Brookman et al. v. Metcalf.

claims of the defendant against the Company, however valid, can be set off. (Code, § 112; 2 R. S., 354, § 12, subd. §9; Beckwith v. Union Bank, 4 Sandf., 604; S. C., 5 Seld., 211; Spencer v. Babcock, 22 Barb., 335.)

2. But if otherwise, and if the defendant (as was decided by the Referee) is entitled to set off any claim, which he might have done if the action had been brought in the name of the Receiver, still he was not entitled to set off either the return premiums or the losses claimed, because neither was in existence at the date of transfer, and therefore not the subject of set-off. (Furniss v. Gilchrist, 1 Sandf. R., 53.)

(a.) As to the return premiums, they were to be paid in a special manner "out of the assets of the Company ratably, with all legal claims for losses," and in no other way.

The Receiver was not required to cancel the Policies, (2. R. S., 470, § 85,) and instead of doing so, he might have suffered the risks to continue, in which case the insolvency of the Company would not have furnished any defense to an action upon the notes given for the premium. (Hone v. Boyd, 1 Sandf., 481.)

(b.) The losses should not have been allowed, because

Neither of them was due or payable when the transfer was made, nor even when the Receiver was appointed, and not then a valid set-off.

The Receiver was appointed the 25th March, 1856. The "papers," i. e., the preliminary proofs, were left with the Company for "adjustment," in one case on the 8th, and in the other on the 21st of February of that year; such losses were, by the terms of the Policies, not payable until thirty days thereafter, which would be after the appointment of the Receiver, and therefore not susceptible of set-off as against him. (Haxtun, Receiver, v. Bishop, 3 Wend., 13; Furniss v. Gilchrist, 1 Sandf., 53.) The judgment should be reversed, and a new trial ordered.

G. Dean, for defendant, (respondent.)

I. The plaintiffs were not entitled to recover, because the proof did not sustain the allegations of the complaint.

They were not the absolute owners, but held the notes in trust, and, when paid, the right to possession would revert to the Atlas Insurance Company.

Brookman et al. v. Metcalf.

This action is prosecuted for the benefit and on account of the Atlas Insurance Company.

It is questionable whether the plaintiffs can sue even as Trustees, inasmuch as the instrument under which they were transferred gives them liberty only to "dispose of them for account of the Company." (Nelson & Sturges v. Eaton, 7 Abb. Pr. R., 305; Albany Fire Ins. Co. v. Bay, 4 Comst., 9; Waldron v. McComb, 1 Hill R., 111; S. C., 3 id., 361.)

II. The fact found by the Referee, that this transfer or trust was in violation of the statute, and therefore void, because not authorized by a previous resolution of the Board of Trustees, is supported by the evidence, and disposes of the whole case.

In the case of Howland v. Myer, (3 Comst., 290,) the plaintiff was a bona fide holder, and the decision is put on that ground. The resolution of 30th November is not an authority for this transaction; because it was founded in an error of fact, if not in a fraudulent misrepresentation. And also it does not authorize the liquidation of the liabilities with the notes.

But if it did, the President was not thereby authorized to deposit with creditors assets of the corporation to an unlimited extent on such trusts as he should choose to create.

Palmer v. Yates, (3 Sand., 152,) and Curtis v. Leavitt, (15 N. Y. R., 9,) are cases where the parties came within the exception to the 8th section.

III. The defendant was in a position to avail himself of this defense, because he was a creditor and member of the corporation.

1. A corporation, or its stockholders, or Receiver, may in every case impeach any contract made by Directors or other officers or agents, in the name and professedly by such corporation, by showing that such contract was made in a manner or for a purpose not authorized by its charter or the laws of the land. (Hodges v. The City of Buffalo, 2 Denio, 110; McCullough v. Moss, 5 id., 567; 3 B. & Ald., 1; 1 Hill, 11; 4 id., 442; 3 Comst., 430; 1 id., 19.)

2. The transfer being contrary to law and public policy, is void, and there is defect of title in the plaintiff. (Johnson v. Bush, 3 Barb. Ch. R., 207; Code, § 111.)

IV. As there had been no valid transfer of the title to this note, the defendant had a right to avail himself of any defense

Brookman et al. v. Metcalf.

which he could have made, if the action had been brought by the original holder, viz.:

Want of consideration; fraud in obtaining it. (Stewart v. Trustees of Hamilton College, 2 Denio, 403.) Set-off under the statute. (2 R. S., 354, § 12, subd. 10; 1 Sandf., 53; id., 257.) Counterclaim under sections 149 and 150 of the Code. Any matter constituting a defense. The right of the defendant is expressly reserved by section 112 of Code.

V. Defendant's demands consisted of a loss adjusted in February, and therefore liquidated and due.

Of claims for return premiums. Of $97.87, the balance of the two notes after charging against them all premiums. It is insisted that under the finding of facts these constituted a defense to the notes. (Holbrook v. Receiver Am. Ins. Co., 6 Paige, 222, 228; in the Matter of the Receiver of the Globe Ins. Co., 2 Edw. Ch. R., 625.)

MONCRIEF, J. The note was valid in the hands of the Company. The Referee so found, and correctly. (16 N. Y. R., 324.) In respect to creditors of the Company, in good faith and in the usual course of business, it was payable absolutely and in full. There was an actual loan of money at the time of transfer in this case. (Ogden v. Andre, MS.; heard, April, 1859; decided, May 21.') The transfer to the plaintiff was made in good faith.

The Referee so found, and, I think, correctly. Neither the Receiver of the Company nor any of its officers has ever demanded or claimed the return of this note. The Referee so found.

There was no offer to show that the plaintiffs had any reason to suppose there was no resolution of the Board of Trustees authorizing the transfer. The fact that the plaintiffs received the note from the officers of the Company did not charge them with such notice. All dealings with a Company are done with its officers.

Such a resolution is not, under all circumstances, indispensable to a valid transfer. In Howland v. Myer, (3 Comst., 290,) the plaintiff dealt directly with the officers of the Company, and that case decides the precise point that the absence of a resolution would not defeat a recovery.

1 Since reported, 4 Bosw., 583.

Brookman et al. v. Metcalf.

The Company had power to make the transfer. (3 Comst., 290.) The power was sufficiently exercised to pass the note to the plaintiffs.

The resolution of November 30, 1855, was passed at a meeting of the Board of Trustees, (eleven members being present, and four of the Finance Committee,) and it directed "that the officers commence at once to collect the notes to that amount, ($300,000,) and proceed in liquidating the liabilities of the Company therewith."

By-law X expressly authorizes the President or Vice-President, with the advice and consent of the Finance Committee, or a majority of them, to assign, transfer, or otherwise validly dispose of, bills receivable, or any assets, to secure the repayment of money borrowed by them, the payment of losses, or other purposes, that shall have been sanctioned by the Finance Committee.

The two notes, held by the plaintiffs past due, were pressing for payment. They probably were for losses. It was an undisputed claim against the Company.

At the meeting of the Board of Trustees on the 7th November, all of the Finance Committee were present, when the "Committee appointed to settle with Mr. Brookman, (plaintiff,) reported that they had not yet completed the settlement." (The programme for procuring the necessary means had not yet been matured. The subscription list is dated the next day, the 8th.)

At the time of the transfer, December 10th, the President, Vice-President, and two of the Finance Committee were present. (Probably others sanctioned it.) It required but three members to constitute a quorum of the Finance Committee, a majority of whom could transfer, &c., &c. The transfer has never been repudiated, and no question ever raised as to the proper transfer to the plaintiffs, except by the defendant.

GARDINER, J., (3 Comst., 292,) says: "I apprehend that the Company were not restricted by the statute to a negotiation for the purposes of payment exclusively. They might procure the note to be discounted, and apply the avails in discharge of their responsibility for losses incurred; or, if this could not be done, the same result might be obtained by a transfer of the note to the plaintiff, upon the indorsement of the Company-the creditor giving time until the securities matured."

Brookman et al. v. Metcalf.

It will be borne in mind that the note in that case was transferred by the President as collateral security. The point is expressly taken, (2 Sandf., 180-183;) and it is at least doubtful whether the loss was contingent or absolute for which it was given to secure the payment. It is questionable whether anything was given up at the time of receipt of the note.

In the present case, an absolute liability of the Company existed. Two notes of the Company, over due, were in the hands of the plaintiffs, and they were pressing payment. The claim was indisputable. The amount was $5,574.56. The Company, at the time of the transfer of this note to the plaintiffs, paid them $2,000 in cash, and the plaintiffs permitted the Company to charge them their subscription of $2,000 as cash, thus leaving due to them, at the time of the transfer, the sum of $1,574.56 and interest.

Upon receiving the note of the Company for the balance due on those two notes-$1,574.56 and interest-$1,751.95-and the note in suit, with others, as collateral, the plaintiffs gave up the existing liability of the Company. The two notes were given up.

It seems clear to my mind that the present is a stronger case than Aspinwall et al. v. Myer, (2 Sand., 100,) and is embraced and determined by the principle laid down in 3 Comstock, 290.

Again, I do not see how it can justly be said that this transaction conflicts with section 8 of the statute. The act was passed to prevent insolvency. The arrangement entered into with the plaintiffs assisted the statute, in enabling the Company to continue its business, and actually did earn for the defendant a large amount of premiums which he did not pay to the Company.

In my opinion the Referee erred, and a new trial should be directed, &c.

WOODRUFF, J. The defendant had by a subscription with others agreed to give to the Atlas Mutual Insurance Company, notes in advance for premiums to the amount of $1,000. He did so in two sums of $500 each. The condition of the subscription was that it should not be binding until the sum of $300,000 was subscribed, and if it had never been subscribed the Company could not have required the defendant to give the notes; but on the other hand he could waive the condition and if