text:
    Mary Reynolds, App’lt, v. The City National Bank of Watertown et al., Resp’ts.

      (Supreme Court, General Term, Fourth Department,

      Filed September 23, 1893.)

    1. Married women—Deed from wife to husband.
    A conveyance from a married woman directly to her husband delivered after the passage of chap. 537, Laws 1887, is valid, although executed prior to the passage of said act.
    3. Same—Lien of vendor.
    Where a deed from a married woman to her husband was kept by her for several years, and then delivered for the express purpose of enabling him to raise money on the premises for use in his business, and she immediately joined him in incumbering the same, and a note was given by him to her for the consideration thereafter, which was sought to be enforced when it appeared that he could not continue his business, Held, that the transfer was not one which would give the wife the equity of a grantor’s lien.
    Appeal from judgment in favor of defendants.
    Action to set aside as void a conveyance given by plaintiff to her husband, or to enforce in her favor a vendor's lien for the purchase price.

      Hannibal Smith, for app’lt; Lansing & Lansing, for resp’ts.
   Parker, J.

We have no difficulty in adopting the finding of the court at special term that the deed from the plaintiff to her husband, bearing date January 13, 1885, was not delivered until June 28, 1889. The testimony that both parties gave before the referee in supplementary proceedings is much more reliable than that given under the pressure of the situation at the time this action was tripd, and is much more consistent with reason, and the mode in which their business was done. Before the referee, both testified that the deed was not delivered in 1885, and the plaintiff gave her reasons for retaining it. It is not at all probable that the statement of both was misunderstood, or inaccurately taken down; and it can hardly be supposed that they both deliberately, and without reason, then testified falsely, and now, for the first time, tell the truth as to the transaction. If the deed was delivered in 1889, it was not a void conveyance. The disability which existed in 1885 had been removed by chapter 587, Laws 1887, and the conveyance operated between herself and her hus-' band in the same manner that it would between herself and one not related to her. It does not depend for its validity upon the ratification of the agreement to convey made in 1885, or upon any ratification whatever, but it is in itself a new and executed contract, sufficient in form and manner of execution to convey real estate, and surely it is a matter of no importance when it was drawn up or executed. It was delivered in 1889, at a time when such an instrument was operative between them, and hence it cannot be set aside as void. It is claimed by the plaintiff’s counsel that, notwithstanding the act of 1887, the disability against a ' married woman’s contracting with her husband still continued. It may be that such statute did not enlarge the power of a wife ’ to make with her husband an executory contract to convey, but the question here is not whether her contract to convey could be enforced in 1889, but whether the conveyance which she then made was a void one. Certainly,'at that dale, all the disabilities that formerly rendered such a conveyance void had been removed, and therefore the title to her premises had been lawfully transferred to her husband, and he was in a position to lawfully convey or mortgage the same.

The question whether the transaction under which such deed was delivered was an actual and bona fide sale, so that the plaintiff ■ acquired a vendor’s lien on the premises for the unpaid purchase money, is a more difficult one. It is true that she had the title to the premises, and that at the time it was taken their pecuniary condition does not indicate that it was given to her in fraud of her husband’s creditors. It is also true that they both testify that the deed was delivered in consideration of his agreement to pay $3,000 for the premises; but yet, if such premises were recognized between themselves as the property of the husband, or as the product of their joint labor, in which both were interested, and the title to which was kept in such a position that it could be used as the property of either, as the exigencies of their business might require, and if it was conveyed to the husband under such an arrangement, then the plaintiff would not be within the-equity of the rule that gives to the vendor of real estate a lien upon it until his just demands for the purchase price thereof are satisfied. Pom. Bq. Jur„, § 1250. There are many things indicating that the parties did not, as between themselves, assume the ordinary relation of vendor and vendee, and particularly showing that a vendor’s lien for the purchase money was not contemplated between them. Tire deed was delivered for the express purpose, of enabling the husband to raise money on the premises for use in his business, and the plaintiff not only at once joined with him in putting a $2,000 mortgage thereon, but subsequently joined with him in further mortgaging it to the defendant, the City National bank. The whole course of their dealing, by which this property was acquired ; the unusual way in which the title was kept in her name on the record, and in his name in the house; her readiness to give him the title, and join with him in incumbering it; the fact that no evidence of a promise to pay the alleged purchase price was given or asked for when the conveyance was made, although on its face the deed expressed a consideration of only one dollar fully paid ; and the subsequent conduct of the parties, in giving a note for such purchase price, and seeking to enforce it by judgment and execution against his personal estate in advance of his creditors, as soon as it appeared that the husband could not continue his business, all indicate that it was not a sale of property such as would give the wife the equity of a grantor’s lien. An extended analysis of the evidence on this question is not necessary. It has been thoroughly done by the judge at special term. He has seen the parties under examination, and from all the evidence has been convinced that the sale claimed by them was never in fact made. The case does not present such a preponderance of evidence against his conclusions ■ as to warrant our interfering with them. Baird v. Mayor, 96 N. Y., 567; Devlin v. Greenwich Savings Bank, 125 id., 756 ; 35 St. Rep., 922; Beckwith v. N. Y. C. R. R. Co., 64 Barb., 308; Roosa v. Smith, 17 Hun, 138; Thompson v. Vroman, 49 St. Rep., 537. We do not discover any error in the admission or rejection of evidence which has worked any injury to the plaintiff, and on the whole case we conclude that the judgment is correct, and should be affirmed, with costs.

Hardin, P, J., and Merwin, J., concur.


source: Caselaw Access Project

author: Parker, J.

license: Public Domain

text:
    William H. Buchanan et al., Resp’ts, v. Albert Ashdown, App’lt.

      (Supreme Court, General Term, Fourth Department,

      Filed September 23, 1893.)

    1. Boundaries—Estoppel.
    Where the owners of adjacent lands survey out the line, and believing the survey to be correct fix the line accordingly, neither party assuming to know more than the other about it, and neither asking or advising the other to make any purchase or do any act on the faith of it, neither party is estopped from claiming up to the true line if it is discovered that a mistake was made, particularly where the other has made no improvements except clearing up the land and appropriating the proceeds to his own use.
    3. Same—Practical location.
    When the line intended by a conveyance can be found and located, a party who would substitute for that line another one fixed by parol agreement between the adjacent owners must show that the substituted line has been located and acquiesced in for at least twenty years.
    Appeal from judgment in favor of plaintiffs, entered upon verdict, and from order denying motion for a new trial on a case and exceptions.

      Action to recover a strip of land which was claimed by both parties.

      Wilmot E. Knapp, for app’lt; H. H. Rockwell, for resp’ts.
   Parker, J.

There seems to be no doubt but that, according to the paper title of both parties, the land in dispute belongs to the plaintiffs. The defendant’s grantors never had any title west of the division line between the northeast and the northwest quarter of the 2 000-acre tract. All "of his land must be found within the northeast quarter of that tract, and the plaintiffs’ land lies adjacent to and west of such division line. Also, it appears that there was no serious difficulty in locating such division line upon the' ground, by surveying the whole tract and starting from well known monuments on the exterior lines of such tract. The land in dispute lies west of such division line properly located, and hence is not embraced within the northeast quarter of the tract. But the defendant claims that owing to the conduct of one of the grantors through whom the plaintiffs claim, to wit, Fitzsimmons, his (defendant’s) rights have been extended over onto the northwest quarter, and up to the fence on the west side of the strip of land in dispute, and of which he has for some years been in possession. He claims this extension of his title on two grounds: First, that Fitzsimmons’ conduct estopped him and his grantors from claiming further east than the line of such fence; second, that such line was fixed by himself and Fitzsimmons, by a practical location, as the true line between them.

In 1871 the defendant held a contract from one Webb for the purchase of 59j[ acres in the northeast quarter of such tract, and Fitzsimmons owned the land next adjacent on the west, and in the northwest quarter of the tract. There were then two lines, running north and south, blazed through the forest the one some ■rods west of the other, and doubt existed as to which was the •correct division line between the two quarters. The deed to Webb referred to his land as the northeast quarter. The deed to Fitzsimmons did not refer to either quarter in its description, and did not give any monuments purporting to locate such division line between the two quarters. Webb claimed that the most westerly ■of the blazed lines was the division line. Fitzsimmons claimed that the easterly of such blazed lines was the division line between them. The defendant claims that in 1871 Fitzsimmons, with a surveyor, came to him for the purpose of locating such line; that they went onto the lot, surveyed it out, and agreed that the west line blazed through the woods was the correct line between them; that the defendant, acting thereon, the next year paid up his contract to Webb, and took his deed from him, describing the land therein up to the west line as so located; that he subsequently, from year to year, cleaned up to that line, and built fences thereon, and for upwards of twelve years he had had a fence along the whole of such line, and had cultivated and used up to that fence. Hence, he claims that he cannot now be disturbed in the possession of such land by any grantee of Fitzsimmons.

Generally, in order to deprive the owner of land of his title thereto by an estoppel in pais, the acts or representations on which the estoppel is based roust indicate intentional deceit, or at least such gross negligence as to evidence'an intent to deceive. Pom. Eq. Jur., §§ 806, 807; Trenton Banking Co. v. Duncan, 86 N. Y., 230. It is said that the truth concerning the material facts represented or concealed must have been known to the party sought to be estopped at the time he made them, or else the circumstances must be such that a knowledge of the truth is necessarily imputed to him. Porn. Eq. Jur., § 809. It sometimes occurs, however, that when there is actual intervention on the part of one having the title to land, which induces another to deal concerning it, with a third person, as if he were the owner, the person having the title will be estopped from asserting it against the person so misled, even though he did not at the time know that the title was his. Such estoppel is based on £he theory that, when one of two innocent parties must suffer a loss, it must be borne by that one of them who by his conduct made the injury possible." An illustration is found in the case of Storrs v. Barker, 6 Johns. Ch., 166. In the case before us the most that can be charged against Fitzsimmons falls far short of indicating :an intent to deceive, or of any negligence suggesting such an intent. From all the evidence there is on that subject it is plain that Fitzsimmons neither knew, nor claimed to know, any more about the correct line than Webb, or the defendant, who represented Webb, knew. He had no better means of ascertaining than they had. Both Fitzsimmons and the defendant went upon the lot together, knew the facts which the surveyor assumed as correct, and the method which he adopted to find the true line, and, as the result of such survey, both agreed that the west line was the correct one. The facts which convinced the one convinced the other. From all that we know of the transaction, it seems to have been a conclusion reached and agreed upon by both, but based upon a mistaken and inaccurate survey. At least, such is the only fair inference to be drawn from the evidence. Therefore, Fitzsimmons should not be held estopped on the ground that, knowing of his own claim to the land up to the east line, he either negligently or deceitfully allowed the defendant to believe that the west line was the correct one, and to purchase from Webb on that theory. Nor do the facts warrant an estoppel against him on any ground. If he had assured the defendant that Webb owned up to the west line, and advised him to take a deed bounded by that line, it would be a case somewhat analogous to that of Storrs v. Barker, above •cited, and it might be said that his conduct had caused the injury which the defendant must suffer. But there is nothing in the •case to show that Fitzsimmons knew under what claim the defendant held the land—whether as vendee or grantee of Webb—or that any consequences would follow their act of fixing upon the line between them other than would ordinarily follow when two owners agree upon such a line. He did not suggest to the defendant to purchase from Webb, nor did he in fact give him any assurance that Webb owned up to such line, beyond the survey that was then made, and his acquiescing in it as a correct one. It seems to be simply a case where the owners oi adjacent lands survey out the line, and, believing the survey to be correct, fix the line accordingly ; neither party assuming to know more than the other about it, and neither asking or advising the other to make any purchase or do any act on the faith of it. Surely, by such conduct, neither party would be estopped from claiming up to the true line, if in a month or a year thereafter he should discover that a mistake had been made in the survey, and particularly when the defendant had made no improvements upon the premises, except to clear it up, and appropriate the proceeds to his own use. The mere acquiescence of Fitzsimmons in a survey made by both parties, and supposed by both to be correct, was by no means such an intervention or conduct on his part “ as to render it just that, as between ” himself and the defendant, “ he should bear the loss." Unless the facts show such an equity, no estoppel can be created. See Trenton Banking Co. v. Duncan, 86 N. Y., 222, 230; Hinkley v. Crouse, 125 id., 730; 35 St. Rep., 442.

The claim that the west line was fixed by “ practical location ” requires the examination of another rule. When, owing to an inaccurate or unintelligible description in a deed, or the obliteration of monuments referred to, the line intended by the conveyance -cannot be accurately located upon the ground, a location by agreement of the adjacent owners will be controlling, and when once made, even though by parol, cannot be repudiated by either. But, when the line intended by-the conveyance can be found and located, a party who would substitute for that line another one, fixed by parol agreement between the adjacent owners, must show that the substituted line has been located and acquiesced in for at least twenty pears. There need not be the actual possession of the land by the party claiming up to such line that is necessary to sustain an adverse possession, but there must have been a location and acquiescence for that full period. A careful examination of the decisions upon this subject will show -that- they are all in harmony with the rule as thus stated. In Clark v. Wethey, 19 Wend., 320, it is held that declarations and acts of the parties going to establish a different location from that fixed by the deed are not admissible, but where, from vagueness or obscurity of the description, or from the decay or destruction of the monuments referred to in the deéd, doubt and uncertainty exist in reference to the line, the declarations and acts of the parties may be shown. In Baldwin v. Brown, 16 N. Y., 359, it is said that “ it is not the parol agreement which establishes the line, but the long acquiescence in it, which affords ground, not merely as an inference of fact for an original agreement, but for a direct, legal inference as to the true boundary lines; ” also, that “ the rule seems to have been adopted as a rule of repose, with a view to the quieting of titles, and rests upon the same reason as our statute prohibiting the disturbance of an adverse possession which has continued for twenty years.” These cases have been continually cited and ápproved. See Reed v. Farr, 35 N. Y., 113; Reed v. McCourt, 41 id., 436; Corning v. Troy Iron & Nail Factory, 44 id., 595; Ratcliffe v. Gray, *42 id. (3 Keyes), 510; Clark v. Baird, 9 id., 204; Raynor v. Timerson, 51 Barb., 519. And as recently as Eldridge v. Kenning, 35 St. Rep., 190, it is. said that no title is gained by practical location in any less period than under the statute of limitations. To same effect is Clark v. Davis, 19 N. Y. Supp., 191. The cases of Vosburgh v. Teator, 32 N. Y., 561; Williams v. Montgomery, 16 Hun, 50, and Sherman v. Kane, 86 N. Y., 73, so far as they would sustain a line acquiesced in for a less period than twenty years, I understand to refer to those instances where the line intended by the deed cannot be located with reasonable certainty. In the case before us, the deed to Webb, the defendant’s immediate grantor, described the land conveyed to him as the northeast quarter of the 2,000-acre tract, and there is no difficulty in locating that quarter, or in finding its true west line. In fact, it was plainly marked on the ground by a blazed line, but it was the easterly of the blazed lines, instead of the westerly one. The parties, in their survey, mistakenly adopted the westerly one; but, inasmuch as such mistaken location had not been acquiesced in for twenty years, the defendant’s claim under it had not ripened into a title, and Fitzsimmons and his grantors had not been thereby divested of the title which their deeds gave them.

If these views are correct, the defendant established no defense to the plaintiff’s claim, even though the facts be taken as he claims them to be. His motion for a non-suit was properly denied, and the judgment against him was such as should have been rendered. We conclude, therefore, that the judgment should be affirmed, with costs.

Judgment and order denying a new trial affirmed, with costs.

Hardin, P. J., concurs; Merwin, J., concurs in the result.


text:
    William A. Sweet, Pl’ff, v. Henry J. Mowry et al., Def’ts.

      (Supreme Court, General Term, Fourth Department,

      Filed September 23, 1893.)

    1. Injunction—Damages—Counsel pees.
    In an action for an injunction the court granted an order to show cause why an injunction pendente lite should not be granted and restrained defendants from acting until the further order of the court. On the hearing of the order to show cause the application was denied and the temporar3r injunction vacated, and the defendants subsequently recovered, judgment in the action. Held, that counsel fees incurred by defendants upon the hearing of the order to show cause were not expenses caused by reason of such temporaiy injunction, as it would only continue, in any event, until the determination of the application f< rthe injunction pendente lite, and hence counsel were not employed to dissolve such injunction, but to prevent the granting of another, and such counsel fees cannot be assessed as damages in a proceeding to determine the damages sustained by reason of such temporary injunction.
    3. Same—Expenses of reference.
    Where no damages are found to have been sustained by reason of the injunction, the expenses of the reference cannot be charged as damages against the plaintiff.
    Appeals by both parties from an order of special term, confirming in part and disallowing in part the report of a referee on • .a reference to determine the damages sustained by reason of a temporary injunction.
    The defendants, or some of them, being officers of the city of Syracuse, were about to issue $500,000 of city bonds, under the provisions of certain acts of tire legislature known as the “ Syracuse Water Acts,” and had advertised for sealed propo■sals for the purchase of them; such proposals to be received and opened on the 9th day of June, 1890, at three oclock in the afternoon. The plaintiff claimed that such acts were unconstitutional, and on the 9th day of June, 1890, commenced an action against all the defendants herein to perpetually enjoin them from proceeding under such acts, and on June 7th applied to a justice of this court for an injunction pendiente life, On such application the justice made an order to show cause, returnable on the 11th day of June, 1890, why such injunction should not be granted, and in the same order restrained the defendants, until the further order of the court, from taking any further proceedings under the statutes in controversy. Such order was served upon 'the defendants June 9th, and was, before three o’clock of that day, so modified that the defendants were permitted to receive and open any bids which might be tendered for bonds in response to said advertisement. Upon obtaining such order, a bond was executed by the plaintiff and a surety in the sum of $250. Prior to the commencement of such action and the issuing of such order, the Onondaga County Savings Bank resolved to bid for $300,000 of such bonds at a premium of two and one-half per cent, above their par value. Daring the forenoon of June 9th the commencement of such action and the issuance of such order became known to the officers of said bank, and they thereupon reconsidered their former resolution, and determined to make no bid whatever. The highest bid received on June 9th was an average of three-sixteenths of one per cent, premium for the bonds, and all of them were subsequently sold in the fall of 1890 to such bidder. On June 11th, upon the return of such order to show cause, the defendants appeared by counsel in response thereto, and argued before the court at special term the questions raised thereby. The court, reserving its decisioú for gome days after argument, then and there made an order requiring the plaintiff to furnish an increase of security, to the extent of $10,000, as a condition for the further continuance of the injunction order, and an undertaking in that amount was thereupon given by the plaintiff and his sureties. On the 16th day of June, 1890, the court rendered its decision, denying the application for an injunction pendente lite and vacating'the temporary injunction then existing. The action proceeded to judgment, which resulted in the defendants’ favor, and such judgment was subsequently affirmed in the court of appeals. Afterwards, on September 19, 1891, an order was obtained by the defendants, referring it to a referee to ascertain the damages sustained by them by reason of such injunction. Upon the hearing before the referee the defendants claimed damages as follows: Por loss sustained in the difference between the selling price of $300,000 of bonds and what would have been received had the Onondaga County Savings Bank bid for the same, $6,937.50; for counsel fees and expenses incurred in the removal of such injunction order, $3,000 ; also, for legal services and expenses on such reference. The referee reported that the defendants had suffered no damages by reason of the injunction, either in the sale of bonds, or expenses of removing it. He found, however, that $1,000 was a reasonable compensation to counsel for services rendered in the hearing upon the return of the order to show cause. He also found that $200 was a reasonable compensation for the defendants’ counsel fees on the hearing before him. On a motion at special term to confirm such report, the court confirmed the report as to the damages claimed to have been suffered on the sale of the bonds, but disallowed it as to the other items, and fixed as the defendants’ damages the $1,000 counsel fee, and the counsel fees and expenses on the hearing before such referee. From such order, both defendants and the plaintiff appeal to this court.

      Charles H. Peck, for pl’ff; C. L. Stone, for def’ts.
   Parker, J.

Upon the question whether the market value of the bonds was depreciated below the price which the savings bank contemplated offering by the injunction itself, rather than by the litigation then inaugurated, we are not disposed to disturb the conclusion which the referee reached. We think, with him, that on the whole evidence the depreciation which evidently followed the commencement of the action, and the conclusion of the bank not to bid at all, should be ascribed to the uncertainty which the litigation suggested as to the validity of the bonds, rather than to the fact that the defendants were temporarily enjoined from accepting bids upon the day they had advertised to receive them. The burden is upon the defendants, who claim to have sustained the damages, to show by satisfactory proof that the loss would; not have been incurred except for the issuing of the injunction.. Dwight v. Northern Indiana R. R. Co., 54 Barb., 271.

As to the other question—whether the counsel fees incurred upon the hearing on the return of the order to show cause can be properly charged as damages—we also think that the referee’s-conclusion was the correct one. When the application for an injunction was first made, the judge had the right to deny it until notice of the application was given the defendants, or he might then grant an order requiring them to show cause why such injunction should not be granted. Whichever course he took, he had the right to then “enjoin the defendants until the hearing and decision of the application.” Code Civ. Pro., § 609. In this case he made an order to show cause, and enjoined the defendants until the further order of the court. The defendants were then confronted with the following stituation; they were threatened with an injunction pendente lite, to be granted on the 11th of June, unless they could show cause why it should not be. To make such a showing they must employ counsel, and evidently the order which required them to make that showing, and not the order restraining them from acting in the mean time. was the one which imposed upon them the burden of employing counsel.

The injunction order would continue until June 11th, whether the defendants employed counsel to appear on that day or not, but in no event would it continue any longer, for it was then to be superseded by a new order of court. Although the order made June 7th, in terms, is to continue “ until the further order of court,” we give it no other meaning or greater force than is allowed it by § 609, that is, “ until the hearing and decision of the application,” and therefore we say that when such decision was made, whichever way it might be, an order would be made that would supersede the restraining order already granted. Hence, counsel were, not employed to dissolve that injunction. The defendants would have been relieved from that order whether they appeared on the 11th or not, but they might have been troubled with another order then made, granting an injunction against thera.pendente lite, and hence they took measures to prevent such an order from being granted. They went to the expense of hiring counsel, not because the temporary injuntion had been granted, but to prevent another and more extensive one from being made. If the judge had made the order to show cause, and not granted the temporary injunction, the defendants would have had the same condition before them, and the same expense to incur. Hence, it cannot be said that such expense was caused by reason of such injunction. Hot having been rendered necessary by the temporary injunction, they cannot be assessed as damages in this proceeding. Randall v. Carpenter, 88 N. Y., 293.

As to the expense of the proceeding before the referee, inasmuch as no damages were found to have been sustained by reason of the injunction, they should not be charged as damages against the plaintiff. He did not render the inquiry necessary, and therefore he should not be required to pay the expense of it. Randall v. Carpenter, above cited. The order of the special term should be reversed, and an order entered confirming the report of the referee.

Hardin, P. J., and Merwin, J., concur.


author: Follett, J.

text:
    Henry F. Walker, App’lt, v. The Anglo American Mortgage & Trust Co. et al., Resp’ts.

      (Supreme Court, General Term,, First Department,

      Filed October 13, 1893.)

    1. Corporations—Liability op promoters por misrepresentations in PROCURING SUBSCRIPTIONS.
    The liability of promoters of a proposed corporation is not limited to subscribers whom they personally induce to take shares, but it extends to all those who are induced by their agents to subscribe for stock, and if they make material misrepresentations to, or conceal material facts from, their agents, who, relying on the statements, induce persons to become subscribers, the promoters are liable for the damages.
    2. Same.
    In an action to rescind a purchase of stock, and recover the amount paid therefor, against the corporation and members of a copartnership ■ whose business had been reorganized in such incorporated form, IIe,d. that untrue statements by such firm that it intended taking a large portion of the shares to be issued, and that the corporation was to be managed by the members of the firm in the same manner that their business had been previously conducted, were material and actionable misrepresentations

      Appeal from a judgment entered on the decision of the special term dismissing the complaint on the merits.
    This action was brought to rescind a purchase of fifty shares of stock, issued by the defendant corporation, and to recover from the defendants the amount paid therefor.
    The firm of Burnham, Tulleys & Co. was organized in 1875, and from October, 1884, until its dissolution June 1, 1888, it was composed of the individual defendants in this action. The firm was engaged in securing and selling western farm mortgages, having its principal place of business at Council Bluffs, Iowa. Burn-ham loaned to the firm §100,000, the capital employed in this business, upon which he received seven per cent interest. Talleys and Brown contributed their time, services and experience. This firm had done a large business in procuring and selling in the eastern states and abroad western farm mortgages, amounting, in the aggregate, to several million dollars. Alfred Walker & Co. was a firm of bankers and brokers engaged in business in Hew Haven, Connecticut. The plaintiff is a physician, residing in the city of Hew York, and is a cousin of Alfred Walker, senior member of the firm. From time to time he had made investments through the agency of this firm, and, among other securities, had purchased a western farm mortgage, obtained by the Hew Haven firm from Burnham, Tulleys & Co. In 1888 the firm resolved to form a corporation, under the laws of the state of Iowa, for the purpose of transacting the business theretofore carried on by the partnership.
    By a contract executed February 24, 1888, between the individual members of Burnham, Tulleys & Co., it was agreed that Burnham should receive all his interest in the firm, $100,000, secured to be paid in a manner specified, and should turn over all of his interest in the business to the corporation to.be formed. It was agreed that the corporation should issue $100,000 of stock for the good will of the business of the firm, of which Burnham Tulleys and Brown were to receive §80,000 each, and §10,000 was to be issued to J. Y. McDowell, who had an interest in a branch firm connected with Burnham, Tulleys & Co. January 1, 1888, Burnham, Tulleys & Co. wrote Alfred Walker as follows:
    “ Burnham, Tulleys & Co.,
    “ Investment Bankers,
    “ Council Bluffs, Iowa, 1-1-1888. a Alfred Walker, Esq., New Haven, Conn.:

    “ Dear Sir—Referring to the incorporation scheme, which has been written about several times, we would say that we have about completed arrangements between ourselves to cover the same. We find an unwillingness on our part to part with the valuable plant which we have upon our books, the outstanding loans figuring up in the millions. Of a proposed capital of $500,-000, we will take the larger part ourselves, and, therefore, have only a limited amount to dispose of. As we indicated to you that you might place $50,000 we will adhere to that, although it takes a large portion of what we have to sell. You are, therefore, authorized to take subscriptions up to $50,000, fifty per cent, of which to be paid at the time the subscription is made. Herein we hand you form of subscription. When the subscriptions are made, kindly forward to us the checks, give a receipt therefor, and certificates of stock will follow between now and the 1st of June. The board of directors will call in the balance of fifty ■per cent, between now and that time. Having only a limited amount to sell, we ask your early advice on the subject, as we will be obliged to treat the subscriptions in the priority of their receipt We believe we have one of the most valuable plants which has been offered, as it embraces an experience of over twenty-five years, and we have a large amount of business on our books. With the increased facilities which the incorporated form will give us, we think the stock will be valuable, and expect it will be worth a handsome premium in regular course.
    “Yours truly,
    “Burnham, Tulleys & Co.”
    March 3d, Burnham, Tulleys & Co., wrote Alfred Walker & Co. as follows:
    “ Burnham, Tulleys & Go., “Investment Bankers,
    Council Bluffs. Iowa, 3-3-1888.
    “ Messrs. Alfred Walker & Co., New Haven, Conn.

    “Gentlemen—We have ypur favor of the 29th inst. Under cover of our late respects you will see that we have practically decided the question of incorporation, and authorize you to take subscriptions for stock to the amount of $50,000. As we get no commission ourselves, and believe the stock to be very valuable, we would hardly feel inclined to pay any commission and offer none to anybody. The stock will be worth, in our judgment, as soon as the organization is completed, a premium. Our charter is liberal, and allows us to issue deben-, tures and guarantee loans, and we can give such commissions as we may decide upon. * * * Referring to the commis-
    sion on sale of stock, would say, that were our company a new one, with no valuable plant, it would be consistent to give commissions, but, as we have written you, we are loath to give up our birthright, and would take the entire amount of stock if wc thought it practicable.
    “Yours truly,
    “Burnham, Tulleys & Co.”
    March 10,1888, Burnham, Tulleys & Co., wrote Alfred Walker & Co. the following letter:
    “Burnham, Tulleys & Co., “Investment Bankers,
    “ Council Bluffs, Iowa, 3-10-1888.
    “ Messrs. Alfred Walker & Co., New Haven, Conn.

    “Gentlemen—We have your valued favor of the 7th inst.r and believe our respects of yesterday will cover the additional information you desire. We hardly think some of your friends-appreciate altogether the advantage of securing stock in a company which secures the accretions and emoluments of a business of long standing, and of such value as Burnham, Tulley* & Co. have upon their books. We have been, as before intimated, rather unwilling to incorporate. In order to cover the competition that is upon the market, we have decided upon this step, at your suggestion and some of our other friends,’ but would not be willing to take it unless we, ourselVes, were largely interested in the stock. We believe that, under our new incorporation, that securities will be more favorably cared for, and that we will find it mutually profitable in your representing us in Hew Haven, as-we will endeavor to cover all the wants of your customers. * * *

    “ Yours truly,
    “ Burnham, Tulleys & Co.
    March 20, 1888, Burnham, Tulleys & Co. wrote Alfred Walker & Co. as follows:
    “Burnham, Tulleys & Co., Investment Bankers,
    “ Council Bluffs, Iowa, 3-20-1888.

      “ Messrs. Alfred Walker & Co., Yeto Haven, Conn. :

      “ Gentlemen—We are in receipt of your valued favor of the' 17th inst., covering draft for $2,500, 50 per cent, of subscription of 50 shares in the American Mortgage & Trust Company, account of your Mr. Walker. Money has been coming in quite freely, and we would hardly think it wise at this time to accept any more money on account of this subscription. It is possible we will incorporate sooner than we anticipated, and if so we will call in the other 50 per cent. We are pleased that you approve of the papers sent you, and believe from the present plans that-the company will be one of the very best extant. Lately we took off a statement of our business, and were astonished to find how well it appeared, and think that we can affirm, without boasting, that no plant has been offered to the public possessing such desirable elements for an incorporation as we have. We are not incorporating in order to get rid of objectionable features of our business, but only because we think it will put the trusts we have assumed in a more permanent form and give us a larger line of customers. We repeat that we expect to be liberal takers of the stock, and would not dispose of any of it outside if we did not think the last named object would be attained. We are gratified to have you connected with us, and believe, with united effort and the experience which we all have had, that in regular course the stock will command a handsome premium. As yet we have not considered just the plan of guaranty it will be most judicious to adopt, but it seems to us that a certain class of loans at 6£ percent. we might guaranty, but we did not contemplate guaranteeing-above 6 per cent. We have adopted, within a reasonable length of time, the most rigid rules in the making of loans, and believe in the new plant that' we will have as fine a line of investments as ever have been floated. We trust that the valued customers to whom you refer will not hesitate to take advantage of this investment while there is opportunity, as it does not occur very often. If it suits your purpose better, we would prefer that a smaller amount be paid at the time of the subscription, say 15 or 20 per •cent., as we do not care to put the company to the payment of interest when money is so easy as it is with us at present. We shall •aim most certainly to merit the high regard you have for us. 'Thanking-you for your kind expressions, we are,
    “ Yours truly,
    “ Burnham, Tulleys & Co.”
    The subscription referred to in the foregoing letter was of Alfred Walker, a member of the firm, and is not the subscription •of the plaintiff. April 2, 1888, Burnham, Tulleys & Co. issued and circulated a printed statement of which the following is a copy:
    “A. C. Burnham, L. W. Tulleys, J. 1ST. Brown
    “Office of Burnham, Tulleys & Co.,) Council Bluffs, Iowa, April 2,1888. j •
    “ Bealizing the advantage of permanency and perpetuity in a business conducted under corporate form, the American Mortgage .& Trust Company has been organized, under the laws of the state of Iowa, to succeed the old and well-known firm of Burnham, Tulleys & Co., which has been placing western farm mortgage loans for more than twenty-five years, and has now many millions upon its books. The proposed capital is $500,000, a large part of which has been taken by ourselves. If it were practicable, we .should take it all, as, from our past experience in the business, we feel sure it will prove a profitable investment. We offer a limited amount of stock to our friends at par. Under our articles of incorporation and the laws of this state, the stock is full paid and non-assessable. The company will be under the management of the members of said firm, and will adhere to the same conservative methods which have characterized their past record. It needs no argument to demonstrate the value of our plant, or that the stock will pay handsome dividends. The new firm will increase our facilities, both east and west, for a more extended business, ■and with a larger business will come increased profits. As the amount we have to dispose of is limited, we offer it to all our friends and customers, and subscriptions will be accepted in order •of the priority of their receipt. Subscriptions should be accompanied by twenty-five per cent of the amount subscribed. The balance will be called in between now and June first, as the •directors may elect. As soon as the amount to be sold is taken, we reserve the right to reject subscriptions in excess.
    “Yours, faithfulty,
    “Burnham, Tulleys & Co.”
    The circular was distributed to the correspondents of the firm, •and, among others, copies were sent to Alfred Walker & Co., who received subscriptions from various persons for shares of the par value of about $50,000, and transmitted the money to Burnham Talleys k Co. About April 7, 1888, the plaintiff subscribed, through Alfred Walker k Co., for fifty shares of the stock, for which he paid $5,000, which was remitted to the defendants. Subsequently, the corporation was placed in the hands of a receiver, and, through some scheme of the reorganization not dis■closed by the evidence, the stock of the consenting shareholders was reduced one-half, and the shares issued for good will were surrendered to the corporation. On the trial of the action the plaintiff offered to surrender his shares.

      August C. Brown, for app’lt; Paul Wilcox, for resp’ts.
   Follett, J.

The individual defendants, under their firm name, organized the Anglo-American Mortgage Company, and -each partner is liable for the misrepresentations and concealments .of the others committed while engaged in promoting the enterprise. Chester v. Dickerson, 54 N. Y., 1; Getty v. Devlin, id., 403 ; Locke v. Stearns, 1 Met., 560; Rapp v. Latham, 2 B. & Ald., 795; 1 Lind. Part., 3 Eng. ed., 54, 310, 329; Story Part., No. 108, 131; Big. Law Fraud, 240, No. 6. Burnham is equally liable with his partners for their misrepresentations and concealments. The individual defendants, under their firm name, organized the corporation, fixed the amount of the capital stock, and determined the time when and the terms upon which the corporation should be formed. They appointed agents to receive subscriptions for shares, fixed their price and the compensation to be paid the agents. All this was done before the corporation was ■created; and more, as a firm, received the money of the plaintiff, and of others, for shares in advance of the formation of the company. How the defendants applied this money does not appear. The defendants were the promoters of this corporation, and persons who undertake to form a corporation and induce others to ■subscribe for stock therein by issuing statements and prospectuses occupy a position of trust and confidence towards the persons so induced to subscribe for shares to be issued, and they are bound to exercise the utmost good faith in their transactions. If they make material misrepresentations, or conceal material facts in respect to the enterprise, to the injury of those who are induced to subscribe, they become liable for damages. Brewster v. Hatch, 122 N. Y., 349 ; 33 St. Rep., 527; Getty v. Devlin, 54 N. Y., 403; Erlanger v. New Sombrero Phosphate Co., L. R., 3 App. Cas., 1218; 1 Mor. Corp.,2d ed., No. 291.

The liability of promoters is not limited to subscribers whom they personally induce to take shares, but it extends to all those who are induced by their agents to subscribe for shares, and if they make material misrepresentations to, or conceal material facts from, their agents, who, relying on the statements, induce persons to become subscribers, the promoters are liable for the •damages. It is a familiar principle that what one does bv his agent he does by himself. The scheme which was organized by the defendants, and carried out in part thorough their agents, was the proximate cause of the plaintiff's damages, and no intervening and responsible principal standing between the plaintiff and defendants, the latter are liable to the former to the same extent as-, if they had personally, by false representations and concealments,, induced him to become a subscriber. Getty v. Devlin, supra.

A purchaser of shares in an existing corporation from a stockholder has no interest in the application of the money which he-pays for the shares, but it is quite different with one who agrees; to subscribe for shares in a corporation to be created. The difference is well stated by Chief Justice Coleridge, in Twycross v. Grant, L. R., 2 C. P. Div., 483. He said: “The value of a share in a company, however, depends not only on those circumstances which regulate the value of all saleable commodities, but also on the persons by whom and the mode in which the capital of the company is to be dealt with. It is utterly immaterial to-an ordinary purchaser to know what the vendor will do with the-purchase money when he gets it; the purchaser has no further interest in it. But an applicant for shares in a company is in a totally different position. His money becomes part of the capital’, of the company; and to him it is all important to know what sort of persons are to have the control of his money when he has paid it, and how that money is to be applied, whether upon-the enterprise itself, or in remunerating, perhaps with lavish extravagance, those who have brought the company into existence. Again, it is all important for him to know whether shares applied for by other people are applied for honestly, as by himself, or by persons whose only object is to create a fictitious demand for the shares, and to get rid of them as soon as they have succeeded in deluding others to take them on the faith of their apparent value. Now, these are all matters which promoters may arrange for their own benefit, and keep entirely out of sight; and it is notorious that, by taking advantage of their opportunities in this respect, promoters have committed gigantic frauds.”

This brings us to the question whether the defendants did make materially false statements to., and conceal material facts from their agents with the intent of -inducing, and which actually did induce^ such agents to recommend and advise the plaintiff to subscribe for shares. The court found that Burnham, Tulleys & Go. wrote the letters and issued the circular which are set out in the statement of facts. In the letter of March 20, 1888, they wrote: “We repeat that we expect to be liberal takers of this stock, and would not dispose of any of it if we did not think the last mentioned object (a larger line of customers) wmuld be attained.” The whole tenor of these letters is to the effect that Burnham, Tulleys & Co. were to take a large proportion of the shares to be issued, and that the' corporation was to be managed by the members of the firm in the; same manner that their business had been previously managed.. There is no hint in the letters or circular that any of the shares-were to be issued except for cash, or that any were to be issued to members of the firm for good will.

The court found: “10. The statement in said circular that the proposed capital is $500,000, a large part of which has been taken by ourselves, was untrue, and designed to mislead and: deceive A. Walker & Co.

“ 11. The statement that the company will be under the management of the members of said firm was untrue, and designed to mislead and deceive A. Walker & Co.

“ 12. On and after the organization of the corporation, defendant, Albert C. Burnham, held no office of any sort in said corporation.

“ 15. Burnham, Tulleys & Co. never disclosed to A Walker & Co. the fact of the execution of the agreement of February 24, 1888, respecting good will stock, nor the fact that §100,000 of good will stock was to be issued to the members of the firm upon its incorporation.

“16. From the correspondence and dealings of A. Walker & Co. and Burnham, Tulleys & Co. with respect to the incorporation, A. Walker & Co. believed, and had reason to believe that subscribers for stock, whether members of the firm or outsiders, stood on equal footing.”

The court also found that Alfred Walker & Co. had not seen the circular of April 2 when they effected the sale of the stock to the plaintiff and obtained his subscription, and did not rely upon the statements contained therein in effecting the sale to the plaintiff and in taking his subscription.

But this finding does not relieve the defendants from liability, for, under the letters which they put forth, they were bound to procure the corporation to be organized upon the basis of all subscribers paying par value in cash for the shares to be issued, wdiich they did not do, but issued to themselves one-fifth of the entire capital for so-called good will. In addition to this, the corporation was not placed under the management of the members of the firm, nor did they become liberal takers of the stock, as they represented they would be. Burnham took no shares, except the $80,000 issued to him for good will, and never assumed the management of the affairs of the corporation.

The court was asked to find that the statements and the correspondence were designed to mislead, not only A. Walker & Co., but persons intending to become subscribers for the shares.

The court found, as above stated, that the statements and correspondence were designed to mislead A. Walker & Co., but refused to find that they were designed to mislead subscribers, to which refusal the plaintiff excepted. This, we think, was error. If the statements were put forth with the design to mislead and deceive A. Walker & Co., the agents of the defendants for procuring subscriptions, it is difficult to see why it does not follow that they were put forth with the intention of deceiving those who might subscribe for shares. The inference of fraud from the facts proved is as strong in the one case as it is in the other. Upon a retrial of this case, if otie shall be had, it may be disclosed upon what terms other subscriptions were made, to whom the shares were' first issued, and what disposition was made by the defendants of the funds received by them.

We think the judgment should be reversed and- a new trial ordered, with costs to the appellant to abide the event.

Van Brunt, P. J., and Barrett, J., concur.


author: Per Curiam

text:
    The Edison General Electric Co., App’lt, v. John F. Zebley, Impl’d, Resp’t.

      (Supreme Court, General Term, First Department,

      Filed October 19, 1833.)

    Bills and notes—Indobseb—Pleading.
    A complaint alleging the execution and delivery of a promissory note to-plaintiff and that the defendant, for value, indorsed the same before such delivery, without further allegations showing that defendant indorsed lor the purpose of giving the maker credit with the payee or intended to charge himself as joint-maker, guarantor or surety, is insufficient to overcome the presumption that defendant was .the second indorser and hence not liable to the payee on the note.
    Appeal from interlocutory judgment sustaining demurrer to-the complaint.
    The action was brought against the maker and indorser of six promissory notes to recover the balance due thereon.
    The complaint alleged that the defendant, the Eastern Electric-Company, made a certain promissory note in writing, and delivered the same for value to the plaintiff, and that said note was duly indorsed by the defendant Zebley, for value, before said delivery. A copy of the note is set forth in the complaint, and all the other necessary formal averments are included.
    The defendant Zebley thereupon demurred to the complaint on the ground that it did not contain the statement of facts sufficient to constitute a cause of action as against him. The demurrer was sustained in the court below, and from its judgment the plaintiff appealed.

      Eaton & Lewis (W. Laird Goldsborough, of counsel), for app’lt; Redfield & Redfield (Robert L. Redfield, of counsel), for resp’t.
   Per Curiam

The indorser, Zebley, demurred to the complaint on the ground that it did not state a cause of action as against him.

After certain formal averments, the complaint alleges (paragraph 4tli) as follows: “ That heretofore and on or about the 8th day of February, 1892, at the city and county and slate of New York, the Eastern Electric Company made and delivered to the plaintiff, for value, a certain promissory note, in writing, which said note was duly indorsed by the defendant, John F. Zebley, for value, before said delivery, in words and figures following, to-wit,” and then follows a copy of the note.

The question on this appeal is, whether or not such an allegation is sufficient to charge the respondent Zebley as an original party to the several notes in suit,-or as privy to the consideration for which they were given by the maker to the payee.

Undoubtedly, the rule is well settled, as stated in Coulter v. Richmond, 59 N. Y., 478, that “in this state it has been repeatedly held, and is too strongly settled by authority to be disturbed, that a person making such an indorsement is presumed to have intended to become liable as second indorser, and that on the face of the paper, without explanation, he is to be regarded as second indorser, and, of course, not liable upon the note to the payee, who is supposed to be first indorser.

Are the facts in the complaint sufficient to destroy the legal presumption that the indorser wrote his name for the accommodation of the maker, intending to become indorser subsequent to the payee ? We think not, and concur with the court below in sustaining the demurrer.

Great reliance has been placed upon the case of Lynch v. Levy, 11 Hun, 145, which, it is claimed, is on all fours with the case at bar, as establishing a new rule for determining the sufficiency of the complaint in an action of this character against an indorser. An examination, however, of that case will show that the court -had in mind the rule of law and the legal presumption which has been stated, but held that the allegations in that complaint stated a sufficient cause o'f action, and the learned judge writing the opinion recognizes the settled rule of law in this state, and correctly says: “ There can be no doubt that if in such a case as this there are allegations showing that the indorsement was made to give the maker credit with the pajme, the action can be maintained. ” This is but another way of stating that the legal presumption, that an indorsement upon a promissory note made before that of the payee is a second indorsement, may be overcome by proper allegations showing that the person so indorsing the note intended to charge himself either as joint maker, guarantor or surety. There being an absence of such allegations in the complaint in this case, the demurrer was properly sustained by the court below, and the judgment should be affirmed, with costs.

O’Brien, Eollett and Parker, JJ., concur.


text:
    John Pondir, App’t., v. The New York, Lake Erie & Western Railroad Co. et al., Resp’ts.

      (Supreme Court, General Term, First Department,

      Filed October 13, 1893.)

    1. Corporations—Fraudulent transfers.
    The acquisition, without adequate consideration, by one corporation of the property of another, in which i’t owns a majority of the capital stock, is, when effected through a board of directors elected and controlled by the vendee company, a fraud upon the vendor company and its stockholders, which, when exposed, should be condemned by the courts, and the parties thereto held to account.
    3. Same—Action by stockholders.
    The minority stockholders may, upon refusal by the corporation to bring an action to redress such a wrong, maintain the action themselves, either to set aside the deed or for an accounting.
    3. Same—Parties.
    In an action against the parties to the fraud, to compel them to account as trustees ex maleficio for whatever they have received through the wrongs committed by them, the subsequent grantees and lienors are not necessary parties.
    4 Beceiver—Discharge—Accounting.
    The discharge of a receiver of a corporation does not relieve him from liability to account as to matters not contained in his accounts.

      5. Pleading—Pabties.
    Where a defect of parties defendant is not pleaded, and it should appear that there is a necessity for other parties to the action, the plaintiff not being guilty of laches, the suit should not be dismissed, but the case should be ordered to stand over on proper terms to enable the plaintiff to bring the necessary parties before the court.
    Appeal from a judgment dismissing the complaint on the merits, entered on the decision of special term.
    This action was brought in January, 1881, by a shareholder in the Buffalo, Bradford & Pittsburgh Bailroad Company, to have a lease executed January 5, 1866, by that corporation to the Erie Bailway Company, and a mortgage executed September 1, 1870, by the latter corporation on the lease-hold interest to the Farmers’ Loan & Trust Company, declared null and void, and.to compel Hugh J. Jewett, as receiver, and the Hew York, Lake Erie & Western Bailroad Company to account and pay over to the Buffalo, Bradford & Pittsburgh Bailroad Company all receipts, profit's and benefits received by them respectively from thé property of the last mentioned corporation while in their possession, and also to reste in the Hew York, Lake Erie & Western Bailroad Company from voting upon the stock held by it in the Buffalo, Bradford & Pittsburgh Bailroad Company.
    The following facts are alleged in the complaint and admitted by the answers, or are found by the court and are not challenged by the appellant’s requests or exceptions, or appear on the record and are uncontradicted :
    The Buffalo, Bradford & Pittsburgh Bailroad Company was incorporated in 1857, under the laws of the state of Pennsylvania, with a capital stock of $950,000, divided into 9,500 shares, of the par value of $100 each, but its capital, under a provision in its charter, was afterwards, from time to time, increased, so that July ' 27, 1869, it consisted of 28,864 shares, of the par value of $100 each. The 1st day of January, 1865, it mortgaged its property and franchises to Dorman B. Eaton, as trustee, to secure the pajrment of 2,000 bonds of $1,000 each, aggregating $2,000,000. From 1861 until December 25, 1879, the Erie Bailway Company was a corporation, incorporated and existing under the laws of Hew York.
    January 5, 1866, the Buffalo, Bradford & Pittsburgh Railroad Company, as party of the first part, and the Erie Bailway Company, as party of the second part, entered into a lease, by which the former leased to the latter for 499 years, from January 1,1866, its railroad and its land, except the following: “ Excepting and reserving, however, unto the party of the first part all the oil underlying the demised premises, or any part thereof, with the right to them, their successors or assigns, to enter upon said premises or any part thereof, to excavate and bore for the said oil, and to erect all the usual structures for raising, receiving, storing, getting ready for market, and taking away and forwarding such oil, and to occupy any part of the demised premises for said purposes, without interfering, however, with the use of the same by the party of the second part as a railroad ; and the party of the second part to transport said oil at usual and reasonable rates.”
    By this lease the lessee agreed to pay all taxes assessed on the corporation in the states of Hew York and Pennsylvania, and the interest on the mortgage bonds issued under the mortgage January 1,1865, and also the principal of the bonds when they should mature. Ho other rent was agreed to be paid.
    The land reserved embraced about 8,000 acres, situated in the county of McKean, in Pennsylvania. When the lease was executed, the Buffalo, Bradford & Pittsburgh Eailroad Company had twelve directors, three of whom were directors of the Erie Eailway Company, one of whom, Eobert H. Burdell, being its president, and another, John Aruot, being the vice-president of the Buffalo, Bradford & Pittsburgh Eailroad Company, and at this date the Erie Eailway Company held 21,875 of the 22,864 shares then outstanding in the Buffalo, Bradford & Pittsburgh Eailroad Company, leaving 989 shares owned by others.
    September 1, 1870, the Erie Eailway Company executed a mortgage on the demised property and other property to the Farmers’ Loan & Trust Company to secure the payment of certain "bonds, and on the 4th of February, 1874, it executed a second consolidated mortgage on the demised property and other property to said trust company to secure the payment of $30,000,000 in bonds. In 1875 the trust company brought an action to foreclose the mortgage of February 4, 1874, to which action the Buffalo, Bradford & Pittsburgh Eailroad Company was not a party, in which a judgment of foreclosure and sale was afterwards entered. Hugh J. Jewett was appointed a receiver in this action.
    In 1875 the People of the state of Hew York brought an action to dissolve the Erie Eailway Company, because of its alleged insolvency, and May 26, 1875, Hugh J. Jewett was appointed a receiver in that action of the property of the corporation, which action resulted in a judgment entered Hovember 25, 1879, dissolving the corporation, and Jewett was continued as receiver until December 30, 1879, when, having turned over the property to the Hew York, Lake Erie & Western Eailroad Company, he was discharged as receiver.
    April 4,1875, the plaintiff purchased, and has ever since owned fifty shares of the capital stock of the Buffalo, Bradford & Pittsburgh Eailroad Company.
    December. 30, 1876, the Buffalo, Bradford & Pittsburgh Eailroad company Conveyed the lands and interests excepted from the lease to the Horthwestern Mining & Exchange Company, a Pennsylvania corporation, for the recited consideration of $40,000, but no consideration for this conveyance has been, in fact, paid by the grantee to the grantor. At the date of this conveyance six of the thirteen directors of the Buffalo, Bradford & Pittsburgh Eailroad Company were directors of the Erie Eailway Company, and since the execution of the lease the Erie Eailway Company and its receiver, and the Hew York, Lake Erie & Western Eailroad Company, by virtue of their ownership of a large majority of the shares of the Buffalo, Bradford & Pittsburgh Railroad Company, have named and elected such directors as those corporations chose for the lessee company.
    On the 30th of December, 1876, the Northwestern Mining & Exchange Company, as party of the first part, entered into a contract in the nature of a lease with H. L. Taylor & Co., as party of the second part, by which the lands conveyed, as aforesaid and other lands, were leased for twenty years to the party of the second part, for the purpose of procuring oil and gas therefrom. The rent or compensation payable was a percentage of the oil and gas that might be produced. Who were the directors of the mining company at the date of the grant does not appear, but the record shows that at the time of the trial of this action, and for several years previous, its board of directors and its executive officers had been filled by the directors and executive officers of the Erie Railway Company and of its successor, the New York, Lake Brie & Western Railroad Company.
    April 27, 1878, the New York, Lake Erie & Western Railroad Company was incorporated under the laws of this state, and shortly thereafter it succeeded to all of the property of the Erie Railway Company, including all of its right, title and interest in and to the property leased and conveyed to it by the Buffalo, Bradford & Pittsburgh Railroad Company.
    The Northwestern Mining & Exchange Company has a capital of $500,000, all of which is owned by the New York, Lake Erie & Western Railroad Company. On the 13th of May, 1881, the Northwestern Mining & Exchange Company conveyed the eight thousand acres of land and oil rights to the Wilcox & Howard Improvement Company (a Pennsylvania corporation), for the recited consideration of $100 and for other good consideration. On June 28, 1881, the name of the last mentioned corporation was changed to the New York, Lake Erie & Western Coal & Railroad Company. When the last mentioned conveyance was made, the trustees o£ the grantee were not connected with the New York, Lake Erie & Western Railroad Company, but at the date of the trial of this action its trustees were connected with the last named corporation. The New York, Lake Erie & Western Railroad Company owns all of the stock of the Northwestern Minin» & Exchange Company, which corporation owns all of the stock of the New York, Lake Erie & Western Coal & Railroad Company. Since the conveyance of the eight thousand acres of land to the Northwestern Mining & Exchange Company, Hugh J. Jewett, as receiver of the Erie Railway Company, and the New York, Lake Erie & Western Railroad Company, has derived a considerable income from the property. But two dividends have been paid upon the shares of the Buffalo, Bradford & Pittsburgh Railroad Company since that date, one of one dollar per share, paid March 28th, and another of sixty-two cents per share, paid October 9,1885.

      Simon Sterne, for app'lt; W. W. MacFarland, for resp’ts.
   Follett, J.

There is no conflict in the evidence in this case. All of the material facts were testified to by the officers and einployes of the defendants, who offered no evidence except the order o,f December 30, 1879, discharging Hugh J. Jewett as receiver of the Erie Eailway Company. By the transactions set. forth in the statement of facts, the Erie Eailway Company and its. successor, the Hew York, Lake Erie & Western Eailroad Company, have acquired the property reserved in the lease without any consideration being paid therefor. This was effected through the compliant board of directors of the Buffalo, Bradford & Pittsburgh Eailroad Company, elected and controlled by the Erie Eailway Company, which held a majority of the stock of the Buffalo,. Bradford & Pittsburgh Eailroad Company. By this means the-last mentioned corporation was stripped of all of its property, except that used for railroad purposes, and for the use of which nothing will be paid for 499 years, except taxes assessed on its property and the interest on its debt. This renders all of the shares not held by the Erie Eailway Company practically valueless, and that such was the intended effect is apparent from the transactions. This was a fraud on the Buffalo, Bradford & Pittsburgh Eailroad Company and its shareholders. Such frauds are not uncommon in the management of corporations, and when they are exposed should be condemned by the courts and a heavy hand laid upon all who participate in them.

On the 16th of March, 1880, the plaintiff requested the Buffalo, Bradford & Pittsburgh Eailroad Company to bring an action against the Erie Eailway Company to redress the wrongs herein complained of, which request was not complied with, and it is apparent that further application would have been unavailing, for the three defendants appeared in this action by the same attorneys, and served answers in all re-pects alike, except it is alleged in the answer of Hugh J. Jewett that his accounts as receiver have been approved by the court, and that he has surrendered all of the property that came into his hands, and was discharged from his receivership on the 80th day of December, 1879. Under such circumstances an action may be maintained by a shareholder to redress the wrong done to the corporation of which lie is a member. Brinckerhoff v. Bostwick, 88 N. Y., 52 ; Barr v. N. Y., Lake Erie & Western R. R. Co., 125 id., 263 ; 34 St. Rep., 743.

In the case first cited it was said : “ The action to recover such losses, as before observed, should in general be brought in the name of the corporation ; but, if it refuses to prosecute, the stockholders, who are the real parties in interest will he permitted to sue in their own names, making the corporation a defendant. 69 H. Y., 154. And that course of proceeding is also allowed if it appears that the corporation is still under the control of those who must he made the defendants in the suit See Butts v. Wood, 37 N. Y., 317; Robinson v. Smith, 3 Paige, 222. In such cases, a demand upon the corporation to bring the suit would he manifestly futile and unnecessary. A suit prosecuted under the direction and control of the very parties against whom the misconduct is alleged and a recovery is sought would scarcely afford to the shareholders the remedy to which they are entitled, and the fact that the delinquent parties are still in control of the corporation is of itself sufficient to entitle the shareholders to sue in their own name. Hodges v. New England Screw Co., 1R. I., 312 ; Heath v. Erie Railway Co., 8 Blatchf., 347. If they could not be permitted in such cases to assert their own rights in a court of equity, the directors, so long as they remained in office, could set them at defiance.”

The Buffalo, Bradford & Pittsburgh Railroad Company was not a party to the action for the foreclosure of the mortgage under the judgment in which the property of the Erie Railway Company was sold and acquired by the Hew York, Lake Erie & Western Railroad Company, and the rights of the Buffalo, Bradford & Pittsburgh Railroad Company are not cut off by the judgment and sale, and besides the mortgage was not a lien on the property and rights reserved to the lessor in the lease.

Upon the discovery of the fraud, an action could be maintained by a shareholder (the corporation refusing to sue) to set aside the deed of December 30, 1876, and the subsequent conveyances and liens, but to such an action the subsequent grantees and holders of liens are necessary parties ; or an action could be maintained against the parties to the fraud and those who subsequently aided in its consummation, to compel them to account as trustees ex maleficio for whatever they have received through the wrongs which they committed. To such an action the subsequent grantees and lienors are not necessary parties, for no relief could be granted against them, and in this case, for a stronger reason, the Horth western Mining & Exchange Company and the Hew York, Lake Erie & Western Coal & Railroad Company are not necessary parties to such an action, for the stock of both corporations is entirely owned by the Hew York, Lake Erie & Western Railroad Company.

It is asserted that in no event can Jewett, as receiver, be compelled to account. This may or may not be so. The conveyance of December 30, 1876, by which the Buffalo, Bradford & Pittsburgh Railroad Company was deprived of its property, was executed when Jewett was acting as the receiver of the Erie Railway Company, and for several years he, as receiver, received a portion of the rents and profits of the lands conveyed. We think he should be required to account and to show how these receipts were disposed of. It may be that it will appear that his accounts rendered to the court were so stated that its order approving of his transactions and discharging him will be a defense, but this cannot be determined in advance of the accounting.

Under the evidence contained in this record, we can see no answer to the plaintiff’s claim that the Hew York, Lake Erie & Western Railroad Company should be required to account and pay over to the plaintiff the rents and profits acquired by it through these fraudulent dispositions of the property of the corporation in which the plaintiff is a shareholder.

The defendants not having pleaded that the subsequent grantees of the Buffalo, Bradford & Pittsburgh Railroad Company and the persons and corporations who have acquired liens upon the property were necessary parties, they were not in a situation to ask to have the action dismissed on the ground that those corporations and persons should have been brought into the action. Code Civ. Pro., § 499. When a defect of parties is pleaded, and the plea is sustained by the evidence, the court may refuse to allow the cause to stand over and dismiss the suit, but when a defect of parties is not pleaded, and the necessity for other parties to the action appears on the trial, the plaintiff not being guilty of laches, the suit should not be dismissed, but ordered to stand over on proper terms to enable the plaintiff to bring the necessary parties before the court. Colt v. Lasnier, 9 Cow., 320 ; Van Epps v. Van Deusen, 4 Paige, 64; 1 Barb. Ch. Pr., 321; 1 Dan. Ch. Pr. (3 Am. Ed.), 291 et seq.

The judgment should be reversed, and a new trial granted, with leave to the plaintiff to apply to bring in any such additional parties as he may be advised, with costs to the appellant to abide the event.

Yan Brunt, P. J., concurs.


text:
    Frederick J. Lancaster, Pl’ff, v. The Amsterdam Improvement Co., Def’t.

      (Supreme Court, General Term, First Department,

      Filed October 13, 1893.)

    1. Corporations—Foreign—Cannot purchase and sell land eor purposes of speculation.
    A foreign corporation may not engage in the business of purchasing and selling lands in this state, or convey an indefeasible title to lands acquired for the purpose of speculation.
    2. Same.
    The title to lands so acquired is in the corporation subject to the right of the state to defeat it; the shareholders have no legal estate in such lands, and judgments against them are not liens thereon.
    Submission of a controversy upon agreed facts, pursuant to § 1279, Code Civ. Pro.
    The following are the material facts stated in the submission. On the 19th day of May, 1891, five persons, four of whom were residents of New York and one of whom was a resident of New Jersey, organized a corporation by filing a certificate, dated that day, in the state of New Jersey, by which the defendant was incorporated under a statute of the state of New Jersey, entitled “An act concerning corporations,” approved April 7, 1875. The: second article of the certificate of incorporation is as follows:
    “ Second. That the places in this state where the business of such company is to be conducted are Jersey City and the city of Hoboken, in the county of Hudson. The principal part of the business of said company within this state' is to be transacted at Jersey City, in the county of Hudson, and the places out of this state where the same is to be conducted and where the company proposes to carry on operations are the cities of New York and Brooklyn, in the state, of New York; and that the objects for which said company is formed are the purchase and sale of real property, both improved and unimproved, the improvement of such property as may be purchased, and which, when purchased," is unimproved, the exchange of property for other property, the lending of moneys upon first and second mortgages, secured by bonds, and the purchase and sale, by assignment or otherwise, of such mortgages and bonds. The portion of the business of said company which is to be carried on out of this state, in the said cities of New York and Brooklyn, will be such as will come under the head of the objects for which this company is formed. The principal office or place of business of said company, out of this state, is the city of New York, in the county and state of New York.”
    December 21, 1892, the secretary of state of the state of New York issued a certificate, of which the following is a copy:
    “ State op New York, ^
    “ Office of the Secretary of State, Albany, j
    “It is hereby certified that The Amsterdam Improvement Company, which appears from the papers filed in this office on the twenty-first day of December, 1892, to be a foreign stock corporation, organized and existing under the laws of the state of New Jersey, has complied with all the requirements of law to authorize it to do .business in this state, and that the business of such corporation to be carried on in this state is such as may be lawfully carried on by a corporation incorporated under the laws of this state for such or similar business.
    “Witness my hand and the seal of office of the secretary of state, at the city of Albany, this 21st day of December, 1892.
    “ Frank Rice,
    “Secretary of State.”
    It is provided by § 124 of the statute before referred to that: '“ It shall be lawful for three or more persons to associate themselves into a company to carry on any kind of manufacturing, mining, chemical, trading or agricultural business, agricultural fairs and exhibitions for the encouragement of competition in agriculture, horticulture, breed of stock and development of speed in horses, the transportation of goods, merchandize or passengers upon land or water, inland navigation, the building of houses, vessels, wharves or docks, or other mechanical business; the reclamation and improvement of submerged lands, the improvement and sale of lands," etc.
    This statute also provides that corporations shall have the power: “To hold, purchase and convey such real and personal property as the purposes of the corporation shall require, not exceeding the amount limited in its charter, and all other real estate which shall have been Iona fide mortgaged to the said company by way of security, or conveyed to them in satisfaction of debts previously contracted in the course of dealings, or purchased at sales upon judgment or decree which shall be" obtained for such debts.”
    By another section of this act it-is provided: “Any company organized as aforesaid may carry on a part of its business out of •this state, and have one or more offices and places of business out of this state, and may hold, purchase and convey real and personal property out of this state the same as if such real and personal property were situated in the state of Hew Jersey.”
    May 23, 1891, Arthur P. Smith was the owner of a lot of vacant and unimproved land in the city of Hew York, which, by a deed dated that day and duly recorded May 25, 1891, he assumed to convey to the defendant. On the 15th day of January, 1893, the plaintiff and the defendant entered into a written contract whereby they agreed to exchange said lot of land for another lot of land owned by the plaintiff. The land of the plaintiff was valued at $72,000, and the land of the defendant at $49,500, and the difference, $18,500, the defendant agreed to pay to the plaintiff at the times and in the manner specified in the contract. It was agreed that the deeds should be exchanged at a place named on or before February 15, 1893. Pursuant to said contract the defendant executed a deed in due form, by which it is assumed to convey the premises to the plaintiff, and, in addition, procured a deed to be executed by all of the stockholders and directors of the defendant, in which deed said Arthur P. Smith, the grantor of the defendant, joined, by which the grantors therein assumed to convey all of their interest in said premises to the plaintiff.
    It is conceded that the defendant has done no business in the state of Hew Jersey, and that the only business or transactions in which it has been engaged since its organization has been carried on in the city and county of Hew York.
    It appears by the certificate of incorporation that all of the shareholders are residents of the state of Hew York, except-Frederick Frambach, who resides in Jersey City, Hew Jersey, and subscribed for one share.

      Thomas S. Bassford, for pl’ff; Louis Marshall, for def't.
   Follett, J.

The circumstances under which this corporation was organized are peculiar, and, until quite recently, the question whether it has a legal existence would have been an open one. It is admitted that all of the corporators were residents of this state, save one, who resided in Hew Jersey and held a single share of stock. Undoubtedly he was made a stockholder to avoid the question, at one time discussed, whether corporations organized under the laws of Hew Jersey must not have, at least, one resident stockholder and director. 13 N. J. L. J., 347; 26 Am. L. Rev., 885.

It is also agreed that the defendant has done no business in the state of Hew Jersey, and that the only business which it has undertaken has been carried on in the state of Hew York. It is apparent that this corporation was, in fact, organized by citizens of this state, under the laws of Hew Jersey, not for the purpose of transacting business in that state, but to evade the laws of this state, and organize a corporation under less stringent acts for the sole purpose of engaging in business in this state. Demarest v. Flack, 128 N. Y., 205; 40 St. Rep., 383, must be regarded as conclusive authority for the position that citizens of this state may select a state or country having laws providing for the organization of corporations best suited to their purposes, and organize a corporation under those laws without intending to transact any business in that state, and without, in fact, ever having been there, and then engage in business in this state. This question has been much discussed, Kruse v. Dusenbery, 1 City Court Supp., 87; S. C.,19 W. Dig., 201; 25 Am. L. Rev., 352; 26 id., 194, 342, 412, 28 id, 252; Cook S. & S., 238 ; Mor. Corp., § 955 ; but it is no longer an open one in this state.

The primary question in this case which is open for discussion is, whether a foreign corporation may engage in the business of purchasing and selling lands in this state and convey an indefeasible title to lands acquired for the purposes of speculation. Every state has the right to prescribe what persons and corporations may or may not hold or convey lands within its borders, to what extent, and for what purpose they may be held and conveyed. Who may acquire lands, for what purposes, in what quantities and the tenure by which they may be held is not regulated by the rules of comity existing between states, but by the local law of the state in which the lands are situated. United States v. Fox, 94 U. S., 315; Christian Union v. Yount, 101 id., 352. In the case last cited it was held: “ For, besides the admitted incapacity of a corporation of one state to exercise its powers in another state except with the assent or permission, express or implied, of the latter, it is a principle as inviolable as it is fundamental and conservative, that the right to hold land must depend altogether upon the local law of the territorial sovereign.” This is in harmony with the decisions of the court of appeals in this state. People v. Fire Association of Philadelphia, 92 N. Y., 324.

In the case last cited it was said : “The constitutional difference between the rights of non-resident individuals and foreign corporations is fundamental and apparent. The citizen of another state has a constitutional right to come within our jurisdiction. The charter of our nation has secured him that right, and we cannot exclude him nor clog his right with conditions, unless in exceptional cases under the police power. But foreign corporations, artificial beings, the product of a law not our own, have no constitutional right to pass their own borders and come into ours. The federal constitution has neither granted nor secured any such right. We may exclude absolutely, and in that power is involved the right to admit upon such conditions as we please. Until they are within our jurisdiction, the final clause of article 14, by its own terms, does not apply.”

This brings us to the question whether a foreign corporation may, under our general laws, purchase and hold lands within this state which are not necessary for its business, and which have not been acquired in securing the payment of any debt due to it. The first general statute passed in this state in respect to the right of foreign corporations to acquire and convey lands, to which our attention has been called, or which we have been able to find, is chapter 158, Laws of 1877, which provided: “Any foreign corporation may purchase at a sale upon the foreclosure of a mortgage held by it, or upon any judgment or decree for debts due it, or upon any settlement to secure such debts, any real property within this state covered by or subject to such mortgage, judgment, decree or settlement and held the same for not exceeding five years irom the date of such purchase, and convey it by deed or otherwise in the same manner as a domestic corporation.”'

The provisions of this act are re-enacted in § 18 of chap. 687 of the Laws of 1892, known as “ The General Corporation Law." Section 1 of chap. 450, of the Laws of 1887, which is. re-enacted in § 17 of “The General Incorporation Act,”’ provided: “Any foreign corporation created under the laws of the United States, or of any state or territory thereof, and doing-business in this state, may acquire such real property in this state as may be necessary for its corporate purposes in the transaction of its business in this state, and convey the same by deed or otherwise in the same manner as a domestic corporation.”

The foregoing are the only general statutes of this state authorizing foreign corporations to acquire, hold and convey land within this state, or which recognize their right so to do. It is urged that the statute last quoted is broad enough to authorize a foreign corporation to take, hold and convey real estate within this state as a business and for the purposes of speculation. This we do not think was the intent or purpose of the act, but are of' the opinion that the lawmaking power simply intended to author-' ize a foreign corporation to take, hold and convey such land within this state as should be incidentally necessary or convenient for the transaction of such business as the corporation is authorized to carry on within this state. The statute first cited (now § 18 of the General Corporation act) limits the time to five years in which foreign corporations may retain lands which they have acquired in the payment of debts due it. This seems to-negative the idea that a foreign corporation has the unlimited right to take, hold, and, for an indefinite period, convey any lands-within this state except such as are necessary for and incidental to its business.

The numerous special acts of the legislature of this state found in our session laws authorizing certain foreign corporations to acquire lands, by purchase or devise, show, we think, that it is contrary to the policy of this state to permit such corporations to take, hold and convey lands in this state without being specially authorized so to do.

The fact that a foreign corporation is authorized by the laws of the state under which it was incorporated to take lands by devise does not give it the right to take lands by devise in this state. White v. Howard, 46 N. Y., 144; United States v. Fox, .94 U. S. 315, affirming 52 N. Y., 530 ; 63 Barb., 157.

. The policy of this state, from the time of its organization to the-present, has been firmly opposed to the right of corporations created under its own laws to take, hold and convey an unlimited amount of land, the amount that may be acquired, held and conveyed being limited by general laws, or by the acts under which the corporations were created. Under chapter 40 of the Laws of 1848, as amended, corporations may be formed for purchasing, holding, improving and conveying real' estate, but the amount which they may hold is limited' to $1,000,000 unless the corporation is organized for the purpose of erecting in a city a building to be rented for offices and stores. Chapter 508, Laws 1890.

If the defendant may legally acquire, hold and convey land in this state at pleasure there is no limitation upon the amount which foreign corporations may acquire and" convey except their ability to purchase and pay for lands. We think it is contrary to the policy of this state to give to foreign corporations the unlimited right to take and hold lands in this state, and that the title of the defendant is not indefeasible, but it is subject to be forfeited by the state. Until it is, the defendant holds a defeasible title. If the defendant conveys, its grantee takes the same title, a defeasible one at the will of the state.. Runyan v. Coster, 14 Peters, 122 ; National Bank of St. Louis v. Matthews, 98 U. S., 621 ; Wright v. Sadler, 20 N. Y., 324. The title, subject to the right of the state to defeat it, being in the corporation, it is plain that its shareholders' have no legal estate in the land, and the judgments recovered against William. H. Crawford are not a lien upon it.

Both questions submitted must be answered in the negative ■and judgment directed accordingly, with costs in favor of the plaintiff and against the defendant.

Van Brunt, P. J., and Parker, J., concur.