
    E. Gaston Higginbotham, Appellant, v. International Trust Company, Respondent.
    First Department,
    December 30, 1910.
    Corporation — trust company—authority of president—receipt of subscriptions for stock after issuance of certificate to commence business — recovery by subscriber — money had and received.
    The president of a corporation has authority to receive the payment of subscriptions for its stock, even though the corporation is a trust company which cannot transact business until all its capital stock is paid in.
    The plaintiff signed an undated subscription agreement to take stock in a trust company, authorizing one M., the chairman of the incorporators, to enter his subscription for twenty-five shares, or any number that might be allotted to him in case of oversubscription. Subsequently M. was elected president of the company, and, with the secretary,' verified affidavits giving a list of the the officers and stockholders, the plaintiff’s name not being included as a stockholder, and stating that the whole amount of stock had been subscribed and paid'for in cash. A bank examiner found a proper deposit to the credit of the trust company, and the Superintendent of Banks issued a certificate. Two weeks later the plaintiff paid M. for twenty-five shares and was given a receipt signed by him as president, purporting to be exchangeable for certificates of stock when engraved. It appeared that this money was never paid directly to the trust company, but was used to repay in part a sum misappropriated by M. from another bank which had been deposited to the credit of the trust company in order to obtain a certificate that, the capital w;as all paid in. The complaint alleged that at the time he paid M. for his stock, plaintiff was ignorant that his name had not been included in the verified list of stockholders, but no proof was made of the allegation. Being unable to obtain his stock, the plaintiff brings this action for money had and' received.
    
      Held, that M. as president of defendant had authority to receive payment of stock subscriptions and issue a receipt as a substitute for stock certificates pending their engraving, and the defendant is bound by his act;
    
      That the mere receipt of payments of subscriptions to the entire amount of the capital stock and surplus of the defendant did .not necessarily preclude the receipt of other payments, because the subscription agreement contemplated that i-n Case of oversubscription there should be an allotment;
    That it is immaterial that the identical money paid by.plaintiff was not received by defendant, since it was used to replace money of which defendant had received the benefit and for which it was liable.
    Ingkaham, P. J., and Scott, J., dissented, with opinion:
    Appeal by the plaintiff, E. Gaston Higginbotham, from a judgment of - the Supreme Oourt in favor of the defendant, entered in the office of the cleric of the county of New York on the 6th day of July, 1910, Upon the dismissal of the complaint by direction of the court after a trial at the New York Trial Term, and also from an order entered in said clerk’s office on the. 1st day of July, 1910, denying the plaintiffs motion- for a new trial made upon the minutes.
    
      George .0. Austin, for the appellant.
    
      Pugene A. PMZbin, for the respondent.
   Millee, J.:

. The action is for money had and received, the claim .being that the defendant accepted and-retained $5,000 of the plaintiff’s money in payment of a subscription for' twenty-five -shares of its stock after the entire authorized capital stock had been allotted. The certificate' of incorporation of the defendant was filed in the office óf the Superintendent of Banks on the' 25th day of March, 1907. On the. 26th day of September, 1907, the first meeting of its - board of directors was held at which one Howard Maxwell was elected president. He had theretofore acted as ■ chairman of the incorporators. On the twenty-seventh day of September, Maxwell, as president,' and Bouker, as secretary, verified an affidavit stating _who the officers and stockholders of the defendant were but not including the plain- ■ tiff’s name in the list of stockholders, and another affidavit that the whole amount of thé capital stock had been in good faith subscribed and paid in in cash. The defendant was organized with a capital ‘ and surplus of $1,000,000. On the thirtieth of September a bank examiner certified that the books of the Oriental Bank showed a credit to the defendant of $1,000,000, the amount of its capital and surplus, and thereupon the Superintendent of Banks issued his certificate authorizing the defendant to transact business. The plaintiff had subscribed for twenty-five shares of stock. The date of the subscription does not appear as the subscription agreement is not dated. But it was made on one of the regular forms, and is Ho. 25, from which it may be inferred that it had been signed prior to the twenty-sixth day of September, for the receipt book, which' was the only record kept by Maxwell, either, as chairman of the incorporators or as president of the defendant, showing the payments of subscriptions, indicates that there were at least forty-four subscriptions prioi to September twenty-seventh. It may be said in passing that that book is not a record of the subscriptions to stock, as is asserted in the brief of the learned counsel for the respondent, but is a record of the receipts of payments of subscriptions. That record shows that on October second $1,000,000 had been paid in. Thereafter Maxwell received the payments of four subscriptions, including the plaintiff’s, made October 15, 1907. The subscription agreement contained this provision : “ 1 hereby authorize Howard Maxwell, as attorney for me, to enter upon the proper subscription book my subscription for said shares, or for any shares that may., be allotted me in the event-of over-subscription.” The plaintiff paid his subscription by a check payable to the order of “ Howard Maxwell, chairman,” and in return received the following receipt:

“ International Trust Company,
“Broadway and Fulton Street,
“Hew Tore, Oct. 15, 1907.
“ Received of E. G. Higginbotham Five thousand dollars in full . payment for twenty-jwe shares of stock of the International Trust Company.
“ This receipt will be exchangeable, on surrender, for engraved certificate when same are completed.
“ HOWARD MAXWELL,
'“ Chairman Organization Oom.
International Trust Go.
“ President.”

The words “ Chairman Organization Com.” after his signature were stricken out and the word “ President ” written in by said Maxwell. While no doubt the subscription agreement constituted Maxwell the agent of the subscriber to enter his subscription, the receipt purports to have been the receipt of the defendant, and the agz’eement to exchange -ezzgraved certificate for the receipt püz’ports .to be the agreement of the defendant. The question- then is whether Maxwell had actual or apparent authority to bind the defendant. It seems to me that the president of a coi'poi’ation has authority to receive the payment of subscriptions for its stock, even though the corporation is a trust company which cannot transact business until all its capital stock is paid in. The defendant’s boaz:d of. dii'ectors had met and elected officers,- as they obviously had to do before the affidavits could be inade, upon which the certificate of the Superintendent of Banks' could issue. While the officers had no authority'actually to transact business before obtainiug said certificate, they did have authority to take the steps necessaz-y to obtain the certificate, one of which was the receipt of jzayments of subsciiptions. It cannot be doubted that the president had authority to issue the stock certificates. If so, it seems to follow that he had' authority to issue the-substitutes for the engraved certificates, pending the preparation of them. There is no' claim that, the plaintiff knew when he paid his subscriptiozi that' the entiz’e amount of the defendant’s capital and surplus had been paid in or even that the certificate* authorizing the defendant to do business, had then beezi issued. He denied such knowledge in liis complaint, but apparently forgot to do it on the trial. However, the inere receipt of payments of subscriptions to the entire amount of the autlioi’ized capital stock and snz'plns would not necessarily preclude receipt of other payments, because the subscription agreement contemplated. that, in case of over-subscription, there should be an allotment.

Subscriptions to stock are assets of the corpoi’ation, and there can be no doubt that a cozqzoration can maintain actions to recover such subscriptions. It must follow that in receiving payments of subscriptions and in issuing receipts, agreeing to exchange them for engi’aved certificates when prepared, the president lias authoz-ity to, and does, bind the corporation. Maxwell was the'plaintiff’s agent to enter his subscription upon the subscription books of the company, but he was the defendant’s agent to receive payment of subscriptions, and to issue therefor the defendant’s receipts, exchangeable for engraved certificates of stock..

However, the plaintiff did not rest upon the receipt alone, but proved that the defendant got the benefit of his subscription. On the morning of the thirtieth of September the defendant still lacked $145,000 of having the necessary $1,000,000 to its credit in the Oriental Bank. The respondent suggests that that shortage included Maxwell’s subscription of $125,000. But the only evidence in the record with respect to his subscription is the receipt book which shows that it was paid September twenty-seventh. In order to get the necessary $145,000 which was lacking, Gow, one of the defendant’s directors, requested the cashier of the Borough Bank of Brooklyn, of which Maxwell was president, ■ to send a cashier’s check for that amount. The cashier communicated with Maxwell, who authorized that to be done, and thereupon drew a cashier’s check for $145,000, payable to the order of the defendant, which was deposited by the defendant in the Oriental Bank, and thereby the defendant was enabled to procure the certificate of the Superintendent of Banks, enabling it to commence business. To keep his accounts straight the said cashier, upon the direction of Maxwell, charged $145,000 to the account of a depositor and credited. that amount to the cashier’s account. Maxwell, as chairman, kept an account in the Borough Bank in which he deposited certain moneys paid him by the subscribers to the defendant’s stock. On the tenth of October there was a credit to that account of $105,000, and on that date the cashier, at his direction, transferred that amount to the credit of the account from which the $145,000 had been taken, and on the sixteenth of October the- further sum of $12,000, which included the plaintiff’s $5,000, was likewise trans-' ferred. Thus $117,000 of the money misappropriated to enable the defendant to begin business was repaid from tlm money collected by Maxwell from subscribers, including the plaintiff. It seems to me that the case is precisely the same as though the said $117,000 had in the first instance been deposited in the Oriental Bank to the credit of the defendant. It is of no consequence that the identical money collected on the plaintiff’s check did not reach the defendant. The money which was first stolen went into the defendant’s treasury, and the defendant received the benefit of it. If that theft had not been made good the defendant could have been compelled to repay the sum stolen. Maxwell- repaid it by using $117,000 of the money received by him in jiayment for subscriptions to the defendant’s stock. -'How the other $28,000 was refunded is now of no consequence. Thus the defendant’s liability was discharged'in part with the plaintiff’s money, and it seems to me that it is refining altogether too much to say -that the.defendant did not have the benefit of that money. If it had in fact gone directly into the defendant’s treasury the case would be plain. That was the result of the transaction if regard be had to substance rather than form.

The judgment and order should be reversed and a new trial granted, with costs to appellant to abide the event.

Clarke and Dowling, JJ., concurred; Ingraham, P. J.,' and Scott, J., dissented.

Ingraham, P. J.

(dissenting): ■

I dissent. It appeared from the testimony that certain individuals, of whom the plaintiff was one, constituted themselves a committee to organize a trust company under the laws of the State of Hew York; that one Howard Maxwell was constituted the chairman of that committee, and-that as such he was authorized to receive subscription's to the capital stock of the company, which was to consist of 5,000 shares of- the par value of $100 each, and each subscriber was to pay $2.00 per share for the stock, so that the trust company would start business with a capital of $500,0.00 and a surplus of $500,000., Subscription blanks were prepared, by which each subscriber subscribed for the number of shares of stock stated, for which.he agreed to pay $200 per share, and such subscription agreement authorized “Howard Maxwell, as attorney for me, to enter upon the. proper subscription book my subscription for said shares, or for any shares that may be allotted me. in the event of over-subscription.” There was a book containing a record of these subscriptions showing the number of each subscription, its date, the number of shares subscribed and the amount paid by each, subscriber. This book was produced and introduced in evidence by the plaintiff. On the-20th of March,' 1907, a certificate of organization - had been executed which contained the names of those organizing. themselves together for the purpose of forming a trust company-under the laws of the State of Hew York, and the corporation was organized by the election of Maxwell as president and one Bouker as secretary. After the execution of this instrument these subscriptions to the stock were obtained. The first seems to have been obtained on August 29,1907, and by September 27,1907, the whole amount of capital stock was subscribed, when the company applied to the Superintendent of Banks of the State of Hew York for the certificate required to entitle it to transact business. Maxwell and Bouker verified and filed an affidavit to which was annexed a true and correct list of the stockholders of the defendant with the post office address and the number of shares of stock held by each of them respectively. From that list it appears that Maxwell had subscribed for 625 shares and that other individuals named had subscribed for certain shares of stock, completing the amount of capital provided for by the articles of incorporation. The plaintiff was not named as an incorporator or a stockholder. This list of stockholders seems to contain the names of those whose names were entered in this book as having subscribed for this stock of the company on or prior to September 27,1907, but included none-of the stock subscribed for after that date. On the same day, September 27, 1907, Maxwell, as president, and Bouker, as secretary, of the defendant, also verified an affidavit which stated that the capital sto.ck of the said corporation was the sum of $500,000 and was divided into 5,000 shares of $100 each; that the amount of the said capital stock, to wit, the sum of $500,000, has been in good faith subscribed to and paid in cash. These affidavits and the list of subscribers were submitted to the Superintendent who, on the 1st of October, 1907, issued a certificate authorizing the persons named who had organized the corporation to transact the business of a trust company under the title of the “ International Trust Company,” with a capital stock of $500,000, in accordance with the' said certificate of organization and the laws of this State, and on that day, October 1, 1907, the defendant actually commenced to transact business under the certificate of incorporation. Thus, upon the completion of the subscription of capital stock of the corporation authorized by this certificate of incorporation, and the actual payment of the amount of subscription in cash, all of the capital stock authorized was actually issued and the subscribers became the stockholders of the corporation.

Whatever authority this committed had to receive subscriptions then clearly terminated. Neither the corporation nor the com-' mittee could receive further subscriptions after the amount of the authorized capital stock had all been subscribed;' but as the capital stock had all been subscribed before the formal authorization to do business, it seems to me that no act of this committee, who had been organized to.obtain subscriptions to the stock, could bind the corporation as to subscriptions subsequently obtained after the stock had all been subscribed and had been paid for .to the corporation. The subscription to the stock was complete. The stock had been subscribed. The amount called for by the subscription had been actually paid in in cash, and was on deposit to the credit of the corporation, and the corporation had started to do business under its charter as an. actual existing corporation.. There is no dispute but that the subscription for the capital stock had actually been paid in by the first day of October, and the plaintiff had then, so far as appears, neither subscribed to the stock, nor actually paid any money to either the corporation or to the committee.-'

It appeared from the evidence that prior to the first day. of October the amount paid upon these various subscriptions had not equalled the amount that was required by the sum of $145,000, and that on September thirtieth, to make that amount good, Maxwell, who was the president of the Borough Bank, had directed the cashier of that bank to send to him a cashier’s check for $145,00 to make good the subscription. Just whose subscriptions this was designed to make good does hot appear from the record, but Maxwell, himself,. had subscribed for 625 shares, for which he was required to pay $125,000. To justify this appropriation of the bank’s money, he directed the cashier to charge the cashier’s check to an account in that bank in the name of one Carrie M. McGuire, to which there was a credit of an amount exceeding $145,000. That this was an embezzlement of the money of the bank, or the McGuire account, may be conceded; but by the payment' of. this $145,000 the subscription to the stock of the defendant corporation was complete. The $1,000,000 required by the subscription was deposited- in a bank to the credit of the defendant, and it was upon this deposit that the' defendant was authorized to transact business by the Superintendent of Banks. To make this McGuire account good, Maxwell transferred to its credit the various sums of money that he had received as subscriptions to its capital stock, and other moneys which he procured, so that eventually this account was restored to the condition in which it was before the cashier’s check was given and charged up against it. After the first of October, when the defendant was authorized to transact business, and when the subscriptions. to its capital stock were complete, Maxwell apparently received further subscriptions to stock. One of those was the plaintiffs, who subscribed for twenty-five shares of stock, and on October 15, 1907, he paid to Maxwell $5,000, and received from Maxwell a receipt for $5,001), in full payment of twenty-five shares of stock of the International Trust Company. That receipt was signed “ Howard Maxwell, International Trust Company, President.” The plaintiff also signed the usual form of subscription, whereby he subscribed for twenty-five shares of the stock of this company. By it he agreed to pay $200 a.share, making a total of $5,000, and by it he authorized “ Howard Maxwell, as attorney for me, to enter upon the proper subscription book my subscription for said shares, or for any shares that may be allotted me in the event of over-subscription.”

This subscription is undated,.but according to the book introduced by the plaintiff it appears that it was the last one received, and was entered in the. book as of the date of October 15, 1907. So far as appears from the evidence and from the entries in this subscription book the subscription of the plaintiff and the payment of the $5,000, the amount required by his subscription, were all received upon the same day, October 15,1907. It is not contended that the defendant ever directly received any part of this $5,000. The money was paid to Maxwell as chairman and was clearly received by Maxwell as chairman of the committee to receive subscriptions and not on behalf of the bank. It was a void, subscription on its face because.all of the stock of the bank had been subscribed. The record of the' subscriptions which had completed all authorized capital stock had been filed With the Banking Department, and the bank was actually transacting business which it could not do until the stock had been subscribed in full and the subscriptions paid in. It is conceded that the subscription was void, and the action is based upon the fact that it was a void subscription, and the plaintiff' is suing for money had and received. To. hold the 'defendant -liable it must appear that the defendant had actually received the plaintiff’s money. This, as I view it, the evidence conclusively disproves. . The defendant never' received a dollar of the plaintiff’s money, and received no possible benefit from the payment of the money to Maxwell as chairman on October 15, 1907. That Max well had swindled the plaintiff may he conceded, but for Maxwell’s embezzlements or frauds' the defendant, was not.responsible. It is sought to hold the defendant liable because of the fact that Maxwell used the money that he received from the defendant to make good his embezzlements of the money of the Borough Bank of which he was president which was occasioned by his applying the funds'of the Borough Bank to make good his or other subscriptions of the defendant’s stock to the corporation; but it seems to me to' be perfectly clear that this imposed no liability upon the defendant. Maxwell had applied the money of the Borough Bank to the payment of his or other subscriptions to the capital stock of the defendant. After the subscriptions were made and the money actually paid in to complete them the Borough Bank could not have" recovered the money so paid from the defendant because of Maxwell’s embezzlement; and the fact that Maxwell. had subsequently received the plaintiff’s money, had deposited' it in the Borough Bank to his own credit and subsequently charged his account and credited the McGuire account to make good the charge that he had made on the books of his bank against that account did not make it a transaction with which this defendant had anything. to do or for which the defendant was in any way responsible. Maxwell himself, however, had subscribed 625 shares of the ■defendant corporation. As. chairman of this committee Maxwell had issued to the defendant a receipt for.$5,000 which he was to apply upon the subscription which the plaintiff had authorized Maxwell to make on, his behalf. That the plaintiff had a cause of action against Maxwell, either to recover hack the $5,000 orto compel Maxwell to transfer to the plaintiff twenty-five shares of the stock for which Maxwell had subscribed, is conceded, but as there could be no further subscription to the defendant’s stock, as it was fully subscribed and issued, and as the defendant had never authorized Maxwell or any one else to accept further subscriptions of its stock, it seems to me that the plaintiff’s remedy was against Maxwell and not against the defendant.

At the end of the' case the plaintiff asked for the direction of a verdict, which the court denied. The defendant then moved to dismiss the complaint, which motion the court granted. There was no request to submit any question to the jury, and, therefore, all questions of fact were resolved in favor of the defendant.

I think it clear, upon this evidence, that the court was right in refusing to direct a verdict for the plaintiff, and it was not error to direct a verdict for the defendant, so that the judgment should be affirmed.

Scott, J., concurred.

Judgment and order reversed, new trial ordered, costs to appellant to abide event.  