his property. He was treated as was any other customer, and charged with the purchases on the books in an account which had amounted to $50,000. There is no proof of any discrimination in his favor in prices, terms, or credits. There is no indication that the extension of credit to him was other than a fair risk of business. At the time of Smith's death, Disosway had reduced his debt to less than $7,000. It was not shown that this was uncollectible. Such purchases were voidable, not void. Twin Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L. Ed. 328.

It is contended that Smith was answerable for such balance, not only on account of the relationship of Disosway with the corporation, but also because Disosway, being personally indebted to Smith, had assigned his life insurance policy of $5,000 to Smith as security, which was collected by Smith's executors, and because, in December, 1911, Disosway and his wife conveyed certain realty to Smith's executors on account of the said indebtedness to Smith. In the first transaction Smith himself had but taken security, and in the second transaction Smith, of course, had no part. I think that there was no breach of Smith's fiduciary obligation as a director, in that he secured security for a personal debt due from one who had an account with or was indebted to the corporation.

[4-7] At the inception of the corporation in 1897, the salaries of Smith as president, the plaintiff as vice president and manager, and of Disosway as secretary and treasurer, were made $100, $1,200, and $100 a year respectively. In 1903 Smith's salary was increased to $3,000, and Disosway's salary was increased to $1,200. The plaintiff voted against the resolution for such increases, and his contention is that he is entitled to have paid into the treasury of the corporation all moneys drawn by Smith and by Disosway which represent their increased salaries. That contention rests upon two grounds: First, that the resolution of such increases required the vote of Smith and of Disosway; and, second, that the salaries in the amount paid were excessive and a fraud upon the corporation. This specification as to the vote is correct, for Smith, the plaintiff, and Disosway constituted all of the stockholders and all of the directors of the corporation. But I think that this action was voidable, not void. Jacobson v. Brooklyn Lumber Co., 184 N. Y. 152-162, 76 N. E. 1075, citing 10 Cyc. 790; Barr v. N. Y., L. E. & W. R. R. Co., 125 N. Y. at 274, 275, 26 N. E. 145; Godley v. Crandall & Godley Co., 212 N. Y. 121-132, 105 N. E. 818; Carr v. Kimball, 153 App. Div. at 839, 139 N. Y. Supp. 253. The by-laws committed authority over salaries to the directors; the vote of increase is recorded as taken at a special meeting of stockholders, at which all of the stockholders were present, and consequently all of the directors, for they were one and the same. No point is made as to formalities, and I think it is unimportant, inasmuch as all of the directors actually voted on the resolution; in other words, it was not essential in this instance that the directors should hold a separate meeting at that time for that purpose. See Elyea v. Salt Mining Co., 169 N. Y. at 33, 61 N. E. 992; Cook on Corporations (6th Ed.) 606, and notes.

1

And I think that the trial court was right in finding that this salary was proper, and that the increase worked no wrong upon the corporation. The original salary of $100 to Smith is no criterion, for the corporation was formed to take over the business of an insolvent and apparently moribund firm. Smith was the principal owner of the corporation. The venture was practically his venture. He was a merchant in New York City, and engaged there as the president of a large corporation. He did not know whether the corporation would fail, where the firm had failed. He could not forecast how much of his time and attention would be required by this business. The value of his services as president is not to be measured by his attendance at the office or at the place of business. It is true that he went rarely to Dobbs Ferry, but he kept in constant touch with affairs through biweekly visits by Disosway, its secretary, treasurer, and bookkeeper. He lent to the corporation his financial strength, he guaranteed its commercial paper, he advised as to its accounts and credits and it may be inferred that he directed generally its conduct. And this fact stands out: That where the firm of Besson & Co., with the plaintiff as a partner, had failed, the corporation of Besson & Co., with Smith as its president and in control, succeeded. And when this increase of salary was made, the corporation had shown success and had accumulated a considerable surplus. Disosway was first its secretary and its treasurer, but later on took over the duties of the bookkeeper, who was discharged. He attended at the office daily and did his work. The salary of $1,200 seems fair and just.

[8] The question presented in this case is, not whether a stockholder had such a remedy, but whether this stockholder had it at the time. he invoked it. The plaintiff, as we have seen, was a stockholder from the outset until the death of Smith, and for the same period he was vice president, director, and the manager. He devoted his entire time to the business at Dobbs Ferry. The books of the corporation were kept in its office at that place, were open to him, and were looked into frequently by him. They showed the loan to Mrs. Besson in specific terms. The plaintiff received at the close of each year statements of the corporate affairs in detail, that specified the loan, and he admits. that he examined the statements and understood them, for he had been a bookkeeper. If we believe that he did not know of the loan to Mrs. Besson before or at the time it was made in 1899, that he did not learn of it from the books wherein it was entered, and our credulity is taxed when we remember his close association with this close corporation, we must believe that he knew of the loan when he received, read, examined, and understood the annual statements wherein it was set forth. In any event, the law will impute such knowledge to him. He knew of the increase of salaries in 1903, for he voted against the resolution, and he must have known, or was legally chargeable with knowledge, that these salaries were paid, inasmuch as these annual statements contained this information. He knew of the sales to Disosway, because the sales were executed under his direction as manager and were entered regularly upon the books. Now, there is not a bit of evidence that at any time he ever demurred, objected, or protested against any of these transactions, or sought rectification or redress,

save that he voted in 1903 against the increased salaries. It might well have been that protest or objection, or the seeking of relief within the corporation, would have been unavailing; but in any event he could have invoked the courts. How can he be heard to say that he was cowed by Smith, when he was independent enough to vote against Smith on the questions of the discharge of John Besson, the discharge of the bookkeeper, the substitution of Disosway for him, and the increases of the salary, including that made for Smith himself? The doctrine of acquiescence, as said in Lowndes v. Wicks, 69 Conn, at page 30, 36 Atl. 1079, is "well defined as quiescence under such circumstances that assent may be reasonably inferred from it." 2 Pomeroy's Eq. Jur., § 955 and note; Pollitz v. Wabash R. R. Co., 207 N. Y. 113129, 100 N. E. 721; Kent v. Quicksilver Mining Co., supra. Upon the authorities cited, to which I may add Hoyt v. Latham, 143 U. S. 553, 12 Sup. Ct. 568, 36 L. Ed. 259, and Klein v. Independent Brewing Ass'n, 231 Ill. 594, 83 N. E. 434, I think that the plaintiff must be held to acquiescence as to these said transactions. See, too, Morawetz, supra, § 262, note 2.

[9-11] But, as I have said, there are other transactions as to which this judgment should not be affirmed. Between January 1, 1907, and the time of his death, Smith withdrew moneys from the corporation which at the latter period amounted, with interest, to $12,614.97, and prior to Smith's death Disosway had become indebted to the corporation for money received, which, according to the statement of January 1, 1911, amounted to $3,637.47. The court has found without exception that these moneys represent loans to these two persons. These moneys were entered and carried on the corporate books as such loans. These loans were made to these stockholders individually, and it must be presumed that they were for their own advantage. Therefore such use of the funds of the corporation was a breach of duty on the part of Smith (Pollitz v. Wabash R. R. Co., 207 N. Y. 113, 100 N. E. 721), and it was malum prohibitum (section 29, Stock Corporation Law). Such use, if malum prohibitum, was impossible of ratification, because ratification is as objectionable to that which is malum prohibitum as was the original offending. Pomeroy's Eq. Jur. (3d Ed.) § 964, note; Schwab v. Potter Co., 194 N. Y. 409-419, 87 N. E. 670; Continental Securities Co. v. Belmont, 206 N. Y. 7-18, 99 N. E. 138, 51 L. R. A. (N. S.) 112, Ann. Cas. 1914A, 777. Having in mind the decision and discussion in Pollitz's Case, supra, one may say that, if the defense of acquiescence rest upon the principle of ratification, then there could be no ratification of an act malum prohibitum, and if it rest upon the principle of estoppel, no new rights have arisen or could have arisen as to these borrowers since such loans were made. So far as laches is concerned, laches rests upon estoppel (Cook on Stockholders [2d Ed.] § 731, and authorities. cited), and the cause of action is barred, not by laches, but by the statute of limitations (Pollitz v. Wabash R. R. Co., supra, 207 N. Y. at page 130, 100 N. E. 721). The statute of limitations applicable would be that of 10 years. Brinckerhoff v. Bostwick, 99 N. Y. 185, 1 N. E. 663. But as Smith remained a director of the corporation up to the time of his death in 1911 (section 28, General Corporation Law), I think that

the statute did not begin to run prior to that time (Zebley v. F. L. & T. Co., 139 N. Y. 461-469, 34 N. E. 1067; Ludington v. Thompson, 153 N. Y. 499, 47 N. E. 903; Nat. Bank of Commerce v. Wade [C. C.] 84 Fed. 10). Whether plaintiff acquiesced at the time these loans were made, or knew of them at the time they were made, we do not know. But it is clear enough that he knew of them, or at least is chargeable with legal knowledge thereof, for a number of years. But nevertheless I think that he is not barred from relief. Story in his Equity Jurisprudence (13th Ed., § 298) writes:

"In cases where the agreements or other transactions are repudiated on account of their being against public policy, the circumstance that the relief is asked by a party who is particeps criminis is not in equity material. The reason is that the public interest requires that the relief should be given, and it is given to the public through the party.”

[12] The learned counsel for the appellant calls to our attention that there is no loss to the corporation by the loans to Smith or to Ellen W. Besson, but I think that proof of loss to the corporation was not essential. The stockholder in such an action has the right to insist that the illegal act be undone. Byrne v. Schuyler Electric Mfg. Co., 65 Conn. 336, 31 Atl. 833, 28 L. R. A. 304; Schwab v. Potter Co., supra.

The judgment must be modified, so that the plaintiff recover for the corporation the amounts of the loans to Smith and to Disosway, with interest, and consequently the findings that are to the contrary are disapproved, and appropriate findings will be made in their stead, and when the judgment is thus modified it will be affirmed, without costs to either party. The parties must submit proposed findings to this court within 20 days. All concur.

(89 Misc. Rep. 495)

MOLLNOW et al. v. RAFTER, Mayor, et al.

(Supreme Court, Equity Term, Niagara County. March 17, 1915.)

1. MUNICIPAL CORPORATIONS 747-TORTS OF POLICE OFFICER-LIABILITY OF CITY.

Where a police officer, in making an arrest, uses unnecessary force amounting to an assault, the victim of the assault has no remedy against the city, but must look to the officer alone for compensation.

[Ed. Note. For other cases, see Municipal Corporations, Cent. Dig. §§ 1570-1577; Dec. Dig. 747.]

2. MUNICIPAL CORPORATIONS 871-"GIFT TO AN INDIVIDUAL"-JUDGMENT AGAINST OFFICER-PAYMENT BY CITY.

A direction of a city council that the city treasurer pay a judgment rendered against a police officer for an assault committed by him in making an arrest, being a "gift to an individual," within Const. art. 8, § 10, prohibiting such gifts, was invalid, notwithstanding Home Rule Act (Laws 1913, c. 247, art. 2a) § 20, par. 5, empowering cities to pay claims equitably payable by the cities, though not constituting obligations legally binding on them.

[Ed. Note. For other cases, see Municipal Corporations, Cent. Dig. § 1817; Dec. Dig. 871.

For other definitions, see Words and Phrases, First and Second Series, Individual.]

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

3. INJUNCTION 88-PAYMENT OF PUBLIC MONEY-REIMBURSEMENT FOR EXPENSES.

Where a city council has ordered that a police officer be reimbursed for his expenses incurred in defending an action against him for an assault claimed to have been committed in the course of public duty, the court will leave it to the city treasurer's discretion whether he will pay such claim, and will not enjoin him, at the instance of a taxpayer, from paying

same.

[Ed. Note. For other cases, see Injunction, Cent. Dig. § 160; Dec. Dig. 88.]

Action by Edward A. Mollnow and another against John A. Rafter, Mayor of North Tonawanda, and others. Decision for plaintiffs. Elias Root, of North Tonawanda, for plaintiffs.

A. F. Premus, of Tonawanda (James P. Lindsay, of North Tonawanda, of counsel), for defendants.

POUND, J. Defendant Frank X. Kinzly was and is a police officer of the city of North Tonawanda. Edward Wiedman, then an infant, by guardian ad litem, sued him in the Supreme Court in June, 1908, for an assault. Kinzly sought to justify on the ground that the force complained of was rightfully and necessarily used in making a lawful arrest. The first trial of the action resulted in a verdict for the defendant. Judgment entered thereon was reversed. On the second trial plaintiff recovered a verdict of $250. Judgment entered thereon was also reversed. On the third trial plaintiff recovered a verdict of $100. Judgment was entered thereon in Niagara county clerk's office on February 20, 1914, for $531.92, including costs and disbursements of three trials and two appeals.

[1] The common council of the city of North Tonawanda has directed that an order be drawn in favor of Kinzly for $596.92 to pay this judgment for $531.92 and also $40 for legal expenses in preparation of brief on appeal and $25 for printing appeal book and brief on appeal. The order has been drawn and payment demanded from the city treasurer, who says he threatens to pay the same. Plaintiffs bring this taxpayers' action to restrain the payment of the claim, on the ground that it is an attempted gift of city money to an individual, and as such prohibited by section 10 of article 8 of the Constitution of the state of New York. Defendants make no claim that the city is legally obligated to pay the judgment; it being elementary that police officers are called upon to answer for their torts in connection with the preservation of the peace, the same as any other citizen, and that Kinzly took the risk of being called upon to defend in the courts his conduct as a police officer when he assumed the duties of the position. The city of North Tonawanda would be going beyond its strict legal duty to pay even the expenses of a successful defense of a police officer charged with assault in the course of public duty. When the officer exceeds the use of necessary and reasonable force in making an arrest, or makes an unlawful arrest, he ceases to act on behalf of the city, and assumes the entire responsibility himself. Victims of his rashness have no civil remedy, except against the individ

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes