text:
    CHARLES BURLEY and GEORGE BURLEY, Appellants, v. ORSELL H. HARTSON and Others, Respondents.

      General assignment — it need not expressly provide for the preference of claims far wages and salaries, given by section 25 of chapter 463 of 1877, as amended by chapter 828 of 1884.
    In an action brought by a judgment creditor to set aside a general assignment for tbe benefit of creditors, upon tbe ground that it was rendered void by reason of its omission to expressly prefer tbe claims of tbe employees of tbe assignors for wages and salaries due to them as required by section 25 of chapter 466 of 1877, a's amended by chapter 328 of 1884:

      Held, that in all assignments made and executed in pursuance of the provisions of the said act, tbe property transferred is impressed with a trust in favor of the employees of the assignors the instant the assignment is executed and accepted, and it is tbe duty of the assignee to pay the claims for wages and salaries in preference to those of the other ci'e ditors.
    That an assignment by a debtor for the benefit of his creditors, if in no other respects invalid, is not void for the reason that the assignor neglects to provide for such priority of payment in the assignment itself.
    Appeal from a judgment, entered upon tbe decision of tbe Chautauqua Special Term dismissing tbe plaintiffs’ complaint, with costs.
    Tbe action was a judgment creditor’s suit, for the purpose of setting aside an assignment made by Orsell H. Hartson and Chancellor L. Hartson, on the 11th day of June, 1884, to one William Hartson, in trust, for the benefit of the creditors of the assignors. The property assigned was insufficient to pay all the debts of the assignors who were manufacturers of lumber, and owed their employees for wages and salaries. At the time the assignment was delivered the act of 1884, amending the general assignment law, was in full force and effect. No provision was made preferring the payment of the debts due the employees, before the payment of the other creditors. Payment in full of the preferred creditors would consume all the assets, and the employees would receive nothing upon their claims by the terms of the assignment. Some of the judgments owned by the plaintiffs, upon which the action was based, were rendered for demands against the assignors for the wages and salaries of their employees. No actual fraud on the part of the assignors was found by the court, but the plaintiffs claim that the assignment is void because the assignors neglected to prefer the claims due their employees in the assignment itself. The trial court found, as a conclusion of law, that the wages of employees, unpaid at the time of the execution of the assignment, were preferred by the provisions of chapter 328 of the Laws of 1884; that it was not necessary that priority of payment should be expressed in the assignment, and that the omission to do so did not render the assignment void, and directed a dismissal of the complaint.

      Henderson & Wentworth, for the appellants.

      OooTc, Fisher & Wade, for the respondents.
   Barker, J.:

In 1884 the act in relation to assignments of the estates of debtors for the benefit of creditors (Laws of 1877, chap. 466) was •amended as follows:

“ Seo. 29. In ali assignments, made in pursuance of this act, the wages or salaries actually owing to the employees of the assignor or assignors, at the time of the execution of the assignment, shall be preferred before any other debt; and should the assets of the assignor or assignors not be sufficient to pay in full all the claims preferred pursuant to this section, they shall be applied to the payment of the sam& pro rata to the amount of each such claim.”

In the assignment no provision is made requiring the assignee to pay the wages and salaries due to the assignor’s employees and servants in preference to the debts due their other creditors. The appellants contend that, by reason. of the omission to insert such a provision, the assignment is void and should have been so adjudged by the trial court. The question is an important one ■and its determination involves an inquiry as to the legislative intent in mailing the amendment. The original act provides and gives directions as to the form in which assignments by debtors, for the benefit of their creditors, shall be prepared and executed, and the time when and also the manner in which the assignee shall manifest his acceptance of the trust, prescribing many of his duties, and if they are not observed and performed as directed, declaring the assignment void for that reason. The act further provides that -the assignment shall be made a matter of record in the counties where the assigned property is located, and with some detail prescribes the course of procedure to be observed by the assignee in administering the trust, with a view of preserving and preventing a waste or a diversion of the trust funds. It is followed by the declaration that all proceedings under the act shall be deemed to be in the County Court, as a court possessing general jurisdiction over the subject-matter. (Sec. 25.)

The course of procedure marked out in the act is in the nature of proceedings in rem., pending in a court of record, from the moment the assignment is executed, delivered and accepted. The act is limited in its application to general assignments made by debtors for the benefit of all their creditors. It seems clear that the object of the amendment was to secure to employees of the assignor a preference in the payment of their claims over his other creditors. In every ease where the debtor’s estate is transferred in the manner and for the purposes mentioned in the act, and is administered by the court independently of the terms of the assignment, giving directions as to the order of payment to creditors out of the funds derived from a sale of the assigned property, the property transferred is, as soon as the assignee acquires a title thereto, impressed with a trust in favor of the employees of the assignor. The assignee is required to observe the terms of the statute as well as those of the assignment, for the purpose of ascertaining his duties and the order in which he shall pay out the funds derived by and under the assignment. The legislature possesses the unquestioned power to provide the order in which the debts of creditors shall be paid out of the estate of insolvent or deceased persons. The amendatory act does not give a lien on the debtor’s assigned estate in favor of the employees, but its provisions are directory, requiring the trustee, out of the funds, to make payment to them before the other creditors may share in the funds. If the appellant’s construction is the correct one then the act, by force of its own provisions, gives no priority to this class of creditors, and confers no favor whatever upon the employees of the assignor.

A degree of protection and advantage was intended to be secured to a class of creditors who have not the same experience in using the opportunities to protect themselves, as other creditors have in securing preferences in payment from insolvent debtors. If the appellants’ argument should be adopted it would practically defeat the manifest intention of the law. The provisions of the act requiring priority in payment are not directed to the assignor, requiring him to observe the same in making an assignment, but they are intended as a direction to the trustee requiring him to pay this class of creditors out of the funds in his hands without regard to the terms of the assignment, giving him directions as to the use which he should make of the trust funds.

The law is similar to the several acts of congress, securing priority of payment to the United States over other creditors in particular instances. The provisions of those acts are brought forward and codified in section 3466 of the Revised Statutes of the United States, and they are as follows: “ Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority hereby established shall extend as well to cases in which a debtor not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of absconding, concealed or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed.” The federal courts, in giving construction to these laws, have held that whenever the debtor has been divested of his estate in either of the ways mentioned in the statute, the person who becomes invested with the title is thereby made a trustee for the United States, and is bound to pay its debts in the first instance out of the proceeds of the debtor’s property. (Conard v. Atlantic Ins. Co., 1 Pet., 386 ; Beaston v. Farmers’ Bank, 12 id., 102.)

In giving construction to the act we hold: First. That in all assignments made and executed in pursuance of the provisions o.f the said a,ct, the property transferred is impressed with a trust 'in favor of the employees of the assignor the instant the assignment is executed and accepted, and it is the duty of the assignee to pay the claims for wages and salaries in preference to the other creditors. Second. That an assignment by a debtor for the benefit of his creditors, if in other respects valid, is not void for the reason that the assignor neglects to provide for such, priority of payment in tbe assignment itself.

Judgment should be affirmed, with costs.

Present — Smith, P. J., and Bradley, J.; Haight, J., not sitting. •

Judgment affirmed, with costs.


source: Caselaw Access Project

author: Barker, J.:

license: Public Domain

text:
    BARNET B. FLAGLER, as Executor, etc., of WILLIAM FLAGLER, Deceased, Plaintiff, v. ORVILLE H. WHEELER and Others, Defendants.
    JMdence— declarations of an assignor — when inadmissible as against the assignee.

    Upon an application for the distribution of surplus moneys arising upon the foreclosure of a mortgage the claim of the general assignee of the mortgagor was challenged by the owner of a judgment, recovered against the mortgagor after the making of the assignment, upon the ground that the same was fraudulent. Upon the hearing the judgment creditor was allowed to prove the declaration of the assignor, made some days prior to the assignment, to a person not a creditor nor a party to it, tending to establish its fraudulent character.

      Held, that the declarations were inadmissible.
    Appeal from an order of tbe Monroe Special Term directing tbe distribution of surplus moneys in a foreclosure case.
    The matter was referred to a referee to take proofs on tbe questions of fact in dispute, and to report tbe same with bis opinions thereon to tbe court as to tbe facts and the law of tbe case. Tbe referee’s report was confirmed at Special Term, and from tbe order of confirmation Arthur P. Elagler, tbe assignee, appealed. Tbe fact in issue and tbe character of tbe exceptions on which tbe appellant relies for error are stated in tbe opinion.

      H. It. Dwrfee, for Arthur P. Elagler, assignee, appellant.

      Horace McGuire, for Ernest R. Reed, respondent and contesting claimant.
   Barker, J.:

Tbe mortgagor, Orville R. Wheeler, was owner in possession of tbe premises at tbe time of tbe sale. Before tbe foreclosure suit was commenced be made a general assignment of all bis property, including tbe mortgaged premises, to Arthur P. Flagler in trust, for tbe benefit of bis creditors. Within a few days thereafter Townsend,, one of his creditors, recovered á judgment against the assignor, which was duly docketed in the county where the property was-situated. Execution was issued thereon against the property of the-judgment debtor, which was duly returned unsatisfied. This judgment was assigned and transferred to Ernest R. Reid, who is one-of the claimants for the fund based upon his alleged lien. The controversy arises between the assignee for the benefit of creditors- and Reid, the assignee of the said judgment, the latter claiming that-the assignment was fraudulent and void as to creditors. On the-trial of this issue of fact, the learned referee found with the claimant. Reid and the surplus moneys were awarded to him.

The proceedings as between the parties contesting are in the nature of a creditor’s bill, the judgment creditor attacking the-validity of the assignment on the ground of fraud. The rules of' evidence applicable on the trial of an issue of fact in proceedings of this character are the same as on the trial of like issues of fact in an original action brought for the direct purpose of setting aside an assignment at the instance of a judgment creditor, for alleged fraud, on the part of the assignor.

On the hearing attacking the validity of the assignment, the assignee of the judgment was permitted to prove the declarations of the assignor, made some days prior to the assignment to a person not a creditor nor a party to the assignment afterwards executed. This presents the first question argued by the appellant. In substance, the declarations of the assignor, which the referee permitted' to be proved, were made to Henry Reid, whose testimony before the-referee was as follows:

“ I (the witness) told Wheeler that they would sue it (the Townsend note) unless he had security; he said he had no money and’, couldn’t pay it ;• I told him they would sue it and get it in judgment ; he said they would have to sue then, and if they did they wouldn’t get anything; he said he would fix himself in such a way they won’t get anything; on the next day I met him. again and he-said they must not sue him, and if they did they would be sorry.”

The law rejects hearsay evidence for the reason that it is the-statement of a person not before the tribunal, engaged in the trial of the question of fact in issue, uttered without the sanction of an oath, without cross-examination, and without an opportunity to apply those tests which experience has found so requisite to ascertain the truth. The assignor bears no such relation to the controversy as it now arises, so that his acts or declarations, wholly disconnected with the making of the assignment, can be proved against the assignee, who, in his capacity of trustee, represents the creditors of the assignor.

The questions of fact in issue before the referee were not raised for the benefit of the assignee, but were found for and in the-interest of a creditor of the assignor acting in hostility to the-assignment. As between those parties, there is no existing privity of interest.

In Bullis v. Montgomery (50 N. Y., 352) the court, in speairing-of the identity and community of interest existing between the-assignor and assignee, said there was none so as to make the declarations of the former, made before the assignment, competent as-against the latter, and on that subject it was said: “ The latter (the assignee) holds primarily for the creditors, and for these in hostility to the assignor.” It is for these reasons, based upon elementary principles, the declarations of an assignor are held incompetent for the purpose of breaking down the assignment when sought to be-sustained by the creditors.

It is argued on the part of the respondent that these declarations uttered by the assignor should be regarded as a part of the res gestee, and are admissible as original evidence in support of the allegation that the assignment was fraudulent. The learned judge at Special Term concurred in this position, and placed his decision sustaining the referee’s ruling that the evidence was competent on that ground.

In our consideration, the declarations of the assignor having been made prior to the preparation and execution of the assignment, were no part of the res gestee, and were, therefore, erroneously received. There is no dispute or conflict of authority as to the general definition a3 to what constitutes res gestee, so that the same may be proved a3 part of the main fact. When the declarations of a third party are such that they may be proved as original. evidence like any other fact, the rule has been briefly and accurately stated as follows: “ Such a declaration derives credit and importance as forming a part of the transaction itself, and is included in the surrounding circumstances, which may always be given in evidence to the jury with the principal fact. There must be a main or principle fact or transaction, and only such declarations are admissible as grow out of the principal transaction, illustrating its character; are contemporary with it, and derive some degree of credit from it.” (Lund v. Inhabitants of Tyngsborough, 9 Cush., 42.) Every case has its own peculiar distinctive res gestae, and to determine in any particular case, whether or not there is any main fact, and what declarations, facts and circumstances apply to it as forming the res gestae is often very difficult, requiring very careful consideration and nice discrimination.

In the more recent case of Waldele v. New York Central and Hudson River Railroad Company (95 N. Y., 274), the question is discussed in an elaborate and instructive opinion by Mr. Justice ANDREWS, where the leading cases are collated and discussed and a general rule formulated which is in full accord with the one already quoted.

In applying the rule it has been held in this State, that the declarations of the assignor made prior to the assignment were not competent evidence on the issue as to the validity of the assignment, when it arises between the creditors who stand by the assignment as valid and those who attack it on the ground that it was made to cheat and defraud creditors. In the face of the authorities it would seem that the question is no longer open to discussion. (Jones v. M. E. Church, 21 Barb., 161; Bullis v. Montgomery, 50 N. Y., 352; Truax v. Slater, 86 id., 630; Vidvard v. Powers, 34 Hun, 221.).

The case of Von Sachs v. Kretz (72 N. Y., 548) holds nothing to the contrary. It was there held that the declarations of a bankrupt, made before the bankruptcy, were admissible as evidence against his assignee in bankruptcy to establish or support a claim against the estate of the bankrupt, and that a vendee of chattels or an assignee of a chose in action, must be a purchaser for value in order to exclude the declarations of a prior party in interest, from whom he derived title made before such parting with his interest. In that case the validity of a general assignment for the benefit of creditors was not in issue as in this case.

If the assignee who now claims the fund in question was seeking to collect a demand transferred to him by the assignment, and the person against whom the claim was made resisted the payment on. the ground of off-set or discharge by payment, and, in support of his defense, offered the declarations of the assignor made prior to the assignment, then the case cited would be an authority for allowing the declarations to be given in evidence on the issue thus presented. The rule of evidence applied in that case was the same as was adopted in Bond v. Fitzpatrick (4 Gray, 89), where it was held that in a suit against the maker of a promissory note by one who took it when overdue, the declarations of a prior holder, made while he held the note, after it was due, are admissible in evidence to show payment to such prior holder, or any right or set-off which the maker had against him.

It appears that the referee, in disposing of the issue as to the validity of the assignment, placed reliance on the declarations of the assignor, as tending to show a purpose on his part to delay, cheat and defraud his creditors, and in his report refers to these declarations and sets forth the same in substance, and he also, in his opinion, refers to them and remarks that they constitute some evidence of the intent with which the assignor made the assignment.

As it is thus made to appear that the referee in disposing of the chief question of fact submitted to him for his determination, received and acted upon incompetent evidence, the order of confirmation must be reversed and the proceedings remitted to the Monroe Special Term, and the appellant’s costs and disbursements on this appeal are ordered to be paid out of the surplus moneys.

Smith, P. J., Haight and Headley, JJ., concurred.

Order reversed and the report of the referee set aside, with ten dollars costs of this appeal and disbursements, to be paid out of the surplus money, and a new hearing ordered before another referee.


author: Bradley, J.: Barker, J.

text:
    In the Matter of the Petition of the New York, Lackawanna and WESTERN RAILWAY COMPANY, Respondent, to Appraise Certain Lands of Harriet A. Bennett and Others, Appellants.

      Power of the court to vacate an order appointing commissioners to appraise damages— it may do so even though the parties have agreed to he bound by the decision of certain persons named in the agreement, when appointed by the court.

    The petitioner, being desirous of acquiring certain lands owned by the appellants,, entered into an agreement by which the appellants agreed to sell and convey the premises to the petitioner, which agreed to purchase them at a price to be determined in proceedings to be taken, pursuant to chapter 140 of 1850, and the acts amendatory and supplementary thereto, by three commissioners, named in the agreement, who were to be appointed by the court to ascertain and determine the compensation to be made by the company. The persons-named having been appointed commissioners made their report, which was reversed on appeal by the General Term, its decision being affirmed by the Court of Appeals. The matter was sent back to the same persons, the appellate courts holding that they had no power to appoint any persons other than those named in the contract to act as commissioners.
    During the pendency of the second hearing the petitioner moved for and procured an order vacating the order appointing these persons to act as commissioners upon the ground of their misconduct.

      Held, that the court had power to make the order, but that it should be modified by requiring the petitioner to consent to such modification of the contract as would permit the court to appoint three other suitable persons as commissioners, if requested so to do; and that in case the petitioner declined to consent to this modification the order should be reversed. (Barker, X, dissenting.)
    That the court was not required to send the petitioner to a court of equity to there obtain a decree rescinding the contract. (Barker, X, dissenting.)
    Appeal from an order of the Erie Special Term revoking a previous order of tbe same court appointing N elson R. Hopkins, Brigliam Clark and Robert Dunbar, commissioners to appraise the lands in question.
    The order of their' appointment was based upon the petition of the railroad company, which was in the usual form of petitions, under the general railroad act for condemning lands of which the petitioner is unable to acquire title by purchase. The order was in the usual form; as a matter of fact,however, the parties had, previously to the presentation of the petition, entered into a written agreement, under seal, by which the owners were to sell and convey the premises to the petitioner, every matter connected with the sale being fully settled upon except as to the price to be paid for the premises, and for the purpose of determining that, .the contract provided that the petitioner should take proceedings un.der the general railroad act and present a petition to the Supreme Court with all due diligence for the purpose of ascertaining the value of the premises and of the erections thereon, and the compensation which should be paid therefor, and stipulating that the said commissioners should be appointed commissioners “ to ascertain and determine the compensation which ought justly to be made by the company to the parties owning or interested in the property, and that the decision of a majority of them should be as binding upon both parties as the decision of all.” It was further stipulated that, in estimating the valuation and compensation, the commissioners should be governed by the rules of law applicable to proceedings under the statute, except as they were modified by the agreement, and that all rights of appeal given by law were reserved to either party. There were various stipulations in the contract as to the mode and manner in which the property sold might be enjoyed by the owners in the nature of an easement. One of the parties to the contract of sale was also the owner of adjacent property, and the petitioner, by the terms of the agreement, secured an agreement as to a portion of such property, the character of which it is unnecessary to describe. The agreement also provided that the commissioners, in ascertaining and determining the compensation to be allowed, should take into consideration the easement to be enjoyed by the respective parties in the future use of the adjacent property, and also in 'determining the sum to be awarded they might act upon their own knowledge and information as well as upon such evidence as either party might produce. Among the other covenants was one that, when the compensation to be paid was ascertained, the owner should execute a conveyance conveying a perfect title, containing the usual covenants of seizin and for quiet enjoyment. In consideration of the payment of the sum awarded by the commissioners, the owners agreed to convey interests in other property to the railroad company, and the latter stipulated to lay down tracks to an elevator owned by Mrs. Bennett, situated upon the adjacent premises. When the order appealed from was granted tbe commissioners were engaged in a second bear* ing. Their award, upon the first hearing, was set aside by the General Term because it was produced by the application of erroneous principles as was indicated by the reception of incompetent evidence, which was pointed out by the court in its opinion, which is reported in 33 Ilun, 639. The petitioner, on the hearing of that matter, asked the court to appoint new commissioners under the provisions of the general railroad act, which the court refused to do, on the sole ground that it did not possess the power, as the order of their appointment was based upon the contract of the parties. On an appeal to the Court of Appeals from this part of the order, the same was affirmed. (98 N. Y., 447.) The motion to vacate the order appointing the commissioners was founded upon affidavits and based upon the charge and allegation that two of the commissioners, Dunbar and Clark, had received evidence on the second hearing of the same nature and character which this court had ruled erroneous and objectionable, and because two of the commissioners had declared that they would not follow or be governed by the opinion of the General Term, nor follow the rules of law as laid down in its opinion and on other grounds. The order of revocation from which this appeal is taken wholly vacated and set aside the -previous order appointing the commissioners.

      Norris Morey, for the appellants.

      Sherman S. Rogers, for the respondent.
   Bradley, J.:

The leading question presented is one of power of the court to make the order appealed from. The contract between the parties was for the sale and purchase of the premises, and the method of ascertaining the price to be paid was agreed upon; and it may be assumed that it was pursuant to the contract that the proceedings were taken and the commissioners named in it appointed. It is, therefore, contended that the parties were bound by the contract, and that the court in- like manner is required to observe in the proceedings its provisions, and cannot by any judicial action therein defeat its operation and effect on the parties. The contract provided that “ all rights of - appeal given by law shall be reserved to either party.” On the appeal taken from the appraisal and report the General Term held that the court had not the power to order a new appraisal before new commissioners (33 Hun, 639), and that proposition was affirmed by the Court of Appeals. (98 N. Y., 447.) This was put upon the ground that the proceeding was taken in subordination and pursuant to the contract by which the parties had selected and agreed upon the persons who should be appointed the commissioners to make the appraisal, and such stipulation was one of the considerations which produced the agreement for the sale of the property and the other provisions contained in it. And the latter court in that respect remarked that “Mrs. Bennett did not agree to convey her property for a compensation to be fixed by any three persons to be appointed by the court, but for a compensation to be fixed by the three persons named under the precise conditions specified in the agreement, and it would certainly be contrary to the understanding of the parties that she should be compelled to part with the property for a compensation to be fixed in any other way.”

It is, therefore, settled that the court has no power to appoint new commissioners of appraisement in this proceeding, and as a conse-. quence the vacation of the order appointing them effectually defeats the execution of the provisions of the contract between the parties and the consummation of the contemplated sale provided for by it.

And while it leaves the contract unaffected as made between them, it renders it valueless for any practical purpose. It is contended, on the part of the appellants, that the court cannot in this manner relieve a party from the obligation of his contract, and cites The President, etc., of Delaware and Hudson Canal Company v. Pennsylvania Coal Company (50 N. Y., 250), which was an action to recover toll for transportation of the defendant’s coal on the plaintiff’s canal. And it appearing that a contract had been made to the effect that if the parties could not agree on the rate of toll the matter should be submitted to arbitrators to fix the rate, the court held that the agreement was binding, and that on failure to agree on such rate the opportunity of the defendant to submit to arbitration was a condition precedent to the right of recovery. And Allen-, J., in delivering the opinion, said : “ No other mode or manner was thought of or prescribed; and this manner being prescribed necessarily excludes every other method, as clearly and effectually as if the parties bad said in terms that the rate should not be established by a resort to the courts, or in any other manner, except by the parties, or, in case of their disagreement, by disinterested persons to be chosen for that purpose. Expressio unius est exclusio alterius.” Reference is also made to a class of cases holding the familiar rule that the provisions in contracts for the performance of work, that payment shall be made upon certificates of satisfaction of architects or upon estimates of engineers, when made to depend upon them, are conditions precedent, and holding in like manner in respect to contracts fixing the mode of ascertaining the amount to be paid. Also, to cases in which the courts have declared the effect of agreements upon which proceedings are founded, and effectuated the purpose of the parties represented by them.

In McGheehen v. Duffield (5 Penn. St., 497) the party was not permitted to effectually revoke a submission to arbitration, after an award having been made and filed was returned to the arbitrator for correction, and before the corrected award was filed, because the agreement was not one of naked submission but was a contract upon sufficient consideration, and, “therefore, beyond the dominion of either party after its execution.”

In Bank of Monroe v. Widner (11 Paige, 529), where a foreclosure suit before the vice-chancellor (who had been counsel for one of the parties) was, by written agreement of the parties, referred to a solicitor to hear and decide, and by which it was stipulated that a decree should be entered on the decision which was made, and a decree 'entered referring it to a master to compute the amount due, etc. The defendant’s motion to set aside the decreé was denied. The court held that the agreement was binding on the parties, and the defendant had no right to revoke the power of the referee so as to prevent his making the decree of foreclosure and sale on the coming in of the master’s report. The court treated it as an arbitration, and the chancellor said that the defendants might probably have revoked their consent to the submission at any time before it had been heard by the referee and left for his decision ; and that “ it is impossible for the court to set aside that decretal order * * * without making a new agreement for the parties without their consent.”

Our attention has not been called to any cases giving greater support to tbe contention on tbe part of tbe appellants than those already referred to. Tbe contract was voluntarily made between the parties and fairly entered into without any fraud or mistake in any respect so far as appears. And by its terms no right to go to tbe ■court for relief against any of its provisions was reserved. And it is, therefore, urged by tbe learned counsel for tbe appellants,'that •the only right the defendant has is in its execution, and that such is tbe only aid of tbe court which it is entitled to seek. And that tbe power of tbe court cannot be distinguished from tbe legal right •of tbe party.

Tbe proceeding in form is an ordinary one for such purpose taken in court, and has its force as such proceeding in tbe action of tbe •court. Although behind it as between tbe parties there is this contract. Although independent of tbe legal proceeding, it so governs the rights of tbe parties as to make tbe action of tbe court as ■between them pursuant to it, and' on being advised of this contract "the court will observe its provisions in so far as not to permit tbe proceeding to go in violation of its provisions. Hence it was that tbe court held it bad not tbe power to put new commissioners into the proceeding. And the Court of Appeals, in tbe opinion delivered ■on tbe former appeal in this case, said that “ tbe agreement of the parties bound them and concluded the court in that proceeding, and tbe •court was bound, as between tbe parties, to observe, enforce and carry •out tbe agreement. * * * Here tbe agreement of tbe parties was •a factor which tbe court was bound to recognize and to give proper weight and significance. Whatever in that agreement bound tbe parties bound it.” These views had reference to tbe proceedings ■taken and which might be bad in tbe matter. And thus far there •can be no question that tbe parties in going forward with or in that proeeeeding, must observe the situation and relation which they had assumed by their contract, but that is not the precise question here. The inquiry now arises whether the court may, for reasons which appear to it, decline to entertain the continuance of the proceeding in the manner stipulated in the contract.

In the consideration of this question it must be borne in mind that the proceeding is an independent one in court, founded upon a petition in the usual form, and has all the appearances of legal procedure usually attending those for such purpose. The contract is no part of its record. It is only the monitor which the parties have themselves created for their direction in particular respects, and while the court will not permit them to proceed in violation of it in the proceeding so taken, it may decline to be the instrument to do so through the forms of law when adequate reasons are brought to its attention, why it should not lend its aid in that direction. It was in that view that the Court of Appeals, by the opinion of Judge Earl, further declared : “ It is undoubtedly true that the court at Special Term was not bound to appoint the three commissioners named by the parties. It could have refused to appoint them, and have left the parties either to abandon their agreement or to carry it out in some other wajn” It may be said this was obiter. And it is true that it was not necessary to the decision of the case, but the discussion involved the consideration of the powers of the courts in legal proceedings, and we think the proposition was a correct and fundamental one as applied to the legitimate power of the courts, and it is fairly within the duty of the court to deny to a party that which it has become satisfied will be improvident, unjust or unreasonable, even if the application upon which the proceeding is founded is a stipulation of the parties whicü binds the other party, and who can only suggest to the court reasons why it should not be executed through the form of legal proceedings. The cases cited on the part of the appellants have relation to the effect upon the parties of agreements between them, and to the observance by the courts of the conditions to relief which they contain, and that a remedy will not be given by the courts in violation of them or only through their execution. They have no application here, except as relates to the obligation which the contract creates as between the parties. This contract has not been executed by any order or judgment of the court founded upon any award. The proceeding has been initiated by the order appointing the commissioners. The petitioner suggests to the court alleged reasons why it should not further entertain the proceeding, because the appointment of the commissioners named, as it has turned out, was ill-advised and improvidently made. If that is the situation it is difficult to see any want of power in the court to vacate its order. What it may decline to do originally it may effectuate by withdrawing its support which has been given to an action or proceeding by its process or order. The legal right of a party is to make suggestions to the court for its action in that respect, which does not depend upon the legal right of the party to be relieved from his contract, but upon that of the court to control its proceeding and action in so far as in its judgment the right of the party as recognized by it may require, and in so far as not to permit the' •proceeding to be taken to a result in violation of the contract which may be binding on the parties. The order in question does not interfere with the contract as made-between the parties, and it must ■ be assumed that it stands binding upon them until rescinded, which, ■if the order is sustained, the appellants may accomplish, as its performance is defeated by the refusal of the court, by its order,- to : entertain the proceeding contemplated by it, on the application and at the instance of the petitioner. The situation of the parties by ■force of this order is that in which they were placed by the con•tract after it was executed and before the original order was made. If the cause was sufficient to justify the conclusion that the com•missioners were not suitable persons for the performance of the judicial duties required of them as such, we think the court had •the power to vacate the order of their appointment, and do it in the •proper sense of the term, which does not distinguish power from 'duty of the court in the administration of justice. This power of ■the Special Term of vacating such orders in statutory proceedings '.of this character has with approval been exercised (Matter of N. Y. C. and H. R. R. R. Co., 5 Hun, 105; S. C., 64 N. Y., 60) and is deemed a matter of discretion. (In re P. P. and C. I. R. R. Co., 85 N. Y., 489.)

Our attention has been called to no case presenting the situation -produced by this contract where such order has been made. The 'case in that respect is novel perhaps, but it is not seen, how that ■feature affects the power, and in a proper case the duty of the court to stay the pi’oceeding in it and leave the pai’ties either to abandon 'their agreement or to carry it out in some other- way.” This is within the inherent powers of the court. (Lowber v. Mayor, 26 Barb., 262; Baldwin v. Mayor, 42 id., 549.) In Beddow v. Beddow (L. R., 9 Ch. Div., 89; S. C., 25 Moak, 786) it was held that the court would restrain by injunction an arbitrator from acting in any case in which, in the' opinion of the court, he is unfit or incompetent to act. And substantially the same was held in Malmesbury Railway Company v. Budd (L. R., 2 Ch. Div., 114). Those were actions in equity. This court at Special Term may exercise equity powers upon motions in actions or proceedings in the court where the question upon which relief depends can in that manner be presented to the satisfaction of the court, and the question is one of propriety rather than power whether the motion will be entertained or the party asking the relief be put to his action. And this discretion is governed much in such cases by the character of the matters involved and the nature of the controversy presented. (Wetmore v. Lam, 34 Barb., 515-517; Smith v. McCluskey, 45 id., 617; Hale v. Clauson, 60 N. Y., 341.)

There seems to be no substantial reason why the motion was not •a proper remedy for the purposes in view. The court has control •over its own orders, judgments and proceedings, and may exercise its power in that respect at the instance of any person whose rights .are or may be injuriously affected by them within well recognized limits. The court was not required, by the fair exercise of its judgment, to send the petitioner to its action in equity to embrace, within the controversy and the relief sought, the question of rescission of the contract. That was a matter wholly between the parties and was no part of the legal proceedings and over it the •court had no control. The effect upon it was the proper subject of consideration upon the motion, but not necessarily the governing one, and the granting the order did not necessarily require the judicial conclusion that the contract should be annulled.

The fact that the award the commissioners should make, if they proceeded to that result, would be final and conclusive, was not an unimportant one for the consideration of the court upon the merits ■of the application. This finality is a qualified one and goes to the right of review by appeal only. (In re Mayor, etc., 49 N. Y., 150-154.) And does not take away the restricted right of motion to set aside the award for irregularity, fraud or misconduct of the commissioners. (Matter of N. Y. C. and H. R. R. R. Co,, 64 N. Y, 60; Matter of P. P. and C. I. R. R. Co., 85 id., 489.)

This is a right incident to all judicial proceedings and actions for the protection against wrong and injustice arising out of circumStances wliieh go to the disclosed motives, irregular conduct or action of a judicial body. And is fundamental.

But a party is not required to wait until action is taken and judgment announced before taking steps for relief, if he is advised that reasons exist why he should not be subjected to the action of those who are vested with judicial power, if such reasons so relate to their quality or fitness as to reasonably give apprehension that the result may not come from their impartial judgment or from a proper appreciation of their duties. (Beddow v. Beddow, supra.) A party may waive any interest in a person selected for a judicial duty, except, perhaps, that arising out of consanguinity to one of the parties (Oakley v. Aspinwall, 3 N. Y., 547; Chambers v Clearwater, 1 Abb. App. Dec., 341); but it is assumed, until the contrary appears, that when vested with such power it is upon the faith and with the understanding that no relation or interest will exist or intervene to interrupt the exercise of his impartial and unbiased judgment. The causes which are asserted as the reason for the application made by the petitioner have relation to two only of the commissioners. It cannot now be demonstrated that their judgment would not be fairly exercised, or that the result they would give to the proceeding before them would not represent exact justice between the parties. It is upon apprehension only that the moving party and the court can act; that may depend upon circumstances which do not reflect upon the moral quality of the persons, and no such imputation necessarily results from the order in question. The alleged causes which induced the motion did not exist or were not known by the petitioner at the time the order of appointment was made. And while they may not be decisive of the impropriety of continuing the hearing to a result before them, we are not prepared to say that the discretion of the Special Term was not fairly exercised in view of all the circumstances presented by the record. And without here referring to them in detail, w'e are inclined to think they were sufficient to justify the conclusion there reached. But the agreement of the parties should not fail in other respects for want of means of performance, if the appellants desire to have it consummated.

This can be done by such modification of the contract, by consent, as will authorize the court to appoint other commissioners to carry it out. And if they do not desire this and want the contract, rescinded, the petitioner should consent and do what may be necessary on its part to accomplish it.

The order in granting the motion should be so modified as to require the petitioner to consent to such modification of the contract as will permit the court to appoint three other suitable persons as commissioners, provided application is made to its attorneys, and they are requested to do so by the attorneys for the appellants within ten days after service upon them of a copy of the order entered upon the decision of this appeal. And if they refuse on Such application and request to give such consent, the motion should be denied with costs, and as so modified the order should be. affirmed, without costs.

Haight, J., concurred; Smith, P. J., not sitting.

Barker, J.

(dissenting):

It has already been determined in these proceedings by the decision of the highest court in the State, after a full and deliberate consideration of the question, that the commissioners appointed by this court on the stipulation of the parties as contained in their written agreement, cannot be removed without their consent, except for a cause sufficient in law for the termination of the contract. The discussion on that question is over, and the decision is adverse to the views and argument of the learned counsel for the respondent. It is the duty of this court to recognize and follow the legal proposition involved in that determination. (In re N. Y., L. and W. R. Co., 98 N. Y., 447.)

The parties to the agreement for- the sale of the lands made it one of the terms of their agreement that the consideration to be paid therefor by the company should be determined by the individuals who were named as the commissioners in the order of their appointment. If for any cause occurring since their appointment they have become disqualified to act iu the capacity conferred upon them by the contract, then it is obvious, and it needs no argument to prove, that neither party is under any legal obligation to observe and perform any of the provisions of the agreement. If the order appealed from is allowed to stand, the necessary effect will be to terminate the agreement and relieve both parties from its performance.

None of tbe grounds upon wbicb the revocation is based existed at the time the order was granted, nor is it pretended that either party or the court was deceived, misled or defrauded in consenting to the appointment of the persons named as commissioners, or as to the form in which the order was entered. The contract contemplated that the court would give its consent to the appointment of the commissioners, and as this has been done in the precise manner marked out in the agreement, it is obviously fair and just, with a view to the full protection of the rights of both parties, that the order should not be revoked and set aside, unless at the same time and in the same proceeding, and by a court of competent jurisdiction, the contract for the sale of the premises is also declared to be at an end and both parties relieved from all their obligations created thereby. It would be manifestly unreasonable for the court to declare that the contract remains in full force and binding on the parties after they had been deprived of the means .mutually adopted for the purpose of ascertaining the consideration which the company -should pay to-Mrs. Bennett for the property which is the subject of the contract.. In no other way than by an appraisal by the persons named can the value of the property be '.determined so as to enable the parties to carry out the terms of their .executory agreement. In this connection we may quote freely from the opinion of Mr. Justice Earl on this point, which is as follows: Mrs. Bennett did not agree to convey her property for a compensation to be fixed by any three persons to be appointed by the court, but for a compensation to be fixed by the three persons named under the precise conditions specified in the agreement, and it would certainly be contrary to the understanding of the parties that she should be compelled to part with the property for a compensation to be fixed in any other way. It is true that all rights of appeal given by law were reserved to either party, but we cannot infer from that language that it was expected by either party that the commissioners should be changed, that would defeat the whole scheme of the arrangement between them. If the court could upon appeal change the commissioners very little was gained in the first instance by naming the commissioners who were to make the appraisal. * * * Here the agreement of the parties was a factor which the court was -bound to recognize and give proper weight and significance. Whatever in that agreement bound the parties bound it (the Supreme-Court), and it did not err in holding that it could not, in violation of the agreement of the parties, appoint new commissioners. The railroad company cannot claim the benefit of a part of the agreement and repudiate the rest. If it desires to change the commissioners-it must in some way get rid of the entire agreement.”

In our consideration of the question thus presented, the court-at Special Term did not possess the power in the summary manner-adopted, to vacate the order of appointment. It was but a way adopted for the purpose of securing the removal of the commissioners, who had become objectionable to one of the parties. As the order-was entered with the consent of the parties, and they, by their-agreement, conferred upon the commissioners powers and duties-which they would not possess under a statutory appointment, the-order is in its nature and effect final and conclusive on the questions-which it determines.

It does not follow from these views, nor do I intend to assert that the court is without power to control the action of the commissioners and set aside their report, when one is made, for fraud, irregularity or mistake. It belongs to the essential and inherent powers of this court to exercise an efficient and supervising control-over every proceeding pending therein, to protect every suitor from fraud and injustice, and it will protect itself from being made the-instrument of wrong and compel its subordinate officers receiving-appointment from its hands to observe the law involved in the controversy between the parties. (In re N. Y. C. and H. R. R. R. Co., 64 N. Y., 60; In re P. P. and C. I. R. Co., 85 id., 489 Baldwin v. Mayor, 42 Barb., 549.)

The question which we now have before us is not as to the-power of this court to supervise the proceedings which may be had under the order, and to correct error in procedure on the-part of the commissioners, and set aside their report for fraud and misconduct; but the real question is as to the power of the court" to vacate its previous judgment entered on the agreement of the-parties. Where the court has jurisdiction over the subject-matter-in dispute, that is, in such a case the consent of the parties may authorize the court to render a valid judgment in accordance with.. them agreement, and the parties will be bound thereby, although in, a contested case the court would not render such a judgment on the same state of facts. A judgment thus entered upon the consent of the parties given in open court must, in all subsequent proceedings, be regarded by the court as sacred and conclusive in all respects as if the judgment had in every particular been specially directed by the court on a state of facts determined by the-court upon the evidence produced before it, sufficient in the law to authorize the judgment entered. (Bank of Monroe v. Widner, 11 Paige, 529 ; Hunt v. Hunt, 72 N. Y., 217; Fletcher v. Holmes, 25 Ind., 458; Stratton v. Stratton [Me.], 1 East. Pep., 579; The Monongahela Nav. Co. v. Fenlon, 4 Wats. & Searg., 205.)

The power of the court to vacate its own judgment for fraud* mistake, irregularity or illegality is unquestioned. There is no pretense in this case that any fraud or deceit was practiced on either party for the purpose of procuring their consent to the entry of the order, and no irregularity or mistake in the form or entry of the same is suggested. The alleged misconduct of the commissioners^ which was recognized by the Special Term as disqualifying them and justifying their removal, occurred after their appointment and since the first hearing. If the commissioners, or either of them, have been guilty of corruption or misconduct, or for any other cause have become disqualified to act, a court of equity possesses the undoubted power to intervene, upon the application of an aggrieved party in a proper suit, and declare the contract at an end for the-reason that it has become impossible to carry the same into effect according to the intention of the parties; and such a result would, in and of itself, vacate the order.'

The clause in the contract agreeing that the consideration to be paid for the premises should be determined by the commissioners-may be considered as being in the nature of an arbitration. Execu-tory agreements of this character are often revoked by operation of law. Such a result occurs from the legal effect and necessary consequence of some intervening event, either providential or caused by the act of one of the parties, such as the death or insanity of the arbitrator, or by his becoming interested in the subject matter of the litigation or by his fraudulent conduct or misbehavior. The law assumes that parties in making such contracts .enter into the same having in mind such contingencies, and when they do happen as consenting that the agreement may be canceled at the instance of either party. (Morse on Arbitration and Awards, 233, 235; Potter v. Sterrett, 24 Pa. St., 411; Suttons v. Tyrrell, 10 Vt., 91; Beddow v. Beddow, Law Rep., 9 Oh. Div., 93; Malmesbury Railroad v. Budd, 2 Ch. Div., 113.)

In the English cases just cited the disqualifying act occurred after the arbitrators were appointed, and they were removed by the decree of a court of equity in a suit instituted for that purpose and before they had made any award disposing of the questions submitted to their consideration.

The rescission of a contract for adequate cause occurring before.' qr after its execution can only be decreed by a court of equity, and such relief cannot be obtained in a court of law. It is not contended by the respondent that the contract in question can be disturbed in ■ whole or in part by any relief which this court has power to grant in these proceedings, and I have reached the conclusion that as the order for the appointment of the commissioners has its foundation in the agreement and was entered on the consent of the parties it is final as between the parties thereto, and can be vacated and annulled only by a suit instituted for that purpose in a court of. equity.

I have examined all the other cases which have been brought to my attention, where courts have removed umpires and arbitrators for corruption and for other causes, and I find that the relief secured was in a court of equity jurisdiction. In many instances where commissioners or arbitrators have been nominated by the court or selected with the consent of the parties, in statutory proceedings, they have been removed on motion on the application of an aggrieved party, but they are not in point on the question whether the court can interfere when the order appointing arbitrators or commissioners is based upon the agreement of the parties and founded upon a good and valid consideration as in the case before us.

The circumstance, to which an allusion has been made, that if the commissioners are not removed and they are permitted to proceed and maleo an award, it will be final and conclusive upon the parties, as no right of appeal is given from a second award, has been considered and I fail to perceive how it can make this case an exception to the general rule that questions of this character and gravity must be disposed of by action in a court possessing appropriate jurisdiction.

Order modified, as indicated in the opinion of Rjíadley, J., and as so modified affirmed.


author: Haight, J.: Bradley, J.,

text:
    AUGUST HAAS, Respondent, v. THE BUFFALO, NEW YORK AND PHILADELPHIA RAILROAD COMPANY, Appellant.

      Negligence — what rishs a servant assumes when entering the employment of a railroad company.

    The plaintiff was employed hy the defendant to work in its yards in breaking up and switching cars from one 1rack to another, it being part of his business to go up to the Lackawanna spur, which was a track leading from the defendant’s road to the Lackawanna road, and do the work necessary to transfer cars from one road to the other. Where the roads cross each other there are placed at the intersection of the inner rails what are called frogs, opposite to which are placed guard rails to keep the cars from leaving the track at the opening in the inner rails. These guard rails are from twelve to fifteen feet long and have to he placed from two and one-half to three inches from the main rail at the frog, and from four to five inches therefrom at their ends.
    It was claimed hy the plaintiff that while employed on the evening of December 16, 1883, in transferring cars at the Lackawanna spur, his heel slipped in between the guard rail and the main track, and that before he could extricate himself the car passed over him cutting off his legs. The evidence was conflicting as to whether or not it was the duty of the defendant to have caused blocks to be placed between the guard rails and the main track. The plaintiff knew at the time of entering into the defendant’s service that such blocks were not used in its yard.
    The defendant’s counsel requested the court to charge that “ the plaintiff having entered the service of the defendant with its guard rails unblocked and in practically the same condition that the guard rail in question was at the time of the accident, and the guard rails being in plain sight and the plaintiff having continued in the service of the defendant with the guard rails in that condition, he assumed the apparent risk incident to their existence in the performance of his duty, and cannot recover;” and also that “the accident which caused the plaintiff’s injuries was, under the circumstances of this case, a risk which he assumed and for which the defendant is not liable.”

      Held, that the court erred in refusing so to charge.
    (Bradley, X, concurred in the result, upon the ruling of the trial court to the effect that if the plaintiff did not have actual knowledge of -and had not seen the particular guard rail at which he received the injury, he was for that reason permitted to recover although he was familiar with other guard rails in the yard in like manner constructed.)

      Appeal from a judgment, entered upon a verdict at the Erie Circuit, and from an order of the Erie Special Term denying a motion for a new trial made upon a case and exceptions.

      J. G. Milburn, for the appellant.

      JEL. J. Swift, for the respondent.
   Haight, J.:

The plaintiff was in the employ of the defendant as drawbarman j he was engaged as one of a gang of men whose duties were to take a train of cars when it arrived, break it up, switch the cars upon the tracks on which they could be unloaded, and to gather up cars and make up trains to go out upon the road. It was a part of the plaintiff’s business to go up to the Lackawanna spur, which was a track leading from the defendant’s road onto the Lackawanna road, and to do the work necessary to transfer cars from one road to the other. "When he first engaged in the defendant’s employ he worked day-times, afterwards he was engaged to work nights in the defendant’s yard. It was his duty to handle the drawbar of the engine, to couple it on and uncouple it from cars, to throw the switch and, when required, to couple and uncouple cars from each other. The Lacka-wanna spur was the last switch farthest out in the defendant’s yard. On the 16th day of December, 1883, at about seven o’clock in the evening, the plaintiff, in company with the other members of the gang with which he worked, was engaged in pulling a pin to cut off a car on the Lackawanna spur. As he stepped back he stepped on to the guard rail, when his heel slipped in between it and the rail of the main track; he fell down and the car passed over him cutting off his legs.

Upon the trial it was claimed that the defendant was guilty of negligence for the reasons: First. That the guard rail was n-ot properly constructed. Second. That it was not blocked between the guard rail and the rail of the main track. At every place where there is a switch by which one track enters another, the inner rails have to cross each other thus necessitating an opening through those rails. The device by which this is accomplished is known as a frog. Opposite these frogs guard rails have to be placed so as to keep the cars from leaving the track at the opening in the inner rails. These guard rails are from twelve to fifteen feet long and have to be placed from two and one-half to throe inches from the main rail, opposite the frog, and then they deflect toward the ends so that they are four or five inches from the main rail. This 'permits the flange of the wheel of the approaching car to enter between the guard rail and the rail of the main track and pass through. The evidence given on the part of the plaintiff is to the effect that the plaintiff’s foot was caught in the guard rail opposite the frog of the Lackawanna spur at about two feet from the west end of the guard rail. That at this point it was about three inches or three and one-sixteentli inches from the main rail; that there were a large number of guard rails in the defendants yards, placed about the same distance from the main rail. That in the examination made of them some were found to vary a little; one was found to be about two and three-fourth inches from the main rail and another to be three and one-half inches. The distance however in each guard rail varied in going from the end to the center of the rail. "We fail to discover any evidence tending to show that the guard rail in question was improperly constructed, when we bear in mind that the end of the rail must be deflected from the main rail a sufficient distance so that the flange of the -wheel cannot catch upon the end, and that the place where the plaintiff’s foot was caught was within two feet of the end. All of the roadmastérs and experts speaking upon the subject have left us to understand that three inches at that point would be about the necessary and approved distance for placing the guard rail.

We are, therefore, unable to discover any negligence chargeable upon the defendant as to the construction of the guard rail. As to whether or not it was the duty of the defendant to have caused blocks to be placed between the guard rail and the rail of the main track, a different question is presented. Some of the witnesses were of the opinion that the use of blocks was. practical, and that they rendered them safer in this regard, whilst other witnesses were of the opinion that the passing trains soon, loosened the blocks and rendered them dangerous, and that they did not make the track safer for the employees working thereon; that several instances had occurred on roads where the blocks were in use, of employees getting their feet caught and injured; that in the use of blocks they have to be made thin so as to leave space for the flange of the wheel to ' pass through ; that the flange of the wheel extends down below the ball of the rail, so that the sole of the boot is still liable to be caught and held under the balls of the rail. It was the duty of the defendant to adopt the apjiroved mode of construction in general use. Some of the railroads had adopted blocks to a limited extent and some had not. The defendant had not adopted them. As to whether or not their use would have rendered fell© tracks safer would doubtless have been a question for the jury, had it not been for the fact that the plaintiff in entering the employ of the defendant did so at a time before the blocks had been adopted by the defendant or used in its yards, and knowing that they were not in use.

At the conclusion of the evidence the defendant’s counsel requested the court to charge that “the plaintiff, having entered the service of the defendant with its guard rails unblocked, and in practically the same condition that the guard rail in question was at the time of the accident, and the guard rails being in plain sight, and the plaintiff having continued in the service of the defendant with the guard rails in that condition, he assumed the apparent risk incident to their existence in the performance of his duty, and cannot recover.” Also, that “ if the jury shall find that at the time the plaintiff entered the defendant’s employment the guard rails, on that part of the road where he worked, were unblocked, and practically in the same condition that the guard rail in question was at the time of the accident, and that he continued in that employment with the guard rails in the same condition up to the time of the accident, he cannot recover in this action.” The defendant’s counsel also requested the court to charge the jury that the accident which caused the plaintiff’s injuries was, under the circumstances of this case, a risk which he assumed and for which the defendant is not liable.” The court refused to charge either of the requests and to such refusal the defendant duly excepted.

In the case of Gibson v. The Erie Railway Company (63 N. Y., 449) it was held that where a servant enters upon employment from its nature necessarily hazardous, he assumes the usual risks and perils of the service and also those risks which are apparent to ordinary observation. If he accepts service with knowledge of the character and position of structures from which employees might be liable to receive injury, be cannot call upon bis master to make alterations to secure greater safety, or in case of injury bold bim liable; that the defendant was not liable for the death of a conductor of a freight train who was struck and killed by a projecting roof of a depot building where be bad been for a long time familiar with the depot and the road passing it.

In the case of De Forest v. Jewett (88 N. Y., 264), it was held that the defendant was not liable for the death of a switchman and car-coupler, caused by stepping into one of the sluices and falling under the cars whilst working in a freight yard drained by a system of small, open ditches running across the tracks between the ties, which were in existence when he entered the employment, and remained without any change or alteration, every one of which was well known to him. Approving the rule laid down in the case of Gibson v. The Erie Railway Company (supra) ; Lovejoy v. Boston and Lowell Railroad Company (125 Mass., 79).

These guard rails wer.e open, visible structures at the time the plaintiff entered the defendant’s employ. They were located within the yard in which he was engaged to work. They were not blocked, and he knew that they were not. The only possible theory upon which a distinction can be made from the cases referred to, is that he did not know of the existence of this particular guard rail.

Upon his direct examination he testified that he had never been on that guard rail before, or done any braking or business over it. He then says: I did not know whether there was a guard rail there or not, or what condition it was in.” He, however, knew that there were guard rails opposite to each frog. He knew what they were for, and their shape; had seen scores of them. On his cross-examination he testified that it was a part of his business to go up to the Lackawanna spur; “if there were cars to go there to be put on the Lackawanna road, or if we wanted cars from there, it was my business to go there and do that work just as much as in any other part of the yard; that spur was there when I first went to work; 1 first saw the spur in the first part of the time I worked there nights / 1 saw itthe?'e, and knew it toas there ; I had never been on the spur before the accident.” So that it would appear whilst he had never been on the spur before, he had seen it and knew of its existence.

It consequently appears to us that he did know of the existence of tbis guard rail. He bad seen and knew of tbe existence of tbis track running from tlie defendant’s road on to the Lackawanna road. He was engaged at work upon tbis spur track at tbe time of the accident. Of necessity there bad to be a switch, a frog and guard rails at that point. We fail to see bow tbe case is distinguishable from either of tbe above cases, or why the same rule should not prevail.

Again, we question tbe right of tbe plaintiff to recover, even though be did not have actual knowledge of tbe precise location of tbe guard rail in question. It being an open, visible structure, be is deemed to have assumed tbe risk in bis contract of employment. Had he stubbed bis foot against tbe rail and fallen be would hardly be excused from contributory negligence by saying that be did not know that tbe rail was there.

Tbe judgment should be reversed and a new trial ordered, with costs to abide event.

Smith, P. J., and Barker, J., concurred.

Bradley, J.,

concurs in tbe result upon tbe ruling of tbe trial court to tbe effect that if tbe plaintiff did not have actual knowledge of and bad not seen tbe particular guard rail at which be received tbo injury, be was for that reason permitted to recover, although be was familiar with other guard rails in tbe yard in like manner constructed.

Present — Smith, P. J., Baeeee, Haight and Beadley, JJ.

Judgment and order reversed and new trial ordered, costs to abide event.


author: Haight, J.:

text:
    EDWARD J. KELSEY and Others, Respondents, v. JAMES SARGENT and Others, Appellants.
    Corporation— action by a stockholder to prevent waste of its funds — when it need not be preceded by a demand upon the officers of the company to bring suit —power of the board of directors — when they cannot terminate a contract, terminable at the election of the company — they cannot fix their own salaries.

    In an action brought by certain stockholders of a corporation to set aside as fraudulent notes given by tbe corporation, and a judgment entered thereon, and an order appointing a receiver of tbe corporation, it is not necessary to show that tbe plaintiffs have first demanded of tbe officers of tbe company that they should bring the action, when it appears that the parties charged with the misconduct included the president, secretary, treasurer and a director of the corporation, and that the relief sought was the vacating of claims made by and allowed to themselves by the directors.
    Prior to an annual election held in 1883 the company had entered into a contract with one Sargent, by which, in consideration of the transfer to him of 300 shares of the capital stock of the company, he agreed to pay into and furnish the company with $5,000 in cash and, at his own expense, to construct and furnish apparatuses for those desiring the same for which he was to receive the royalties collected thereon for one year.
    The contract also provided that in case the company should choose to consolidate with any other company, it should have the right to terminate the agreement, at any time, by reimbursing Sargent for his expenses incurred in placing the apparatus, relieving him from all guarantees outstanding and paying him the sum of $5,000. After the election, at which the defendants were chosen directors, and the said Sargent was made president, a resolution was passed terminating the agreement, Sargent receiving a promissory note of the company for $6,253. (2, $1,252.12 of which was for the disbursements made by him under the contract, and $5,000 of which was for the sum which the company had agreed to pay in case it should decide to consolidate with another company and terminate the agreement.

      Held, that in the absence of any authority conferred upon them by a meeting of the stockholders, authorizing a consolidation of the company with some other company, the directors had no authority to terminate the contract or give the company’s note to Sargent.
    The day after the election of the directors a meeting was held at which five directors were present. The defendant Sargent was elected president and treasurer, and the defendant Puffer secretary. ' On motion of the defendant Markham, a salary of $5,000 per annum was unanimously voted the president, and on motion of one Pfaudler, a salary of $3,000 was voted to the secretary.

      2eld, that as it appeared that the officers who were to receive the salaries took part in the proceeding, the action of the board was invalid.

      It seems, that a board of directors cannot, in the absence of express authority so to do, fix the salaries to be paid to members of the board while acting as officers of the company.
    Appeal from a judgment in favor of the plaintiffs, entered upon tbe report of a referee in Monroe county.

      J. <& O. Van Voorhis, for the appellants.

      Theodore Bacon, for the respondents.
   Haight, J.:

This action was brought by the plaintiffs, as stockholders of the Pfaudler Process Fermentation Company, to sot aside and vacate a promissory note for $17,499.49, purporting to have been executed by the vice-president and secretary of tlie company, payable to the order of James Sargent, the president; and also another note purporting to be executed by the president and treasurer and vice-president of the company for $3,383.17, payable to the order of the defendant Charles C. Puffer and the judgment entered thereon, the order appointing a receiver of the corporation and of all subsequent orders and proceedings in the action.

It is contended that no demand was made by the plaintiffs before this action was brought, that the officers of the company bring a suit to set aside the notes and judgments entered thereon. Assuming, for the sake of the argument, that the rule is that such a demand must be made as a condition precedent to the right of a stockholder to bring and maintain the action, or in lieu thereof that they have exhausted all means within their reach to obtain redress of their grievances, and that under the circumstances of the case the demand would have been of no avail; even then we are of the opinion that the plaintiffs may properly maintain the action. True, it does not appear that any express demand was made that the officers of the company should bring the action. It, however, appears from the evidence that the plaintiff Kelsey had, on several occasions, asked of the defendant Sargent and others, officers of the company, for information in reference to the conditions and transactions of the company, and had been refused such information j that when it was proposed to issue the bonds of the company for the purpose of raising funds to pay and discharge the alleged indebtedness for which these notes were given, he protested against such issue and immediately after hearing that the notes in question had been given, he went to the Traders’ N ational Bank and warned the cashier against discounting the notes, advising him that he should contest the payment thereof. It was alleged in the complaint that the defendants Sargent, Puffer, Markham, the Traders’ National Bank, Matthews and Hawley confederated and conspired together to--defraud the company out of its property, and to defraud the plaintiffs out of their interest therein; that the board of trustees, with the exception of the defendant Pfaudler, was wholly under the control of the defendants Sargent and Puffer; that it was impossible to procure any action of the company for maintaining its rights, or those of its stockholders, against the fraudulent devices of its officers, and that the plaintiffs, as stockholders, were without remedy, except by the interposition of this court upon their complaint. The conspiracy charged is, that the defendant Sargent, as president and treasurer, Puffer as secretary, Markham as director, and others, conspired together to defraud, etc. It was the action of these officers that the plaintiffs complain of. The notes were given to these officers. The demand that action be brought would necessarily have to be made to these officers. The action, if brought by them, would have been to set aside their own claims. TJnder these, circumstances we are of the opinion that the plaintiffs were excused from making the formal demand, and that they had exhausted all the means within their reach to obtain redress before bringing the action within the rule as above stated.

In the case of Fisher v. Andrews (37 Hun, 176), a similar question was considered by this court, and it was then held that it was necessary that the stockholder should first request the receiver to-prosecute the action; but if it was made to appear that the receiver was in league with the other defendants, or had been guilty with them in misappropriating the funds of the company, that that would be received as a sufficient excuse for not applying to him to prosecute the action.

In the case of Brinckerhoff v. Bostwick (88 N. Y., 52), it was held that in case the receiver of the company was one of the directors chargeable with neglect of duty, the action may be maintained by the stockholders, and that it was not necessary to allege in the complaint, in such an action, a demand upon him and a refusal of the receiver to sue. (See, also, Hawes v. Oakland, 104 U. S., 450.)

As we have shown, the charge of misconduct was against the president, treasurer, secretary and directors of the company, and under such circumstances it would appear that formal demand was not necessary.

The next question which it becomes necessary to determine is, whether or not the notes given to the defendants Sargent and Puffer were fraudulent. At the time of giving the notes the company was managed by five directors, James Sargent, Charles C. Puffer, John M. Pfaudler, William G. Markham and Robert S. Wilson. Prior to the annual meeting of 1883, at wbicb these individuals were elected directors, the company had entered into a contract with the defendant James Sargent, by which, in consideration of the transfer to him of 300 shares of the capital stock of the company, he should pay into and furnish the company with $5,000 in cash, and should, at his own expense, construct and furnish apparatuses for those desiring the same, for which he was to receive the royalties collected thereon for one year. This contract, among other things, provided that iu case the company shall choose to consolidate with the “New Process Company,” or any other, that it shall have the right to terminate the agreement at any time by reimbursing the defendant Sargent his expenses in placing the apparatus, relieving him from all guarantees outstanding and paying him the sum of $5,000. Shortly after the election of the board of directors in 1883, they passed a resolution terminating this agreement with Sargent, giving him a promissory note for $6,252.12, $1,252.12 of which was for the disbursements incurred by him hi furnishing and putting up apparatuses under the contract, and the other $5,000 was the sum which the company had agreed to pay him in case the contract should be terminated by the company for the purpose of consolidating with The New Process Company ” or any other company. It will be thus observed that the defendant Sargent in effect obtains $5,000 for surrendering the contract. The relation between directors of a corporation and its stockholders is that of trustees and cestui que trusts. As directors they are authorized to manage and conduct the business of the company, to audit and pay its debts and make such contracts as are within the ordinary scope and business of the corporation. They, however, are not authorized to vote away the funds of the stockholders upon claims known by them to be fictitious or unfounded, for such would be a breach of their trust. They have not the power, as directors, to mortgage or consolidate the company with any other company, or to compel the stockholders to surrender up the stock owned by them or to accept stock in another company. This power exists only in the stockholders. (Blatchford v. Ross, 54 Barb., 42.)

At the time that this contract was rescinded it does not appear that any meeting of the stockholders had been called, or that their consent had been obtained to such rescission, or that they had consented, as sucli to consolidate with any other company. The conditions upon which the $5,000 was to be paid had not therefore happened, and we do not understand that the directors had power to allow or pay it until the defendant Sargent had the right to demand the same under the provisions of his contract.

Again, it appears that the day after the election of the board of directors, in 1883, a meeting was held at which the five directors elected were present. The defendant Sargent was elected president and treasurer. The defendant Puffer was elected secretary. On motion of the defendant Markham a salary of $5,000 per annum was unanimously voted the president, and on motion of Pfaudler a salary of $3,000 per annum was voted Puffer. It further appeared that at this time the company had no income of any amount; that it was just beginning operations, and that it was in want of funds for a working capital. The question is thus sharply presented as to whether or not the directors of a corporation have the power to bind the stockholders to pay such salaries as they by resolution see fit to vote themselves. "We are aware that salaries have in some instances been paid officers in corporations of this character, and that such salaries have been fixed by resolution of the board of directors. We are, however, inclined to question the propriety of so fixing the salaries. In the case under consideration the president, secretary and treasurer are designated from the board of directors. The board of directors are only five in number. If the power of fixing their own compensation is left with the board, it will readily be seen that the stockholder's may be prejudiced; that the directors may arrange with each other and substantially fix their own salaries. There appears to be nothing in the statute, or in the certificate of incorporation under which this corporation was organized, bearing upon the question, and the authorities upon the question appear to be exceedingly meager.

In the case of Coleman v. Second Avenue Railroad Company (38 N. Y., 201), the general rule was stated to the effect that directors, acting as directors and composing a majority of the board, could not make a bargain with themselves binding upon the company.

In the case of Ogden v. Murray (39 N. Y., 202), it was held that trustees and persons standing in similar fiduciary relations shall not be permitted to exercise their powers and manage or appropriate tbe property of which they have control for their own profit or emolument, and that they shall not take advantage of their situation to obtain any personal benefit to themselves at the expense of their cestwi que trusts.

In the case of the Maux Ferry Gravel Road Company v. Branegan (40 Ind., 361), it was held that if there is no provision made in the law under which a corporation is organized, or in its by-laws by which compensation is to be made to the directors for services, compensation cannot be recovered, and in the absence of such provision the making of an allowance by the board of directors to themselves and the issuing of an order or bond as a compensation for services was invalid.

In the case of Holder v. The La Fayette, Bloomington and Mississippi Railroad Company (71 Ill., 106), it was held that where a director of a company is appointed treasurer and no provision at the time is made for his compensation, he will have no right to claim pay for the same, and a subsequent allowance of a claim in his favor will not entitle him to receive it; that the directors in respect to the corporate funds are trustees and have no right to use or appropriate the funds of their cestui que trusts to themselves.

In the case of Jackson v. The New York Central Railroad Company (2 Thomp. & Cook, 653), it was held that a director of a railroad company is not entitled to compensation for his legitimate and ordinary duties as director, but is for his personal services beyond the ordinary range of his official duties upon an actual employment by the company.

Pierce on Railroads (page 31) says that “ the directors are presumed to perform the duties of their trust gratuitously; they are not entitled to compensation even for services outside of the ordinary duties of their offices unless it is expressly stipulated before the services are rendered; but an express contract by the board to pay a fixed or reasonable sum is binding. Some authorities require a vote or resolution as evidence of the agreement, while others do not regard such formal action as essential where there is an actual employment. A subsequent vote of the board to pay a director for his services, where there was no previous agreement, is not binding. The expectation of a director, that he was to receive compensation, there being no previous vote or promise, does not entitle him to it. The rule which excludes compensation applies to the president, chosen by the directors from their own number, and also to a treasurer, when a director, but not to officers and agents not being directors, who are entitled to recover on a quantum meruit where no price is fixed.” (See, also, Butts v. Wood, 37 N. Y., 317.)

There are other authorities which appear to assume that the board of directors have the right to vote salaries, but in none to which our attention has been called does it appear that the question of their power so to do was raised or discussed. "Without stopping to determine the question as to whether or not the board of directors have the power, by resolution, to vote salaries to one or more of their own body, we are clearly of the opinion that such salaries so voted are not binding upon the company, when the director in whose favor the salary is voted is present participating in the proceeding.

In the case under consideration the five directors were present. The motion was carried unanimously. • The inference to be drawn from the proceeding is that they all participated. We are consequently of the opinion that, under the circumstances of this case, the salaries voted ought not to be upheld.’ The amount of these salaries, together with the $5,000 embraced in the $6,252.12 note, entered into and formed a part consideration of the notes sought to be set aside. The referee has not in terms found that there was a fraudulent conspiracy on the part of the directors to swell the indebtedness of the company in favor of its officers, so that the corporate franchises might be sold out for their benefit; but he has found facts which, if true, would be sufficient to establish the existence of such fraudulent conspiracy. This is sufficient. (Whittlesey v. Delaney, 73 N. Y., 511.)

The facts found by the referee appear to be sustained by the evidence. "We have not discovered any exception taken upon the trial which necessitates a reversal of the judgment. The judgment entered in this action, among other things, provides that “ any party may apply upon the foot of this judgment for a reference to ascertain and report what-damages, if any, the said company, or any of its stockholders, parties to this action, have sustained by reason of the action of any of the defendants, trustees of such company; and if desired by said defendants, what amount was due to them, or either of tliem, from said company on the 5th day of December, 1883, to the end that snch further judgment may be-entered as shall be just.”

The issues joined in this action were referred to the referee to-hear, try and determine. The plaintiffs have failed to prove that they have sustained any damages beyond the relief given in the judgment. The referee consequently was not authorized to find or award damages. This is the only issue raised by the pleadings, which the referee was called upon to try, that remains undeterm ined. If the plaintiffs claimed that they were entitled to damages the evidence should have been produced before the referee. Failing in that they should not recover.

The judgment should be modified by striking out so much of the judgment as is above quoted, and as so modified the judgment should be affirmed, with costs of this appeal to the respondents.

BARKER and Bradley, JJ., concurred; Smith, P. J., not sitting.

Judgment modified by striking out the following: “ Any party may apply upon the foot of this judgment for a reference to ascertain and report what damages, if any, the said company or any of its stockholders, parties to this action, have sustained by reason of the action of any of the defendants, trustees of such company, and if desired by said defendants, what amount was due to them, or either of them, from said company on the 5th day of December, 1883, to the end that such further judgment may be entered as shall be just.” And as so modified the judgment is affirmed, with costs of this appeal to the respondents.


text:
    MICHAEL JUDSON, Appellant, v. THE VILLAGE OF OLEAN, Respondent.

      Costs in an action for personal injuries — when not allowed unless a claim has been presented to the chief fiscal officer of a village — costs includes disbursements — Code of Civil Procedure, sec. 3245.
    An action against a municipal corporation, to recover damages for a personal.' injury, falls within the provisions of section 3245 of the Code of Civil Procedure, providing that costs cannot he awarded to the plaintiff unless the claim-upon which the action is founded was, before the commencement thereof, presented to the chief fiscal officer of the corporation for payment.
    The word “costs” includes disbursements.

      It seems, that a failure to comply with the requirements of this section is not. excused by proof that the chief fiscal officer has no authority to adjust and pay the claim on presentation.
    Appeal from an order of tbe Erie Special Term, denying the-plaintiffs motion to compel the clerk of Cattaraugus county to tax Ms costs and disbursements in the above entitled action. '

      George II. Phelps, for the appellant.

      Fred. W. Kruse, for the respondent.
   Haight, J.:

This case was brought to recover damages for personal injuries» The defendant is a municipal corporation. The plaintiff recovered a verdict for $4,000. The claim up on which the action was founded was never presented to the chief fiscal officer or any other officer of the corporation for payment.

It is contended, on the part of the appellant, that actions arising out of claims ex delicto are not required to be presented to the chief fiscal officer for payment. This was undoubtedly the case under chapter 262 of the Laws of 1859, in cases where the charter of the municipal corporation did not give the power to the chief fiscal officer to audit and pay such claims. Section 3245 of the Code of Civil Procedure provides “that costs cannot be awarded to the plaintiff in an action against a municipal corporation in which the complaint demands a judgment for a sum of money only; unless the claim upon which the action is founded was, before the commencement of the action, presented for payment to the chief fiscal officer of the corporation.” An action to recover damages for a personal injury is an action in which the complaint demands judgment for a sum of money only, and is consequently within the express provisions of the section. In this regard it is more comprehensive than the act of 1859. This question has recently been 'considered by the General Term of the Third Department in the case of Dressell v. City of Kingston (32 Hun, 526), in which case the conclusion was reached that this section of the Code covered actions ex delicto as well as claims founded on contract. In that case the members of tbe court differed as to what was meant by tbe chief fiscal officer. Bockes, J., dissenting, was of tbe opinion that tbe presentment of tbe claim to tbe mayor and common council for payment was a sufficient compliance with tbe Code. This view was recently adopted by this court in tbe case of Grier v. The City of Lockport (21 N. Y. Weekly Dig., 444). This question, however, does not arise in tbe case under consideration, for tbe claim was not presented to any officer.

Again, subdivision 12, section 3, title 3 of tbe defendant’s charter (chap. 110 of 1882) gives to the board of trustees the power to audit all accounts and claims against tbe village, and order the payment of such as shall be allowed. Section 2 of title 7 authorizes tbe board of trustees to raise such further sum or sums of money, in any year, by a general tax as they may require, so that .under tbe provisions of tbe charter tbe board of trustees bad tbe power to audit and order tbe payment of tbe plaintiff’s claim, and also bad tbe power to raise tbe necessary money to make tbe payment. Tbe question is not, therefore, open to tbe argument that tbe presenting of tbe claim would have been useless, for tbe reason that tbe officers had no power to audit or allow tbe same. Tbe case of Baine v. The City of Rochester (85 N. Y., 523) we do not regard in point, for tbe reason that tbe claim in that action arose out of contract, and yet tbe court, in construing tbe section of tbe Code in question, distinctly held that it was no answer to tbe requirements of tbe section that the fiscal officer was not authorized to adjust and pay tbe claim on presentation. We are consequently of tbe opinion that tbe presenting of tbe claim to tbe chief fiscal officer of tbe defendant’s corporation for payment, before tbe commencement of tbe action, was a condition precedent to tbe right to be awarded costs, and that tbe word costs covers tbe disbursements.

Tbe order should bo affirmed, with ten dollars costs and disbursements.

SMrm, P. J., BARKER and Bradley, JJ., concurred.

Order affirmed, with ten dollars costs and disbursements.