
    Marsden J. Perry, Resp’t, v. The Council Bluffs City Waterworks Co., App’lt.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed February 17, 1893.)
    
    CojRPOBATioirs — Bills and notes.
    Where the business of a corporation is transacted by its treasurer, without supervision being exercised over him by the other officers, the corporation is liable, to the amount paid and interest, on a note made by him in its name, and transferred to an innocent indorsee for value, even though its by-laws required the countersigning of all notes by its president.
    Appeal from judgment in favor of plaintiff, entered upon report of a referee.
    
      James L. Bishop, for app’lt; George B. Ashley, for resp't.
   O’Brien, J.

As stated by the referee in his opinion, this action is brought upon a promissory note, which reads as follows:

“ $5,000. New York, Nov. 23, 1886.
“ Four months after date, we promise to pay to the order of Allen & Stead, five thousand dollars, at the treasurer’s office, 44 Broadway, New York. Value received.
“ Council Bluffs City Waterworks Co.,
“ Henry Allen, Treasurer.”

It was indorsed by Allen & Stead, and sent by Allen to one Bradford, a person in Providence, E. I., who claimed to have facilities for obtaining the discount of mercantile paper. Bradford took the note in December, 1886, to plaintiff, at Providence, E. I, and asked for a loan upon it Plaintiff, remembering that a bank wherein he was a director had discounted such a note for Bradford, got that note from the cashier, and compared it with the one in suit, and found them similar in form ; and the president of that bank also told him there was another such note held by a savings bank in Providence, and that it was a good loan. Plaintiff, therefore, lent to Bradford $4,500 on the note, and he sent $3,500 to Allen, the maker, who entered the fact of the issue of the note, and the receipt of the money, on the books of Allen & Stead, in an account therein kept as the Council Bluffs Waterworks account; and he testified that he applied the proceeds to that company’s use.

The questions presented for review are whether the defendant corporation is liable upon the note, and, if liable, to what extent

Upon the former, as to defendant’s liability, we might content ourselves with resting the case upon the reasoning contained in the opinion of the learned referee, which, upon the evidence, disposed of the defenses that plaintiff is not a bona fide holder, for value, and that the note in suit was issued without authority of the defendant, and was not its obligation, and points out the distinction between this case and that of First National Bank of Middletown against this same defendant, 56 Hun, 412; 32 St. Rep., 85. It is not claimed that the evidence is insufficient to support the findings of fact made by the referee, and upon such evidence we think he has correctly interpreted the decisions, and drawn correct legal conclusions. He finds that during the period from some time in the month of October, 1885, to February 27, 1887, Harry Allen, as treasurer of the defendant corporation, made and issued in the name of the defendant, and to which the name of the defendant was signed by himself, as treasurer thereof, some forty or fifty promissory notes, to the order of, and indorsed, “Allen & Stead,” which were negotiated, * and money obtained thereon; that the reason for the making of such promissory notes to the order of Allen & Stead was that they were acting as the financial agents of the defendant, and it was to give additional credit to such notes, the credit of the corporation itself being poor; and although the by-laws of the defendant required the countersigning by the president, none of these notes so issued was so countersigned; that the note in suit was in form similar to these others; that during all this period, with the exception of one in May, 1886, no meetings of the board of directors were held, and at the one meeting no business was transacted other than the re-election of officers of the defendant; that Allen, though he sought to consult and advise with the president of the corporation, was referred to the latter’s law partner, who was also a director in the corporation; that none of the officers or directors used or exercised any official supervision over Allen, or his acts and transactions as treasurer, except the director who was the president’s law partner, and who, it would appear, was not only consulted with respect to the making of the promissory notes, and the obtaining of money thereon, but concurred, in the very beginning, with the making of such promissory notes; that further, he not only advised the making and issuing of such notes from time to time, but personally indorsed a large number of them, and one with the name of his firm, of which the president was a member.

A review of the evidence supporting these findings will sustain the referee, and justify his conclusion that Allen was practically the corporation, and that the case is brought within the principle laid down in Fifth Nat. Bank v. Navassa Phosphate Co., 119 N. Y., 256; 29 St. Rep., 686, because he was not only the treasurer of the defendant, but, as said in that case, “ he was consciously invested by the company with the broad, general power inseparable from the position in which it placed him as the sole manager of its affairs at its principal place of business.” Acting, therefore, within the apparent scope of the authority conferred upon him by the corporation, the latter is charged with liability, irrespective of the question of authority in fact. It would serve no useful purpose to traverse the grounds so carefully gone over by the learned referee, it being sufficient, upon this branch of the case, to say that we concur in his reasoning, and in the conclusion reached.

The question, however, as to the extent of the defendant’s liability remains to be considered. This note in suit, as shown, was delivered as collateral security to a loan of $4,500 made by plaintiff to one Bradford, under an agreement that the loan was to be paid in a few days, with interest at the rate of five dollars a day until such time as the loan was paid. If the recovery upon this note were to include the $4,500 and interest, as agreed upon, then it would amount to more than the principal and interest upon the note itself.

But the appellant insists that neither of these measure the extent, if answerable at all, of defendant’s liability, but that all that plaintiff can claim is the $4,500 advanced on the faith of defendant’s note, with interest thereon from the date of the loan at the rate of six per cent. In Todd v. Shelbourne, 8 Hun, 512, it was held that the indorsee of commercial paper, not valid as a legal obligation in the hands of the payee negotiating it, must be restricted in his recovery to the value, with interest, advanced by him to the payee upon the faith of it.” This and other cases are authority for the proposition that, where a negotiable instrument is not enforceable between the parties, a bona fide holder can only recover what he or some prior holder, through whom he derived his title, paid for it, with interest. Rand. Com. Paper, § 994. Taking the facts here, we think that this note was not valid as a legal obligation in the hands of the payee negotiating it, or in the hands of Bradford, who delivered it to the plaintiff as collateral security for a loan made by him, but that, when transferred to the plaintiff, it became in his hands a legal obligation against the defendant, but only to the extent of what was advanced upon the faith thereof. We think the principle of the cases which, under such circumstances, would prevent a profit being made out of the transaction, is applicable, and that, while the plaintiff is entitled to protection to the extent of the moneys he advanced, and legal interest from the date of the loan, he cannot recover either the face value of the note, with interest thereon, nor the amount loaned, with interest at the rate agreed upon by Bradford, of five dollars a" day. The difference, however, in the amount is easily computed, and, when ascertained, should be deducted from the judgment, and the judgment as so modified should be affirmed, without costs.

Yan Brent, P. J., and Follett, J., concur.  