
    The Marine Bank of the City of New York, Plaintiffs and Appellants, v. Edward Vail, Defendant and Respondent.
    1. Where the Atlas Mutual Insurance Company on indorsing a note payable to its order, indorsed it thus: “Pay.....for account of the Atlas Mutual Insurance Company, Geo. H. Tracy, Sec.,” and delivered it to a creditor as security for a debt owing by the Company; and it appeared that the Company, when notes belonging to it were discounted, sold, deposited for collection, or otherwise disposed of, indorsed such notes by the same form of indorsement: Held, that the plaintiffs who discounted said note before its maturity in the usual course of business for said creditor, were entitled to recover, the debt to secure the payment of which it was originally transferred, being wholly unpaid.
    
    2. Allowing a recovery in such a case, will effectuate the intent of the first transfer of the note; and will not work any injustice to either party, even assuming the indorsement to be restrictive in the sense that it authorized a payment or collection of the note for the purposes alone, which the indorsement indicates.
    3. A collection of the note by such a plaintiff operates as payment, pro tanto, of the debt which it was transferred to secure.
    (Before Bosworth, Ch. J., and Robertson, J.)
    Submitted, February 20th, 1859;
    decided, March 24th, 1860.
    
      This is an appeal by the plaintiffs from a judgment in favor of the défendant, rendered on a trial had March 18th, 1859, before Mr. Justice Slosson, without a jury.
    The complaint states that the defendant made his promissory note dated October 28, 1855, for $551.25, payable one year after its date to the order of the Atlas Mutual Insurance Company, for value received, and delivered it to said Company. That it was afterwards, and before its maturity, duly indorsed by said Company, and delivered to the plaintiffs, who are now the lawful owners and holders of it, that it is past due and wholly unpaid, and prays judgment for the amount of the note with interest.
    The answer puts at issue the indorsement, and delivery of the note to the plaintiffs; and sets up as a further defense that the plaintiffs are not a lawfully organized Company, nor lawfully authorized to do business. That the plaintiffs pretended they were lawfully organized, and authorized to make insurance on marine risks, and the defendant believing it applied on the 28th of October, 1855, and obtained insurance for $5,000, on the barque 'Ann Hood, and gave the note in question for the premium on said Insurance—that said Company was at the time insolvent and not authorized to make said contract of insurance.
    It states as a further defense, that said Company was dissolved by the Supreme Court during the continuance of the policy, and that there became due to the defendant $825.48, as a return premium, which sum is claimed as a setoff against the note.
    It states for a further answer, that the plaintiffs are not holders for value, but only as collateral security to some other note or notes.
    The Judge found the facts in this action, and his conclusions of law thereupon, as follows :
    1. That the plaintiffs are, and were, at the time of the negotiation of the note in suit, a Corporation duly created under the laws of the State of New York, with power to malee insurance on marine risks.
    2. That on or about the 28th day of October, 1855, the defendant made a promissory note, of which the following is a copy:
    
      “$551tYó, New York, October 28th, 1855.
    “ Twelve months after date I promise to pay to the order of the Atlas Mutual Insurance Company, for value received, five hundred and fifty-oneT2/o dollars, payable at
    “Due Oct. 28-31, ’56. “Edward Vail.
    “ No. 8114, on bark Ann Hood.”
    
    And for a valuable consideration, viz., for a risk on the barque Ann Hood, delivered the same to the Atlas Mutual Insurance Company.
    That on the 2d day of November, 1855, the said note with others, exceeding $1,000, was delivered by the said Atlas Mutual Insurance Company, to Messrs. Concldin & Company, as security for a preexisting indebtedness of said Company to said Concklin & Company, to the amount of $6,300, no part of which has been paid, and that the said note was so delivered, and that such delivery was accompanied by an indorsement, in print, signed in the handwriting of George H. Tracy, the then secretary of said Company, of which the following is a copy:
    “ Pay for account of the Atlas Mutual Insurance Company.
    “ Geo. H. Tracy,
    
      “Sec.”
    
    And that there was no resolution of the Board of Trustees of said Company, authorizing said transactions.
    4. That the said Atlas Mutual Insurance Company was, at the aforesaid times, a Corporation duly organized under the laws of the State of New York, and was authorized by law to receive the note in suit, and also to negotiate and transfer the same, and that George H. Tracy, the then Secretary of said Company, indorsed the said note as such Secretary, and had, previous to that time, been in the habit, as such Secretary, of, from time to time indorsing, the premium, open policy, and subscription notes belonging to the Company when they were sold, negotiated, deposited for collection, or otherwise disposed of.
    5. That said indorsement was similar to those ordinarily made by said Company upon notes held by them, when, such notes were discounted, sold, deposited for collection, or otherwise disposed of, and was the usual printed form used by said Company, in all cases where notes were transferred by them for any purpose.
    • 6. That the said note was discounted by the plaintiffs for Concklin & Company, in the usual course of business, and before maturity, the said plaintiffs taking from said Concklin & Company, at the time of said discount, a guaranty for its payment.
    The conclusions of law were:
    1. That the said indorsement of said note by the said Atlas Mutual Insurance Company was a restrictive indorsement, and precluded the said Concklin & Company from transferring the title to said note.
    2. That, by said transfer of said note by Concklin & Company to the plaintiffs, the plaintiffs did not acquire any right of action against the defendant.
    3. That the defendant is entitled to judgment against the plaintiffs, that the complaint in this action be dismissed.
    The plaintiffs thereupon duly excepted to each of the foregoing conclusions of fact and law, separately.
    George H. Tracy, the Secretary of the Company, and the only witness examined on the point, testified thus: “ Similar indorsements to the one on this note were made on all the open policy and subscription notes of the Company; it was our usual printed form, and was used by us when notes were indorsed to be discounted or sold, deposited for collection or otherwise; I was Secretary of the Company at the time, and I indorsed the note in suit as such Secretary; and I had, previous to this time, been in the habit, as such Secretary, of from time to time, indorsing the premium, open policy, and subscription notes, belonging to the company when they were sold, negotiated, deposited for collection, or otherwise disposed of.” “ On the 2d of Nov., 1855, it was delivered by the Atlas Insurance Company to J. Concklin & Co., with other notes, as security in part for a previous loan, and in part for the amount of a note made by the Company, and due that day, and for another note made by the Company, and held by Concklin & Co., and not then due; the whole amount of said indebtedness was $6,300.
    
      The amount of the loan made, was................$2,000 00
    Amount of note due,........................... 2,659 13
    Amount of note not due,........................ 1,641 16
    None of these notes have been paid by the Company.”
    
      William Hutchins, for the appellants.
    I. The only question raised on this appeal is as to the effect of the indorsement of the note by the Company on the plaintiffs’ title.
    The Judge has found, as a conclusion of law, that the plaintiffs acquired no right of action against the defendant, because, by reason of the restrictive character of the indorsement, Concklin & Company, to whom it was transferred by the Company, were precluded from transferring the title.
    In this the learned Judge erred.
    1. A restrictive indorsement of this description is but a designation of the use to which the money, when paid, is to be applied, and does not destroy the negotiable character of the note. The indorsee takes it subject to a trust, and would be liable for- the amount, when collected, to the person to whose use the payment was appropriated. (Sigourney v. Lloyd, You. & Jer., 229; S. C., 8 Barn. & Cress., 622.)
    The effect of such an indorsement is to prevent the indorsees (Concklin & Co.) from acquiring an interest in the note to their own use, or in their own right, by indorsing it in blank.
    2. The defendant cannot avail himself of this defense. He is liable, at all events, and, if adjudged to pay in this action, cannot be holden twice. He is not bound to see to the appropriation of the moneys.
    II. No question arises in this case as to the character of the note itself, whether it is one within section 12 of the charter of the Company, or can be affected by section 8 of the statute to prevent the insolvency of moneyed corporations. (1 R. S., 591.)
    The Judge has found nothing on this subject, either as a fact or conclusion of law.
    III. If the Court is at liberty to go out of the findings, then the proof is absolute that the note was given in advance for premiums. Its being for a special risk does not affect the question. The note was within section 12, and transferrable without a previous order of the Board. (Brouwer v. Hill, 1 Sandf., 629; Aspinwall v. Meyer, 2 id., 180; S. C., on appeal, 3 Comst., 290; Brouwer v. Harbeck, 5 Seld., 589.)
    The case of Smith & Boynton v. Hall, (5 Bosw., 319,) was on an open policy note, and on the evidence in that case was held not to be a note within section 12. There should be a new trial.
    G. Dean, for respondent.
    I. Concklin & Company acquired no title to the note in question, the alleged transfer being prohibited by the statute. (1 R. S., 591, § 8; Smith & Boynton v. Hall, 5 Bosw., 319.)
    I. Concklin & Company are not within the exception to the 8th section.
    II. The Marine Bank received the note with notice of the want of title.
    1. The form of the indorsement was a notice that the title was in the Atlas Insurance Company.
    2. To bring a party within the protection of the law merchant, he must not only be a holder for value, but also without notice. (3 Kent’s Com., 80.) Here there was no transfer in form by the Company, and the defect was patent.
    3. “ A citizen who deals directly with a Corporation, or who takes its negotiable paper, is presumed to know the extent of its corporate power.”. (16 N. Y. R., 129.)
    4. He is also bound' to know the manner in which the law requires these powers to be exercised.
    5. When a party takes a note, indorsed by a person by virtue of a special power, he takes it upon the credit of the person who indorses it, and it is only reasonable prudence to require the production of that authority. (Attwood v. Munnings, 7 Barn. & Cress., 278; Alexander v. Mackenzie, 6 Mann., Grang. & S., 766; Dow v. Perrin, 16 N. Y. R., 330.)
    III. The indorsement was restrictive, and did not pass the title to the note. (Chitty on Bills, 251, 257, 258; Sigourney v. Lloyd, 8 Barn. & Cres., 622; Wilson v. Holmes, 5 Mass. R., 543; Treuttel v. Barandon, 8 Taunt., 100; Story on Bills of Ex., § 211.)
    IV. The only right which the plaintiffs had to this note was to collect it for account of the owners. This title must be set out in the complaint. (Code, § 142; 4 Denio, 80; White v. Joy, 3 Kern., 86.)
    1. This is necessary in order to protect the defendant in his right of setoff. (2 R. S., p. 354, § 18, sub. 10.)
    
      
       See Nelson et al. v. Wellington, Bosw., 178; Smith et al. v. Hall, id., 319.
    
   By the Court—Bosworth, Ch. J.

The Judge, at Special Term, found that the note in suit was made and delivered by the defendant, to the Atlas Mutual Insurance Company, for a valuable consideration.

That the said Insurance Company delivered it to Concklin & Company, (with other notes together amounting to more than $1,000,) to secure a preexisting indebtedness of $6,300, no part of which has been paid, and that the plaintiffs, in the usual course of business and before its maturity, discounted it for Concldin & Company.

The Judge did not find any facts constituting a defense either total or partial, had the note been held by the Company when it became due, and had the suit been brought by the Company instead of these plaintiffs.

From the terms of the first conclusion of law, we think he dismissed the complaint on the idea that the terms of the indorsement were restrictive in such sense, that Concldin & Company could not have maintained an action upon it; that by reason of the terms of the indorsement they could not transfer it so as to give such a title to it or interest in it, to their indorsees—that an action can be maintained upon it by the latter. In determining the question of the plaintiffs’ right to recover, so far as that right depends upon the character of the indorsement alone; it must be borne in mind that there is no obstacle to a recovery under the Code created by the fact that a bill or note is not indorsed at all. An action since the Code must be brought in the name of the actual party in interest, even though the instrument sued on be not negotiable, yet if it has been transferred and delivered to a party, either absolutely upon a sale of it, or as security, such party may sue upon it in his own name. (Code, § 111.)

A valid transfer may be made orally, by a mere delivery, without writing. (Briggs v. Dorr, 19 J. R., 95; Ford v. Stuart, id., 342; Hastings v. McKinley, 1 E. D. Smith, 273; Savage v. Bevier, 12 How. Pr. R., 166.)

In so far as the plaintiffs’ right to recover depends upon the nature and extent of their interest in the note in suit, and on that alone; their right to recover would be clear. It follows that unless their position is worse by reason of the terms of the indorsement, than it would be if there were no written indorsement of it; the terms of the indorsement form no answer to their right to sue and recover. In Sigourney v. Lloyd, (8 Barn. & Cress., 622,) on which the defendant relies as an authority that the plaintiffs cannot recover, Lord Tenterden, Ch. J., said, that if bankers or others take a bill so indorsed, “ they take it at their peril, and must be bound by the state of the account between those parties; ” that is, between the party making the restrictive indorsement, and the party who, by it, is to receive payment, for the -use of the party so indorsing. The cases of Snee v. Prescott, 1 Atk., 247; Anchor v. The Bank of England, Doug., 637; Treuttel v. Barandon, 8 Taunt., 100; Wilson v. Holmes, 543, supra; all proceed upon the principle that the party so indorsing, will prevent a third person from acquiring an interest in the bill which can defeat the purpose of such indorsement. Story in his Treatise on Bills of Exchange, uses this language: So, if a bill should be

indorsed, “ The within to be credited to A. B.,” or “Pay the within to A. B. for my use,” (8 Barn. & Cress., 622; and 5 Bing., 525;) or “Pay the within to A. B. for the use of C. D.” (Treuttel v. Barandon, 8 Taunt., 100,) it would be deemed a restrictive indorsement, so far as to restrain the negotiability, except for the very purposes indicated in the indorsement. In every case therefore, although the bill may be negotiated by the

indorsee, yet every subsequent holder must receive the money subject to the original designated appropriation thereof; and if he voluntarily assents to, or aids in, any other appropriation, it will be a wrongful conversion thereof, for which he will be held responsible.” (Id., p. 234, § 211.)

Upon the facts found upon evidence given without objection, it is clear that the Insurance Company transferred the note to Concklin & Company to enable the latter to collect it and apply the amount of it on demands of the latter against the Company. Sustaining this action will give effect to the intent of the parties, and will work no injustice to either of them.

It may be further observed, that the indorsement made upon the note does not designate any one as the person to whom payment is to be made.

It, therefore, indicates an intent that payment should be made to any lawful holder of it.

But, considering the facts proved and found, it is difficult to infer that the Company had any definite design, or intended to accomplish any particular purpose, in using this form of indorsement.

It is found as a fact that this “ was the usual printed form used by the Company in all cases where notes were transferred by them for any purpose,’’ whether “ discounted, sold, deposited for collection, or otherwise disposed of.”

On such a state of facts it is not a forced inference that the words, “for account of the Atlas Mutual Insurance Company, Geo. H. Tracy, Sec.,” were used to express the idea that this indorsement, by the Secretary, was on account and by authority of the Company.

It is absurd, as it seems to us, to hold that such an indorsement made upon a note, at the time of a transfer and upon an absolute sale of it, can be supposed to have been intended to notify the world that the Company continued the owner of it, and that no subsequent holder could acquire a title to it valid as against the Company.

It is obvious, from the testimony of Tracy, the Secretary, and the facts found import, that the only intent and object of the Company in using this form of indorsement was thereby to make the note negotiable, and not to restrict its further negotiability.

We conclude, therefore, that, upon the facts as found, there is nothing in the terms of the indorsement, and the motive for resorting to the form used, interfering with the plaintiffs’ right to recover; and that, upon the facts found, even if the indorsement or transfer had been made without writing,'and by delivery only, the plaintiffs would be entitled to recover.

Ho other objection to the plaintiffs’ right to recover is suggested, except that there was no previous resolution of the Company authorizing the transfer, and, therefore, Concklin & Company acquired no title.

Although, the Judge found “that there was no resolution of the Board of Trustees of said Company authorizing the said transfer,” yet he has also found that it “ was delivered by the said. Atlas Mutual Insurance Company to Messrs. Concklin & Co., as security for a preexisting indebtedness of said Company to said Concklin & Co., to the amount of $6,300, no part of which has been paid.” That the Company was authorized by law “ to receive the note in suit, and also to negotiaté and transfer the same,” and that the mode of indorsing it, in the present instance, was the usual printed form used by said Company, in all cases where notes'were transferred by them for any purpose.”

According to the testimony, this and other notes were transferred “ as security in part for a previous loan and in part for the amount of a note made by the Company and due that day, and for another note made by the Company and held by Concklin & Co., and not then due; the whole amount of said indebtedness was 6,300.

The amount of the loan made, was.............. $2,000 00
Amount of note due,.......................... 2,659 13
Amount of note not due,...................... 1,641 16
$6,300 29.”

On such proofs as were given, or on such a state of facts as is found to exist, the defendant having no defense except the alleged insufficiency of the plaintiffs’ title; and it not appearing that the plaintiffs’ title is questioned by the Company, or that there are any ¿reditors of the Company to question it, we think judgment should have been given for the plaintiffs. (Aspinwall v. Meyer, 2 Sandf. S. C. R., 180; 3 Comst., 290.)

This case holds, that such a Company, not being insolvent, may, in the ordinary prosecution of its business, if not possessed of ready cash to pay demands against it, transfer their notes to their creditors, “upon the indorsement of the Company, the creditor giving time until the securities matured.”

Brower v. Harbeck, (5 Seld., 589,) decides nothing in conflict with it.

What may be the rights of the parties upon such facts as a future trial may establish, is at present but a matter of mere conjecture, and is wholly foreign to any consideration that can properly influence the decision of this appeal. If the indorsement in this form was used for the mere purpose of making the note negotiable, and was the form in which its paper was uniformly indorsed, it is by no means clear that persons who had been in the habit of discounting the notes of this Company for it, on indorsements in this form, would not be entitled to be treated as honafde holders, if they discounted such a note in the usual course of business for full value paid for it; if they had no notice of any defects in the title, beyond such as the terms of the indorsement might imply or suggest.

The judgment must be reversed, and a new trial granted. The plaintiffs’ costs of the appeal to abide the event.  