U.S. Supreme Court Park Bank v. Remsen, 158 U.S. 337 (1895)
Park Bank v. Remsen
Argued April 29, 1895
Decided May 20, 1895
158 U.S. 337
ERROR TO THE CIRCUIT COURT OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK
The rulings of the Court of Appeals of New York, unanimously made, that the warehouse company did not become indebted to the plaintiff by reason of its endorsement of the notes which form the basis of this action, as the company was an accommodation endorser, of which fact the plaintiff was chargeable with notice, and that the liability of Remsen as trustee of the company was not primary, but secondary and dependent altogether upon a statute of that state of a penal character, ought to be recognized in every court as at least most persuasive, although the case in which the ruling was made has not yet gone to final judgment.
This Court has held in Chase v. Curtis, 113 U. S. 452 , that that statute of New York is penal in character, and must be construed with strictness against those sought to be subjected to its liabilities.
In the absence of any controlling decision, this Court is unwilling to hold that a provision of a general statute imposing a personal liability upon trustees or other officers of a corporation is incorporated into a special charter by a clause therein declaring that the corporation shall possess all the general powers and privileges and be subject to all the liabilities conferred and imposed upon corporations organized under such general act.
This case was tried by the court without a jury, and from the findings the following facts appear: the German-American Mutual Warehousing and Security Company (hereafter called the warehouse company) was a corporation of the State of New York, incorporated by c. 701, Laws N.Y. 1872, vol. 2, p. 1673. Section 9 of this chapter provides that
"The corporation hereby created shall possess all the general powers and privileges, and be subject to all the liabilities conferred and imposed upon corporations organized under and in pursuance of an act entitled 'An act to authorize the formation of corporations for manufacturing, mining, mechanical, or chemical purposes,' passed February seventeenth, eighteen hundred and forty-eight, and the several acts extending and amending the same."
It never made or published any of the reports required by section 12 of the act of 1848, which directed every company within the first twenty days of each year to make and publish in some newspaper a report signed by the president and a majority of the trustees, and verified by the oath of the president or secretary, and showing the total capital stock, the proportion actually paid in, and the amount of existing debts. Robert Squires was president, and William Remsen, the defendants' testator, a director and trustee of the company. Squires, Taylor & Co. were a firm doing business in the City of New York. It was composed of Robert C. Squires (a son of the president of the warehouse company), Charles E. Taylor, and Burnett Forbes. In 1878, this firm made two promissory notes, each to the order of themselves, which notes were endorsed by themselves in blank, and after such endorsement were also endorsed by the warehouse company, the endorsement being made by the president of the company and without the knowledge of Remsen or the other directors. These notes were discounted by the plaintiff. They were not paid at maturity, and, notice having been duly given, the plaintiff commenced an action in the Superior Court of the City of New York against the warehouse company as endorser. It recovered a judgment against the company which was affirmed by the general term. 53 Jones & Spencer 367. The company appealed to the Court of Appeals of the state, and on October 8, 1889, that court reversed the judgment. 116 N.Y. 281. It held that the warehouse company was not liable on the ground that it was an accommodation endorser, and that the plaintiff was chargeable with notice of the character of the endorsement, because the notes were presented for discount by the makers, who received the avails thereof.
Section 12 of the Act of 1848, c. 12, hereinbefore referred to, provides that for failure to file the reports specified therein, the trustees
"shall be jointly and severally liable for all the debts of the company then existing, and for all that shall be contracted before such report shall be made."
N.Y.Rev.Stats. 8th ed., vol. 3, p. 1957.
MR. JUSTICE BREWER, after stating the facts in the foregoing language, delivered the opinion of the Court.
The highest court of the state, which incorporated the warehouse company and in which it is situated, has ruled, in a direct action against it, that it did not become indebted to the plaintiff by reason of its endorsement. The liability of the defendants is not primary, and that of a debtor, but secondary, and depends altogether upon a statute of that state of a penal character which declares that upon certain omissions of duty on the part of a trustee, he shall become responsible for the debts of the company. Can the federal courts ignore the decision of the Court of Appeals, and, in face of its unanimous opinion that the warehouse company is not indebted, compel the defendants to pay as a debt of the company that which has been thus decided to be no debt? Or, to state the proposition in another way: a statute of the state imposes a liability on a trustee for the debts of the company of which he is trustee. The highest court of the state says there is no debt, and therefore no liability. Is it appropriate for this Court to hold that there is a debt, and, by reason thereof, a liability? We are asked to enforce a statute of a state penal in its character, so far at least as the trustee is concerned, and therefore to be strictly construed, in a case in which its highest court rules that it ought not to be enforced. To the question as thus stated it would seem that there should be but one answer, and that the rulings of the highest court of a state as to liability under such a statute ought to be recognized in every court as at least most persuasive. That this statute is one of a penal character is settled not merely by various decisions of the Court of Appeals of New York, but also expressly by this Court in Chase v. Curtis, 113 U. S. 452 , though as since held not "a penal law in the international sense." Huntington v. Attrill, 146 U. S. 657 .
It is, however, insisted by the plaintiff that there has been no final adjudication in the courts of New York in the action against the warehouse company, the order made by the Court of Appeals being simply to set aside the judgment and grant a new trial; that the question of liability or nonliability of the warehouse company to the plaintiff is therefore not res judicata; that the plaintiff has a right, if it has not already exercised it, of discontinuing that case, in which event there will be no final judgment either for or against it, and nothing to prevent its commencing a new action either in the courts of New York state or in the courts of any other state in which it can secure service of process on the company; Manhattan Life Ins. Co. v. Broughton, 109 U. S. 121 ; Gardner v. Michigan Central Railroad Co., 150 U. S. 349 ; that even if a final judgment had been rendered in the action against the warehouse company, it would not bar the plaintiff or protect the trustee, for a judgment binds only parties and privies, and the trustee was neither a party to that action nor a privy thereto, Miller v. White, 50 N.Y. 137; that the question of the liability of the warehouse company to the plaintiff being thus still an open one, and depending not upon any statute or matter of local law, but upon principles of general commercial law, this Court is free to determine it according to its own judgment, and is not concluded by any opinion or ruling thereon by the state court.
It is further insisted that the Court of Appeals erred in its views of commercial law, and that, while the presentation for discount by the maker of negotiable paper thus endorsed may suggest that the discount is for his own benefit, and that the endorsement is an accommodation endorsement, there is no conclusive presumption of law to that effect; that if the party discounting the paper makes no further inquiries, it is a mere matter of negligence, and that, according to the rules laid down by this Court, negligence alone neither vitiates the title of the holder nor relieves any of the parties to the paper from the liability apparently assumed by their signatures thereto. We deem it unnecessary to determine this question. That the presentation for discount by the maker of paper drawn to his own order,
and bearing the endorsement of another party, does create a presumption that the endorsement is a matter of accommodation is affirmed by the following, among other authorities: Bloom v. Helm, 53 Miss. 21; Hendrie v. Berkowitz, 37 Cal. 113; Stall v. Catskill Bank, 18 Wend. 466; Overton v. Hardin, 6 Coldwell 375; Lemoine v. Bank of North America, 3 Dillon 44; Erwin v. Shaffer, 9 Ohio St. 43; 1 Daniel on Neg.Inst. § 365; 1 Edwards on Bills App. 105, § 104. . On the other hand, the plaintiff refers to these authorities as tending to show that the presumption arising under such circumstances is not a conclusive one. Wait v. Thayer, 118 Mass. 473; Ex Parte Estabrook, 2 Lowell 547.
Section 12 of the act of 1848 is not in terms reenacted in the charter of the warehouse company. It is, as we have seen, a statutory provision of a penal character, and before any party can be held bound by its provisions, it must satisfactorily appear that the legislation of the state has rendered him subject thereto. The contention is that section 9 of the charter of the warehouse company in effect incorporates said section 12 into such charter, but the provision of section 9 is that the corporation shall possess all the general powers and privileges, and be subject to all the liabilities, conferred and imposed upon corporations organized under the act of 1848. It is the corporation which is given the powers and privileges and made subject to the liabilities. Does this carry with it an imposition of liability upon the trustee or other officer of the corporation? The officer is not the corporation; his liability is personal, and not that of the corporation, nor can it be counted among the powers and privileges of the corporation. How, then, can it be contended that a provision in a charter that the corporation thus chartered shall assume all the liabilities imposed by a general statute upon corporations carries with it a further provision of such general statute that the officers of corporations also assume, under certain conditions, the liabilities of the corporation? Does one by becoming an officer of a corporation assume all the liabilities resting upon the corporation? Is not his liability of a distinct and independent character, and dependent upon other principles? It is said that this is a mere
question of statutory construction, which has been settled by the Court of Appeals of New York in conformity with the views of plaintiff, but we do not so understand the scope of those decisions.
Wakefield v. Fargo, 90 N.Y. 213, is cited. In that case, it appeared that the High Rock Congress Spring Company was organized under an act of 1863, c. 63, which authorized three or more persons to incorporate in the manner specified in the act of 1848 heretofore referred to. Section 2 provided that
"every corporation so formed shall be subject to all the provisions, duties, and obligations contained in the above-mentioned act, (the act of 1848), and shall be entitled to all the benefits and privileges thereby conferred."
Section 18 of the act of 1848 made the stockholders "liable for all debts that may be due and owing to their laborers, servants, and apprentices for services performed for such corporation," and it was held that that provision became incorporated into chapter 63 of the Laws of 1863, and that the defendants, as stockholders in the spring company, were liable accordingly. The matter is not discussed in the opinion, but the conclusion is stated as above. It may be noticed, however, that the act of 1863, under which the spring company was organized, was entitle
"'An act to extend the operation and effect of the Act passed February 17, 1848, entitled 'An act to authorize the formation of corporations for manufacturing, mining, mechanical, or chemical purposes,"
and contained but two sections, the first authorizing the organization of three or more persons into a corporation in the manner specified, etc., and the second being as heretofore quoted. And so it may well be that the Court of Appeals considered the act of 1848 as passing bodily into the act of 1863, and that all the "provisions" (in the language of section 2) of the former became part of the latter act. Be that as it may, that decision comes short of meeting the question here. Even if it were conceded that it goes so far as to hold that "corporation," as used in that statute, includes stockholders as component parts thereof, it does not follow that it also includes the trustees, directors, or other officers. But it does not go to
the extent claimed. The opinion expressly says that "a stockholder is not liable for the general debts of the corporation if the statute creating it has been complied with." The term "corporation" does not include stockholders, and a statute imposing a liability upon the corporation does not thereby impose the same upon the stockholders. Indeed, section 9 of the charter of the warehouse company makes special provision for the liabilities of the stockholders of the company, which was obviously unnecessary if by the clause quoted all the provisions of the general incorporation act in respect to the liability of stockholders, trustees, and other officers were transferred to and made a part of the charter. We see nothing in the case of Veeder v. Mudgett, 95 N.Y. 295, to throw any light upon this question. So far, then, as the decisions of the Court of Appeals go, they do not affirm that so much of the act of 1848 as imposes a special liability on trustees and directors was incorporated into the charter of the warehouse company by force of section 9 or otherwise, and, in the absence of any controlling decision, we are unwilling to hold that a provision of a general statute imposing a personal liability on trustees or other officers is incorporated into a special charter by a clause therein declaring that the corporation shall possess all the general powers and privileges, and be subject to all the liabilities, conferred and imposed upon corporations organized under such general act. Something more specific and direct is necessary to burden an officer of the corporation with a penalty for omission of duty.
We are of the opinion that the judgment of the circuit court was right, and it is