K. & K. Silk Trimming Co. v. Garfield National Bank

Churchill, J. On September 10, 1924, the plaintiff corporation, by its then president and secretary, made its promissory note to the order of Monarch Textile Mills, payable on December 20, 1924, at the defendant bank, where plaintiff had an account. At that time the president, Kramer, Was authorized to sign notes and checks on behalf of the corporation and a copy of the resolution conferring such authority had been filed with the bank. On October 7, 1924, the then stockholders sold their interest in the corporation to Joseph Gold and David Gold. The former was then elected secretary and treasurer and a resolution was adopted authorizing him to sign notes and checks for the corporation. A copy of the resolution was given to the bank on October 7, 1924. Its material parts were as follows: “ Resolved, that the funds of this corporation be deposited with the Garfield National Bank, and that the same be withdrawn therefrom upon the signature of Joseph Gold, as Secretary and Treasurer, which signature is hereto attached, and it is “ Further resolved that * * * the Garfield National Bank be authorized to pay all checks and notes signed or indorsed in the manner above set forth * * Plaintiff’s witness, Joseph Gold, testified that at the time when the resolution of October seventh was given to the bank he and the former president, Kramer, had an interview with Mr. Milne, one of the officers of the bank, at which they told Milne that any note or check which might thereafter be presented should not be paid unless signed by the new officers and that “ if any checks or notes will come in with the old signatures they should not be honored, because we are the new people and we bought out the business.” Mr. Milne denied that there had been any such conversation. No other witness was called. [29] On December 20, 1924, the note of September tenth was presented to the bank by the holder and was paid. It is admitted that the payment was charged to plaintiff’s account. Plaintiff sues to recover the amount of this payment. Defendant denies that payment of the note Was ever ordered to be stopped. It also counterclaims on the theory that even if the note was paid after instructions not to pay it had been given, it is entitled to offset the amount of the note either as a holder of the instrument or on the theory of subrogation to the rights of the payee. The case was submitted to the jury which found for the plaintiff. The trial court set the verdict aside and ordered a new trial on the ground that the verdict was contrary to law and on the exceptions taken on the trial. He was of the opinion that no cause of action had been pleaded or proved, because, even if the payment of the note was unauthorized, plaintiff showed no injury. (Maresco v. Mechanics & Metals Nat. Bank, 122 Misc. 667.) He also was of the opinion that “ the issues involved in the counterclaim ” should have been submitted to the jury; but, as the counterclaim only sought an offset against any sum that might be awarded to the plaintiff, there Was nothing to submit to the jury if the plaintiff failed to make out a case. I think the verdict was properly set aside but not for the reasons given in the opinion below. I think exceptions taken to the charge and to the admission of certain evidence were well taken and justify the order appealed from. As I view it, the single question on which the case turned was whether or not, at the time the resolution of October seventh was given to the bank, oral instructions to stop payment of notes and checks theretofore made were also given. If they were, the bank could not justify its payment of the note here in question. Nor could it found a counterclaim upon its own wrongdoing in making such payment in violation of the orders of its depositor. (.American Defense Society, Inc., v. Sherman Nat. Bank, 225 N. Y. 506.) On the other hand, if such oral instructions were not given, the bank had a perfect defense and had no occasion to plead any counterclaim. The note was properly signed at the time it was made and the resolution of October seventh could not properly be construed to affect notes or checks theretofore executed. But the court charged the jury as follows, the first resolution referred to being the resolution which authorized the then president, Kramer, to sign notes and checks and the second resolution being that of October 7, 1924, both hereinbefore referred to: "If the bank concluded that the first resolution was still in effect, then it will be for you gentlemen of the jury to say, upon [30] a reading of both of these resolutions, whether in your judgment the second resolution wipes out the first one; whether it specifically or impliedly deprives the bank of the right of honoring the first resolution, Which does give to the bank the right to honor the signature of Mr. Kramer. “ If your judgment, upon a reading of the two resolutions Which are before you, is that the second resolution does wipe out and takes away from the bank that original authority that it had received from the plaintiff to honor the signature of Mr. Kramer, then the defendant paid that note at its peril, provided you feel that the second resolution, when Gold came in, supersedes the first one and clearly directs the bank to honor no signature other than that of Mr. Gold.” An exception was taken to this part of the charge, counsel urging that the construction of the resolutions Was a matter for the court and not for the jury, and requesting the court to charge that the resolution of October seventh was prospective only in its effect. The court declined to charge as requested and, in effect,, repeated his previous charge leaving it to the jury to give such effect as they thought proper to the resolutions. This was manifest error and the charge requested by defendant should have been given. Exception was again duly taken. In view of the charge and the refusal to charge it is impossible to know whether the jury found that oral instructions to stop payment had been given or whether they construed the resolution of October seventh to relate to notes and checks theretofore, as well as thereafter, made. As matter of law, the resolution was not susceptible of such a construction and the verdict cannot be permitted to stand. I think there was further error in admitting evidence of the payment of two notes of the corporation made while the old officers Were in control and discounted and held by the bank. The bank was entitled to have these notes paid, or to offset them against its depositor’s account, notwithstanding any change of officers or any directions to stop payment of notes or checks which might be presented by third persons. Proof of the taking up of these notes by checks signed by the new treasurer had no proper bearing on the only issue in the case but Was calculated to mislead the jury on that issue. If the trial judge was right in his view that no cause of action was pleaded or proved, the defendant was entitled to a dismissal of the complaint. But a new trial has been granted on defendant’s motion and the question may again arise on the new trial. If so, I am inclined to the view that since, as the complaint alleges and the answer admits, the payment of the note was charged by the [31] bank against plaintiff’s account there was no necessity of pleading or proving a demand by plaintiff for payment to it of the sum so charged against it. The bank had taken the position that the payment had been properly made to the holder of the note and by its answer had affirmed that position. Manifestly, a demand for repayment to plaintiff would have been idle. But if there is doubt on this point it may, perhaps, be obviated by amendment of the complaint before retrial of the case and by further proof on that trial. In the opinion of Mr. Justice Bijur it is said that the bank is either to be regarded as a purchaser of the note or should be held to have become subrogated to the rights of the holder against the maker. But there was no negotiation of the note to the bank. The holder presented it for payment. When it surrendered it to the bank if had no idea that it was thereby effecting a negotiation of the instrument, with the liabilities consequent upon such a transfer. The bank assumed to pay the note at maturity and not to purchase it before maturity. By its action the note was discharged and extinguished at law (Neg. Inst. Law, §§ 148, 200; Egerton v. Fulton Nat. Bank, 43 How. Pr. 216; Burr v. Smith, 21 Barb. 262) and the payment so made was charged by the bank against its depositor. It is true that, in equity, an obligation, though discharged, may be considered as revived for the purpose of accomplishing justice by way of subrogation. (Pittsburgh-Westmoreland Coal Co. v. Kerr, 220 N. Y. 137.) But the party invoking that principle must himself be free from fault. (Id.) In the present case it seems to me impossible to say that if the bank was so far wrong in its conduct that it could not charge the payment of the note against the account of its depositor, it could nevertheless invoke an equitable fiction to enable it to accomplish the same end. The order should be affirmed, with costs.