
    Miners and Merchants' Bank of Lonaconing, Respondent, v. Ardsley Hall Company, Appellant.
    First Department,
    May 18, 1906.
    Evidence — when error to read deposition of.officer of corporation who is. sworn as witness—hills and notes — when corporation liable on-note issued and converted by officers. .
    In an action to recover on the note of a corporation it is error to allow the deposition of the treasurer of the defendant; taken before trial, to be read in evidence, when the deponent has been pz-oduced on trial and sworn as a witness. Such a deposition (except that of a party taken at the instance of an adverse party or pursuant to stipulation) .cannot be read in evidence unless it is proved tliax; the witness is dead or unable to attend through sickness, etc., oris imprisoned, or absent from the State, so that his attendance cannot be compelled by subpoena. (Code Civ. Proc. § 882.) •
    O’Brien, P. J., dissented on this point, with opinion.
    As to whether the holder of a promissory note issued by the treasurer of a business corporation to his own order without authority of the directors or countersigned by the president, as required'by the corporate by-laws, which is, delivered to and converted by the president of the corporation, can recover against the corporation, the majority of the court, under the facts stated,
    
      Held, that but for the. foregoing error in receiving the deposition of the treasurer a direction of a verdict for the plaintiff would have been proper.
    Laughlin, J., contra, on this point.*
    Appeal by the defendant, Ardsley Hall Company, from a judgment of the Supreme Court in favor of the plaintiff,- entered in the office of the clerk of the county of Mew York on the 5th day of October, 1905, upon the verdict of a- jury rendered by direction of the court after a trial at the Mew York Trial Term, and also from an Order entered in said clerk’s office on the 4th day of. October, 1905, denying the defendant’s motion.for a new trial made upon the minutes.
    
      John A. Stephens, for the appellant.
    
      J. H. Caldwell [Robert R. Reed with him on the brief], for the respondent.
   Laughlin, J.:

The action is upon two promissory notes purporting to have been " made by the defendant. Each note is for $2,500, bears date the : 31st day of March, 1903, was written, with the exception of the day ' of the month in the date and the words with" interest,” -by Thomas Cochran, Jr., who was the treasurer of the company :and was signed by him, “ Ardsley Hall Co. by Thomas Cochran, Jr., Treas.,” was made payable to his order as treasurer four months after date and ; was indorsed by him as treasurer. The defendant denied the making of the notes and alleged as defenses that they were hot signed •: or executed according to the by-laws or- authorized, and that if never received any of the proceeds thereof;

The defendant corporation owned and conducted ah apartment--' house in the city of Mew Yoi’lt, and in the month of March, 1903,’-it became necessary for it to borrow money to pay certain pressing obligations. The notes were made by the treasurer and delivered to the president,* Frank J. Kohler, to be negotiated for the purpose of raising the money required. Kohler was also secretary a/ncl treasurer of the City Trust and Banking Company of Baltimore, Md., which for brevity will be referred to as the trust company, and spent most of his time in that city. The defendant had an account with the trust company .and the interest coupons on its second mortgage bonds were payable there. The plaintiff, as its name implies, conducted á banking business at • Lonaconing, Md. The plaintiff frequently purchased negotiable paper of the trust company with which it had an account and ■ which was its correspondent and. had been for several years. In these business transactions it had correspondence with ■ Kohler almost daily. It appears that this letter was signed by Kohler individually,, but that he was accustomed to sign sometimes individually and sometimes in his official capacity. -

On the 20th day of April, 1903, which was before maturity, the . plaintiff received the notes inclosed with a letter written by Kohler from Baltimore on the stationery of the trust company, which letter related to other business between the plaintiff and the trust company and requested that it discount the notes, stating in the body of the letter that he, Kohler, was going to charge the notes to plain-' tiff’s account, and that if it was not all right he would take them up when he returned from Hew York; but in a sentence at the end of the letter he said he would not charge them to plaintiff’s account, and requested it to §end a draft to him for them if it was all right. The plaintiff immediately discounted' the notes and' forwarded a draft-on the trust company, addressed to Kohler at the office of the . trust- company, but payable to him individually. The draft was paid the next day. Kohler received the money, but it does" not appear what he did with it. The plaintiff’s cashier says -that. ordinarily drafts were drawn payable to Kohler in his official capacity with the trust company, but that this one was drawn payable to him individually because he inferred from the letter that Kohler desired it so drawn. The plaintiff knew that Kohler was -president of the defendant; but counsel for defendant showed by the cross-examination of the cashier of the plaintiff, who discounted the notes, over an objection interposed by the plaintiff, that he did so in the belief that the notes had been negotiated to the trust company. After Kohler had possession of the notes, and eight days after they were discounted by the plaintiff, the account of the defendant with the trust company was credited with $4,135. ' The treasurer of the defendant testified that the credit came from the deposit of a certificate of deposit issued by the trust company to Kohler and indorsed by him to defendant. It Was' shown that shortly prior to the receipt of this certificate of deposit by the defendant from Kohler it had advanced for him the sum- of $2,000, and the court excluded evidence that might have shown that he was further indebted to it and defendant excepted.- If the judgment can be sustained, therefore, it must be upon the theory that it is immaterial whether or not the defendant received any of the proceeds of' the discount of the notes. ' • '

The trust company suspended business about the 6th of June, 1903; Kohler’s accounts with it were involved. ' He • disappeared about the time of the failure of the trust company and his testimony was not obtained on the trial of the action. ' The treasurer' of the defendant testified, without objection, that he' was informed by Kohler on or about April 12, 1903, that the notes had not been negotiated, and a few days prior to the time that Kohler disappeared he received back from- him a $10,000 note which had been delivered to Kohler at the same time and for the same purpose as the two notes in question, but which had not been negotiated-, and that Kohler then informed him in reply to a demand for the return of the tWo notes in question that he had “ given it to the Miners & Merchants’ Bank.” The foregoing seems to be the only e’xpress evidence on the question as to whether the notes had been first discounted by the trust company. Counsel for-the appellant states in his points that they were first negotiated with the trust company and by it transferred to the plaintiff, and •counsel, for respondent seems to deem it immaterial. It is, therefore, not necessary to consider the sufficiency or the éfféct ofithe evidence on that point.

The defendant showed that it never received any of the proceeds of the discount of the notes,' and that the issuance thereof was not authorized by the board of directors. The appellant, in its first point, contends, that it was error to receive the; notes, in evidence without proof that their execution by the treasurer was authorized. In its second point, however, it concedes that the proper construction' of the by-laws of the company is that the treasurer is the proper - officer to sign notes, but contends that the by-laws require that- notes shall be countersigned by the president, which was not done. The by-laws, so far as material, ar.e as follows :

Section 2. The President shall preside at all meetings . of the Board of Directors, and shall act as temporary chairman at and call to order all meetings of the stockholders; he shall-sign certificates of stock, sign and execute all contracts in the name of the company, when authorized so to do by the Board of Directors; countersign all checks drawn by the treasurer; appoint and discharge agents and employees, subject to the approval of tlie Board of Directors, and he shall have the general management of the affairs of the corporation and perform all the duties incidental to his office. * * *.

“ Section 4. The treasurer shall have the earn and custody of' all the funds and securities of the corporation and deposit same in the name of the corporation in such bank or banks as the directors may elect; he shall sign all checks, drafts, notes and. ordérs for the payment of money which shall be countersigned by the president.”

While it does not appear that Cochran, as treasurer, had ever made notes for the purpose of negotiating a loan without the countersignature of the president or vice-president and authority from the board of directors, it does appear that-he'had made notes, not authorized by resolution of the board of directors, seven or eight in number, for the payment of the company’s bills. Sometimes the payment of interest on coupons was authorized by resolution of the board of directors, and sometimes payment was made without such authorization. A sale of second mortgage bonds to Kohler was made without authority of the board of directors, and it also appeared that Cochran, as treasurer, was in the habit of indorsing defendant’s-■checks and drafts for' deposit in the - trust company without any - formal authority. The notes were entered on the books of the defendant and its vice-president had notice thereof, but it does not appear how soon after their execution.

.At the close of the evidence both sides moved for a direction of a verdict. This submitted the question of fact tó the court for determination. The verdict having been directed in favor of the plaintiff, the defendant excepted. This exception entitles the defendant to a reversal if the evidence was insufficient as a matter of law to sustain any essential finding, and the motion, for a new trial entitled it to a reversal if any material finding is against the weight of the evidence.

The evidence was clearly insufficient to justify or .sustain a finding- that the defendant held its treasurer out as authorized to make promissory notes, or its president to negotiate notes so made or that it ratified the acts of the treasurer in issuing or of the president in negotiating this note. There was no course of dealing or " holding out these officers as authorized by which the defendant could be "held liable on the theory of implied authority or on the theory of estoppel. It is doubtful whether the by-laws conferred authority on the treasurer, to issue promissory notes of the company, even when countersigned by the president, with action of-the board of directors; but that point need not be decided for it is quite clear that, in any event, it only authorized the issuance of its promissory notes when signed by the treasurer and countersigned by the president. There seems to be a distinction between actions on promissory notes of business and religious. corporations with respect to what evidence is sufficient to establish a prima facie case that the paper was issued by authority of the defendant. (People's Bank v. St. Anthony's R. C. Church, 109 N. Y. 512; Karsch v. Pottier & Stymus Mfg., etc., Co., 82 App. Div. 230.) The weight of authority, however, in this jurisdiction is to the effect that a recovery cannot be had against either a religious or a business corporation on com? mercial paper unless the evidence taken as a whole shows' or warrants a finding not only that the paper was issued by officers of the corporation, but that its issuance was authorized by the by-laws, or by a resolution of the board of directors, or- by a course of dealing by which the corporation held them, out as authorized to issue it and would be deemed estopped from questioning their authority or of ratification by the acceptance and retention of some benefit or advantage from the unauthorized act or otherwise. (Dabney v. Stevens, 2 Sweeny, 415, 425; affd. on this point, 46 N. Y. 681 ; People's Bank v. St. Anthony's R. C. Church, supra ; Bangs v. National Macaroni Co., 15 App. Div. 522; National Bank of Newport v. Snyder Mfg. Co., 107 id. 95 ; National Bank v. Navassa Phos phate Co., 56 Hun, 136 ; McCullough v. Moss, 5 Den. 567 ; Greene v. Iroquois Hotel & Apartment Co., 84 N. Y. Supp. 591 ; Davis Sewing Machine Co. v. Best, 105 N. Y. 59.) Proof of such authority in the case of a corporation is what is shown in the case of an individual or copartnership by proof of the genuineness of the signature. The rule is deemed essential to protect corporations against the unauthorized and fraudulent acts of its officers;. and those taking negotiable- paper purporting to be the paper of a corporation must ascertain at their peril, if they take 'it relying upon the credit of the maker, whether it was authorized. (De Bost v. Albert Palmer Co., 35 Hun, 386 ; Cheever v. Pittsburgh, etc., R. R. Co., 150 N. Y. 59, 65.) Of course if the' issuance of negotiable paper is authorized' by a corporation and .the obligation of the corporation is executed in the form and manner required'by the authority conferring the power, the corporation will be liable even though its officer or agent should divert it and appropriate the proceeds of the discount to his. dwn use (Ring v. L. I. R. E. Exchange, 93 App. Div. 442) ; but this is for the protection of those dealing in such securities who could have no knowledge of the dishonest intentions o.f the officer or agent, and could not protect themselves against the same while the corporation, may by requiring' indemnity. There being no sufficient evidence of holding out, estoppel or ratification, no recovery can be had unless it be shown that it was the paper of the defendant. It never became the authorized paper of the defendant, because not having been' countersigned by the defendant as required by the by-laws, it never became completely executed. (Davis Sewing Machine Co. v. Best, 105 N. Y. 59 ; De Bost v. Albert Palmer Co., supra.) The case of Martin v: Niagara Falls Paper Mfg. Co. (44 Hun, 130 ; affd., 122 N. Y. 165), is distinguished on the ground of the absence here of tire holding out or ratification' which were the controlling features in . that case. The case of Patterson v. Robinson (116 N. Y. 193) does not seem in’harmony with some of the prior and subsequent decisions already cited on the question of burden of proof ;■ but it is not inconsistent with the views here expressed tliat a corporation cannot be held liable upon a contract unless it either authorized its execution, ratified it or has done some act by which it should, be deemed estopped, , ,

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

O’Brien, P. J., dissented.

McLaughlin, J. (concurring) :

I voteifór a reversal of this judgment upon the ground .that the court erred in permitting the deposition- of Thomas Cochran, Jr., to be read. Section 870 of the.Code of Civil Procedure provides for taking the deposition of a party to an action, and section 871 of a person not a party. Subdivision 7 of section 872 provides that if the party sought to be examined is a corporation, the affidavit shall state the name of the officer or director thereof, and the order to be made in respect thereto shall direct the examination of such .person, etc. Section 882 provides that “ such a deposition, except that of a party taken-at the instance of an adverse party or a deposition taken in pursuance of a stipulation as prescribed in this article, shall not be so- read in evidence until it has been satisfactorily proved that the witnesses dead or is unable personally to attend by reason of his insanity, sickness-or other infirmity, or that he is confined in a prison or jail or that he has been and is absent from the State, so that his attendance could not with reasonable diligence be compelled by .subpoena.”

, Cochran was present and examined as a witness at the trial, and when the plaintiff proposed to read his deposition, objection was taken upon that ground. The objection was overruled and the deposition received upon the ground that he was a party to the action. The ruling was erroneous. The deposition should have been excluded. Except for this error I should vote to affirm the judgment.

Patterson, J., concurred.

Houghton, J. (concurring):

I concur in a reversal of this judgment, but on the ground only that error was committed in permitting the plaintiff to read the deposition taken before trial of the witness Cochran. This witness was produced and sworn On the trial and his whole deposition previously taken was read against the objection of defendant. He was • the treasurer'of defendant and íiot a party defendant and the read- ■ ing of his deposition after lie had-been sworn with opportunity for cross-examination was not permissible. Some material facts appear in this deposition which were not developed on liis oral examination and the'ruling, therefore, was an error- necessitating-a new trial of the action. , . , , •

.. . I dissent, however, from the conclusions. reached by Mr. Justice Laughlin in liis opinion. '

It seems to me that plaintiff showed 'good title to the- notes in controversy and that defendant is bound by the acts of its treasured arid president in issuing them.

The plaintiff paid f ulb value- before maturity and had. no notice - of. actual or intended diversion of proceeds or of any infirmity in their execution unless the form itself of the notes gave such notice. . I do not think it did.

The defendant was engaged in business in the prosecution of which it gave,notes for indebtedness.incurred and for the- purpose" of obtaining cash, and .it is not disputed that conjointly the president and treasurer could-have-given binding notes. Kohler was its president. with, the power of “ general management of the;affairs of the corporation.” Cochran was the treasurer, and the by-laws of the defendant, in addition to enumerating as liis duties that, he should have the care and custody of the funds and .books- of the corporation, provided.that he should “sign all checks,, drafts,- notes and orders for the payment of money which shall be countersigned by Ihe president and he shall pay out. and dispose of the same under the .direction of the president.” The treasurer signed the .notes in question and delivered them to the president to be negotiated for the benefit of the defendant. The president did not countersign them but he procured them to be discounted by plaintiff in due course of business. Under the president’s general authority to manage the affairs of the defendant it can hardly be said ho had no authority to give notes-of - the defendant in its business or to negotiate one .given therein by its treasurer. ' .

The by-laws of defendant do not prescribe the form of any note to be given. In enumerating the duties of the treasurer he is required to sign all. notes, drafts, and checks which have been countersigned by the president, but he is not prohibited from giving any nqte by direction of the president before it should have been countersigned.

In the regular performance of the duties which are enumerated by the by-laws the first step would be the making of the note and the signing by the treasurer, and then it naturally would be countersigned by the president. A treasurer of a corporation is its fiscal officer, and, prima facie, checks, drafts and notes issued in the. business of the corporation, signed by him as such, officer, are the obligations of the corporation, for they are acts which such an officer would ordinarily perform. The by-laws do not prohibit the giving of a note signed by the treasurer alone or by the president alone. They only prescribe that the treasurer shall sign if the president countersigns. Indeed, the defendant in course of business had issued and presumably ratified and paid several notes signed by the treasurer alone. This was sufficient evidence, of course, of dealing to authorize the direction of a verdict for plaintiff. If the president had power to give a note in his management of the defendant corporation he had power to negotiate one given by the treasurer. This he did. The fact that the draft of $5,000 was made payable to him individually instead of as president of defendant (or as treasurer of the trust company if the notes were purchased from it) did not destroy the hona fides of the plaintiff. If currency had been given on the discounting of the notes it necessarily would have been delivered to him as an. individual, and as an individual he had authority to receive it. Hor does the fact- that the president diverted the proceeds of the discount affect, the plaintiff’s position, for it was without notice or any means of knowing that the president would not act honestly towards his corporation.

Except for the error in reading the deposition I should, therefore, vote for an affirmance of the judgment.

O.’Brien, P. J. (dissenting):

Upon the question of the defendant’s liability upon the notes I concur with Mr. Justice Houghton.

Upon the additional question as to whether it was error to admit the deposition of the officer of the corporation, I dissent from the views of the majority of the court. It will .be noticed by reference to section- -870 et seq. of the Code that a distinction.is made between the examination of a mere witness and the examination of one who is a party to the action, it being permissible with respect to the latter to read the deposition notwithstanding that the party is present at the time of the trial.

I think, under the construction to be given to these sections of the Code, that where, as here, what was sought and obtained was an examination of the-defendant —which could only be obtained by examining its officers.— when an examination is so taken it becomes the examination of the corporation, and is the equivalent of the examination of a party not a corporation for the purpose of reading the same upon the trial, of the action. I, therefore, dissent.

Judgment and order reversed, new trial ordered, costs to appellant to abide event. Order filed. 
      
       Code Civ. Proc. chap. 9, tit. 3, art. ,1.— [Rep.
     