text:
    S. HOPKINS KEEP, Respondent, v. LESTER KEEP, Appellant. S. HOPKINS KEEP, Respondent, v. LESTER KEEP and CAROLINE J. YEOMANS KEEP, Appellants.

      Submission to arbitration — discontinues an action even if the submission is void— A married woman cannot make a submission under the statute — When the submission involves a claim to an estate in land in fee, it is void.

    The plaintiff brought two actions against Lester Keep, one to recover for money lent to him; the other to set aside a conveyance of certain real estate from Mm to Ms wife, a defendant therein, and to establish a lien thereon in favor of plaintiff, on the ground of expenditures made thereon upon the agreement of Lester Keep to devise it to him on his death. Keep subsequently to such agreement conveyed the x>roperty to the defendant Caroline, and thereafter married her. After both actions had been referred to the same referee, it was agreed by the Xiarties to submit both cases to him as arbitrator, and that final judgment should be entered on his awards.
    On a motion to vacate a judgment entered on awards made by him, held, that the submission, even if void, operated to discontinue both suits.
    That as to the second action the submission was void (1) because a married woman cannot submit a matter to arbitration under the statute; and (2) because the submission involved the claim of the wife to an estate in fee.
    That the invalidity of the submission of the question involved in the second action did not affect the validity of the award, as to the matters involved in the first, and that as to that the motion was properly denied.
    Appeal from an order denying a motion to set aside a judgment, entered in the above actions on the report of a referee appointed therein.

      P. & D. Mitchell, for the appellants.

      Erastus New, for the respondent.
   Barnard, P. J.:

The first of these actions is brought to recover for moneys lent, and paid by defendant Lester Keep’s order.

The second action is brought to establish a lien upon lands in Brooklyn. The complaint states that the plaintiff made large expenditures under an agreement with the defendant Lester Keep ; that he, Lester Keep, would devise the lands to plaintiff, by will, at his death. That after the agreement and expenditures thereunder Lester Keep married again, and destroyed a will which he had made to carry out the agreement, and deeded the property to his wife. The deed, in fact, was executed before the marriage of the defendants. The complaint asks to set aside the deed, and to declare that the plaintiff have a lien upon the lands for the expenditures made. The actions were both put at issue, and were both referred to the same referee. After very considerable testimony was taken in the first action the parties entered into an agreement “ that both of said actions with all the issues therein involved be and the same are submitted to said referee for decision upon the evidence already taken, and such further evidence as said referee shall desire to take, and that judgment may be entered in each of said actions upon and in accordance with the report of said referee, and with a view to make the decision of the said referee final between the parties; it is hereby further stipulated and agreed that all objection and exception heretofore taken during the trial of said actions be, and the same are hereby waived and withdrawn, and that the judgment to be entered upon said reports shall be final and conclusive between all the parties, and no appeal be taken therefrom, and that said referee in making his decisions and report shall be at liberty to decide the question involved in said actions m such manner as he shall deem just, fair and equitable, irrespective of the legal rights of the parties to'the controversy.” The referee took further proof and made separate reports, finding in the first action that plaintiff was entitled to recover a money judgment of $1,912.87, besides costs; and in the second action firicling that the plaintiff has an equitable lien upon the premises described in the complaint to the extent of $5,478.22, enforceable at the death of Lester Keep, the defendant, with costs against defendants personally.

The first question presented is what is the character of the judgment ? Is it based upon the report of a referee, or is it founded upon the award of an arbitrator ?'

The case of Merritt v. Thompson (27 N. Y., 225) seems to establish that the stipulation conferred upon the referee the powers of an arbitrator. The referee was not to be governed by legal rules of evidence, and his decision was to be final. It was not a legal reference in these respects. The effect of the submission to arbitration was to discontinue the suits in the Supreme Court under the order of reference. (Larkin v. Robbins, 2 Wend., 505; Smith v. Barse, 2 Hill, 387; Towns v. Wilcox, 12 Wend., 503; Grosvenor v. Hunt, 11 Howard Pr., 355; Merritt v. Thompson, 27 N. Y., 225.) The submission had this effect, even if void (Jordan v. Hyatt, 3 Barb., 275; Palmer v. Davis, 28 N. Y., 242); where a report was upheld against a defendant in favor of a married woman, although she was not bound by it.

The next question presented is whether the defendant Caroline J. Y. Keep could submit to an arbitration. This involves the consideration of two distinct questions arising under the Revised Statutes (2 R. S., 541). By this statute all persons, except infants and married women, and persons of unsound mind, may ” submit to arbitration.

“No such submission shall be made respecting the claim of any person to any estate, in fee or for life, to real estate.”

I think the arbitration void under both sections of the statute. There are cases holding that the statutes in relation to married women (Laws of 1860, ch. 90, and 1862, ch. 172) have removed the disability of a married woman to bizid herself by submission to arbitratzozz. (Palmer v. Davis, 28 N. Y., 242; Smith v. Sweeny, 35 N. Y., 291.) Neither of these cases were arbitrations under the statute. In the present case the submission provided for jzzdgmezzt beizzg ezztered upozi the reports. At coznmozi law the szzbznission of a married wozzzan was void for wazzt of mutuality. As the law stood she had zzo separate property. The Court of Appeals have held that the statutes of 1860 and 1862 have modified this old rule, so far as to permit a submission to arbitration not under the statute. She could sue upon an award in her favor, but no decision has been made that the statute submission can be made by a married woman. No submission can be made respecting the claim of any person to an estate in fee. It is true that the plaintiff did not claim an estate in fee ; but he sought to destroy an estate in fee in Caroline J. Y. Keep, and to establish upon the property she claimed to own a lien for moneys paid for her grantor. The complaint asks “ that said conveyance be set aside and canceled.” The referee finds ‘1 that said conveyance was in fraud of the rights of the plaintiff.”

Can the statute mean that a fee may be taken away by arbitration, provided that the claim made by the claimant is only that a lien be established when it is necessary to destroy a fee to do it ? It was as much a claim submitted by Mrs. Yoemans to the fee as by the plaintiff to a lien upon it. The legal title was in dispute (Olcott v. Wood, 14 N. Y., 32).

Upon both grounds, therefore, I 'think the report should have been set aside as to the defendant, Caroline J. Y. Keep. That part of the award which gives judgment for money paid by plaintiff for defendant, Lester Keep, should be upheld. When part of an award is good and part bad ; if the part void is not so connected with the rest as to effect the justice of the case it will be void only pro tanto. (Martin v. Williams, 13 Johns., 264; Cox v. Jagger, 2 Cow., 638; Jackson v. Alen, 14 Johns., 96.) The defendant, Mrs. Keep, is in no way affected by the money judgment against her husband. He could submit to arbitration. The-void part can be stricken out, and the judgment against Lester Keep stand as there is no connection between the claim against the husband and that against the wife.

The order, so far as it denied the motion to set aside the award as to Caroline J. Y. Keep, should be reversed, and the motion granted therefor, without costs to either party.

Dykman, J., concurred; Gilbert, J., not sitting.

Judgment and order denying new trial reversed, so far as it upholds the judgment against Keep and wife ; affirmed as to that part of order appealed from which sustains judgment against Lester Keep.


source: Caselaw Access Project

author: Barnard, P. J.:

license: Public Domain

text:
    WILLIAM GRAHAM, Respondent, v. THE PHŒNIX INSURANCE COMPANY, Appellant.

      Insurance —• right of a mortgagee to effect it in the na/me of the ovme>' and himself.

    Plaintiff, holding a mortgage upon premises owned by an infant of the age of about three years, pz’ocured defendant to issue a policy upon the pz’emises insuring the infazzt, as owner, and the plaintiff as moz’tgagee; loss, if any, payable to plaintiff. Plaintiff having fzzz’nished pz’oofs of loss brought this action zzpozz the policy.

      Held, that the plaintiff was pzámaz’ily insured.
    That if he had the power to take the contract for himself and the ownez1, the case was one of joint izzsuz-ance, and the act of plaintiff in furnishing the pz'oof of loss, was the act of both.
    That if he had no power to take out the policy in the name of the infant, then, though his act was, as to the infant, of zzo legal effect, yet it was izz the absence of fz-azzd or misz’epresentatioiz good and valid as to himself.
    Appeal from a judgment in favor of tlie plaintiff, entered upon the verdict of a jury, and from an order denying a motion for a new trial, made upon the minutes of the justice before whom the action was tried.
    This action was brought to recover $2,500 on a policy of insur.ance issued by the defendant, by which it insured for one year from date “Margaret E. Jack, as owner, and William Graham, mortgagee, against loss or damage by fire to the amount of $2.500 on the three story frame dwelling-house, occupied in part as saloon, situate on the southwest corner or junction of Coney Island Road and Ocean Parkway, on Grand Circle, Elatbush, L. I. Loss, if any, payable to William Graham, mortgagee.” Proofs of loss, made by Graham, as mortgagee, were served on defendant March 25, 1876. Defendant returned them objecting, among other things, that the proofs were in the name of the mortgagee, the policy being in the name of Margaret E. Jack, as owner, and of Graham as mortgagee ; also pointing out the necessity of a legal guardian for the owner, if an infant.
    After the fire, and on 23d of March, 1876, letters of guardianship were issued by the surrogate of Kings county, of the person and property of Margaret E. Jack to Ellen E. Jack, late Ellen E. Gleavey; Margaret E. Jack, the owner of the property, was an infant. Plaintiff, both before and after serving his own proofs of loss, on March twenty-fifth made efforts to find Mrs. Gleavey (or Jack), and induce her to make proofs of the loss under the policy. She refused unless paid money; claiming $2,000 or $3,000. Thereupon plaintiff obtained an order of reference to John M. Mackay. On May twenty-fourth, the report of the referee was confirmed by Barrett, J., by order of that date, and John Lindley was appointed to prepare and present to the insurance companies for, and on behalf, of the infant, the proper proofs of loss, and such proofs were prepared and served by him.
    Subsequently defendant refused to pay. Plaintiff brought an action against the Phoenix Insurance Company, Margaret E. Jack (the infant owner), and Ellen E. Gleavey (her mother and guardian) as' defendants. In this action he was defeated, the opinion of the General Term being reported in 12 Hun, 446. Thereafter this action was commenced.

      JST. B. Hoxie, for the appellant.

      Luden Birdseye and James G. Gloyd. for the respondent.
   Barnard, P. J.:

In February, 1876, Margaret E. Jack, an infant of about the age of throe years, was the owner of certain premises in Flatbush, in Kings county. The plaintiff held a mortgage thereon given by a previous owner of the property. ■ On the 25th of February, 1876, the plaintiff procured of the defendant a policy of insurance upon the buildings upon the land in question. The policy insured Margaret E. Jack, as. owner, and William Graham, mortgagee, and the “loss if any was payable to William Graham, mortgagee.” The premises burned down during the life of the policy, .and the preliminary loss papers were made out by William Graham and served upon the company. After very considerable delay the company required preliminary loss papers on the part of the infant. The mother of the infant in March, 1876, was appointed the general guardian of the infant, and she refused to join without the payment of a sum equal to or even greater than the policy in question. The plaintiff made subsequent efforts to have a guardian appointed, who should join in the loss papers, and did obtain from the Supreme Court the appointment of a person or persons who should act for the infant. It is not necessary to detail those efforts; if I am right in the conclusion at which I have arrived in reference to the plaintiff’s papers, I think the plaintiff was primarily insured. He took the contract to himself as mortgagee and to the infant owner. The parties' each had an insurable interest in the same property. If he had the power to take the contract for himself and for the owner, the case is one of joint insurance, and the act of plaintiff was the act of both, enforcing the policy. If the plaintiff’ had no power to take out a policy in the name of the infant, and his act was thereby of no legal effect as to the infant, then it is good as to himself in the absence of fraud or misrepresentation. In such a case he would be the only person insured, and the preliminary loss papers were good for that reason. The question raised by defendant as to the subsequent proceedings, by which the plaintiff sought to have the infant made a joint actor in reference to the loss papers, looses all relevancy and needs no consideration. The question of the payment of the premiums being waived and credit being given to the mortgagee was made one of fact before the jury, and the finding of the jury thereupon must stand. The policy was delivered and the premiums charged to plaintiff. One of the conditions of the policy required the applicant for insurance to make known all facts material to the risk, and a breach of the condition avoided the policy. There was no fraud or misrepresentation claimed; another insurance company had canceled a policy on the property and the owner was three years old. Neither of these facts were spoken of. The jury found that they were not material to the risk, and that the policy was not avoided by reason of the omission. There was evidence produced upon each side. Experts were sworn by defendants that the age of the .owner was a material fact to the risk, but it was proven that tbe infancy of tbe owner did not occasion either a refusal of the risk or an increased premium upon it. The finding of the jury concludes the question. It is not a legal inference that the age of the owner, in the opinion of another company upon the risk, will destroy an insurance under this condition, if the facts are not stated.

The last point we are called'upon to consider is the effect of the pending of a former action. Among the efforts made by plaintiff, to comply with the defendant’s claim that Margaret E. Jack join in the preliminary loss papers, was an action commenced by plaintiff against the infant owner ; the defendant and the guardian of the infant demanding relief that the guardian be compelled to make proofs of loss, and that defendant be compelled to pay the policy thereupon. The complaint was demurred to by defendant, for the reason that no facts sufficient to make a cause against defendant were alleged therein. The court decided in favor of defendant and the judgment was affirmed at General Term. We think this action is not barred by that; it is not between the same parties and is not for the same relief. One action asks for equitable relief and the other for money damages arising from a breach of contract. One asked relief against other persons than the defendant in connection with a claim against the defendant, and this action is against the defendant alone.

Upon the whole case we think the judgment should be affirmed, with costs.

Gilbert and Dykman, JJ., concurred.

Judgment and order denying new trial affirmed, with costs.


text:
    SAMUEL HERBERT BROWN, by SARAH M. PURDY, his Guardian, Respondent, v. ODLE C. KNAPP, Administrator, and ABIGAIL S. BROWN, Administratrix, etc., of WILLIAM S. BROWN, Deceased, Appellants.

      Jurisdiction of cou/ri ova'foreign executor — when a legacy cb'aws inta'est.

    Samuel Brown died in 1867, domiciled in Connecticut, leaving a will by which he gave a legacy to plaintiff, his grandson, one to a daughter, and the residue of his estate, real and personal, to his son 'William S. Brown, and appointed him executor. The son acted as executor and passed his accounts before the probate court in Connecticut. At the death of the testator, and at the time of the commencement of this action, said son resided in this State.

      Held, that the courts of this State had jurisdiction of an action by plaintiff, to enforce the payment of interest on his legacy.
    The rule that a legacy payable at a future day does not draw interest, when the will is silent on that point, does not apply when the testator stands in the place of a parent to the legatee who has no property from which to support himself.
    Appeal from a judgment in favor of the plaintiif, entered upon the trial of this action by the court, -without a jury.

      Close <& Robertson, for the appellants.

      False <& Finn, for the respondent.
   Barnard, P. J.:

Samuel Brown died in October, 1867. At the time of his death he was domiciled at Greenwich, in the State of Connecticut. He left a last will and testament which was subsequently proven in that State. By the will the testator disposed of his estate as follows : Pie gave a legacy to the plaintiif of $3,000, which he directed his executor to pay to him when he attained the age qf twenty-one years, and if he died under that age, without issue, then the legacy was to his sole surviving son William S. Brown, and his daughter Ann J. Lounsbury. He gave this daughter a legacy of $4,000, to be invested by the executor, and the interest paid annually to her, and after her death the same to go to her children. The rest of the estate, real an.d personal, he gave to his son William S. Brown. The will is silent as to any payment of interest upon the legacy given to plaintiff. The testator left real estate to the amount of $10,875, and personal property to the amount of $5,140.88. William S. Brown was named in the will as sole executor, and he took upon himself the execution of the will. He took the possession of the real and personal estate. He made his final account as executor in the probate court of Greenwich, Connecticut. At the time of the commencement of this action, the executor, William S. Brown, resided in this State, and also at the death of testator Samuel Brown. William S. Brown died after the trial in this action and before the final decision. The defendant Odie C. Knapp was appointed administratrix with the will annexed of Samuel Brown, deceased, in Connecticut, and Odie C. Knapp and Abigail L. Brown were appointed administratrixes of William S. Brown, deceased, by the surrogate of Westchester county.

The plaintiff brought this action to enforce the payment of interest upon the legacy of $3,000 to him during his minority, and the first question presented is whether this court has jurisdiction of the action. We think the cases support the jurisdiction of this court to entertain the action. In the case of McNamara v. Dwyer (7 Paige, 239) it was held that the Court of Chancery has jurisdiction to compel a foreign executor to account for the trust funds in his hands in this State. In Despard v. Churchill (53 N. Y., 192) the Court of Appeals held that the entertaining of such an action against foreign executors is a question of judicial discretion and not of jurisdiction. In that case the court justified an order directing payments by the executor of a testator at the time of his death domiciled in California. No special reason is perceived why the question presented by plaintiff should be sent to Connecticut for adjudication. There are no creditors to be protected. The executor is a resident of this State and has personally the title to the real and personal property of testator as executor and residuary legatee. The plaintiff lives here. The sole question is whether the legacy in question draws interest, and that can as well be decided here as elsewhere. The presumption is that the courts of the different States will decide according to law, and that the decision would be the same upon the question presented in each State. The Connecticut decisions will be considered in determining wbat the law is. There might be a failure of justice if this action was not .sustained. The real estate of testator was, it is true, in Connecticut, whether it is now subject to the probate court there does not appear. If it has been transferred, a Connecticut decree could not aid the plaintiff. The defendant could not be served. The personal property w'ould follow the domicile of William S. Brown and be beyond the reach of the Connecticut court.

. The second question presented is one of fact. Plaintiff’s father was a son of testator. In 1863 he joined the army of the United States and went to Louisiana, where he died. Before he went the testator, Samuel Brown, promised him that in case he did not return he would take care of his wife and child. He took this wife and child to live with him in Connecticut, and kept them in his family as long as he lived. He treated the plaintiff in the most affectionate manner ; called him his “little son” and “little grandson.” He told the boy’s mother he had left things so, that she would have no trouble in bringing him up. He repeatedly said this. The boy was seven years old when his grandfather died. The judge correctly found, we think, from the testimony that the testator stood in the place of a father to plaintiff. The general rule in regard to legacies is that a legacy, payable at a future time, does not draw interest when the will is silent as to interest. To this rule there is an exception where the testator stood in place of parent to the legatee. This is supported by an abundance of authority. (Acherley v. Vernon, 1 P. Wms. Rep., 783; Harvey v. Harvey, 2 id., 21; Hill v. Hill, 3 Ves. & B., 183; Heath v. Perry, 3 Atk., 102.)

The infant plaintiff in this case has no property with which to support himself. He therefore comes, within the principle held in numerous cases. Equity will decree the interest to be payable upon his legacy, which is clearly a vested one, and liable to be divested by death and only from that time.

The judgment should be affirmed, with costs.

Gilbert, J., concurred ; Dyicman, J., not sitting.

Judgment affirmed, with costs.


author: Barnard, P. J.: Dykman, J.,

text:
    JAMES D. McMANN, Appellant, v. GUSTAVUS AUTENREITH, Respondent.

      Failure of landlord, to repair — when it does not justify an abandonment by the tenant.

    The plaintiff leased a building to defendant, who agreed “to do all the repairs which may be required in and upon said premises at his own cost and expense.” The defendant having partly fitted up the building, an old one, stored so great a weight of goods therein as to cause the floors to settle, and subsequently the floors and roof settled still more in consequence of a snow storm. Plaintiff, at defendant’s request, had the roof made secure, and in so doing removed a portion of the flooring, the material of which was unfit to be relaid.
    In an action to recover the rent, the refusal of plaintiff to relay this floor was held by the referee to be an eviction, and a bar to the action for rent. Held, that this was error. (Dykman, J., dissenting.)
    Appeal from a judgment in favor of the defendant, entered ■ upon the report of a referee.
    The action was brought to recover rent falling due upon a lease of certain premises from the plaintiif to the defendant. The •defence was that the premises became untenantable by reason of the neglect of plaintiif to make repairs, and that defendant abandoned possession.

      JST. B. Hoxie, for the appellant.

      H. G. Place, for the respondent.
   Barnard, P. J.:

I think there was no eviction proven upon the trial. The ■defendant agreed “to do all the repairs which may be required in and upon said premises at his own cost and expense.” The building was an old building when rented, and the defendant fitted it up in some respects for the purposes of his occupancy. Yery soon after he entered into possession the defendant placed goods of great weight within the building. By reason of this weight, and of the condition of -the building itself, the floors settled. In the following spring the roof and floors settled still more in consequence of a snow storm. The defendant then applied to the plaintiff to fix up the building. The plaintiff employed a carpenter and made the roof secure. To do this it was necessary to remove a strip of flooring about six feet wide and fifty feet long. The defendant requested the plaintiff to leave this strip of flooring-open until he had disposed of his refrigerators stored there. After the expiration of six months or thereabouts, the defendant requested the plaintiff to lay down such strip of flooring. The refusal to do this is the eviction found by the referee. The covenant in the lease covered this defect. The covenant was to do all repairs. The clause in the lease requiring the defendant to surrender in as good condition as reasonable use would permit, damages by the elements excepted, does not relieve defendant of the obligation to do the repairs in question. It was the defective building which permitted the injury. This was in part occasioned by the great weight which defendant placed in it. If the covenant to repair covered this repair to the roof and building, the case would not fall within the provision of chapter 345, Laws of 1860. It was not the design of that law to relieve a tenant from the performance of his covenants, even if the destruction was caused by a sudden cause. It was not a performance of a covenant to repair, to tax the strength of an old building to its utmost by the weight of goods placed in it, and when the floor settled and became dangerous by the additional weight of a fall of snow on the roof thereon, to avoid responsibility by averring the injury to have been caused by the elements. If the defendant was bound to repair, then the part performance of the work of restoration by plaintiff would not be an eviction. What he did he did by defendant’s consent. If he was not legally bound to repair his premises, to do so was without consideration. The strip of flooring taken up was not fit to go back. Upon the whole case, I think the judgment should be reversed, and a new trial granted at circuit, costs to abide event.

Gilbert, J., concurred.

Dykman, J.,

dissenting.

The common law was that a tenant was obliged to pay rent to his landlord, even though the demised premises were destroyed by fire or otherwise, unless he had exempted himself from payment in case of their destruction, by an appropriate covenant in his lease. This was seldom done, and under this obstinate rule of law the courts often saw great hardships in recoveries, which they were powerless to remedy.

In 1860 the Legislature of our State passed a law which was intended to afford a remedy for the evil. Chapter 345 of the Laws of 1860 provides that the lessees or occupants of any building which shall, without any fault or neglect on their part, be destroyed or be so injured by the elements, or any other cause, as to be untenantable and unfit for occupancy, shall not be liable or bound to pay rent to the lessors or owners thereof, after such destruction or injury, unless otherwise expressly provided by written agreement or covenant; and the lessees or occupants may thereupon quit and surrender possession of the lease-hold premises, and of the land so leased or occupied.

This statute and its objects are entirely plain. It secures to a tenant the right to surrender the demised premises whenever they are rendered untenantable and unfit for occupancy, by injury from the elements, or any other cause, without his fault or neglect. The term injury in the statute has reference to some sudden calamity as contradistinguished from natural decay.

The referee has found, from testimony which supports his finding, that the roof and floors of the building in the demised premises in this case settled so much as to be unfit for occupancy, and that the immediate occasion of such settling was the weight of the snow which fell upon the roof in March, 1875. This was a sudden injury within the meaning of the statute, and put the tenant in a position to surrender the lease-hold premises and escape liability for the rent.' The referee finds that such surrender was made in December, 1875, and the action was for the rent for the quarter ending on the 1st day of May, 1876, and of course commencing on the first of February of the same year The lessee covenanted in his lease to do all the repairs required in and upon the premises, and to quit and surrender the premises demised in as good state and condition as reasonable use and wear thereof would permit, damages by the elements excepted. This last exception is very important and must be held to apply to the repairs as well as to the surrender. The repairs intended were ordinary repairs to prevent dilapidation, so as to render possible the surrender covenanted to be made, and the covenant to repair does not impose upon the tenant the liability to repair sudden injuries by the elements, or to rebuild in case of total destruction.

The judgment ought to be affirmed, with cost;.

Judgment reversed and new trial granted, costs to abide event; order of reference vacated. •


author: Barnard, P. J.: Dykman, J.:

text:
    JANE M. VAN BRUNT, Respondent, v. EDWARD P. DAY, MINERVA A. SPISER and HENRY L. SPISER, Appellants.

      Covenant, in the assignment of a mortgage — it cannot be varied by parol evidence of a conditional delivery.

    One Day assigned to the plaintiff a bond and mortgage, by an instrument under seal, and therein guai-anteed the payment of the amount due or to grow due, in case of the failure of the mortgagors to pay the same. Upon the trial of an action to foreclose the mortgage and charge Day with'the amount of any deficiency, he offered to prove by parol evidence that the assignment to plaintiff was made on condition that he should keep the property insured; that he gave $300 to plaintiff wherewith to iiay the premiums, and that by reason of his failure so to insure it great loss was occasioned, the property having been burned while uninsured. Held, that the evidence was inadmissible to add to or vary the covenant contained in the assignment, and that it was properly-rejected.
    Appeal from a judgment rendered by the County Court of Kings county, decreeing the foreclosure of a mortgage and tbe sale of the mortgaged premises, and directing the payment of any deficiency by the appellants.
    The bond and mortgage was made by the defendants Spiser to the defendant Day, and was by him assigned to the respondent with a guaranty of -“the payment of the amount due and to grow due thereon, in case of the failure of the mortgagors to pay the same according to the tenor thereof.”
    The answer of the defendant Day averred that the assignment was made on certain conditions, alleged that these conditions were not fulfilled, and that he was thereby released from his guaranty. On the trial the court refused to admit parol evidence offered, to prove the alleged verbal agreement, and the defendant Day duly excepted.
    /S'. O. Conable, for the appellants.

      Win. 8. Cogswell, for the respondents.
   Barnard, P. J.:

Minerva Spiser and Henry L. Spiser executed a bond and mortgage to- the defendant Day. Day assigned the same to plaintiff, and in the assignment under seal made this covenant: And I do hereby guaranty to the party of the second part the payment of the amount due and to grow due thereon, in case of the failure of the mortgagors to pay the same.” The defendants answered and set up as a defence to the action for the foreclosure of the mortgage that the assignment was made by the defendant Day to plaintiff, upon the “condition that the said property should be kept insured in an amount sufficient to secure the said bond and mortgage.” That Day left $300 in plaintiff’s hands with which to insure, and that the failure by plaintiff to insure resulted in great loss, the building upon the property having been burned while it was uninsured. Upon the trial the defendant offered to prove this condition by parol. There was no condition whatever in the written paper containing the covenant by Day to plaintiff. The court rejected parol evidence to ingraft a condition upon the covenant. The general rule is that all previous and contemporaneous agreements are merged in the writing. If, therefore, there was a verbal agreement made at the execution of the assignment of the mortgage, it became merged in the same, and all which was not put in the writing is to be deemed to have been waived, and to form no part of the agreement as finally made. (Kelly v. Roberts, 40 N. Y. Rep., 432; Johnson v. Oppenheim, 55 id., 280.) The commissioners of appeals applied the rule as well to subsequent as to prior and contemporaneous admission to vary a written contract. (Mott v. Richtmyer, 57 N. Y., 49.) In Van Bokkelen v. Taylor (62 id., 105) the Court of Appeals held that a condition could not be amended by parol to a writing, such evidence being offered for the purpose of showing no delivery of the paper in -question. We think the court committed no error in rejecting the evidence offered, and that the judgment should be affirmed, with costs.

Gilbert and Dtkman, JJ., concurred.

Dykman, J.:

This is an action to forelose a mortgage made by Minerva A. Spiser and her husband to Edward P. Day, and by him assigned to the plaintiff. The deed of assignment contained these words : “And I do hereby covenant with- the said party of the second part that there is now due and owing on said bond and mortgage the sum of $3,000, and interest from the first day of March, 1873, and I do hereby guarantee to the party of the second part the payment of the amount due and to grow due thereon in case of the failure of the mortgagors to pay the same, according to the tenor thereof.”

The defendant Day alone answered, and set up that his guarantee was upon condition that the property should be kept insured by the plaintiff, which had not been done, and on the trial he offered testimony to show that he guaranteed the mortgage on certain conditions, verbally expressed at the time it was made. This was rejected aucl constitutes the ground of error here.

It is true that if an entire contract may be in part reduced to writing and in part not so reduced, testimony may be received to show the whole contract, and what part of it was put in writing and what not; but such testimony when received does not contradict or vary the writing. Quite the contrary, it affirms it, and only shows there is something beyond it. That, however, is not this case. Here the defendant sought to show that he made a conditional verbal contract, and then made an absolute written contract free from conditions. Such testimony would not only contradict and vary the written contract, but might entirely destroy it; writing is certain, and it is against the policy of our law to allow written instruments to be varied by testimony coming from human memory, which is frail. The defendant’s position in short is, that he made a verbal agreement to give a conditional guarantee, and then gave an unconditional one in writing. This being so no principle of law will permit him to escape liability under the writing by attaching to it a condition not included in it.

The judgment must be affirmed, with costs.

Barnard, P. J. and Gilbert, J., concurred.

Judgment, affirmed, with costs.


author: Dykman, J.: Pratt, J.: Gilbert, J.,

text:
    WILLIAM S. HOYT, Plaintiff, v. THE QUICKSILVER MINING COMPANY, GEORGE L. KENT and others, Defendants. GEORGE L. KENT, Plaintiff, v. THE QUICKSILVER MINING COMPANY and others, Defendants.

      Corporation — right of, to issue preferred stock — who may object to

    A corporation, was authorized by its charter to issue certificates of stock representing the value of their property, in such form and subject to such regulations as they might from time to time by their by-laws prescribe. The company bought property of the value of §10,000,000, and issued stock to that amount. Subsequently, February 24,1870, desiring to raise money, it was resolved at an annual meeting of stockholders, by the unnanimous vote of §75,658 shares, that certificates of stock, upon which five dollars per share should be paid within a time limited, should be preferred shares, and should be entitled- to interest at the rate of seven per cent per annum, to be paid annually out of the net earnings of the company, any surplus remaining to be divided pro rata among the holders of preferred and common stock.
    In pursuance of this resolution the owners of 42,913 shares of common stock exchanged them for a corresponding number of preferred shares. Since April, 1870, the capital stock has been represented by such preferred shares and the balance of the shar.es.unexchanged of the common stock, and frequent transfers of both kinds of stock have been made, and such shares have been bought and sold in open market as common and preferred stock, the latter always at the higher price. The amount realized by the transfer of the common into the preferred shares was expended in the current expenses of the company
    At the annual meeting of the stockholders, February 24, 1874, a resolution was passed authorizing the holders of the rest of the common stock to convert it, upon the payment of five dollars and interest from February 24, 1870, into preferred stock.

      November 24, 1874, an action was brought by a stockholder against the company, and others, a majority of the board of directors and large owners of its common stock, in which it was decreed that the preferred stock issued under the resolution of Februai’y 24, 1870, was valid against the owners of the common stock who had assented to the preference or ratified the same, or became estopped by their acts from disputing it, and that as against such stockholders the company was bound to carry out the contract of preference. The judgmentalso restrained the issue of more preferred stock.
    Prior to November 16, 1877, no action had been taken to restrain the issue of the prefex-red stock or have it declax'ed invalid, or prevent the carrying out of the contract of preference; nor previous to the stockholders’ meeting of February, 1874, was any written pretest or any serious objection made to said preferred stock.
    November 16, 1877, an action was brought by the holder' of certain shares of common stock, asking that the preferred stock be adjudged to be void.

      Held, that as to the parties representing the shares of stock voting in favor of the resolution giving the preference at the meeting of February 24, 1870, the preference was valid and binding.
    That in respect to the holders of the balance of the common stock, their subsequent acquiescence deprived them of the right to object to such preference to the same extent that their previous assent thereto would have done.
    That if such holders of the common stock had intended to raise any objections it was incumbent upon them to do so promptly, and not allow the public to deal in the preferred stock under the belief, engendered by their silence, that no objection would be made to its validity.
    Though mere lapse of time will not show knowledge, yet where it would be inequitable under the circumstances of the case to allow a stockholder, after a great lapse of time, to set aside a transaction where money realized therefrom has been used by the company, it will be imputed to him.
    Motion for a new trial on a case and exceptions. The case was beard by the court without a jury, and a decision rendered against the plaintiff, wbicb decision is hereinafter more fully set forth.
    The plaintiff Hoyt brought the first of the above entitled actions in his own behalf, and on behalf of all others similarly situated, wbo might come in and contribute to tbe expenses of this suit, and make themselves parties thereto against tbe defendant and other holders of so-called preferred stock, to determine the rights of tbe stockholders, and to have the invalidity of tbe so-called preferred stock adjudged.
    From the findings of the court it appeared that tbe defendant, tbe Quicksilver Mining Company, is a corporation created by an act of the Legislature of the State of New York, entitled “ an act to incorporate the Quicksilver Mining Company,” passed April 10, 1866. Pursuant to the second section of said act, the said company, at a meeting of its stockholders, duly held at the city of New York, on the 1st day of March, 1867, adopted certain by-laws, among which were the following:'
    * * * # # * *
    IV. Certificates of stock, amounting to $10,000,000, shall represent the value of the property of the corporation, and the capital stock shall be divided into 100,000 shares of $100 each.
    V. The said certificate shall be in such form as shall be prescribed by the board of directors. * * * *
    • XI. No dividend shall be made except from actual surplus profits, and these profits (except a reasonable reserve fund) shall be divided as often as once in six months. All dividends shall be payable at the office of the company in New York.
    XIV. The directors may, from time to time, on the credit and responsibility of the company, borrow such sums of money as they may deem consistent with the interests of the company, and as a security for the repayment of such loans they shall have the authority to issue notes of the company, and to pledge or mortgage any shares of stock or other estate, personal or mixed, belonging to the company.
    XVI. These by-laws may be altered, amended or repealed, at any regular or special meeting of stockholders, by a vote of a majority in interest of all the stockholders.
    The capital stock authorized by the fourth by- aw was issued m one certificate to William Bond, president, and George J. Forest, treasurer of the Quicksilver Mining Company, of Pennsylvania, in payment for mining property purchased of the Pennsylvania company, and for the purpose of being distributed among the holders of the stock of that company, share for share. Said certificate was accordingly decomposed, and certificates were issued from time to time to the holders of stock of the Pennsylvania company, until at the closing of the books, prior to the annual meeting in February, 1870, only 14,864 shares remained unexchanged.
    At the time of the passage of the amended by-laws and resolutions hereinafter mentioned, and the issue of certificates of preferred stock pursuant thereto, the said company was greatly embarrassed in its finances, and said measures were adopted as well to secure the means for carrying on the corporate business as also to provide for the payment of the interest on its mortgage debt, and of judgments to a large amount, which were being enforced against it, and after various other measures, and especially a third mortgage for $1,000,000 upon the property of the company had been tried and proved unsuccessful.
    At the annual meeting of the stockholders of the company, held pursuant to notice as required by the by-laws, on the 4th Wednesday (24th) of February, 1870, the following amended by-laws and resolutions were adopted by a unanimous vote of 75,658 shares :
    By-law IV. Certificates of stock amounting to $10,000,000 shall represent the value of the property of the corporation, and the capital stock shall be divided into 100,000 shares of $100 each. Certificates of stock upon which five dollars ($5) per share shall be paid shall be distinguished as preferred stock.
    By-law XI. The preferred stock shall be entitled to interest at the rate of seven per cent per annum from the 1st of May, 1870, to be paid annually out of the net earnings of the company for each year. Should there remain a surplus of earnings after the payment of the said interest upon the preferred stock, then this surplus shall be divided pro rata among the holders of preferred and common stock in proportion to their several interests.
    Resolved, That a preferred stock of the company be issued in shares of $100 each, and that the treasurer be directed to open books at the office of the company in the city of New York, and to receive subscriptions to said preferred stock. Such subscriptions shall be received, only from the holders of the common stock of the company, on their surrendering to the company common stock, and paying to the treasurer five dollars on each share of stock surrendered. The common stock so surrendered shall be canceled before the issue of the preferred stock, share for share.
    Resolved, That the books for subscription to the preferred stock shall be closed by the board of directors, whenever the interests of the company, in their opinion, will be promoted by so doing.
    Pursuant to the resolution passed by the stockholders and board of directors, the books for subscriptions to the preferred stock were opened on the 28th day of March, 1870, and closed upon the- 18th of April following, at 3 o’clock in the afternoon. Previous to the closing of the said books, owners of common stock to the amount of 42,913 shares, subscribed for a corresponding number of shares of preferred stock, and said subscribers to the preferred stock surrendered their said shares of common stock, and paid to the company the sum of five dollars on each share so surrendered, and in consideration thereof the company thereupon issued and delivered to such common stockholders certificates of shares of said preferred stock.
    Since April, 1870, of the 100,000 shares of the capital stock of the company, 42,913 shares have been represented by certificates of preferred stock, and 57,087 shares have been represented by certificates of common stock, and said two forms of certificates have been issued and continue to be issued by the said company upon the surrender of like certificates for transfer. During the said period the entire capital stock of the company, both common and preferred, has been transferred, and the certificates thereupon surrendered and new certificates issued, corresponding to those surrendered.
    Since May, 1870, the stock of the Quicksilver Mining Company has been regularly called at the stock exchange in the city of New York, and there openly bought and sold m the usual manner under two designations, viz. : “ Quicksilver Common ” and “Quicksilver Preferred,” and upon such sales the price of “ Quicksilver Preferred ” has always been in advance of “ Quicksilver Common,” and reports of such calls, purchases and sales of said stocks have been regularly made by the stock exchange and published in the daily papers in the city of New York
    The sum of $214,565 realized from subscriptions to the preferred stock was appropriated by the company to the payment of Its current expenses, the interest on its mortgage debt and of judgments, for which the company was liable.
    At the annual meeting of the stockholders in February, 1871, the report of the president was submitted, stating that the by-laws authorizing the preferred stock were adopted at the last annual meeting by a unanimous vote of 75,658 shares, giving a complete copy of such by-laws, with a detailed statement of the amount received for subscriptions to tbe preferred stock and tbe disbursement of tbe same.
    At the annual meetings of tbe stockholders of tbe company, held on tbe 24th of February, 1874, tbe following preamble and resolutions were adopted by a vote of 68,274 shares in tbe affirmative to 2,500 in tbe negative :
    “Whereas, at a meeting of tbe stockholders, beld February 24, 1870, a resolution was adopted giving tbe privilege of conversion into preferred stock to tbe holders of tbe common stock of tbe company, upon tbe payment of five dollars per share for each share of common stock so converted, and that tbe option of such conversion was duly closed by tbe directors on tbe eighteenth of April followmg, at which time 42,913 shares of preferred stock bad been issued as above provided.
    “ And whereas, from tbe report of tbe president, submitted to this meeting, it seems desirable that previous to the payment of dividends tbe same privilege of conversion should be extended to tbe holders of tbe 57,087 shares of tbe common stock now outstanding, it is hereby
    “ Resolved, That tbe company will issue its preferred stock to the holders of tbe common stock of tbe company, share for share, upon tbe surrender of such common stock, and tbe payment, at tbe time of issue, of five dollars, and interest from February 24, 1870, upon each share of stock so surrendered.
    “ Resolved, That tbe common stock so exchanged shall be canceled previous to tbe issue of preferred stock, share for share.
    “ Resolved, That tbe directors be hereby authorized at their option to close the books of tbe preferred stock for tbe purpose of this exchange whenever, in their judgment, tbe interest of tbe company will be promoted thereby, giving days’ notice .previous thereto.”
    Previous to tbe commencement of tbe present suit, on or about the 16th day of November, 1877, no suit or legal proceeding of any kind was begun by any common stockholder to restrain the-issue of said preferred stock, or to have tbe same declared invalid, or to prevent tbe carrying out of tbe contract with tbe preferred stockholders ; nor previous to tbe said meeting of stockholders in February, 1874, was any written protest or statement made in. reference to the preferred stock, nor previous to that meeting was any serious or public objection to said preferred stock ever made, or any serious or public question as to its validity raised by any stockholder.
    The Quicksilver Mining Company. has realized net earnings in each of the years since May 1, 1871, but neither the entire amount of such net earnings, nor their amount for any of the said years since May 1, 1871, has been definitely ascertained, nor can they be ascertained without an examination and statement of the accounts of said company, with direct reference to the determination of such amounts.
    Previous to May 11, 1871, the defendant Kent was not a stockholder in the Quicksilver Mining Company. He was at the commencement of this action, and now is, the owner and holder of 2,500 shares of the preferred stock of said company, standing in his name upon its books, all of which was purchased by him at the New York stock exchange, in the usual maimer of purchases at said exchange, at various times between May 11, 1871, and February 17,1874. He purchased said stock, induced by and relying upon thé terms of the certificate of preferred stock, and without any knowledge of the actual consideration upon which the preferred stock was issued.
    On or about the 24th day of November, 1874, an action was brought in the Supreme Court of the State of New York, by the said George L. Kent, as plaintiff, against the said Quicksilver Mining Company and certain others, being a majority of the board of directors of said company, and large owners of its common stock, as defendants, in which the said defendants all appeared and answered, and afterwards a trial and such proceedings were had that, by the judgment of said court, duly made and entered in the office of the clerk of the city and county of New York, on the 27th day of October, 1877, it was, among other things, ordered, adjudged, and decreed that the said contract of preference made under the resolution adopted February 24, 1870, and the 42,913 shares of preferred stock issued thereunder, are valid and binding upon the said company, and upon all the stock which voted therefor, and all the other stock known as common, the holders and owners of which have subsequently assented to such preference, or in any way ratified the same, or become estopped by their acts, or omissions to act, from disputing the same; and that said company is bound to respect and carry out the said contract of preference, as against said stock voting therefor, or- subsequently assenting thereto, or ratifying the same according to the terms of said contract. The judgment recovered in the last mentioned action restrained the company from creating other preferred shares, and from paying any of its earnings on any newly issued preferred stock while the plaintiff continued to be the owner of common and preferred shares of its stock. (For the report of this case, see 12 Hun, 53.)
    The plaintiff Hoyt was at the time of the commencement of the present action, and is now the owner and holder of 1,000 shares of the common stock of the Quicksilver Mining Company. He purchased said 1,000 shares of stock between October 11, 1877, and November 19, 1877, during the pendency of the suit of Kent v. The Quicksilver Mining Company, referred to in the pleadings in the action, and knew of the pendency of that suit, and of the relief sought by Kent therein. He had, prior to his purchase of said 1,000 shares of stock, been the owner and holder of preferred stock ; and about the time of his aforesaid purchase he sold said preferred stock. This action was commenced November 16, 1877, and by an amended summons and complaint the said Kent was made a party defendant on November 26, 1877. His said purchase of the 1,000 shares was made with the expectation and intention of asserting, in some manner and by the aid of legal proceedings, the rights now claimed by him.
    The court found, as conclusions of law, that the contract- of preference authorized by the amended by-laws and resolutions adopted on the 24th of February, 1870, and contained in the certificates of preferred stock, was within the corporate powers of the Quicksilver Mining Company ; that the action of the Quicysilver Mining Company in adopting said by-laws and resolutions, and issuing said certificates, was a legitimate and proper exercise of its corporate power, as the same existed under its charter; that the contract of preference being within the corporate powers of the company, and in apparent pursuance of the authority conferred by its charter, is presumptively valid; and the same not having been objected to within a reasonable time and in a proper manner by any stockholder of the company is binding upon the company and its stockholders in favor of the defendant Kent, and all other holders of such preferred stock ; that the holders of the 75,658 shares of stock who voted in favor of said amended by-laws and resolutions thereby assented to and authorized the action of the company in making said contract of preference, and said contract is valid and binding as against all owners and holders of the stock so voted upon; that the stockholders of the Quicksilver Mining Company, by acquiescing in the action of the company in making said contract of preference, and appropriating the moneys realized therefrom, have assented to and ratified said contract, and the same is binding upon them by reason of such assent and ratification; that the defendant, George L. Kent, is entitled to judgment as prayed for in his answer; and the court directed a reference for the purpose of the accounting so prayed for.
    George L. Kent, November 13, 1877, • commenced a second action in the Supreme Court, first judicial department, against the Quicksilver Mining Company, George D. F. Manice and other holders of the so-called “ common stock,” ostensibly to establish the affirmative rights of the preferred stockholders, and for an accounting and distribution of the net earnings, with preference in such distribution to the plaintiff and other preferred stockholders.
    In the present action brought by Hoyt, the proceedings of Kent in his second suit were stayed, and he in turn applied for a stay against Hoyt. It was finally agreed that both actions be brought on for trial at the Special Term before Mr. Justice Barnard, and tried at the same time.

      Thomas E. Stillman <& William Allen Buttler, for the plaintiff Hoyt.
    The right of the plaintiff to maintain this equitable action, for the purpose of securing the relief demanded, and the power of the court to grant such relief, are well established. (Ang. &. Ames on Corp., §§ 391, 393; Dodger. Woolsey, 18 How. [U. S.], 331, and cases cited on page 341; Solomons v. Laing, 14 Jurist [Dec., 1850], 279; Coleman v. Eastern Counties Railway Co., 10 Beav., 1; Pearce v. Mad. and Ind. R. R. Co., 21 How., 441; Bloxam v. Met. Railway Co., L. R. 3 Ch. App., 343, note. The attempted creation by the Quicksilver Mining Company, in February, 1870, of a so-called “ preferred stock,” was unauthorized and illegal. (Ang. & Ames on Corp., § 393; 1 Lindley on Part, and Companies, 628; Livingston v. Lynch, 4 John. Ch., 573; Ashbury Railway Carriage and Iron Co. v. Riche, L. R., 7 Eng. and I. App., 643; per Malin’s V. C; in Melhado v. Hamilton, 21 Week. Rep., 619; Hutton v. Bcarboro Cliff Co., 2 Drewry and Smales, 514, 521; and see opinion of Lord Ch. Westbury; 8. C., affirmed on appeal, 13 Week. Rep., 631; Brice’s Ultra Vires [Green’s ed.], page 147, note ; and see cases cited by Daniels, J., in Kent v. Quicksilver Mining Co., 19 Hun, 53.) The creation of the so-called “preferred stock’’ cannot be upheld as an exercise of the power of the corporation to borrow money on the pledge of its net earnings. (Taft v. Hartford Providence and Fishkill R. R. Co., 8 R. I., 310; Williston v. 'Mich. 8o. and FT. Ind. R. R., 13 Allen, 400; Jones v. Terre Haute and Altan R. R. Co., 57 N. Y., 196; Henry v. The Great Northern Railway Co., 1 DeGex. & J., 606, page 637.) The right of the plaintiff to maintain this action and to the relief sought thereby is not barred or affected by any assent, acquiescence or lapse of time. On the facts proved there ' is no question of laches or estoppel in the case. (Herman on Estopel, pages 415, 416, 419; Shapley v. Abbott, 42 N. Y., 443, pages 448, 449; Knettle v. Newcomb, 31 Barb., 169; N. F. and Oswego Midland R. R. Co. v. Van Horn, 57 N. Y., 373: Hutchins v. Hubbard, 34 id., 24; Coleman v. Eastern Counties Railway Co., 10 Beav., 1; Miranville\. Silverthorne, 48 Penn., 147; Mechanics' Bank v. N. F. and N. II. R. R. Co., 13 N. Y., 599; McCready v. Rumsey, 6 Duer, 574.)

      George 8. Hamlin, Grosv. P. Lowrey and John II. Porter, for the plaintiff and defendant Kent.
    By its charter the Quicksilver Miffing Company was invested with a general authority to create preferred stock. (Redf. on R. [3d ed., vol. 2], 208; Bates v. Androscoggin and Kennebec R., 49 Marne, 491; Bvansville, etc., Railway v. Bvansville, 15 Ind. Rep., 395; Ilazelhurst v. Savannah R. R., 43 Georgia, 53; Lockhart v. Van Alstyne, 31 Mich., 81.) The general authority conferred by the charter to create preferred stock, and the regularity of this issue created a presumption of validity upon which subsequent purchasers had a right to rely, and which in the present position of parties cannot be questioned. (The New York Firemen’sIns. Co. v. Sturges, 2 Cow., 664; Safford v. Wyckoff, 4 Hill, 442; Farmers’ Loan and Trust Co. v. Perry, 3 Sand. Ch. R., 339; Same v. Clowes, 3 Corns., 470; Chatauqua County Bank v Bisley, 19 N. Y., 381; Willmarth v. Crawford, 10 Wend., 344.) Parties dealing with a corporation, are bound to see that transactions upon which they rely are within the apparent authority conferred by the charter, but they are not bound to look further. (Ritchie v. Ashbury R. Co., 9 Exch., 227; Royal British Bk. v. Turquand, 6 E. & B., 332; Totterdell v. The Fareham, etc., Co., Eng. Law Rep. [1 C. P.], 678; Commissioners of Hnm Co., Indiana, v. Aspinwall et al., 21 How. [U. S.], 545; Webb v. Herne Bay Commissioners, Law Rep. [5 Q. B.], 642.) The acquiescence of all the stockholders rendered absolute the presumption of validity. It worked a surrender of any right which they had to object to the preferred stock, and amounted to a ratification of the action of the company in ereatingit. (Cairncross v. Larimer, 7 Juris. [N. S.], 149; London Permanent Building Society, 17 W’kly Rep., 514; affirmed on App., 21 Law Times [N. S.], 8; Parish v. Wheeler, 22 N. Y., 494; Bissell v. Mich. South. R. R. Co., id., 258; Be Oroff v. Am. Linen Thread Co., 21 id., 124; Whitney Arms Co. v. Barlow, 63 id., 68; Ilazellmrst v. Savannah R. R. Co., 43. Ga., 53; Society for Savings v. City of New London, 29 Conn., 174; Fvans v. Smallcombe, Law Rep. [3 II. L.], 240; Sfflackman v. Fvans, id., 171; Richie v. Ashbury Co., Law Rep. [7 Eng. & Irish App.], 653; Phosphate of Lime Co. v. Green, Law Rep. [7 C. & P.], 43.)

      Van Cotí <& Winslow, for the Quicksilver Mining Company.
   Dykman, J.:

It is not necessary to decide whether the resolution of February 24, 1870, directing the issue of preferred stock is ultra vires or not. If all the shares had been voted on at the meeting which adopted it, and had voted in the affirmative, it would have been binding- on the company, and it follows that so far as the issue of the stock was sanctioned by the 75,658 shares voting for it, it is. to that extent valid and binding now. In respect to the holders, of the balance of the common stock, their subsequent acquiescence deprives them of the right to challenge the act, to the same extent, as their previous license would have done. If they intended to raise any objection it was incumbent on them to do so promptly, and not allow the public to deal in the preferred stock under the belief engendered by their silence and inaction that no objection would be made against its validity ; this they failed to do, and having remained silent when equity and good conscience required, them to speak, they ought not to be permitted now to object when, equity requires them to keep silent.

It is quite true that mere lapse of time will not show knowledge» of the issue of the stock in the remaining holders of the common stock, but under all the facts and circumstances of the case, such, knowledge must be imputed to them, and it would be inequitable to allow them after the great lapse of time to disturb the stock after the money raised by its sale has all been used for the benefit, of the company and cannot now be restored.

The judgment of the Special Term should be affirmed, with, costs.

Pratt, J.:

In view of the fact that an immediate decision is important to, the intesests of both parties to this litigation, and that a failure to-decide the case at this term will require a reargument in another department and much delay, I am constrained to concur in affirming the judgment of the Special Term.

Gilbert, J.,

dissenting.

This corporation, like every other joint stock association, presents two compacts, viz. : That between the State and the company, and that between the company and the stockholders. The primary question is whether those compacts, one or both of them, have been violated. The charter of the company authorized them “to issue certificates of stock representing the value of their property in such form, and. •subject to such regulations as they might from time to time by ■their by-laws prescribe.” This provision constitutes at once a limitation of the powers of the corporation, and. an agreement establishing the rights of the stockholders, and their respective interests in the corporate property. The amount of stock which the company might issue in the first instance was fixed by the value of the property then owned by them. When the company determined that the value of their property was $10,000,000, and issued stock to that amount, their power to issue stock for the time being at least was exhausted. After that act they had no power to issue more stock, except for more property purchased, •and then only for the value thereof. (Boynton v. Hatch, 47 N. Y., 225; Schenck v. Andrews, 57 id. 133.) The specification of the limitation mentioned operated as an implied prohibition of the issuing of stock in excess thereof. (People v. Utica Ins. Co., 15 Johns. R., 383-384.)

The company has made no additional purchases of property. If, therefore, the transaction which the plaintiff assails be m legal •effect an issue of additional stock, it was illegal, because (1) it was not issued for property purchased, but for money advanced; and (2), because for each sum of five dollars advanced, stock amounting to $100 was issued. In determining the legal character of the transaction, we are to regard its substantive effect, and not be misled by the form in which it was clothed. The transaction was simply this. A stockholder who advanced five dollars to the corporation on each share of stock held by him received a new certificate entitling him to an annual dividend, ratably with the other stockholders, who united with him in making the advances of seven per cent of the not earnings of the corporation, and also entitling him to his previous interest as a stockholder, viz., a ratable interest in the corporate property, and a ratable share of the earnings of the corporation after deducting said dividend of seven per cent. Such is the legal effect of the certificate. The regular and formal mode of completing such a transaction would have been to give to each stockholder who made advances two certificates ; one representing his interest in the earnings of the corporation only, and another representing his interest in its property, including its earnings. If the cpmpany had received money from a stranger in payment for preferred stock of that kind, lie w'ould have received a certificate in the form first mentioned. Putting the substance of both certificates in one paper makes no difference ; for the holder of it acquired all the rights of a preferred stockholder, and at the same time retained all those of a common stockholder, excluding the dividend mentioned. In either case the amount of capital stock is increased. That part of the certificate which sets forth the preference, in legal significance, is equivalent to a separate certificate entitling the holder to the number of shares of preferred stock named in it. Each preferred stockholder, therefore, holds in legal effect two certificates, one which gives him a certain number of shares of the stock originally issued, and another, which gives him the same number of shares of preferred stock. The amount of such preferred stock issued was greatly in excess of the money received. It seems to be clear that preferred stock like that in question, assuming it to be valid, is “ stock ” in the technical sense of the prohibition mentioned. It entitles the holder to an exclusive interest in the earnings of the corporation in consideration of a contribution of capital. To that extent the corporation holds the property in trust for him. Although his interest will cease entirely when the corporate existence terminates, while . that of the common stockholder in the corporate property will continue, yet such fact and the inequality of interest in the earnings constitues the only difference between them, and that is not a decisive one. If it were it would be equally decisive to show that the interest of the common stockholder is no longer “stock." Eor the right to share ratably in the' earnings of a corporation is quite as essential an attribute of stock, as the right to' share ratably in a division of the corpus of the corporate property, upon the winding up of the corporation. Ordinarily both rights are inseparable incidents of the ownership of the stock of a corporation, but either may legally exist separately from the other, and when that is the case it appropriately falls under the denomination of stock.

The proceeding for issuing the preferred stock was had without specific notice thereof. In no point of view could absent stockholders be bound without such notice, unless they waived it. It seems to me to be a reductio ad absurdum. to say that at a corporate meeting, held under a general notice, absent stockholders can be bound by acts which are intended to impair, and which, if valid, do impair their interests in the corporate property. It is urged that the transaction can be sustained as a means of raising money. That is only another way of saying that a corporation has power to borrow money, upon-an agreement to pay for the use thereof, interest at the rate of seventy dollars a year for each sum of five dollars advanced, conditional only upon the corporation’s earning so much. The answer is, that the transaction was not an exercise of the power to borrow money. If it were, a court of equity may, .and should avoid it, at the instance of proper parties, as an unconscionable agreement. If such a transaction should be allowed to stand all protection of stockholders against corporate acts ultra vires, or fraudulent, would soon disappear.

It is also contended that the power granted to the company, to issue certificates of stock in such form, and subject to such regulations, as they might from time to time prescribe, comprehended the power of issuing preferred stock. It is unnecessary to decide Avhether the company possessed the power at the start of providing by its by-laws, that-a portion of its original capital of $10,000,000 should be represented by certificates of stock in a form which would entitle the holder to a preference over other stockholders. But I am quite certain that the general power referred to did not authorize the company to impair the rights of stockholders, after the whole amount of stock had been issued, and the rights of the holders thereof had become vested. A stockholder in a corporation acquires an interest in the corporate property, and in the net earnings of the corporation, in proportion to the amount of stock held by him. That is the result of the compact before referred to, which exists between- the corporation and the stockholders thereof. (Hutton v. Scarboro Cliff Co., 2 Dr. & Sm., 514-521; S. C., 13 W. R., 631; Jones v. Terre Haute R. R. Co., 57 N. Y., 196-205.) The obligation of such an agreement cannot be impaired by the corporation, nor even by the Legislature, unless the right to do so has been reserved in the charter. Conceding that such right has been reserved by article 8, section 1 of the Constitution, as well as by the general provision on this subject contained in the Revised Statutes, it lias not been exercised by the Legislature, nor delegated to the corporation. Nor could it be delegated. (Re Oliver Lee’s Bank, 21 N. Y., 9.) The stock originally issued was not restricted by any regulation that conferred authority to impair its value, by a subsequent issue of preferred stock. A power to prescribe the form in which certificates of stock shall be issued, is not a power to alter the legal effect of the contracts thereby created. In short the power referred to is one of mere regulation, and it cannot be exercised so as to take away, or impair, the obligation of a contract, or to divest a stockholder of any substantial right to, or interest in, the corporate property or in the profits which have accrued from its use. In every charter of incorporation there are fundamental provisions, and others of a general nature, which are not fundamental. Those which grant or secure rights of property must be deemed fundamental, and they cannot for that reason be violated without the stockholders consent. Modes of proceeding are regulations only, and they may be changed from time to time without his consent. Such is the power to make by-laws, to carry out the objects of the corporation, the main object thereof being to promote, not to sacrifice or injure, the interests of its stockholders.

The preference claimed by the defendant Kent, being illegal for the reasons stated, it was void in its inception. The persons who advanced their money for it acquired no advantage over the common stockholders thereby, and their trausferrees stand in their shoes. (Ashbury R’way Carriage Co. v. Riche, L. R., 7 Eng. & Ir. App., 643; Ang. & Ames on Corp., § 393; 1 Lindley on Part., 628; Livingston v. Lynch, 4 Johns. Ch., 573.)

The case does not depend upon any principle of the law of agency, for no agency existed for an unlawful purpose. The corporation has agreed to do that which it cannot perform, without violating the law, and impairing the rights of the common stockholders, to whom it is bound by contract, as well as by the duty and obligation of a trustee. The law will not sanction the absurdity of compelling it to do acts for the benefit of a preferred stockholder’, which would involve a breach of trust against a common stockholder, and possibly a forfeiture of its charter, and which for those reasons it might be constrained immediately to annul. The cases which hold a corporation to its engagements, entered mto through its agents, in the exercise of an apparent authority which exceeds the real authority conferred upon them, are not applicable to this case, for the reason that here the validity of the engagements does not depend upon the power of the agent, but upon that of the principal. A man who contracts with an infant or a person under disability must abide by the incapacity of such person to do the act. He acquires no right to enforce the contract because the infant appeared to be an adult, or the other person appeared to bo free from disability. So, where he contracts directly with a corporation, ostensibly acting through the corporate body, but which has no power to enter into the contract.

The corporation having transcended its powers by issuing the preferred stock, it may be restrained at the instance of the holders of common stock from giving effect to the act. Every person is presumed to know the extent of the powers of a corporation with which he deals, especially if he be a stockholder thereof. The preferred stockholders, therefore, must be held to have known, when they acquired their preference, that effect could not be given to it without a breach of trust - to the holders of common stock. The same knowledge will be imputed to their transferrees. Neither the original owners of the preferred stock, nor their transferrees, therefore, can be treated as innocent holders thereof. To make them such, it would be necessary that it be shown that they received such stock with the acquiescence of the holders of the common stock at the time they acquired the same. The preference was void as against the stockholders who did not assent thereto, if not in toto, and the right to avoid it passed with a transfer of the stock of such non-assenting stockholders. (McMahon v. Allen, 35 N. Y., 403.) Acquiescence, therefore, to bar an action by a holder of common stock must have arisen from his own acts or conduct, or at least from the acts or conduct of a previous holder of the. same stock. (Bissell v. M. S. and N. I. R. Co., 22 N. Y., 258, 275.) I am not willing to concede that evidence of the latter kind would be of any service to a preferred stockholder. But it is not necessary to decide that question, for there is no evidence in the case of any act or conduct on the part of the plaintiff Hoyt, or of any preceding holder of his stock, evincing acquiescence in the claims of the holders of preferred stock. If the right to avoid the preferred stock had been cut off by acquiescence, it could have been shown when that was done, and whose acquiescence did it. But no such evidence was given. The only evidence of the acts of stockholders, after the preferred stock was issued, shows their dissent from the discrimination thereby created. Evidence that both common and preferred stock have been sold at the stock exchange, under those designations, amounts to nothing as proof of acquiescence, except as respects persons who are shown to have had knowledge of such sales; nor ever then, unless it further appears that such knowledge reasonably imposed the duty of objecting on the persons to whom it was communicated. Nothing of that kind has been shown. No knowledge of dealings in preferred stock has been brought home to anybody, nor does it appear how any person might have objected to such dealings if he had been disposed to do so. To have cautioned the stock exchange would have been impertinent, and no means existed for making his objections known to actual purchasers of preferred stock. It is idle, as it seems to me, to predicate acquiescence of such evidence. Full knowledge of all material facts and circumstances, and of the rights and duties which flow from them, is essential. (29 Gr. Ev., § 197; Wall v. Cockerell, 10 H. L. Ca., 229; Kent v. Quicksilver Co., 12 Hun, 56.) The burden of proof is on him who asserts the acquiescence. Nor can a presumption of acquiescence be raised from the lapse of time. For it appears that, as soon as the common stockholders were threatened with an actual execution by the company of the contract of preference, this action was brought, and no facts were proved, which tended to show that the holders of common stock were called upon by their own interests, or by their duty towards the holders of preferred stock to act sooner. On the contrary, it appears that the issue of preferred stock, which occurred in April, 1870, was followed immediately by complaints of the proceeding on the part of the holders of common stock, and that such complaints continued to be made, from time to time, until November, 1874. It is a reasonable inference that the common stockholders abstained from litigation to enforce their rights, because the corporation manifested a disposition to accede to their demands, and because the amount of the net earnings of the corporation showed that there was no immediate danger ; that any injury to them by means of the preferred stock would be actually accomplished. In November, 1874, an effort was made by the corporation to remedy the wrong complained of. A resolution was adopted, at a meeting of the corporate body, to put the holders of common stock on the same footing as the holders of preferred stock. That resolution was, however, defeated by the defendant Kent. He commenced an action against the company, and obtained an injunction which restrained the latter from carrying that resolution into effect. The questions here involved were thus put in the course of litigation, which has, in various forms, been going on ever since. I am unable to find in the case any evidence that the holders of common stock have stood by, and, by their silence, induced persons to deal in preferred stock. Indeed, such dealings do not appear to have been affected by the litigation referred to, and yet every man is presumed to be attentive to what passes in the courts of justice. (Story Eq. Jur., §§ 405-406.)

The principle of equitable estoppel is a valuable one, and should not be relaxed. But I think it would require a great stretch of that principle to render it applicable to this case. (Story Eq. Jur., §§ 1530-1550.) Nor do any of the cases which have been cited afford a precedent for an application of the doctrine of equitable estoppel to the holders of common stock before us. Nor has the period prescribed by the statute of limitations expired.

The judgment in the case of Kent against this corporation certainly is not a technical bar to this action, for neither the plaintiff nor any of the holders of common stock were parties to that judgment. Whatever was there adjudicated did not affect the plaintiff or any person under whom he claims. But I think it was there correctly adjudged that the corporation had no power to issue a fresh batch of preferred stock to the prejudice of the interests of Kent. If they had not power to do that they had not power to issue preferred stock at any time to the prejudice of the holders of common stock. Either of those acts must derive its sole support from the same grant of power.

The result of the views expressed will be to afford just protection to tlie holders of common stock ; while at the same time no injustice will be done to the holders of preferred stock. For, although the corporation will not be permitted to carry the contract of preference into effect, they may and ought to be compelled to return the sums advanced to them in payment therefor to the holders of the preferred stock, with interest. The company had power to receive advances of money, and having-used the money advanced for legitimate purposes, common honesty as well as j ustice requires that they shall return it. (Whitney Arms Co. v. Barlow, 63 N. Y., 62, 68-69.)

The exceptions must be allowed, and the motion for a new trial granted, with costs to abide the event.

Judgment affirmed, with costs.


author: Gilbert, J.:

text:
    JOHN B. BURR and G. M. HYDE, Appellants, v. THE AMERICAN SPIRAL SPRING BUTT COMPANY, Respondent.

      Recitals in contract — token a corwpliance thei'ewitli, not essential to a recovery thereon.

    The plaintiffs and defendant entered into an agreement reciting that, “ whereas said Burr & Co. are about to publish a book to be entitled “ The Great Industries of the United States,” which will be sold by subscription through their authorized agents in every State in the Union"and in Canada; and, whereas in said work is to appear an article on Spiral Spring Butts, to occupy a space of six pages; now, therefore, in consideration of said Burr & Company so incorporating in said article, to the acceptance of said company, the name of said company, their biography, etc., and publishing the same in the forthcoming edition of the said work, said company agrees to piay to said Burr & Co. the sum of two cents for six pages of the said article, for each and every copy of said work sold by said Burr & Co.”

      Held, that it was not necessary to authorize a recovery by the plaintiffs, to show that the book had been sold by subscription, through their authorized agent, in every State in the Union and in Canada, but it was sufficient to show that coxñes had been sold by the plaintiffs themselves.
    Appeal from a judgment in favor of the defendant, entered upon the report of a refex-ee.
    The action was brought upon a contract reciting “that whereas said Burr & Co. are about to publish a book to be entitled “The Great Industries of the United States,” which will be sold by subscription through their authorized agents in every State in the Union and in Canada, it is agreed by said Burr & Co. that said book shall contain from 720 to 1,000 pages, octavo, and that the selling price shall not exceed two dollars and fifty cents per copy. And whereas the prospectus of said work, together with certain exemplary articles or chapters, has been duly exhibited to and examined by said company, as presented by Burr & Co., or by their authorized agent, in which work is to appear an article on Spiral Spring Butts, to occupy a space of six pages as reading matter in the same style of type as shown in the said articles. Now, therefore, in consideration of said Burr & Co. so incorporating in said article, to the acceptance of said company, the name of said company, their biography, etc., and publishing the same in the forthcoming edition of the said work, said company agree to pay to said Burr & Co. the sum of two cents for six pages of the said article, for each and every copy of said work sold by said Burr & Co.”
    The referee found that the parties entered into the contract referred to, and set forth in the complaint; that pursuant to the said contract, defendants furnished to said plaintiffs and one Buck, then composing the firm of J. P. Burr & Co., an article for publication by them, in accordance with the said contract; that the said firm printed and published said article in the said book, under and pursuant to the said contract; that plaintiffs have not shown by their evidence that said book has been sold, through their authorized agents, in every State in the Union and in Canada; nor have they shown that the number of said books mentioned in their complaint has been sold by subscription through their authorized agents ; nor have they shown that any number of said books has been so sold by subscription through their authorized agents, as in and by the terms of said contract provided, and he accordingly finds that such sales have not been made; and, as matter of law, found that plaintiffs were not entitled to recover.

      Qharles Whelp, for the appellants.

      Estes & Barnard, for the respondent.
   Gilbert, J.:

The referee placed his decision solely upon the ground, that the plaintiff had not shown that the book mentioned in the contract had been sold by the plaintiff’s authorized agents in every State in the Union and in Canada, nor that the numbers of said book mentioned in their complaint had been sold by subscription through their authorized agents, nor that any number of books had been so sold by subscription by their authorized agents. It is evident that the referee has substituted one of the recitals in the contract for the operative part thereof. The contract after stating that “whereas the plaintiff's are about to publish a book, etc., etc., which will be sold by subscription through their authorized agents in every State of the Union and in Canada,” and after reciting other facts not material to the question before us, provided that in consideration of the plaintiff1’s incorporating in said book an article to occupy a space of six pages as reading matter, containing the names of the defendants, their biography, etc., and of publishing the same in the forthcoming editions of said book; the defendants agreed to pay the plaintiff’s the sum of two cents for six pages of the said article for each and every copy of said work sold by the plaintiffs. There is certainly nothing here that makes the sale by authorized agents, or a sale in every State of the Union and in Canada, a condition precedent to the liability of the defendants. Has the recital the effect of imposing on the plaintiffs such ■ a condition, or of extending their obligation beyond the words of the contract ? I apprehend not. No authority for such a proposition has been cited. The general rule is that, whore the words in the operative part of an instrument are clear and unambiguous, they cannot be controlled by the recitals. General words will in some cases be restrained by recitals, but in the interpretation of instruments recitals are used only for that purpose, and for the purpose of discovering the intention of the parties, and of fixing the true meaning of doubtful words. (Walsh v. Trevanion, 15 Q. B., 733, 751; Beswick v. Swindells, 3 A. & E., 868, 881; 1 Chit. Cont. [11th Am. ed.], 120 et seq.) There is no ambiguity in the words used in the operative part of the contract in this case. The defendants agreed to pay two cents for six pages of the said article for each and every copy of the book sold by the plaintiffs. Sales by the plaintiffs personally are clearly comprehended in these words. Indeed such sales are the only kind designated by the actual meaning of the words, and yet the construction put on the contract by the referee would exclude them. Nor is thex-e any reason to suppose that the parties intended the restricted constructioxx adopted by the referee. The interest of both parities consisted in having the greatest number of books sold — that of the plaintiffs in order to realize the profits of publishers, axxd that of the defendants in order to secure the benefits of an extensive advertisement; hence the agreement that payment should be made ixx proportion to the number of sales. If the mode or place of selling had been in the contemplation of the parties as a substantive stipulation, it would have been appx’opriately expressed. The recital, probably, was inserted to show that the plaintiffs ixxtended to sell the book by subscription, and to employ agexxts in every State and in Canada to procure subscriptions, -but I see no ground whatever for the idea that the defendants were to be liable oxxly for sales made by subscription obtained by their agents, or that no liability against them was to accrue unless sales were made in every State axxd in Canada.

For the error stated the judgment must be reversed, and a new trial at circuit granted, with costs to abide the event.

Barnard, P. J., and Dykman, J., concxxrred.

Judgment reversed, and new trial granted at circuit, costs to abide event.