author: Herrick, J.

text:
    Edward Marshall, Resp’t, v. George R. Sherman, App’lt.

      (Supreme Court, General Term, Third Department,

      Filed February 12, 1895.)

    1. Corporation—Stockholders—Liability.
    The ordinary statutory liability of a stockholder is a contract liability and, as such, enforceable in any state or court where jurisdiction may be obtained of the person, unless an exclusive remedy is provided in the state where the corporation is organized.
    2. Same.
    Where the act of incorporation of a foreign corporation declares in terms that each stockholder shall be individually liable for the debts of the corporation, the courts of this state are open to a creditor of such corporation to enforce the liability of the stockholder for such debts according to the terms of the charter, and it contemplates and provides for an action against a single stockholder.
    Appeal from a judgment overruling a demurrer to the complaint.

      McLaughlin & Rowe, (C. B. McLaughlin, of counsel), for app’lt; Riley & Cantwell (Frank N. Hagar, of counsel), for resp’t.
   Herrick, J.

This is an appeal from a judgment against the defendant overruling a demurrer to the plaintiff’s complaint. The plaintiff is a judgment creditor of the Miltonvale State Bank, a corporation existing under the laws of the state of Kansas. The defendant is a stockholder in the same bank. The plaintiff’s complaint shows that in 1859 the people of the state of Kansas adopted a constitution, which, among other provisions, contains the following :

«“Dues from corporations shall be secured by the individual liability of the stockholders to an additional amount equal to the stock owned by each individual; and such other means as shall be provided by law; but such individual liability shall not apply to railroad corporations nor corporations ior religious or charitable purposes.”

In October, 1868, the legislature of the state of Kansas passed a law providing for the incorporation of banking institutions. Said act provided, among other things, as follows :

“If any corporation, created under this or any general statute of this state, except railway or charitable or religious corporations, be dissolved, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit; and if judgment be rendered, and execution satisfied, the defendant or defendants may sue all who were stockholders at the time of dissolution, for the recovery of the portion of such debt for which they were liable, and the execution upon the judgment shall direct the collection to be made from property of each stockholder, respectively; and if any number of stockholders (defendants in the case) shall not have property enough to satisfy his or their portion of the execution, then the amount of the deficiency shall be divided equally among all the remaining stockholders, and collections made accordingly, deducting from the amount a sum in proportion to the amount of stock owned by the plaintiff at the time the company dissolved.”

Said act also contains a further provision, reading as follows:

“Execution against Stockholder—Action. That if any execution shall have been issued against the property or effects of a corporation, except a railway or a religious or charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders, toan extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon; but no execution shall issue against any stockholder, except upon an order * * * brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged: and, upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment.”

Such statutes were subsequently embodied in a revision of the laws of the state of Kansas, made in 1879 and 1889 ; and the complaint alleges that they are now, and ever since their enactment have been, the law of the state of Kansas. The complaint sets forth the manner of incorporation provided by statute, and that in July, 1886, a corporation was duly organized under such laws of the state of Kansas, under the name of the Miltonvale State Bank. The complaint also, by appropriate allegation, shows that the plaintiff became a creditor of said bank; that he obtained a judgment against such banking corporation upon his claim against the same ; and that execution -was issued thereon, and returned unsatisfied. It also sets forth that such banking corporation has been dissolved, and has ceased to do business, and that a receiver thereof has been appointed ; that such receiver has paid a portion of plaintiff’s said judgment, but that there is a balance remaining unpaid to the amount of $943.32, with interest from September 5-, 1891. lie further alleges that such banking corporation is wholly insolvent, and has no assets of any kind, nature, or description from which can be made the money due the plaintiff upon the various demands set out in the complaint, and the judgment recovered thereon. Plaintiff also alleges that the stockholders of said corporation who reside in Kansas have paid to the creditors thereof the full amount of their stockholders' liability for which they are liable under the constitution and laws of the state of Kansas, but t-hatthe defendant has not paid any part of his liability as a stockholder. This is the substance of the plaintiff’s complaint.

The defendant demurred to the complaint, on the ground “that it appears upon the face of the complaint that there is a defect of parties defendant, in that all of the stockholders of the Milton-vale State Bank are not made defendants herein’’; also, that it appears upon the face of the complaint “that causes of action have been improperly united therein, and that plaintiff seeks to recover as a judgment creditor upon a statute purporting to give a joint cause of action against all the stockholders of the Miltonvale State Bank, and also seeks to recover as a general creditor upon a statute purporting to give cause of action against this defendant as a stockholder of said bank separately”; and, for a third ground of demurrer, asserts “that the complaint does not state facts sufficient to constitute a cause of action.”

I think the complaint sets forth a good cause of action, and that the judgment overruling the demurrer should be affirmed. The court has been referred to a large number of authorities in other states, and in considering the questions here presented, has examined many others; but it seems to me that a review and discussion of the various decisions that have been rendered in other states, where similar or somewhat similar questions were involved, is unnecessary, and will lead to confusion, rather than clearness, in-expressing the determination that I have arrived at in this case. A brief reference to general principles, together with a few cases in our own state, and in the supreme court of the United States, seems to me abundantly sufficient.

' It is alleged that the defendant is a stockholder in a dissolved and insolvent bank in the state of Kansas; that, by the constitution and statutes of that state under which such banking corporation was organized, the stockholders of such bank are liable to the creditors thereof “to an additional amount equal to the stock owned by each stockholder.” The ordinary statutory liability of a stockholder is a contract liability, and, as such, enforceable in any state or court where jurisdiction may be obtained of the person. Cook, Stock, Stockh. & Corp. Law, § 223; Ex parte Van Riper, 20 Wend. 614; Corning v. McCullough, 1 N. Y. 47; Dennick v. Railroad Co., 103 U. S. 11; Flash v. Conn. 109 U. S. 371-379; 3 Sup. Ct. 263. “Every shareholder in a corporation is supposed to be cognizant of the provisions of its charter, and the general laws of the state which relate to his duties as such shareholder, and which define the nature and extent of his liability to the cred itors of the corporation.” Savings Association of St. Louis v. O'Brien, 51 Hun, 45; 20 St. Rep. 826. The personal liability of stockholders for the debts of a corporation by virtue of its charter is not in the nature of a penalty or forfeiture, and does not exist solely as a liability imposed by statute. It is not enforced simply as a statutory obligation, but is regarded as voluntarily assumed by the act of becoming a stockholder. By such act he assents to be bound, or that his property shall be charged with debts of the corporation, to the extent and in the manner prescribed by the act of incorporation. Where, therefore, the act of incorporation declares in terms that each stockholder shall be individually liable for' the debts of the corporation, the courts of this state are open to a creditor of such corporation to enforce the liability of the stockholder for such debts, according to the terms of the charter. Lowry v. Inman, 46 N. Y. 119-126.

Morawetz, in his excellent work on Private Corporations (section 875), lays down the following as a general rule:

“It seems clear, upon principle, that a creditor of a corporation whose shareholders are individually liable for its debts may maintain a suit to enforce this liability wherever he can obtain jurisdiction over the necessary parties. The right to maintain a suit of this character outside of the jurisdiction of the state by which the corporation was chartered does not depend upon the comity of the state where the suit is brought, or its willingness to recognize and give effect to the laws of a foreign state; it depends upon the willingness of the courts to enforce a contract validly entered into between the parties in another jurisdiction. A refusal to grant a remedy in a case of this kind would not be a refusal to enforce a foreign law; it would be simply a denial of justice.”

I think it may be laid down as the settled law of this state that a liability like that of the one in question here is a contract liability, and one that can be enforced in this state, unless an exclusive remedy is provided in the state where the corporation is organized. In the case of Lowry v. Inman, supra, it was held that plaintiff could not maintain his action in this state, because there was a special and exclusive remedy provided, which in its nature could only be enforced in the state of Georgia. By the statutes of that state, a judgment and execution against a corporation was made a lien upon and enforceable against the property of the stockholder, and no provision was made for an independent action against a stockholder. It is perfectly apparent that a remedy of that kind could only be enforced in the state where the corporation existed. Again, in Christensen v. Uno, 106 N. Y. 97-103; 8 St. Rep. 682, it was held that the liability of the stockholder could not be enforced in this state, because the remedy provided in that case authorized the creditors of the corporation who should have obtained a judgment, and the execution thereon was returned unsatisfied, to issue an execution against any stockholder to an amount equal in amount to the stock held by him, together with the amount unpaid thereon. In Barnes v. Wheaton, 80 Hun, 8; 61 St. Rep. 492, where the Ohio statute in relation to the liability of stockholders was in question, it was held “that an independent action could not be maintained in Ohio against one stockholder alone, and that the remedy to enforce such liability, being specially provided by the statutes of that state, is exclusive, and not available here.” As I read the statute of Kansas, no exclusive remedy is provided. The creditor • who desires to charge the stockholders personally, and who has obtained a judgment against the corporation, and has issued an execution thereon, and no property of such corporation can be found whereon to make a levy, may then issue an execution against any of the stockholders to an extent equal in amount to the amount of stock owned, together with any sum unpaid thereon, or “the plaintiff in an execution may proceed by action to charge the stockholder with the amount of his judgment.” The first remedy is obviously one that can only be availed of in the state where the judgment is obtained against the corporation and against the stockholders in such state, or who may have property in such state, and cannot be availed of as against foreign stockholders. The second remedy is not exclusive, but, under the authorities heretofore cited, may be availed of in any jurisdiction.

But it is contended that an action cannot be maintained against a single stockholder; that it must be brought against all. Under a statute of our state, reading as follows: “Where the capital stock of a corporation has not been paid in, and capital paid shall be insufficient to satisfy the claims of its creditors, each stockholder shall be bound to pay on each share held by him a sum necessary to complete the amount due on such share as fixed by the charter of the company, or such proportion of that sum as shall be required to satisfy the debts of the company” (1 Bev. St. p. 600, § 5)—it has been held that one stockholder could not be sued alone; that, no remedy being prescribed by the statute, it was to be enforced by such practice and in such form as the nature of the right and the relief sought demanded. It was decided that a bill in equity, bringing in the corporation and the delinquent stockholders, was the proper course. Then an account of all the debts and of the assets could be had, together with the amount unpaid by each of the stockholders, so that they could be made equally liable. Mann v. Pentz, 3 N. Y. 415. And it was held of a similar statute of New Jersey that the liability could not be enforced against a single stockholder in this state for the same reason. Griffith v. Mangara, 73 N. Y. 611. Under that statute no provision was made for distributing the indebtedness equally among the stockholders. Under the statute of Kansas, such provision is made that the stockholder who "is compelled to pay the judgment may bring an action against all who are stockholders at the time of the dissolution of the corporation, for the recovery of the portion of such debt for which they are liable; thus bringing about an equitable distribution of the debts among all the stockholders. Again, the statute in terms provides that a “suit may be brought against any person or persons who are stockholders at the time of such dissolution, without joining the corporation in such suit.” This obviously means permission to sue one or all of the stockholders. That view is further supported by the ensuing sentence, reading as follows : “If judgment be entered and execution satisfied the defendant or defendants may issue to all who are stockholders at the time of the dissolution,” etc. It seems to me, therefore, that one of the remedies provided by the statute of the state of Kansas—that is, “ by action,”—is one that is not exclusive; it simply gives a right of action, the same as exists upon any contract liability, and is one that may be pursued in this state; and that such statute contemplates and provides for an action against a single stockholder. For these reasons, the judgment appealed from should be affirmed, with costs.

All concur.


source: Caselaw Access Project

author: Patterson, J.

license: Public Domain

text:
    Wayne MacVeagh, Pl'ff, v. Continental Trust Company of the City of New York et al., Deft’s.

      (Supreme Court, New York Special Term,

      Filed December, 1894.)

    Assignment op stock—Construction.
    Authority to purchaser of stock, which the officers of the corporation refuse to transfer to his name on the hooks, to sue in the name of the vendor to establish his rights, is personal to such purchaser, and does not attach to the ownership of the shares, so as to authorize any other person to sue in the name of the vendor.
    Motion to continue an injunction pendente lite.

      George H. Yeaman, for pl'ff; Jay & Candler, for def’t Continental Trust Company; Wm. A. & Walter H. Underwood, for def’t Denver Union Water Company.
   Patterson, J.

This is a motion to continue, pending suit, a temporary injunction which was granted in this action on November 7, 1894, restraining the defendants, the Denver Union Water Company and the Continental Trust Company of the city of New York, their officers, etc., from selling, negotiating, paying out, transferring, or otherwise disposing of any of the boncls of the said Denvér Union Water Company, secured by a mortgage or deed of trust made on or about the 20 th day of October, 1894, and filed on or about the 1st day of November, 1894, and from verifying such bonds, or any of them, and from delivering, surrendering, or transferring said bonds, or any of them, to any person or corporation, and from transferring to any other person or corporation the trust in said deed expressed. The Denver Union Water Company appears to be the successor of several other corporations organized for similar purposes, and also appears to have acquired certain properties which, as far back as the year 1890, belonged to a corporation styled the “ Denver Water Company.” That last-named. corporation executed a mortgage to the Farmers’ Loan & Trust Company of the City of New York, which mortgage covered property then belonging to that corporation, as well as property subsequently to be acquired. The Denver Water Company thereafter conveyed its property to the Denver City Waterworks Company, and in that conveyance was included property acquired by the Denver .Water Company after the execution and delivery of the mortgage to the Farmers’ Loan & Trust Company. The Denver City Waterworks Company in November, 1890, made and executed a mortgage to .the Central Trust Company of New York, as trustee, which mortgage covered all the property acquired by transfer from the Denver Water Company. In April, 1891, the Denver City Waterworks Company conveyed all its property to the American Waterworks Company of New Jersey, and included all the property which had previously belonged to, and is claimed to have been conveyed by, the Denver Water Company. The mortgage to the Farmers’ Loan & Trust Company, and the mortgage to the Central Trust Company of New York, have been foreclosed in the state of Colorado, and such proceedings have been had in those foreclosure actions that decrees have been entered and sales have been made in pursuance, or alleged pursuance, of such decrees. At such sales, which were made by a master or commissioner appointed by the Colorado court, certain persons became the purchasers of the mortgaged property, they acting, it is claimed, in the interest and for the benefit of a corporation called the “Denver Union Water Company,” which is one of the defendants in this action. This last-named corporation has become the grantee of all the property described in the foreclosure decrees, including the property which belonged to the Denver Water Company, and which was covered by the mortgage of that company to the Farmers’ Loan & Trust Company. The defendant the Denver Union Water Company has executed and delivered to the defendant the Continental Trust Company a mortgage covering the whole of the property purchased at the foreclosure sale, and has authorized the issuance of $8,000,-000 of bonds, to which the mortgage last referred to is made collateral, and this mortgage purports to be a first lien on all the property held or owned by the defendant referred to. The com-plaint contains allegations of fraud, conspiracy, and wrongdoing on the part of all who have been connected with these various corporations from the time of the first mortgage made by -the Denver Water Company down to the present time. It is claimed that the first mortgage to the Farmers’ Loan & Trust Company was made to cover subsequently acquired property, whereas by the original resolution authorizing the making of the mortgage nothing was intended to be covered but that property which the corporation then owned. It is sought to thus follow, through the mortgage of the second corporation, which was made to the Central Trust Company, and so on down to the mortgage of which the Continental Trust Company is made the trustee, that “ subsequently acquired ” property of the Denver Water Company which it is claimed was unlawfully brought under the lien of the original mortgage made to the Farmers’ Loan & Trust Company ; and the prominent feature which is disclosed by the papers is, as claimed by the plaintiff, that by reason of the changes referred to, and the formation and reorganization of the companies, and the creation and • enforcement of liens, the Denver Union Water Company has now the apparent title and absolute control of valuable property belonging to the Denver Water Company; that the title of the Denver Water Company is affected by the cloud which has been caused by these various reorganizations, and by the attempted unlawful transmission of title to such “subsequently acquired ” property ; and that the aid of a court of equity is necessary to disentangle the title, and to remove the cloud alleged to be upon it, so that the original company may preserve its rights, and vindicate its title to that property, which it is claimed does not in equity belong to the defendant water company, and which it therefore has no right to include in its mortgage to the Continental Trust Company. The immediate object of this present action is in aid of a suit brought in Colorado to set aside and vacate (substanti* ally) the decrees of foreclosure above referred to, and to open the whole subject of the litigation in that state, in order that the alleged rights of the Denver Water Company may be adjudicated and established, and the exact purpose of the relief sought here seems to be against the Continental Trust Company merely to prevent the issuance and negotiation of the bonds mentioned in the injunction order which is now before the court for consideration, and thus to prevent further complications in the establishment of the alleged rights of the Denver Water Company.

It will thus appear, from the foregoing sketch of the scope of this litigation, that the present action is one in which the rights of the stockholders of the Denver Water Company are alone involved, so far as the plaintiff is concerned. It is claimed in the complaint that all of the proceedings, from the time of the conveyance by the Denver Water Company to the Denver City Waterworks Company, have been against the protest of the plaintiff, and that all the parties who have been connected with those proceedings subsequent to that time have had full and due notice of that protest. It is perfectly apparent that in such a case as this no one but a qualified plaintiff has any standing in court to assert a right such as that sought to be protected here, and at the threshold of this action the parties promoting it are met with the objection that Mr. Wayne MacYeagh, the nominal plaintiff in this record, has no interest whatever in the subject-matter of the litigation. It is alleged in the complaint that Mr. MacYeagh was, • in 1892, the owner of 570 shares of the Denver Water Company’s stock, and that he is the owner of those shares at the present time, and that the suit is brought by him for the purpose of protecting his interest as such stockholder. It now appears by the distinct statement of Mr. MacYeagh that he is not a stockholder in the Denver Water Company, and that he has no interest whatever in any of the matters referred to in this suit; and it also appears that Mr. MacYeagh has never authorized, by a distinct authorization, any person to bring any suit for him or in his name connected with the matters set forth in the complaint in this action. Notwithstanding this attitude of Mr. MacYeagh to the litigation, it is claimed on behalf of the promoters of the suit that the action is instituted in Mr. MacYeagh’s name by his authority ; and although the allegation of the complaint that he is the owner of the shares is entirely too broad, yet, from papers which have been exhibited to the court, the fair inference is that Mr. MacVeagh not only authorized the institution of this action in his name, but that by a contract entered into by him with reference to the 570 shares of stock the authority to make him a plaintiff in this action is distinctly conferred. It appears that on the 19th of December, 1892, Mr. MacVeagh sold his 570' shares of stock to one James S. Shepard, of Canton, Mass. The certificate of this stock was delivered. That certificate did not stand in the name of Mr. MacVeagh, but in the name of one Bobert L. Jones, and the power of attorney on the back of that certificate had been executed in blank by Mr. Jones. Mr.- MacVeagh, in the instrument relating to the transfer of the stock to Shepherd, declared that he sold the 570 shares, “with all rights and privileges attaching thereto, and all claims arising out of my ownership thereof; and I hereby authorize him [James S. Shepard] to take all such, proceedings in my name, for his benefit and at his expense, as he may be advised are necessary or proper to enforce his rights as the holder of said stock; the certificates of said slack, assigned in blank by Bobert L. Jones, delivered herewith.” It is claimed that this provision of- the instrument referred to is sufficient to authorize the bringing of this suit in Mr. MacVeagh’s name, because it authorizes the enforcement of any right which Mr. MacVeagh may have had upon any claim arising out of the ownership of the shares, and also because it permits the taking of such proceedings in his name for the benefit of Shepard as Shepard may be advised are necessary in order to enforce his rights as the holder of said stock. I am inclined to the opinion that upon construing this paper with, or in the light of, other matters referred to in the complaint, very strong color is given to the claim that it was the intention of Mr. MacVeagh to authorize the person to whom he sold his stock to use his name in connection with any and all litigation that might be properly advised and instituted for the purpose of protection .of all rights that the immediate purchaser from him of the certificate of those shares might have as a shareholder in the Denver Water Company. A reason appears on the face of the complaint for the making of this stipulation of Mr. MacVeagh, and also a reason for the stock not being transferred into the name of Mr. Shepard. It is stated in the complaint that the Denver Waterworks officers refused to make any transfers of stock, although the transfers had been demanded by Mr. MacVeagh from Jones’ name to his own of these shares, and all efforts to secure a record legal title to the shares in Mr. MacVeagh were unavailing. This may, and probably does, account for the great latitude of authoi’ity which Mr. MacVeagh gave to the purchaser of his shares to institute actions. But these considerations do not dispose of the objection which is made to the maintenance of this action in the name of Mr. MacVeagh. The authority to bring suit to protect the interests of the shareholder was not given by Mr. McVeagh to all the world; it was not a general roving right, which might accompany the shares in the hands of each and every person to whom they might be successively transferred. It was a right which was distinctly between himself and Mr. Shepard; a right which inhered in Mr. Shepard personally, or, if it was one which could be. devolved by Mr. Shepard upon somebody else, it could only pass by assignment. Now, this action is not brought in any way by Mr. Shepard, or in Mr. Shepard’s interest as a shareholder. There is no allegation in the complaint nor can I find anything in the papers, that would justify the conclusion that the suit is brought for any personal right as a stockholder inhering in Mr. Shepard, He does not make an affidavit in this ease. On the contrary, it is stated by Mr. Venner that Mr. Shepard is incapable of making an affidavit by reason of illness. There is an affidavit introduced which tends to show that Mr. Shepard’s holding of the stock was only nominal, and that it was for the benefit of certain other parties, including Mr. Venner, who was interested in the Denver waterworks; but, even if that were so, that does not give the right to any other person so interested to bring .this action in the name of Mr. Wayne MacVeagh. According to the law of the state of New York, an action must be brought by the real party in interest. Now, the real party in interest upon the transfer or bill of sale appearing in this record is Mr. Shepard, who, under the special circumstances of the case, might perhaps be entitled to bring the suit in the name of Mr. MacVeagh; but Mr. MacVeagh is not a trustee of an express trust for the benefit of everyone who may have been interested in a merely nominal ownership of the stock held by Mr. Shepard. As between MacVeagh and Shepard, the contract is one strictly interpartes. There was a sale and a power given to the purchaser for his own use and protection, and nothing else. If Mr. Venner and his associates chose to put the matter in this shape, they must act through, and not independently of, Shepard. That Mr. MacVeagh understood he was dealing with Shepard, and no one else, is shown by his letter to Mr. Teller, of May 26, 1893, in which he speaks of what Shepard might do to put himself in a position to bring suit as a stockholder. It is perfectly evident that the whole of this litigation is instigated and controlled by Mr. Venner alone, and not by Shepard, and that Venner’s attitude to the whole transaction is one which the court would, on a consideration of the merits of the controversy, have regal'd to. Estoppels, as affecting him, are of prime importance. Mr. Shepard is, from all that appears in these voluminous papers, a complete stranger to this contest, and is not personally interested in advising, promoting, or carrying it on; and it cannot be maintained simply to protect the possible interests of those who do not stand in the position of stockholders, but seek to enforce a right which is peculiarly and distinctly one pertaining to a stockholder, and to no other person. But we may proceed a step further. ' Venner does not own the shares. According to his own account, they belong "to the United Waterworks Company, limited, still another corporation. Venner says he is president of that corporation; but there is no privity of any kind by contract between Mr. MacVeagh and that company, nor is any resolution of that company shown authorizing this action. I am therefore forced to the conclusion that this suit has not been properly brought in the name of Mr. MacYeagh; and there is no interested plaintiff before the court demanding that relief which can only be accorded to a qualified stockholder; and that the action has been unadvisedly brought in the name of the present plaintiff, which condition of affairs, so far as the learned counsel who brought the suit is concerned, is doubtless due to misinformation respecting the status of Mr. MacYeagh and of Shepard, as is apparent from the allegation in the complaint as to share ownership. That allegation certainly would not have been inserted in the complaint had the learned counsel in charge of this cause been aware at the time the action was begun, of the real situation of the parties to it. What has been said would be sufficient to dispose of this motion, but I may add that I have examined the merits of the cause, and find that, even if the action were properly instituted, I should feel it my duty to deny this motion for an injunction on the papers now before the court. It is plain, as has been said before, that the moving spirit in all this litigation, both in Colorado and here, is Mr. Yenner, by whom the complaint herein was verified, and who makes the principal affidavit on the motion. His attitude with reference to the whole of this matter has been so inconsistent, so questionable, and so peculiar that his present effort to restrain the operations of this new water company does not commend itself to the consideration of, the court, and upon the merits I should leave the determination of the equities of.the parties to these complicated transactions to the courts in Colorado, which have, to some extent, passed upon them in two foreclosure actions, and which will undoubtedly be prompt to do justice between the parties if any relief ought to be awarded under the circumstances disclosed in these papers ; and this result would be reached more especially because the whole purpose of the action in Colorado, brought in the name of the present plaintiff, is to remove a cloud upon the title, to real property in that state, and it is not such a case, in any/ aspect in which it may now be regarded, as would justify further interference by this court with the reorganization of what appears to be an important enterprise in a foreign jurisdiction. Motion to continue injunction denied, and temporary injunction vacated, with $10 costs.


author: O’Brien, J.

text:
    Frank E. De Long et al., Pl’ffs, v. De Long Hook and Eye Company, Def’t.

      (Supreme Court, New York Special Term,

      Filed December, 1894.)

    Trade-name—Corporation.
    A person cannot give his own name to a corporation with a view to making it similar to that employed l>y other persons in the same business, to their or the public's injury.
    Action to restrain the use of a trade-name.

      Stern & Rushmore, for pl'ffs ; Benno Loewy, for def’t.
   O’Brien, J.

This action is brought to enjoin the defendant from using the name “De Long” in connection with the sale of hooks and eyes, and especially hooks and eyes in direct or color-able imitation of the plaintiffs’ hooks and eyes, upon the ground that the name “De Long,” in connection with the words “Hook and Eye,” constitutes a fraud upon the plaintiffs, and was adopted and continued in use for the purpose of enabling the defendant to avail itself of the established reputation of the plaintiffs’ hooks and eyes, which are known in the trade and to consumers as the “ De Long Hook and Eye.” If these grounds are supported, then the plaintiffs are certainly entitled to some form of relief; and, while it is not my purpose to dwell at length upon the testimony, there are certain facts so clearly proved or admitted as to be placed beyond controversy, and I shall endeavor, as far as possible, to confine myself to such.

It appears that some 40 years ago there was a hook having the shank or bill composed of three wires, the center one being bent forward and backward to accomplish the purpose of a spring, terminating before reaching the bend forming the loop. This is in many respects like the hook manufactured by both plaintiffs and defendant, its particular resemblance being in what has been designated by the plaintiffs as the “hump.” It does not seem to have been extensively used. Some 20 years ago another hook, called the “Eagle Talon,” with some of the features of the hook just described, appeared; and how extensive was its use is not evident, though it was shown that for more than 10 years it has been neither manufactured nor sold on the market. Apart from these, the form of hooks and eyes in common use were known as the “Swan Bill,” of which there were a variety of patterns, all having the same general structure of a straight bill or shank bent upwards in the form of a loop or hook. In the color of hooks and eyes, those used were principally black and white, and in the carding for placing them upon the market there was little variety ; the color and manner in vogue having been practically continued for 40 years prior to the advent of the plaintiffs’ hooks and eyes, which appeared upon the market in the year 1889. That these hooks differed essentially from what had preceded them, in coloring and manner of carding, and in the claimed improvement, is abundantly established. From the beginning—whether from the change in fashion from buttons to hooks and eyes, or, as claimed by plaintiffs, as the result of the improvement in the latter, or from both causes, is immaterial—there was a large and steadily increasing demand for plaintiffs’ goods, so that from a business of $12,000 in 1890 it had risen to $450,000 in 1893. And that a great deal of time, energy, and money were expended in pushing the plaintiffs’ business, and that judicious and extensive advertising was done, are not seriously disputed. From the outset the plaintiffs gave to their goods the title “DeLong,” and adopted and registered that word as a trade-mark. It is insisted by the defendant that such registration was illegal, upon the ground that a name cannot be registered. But it is not necessary that I should go into that question, the fact appearing that the registration was accepted by the proper office, and the name “DeLong" adopted as a trade-mark; and whether this was one secured by law, or merely a common-law trade-mark, acquired through use in connection with the article manufactured by the plaintiffs, the result of an unlawful appropriation of or interference therewith by the defendant would be practically the same so far -as the legal rights of the parties are concerned. While plaintiffs were so engaged in building up this business, one Oscar A. De Long was employed as a buyer in the notion department of a dry-goods house in this city, and, as such, bought and sold hooks and eyes for his employers. Among others, he had purchased some of plaintiffs. On the occasion of one of such purchases, in an interview with one of the plaintiffs, the similarity in their names was discussed between them, as well as the merits of the hook, which Oscar A. De Long referred to as a valuable thing. And, no doubt attracted by the growth in the hook and eye business, Oscar A. De-Long says that-in the summer of 1892 he worked at improving the hooks and eyes then on the market; and after hitting upon the'hook now sold by the defendant, he sought capital with which to start in business, never up to that time having been in business on his own account. As the result, he, with two others, in February, 1893, organized the defendant corporation, to which they gave the name of “ De Long Hook & Eye Company,” and thereafter commenced to manufacture and sell their hooks and eyes, in which business-they have since continued in competition with the plaintiffs.

There can be no question but that, at the time this company was formed with this title, Oscar A. De Long, who had become familiar with the plaintiff's goods, and knew that they were known on the market as the “ De Long Hook and Eye,” and who was-impressed with the value of the name “De Long” as a trade-mark, deliberately selected the title of the defendant company. That this was done with an intention to benefit the defendant and injure the plaintiffs is clearly inferable, not only from the adoption, of the name of the defendant company, but by the course pursued in the management of its business, and of the placing upon the-market, of its goods in competition with the plaintiffs. Thus the hook itself is very similar, and it is only upon a careful examination that one can discover the differences. So in respect to the way in which the hooks were put up, the variety in colors, and the manner of carding, without being exactly alike, they are so-very similar as to render the inference improbable that this was the work of'chance, and not the result of a design to simulate and follow the plaintiffs’ business devices, and by such means to enter upon an unfair competition, by taking advantage with the public of the reputation acquired for the plaintiffs’ goods, with a view of increasing the sales of the defendant’s own goods. What was said in the case of Fischer v. Blank, 138 N. Y. 252; 52 St. Rep. 339, is here applicable: "

“It must be admitted, that there is no single point of resemblance or imitation which would, of itself, be regarded as adequate grounds for the grant of equitable relief. Form alone would not be sufficient, nor size nor color, nor the general decoration of the panels, nor disks of the same size and color arranged in the same way, nor a label of the same shape and color attached to the same-part, nor the use of the same name to designate the kind or quality of tea. Each one of these distinguishing 'features might be separately used, and no harm result. But when all or a number of them are combined in a single package, and so arranged and exhibited that when they strike the eye of the intending purchaser, possessed of ordinary intelligence and judgment, the false impression is likely to be produced that the goods of the plaintiff are offered, it is the province of equity to interfere1, for the protection of the purchasing public as well as of the plaintiffs, and for the suppression of unfair and dishonest competition. The true test, we think, is whether the resemblance is such that it is calculated to deceive, and does in fact deceive, the ordinary buyer, making his purchases under the ordinary conditions which prevail in the conduct of the particular traffic to which the controversy relates.”

So, in the case at bar, though none of the particular acts complained of, except one, if separately analyzed and considered, could be regarded as such an imitation or simulation of the plaintiffs’ methods as would entitle them to relief, yet, when taken together, they are potent factors, leading to the inference that the defendant intended to enter upon an unfair competition with the plaintiffs. Such inference, coupled with the fact of the selection of a name for .the defendant corporation so similar to the one under which the plaintiffs’ goods were known and sold, entitles the plaintiffs to relief against the injury that could be thus inflicted upon their business, and the deception that might thus be practiced upon the public.

It has been many times held that the courts will not enjoin persons from using their own name in their own business, even though by such use they may injure a business before that time carried on by one of the same name, and for. the reasons given, and frequently quoted, in the leading case of Meneely v. Meneely, 62 N. Y. 427. And though in that case it was held that every man has the absolute right to use his own name in his own business, even though he may thereby interfere with and injure the business of another bearing the same name, he can only so use his own name “ provided he does not resort to atiy artifice or contrivance for the purpose of producing the impression that the establishments are identical,” or where the only confusion created is that which results from the similarity of the names. The right, however, of one to use his own name in his own business, is something very different and distinct from the lending or giving of his name to a corporation for the purpose of engaging in a business which has been conducted by others under precisely the same name. A person comes naturally by his name from his parents, and it is a thing personal to himself, which in truth and justice he has the right to use, provided its use is not coupled with any acts or artifices calculated to produce deception or confusion in the public mind between him and some other person, to the injury .of the latterand the public. The name given to a corporation is an artificial and impersonal thing, which can be selected from an entire vocabulary of names ; and the difference between using a name so selected, -identical with that under which others do business, and the case of the use by one of his own name in his own business, seems to me clear and manifest. To say that one has the right to select his own name as the designation of a corporation is but another way of stating that he has a right to select any title from among the whole range of names; but it is not equivalent too statement that he can give his own name to a corporation with a view to making it similar to that employed by other persons in the same business, to their or the public’s injury. The defendant refers to cases where the name given to a new corporation was that of a person whose name was similar to that of an existing company, such as Scott Stamp & Coin Co. v. J. W. Scott Co., 58 Supr. 379; Employers’ Liability Assur. Corp. v. Employers’ Liability Ins. Co., 24 Abb. N. C. 368; Higgins Co. v. Higgins Soap Co., 71 Hun, 101; 54 St. Rep. 89,— wherein the right to enjoin the name or its use was denied. These-cases, upon an examination, will be found to differ in many ■essential particulars from the present one, notably in the fact that the parties sought to be restrained, and who had formed the new corporation, had been originally connected with, and in many instances the prime movers in, the old firm, and had been as' instrumental in making the name valuable as any other members of the old firm, and had as much right to enjoy the popularity and commercial value of the name as any of the other members of the firm. It was found, however, in these cases, as a fact, that there was no attempt to deceive, and no tendency to deceive, the public by the use of the names employed. This case, however, is readily distinguishable from those cited, in that here Oscar A. De Long had never been, up to the time of entering into this business, anything but a clerk, nor had he done aught to render the name of “De Long,” in connection with the hook and eye business, valuable as a trade mark. The probability of confusion in the public mind (an element always to be considered) in those cases and this was entirely different. There can be no question but that the use of the name “De Long Hook & Eye Company” in connection with the business conducted by the defendant is calculated, not only to deceive the public, but to result in confusing the identity of the two establishments. This is apparent, not ■only from the names used, but from the testimony in the case, and from none more clearly than that given by Oscar A. De Long, who testified that plaintiffs’ goods were known in the market as the “De Long Hook and Eye,” and that, although the name of the defendant company, as makers of the hook invented by him, was applied thereto, yet, to prevent confusion arising from such use, he changed such words upon the cards and packages of defendant’s goods, and substituted therefor a statement that the hooks and eyes of the defendant were “Oscar A. De Long’s Improved.” It is not necessary to comment upon the fact that, as he liad never made but one hook, it was not a correct statement affixed to the cards and packages that such hook was an improved De Long hook. The use of such a word as “improved” in connection with the name, where no such improvement had been made, but again emphasizes the fact that there was a studied effort to identify such hooks with those for which the plaintiffs had created a demand on the market under the name of the “De Long Hook and Eye.” This witness was frank enough in his statements upon the stand to point out the chances of confusion in some respects when the defendant’s goods were put in competition with those of the plaintiffs, and told of his efforts to remedy this by discarding certain similar features, particularly the substituting, instead of the name “De Long Hook & Eye Company” as makers, the statement that they were “Oscar A. De Long’s Improved.” There is no objection to the defendant designating the hooks sold by it as the “Oscar A. De Long Hook,” because that would be a correct statement and a proper use of his name in connection with the business conducted by the defendant corporation. But, such use of the word “improved” by the defendant being a misrepresentation, it should be discontinued. Nor can there be any exception taken to his effort to have defendant’s goods become known in the market as the “Perfect Hook and Eye.” But there is a clear equitable right secured by the plaintiffs against the defendant corporation being permitted to benefit itself, at the expense of the plaintiffs, by appropriating and applying to its goods the plaintiffs’ trade-mark, “De Long Hook and Eye.”

Though I have examined the very able argument presented by the counsel for the defendant, and their citation of cases, I have felt that it was unnecessary to comment upon all of them, because to do so would exceed the proper limits of this memorandum, and serve no useful purpose. The general principle is well settled that the grounds upon which infringements of trade-marks are enjoined are (1) injury to the public, by leading them to buy something that they did not intend to buy; and (2) injury to the owner of the trade-mark, by diversion of his trade into other channels. Whether either of these requirements is present in a particular case must be determined by the evidence in that case, and, except as illustrations of the principles, prior adjudged cases rarely furnish support to the questions presented ; and this for the reason, well expressed in Fisher v. Blank, 138 N. Y. 252 ; 52 St. Rep. 339, that “no inflexible rule can be laid down. Each case must, in a measure, be a law unto itself.” If, however, cases are to be resorted to, the one that more nearly resembles this upon many of the questions raised is that of Massam v. Cattle-Food Co., 14 Ch. Div. 748, 42 Law T. (N. S.) 851. In that case one Joseph Thorley for many years manufactured and sold extensively an article called “Thorley’s Food for Cattle, ” made according to a receipt communicated to him, and not known to the public, and down to his death he was the only person that made it. His executors continued the business. Shortly after his death a company was formed by other persons under the name of “J. W. Thorley’s Cattle-Food Company,” in which J. W. Thorley, a brother of Joseph Thorley, took a one-shilling share. J. W. Thorley had been employed by Joseph Thorley, and knew the secret of manufacture, and was employed by the company to conduct it. . The company sold the same article under the name of “Thorley’s Food for Cattle.” Held, that the company were not at liberty to use the name “Thorley’s Food for Cattle,” unless they took such precautions as would prevent purchasers from supposing that the article sold by them was manufactured at the original establishment of Joseph Thorley. In this the cases bearing upon the right and power of the court to enjoin a corporation are collated and discussed, and, although the corporation itself was not enjoined, the manner of using its name so as to produce confusion of its identity with that of the plaintiff’s firm was restrained. The enjoining of the defendant corporation from using its own name, particularly where, as in this case, it is a foreign corporation, always presents a serious question as to the power to suspend the functions of the corporation, and to accomplish by injunction practically the same result as would ensue from a dissolution. It is not necessary in this case to go to the extent of preventing the defendant from doing business altogether, and there is abundant authority for restraining the corporation in the manner in which it shall use its name ; that of Massam v. Cattle-Food Co., and the cases therein cited, being sufficient to show that this power had been frequently exercised. ‘My conclusion, therefore, is that the defendant should be enjoined from in any way using, in connection with placing upon the market or selling its goods, the name of the “ De Long Hook & Eye Company." Judgment accordingly for plaintiffs, with costs, and an allowance to be fixed.


author: Ingraham, J.

text:
    Jacob S. Rogers et al., Plt’ffs, v. New York & Texas Land Company et al., Def’ts.

      (Supreme Court, New York Special Term.

      Filed December, 1894.)

    Corporation—Trust.
    Land, conveyed to a corporation in consideration of the issue to each bondholder of. a certain amount of stock and scrip, which should be receivable in payment of seventy-five per cent, of the price of land at the regular selling rates, is impressed with a trust in favor of the scripholders, and the corporation is obliged to accept scrip in payment of land, and, in the sales of land to others, seventy-five per cent, of the proceeds was to be applied to retiring the scrip, and twenty-five per cept. was for the benefit of the stockholders.
    Action for an accounting.

      Julien T. Davies, for plt'ffs; Thomas G. Shearman, for def’ts Pearsall and others; Noah Davies, for def't New York & T. Land Company.
   Ingraham, J.

In view of the fact that this case has received such a thorough discussion by Mr. Justice Barrett, before whom it was first tried, and by the court of appeals, when the appeal from Mr. Justice Barrett’s judgment was before it, but a short statement of the facts will be necessary to the determination of the question that I have to decide. Counsel for the defendants strenuously insist that this case now before the court is a new case, and that I should not be governed by the decision of the court of appeals on the reversal of the-former judgment; and various expressions in the opinion of the court are cited to show that the court misconceived the question before it, and that certain controlling facts which were assumed by the court of appeals to exist have been proved on this trial to have no existence. The interests of the parties to this action in the lands of the defendant the Rew York & Texas Land Company depend upon the fact of the conveyance of the land by the railroad company to the trustees in satisfaction of the bonds of the railroad company, and to the construction to be given to the subsequent report, and resolution adopting that report under which the lands were conveyed to the land company: and all this was before the court of appeals, and it was the construction given to these instruments, and the acts of the parties under them, that determined the question decided by the court of appeals. To that decision, with all its logical consequences, I am bound to give full force and effect, and I can see nothing proved upon this trial that would seriously affect the conclusion-at which that court arrived.

Prior to the 1st day of November, 1879, there existed in the state of Texas a railroad company known as the “ International & Great Northern Railroad Company.” That company was the owner of certain lands in Texas, which had been granted by the state of Texas to two railroad companies that had been consolidated, the consolidated company being the said International & Great Northern Railroad Company. That company was also the owner of certain stock in a corporation organized under the laws of the state of New York, and known as the Texas Land Company.” The railroad company had issued and sold certain bonds secured by a mortgage upon its property known as the “ second-mortgage bonds and on November 1,1879, there were outstanding of these bonds $4,959,000. Some time prior to this 1st day of November, 1879, said railroad company,, having been unable to pay the interest upon its bonds, had become insolvent, and its property had been placed in the hands of receivers. Upon a reorganization of that company, it was proposed to convey, for the benefit of the holders of these second-mortgage bonds, the lands owned by the said railroad company, together with its stock in the Texas Land Company; and the facts in regard to that transfer are alleged in the complaint and admitted by the answer, as follows:

“ In pursuance of said reorganization, all right, title and interest of said International Railroad Company and said International & Great Northern Railroad Company in and to the lands, land grants, land certificates, situated in the state of Texas, owned by said companies, or by any of them, were conveyed, and the said eighty-six per centum of the capital stock of the said Texas Land Company, owned by the said International & Great Northern Railroad Company, and all city and county bonds owned by said companies, or by any of them, were transferred by said companies to John S. Kennedy, Samuel Thorne, and William Walter Phelps, as trustees for the owners and holders of the said second mortgage and convertible bonds; that said land so conveyed, and stock and bonds so transferred, were accepted by said bondholders in full payment and satisfaction of all claims against said companies, and against any of them.”

These lands and this stock, thus having become the property of these second-mortgage bondholders, received in satisfaction of the obligation of the railroad company to pay the bonds, the question as to how they were to be made available to the bondholders was presented. These second-mortgage bondholders had, prior to this time, appointed a committee of their own number, known as the “purchasing committee,” to represent them upon the reorganization of the railroad company; and the bondholders authorized and directed this purchasing committee to prepare and report to them a plan by which this land and stock could be made available to the bondholders. In pursuance of such authority, this purchasing committee did prepare and report to the bondholders a plan under which the defendant the New York & Texas Land Company was incorporated, and all of the property held for the bondholders was conveyed to it; and from the report made to these bondholders, and the resolution of the bondholders adopting that report, and the form of the scrip certificate issued by that corporation to the bondholders, the court of appeals has deduced certain legal propositions which it is now my duty to carry into effect.

The situation of the parties at this time must not be lost sight of. The bondholders were creditors of this corporation, and in payment of their debt had received certain specific real and personal property. The property was of a character that rendered an immediate sale of it, at anything like a fair price, impossible. It was clearljr impossible to partition these lands among the various bondholders, and the only way that they could be made available, and the bondholders ultimately receive any substantial sum, was to hold the lands, sell them as they became salable, and divide thei proceeds among the bondholders according to their several interests. This was clearly the intent of the framers ofv this plan. Every word of the report shows it. And while it is clear that the committee and all interested realized that the value of these lands, if forced for immediate sale for cash, was much less than the amount due on .the bonds, yet the qommittee were satisfied that their future value was great, and would ultimately realize sufficient to pay these bonds and interest in full. Entertaining these views, it was entirely reasonable to suggest that in the plan adopted there should be a total capitalization equal to the amount due upon the bonds, and the interest which would mature upon the bonds up to the time that they became due. There could be no fraud upon, any one. The lands were to be the capital of the proposed corporation, and the obligations and the stock of the company represented such capital. I think this was accomplished by the plan proposed and adopted. A short analysis of the report of the committee will make this clear. The report, after reciting conveyances of the land and stock to the committee of the bondholders, which were to be accepted in payment of their bonds, states that the committee had concluded that it was expedient for the second mortgage bondholders to organize a corporation under the laws of the state of New York, and that they had accordingly taken the preliminary steps for that purpose. The corporation was to have a capital stock of $1,500,000,10 per cent, of this capital to be paid in cash, and the remainder to be paid by conveyance to the company of the lands and stock to that amount, namely, $1,350,000; The report then proceeds as follows :

“ But as the property of the new company will, in fact, greatly exceed in value the amount of nominal capital, it has been deemed advisable that the corporation thus formed should issue scrip to-its stockholders pro rata, entitling them to an amount of land corresponding to the difference between the capital and the probable ultimate value of the lands when they shall be open for settlement.”

This, then, was the scheme adopted by the committee: The corporation was to be organized with a capital of $1,500,000 ; that capital stock was to be paid for in cash by payment to the company of $150,000, and by the conveyance of lands to the company for the balance, namely, $1,850,000. But as the value of the lands held for the benefit of the stockholders greatly exceeded that amount of $1,350,000, scrip was to be issued to the stockholders to represent the balance between the capital and the probable ultimate value of the lands when they should be open for settlement. The report then discussed the probable ultimate value- of the lands, and determined that that value would be the entire amount of- the outstanding bonds and matured coupons, and the committee, therefore, recommended “ that the new corporation should issue scrip to the amount of $6,000,000, to be divided pro rata among its stockholders, and to be receivable by the company in payment of seventy-five per cent, of the price of its lands at its regular selling rates, with an option to the company to retire the scrip from time to time by the payment of its par value, and liberty to purchase it out of the company’s surplus funds under-public notice and se'aled proposals, at the lowest prices at which it may be offered.” This report was presented at a meeting of the bondholders, when a series of resolutions were unanimously adopted. By these resolutions it was resolved that the report of the purchasing committee “ submitted this day be, and is hereb}’-, accepted and approved.” It was further resolved “ that the said trustees are hereby authorized and directed to grant, convey, assign, and transfer all of the said lands, Texas Land Company’s stock, city and county bonds and proceeds thereof, together with all other property received by them as such trustees, to the New York & Texas Land Company, Limited, the capital stock of which shall consist of 30,000 shares, each of the par value of $50, and that six shares of such stock shall be issued in exchange for each of the said second mortgage and convertible bonds, with all coupons thereon, bearing date since February, 1874.” There has been some criticism by the defendant as to the exact terms of the resolution that “ accepted and approved the report,” and it is claimed that the recommendations of the report were not in all respects adopted, but were modified by the provisions of the subsequent resolution. I think, however, reading both report and resolution together, it was clearly the intention of the meeting to adopt the recommendatians of the committee, and that the resolutions were intended to carry those recommendations into effect. The resolutions already referred to accepted the transfer of the lands, directed them to be conveyed to the corporation which the report proposed should be organized, and provided for the distribution of the capital stock pro rala among the bondholders; and, to carry out the further recommendation of the committee as to the issue of scrip, a resolution was then passed requesting the corporation to issue to each shareholder—meaning to the holder of each share—scrip to the nominal amount of $200, which, in the aggregate, would amount to the $6,000,000, by the report recommended to be issued ; said scrip to be “ receivable in payment for 75 per centum of the price of its lands at the regular selling rates of the company, or, at its [the corporation’s] option, payable in cash at par, with liberty to the said company to purchase any part of such scrip at such prices as may be hit upon between it and the holders thereof, not exceeding its par value.’’ An additional resolution was then passed, providing that the stock and scrip of the said company, “in the proportions heretofore stated, shall be accepted by the "holders of the second mortgage and convertible bonds aforesaid, or by the purchasing committee on their behalf, in full satisfaction thereof, and shall be apportioned among the bondholders in proportion- to the amount of bonds and coupons belonging to them.” It was thus the “ stock and scrip ” that was received in payment of the bonds, and the “ stock and scrip ” that was issued as the consideration for the transfer of the land and stock to the company.

Under the terms of this resolution the corporation was organized, and the stock and scrip issued. The form of the scrip that was ultimately adopted, and which was issued to the bondholders, each represented the nominal value.of $1,000, and was in the following form :

“This is to certify that-is the owner of land scrip of the New York & Texas Land Company, Limited, to the amount of one thousand dollars par value. This certificate will be received by the company in payment for seventy-five per centum (75 per cent.) of the price of the company’s land, at the regular selling rates to be by it fixed from time to time. It is redeemable, at the option of the company, at any time by the payment of its par value in cash to the holder.”

Upon the issue of the stock and this scrip to each bondholder, the plan proposed by the committee was carried into effect. The company was the owner of the land, and each bondholder had become a stock and scrip holder in the company, and thus interested in a proportionate amount of the lands that had been conveyed to the bondholders in satisfaction of the obligation created by the bond. The consideration of the issue of the stock and scrip is stated in the report of the committee. The stock was paid for b.y the conveyance to the company of lands and stock of the Texas Land Company to the amount of the stock issued by the New York & Texas Land Company, and the scrip was issued in consideration of the transfer to the company of the balance of the lands not necessary to pay for the issue of the stock, and the value, of these lands was stated by the report to be $7,500,000. It was entirely immaterial whether that conveyance was in one or several deeds. The company got the land, and as consideration for that land it was to issue the stock and scrip, and the question presented in this action is, what right or interest in these lands did each scripholder acquire by the issue to him of the scrip to which he was entitled?

It is clear that so long as the stock and scrip remained in the possession of the same person, and none of the scrip was canceled by the company, it made no particular difference whether the proceeds of the sale of the land were all paid to the stockholder in the shape of dividends, or the amount received for the sale of lands was first used to redeem the scrip. As soon, however, as one of the stockholders parted with either his stock or his scrip, or as soon as the company purchased any of the scrip and canceled it, then it became necessary to determine the interest of each of the remaining scripholders in the lands or their proceeds. This scrip did not constitute a debt of the company, or, in other words, the company was not indebted to the scripholders in any amount, payable at any particular time. The scripholder could not, therefore, be said to be a creditor of the company in any amount. There was no express provision in the scrip certificate that the company should pay to the holder any sum of money. If the holder wished to buy lands of the company in Texas, he could use the scrip for the payment of 75 per cent, of the value of the lands purchased. There was no obligation on his part to so use the scrip'. That was a privilege of the scripholder. But it was clearly the intention of the parties that this scrip should represent something, and that, although the holder did not wish to purchase land and use the scrip for that purpose, he was still to be entitled to receive at some time the benefit that would result to the company upon the sale of land to others. This intention could only be effectuated in one of two ways, and both methods were provided for by the provisions of the scrip itself, either by a purchase by the company of the scrip, after public tenders, at a price to be agreed upon, not exceeding its par value, or by payment of the scrip in cash at par. It was the company that was given the option as to which of these methods should be adopted to retire this scrip. If they could purchase the scrip at less than par, they had the right to do so, but they were bound to use the proceeds of the land sold by them which represented the scrip, so as to retire it in one of the ways mentioned.

Thus the property that was conveyed to the corporation was impressed with an implied trust in favor of these scripholders, whereby the corporation became obligated either to convey the lands to the scripholders upon delivery of the scrip for 75 per cent, of its selling price and payment of the balance, 25 per cent., in cash, or, upon the sale of the lands for cash, to hold 75 per cent, for the benefit of the scripholders, that 75 per cent, to be applied by the company, either in purchase of scrip outstanding at a price not exceeding par, or the redemption of the scrip at par. Look for a moment at the consequences that would result from holding that no such trust existed. Suppose that within one month after the corporation had received a conveyance of this land it had been able to sell it en bloc for the par value of the stock and scrip, viz., $7,500,000. If the position of the defendants is sound, it could have divided that whole amount among its stockholders, and the holders of the scrip would have had no lands to purchase, and nothing to represent the scrip. It appeared upon the trial that the land conveyed to the company consisted of what was known as agricultural land and dry land, the agricultural land being much more valuable than the dry land. The president of the corporation testified that substantially all of the agricultural lands had been sold; so that at the present time the holders of the scrip, if the contention of the defendants is sound, must take lands valuable only for grazing purposes, and not capable of being cultivated. It is clear that this was not the intentign of any of the parties at the time1 of the organization of the company and the transfer to it of the property, and this is the view that was taken by the court of appeals when the case was before it. Thus, the court said :

:‘We think that their purpose is clearly indicated by what they said and. did, interpreted in the light of the circumstances surrounding them ,at-the time. They intended that the land company should'hold one-fourth of the land as its own, and three-fourths in trust'to sell for the benefit of the scripholders, until they were paid the face value of their scrip, without interest, when the remainder was to belong absolutely to the company. The' certificates were mere instruments of convenience to aid in carrying out the prior contract made by the bondholders with each other. That contract was made by adopting the report of the purchasing committee, and it constituted the only authority that the trustees had to convey the land to the corporation defendant. By accepting title to the land, it (the corporation) adopted and ratified the agreement entered into by-.all its stockholders, and thereby voluntarily made itself a party thereto and became bound thereby.”

It follows that plaintiffs are entitled to an accounting by the company of the amount that it has received by the sale of lands covered by the conveyance to the company, and the disposition of the proceeds thereof. I think it also clear that the trustees of the corporation are proper parties to this action, and are liable to the scripholders for any amount that it shall appear on such accounting was due to them, and which they have appropriated to other purposes. I understand that to be the result of Mr. Justice Barrett’s decision upon the demurrer to the complaint interposed by the individual defendants. Here property was conveyed to the corporation subject to a trust for a particular disposition of 75 per cent, of the proceeds of that property; and if the directors, acting for the corporation, have disposed of that trust fund, in violation of the trust, with full knowledge of the facts and the legal rights of the scripholders, they are certainly responsible to the scripholders for the violation of the trust. I think it is also clear that this trust included the lands acquired by the company in consequence of its ownership of the stock of the Texas Land Company. As to the reissue of the scrip, I think that all scrip purchased by the company and paid for by the 75 per cent, of the proceeds of the lands sold became canceled by its purchase, and the company had no right to reissue it. That would be so where the scrip was purchased by money borrowed by the company, and subsequently repaid from the proceeds of the sale of lands. There must be, therefore, an account taken of the method by which the reissued scrip was acquired by the company, and the source from which the money that was paid for it was derived; and I think the plaintiffs are entitled to have the amount of scrip that was improperly reissued considered as cash paid to the corporation. I think this disposes of all the questions submitted, and there should be an interlocutory judgment for an accounting as herein directed, the question of costs to be left until final judgment, the form of the judgment to be settled on notice.

Ordered accordingly.


author: Barrett, J.

text:
    Emma Condit Smith, Pl’ff, v. Isabella H. Fisher, Def't.

      (Supreme Court, New York Special Term,

      Filed December, 1894.)

    1. Vendor and purchaser—Option.
    Under a provision, in a contract for the leasing of premises with the privilege to the lessee of purchasing them, that, should the lessor begin certain repairs, the lessee should then be bound to purchase, the commencement of such repairs, without the consent of the lessee, would not operate as a decision to purchase.
    3. Equity—Fraud.
    Where there is a mistake of law on one side, and either positive fraud on the other, or inequitable, unfair and deceptive conduct, which tends to confirm the mistake and conceal the truth, equity will award relief.
    Action to recover money alleged to have been advanced by plaintiff to defendant, and to recover possession of a bond and mortgage given by plaintiff.

      Alex. Thain and Thomas M. Tyng, for pl’ff; Everett MacTcinstry, for def't.
   Barrett, J.

The facts in this case are all one way, and they clearly entitle the plaintiff to equitable relief. There can be no doubt upon the evidence that the real agreement between the parties was a renting, with the privilege of purchasing, and not an absolute sale. The plaintiff’s testimony to this effect is clear and convincing, and it is corroborated by the documents in evidence. The defendant’s husband formulated the agreement in his own way, and to suit his own purposes. He induced the plaintiff not to employ counsel. But, although the instruments which he prepared were more beneficial to his wife than the facts warranted, they yet but thinly disguise the real agreement. The contract to repurchase, executed about the time when the plaintiff took the deed, was plainly in execution of the original agreement to rent, with the privilege of purchasing. Mr. Fisher’s letters abundantly establish this. In his letter to Mrs. Smith of March 30, 1893, he says:

“I will also draw up an agreement with you at the time of taking title, or I can draw up a form of agreement, and send to you for your approval, which I can have Mrs. Fisher sign, agreeing to purchase the house back January 1st, 1894, at the consideration of $44,500; you paying the interest and taxes on the entire amount from January, 1893, to January, 1894, which is the amount of rent you will have to pay. The remainder which you have paid to Mrs. Fisher is to be returned to you at that time, or she give you back a mortgage the same as you have given to her, on the same conditions and the same interest,” etc.

Again, a few days later (April 8, 1893), but still before Mrs. Smith took title, he writes to her:

“I will draw up a contract similar to the one we have made with you, which I will have Mrs. Fisher sign, agreeing to purchase the house back on the sapie conditions as it is purchased by you, providing you make up your mind you do not want to keep it. There is no one-sided arrangement about it. We are ready to give you the same as you give, and there should be no more feeling about the matter.”

Long after the taking of title (August 5, 1893), he wrote to Mrs. Smith that Mrs. Fisher would buy back the house “the same as you purchased it of her. If she can make payments faster and take possession sooner, she will do so." The case might well rest upon the agreement to repurchase, for thereunder the plaintiff duly elected not to keep the house. There is a provision in this agreement that, if Mrs. Smith decides to keep the house, Mrs. Fisher will change the furnace, and make certain repairs. There js a further provision that, should Mrs. Fisher begin the repairs, the agreement to repurchase should be null and void, and Mrs. Smith should then retain the house. The effect of this provision, was that if Mrs. Fisher began to make the repairs, with Mrs. Smith’s consent, it would operate as a decision to keep the house. But the commencement of such repairs without Mrs. Smith’s consent, and contrary to her wishes, would certainly not thus operate. Consequently, the sending of a man to change the furnace without Mrs. Smith’s knowledge or consent did not affect the existing option. That act was a cunning attempt on the part of Mr. Fisher to foreclose the option, but it was unavailing. All question on that head is set at rest by the following paper, which Mrs. Fisher signed upon the 23d of October, 1893 :

“ This is to certify that Mrs. Isabella Fisher, of her own free will and accord, and without the request of Mrs. Emma Coudit Smith, repairs the house No. 480 West End avenue, and puts in a new furnace, and that, upon obtaining the permission of Mrs. Emma Condit Smith to do the aforesaid work, Mrs. Isabella Fisher agrees that it shall in no way interfere with her agreement to purchase the house back on the 30th day of December, 1893."

The plaintiff need not, however, rest upon the terms of the agreement to repurchase, treated independently. That agreement aids us in. getting at the original transaction. When read in connection with the plaintiff’s testimony, the letters of the parties, and the other documents, the conclusion is irresistible that the original contract to purchase the deed and mortgage given thereunder,.the contract to repurchase, and all the formal papers which were executed were but Mr. Fisher’s way-of expressing the bargain testified to by Mrs. Smith. There can be no-doubt that the plaintiff was grossly deceived as to the character of the house, and that she suffered greatly' from its defects. The conduct of the defendant’s husband was, to say the least, inequitable throughout. He led the plaintiff to believe that the house was well built, and that she was securing a comfortable residence. He also led her to believe that the documents which he was to prepare, and which she was to accept, without the advice of counsel, would adequately express the agreement to rent, with the privilege of purchasing. If, owing to his unfairness, these documents do not adequately express that agreement, equity will afford relief. As was said in Haviland v. Willels, 141 N. Y. 50 ; 56 St. Rep. 562:

“ It is equally well settled that where there is a mistake of law on one side, and either positive fraud on the other, or inequitable, unfair, and deceptive conduct, which tends to confirm the mistake and conceal the truth, it is the right and duty of equity to award relief. All the cases which deny a remedy-for a mere mistake of law on one side are careful to add the qualification that there must be no improper conduct on the other. Silliman v. Wing, 7 Hill, 159 ; Flynn v. Hurd, 118 N. Y. 26; 27 St. Rep. 744; Vanderbeck v. City of Rochester, 122 N. Y. 285 ; 33 St. Rep. 381.”

It follows, as the plaintiff duly elected not to keep the house, that she is entitled to judgment for the restoration of her bond and mortgage, and for the recovery of the amount advanced by her, less the agreed .rent, with costs.

Ordered accordingly.


author: Per Curiam.

text:
    The People ex rel. David L. Follett et al., Resp’ts, v. Ashbel P. Fitch, as Comptroller, etc., App’lt.

      (New York Superior Court, General Term,

      Filed February 12, 1895.)

    Supreme Court—Justices—Salary.
    Chap. 104 of 1893 does not provide for an increase in salary, within the prohibition of § 13, art. 6, of state constitution.
    Appeal from an order, granting an application for a writ of mandamus.

      William H. Clark, for app’lt; Root & Clarke, for resp’ts.
   Per Curiam.

The legislative enactments relied upon by the relators do not offend the provisions of the state constitution forbidding an increase of salary to certain judicial officers. Consolidation Act, 1882, § 1109, as amended by Laws 1893, c. 104; Const, art-. 6, § 12. The compensation allowed by these legislative acts is by express language limited to “ expenses and disbursements incurred by such officers while acting in the district to which they have been transferred, and they were in force when the present constitution became operative. The order appealed from was properly made, and.must be affirmed, with costs.


author: Finch, J.

text:
    In the Matter of the Judicial Settlement of the Accounts of George S. Young, as Executor, etc.

      (Court of Appeals,

      Filed April 9, 1895.)

    1. Will—Construction.
    The rule that, where there is no gift and no language importing such gift, except in the direction to convert the real estate into money and then make distribution, the vesting is postponed, is to be applied in subordination to, and not as destructive of, the testamentary intention.
    2. Same—Equitable conversion.
    Equitable conversion, where a.sale is imperative and dependent upon no contingency, dates from the death of the testator.
    3. Same.
    Where the only contingency is a death certain to occur and the legatees are known and fixed, a postponed division relates to the period of actual enjoyment, in case there are other words in the will evincing an intent to make the gift.
    Appeal from judgment of the general term of the supreme court in the fifth judicial department, entered upon an order which affirmed a judgment judicially settling the accounts of the executors of Amos Hurlbutt, deceased, entered upon a decree of the surrogate of the county .of Cayuga.
    The proceeding involved a construction of certain provisions of the will of said Amos Hurlbutt, the substance of which is set forth in the opinion.

      S. Edwin Day, for app’lt; Newman & Blood, for resp’t.

       Affirming 61 St, Eep. 521.

   Finch, J.

The controversy over the construction of this will arises out of the provisions contained in its second paragraph. The testator first gave to his wife five thousand dollars and his household goods, the use of his house until the farm should be sold, and an annuity of one hundred dollars from its rents, issues and profits until that sale should Jake place. He then provided thus,: “ Second, I hereby ordain and require the sale of-my farm as soon after my decease as it can be done without undue sacrifice, and out of the proceeds of such sale four thousand dollars are to be reserved for the use of my aforesaid wife in the purchase of another home; or, if she shall choose not to so purchase, or choose a place of less value, then the whole of the money or balance left after purchase shall be placed at interest, and the profits arising therefrom shall be hers during life, and after her decease this amount of four thousand dollars, or the premises my said wife may purchase, with any balance of money left after purchase, shall, after her decease, be equally divided among my children, Amos J. Hurlbutt, Mary Tifft and Ellen Close.” It has happened that the daughter Mary died in the lifetime of the widow, and as a consequence it is claimed by the appellant that the bequest to her lapsed because it was only to vest upon the death of her mother; while on the other side it is contended that the legacy of the principal sum vested at once upon the death of the testator, and so at the death of Mary passed to.her representatives. Both sides appear to agree that the imperative direction to sell the farm worked an equitable- conversion, which requires us to treat the subject of the gift as" personal property. Both parties also appear to concur in the theory that the executors became trustees of the fund for the life of the widow, and that while no express trust was in terms created, one should be implied to enable the executors to perform the duties imposed. That is not an unreasonable construction, but whether it be correct, or the widow took a legal estate for life in the fund,- we need not now inquire, for in either case the principal of the fund remains undisposed of by the terms of the second paragraph except so far as involved in the direction with which it concludes, requiring an equal division among the three children after the decease of their mother. It is upon that form of the gift of the principal, which is in substance the remainder after the life estate, that the appellant takes his stand, invoking the application of the rule that where there is no gift and no language importing such gift except in the direction to convert the real estate into money and then make distribution, the vesting is postponed because time is annexed to the substance of the gift. Delaney v. McCormack, 88 N. Y. 174. We have steadily maintained that the rule referred to is not inflexible or arbitrary, and is to be applied in subordination to the testamentary intention, and not as destructive of it Smith v. Edwards, 88 N. Y. 105 ; Bowditch v. Ayrault, 138 id. 229; 52 St. Rep. 330; Campbell v. Stokes, 142 N. Y. 29; 58 St. Rep. 451; Miller v. Gilbert, 144 N. Y. 73; 63 St. Rep. 41. In the present ease we must, therefore, take into account the other provisions of the will and the general purpose deducible from its terms, and in that process our attention is at once directed to the gift which immediately follows the disputed clause and which forms the third paragraph of the will. It reads thus: “ I give to my children, Amos J. Hurlbutt, Mary Tifft and Ellen Close,- within one year after the aforesaid sale of real estate and the reservation of the aforesaid four thousand dollars for the use of my wife, the whole of the balance of my property not hereinbefore devised, to be equally divided between them,” and then speaks of debts owing by them as being “ part of their inheritance.” The obvious meaning of the testator is that he gives everything to his children except what he had already given to his wife. If the two clauses áre read together, as they should be, their manifest purport becomes a gift of all the property to the children except that previously devised to the wife, the enjoyment of the four thousand dollars being postponed to her decease. The gift is broad enough to cover the trust fund as a remainder and would have done so without the least doubt if there had been no previous direction to divide. It would have been the only gift made and have prevented intestacy as to the four thousand dollars. That being so we are bound to regard the direction as to division not as a gift, not as something “hereinbefore devised,” but as a postponement of the possession of what by the third clause is fully and absolutely given. That clause carried the principal of the fund to the children, and the provision for payment in one year related to the whole gift except as necessarily limited by the necessities of the previous creation of the trust fund. This view is strengthened by the description of the gift to his children as “their inheritance,” and by his later provision for Ellen in which he seeks to guard “the property set apart to her” from the control of her husband, and still further by the fact that a postponement of the actual distribution was essential to the operation of the precedent life estate of the widow, and that no uncertain contingency clouded the gift to the children.

The learned counsel for the appellant argues that time entered into the substance of the gift, because the thing given was the money and not the land, and as money it had not even come into existence at the death of the testator. But the equitable conversion, where a sale is imperative and dependent upon no contingency, dates from the death of the testator, and if, disregarding that date and placing the conversion at the actual sale, we undertake to scan the situation we shall see that the farm itself and its whole rents and profits, subject only to the widow’s use and the annuity of one hundred dollars, vested at once in the three children, and would have stayed there and remained there now if the power of sale had not been executed. Time may fairly be said to enter into the substance of a gift when the existence of such a gift depends upon a contingency which may or may not happen, but where the only contingency is a death certain to occur and the legatees are known and fixed, it is more natural to regard a postponed division as relating to the period of actual enjoyment, where there are other words in the will evincing an intent to make the gift. It is, quite evident in this case that the postponement of the distribution was to let in the interest of the widow, Loder v. Hatfield, 71 N. Y. 100, and enable her to receive the income of the fund during her life. We think, therefore, that the legacy to Mary vested at at the death of the testator.

The judgment should be affirmed, with costs.

All concur, except Haight, J., not sitting.

Judgment affirmed.