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required resistance. Some light is also gained by a letter from the defendant to the plaintiff, in which it is said:

"In reply to yours of the 17th inst., would say that in the course of conversation with the representative of Mr. Opdyke it was understood that you drive on Thursday with your 40-foot core; it being assumed from the borings that the required resistance can be secured with this core. If not, why then other steps will have to be taken."

This letter does not indicate that the defendant was indifferent, or was absolving himself from care as to the length of the piles; but it shows that the question of the length of the core depended upon experiment. The defendant depends on the words:

“The pile core shall in each case be driven until not more than ten blows of a No. 2 Vulcan steam hammer are required to secure one-inch penetration."

Now this stipulation refers to each pile furnished, long or short, unless boulders or other obstructions be encountered which prevent securing further penetration. But if a pile were driven its whole length in the ground, and no way was known to the trade of driving it further, and that is admitted, how could the hammer apply 10 blows so as to secure further penetration? The whole matter comes back to this: Whether, when the plaintiff furnished the piles and drove them, the burden was cast on it of meeting what is called the test, and so taking upon itself the responsibility of determining whether a pile would be long enough to make such penetration as the alleged request demanded. I think that it was not so, but that the intention was that the plaintiff should furnish piles of certain lengths and drive them in, and until they were beneath the ground it should meet the test, unless it should meet boulders or similar obstructions.

The judgment should be reversed, and judgment ordered for the plaintiff for the price of the piles in dispute.

(166 App. Div. 528)

MURRAY V. SMITH et al.

(Supreme Court, Appellate Division, Second Department. March 12, 1915.) 1. CORPORATIONS M461–CORPORATE POWERS-LOANING MONEY.

A loan of surplus funds of a corporation, which it was not expedient to distribute as dividends, to a person who was not a stockholder, if ultra vires, was not otherwise illegal, as it was neither malum prohibitum por malum in se.

[Ed. Note.—For other cases, see Corporations, Cent, Dig. $ 1814; Dec.

Dig. Om 461.) 2. CORPORATIONS Cm186-STOCKHOLDERS-SALES BY CORPORATION TO STOCK

HOLDERS.

A sale of building materials by a corporation dealing in such materials to a stockholder on credit was voidable, but not void, where there was no discrimination in prices, terms, or credits, and the extension of credit to him was not other than a fair risk of business.

[Ed. Note.-For other cases, see Corporations, Cent. Dig. $$ 695–701 ; Dec, Dig. Om 186.] For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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3. CORPORATIONS 315 - DIRECTORS - BREACH OF DUTY — SECURING INDI

VIDUAL DEBT.

It was no breach of the fiduciary obligation of a corporate director for him to take security for a personal debt due him from one who was also indebted to the corporation.

[Ed. Note.--For other cases, see Corporations, Cent. Dig. $$ 1399, 1400 ;

Dec. Dig. Om315.]
4. CORPORATIONS O 308OFFICERS-SALARIES—INCREASE.

Where the three stockholders of a corporation were also its directors and officers, an increase in the salaries of two of them, as president and as secretary and treasurer, which was adopted by their votes against the vote of the third stockholder and director, was voidable, but not void.

[Ed. Note.—For other cases, see Corporations, Cent. Dig. $$ 1334–1349;

Dec. Dig. 308.]
5. CORPORATIONS O308_OFFICERS-SALARIES-INCREASE.

Wh all of stockholders of a corporation were also directors, and were present when a resolution to increase the salaries of certain of the officers was adopted, it was immaterial that the increase was recorded as authorized at a special meeting of the stockholders, while the by-laws committed authority over salaries to directors.

[Ed. Note.--For other cases, see Corporations, Cent. Dig. $$ 1334-1349;

Dec. Dig. Om 308.]
6. CORPORATIONS O308-OFFICERS-SALARIES—AMOUNT.

Where the president of a corporation organized to take over the business of an insolvent firm was the principal owner of the corporation, and though he went rarely to its place of business he kept in constant touch with affairs through its secretary, treasurer, and bookkeeper, lent it his financial strength, guaranteed its commercial paper, advised as to its accounts and credits, and generally directed its conduct, as a result whereof it became prosperous, no wrong was done the corporation by an increase in his salary by a resolution for which he voted, after it had shown success and accumulated a considerable surplus, from $100 a year, as origiDally fixed, to $3,000 a year.

(Ed. Note.-For other cases, see Corporations, Cent. Dig. $8 1334-1319;

Dec, Dig. 308.]
7. CORPORATIONS 308OFFICERS-SALARIES—AMOUNT.

Where the secretary and treasurer of a corporation dealing in lumber, coal, wood, and building materials took over the duties of the bookkeeper, attended at the office daily, and did his work, a salary of $1,200, allowed him by a resolution for which he voted, appeared fair and just.

{Ed. Note.—For other cases, see Corporations, Cent. Dig. $$ 1334-1349;

Dec. Dig. 308.]
8. CORPORATIONS 312, 316—LIABILITY OF OFFICERS—"ACQUIESCENCE.”

Where one of the three stockholders in a corporation, who were also its directors and officers, complaining of a loan of surplus funds to a person connected by marriage with the president, an increase in the salaries of the president and another officer, and sales of goods to one of the other stockholders on credit, was the vice president and manager of the corporation, devoted his entire time to its business, and had access to its books, into which he looked frequently, and which showed such loan, the loan was also specified on annual statements which he received and understood, and he knew of the increase of salaries, and was chargeable with knowledge that they were being paid, and knew of such sales, but never demurred, objected, or protested, or sought rectification or redress, except by voting against the increase of salaries, until after the death of the president and the other stockholder, several years after such transactions occurred, the transactions were ratified by his "acquiescence," For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & indexes

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which is quiescence under such circumstances that assent may be reasonably inferred from it.

[Ed. Note.--For other cases, see Corporations, Cent. Dig. 88 1376-1386, 1388–1392, 1401, 1402, 1404–1406, 1408, 1409, 1412–1414; Dec. Dig. 312, 316.

For other definitions, see Words and Phrases, First and Second Series,

Acquiescence.)
9. CORPORATIONS 316-LOANS TO STOCKHOLDERS-RATIFICATION.

Under Stock Corporation Law (Consol. Laws, c. 59) $ 29, providing that no loan of moneys shall be made by any stock corporation, except a moneyed corporation, or by any officer thereof, out of its funds, to any stockholder therein, a loan of the funds of a business corporation by the president to himself and another stockholder was a breach of duty on his part, and, being malum prohibitum, could not be ratified, as the ratification was as objectionable as the original offending.

[Ed. Note.-For other cases, see Corporations, Cent. Dig. $8 1401, 1402,

1404-1406, 1408, 1409, 1112-1414; Dec. Dig. 316.) 10. LIMITATION OF ACTIONS 39 STOCKHOLDER'S ACTION AGAINST CORPORA

TION DIRECTOR.

The statute of limitations applicable to an action against a director and president of a corporation, to require him to restore corporate funds, loaned to himself and another stockholder in violation of Stock Corporation Law, $ 29, was that of 10 years.

[Ed. Note.-For other cases, see Limitation of Actions, Cent. Dig. $$

172, 190-211; Dec. Dig. Cm39.] 11. LIMITATION OF ACTIONS ma 102-STOCKHOLDER'S ACTION AGAINST COR

PORATION DIRECTOR.

Limitations did not run against a suit against a president and director of a corporation, to require him to restore corporate funds loaned by him to himself and another stockholder, until his death, where he remained a director until his death.

[Ed. Note.-For other cases, see Limitation of Actions, Cent. Dig. $

494-505; Dec. Dig. Cm102.)
12. CORPORATIONS C319—DIRECTORS-ILLEGAL ACTS—LIABILITY.

In a stockholder's suit against the president and director of a corporation, to require the restoration of corporate funds illegally loaned, the stockholder had a right to insist that the illegal act be undone, though there was no proof of loss to the corporation.

[Ed. Note.-For other cases, see Corporations, Cent. Dig. $$ 1415, 1416– 1425; Dec. Dig. 319.] Appeal from Special Term, Westchester County.

Action by James Murray against Edward S. Smith and others, as executors of Millard F. Smith, deceased, and another. From a judgment for defendants, plaintiff appeals. Modified and affirmed.

Argued before JENKS, P. J., and BURR, THOMAS, CARR, and RICH, JJ.

George W. Elkins, of New York City (James M. Hunt, of New York City, on the brief), for appellant.

Robert H. Wilson, of Brooklyn, for respondents.

1

JENKS, P. J. In 1897 a domestic corporation called Besson & Co. was organized to deal in lumber, coal, wood, and building materials. All of the capital stock, 250 shares, was issued to Smith, who gave 40 shares to Murray and 5 shares to Disosway, and there was no change in those holdings until Smith died. These three men em For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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became, and remained throughout, the directors. Smith became president, Murray vice president and manager, and Disosway secretary and treasurer, and there was no change in these officers until Smith died. The corporation was in the full sense of the word a venture, because the firm of Besson & Co., its predecessor in the same field, had become insolvent and was virtually moribund in 1897, so that Smith, its creditor in a large sum, had taken over its business, assumed its liabilities, and had caused the organization of the corporation. Naturally enough, these three men seemed to deal with this close corporation as if it were a copartnership. Corporation procedure, observed somewhat for some time, fell into desuetude, and so from 1903 until 1912 there is no record of any meetings of directors or of stockholders, and there is proof that there was none. However, corporation books were kept, and at the end of each year a statement of its condition was furnished to each stockholder. The corporation was successful, for although no dividends were paid, yet at the death of Smith it had a surplus of more than $50,000 and there were no creditors. There seem to have been differences, but there is no proof of any dissensions while Smith and Disosway were alive. Disosway survived Smith but a few months. After the death of the former, Murray sought to sell his stock to Smith's representatives; but there was no sale. Now, when Smith and Disosway are dead, Murray brings this stockholder's representative action to compel the executors of Smith to pay into the treasury of the corporation moneys, on the theory that they were taken there from by a breach of the fiduciary obligations of Smith to the corporation. The corporation answered, and the defendant executors answered separately, denying some of the allegations of the complaint, and pleading acquiescence and ratification and the statute of limitations. At the close of the case the court thought that upon the proof the plaintiff was not entitled to any relief, and dismissed the plaintiff on the merits. The plaintiff accordingly appeals from the judgment.

I think that the judgment in its entirety cannot stand. Some of the transactions for which Smith may be held responsible are of such a character especially as mala prohibita, that the defenses of ratification or acquiescence, or in view of the circumstances the defense of the statute of limitations, are not available, while others of the transactions are open to the defense of ratification and acquiescence. The discussion is naturally divided by these two classes, and I shall consider first the transactions that are immune from this attack by this stockholder. The trial court made many findings, but it is unnecessary to reproduce them or to epitomize them now, inasmuch as I shall discuss the facts later on as they are supported by proof and therefore justly found by the court.

[1] The court found without exception that, prior to March 2, 1899, Ellen W. Besson, a connection by marriage of the said Smith, received about $6,600 moneys of the corporation, and that such moneys were loans. The loans were entered and carried on the books of the corporation, but there is no record of the manner, or of any corporate procedure, if there were any, whereby this money was lent to Mrs. Besson. The court found without exception that this money

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had been taken from the treasury of the corporation, and the record, though vague, indicates that the time was in 1899. In the absence of all other proof which, were the fact otherwise, would have been forthcoming, for none knew the affairs and details of the corporation better than the plaintiff, as I shall presently show, we may infer that this money was taken from the surplus moneys of the corporation. It has been held that corporations "may temporarily lend their surplus funds on safe security, when it is inexpedient to distribute them among the shareholders.” Morawetz on Private Corporations (2d Ed.) vol. 1, § 367; Cook on Corporations (6th Ed.) § 681; Garrison Canning Co. v. Stanley, 133 Iowa, 57-60, 110 N. W. 171, and cases cited. See, too, the intimation in McFarlan v. Triton Ins. Co., 4 Denio, 392-397.

There is no proof that it was expedient then or at any other time to distribute the surplus, which at the time of Smith's death was, as I have said, more than $50,000. There is no proof that there was any distribution at any time, or that dividends were ever paid, and there is no proof that the plaintiff or any other of the two stockholders suggested or asked for distribution or for dividends. Thus it appears that this policy of conserving the surplus was acquiesced in by all of them. Mrs. Besson paid interest upon the loan and reduced it. She owned the premises wherein the corporation carried on business, and the plaintiff admitted that she was financially responsible and abundantly able to pay this debt. There is a distinction between a temporary loan of the surplus funds of a corporation when not otherwise required, and the practice of lending the moneys of the corporation as if the corporation were a bank. And it is to be noted that section 29 of the Stock Corporation Law prohibits a loan of any moneys to stockholders. Even if such a loan was ultra vires the corporation, it was not otherwise illegal, and it was neither malum prohibitum nor malum in se. See Kent v. Quicksilver Mining Co., 78 N. Y. 159; Bissell v. M. S. & N. I. R. R. Co., 22 N. Y. 258, 269.

But whichever view we may take of the transaction, whether it was legal or ultra vires, I think that the plaintiff cannot prevail in this feature of the case for the reasons that I shall give only later on, inasmuch as they obtain as to other transactions. I attach little importance to the fact that the loan charged on the books to Mrs. Besson was changed afterwards, at the instance of Smith, to Mr. Besson, who apparently was not financially responsible. The plaintiff does not pretend to say that he was misled by the said change in the books. And Mrs. Besson, with the consent of the plaintiff, in lieu of testifying, but over objection as to competency, materiality, and relevancy, filed at trial her formal acknowledgment that the loan was made to her, that the reductions were made and the interest was paid by her, that the obligation was hers, with the promise to discharge it with interest.

12,3] The said Disosway bought building materials from the corporation. He was a resident of Dobbs Ferry, where this corporation carried on its business. He was reputed to be a man of wealth and of property, interested in several shops, and possessed of realty in the county of Westchester. He bought the materials for improvement of

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