People v. Mancuso

• Citation: 255 N.Y. 463,175 N.E. 177
• Parties: PEOPLE v. MANCUSO et al.
• Decision Date: 10 February 1931
• Court: New York Court of Appeals

255 N.Y. 463

175 N.E. 177

PEOPLE

v.MANCUSO et al.

Court of Appeals of New York.

Feb. 10, 1931.

Francis X. Mancuso and others were indicted for participating as directors in the fraudulent insolvency of a moneyed corporation, and from an order of the Appellate Division (229 App. Div. 775, 242 N. Y. S. 910), affirming an order of the Trial Term, which sustained demurrers to the indictment, the People, by permission, appeal.

Orders of Appellate Division and Trial Term reversed, and demurrers overruled.

KELLOGG and O'BRIEN, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, First Department.

Thomas C. T. Crain, Dist. Atty., of New York City (Robert C. Taylor and Hiram C. Todd, both of New York City, of counsel), for the People.

Harris Berlack, Stanley H. Fuld, and Frank Aranow, all of New York City, for respondent Francis X. Mancuso.

Theodore Berger and Isadore Glauberman, both of New York City, for repondents Salvatore Soraci et al.

Robert S. Johnstone and Stanley L. Richter, both of New York City, for respondent Isadore Seigeltuch.

CARDOZO, C. J.

The defendants have been indicted for the crime of participating as directors in the fraudulent insolvency of a moneyed corporation in contravention of Penal Law, § 297, subdivision 1. There were demurrers to the indictment which the trial court allowed. The Appellate Division unanimously affirmed.

Penal Law, § 297, read as follows:

‘Every director of a moneyed corporation who:

‘1. In case of the fraudulent insolvency of such corporation, shall have participated in such fraud; or,

‘2. Wilfully does any act as such director which is expressly forbidden by law, or wilfully omits to perform any duty imposed upon him as such director by law,

‘Is guilty of a misdemeanor, if no other punishment is prescribed therefor by law.

‘The insolvency of a moneyed corporation is deemed fraudulent unless its affairs appear upon investigation to have been administered fairly, legally and with the same care and diligence that agents receiving a compensation for their services are bound, by law, to observe.’ Cf. Penal Code, § 603; Laws of 1892, c. 692; Penal Code, § 604; Laws of 1881, c. 676.

The last paragraph of this section is a reenactment of a like provision in the Revised Statutes of 1829 (part 1, c. 18, tit. 2, art. 1, § 14) which added, however, another paragraph as follows: ‘And it shall be incumbent on the directors and stockholders of every such insolvent corporation, to repel, by proof, the presumption of fraud.’ This paragraph, repealed in 1830 (Laws of 1830, c. 71), disappeared from the statute books of New York, and has not been re-enacted.

It disappeared from the statute books of New York, but was copied elsewhere. In particular, it reappeared in Georgia. By the Banking Act of that state, ‘every insolvency of a bank shall be deemed fraudulent, and the president and directors shall be severally punished by imprisonment and labor in the penitentiary for not less than one (1) year nor longer than ten (10) years; provided, that the defendant * * * may repel the presumption of fraud by showing that the affairs of the bank have been fairly and legally administered, and generally, with the same care and diligence that agents receiving a commission for their services are required and bound by law to observe; and upon such showing the jury shall acquit the prisoner.’ Georgia Banking Act of 1919 (Laws 1919, p. 219), art. 20, § 28. The Supreme Court of the United States had before it, in Manley v. Georgia, 279 U. S. 1, 49 S. Ct. 215, 73 L. Ed. 575, the case of a director convicted of fraudulent conspiracy under the provisions of that act. The court held that the presumption of fraud from the mere fact of insolvency was unreasonable and arbitrary, and that the defendant could not lawfully be charged with a duty to repel it.

Upon the authority of that decision, these demurrers were allowed.

‘The insolvency of a moneyed corporation is deemed fraudulent unless its affairs appear upon investigation to have been administered fairly, legally and with the same care and diligence that agents receiving a compensation for their services are bound, by law, to observe.’ Penal Law, § 297. This provision is more than a presumption, if indeed it is that at all. It is also a definition. It defines the standard of conduct to be attained by directors if they are to avoid the imputation of sharing in a fraudulent insolvency. To the extent that it establishes a presumption in favor of the people, it is arbitrary and void. Manley v. Georgia, supra. To the extent that it establishes a definition of a fraudulent insolvency, it is valid, unless the standard of conduct is too vague to give warning to directors of the rule to be obeyed.

The statute, as we read it, is not subject to that reproach. It appeals to common-law standards of diligence and duty, standards to which business men and fiduciaries have accommodated themselves for centuries. It gives warning to directors that they must manage the affairs of a moneyed corporation fairly and legally and with the same care and diligence that is owing from paid agents, and that if they fail to do this, and by reason of such omission insolvency supervenes, they will be guilty of a misdemeanor. ‘Fairly,’ we interpret as meaning ‘in good faith.’ If that branch of the definition is to be excluded as indefinite, there still is left enough to fix the meaning and the duty. The definition will not be suffered to fail as an entirety. ‘Legally,’ we interpret as referring to the statutes of the state, and particularly the statutes regulating the management of banks. Finally, supplementing the test of good faith and illegality, there is another test more definite, one that is capable of standing by itself if both others be rejected, the test of reasonable diligence. Here the duty is prescribed with clearness and precision. The test established by the statute, the diligence that is expected of agents in receipt of compensation for their services, is a legislative recognition of a standard of diligence long known to the common law. The diligent director is the one who exhibits in the performance of his trust ‘the same degree of care and prudence that men prompted by self-interest generally exercise in their own affairs.’ Hun v. Cary, 82 N. Y. 65, 71,37 Am. Rep. 546;Bowerman v. Hamner, 250 U. S. 504, 39 S. Ct. 549, 63 L. Ed. 1113;Briggs v. Spaulding, 141 U. S. 132, 171, 11 S. Ct. 924, 35 L. Ed. 662;Kavanaugh v. Commonwealth Trust Co. of New York, 223 N. Y. 103, 105,119 N. E. 237. Accepting the office, he accepts its burdens and its penalties. Cf. Banking Law, Consol. Laws, c. 2, §§ 123, 124.

The act is not shorn of certainty of meaning by its reference to a standard of customary diligence. The power of the Legislature to make it a crime for banking officers to be so neglectful of their duties as to involve their banks in ruin is hardly to be doubted. The power existing, one is at a loss to imagine how the prohibited omissions could be more accurately stated, without a catalogue of particulars not susceptible of enumeration in advance of the event. Cf. International Harvester Co. of America v. Kentucky, 234 U. S. 216, at page 223, 34 S. Ct. 853, 58 L. Ed. 1284. ‘The law is full of instances where a man's fate depends on his estimating rightly, that is, as the jury subsequently estimates it, some matter of degree.’ Nash v. United States, 229 U. S. 373, 377, 33 S. Ct. 780, 781, 57 L. Ed. 1232. ‘The precise course of the line may be uncertain, but no one can come near it without knowing that he does so, if he thinks, and if he does so, it is familiar to the criminal law to make him take the risk.’ United States v. Wurzbach, 280 U. S. 396, 399, 50 S. Ct. 167, 169, 74 L. Ed. 508. Much will depend on the distinction whether the standard is an old one, long recognized in law and life (International Harvester Co. of America v. Kentucky, 234 U. S. 216, 223, 34 S. Ct. 853, 855, 58 L. Ed. 1284), or one novel and unfamiliar, not yet approaching certainty, at least in measurable degree, through habitude and example. On one side of the line is the standard of care or judgment exacted by the statute in supplying a working place or tools for servants (Labor Law, Consol. Laws, c. 31, §§ 240, 436; Employers' Liability Law, Consol. Laws, c. 74, § 2; Penal Law, §§ 1275, 1276; People ex rel. Price v. Sheffield Farms-Slawson-Decker Co., 225 N. Y. 25, 121 N. E. 474) or in driving on a highway (Nash v. United States supra, 229 U. S. page 377, 33 S. Ct. 780, 57 L. Ed. 1232;People v. Angelo, 246 N. Y. 451, 159 N. E. 394), or in the avoidance of a monopoly or of undue restraints on competition (Nash v. United States supra; see also for additional illustrations, Miller v. Strahl, 239 U. S. 426, 434, 36 S. Ct. 147, 60 L. Ed. 364;Avent v. United States, 266 U. S. 127, 130, 45 S. Ct. 34, 69 L. Ed. 202;Hygrade Provision Co. v. Sherman, 266 U. S. 497, 503, 45 S. Ct. 141, 69 L. Ed. 402;Omaechevarria v. Idaho, 246 U. S. 343, 348, 38 S. Ct. 323, 62 L. Ed. 763). In these and like instances ‘a great body of precedents on the civil side, coupled with familiar practice, make it comparatively easy for common sense to keep to what is safe.’ International Harvester Co. of America v. Kentucky, supra. On the other side is a statute imposing a penalty on any person who makes ‘any unjust or unreasonable rate or charge in handling or dealing in or with any necessaries' (United States v. L. Cohen Grocery Co., 255 U. S. 81, 86, 41 S. Ct. 298, 300, 65 L. Ed. 516, 14 A. L. R. 1045), where neither accepted norms of conduct nor common-law traditions of customary diligence give definiteness and significance to the acts to be avoided (Connally v. General Construction Co., 269 U. S. 385, 46 S. Ct. 126, 70 L. Ed. 322;Cline v. Frink Dairy Co., 274 U. S. 445, 459, 47 S. Ct. 681, 71 L. Ed. 1146). Not even a civil liability can rest upon a prohibition so vague and indeterminate. Standard Chemicals & Metals...