May 1, 1875, the mill owed the bank $300,776, which was $50,776 in excess of its capital stock, and it was owing other creditors such sums that its indebtedness then exceeded its capital stock by more than $185,000. At this date D. Thomas Vail was the president and a director of the bank, and the president and a trustee of the mill. On the date last mentioned Mr. Vail, assuming to act as president for both corporations, entered into the following oral contract with Daniel Robinson: ‘That the debt of the Schaghticoke Woolen Mills, then due to the Merchants' & Mechanics' Bank of Troy, should be treated as dead or suspended debt; that said Vail, as president of the woolen company, should make drafts on the treasurer of said company, which after acceptance by him should be indorsed by Vail and Robinson individually; that they should also individually guaranty other paper of said company when advisable, which paper, so indorsed and guarantied, should be used in the purchase of wool for the mills in manufacturing cloth; that such wool, and the cloth manufactured therefrom , should be the property of Vail and Robinson until the cloth was disposed of, and that the proceeds thereof should be applied to the payment of the supplies, labor, and current expenses of the mills and of the paper so indorsed and guarantied, and no part of such proceeds were to be applied to the payment of the old or suspended debt held by the bank until all outstanding claims for such paper, supplies, labor, and current expenses were satisfied.’

Between May 1, 1875, and November 1, 1878, the business of the mill was carried on under this contract, Vail and Robinson indorsing, for the accommodation of the mill, such paper as it made in the course of its business. This paper was presented to and paid by the bank; but, instead of canceling and charging it to the account of the mill, the bank held the paper as a liability against the mill. No notice of the dishonor of this paper was given to the indorsers. After May 1, 1875, the bank charged to the account of the mill its current checks, but, instead of charging to its account its commercial paper made and paid after that date, it charged up to the account, as repidly as could be done without producing an apparent overdraft, the indebtedness which had accrued prior to May 1, 1875; so that when the bank failed, the debt, $300,776, existing May 1, 1875, had been wholly paid, and the bank had in its possession the commercial paper of the mill made and paid since May 1, 1875, to the amount of $419,361, which had been indorsed by Vail and Robinson. October 31, 1878, the bank failed, and November 27, 1878, the plaintiff was duly appointed its receiver. In November, 1878, the woolen mill failed, and Mr. Julliard was appointed its receiver. The receiver of the bank found this commercial paper of the mill, representing $419,361, and January 24, 1879, began this action to recover of the trustees of the mill the sum by which its indebtedness exceeded its capital stock, upon the ground that they were liable for the excess, under the twenty-third section of chapter 40, Laws 1848, which provides: ‘Sec. 23. If the indebtedness of any such company shall at any time exceed the amount of its capital stock, the trustees of such company assenting thereto shall be personally and individually liable for such excess to the creditors of such company.’

Edwin Countryman, for appellant.

Esek Cowen, for respondents.

FOLLETT, C. J., ( after stating the facts as above.)

The plaintiff asserts that the claims, amounting to $300,776, held by the bank against the mill on the 1st day of May, 1875, have been fully and legally paid, and that between May 1, 1875, and the date of the failure of the bank, a new indebtedness, amounting to $419,361, was incurred by the mill to the bank, with the assent of the defendants, and that they are liable to the receiver of the bank for the sums by which the indebtedness exceeds the capital stock of the mill. The referee...