William Wills and James Wills, Respondents, v. James Rowland & Company, Appellant

William Wills and James Wills, Respondents, v. James Rowland & Company, Appellant. First Department, January 25, 1907. Practice—when judgment by default not opened—failure of proposed answer to allege -defense — party —when liquidating committee of . corporation may defend. • The liquidating committee of a corporation authorized to take all legal proceedings necessary to carry the liquidation into effect are'-offlcers of the corporation within the -meaning of subdivision 1 of section 535 of the Code of Civil Procedure and may defend an action. But when such committee seeks to open a judgment taken by default, its answer must state a defense. When the action was brought upon a promissory note secured by collateral, it is no defense to allege that the holder of the note cohverted -the collateral, if it he not set out as a set-off or counterclaim that -the collateral was of value or that the defendants have sustained .damage. Appeal by the defendant, James.Rowland & Company, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 19th day of December, 1906, denying the defendant’s motion to open a default and vacate a judgment in favor of the plaintiffs entered in said clerk’s office on the 17th day of November, 1906. Hector M. Hitohings, for the appellant. Delos McOurdy, for the respondents. [MAJORITY — Ingraham, J.:] Ingraham, J.: The action was - to recover upon a certain promissory note made by the defendant to the Trust Company of America upon which there was due .$140,000, for which certain stock was .deposited as collateral security, a portion of which was owned and deposited by the plaintiffs. Subsequently the plaintiffs paid the trust company the amount due them and became the owners of the note. This summons and complaint was served upon the secretary of the defendant corporation on the 25th day of October, 1906. The corporation having failed to appear or answer, judgment was entered on the default on November 17,1906. Subsequently., and on the 27th day of November, 1906, a motion was made by counsel who appeared in the action for the defendant for leave to serve an answer on behalf of the defendant, a copy of which was annexed to the moving papers. This answer was verified by George C. De Lacy and Edward L...Lewis, who state that they are a liquidating committee appointed by the creditors and directors -of the defendant. It appears that after the giving of the note to the trust company the creditors and stockholders of the defendant corporation, including the plaintiffs, signed an agreement by which the corporation was to be liquidated, and the board of directors were empowered to appoint a committee who should have full power and authority to carry into effect, manage and conduct such liquidation, and that the committee was to have authority to “ take any and all legal proceedings ■to carry such liquidation into full force and effect.” In pursuance of this agreement De Lacy and Lewis were appointed as a liquidating committee by'the directors of the company, and after their appointment and the commencement by them of the discharge of their duties, but before the note became due, the trust company demanded additional security on the note. Thedefendant not complying with-that demand, the plaintiffs paid to the trust company the amount due on the note, and received the note and the stock deposited as security. I am inclined to think that under this agreement this committee was authorized to defend actions against the company when necessary to properly carry out its 'duties as liquh dating committee. The company had the right to defend the action if it had a defense. The complaint was verified and an answer must be also. Subdivision 1 of section 525 of the Code provides that where a party is a domestic corporation the verification must be made by an officer thereof. The question is presented whether the members of the liquidating committee were officers of the corporation within the meaning of this section of the Code. They were authorized by the agreement under which they were appointed to take any and all legal proceedings necessary to carry the liquidation into full force and effect, and I think they were, if necessary for the proper performance of their duties, authorized to defend the action against the corporation, and were, therefore, “ officers of the corporation ” within that section. (See Matter of St. Lawrence & A. R. R. Co., 133 N. Y. 270.) It is, however, clear that the answer sets up no defense. Assuming that the trust company did not have the right to demand additional security, - if the plaintiffs paid the note and received it with the collateral securities they became the owners of the note and entitled to enforce it when it became due. Tlie noté was dated January 9, 1906, and was payable six months after date. It became due July 9, 1906. The action was commenced in October, 1906. The note was, therefore, due when the action was commenced. The plaintiffs were the owners of the note, and there does not seem any way that the defendant can avoid paying it. The allegation that the plaintiffs had converted the stock deposited as collateral security for the note is not a defense to plaintiffs’ cause of action. It is not alleged as a set-off or counterclaim, nor that it is of any value, or that plaintiffs have sustained any damages. When a defendant asks to be allowed to defend an action in which the judgment has been entered by default, the proposed answer must set up a defense, and as no defense appears in the proposed answer, I think the order should be affirmed, with ten .dollars costs and disbursements. Patterson, P. J., and Laughlin, J., concurred; McLaughlin and Houghton, JJ., concurred in result. Order affirmed, with ten dollars costs and disbursements. ■ Order tiled.