ed only in the case of the lawful change in the grade of the street. Where the change is utterly illegal and void there is no authority for the appointment of commissioners, and such commissioners, if appointed, would have no jurisdiction to determine and award the compensation. Hence, the only remedy of the plaintiff was by action to recover his damages." We recently had occasion to consider section 187, and after stating that, in the case then before us, "there was no proof that any grade had been previously established," we declared that "the obvious purpose of that section was to permit the alteration or change of the general grade of a street which had been previously established, where buildings or other structures had been erected with reference to such grade. In other words, the chief object of that section was to authorize the change of an established grade and provide a method of indemnity to persons whose buildings or structures were injured by such general alteration or change. But it has no application where, as a mere incident of an improvement or construction of a street, the leveling of its surface or bringing it to a proper grade is required." Farrington v. City of Mt. Vernon, 166 N. Y. 233, 237, 59 N. E. 826. The defendant insists that there was no change of an established grade, but, as the appellate division has unanimously affirmed the judgment entered on the verdict, we cannot read the evidence in order to see whether it was sufficient to authorize the jury to find, in accordance with the allegations of the complaint, that the grade of the street was established in 1892; that the plaintiff built a house and graded his lot in conformity thereto in 1895; that a material alteration of the grade was made in 1900 without compliance with the provisions of the charter; and that the plaintiff sustained damages to the amount of the verdict in consequence thereof. The main questions relied upon by the appellant rest on the proposition that the verdict is against the weight of evidence or is without any evidence whatever to support it, and hence are not before us. The appellate division, by affirming without dissent, has taken those questions away from us as permitted by the constitution. Archer v. City of Mt. Vernon, 63 App. Div. 286, 71 N. Y. Supp. 571; Id., 171 N. Y. —, 63 N. E. 714. The defendant did not raise the question, by any exception that we can consider, whether the alteration of grade was incidental to an improvement or merely for the purpose of bringing the avenue to the grade of 1892, and the facts conclusively established by the action of the courts below limit our power of review to exceptions relating to the evidence and the charge of the court.

The most of the exceptions to the charge relate to requests for instructions upon the facts or as to the effect of the evidence, which we cannot consider owing to the unanimous affirmance. To many requests

not charged by the court no exception was taken, and the only question properly before us that requires further discussion is the rule of damages laid down by the trial judge. Upon this subject, in the body of his charge, the court instructed the jury that they should "not take into consideration at all any supposed benefits by reason of the change of grade of the street." To this the defendant excepted, and it also excepted to the refusal to charge "that it is necessary for this plaintiff to show that he has sustained damages which exceed all benefits received by him." While the learned counsel for the appellant argues that these rulings constitute reversible error, he cites no authority to support the position. There was no evidence tending to show that the plaintiff derived any benefit merely from the alteration of grade. If there were benefits, however, they did not affect the property of the plaintiff, as it must be presumed in the absence of evidence, any more than they affected all other property owners upon the street, even where there was no change of grade and consequently no damage from that cause. The benefits were owing to the paving of the street, which was a legal act, and not to the alteration of grade, which was an illegal act. The plaintiff has been assessed for these benefits the same as the other property owners, and they are not the proper subject of offset against his damages sustained by the wrongful alteration of grade. If the grade had been changed pursuant to the provisions of section 187, the plaintiff would have been entitled to his damages without any deduction on account of the benefits derived from paving. If the defendant had proceeded legally, the commissioners appointed to estimate and assess the damages could not have considered any benefit arising from the paving under the provisions of the defendant's charter. The plaintiff, after paying for the benefits according to the assessment therefor, should not have them deducted from his damages, and thus be compelled to pay for them twice.

We find no error, duly raised by a proper exception, that requires a reversal, and the judgment should therefore be affirmed, with costs.

PARKER, C. J., and BARTLETT, HAIGHT, MARTIN, CULLEN, and WERNER, JJ., concur.

Judgment affirmed.

(171 N. Y. 184)

SHEPARD et al. v. FULTON. (Court of Appeals of New York. May 13, 1902.)

CORPORATIONS-LIABILITY OF DIRECTORS
FAILURE TO FILE ANNUAL RE-
PORT-NOTICE.

1. Laws 1899, c. 354, amending the stock corporation law (Laws 1892, c. 688) by providing that no director of a corporation shall

be liable to a creditor of the corporation because of any failure to make and file an annual report, "whether heretofore or hereafter occurring," unless written notice is served on him within three years, does not apply to an action to enforce such liability commenced prior to its enactment.

2. Service of a written notice of intent to hold a director personally liable under Laws 1899, c. 354, for failure to file an annual report, is not a necessary condition precedent to an action commenced in 1899. after the passage of such act, on debts existing and for a default occurring prior to its enactment, since, under such section, such an action may be brought without notice.

3. In an action brought against a director of a corporation to enforce his personal liability for failure to file an annual report, no specific finding that the personal liability of such director had not been waived by plaintiff, or by any instrument creating such debt, is necessary to support a judgment against it in an action brought after the passage of Laws 1899, c. 354, since the burden is on defendant to allege and prove such waiver.

Appeal from supreme court, appellate division, Fourth department.

Action by C. Sidney Shepard and others against Harmon H. Fulton. From a judgment of the appellate division (66 N. Y. Supp. 861) affirming a judgment in favor of plaintiffs, defendant appeals. Affirmed.

Frederick Collin, for appellant. Irving W. Cole, for respondents.

WERNER, J. This action is brought to recover of the defendant, as a director of a domestic stock business corporation, known as the Eclipse Electric Lamp Company, the amount of certain debts owing by said corporation. Defendant's liability is predicated upon the failure of said corporation to file an annual report in January, 1896, and defendant's omission to make and file the certificate provided for by section 30 of the stock corporation law as it stood in January, 1896. There are no disputed facts. The Eclipse Electric Lamp Company was incorporated in November, 1895. The defendant was a director thereof from November 19, 1895, to April 17, 1896. No annual report was filed by the corporation in January, 1896, or at any time thereafter, and no certificate was made and filed by the defendant within 30 days after the 1st of February, 1896, as then provided for in section 30 of the stock corporation law. The said corporation became indebted to the plaintiffs and their several assignors, as set forth in the findings of the court, while defendant was such director, and during said default. As the stock corporation law stood in January, 1896, it provided (section 30): "Every stock corporation, except monied and railroad corporations, shall annually, during the month of January * make a report as of the first day of January, which shall state: (1) The amount of its capital stock, and the proportion actually issued. (2) The amount of its debts or an amount which they do not then exceed. (3) The amount of its assets or an amount which its assets at least equal.

*

Such report snall be signed by a majority of its directors, and verified by the oath of the president or vice-president and treasurer or secretary, and filed in the office of the secretary of state and in the office of the county clerk of the county where its principal business office may be located. If such report is not so made and filed, all the directors of the corporation shall jointly and severally be personally liable for all the debts of the corporation then existing, and for all contracted before such report shall be made. No director shall be liable for the failure to make and file such report if he shall file with the secretary of state, within thirty days after the first of February, * * * a verified certificate, stating that he has endeavored to have such report made and filed, but that the officers or a majority of the directors have refused and neglected to make and file the same, and shall append to such certificate a report containing the items required to be stated in such annual report, so far as they are within his knowledge or are obtainable from sources of information open to him, and verified by him to be true to the best of his knowledge, information and belief." With the exception of certain amendments which are of no importance here, the stock corporation law remained as above stated until April 18, 1899, when it was amended by adding thereto a new section (34), which, so far as it is applicable to the issues involved, reads as follows: "No director or officer of any stock corporation shall be liable to any creditor of the corporation, because of any failure to make or to file an annual report, whether heretofore or hereafter occurring: (1) In case of any debt, as to which personal liability of directors or officers may be or shall have been waived by such creditor, or by any one under whom he claims; or by any provision of any instrument creating or securing such debt; or (2) unless within three years after the occurrence of the act or the default in respect of which it shall be sought to charge the director or officer, such creditor shall have served upon such director or officer written notice of his intention to hold him personally liable for his claim: provided, nevertheless, that any such liability, because of any such default now existing and not waived as above provided, may be enforced by action begun at any time within the year eighteen hundred and ninety-nine or by action begun thereafter, if within such year written notice of intention to enforce such liability shall have been given as above provided."

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Upon the law and facts above referred to, the learned trial court found that the defendant became personally liable for the payment of said debts, and that the plaintiffs were entitled to judgment against him. The judgment entered upon this decision has been unanimously affirmed by the appellate division. Upon this appeal the defendant assails

the judgment herein upon two grounds: (1) Because the findings of the trial court do not include a finding that the plaintiffs, within the year 1899, served upon the defendant written notice of their intention to hold him personally liable for their claims; (2) that there is no finding that the liability of the defendant under the default in filing the report had not been waived by the plaintiffs or the original creditors, or by any provision of any instrument creating such debt. These points involve the construction of the statute of 1899, as well as the sufficiency of the findings. The construction of the statute is before us in two aspects. The first inquiry is whether it applies to the case at bar. The other requires us to ascertain the meaning of its language.

There is no finding as to the time of the commencement of the action. The case on appeal, made up by the appellant, recites tha the action was commenced on February 3, 1899. Counsel for the respondents argues that this is an admission which is equivalent to a finding, and upon this assumption he contends that the statute, which did not become a law until April 18, 1899, has no application to this case. Counsel for the appellant contends that, if the legality of plaintiffs' judgment depends upon the commencement of the action within the year 1899, then this essential fact should have been proven to the court, and embodied in its judgment. This particular question may be briefly disposed of. The judgment recites that the action was tried on the 23d day of November, 1899. An action cannot be tried until after it has been commenced. This action was therefore commenced at some time prior to November, 1899. If it was before April 18, 1899, we have the question whether the statute applies; and, if after that date, the question as to its meaning. Assuming that the action was commenced on the 3d day of February, 1899, as recited in the statement prefixed to the printed record, we think the statute has no application to the case at bar. That portion of the second subdivision of section 34 of the stock corporation law which precedes the proviso therein contained is wholly prospective, and not retroactive. The statute declares that "No director or officer of any stock corporation shall be liable to any creditor of the corporation * * because of any failure to make or to file an annual report, whether heretofore or hereafter occurring,

unless within three years after the occurrence of the act or the default in respect of which it shall be sought to charge the director or officer, such creditor shall have served upon such director or officer written notice of his intention to hold him personally liable for his claim." Section 30 of the stock corporation law contained no limitation upon the time within which the liability of directors therein created could be enforced. The only timitation was found in section 394 of the Code of Civil Procedure, which provides that

an action to recover a penalty or forfeiture, or to enforce a liability created by law against a director or stockholder of a corporation, must be brought within three years after the cause of action has accrued. The liability of a director under section 30 being in the nature of a penalty, actions to enforce such liability were governed by the provisions of said section 394 of the Code. Losee v. Bullard, 79 N. Y. 404; Knox v. Baldwin, 80 N. Y. 610; Duckworth v. Roach, 81 N. Y. 49; Merchants' Bank v. Bliss, 35 N. Y. 412. In Railroad Co. v. Hinchliffe, 170 N. Y. 473, 63 N. E. 545, we said: "This state of the law, prior to the pas sage of the act of 1899, frequently visited severe penalties upon the directors of corporations which had neglected to file their annual reports." Prior to April, 1899, the threeyear statute of limitations could only be set in motion by the occurrence of three things: First, there had to be a debt existing; second, the debt had to be due; third, the default in filing the annual report had to occur during the existence of the debt. Thus a director who was in office when a debt was incurred, but was out of office when it matured, might be liable for the debts of the company because a default had occurred in filing the annual report while he was in office. If such a debt, although in existence at the time of the default, had many years to run before it matured, a director could be sued and held liable long after his ability to make an effective defense had been destroyed or greatly weakened by lapse of time. Morgan v. Headstrom, 164 N. Y. 224, 234, 58 N. E. 26. It was this situation which chapter 354, Laws 1899, was intended to relieve. It first provided "that no director or officer of any stock corporation shall be liable to any creditor of the corporation because of any failure to make or file an annual report heretofore of hereafter occurring * unless with

*

in three years after the occurrence of the default * ** such creditor shall have served upon such director or officer written notice of his intention to hold him personally liable for his claim. * *" The obvious import of the language just quoted is that a director should have notice within three years after the default in making and filing the report of a debt which could not be barred within that time, because not then due. There is nothing in the statute of 1899 which, either in express terms or by necessary implication, affects or destroys causes of action already in suit when the law took effect. Its retroactive provisions relate entirely to the failure to make and file annual reports prior to April, 1899, and as stated in Vineyard Co v. Fritz, 48 App. Div. 238, 62 N. Y. Supp 775, "full effect can be given to its retroactive provisions by construing the word 'heretofore' as applying to defaults which occurred before the passage of the amendment, but as to which rights had not become fixed, and upon which actions have not been brought to enforce such rights." It would, it seems to

with the stubs of his check book, does not discover that the checks have been raised, it relieves the bank from responsibility for checks paid after the account was balanced, as such examination would have disclosed the alterations and prevented subsequent fraud, in the absence of negligence on the part of the bank.

6. Where the clerk of a bank depositor made fraudulent alterations in checks, the depositor is chargeable with the knowledge thereof by such clerk, to whom he intrusted the examination of the vouchers, where a comparison of the checks with the stubs of the check book would have disclosed such alterations to an innocent party previously unaware of the forgeries.

7. The negligence of a bank in paying to a clerk of the depositor a check which was plainly altered by the substitution of the word "Cash" for the name of the payee, and on which the number of dollars was also written over an erasure, without inquiry as to the alterations, renders the bank liable for loss thereby sustained, and contributes to the continuance of similar forgeries by the clerk, so as to defeat the liability of the depositor for loss to the bank from the payment of subsequently raised checks on the ground of his negligence in failing to examine the returned vouchers from the bank.

8. Where a bank depositor sues for the amount of altered checks over and above the sums for which they were originally drawn, it is an action of contract, which is not changed to an action of tort by an allegation of contributory negligence in the reply used to defeat the defense of negligence of the depositor, raised by the answer.

Vann and Martin, JJ., dissenting.

Appeal from supreme court, appellate division, First department.

Action by De Frees Critten and others against the Chemical National Bank. From a judgment of the appellate division (70 N. Y. Supp. 246) affirming a judgment for plaintiffs, defendant appeals. Modified.

George H. Yeaman and George C. Kobbé, for appellant. Benjamin N. Cardozo and A. J. Simpson, for respondents.

CULLEN, J. The plaintiffs kept a large and active account with the defendant, and this action is to recover an alleged balance of a deposit due to them from the bank. The plaintiffs had in their employ a clerk named Davis. It was the duty of Davis to fill up the checks which it might be necessary for the plaintiff's to give in the course of business, to make corresponding entries in the stubs of the check book, and present the checks so prepared to Mr. Critten, one of the plaintiffs, for signature, together with the bills in payment of which they were drawn. After signing a check Critten would place it and the bill in an envelope addressed to the proper party, seal the envelope, and put it in the mailing drawer. During the period from September, 1897, to October, 1899, in twenty-four separate instances Davis abstracted one of the envelopes from the mailing drawer, opened It obliterated by acids the name of the payee and the amount specified in the check, then made the check payable to cash and ised its amount, in the majority of cases,

by the sum of $100. He would draw the money on the check so altered from the defendant bank, pay the bill for which the check was drawn in cash, and appropriate the excess. On one occasion Davis did not collect the altered check from the defendant, but deposited it to his own credit in another bank. When a check was presented to Critten for signature the number of dollars for which it was drawn would be cut in the check by a punching instrument. When Davis altered a check he would punch a new figure in front of those already appearing in the check. The checks so altered by Davis were charged to the account of the plaintiffs, which was balanced every two months, and the vouchers returned to them from the bank. To Davis himself the plaintiffs, as a rule, intrusted the verification of the bank balance. This work having in the absence of Davis been committed to another person, the forgeries were discovered and Davis was arrested and punished. It is the amount of these forged checks, over and above the sums for which they were originally drawn, that this action is brought to recover. The defendant pleaded payment, and charged negligence on plaintiffs' part, both in the manner in which the checks were drawn and in the failure to discover the forgeries when the pass book was balanced and the vouchers surrendered. On the trial the alteration of the checks by Davis was established beyond contradiction, and the substantial issue litigated was that of the plaintiffs' negligence. The referee rendered a short decision in favor of the plaintiffs, in which he states as the ground of his decision that the plaintiffs were not negligent either in signing the checks as drawn by Davis or in failing to discover the forgeries at an earlier date than that at which they were made known to them.

The relation existing between a bank and a depositor being that of debtor and creditor, the bank can justify a payment on the depositor's account only upon the actual direction of the depositor. "The questions arising on such paper (checks) between drawee and drawer, however, always relate to what the one has authorized the other to do. They are not questions of negligence or of liability of parties upon commercial paper, but are those of authority solely. * The question of negligence cannot arise unless the depositor has in drawing his check left blanks unfilled, or by some affirmative act of negligence has facilitated the commission of a fraud by those into whose hands the check may come." Crawford v. Bank. 100 N. Y. 50, 2 N. E. 881, 53 Am. Rep. 152. Therefore, when the fraudulent alteration of the checks was proved, the liability of the bank for their amount was made out. and it was incumbent upon the defendant to establish affirmatively negligence on the plaintiffs' part to relieve it from the conse quences of its fault or misfortune in paying