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a fact known to the defendant, the facts known to the officers of the trust company were not such as to suggest that the effect of this transfer of funds of the corporation to Umsted and Kiefer would leave the capital thus impaired. Much less was there on the part of the trust company any actual knowledge of facts which made their act in accepting the transfer of this draft an act of bad faith toward the corporation or its creditors in this respect. The facts relied upon by the plaintiff's counsel are not sufficient to constitute notice of this character.

Great importance is, by the learned counsel for the plaintiff, attached to the way in which the sum of $125,000, originally loaned to Umsted and Kiefer was divided up. It is argued that what happened at the time of the loan should have made the trust company aware that Umsted and Kiefer were paying only $110,000 for the stock, and that they were paying large and extraordinary commissions and other expenses to procure the loan; the argument being that such payment of commissions and the mode in which the money was distributed was notice that this was not an ordinary loan or business transaction, or one which a prosperous corporation would resort to. but a borrowing of money under such extraordinary terms and conditions as necessarily to excite suspicion. The circumstance, however, of the borrower dividing up the money borrowed into various sums for various purposes, is too common to excite remark. It is not a matter with which the lender has anything to do, and the fact, known to the trust company, that, in addition to interest at 6 per cent., the borrower was paying a commission of 4 per cent., was not, in my opinion, sufficient to excite suspicion. Beyond this there were no suspicious circumstances in the transaction known to the defendant.

The fact, also, that the trust company was aware that the corporation was borrowing large sums of money, at and before the time of this payment on the 2d of August, is insisted upon as notice of a circumstance which should have put the trust company on its guard or on inquiry. It is true, as shown by subsequent developments, that Umsted, for the company, borrowed of various banks during that period large sums of money, and it may be that his conduct of the business of the company, in respect to forming and carrying out plans for the enlargement of the business and the plant, was reckless and unwise; but the fact that he was able on the credit of the company to borrow large sums of money from the banks, which was partly within the knowledge of the trust company at the time. is, it seems to me, rather a fact making in favor of the company and of Umsted's credit than against it. So it is said that Chapman and Plummer were put on the directorate of the corporation to look after the interests of the trust company, and that, if the facts known to Chapman and Plummer should be deemed to be known to the trust company, the trust company would have been in possession of information which would have put it upon inquiry. The main facts known to Plummer and to Chapman and not fully known to the trust company were in relation to these borrowings by Umsted on behalf of the corporation. Those, however, were facts not discrediting, but enhancing, the credit of the corporation and of Umsted, tending to show prosperity, and in no wise, from the point of view of the trust company on the facts within its knowledge, tending to show recklessness, or improvidence, or a bad financial condition. Moreover, the real question being of the trust company's good faith, it is not perceived how the knowledge of Chapman or Plummer can be held to be the knowledge of the trust company.

On the question of fact whether this payment did deplete the assets of the company below the capital stock, I think, if it were material, or could avail the plaintiff, it must be found in his favor. The representations made by Umsted, at the time he negotiated the loan with the trust company in March, were grossly untrue with regard to the financial condition and prospects and resources of the corporation. Instead of giving $350,000 for the stock which was put up as collateral, as represented by him in a letter to the company, he was giving only $110,000. The condition of the company was by no means as good or prosperous as he caused the defendant trust company to believe. But these facts were only discovered by the trust

company long afterwards, and do not in any way tend to impugn the good faith of the officers of the trust company in taking this draft.

As regards this second point on which the plaintiff relies, I think, also, it substantially is a claim that this transfer was a fraud upon the creditors of the corporation, and I think the same principle applies that applies in cases of alleged fraud against creditors of the vendor-that the title of the vendee can only be impeached upon proof of knowledge of the intended fraud, or of such facts that the transferee must be deemed to have acted in bad faith.

3. The final claim made by the plaintiff against the defendant is that this payment to Umsted and Kiefer made the corporation insolvent and unable to pay its debts, and on that ground that it was a fraud upon creditors. It is a sufficient answer to this claim that the defendant, the trust company, which gave value for the draft, had no knowledge or information leading it to believe or suspect that the corporation was thereby made insolvent. If it were material to the case, I think it must be found upon the evidence that this payment did make the corporation insolvent, Its financial condition at that particular time, 2d of August, as affected by this payment, from which, in fact, it received no valuable consideration, cannot with any certainty be shown or deduced from the books of the company or from the testimony. That the company was largely insolvent in November following is undoubtedly true, but the course taken by the banks, who were the principal or only creditors, in abruptly putting an end to Umsted's plans for the reorganization of the business of the company, and their act in procuring the appointment of a receiver, were calculated to turn solvency in August, if it existed, into insolvency in November. I think, however, it is true that there was very little substantial value in the assets over the liabilities in August, and the debts had already increased very largely over what they were in March, and, if it were a material point in the case, it must be found that this loss of $125,000 made the company insolvent. But, for the reasons stated under the former (second) point, the judgment must be for the defendant on this point, as the defendant had every reason to believe in the prosperity and solvency of the company, and was not informed of any facts at that time which should have led it to suspect insolvency.

4. Some other questions, of great importance in themselves. have been discussed in this case; but, in my opinion, they are not material to the determination of the controlling questions. Some of them may, perhaps, be properly passed upon in the findings, if desired by the parties and deemed material by them.

Upon the whole case I am of opinion that the plaintiff's claim is not sustained, and that his complaint must be dismissed on the merits, with costs.

Argued before PATTERSON, P. J., and LAUGHLIN, HOUGHTON, MCLAUGHLIN, and SCOTT, JJ.

T. Thacher, for appellant.

M. J. O'Brien, for respondent.

PER CURIAM. Judgment affirmed, with costs, on opinion of referee.

SCOTT, J. (dissenting). In the year 1901 Frank A. Umsted, a salesman in the employ of the Hartman Manufacturing Company, arranged to purchase the whole capital stock of the company, of the par value of $250,000, for the sum of $110,000. William A. Kiefer, a lawyer, became to some extent interested in the purchase. In order to procure the money necessary to complete the purchase, Umsted and Kiefer, by the most extravagant overstatements as to the business and condition of the company, the value of its assets, and the price which they had agreed to pay for the stock, induced the City Trust Company

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of New York to loan them $125,000. As security for this loan the whole capital stock of the Hartman Company was deposited with the trust company, and placed in the name of one of its officers, and for the further protection of the trust company it was agreed that Elverton R. Chapman, a director of the trust company, and one John F. Plummer, who had been active and interested financially in negotiating the loan, should be made directors of the Hartman Company. It was thoroughly understood by the trust company, and all those who interested themselves concerning the loan, that it was a personal loan to Umsted and Kiefer, and was made to them in order that they might personally acquire the capital stock of the Hartman Company. Of the $125,000 loaned, $110,000 was paid to the vendors of the stock; the balance being used in payment of interest in advance, a bonus of $5,000 to the trust company, and certain commissions. In due course Umsted, Kiefer, Chapman, Plummer, and Elton, an employé of the company, were elected directors of the Hartman Company; Umsted being made president, Plummer vice president, and Kiefer secretary and treasurer. The directors met and adopted resolutions placing the property and business in charge of the president, and authorizing him, or the secretary and treasurer, to sign all notes, contracts, and other obligations of the company. After the adoption of these resolutions. (to be considered more in detail hereafter) the board of directors adjourned, and held no further meeting until after the transaction which lies at the foundation of this action. Chapman went to Europe for a protracted visit, and Plummer apparently paid little attention to the affairs and business of the company, except to aid in the borrowing of large sums from banks in the city of New York. The loan by the City Trust Company to Umsted and Kiefer had been made for six months, and fell due September 21, 1901. Umsted and Kiefer conceived the project of acquiring other manufacturing properties, to be consolidated with the Hartman Company, and to this end they borrowed, with the assistance of Plummer and to some extent Chapman, considerable sums of money from New York banks. They also applied to the defendant trust company for an increase of its loan, but this was refused; the officers of the trust company being apparently uneasy about the loan, and much more willing to have it paid off, than to increase it. On August 1, 1901, the Hanover National Bank loaned to the Hartman Company $200,000. This loan was negotiated by Umsted, Plummer being present, and was made upon Umsted's statement that he and Kiefer had borrowed for the Hartman Company $125,000 from the City Trust Company upon a promissory note secured by the pledge of the capital stock of the said Hartman Company. He accordingly received from the Hanover National Bank a check upon itself, signed by its vice president, and drawn to the order. of the Hartman Manufacturing Company, of Elwood, Pa., for the sum of $125,000. This check Umsted indorsed to the City Trust Company, signing the name of the Hartman Company, by himself as president and general manager. The City Trust Company accepted this check in payment of its loan to Umsted and Kiefer, and surrend

ered the promissory note and the stock of the Hartman Company held as collateral thereto.

Shortly thereafter the Hartman Company, by action of its board. of directors, increased the capital stock from $250,000 to $2,500,000, and the entire issue of the new stock was delivered to Umsted and Kiefer in substitution for the old stock held by them. On November 18, 1901, the Hartman Company failed to meet its obligations, and one of its notes went to protest, and steps were immediately taken by its creditors to secure themselves so far as possible. The various steps taken to this end it is unnecessary to recapitulate. A reorganization committee was appointed, and a board of directors was elected in the interest of the creditors. The claims against the company were assigned to the plaintiff, and all the property of the Hartman Company, except the claim against the City Trust Company, in suit here, was sold by order of the directors and bought by plaintiff for the sum of $238,000, which was credited proportionately in reduction of the several claims of the creditors. There still remained due $371,140.29, for which plaintiff recovered judgment against the Hartman Company, upon which execution was issued and returned unsatisfied, whereupon the plaintiff brought this action to recover the $125,000 loaned to the Hartman Company by the Hanover National Bank and diverted to the payment of the personal indebtedness of Umsted and Kiefer to the City Trust Company. The plaintiff appeals from a judgment in favor of the defendant trust company, entered upon the report of a referee. Three important facts stand out prominently in the case. They are found by the referee, and are not disputed by the respondent. They are: First, that the loan to Umsted and Kiefer was a personal loan to them, and was understood by and known to the officers of the City Trust Company to be such; second, that the money with which the loan was paid off was the money of the Hartman Manufacturing Company, loaned to it upon its credit; third, that the form of the check. whereby the loan of the City Trust Company was paid off constituted notice to the trust company that the money represented thereby was the property of the Hartman Manufacturing Company. These fundamental and admitted facts lie at the very root of plaintiff's claim. It is thus made to appear that the City Trust Company knew that it was accepting the money of the Hartman Company in payment of the personal indebtedness of Umsted and Kiefer, and was thus reaping the fruits of an apparent diversion of the funds of the Hartman Company. With this knowledge and notice it was at once put upon its inquiry, and if it chose to accept the money, as it did, without any inquiry at all, it so accepted it at its peril; and, if this use of the funds of the Hartman Company was in fact unauthorized, the trust company is liable to refund the amount to the corporation or its creditors. Rochester & C. T. R. Co. v. Paviour, 164 N. Y. 281, 58 N. E. 114, 52 L. R. A. 790. From this general proposition we do not understand that there is dissent either by the learned referee or the respondent.

It is urged, however, that there are reasons why this general ruie is not applicable to the case at bar. It is said that, although the trust company should have inquired as to the authority of Umsted and

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Kiefer, but did not do so, still the failure to make such inquiry will not prevent the respondent from now relying upon such facts as would have been disclosed if a reasonable and proper inquiry had been made. For this there is ample authority (Wilson v. Met. El., 120 N. Y. 145, 24 N. E. 384, 17 Am. St. Rep. 625), but the limitation of the rule must be strictly observed. Prima facie it is unlawful for an officer of a corporation to use its funds in payment of his personal obligations, and the known fact that an officer is so using the corporation's funds certainly raises no presumption that he is authorized to do so, but rather the contrary. The inquiry respecting his authority, therefore, is not whether there is anything forbidding such use, but whether, either by some act of the company or something in the relation between the officer and the company, there is anything which justifies such use; and it is not sufficient that the inquiry is merely formal and perfunctory, or addressed to some one not presumptively cognizant of the facts, or who may have an interest in misstating them. When the officers of the trust company were offered the Hartman Company's money in payment of the personal indebtedness of Umsted and Kiefer, they were called upon to make a reasonably careful and intelligent inquiry as to the authority for such an apparent diversion of the company's money. The place to look for such authority was the minutes of the board of directors, upon which the trust company had expressly stipulated that it should have two members to safeguard its interests. Such an inquiry would have disclosed the fact that such authority had never been given to the board, unless it could be spelled out of the following resolutions, adopted at the first meeting after Umsted and Kiefer had obtained control of the company:

"Resolved, that the president [Umsted] at once take charge of all the property and business of the company, and that all officers and employés report to him and receive orders from him.

"Resolved, that all the property, of whatever name and nature, of the corporation, be placed in charge of the president and general manager, and all checks, notes, contracts, and other obligations of the corporation be made and signed by the president and general manager, or by the secretary and treasurer, and that the signature of one or the other be required on all papers, contracts, and other documents executed by the corporation."

These resolutions, which are to be read together, certainly gave to Umsted the most complete control over the business of the corporation, and over its funds and property in connection with its business; but there is nothing whatever in the language of the resolutions, or in the intent, so far as it can be derived from the language, to justify the conclusion that the directors had authorized Umsted and Kiefer to divert the company's money to the payment of their own personal obligations. Certainly there is no such apparent authority, as was given to the president of the defendant in Bank of New York v. Am. Dock & Trust Co., 143 N. Y. 559, 38 N. E. 713, to sign warehouse receipts, or to the defendant in Rankin v. Bush, 93 App. Div. 181, 87 N. Y. Supp. 539, to certify checks. If, then, the trust company had made proper inquiry, they would have found in the minutes of the board of directors no justification for the use of the Hartman Company's money for the payment of the debts of Umsted and Kiefer, and so they could