12 Barb. 27 | N.Y. Sup. Ct. | 1851
By the Court,
From the facts disclosed in this case, it is obvious that the plaintiffs have meritorious claims for advances of cash, labor and materials, which ought to be reimbursed by somebody. The objection to their recovery does not rest so much upon the doubtful nature of the demands sought to be enforced, as to the species of relief which has been invoked, and the number of parties who have been united as plaintiffs and defendants. The objections strike rather at the form of the procedure, than at the merits of the claims.
I. Leaving these objections of form to be noticed hereafter, we will proceed to show, first, that, the Port Henry Iron Company, as a corporation, and not Horace Gray or Horace Gray & Co. was the principal by and for whom the business was conducted and the debts contracted, for which the several drafts wrere drawn. There is no dispute, that from the first organization of the company in the spring of 1840, until the spring of 1845, the corporation rvas responsible for the acts of its officers. During that period, it acted through the agency of individuals, and raised its funds through the medium of drafts on Horace Gray & Co., drawn by the persons intrusted with the management of its affairs at Port Henry, and negotiated through the Bank of Vergennes. Had payment of these drafts been refused, it can not be doubted that the Port Henry Iron Company, by whom the funds were received, on discounting the drafts, would have been liable, either as drawers of the drafts, or on surrendering these for the cash so advanced. To create that liability in the corporation, it would not have been necessary, on the drafts being protested for non-acceptance or non-payment, to have given any other notice thereof than to the agent by whom they were drawn. Corporations act
If such be the law with respect to transactions prior to the lease of May, 1845, the same rule applies to all subsequent transactions with parties dealing with the corporation before that time, and to whom no actual notice of a change of circumstances has been communicated. With respect to those dealing with partnerships, constructive notice of a dissolution is not enough to relieve a retiring partner from responsibility to those who had before dealt with the firm, hut actual notice must be shown. (Graves v. Merry, 6 Cowen, 705. Vernon v. The Manhattan Co. 17 Wend. 524. S. C. in error, 22 Id. 191. Wardell v. Haight, 2 Barb. S. C. Rep. 549.) This rule applies in all its stringency to the Port Henry Iron Company. It continued liable to all who had before dealt with it through its agents, and to whom no actual notice of a change of circumstances was given. The Vergennes Bank had dealt with the company from its first organization, and was entitled to actual notice. Most of the other plaintiffs, if not all, had been its customers before, and fall within the same rule.
It has been said already that no notice was ever given to the Vergennes Bank. There is some evidence that Warrens, Hart and Lesley had notice, arising from the fact that some of their bills were made out against Horace Gray, lessee. It is repelled by other circumstances. And after considering the various facts which are referred to as evidence of notice to the Vergennes Bank, we think they are not sufficient to warrant the conclusion that actual notice was given to any of the plaintiffs.
The objections on the part of the defendants to a recovery against the company on their bills of exchange, as such, is one of form rather than of substance. It overlooks the fact that the plaintiffs also claim to recover for the considerations for which the bills were given, proposing at the same time, to surrender up the bills under the direction of the court. It nowhere ap
But it is not material to decide the question whether the name of the principal must in every case be upon the bill, in order to charge him with the payment of the instrument. The evidence in this case supported the averment in the bill, that the "drawing of bills by the agent at Port Henry, and the acceptance thereof by Horace Gray <fc Co. was merely a convenient mode adopted by the Port Henry Iron Company to raise funds, and thus became the adopted name of the company. If such evidence be admissible, and we think it is, then the company were bound for the payment of the drafts so drawn, although the corporate name of the company was not mentioned. Such evidence was held admissible by the supreme judicial court of Massachusetts, in
With respect to persons who had not dealt with the company before giving the lease, constructive notice of the change was required. Constructive notice, says Judge Story, is in its nature no more than evidence of notice, the presumption of which is so violent, that the court will not allow even of its being controverted. (1 Story’s Eq. § 399.) It is a question of fact whether such notice was given or not. The various dealings and transactions with the company at Port Henry, the continuance of the same sign on the store, the form of the bills against the company not objected to. of notes and receipts given, of notices posted in the name of the company, contracts made in the company name, by the president and other officers, and other acts and declarations of the officers, indicated a continuance of the business on the responsibility of the company. Third persons had a right to act upon those appearances. A different rule would put it in the power of the corporators who owned the majority of the stock, and controlled the operations of the corporation," to withdraw the corporate property from the reach of those who had trusted to its security, and transfer it to another class of creditors. Ho prudent man would have suspected that the expensive additions and improvements, constructed mainly in 1847, and amounting with the Stone purchase to near eighty thousand dollars, were the ordinary repairs of a tenant whose lease was about to expire.
Being of the opinion, from all the facts disclosed, that the Port Henry Iron Company, in its corporate capacity, is the real
II. Assuming, then, that the plaintiffs have a meritorious cause of action, it remains to consider whether the objections which have been interposed are sufficient to defeat the present action. These objections are, 1st, that the bill is multifarious, and 2d, that it contains no ground for equitable relief. There are some minor objections which will be noticed in the same connection.
1st. As to multifariousness: The objection that the bill is multifarious can, in general, only be taken by demurrer. If, however, combination is charged, that must be denied by the answer; and if any thing more is answered, it overrules the demurrer. (2 Wend. 234. Powell v. Arden, 1 Vernon, 416.) The defendants have not demurred to the bill, but have answered ; and have not in their answer insisted on multifariousness. The objection is raised on the hearing, after all the expense of taking the proofs has been incurred. It comes too late, therefore, to be listened to with favor.
The court itself may, indeed, raise the objection in any stage of the cause. It is matter of procedure only ; and the court, though the objection be waived by answering over, will take the objection, if it becomes necessary to do so, for the purposes of
Again; the parties in this case .have a common interest in othe relief sought. And there is no apparent reason why the court should, of its own accord, withhold that relief, by interposing an objection which the defendants have waived.
The narrow rules which prevailed at law, with respect to parties to an action, and the consequences resulting from a misjoinder or nonjoinder, gave, in numerous instances, great advantages to prosecutions in equity, over those at law, and furnished the apology for many of the provisions of the code of procedure. (Code, §§ 111, 122, 124, and see note of the Comm, on Pr. & Pl. to tit. 3 of the code.)
There are two sorts of creditors’ bills known to our jurisprudence ; the one is the statutory bill, framed under 2 R. S. 173, in aid of a judgment creditor who has exhausted his remedy at law, to enable him to discover the debtor’s property, and to reach his equitable interests. This bill was known before the statute. (Hadden v. Spader, 20 John. 554) And the statute was framed to aid in carrying out the principle of that and other like decisions. In proceedings under such bill, it had always been held that several creditors by judgment of the same debtor might unite in the action, though they had no other common interest than in the relief sought. (Edmeston v. Lyde, 1 Paige, 367. Wakeman v. Grover, 4 Id. 23.) All the judgment creditors were proper parties, though not necessary parties, because the action could be sustained by a single judgment creditor. The same rule existed before the statute, and was applied in a creditor’s suit by Chancellor Kent, in McDermott and others v. Strong, (4 John. Ch. R. 687.)
The other class of creditors’ suits, not depending upon any statute, are suits brought for the administration of assets, to reach property fraudulently disposed of, or held in trust, &c. The bill in such case is filed in behalf of the plaintiff or plaintiffs, and all others standing in a similar relation, who may come in under such bill and the decree to be made, It may be filed by simple contract creditors, and does not require a judgment to
In Good v. Blewitt, (13 Ves. 397,) the bill was filed by the captain of a privateer, against the owners, for an account, according to the articles which had been executed, for a distribution of the prizes made by the ship. An objection was taken by the defendant for want of parties, and the complainant was allowed to amend by introducing a statement that the bill was on behalf of the plaintiff, and all others the mariners and persons who had signed the articles, and had not received their share of the prizes. In the course of the argument it was conceded that the case of legatees and creditors was not the only exception to the rule which requires all to be made parties who have an interest. This case shows that had a single creditor filed this bill, without stating that it was in behalf of others similarly situated, the cause must have stood over for want of parties. It proves also that a common interest in the fund affords a good ground to join parties. (See also Fish v. Howland, 1 Paige, 20.) Upon the same principles, a few members of a voluntary society, or unincorporated body of proprietors, have been permitted to sue in behalf of the whole, for an account, against their own agents and committee. In these and the like cases the bill must be specifically filed by the complainants in behalf of themselves and the rest having like interest.
In the cases enumerated, and such as are analogous, equity is satisfied with having so many parties before it as may be supposed to represent the claim fairly, to contest it honestly in behalf of the whole, and therefore in a sense to bind it; because of the manifest inconvenience, if not impossibility, of including all interested in the same right. Of course the principle always presupposes that the decree can be fitly made between the
In Innes v. Lansing, (7 Paige, 584) the chancellor held that a creditor at large of an insolvent limited copartnership might file a bill in behalf of himself and all other creditors of the firm, standing in the same relation, to restrain the partners from disposing of the property, and for a receiver, and for a distribution of the property among all the creditors, ratably, according to the statute. He put it upon the ground that the title of the revised statutes relative to limited partnerships (1 R. S. 764) constituted the effects of the firm, a special fund for the benefit of all the creditors. The revised statutes treat the funds of a corporation, whether insolvent or not, which has surrendered its rights, privileges and franchises, by suspending for one year its lawful and ordinary business, as a trust fund for the payment of its debts, and constitute its directors the trustees thereof, and give the court of chancery jurisdiction. (Compare 2 R. S. 462, §§ 33, 38. Ib. p. 466, § 56. 1 R. S. 599 to 605.) So in Taylor v. Jones, (2 Atk. 600,) a bill was filed by simple contract creditors to be paid their debts out of £1733 stock vested in trustees for the benefit of the defendant for life, of his wife for life, and then for his children. The court held the conveyance in trust void, and decreed that the stock should be sold, and the debts paid out of the proceeds. Fraud and a trust gave the court jurisdiction, which was thus appropriately exercised in favor of creditors at large. The only common interest which the creditors had in that case, was an interest in the fund, and its proper application.
Thus it appears that according to the well settled principles of equity pleadings and practice, the objection of multifarious
Again, it is objected that the testimony of George W. Goff, Hiram Newell, William E. Warren and Albert Conro, ought to be stricken out. Warren and Conro are parties, but by § 397 of the code of 1849, which is made applicable to existing suits, by the supplemental act, (§ 2, sub. 4,) they are permitted to be examined on the part of their co-plaintiffs. Goff was a stockholder of the Vergennes Bank, but he assigned his stock before his examination. But independently of this, a corporator is a competent witness under the code, in an action where the corporation is a party. (The Washington Bank v. Palmer, 2 Sand. S. C. Rep. 686. The N. Y. & Erie Railroad Co. v. Cooke, Id. 732.) The same principle was decided by this court, in The Montgomery Co. Bank v. Marsh,
In the progress of the hearing before the referee, there were some improper questions put on the part of the plaintiffs, which were objected to by the defendants’ counsel, and answered by the witnesses. In all such cases, it has been the intention of this court to disregard such answers, and to base the decision on unexceptionable testimony.
2d. As to want of equity in the bill. It is possible that each of the plaintiffs has a good cause of action against one or more of the defendants, and yet they can not jointly maintain an action in a court of equity, against all. There must be some fact appearing on the face of the bill, which either shows that the par
In the present case, there were many circumstances which rendered the aid of a court of equity necessary, and which thus obviate the objection of a want of equity in the bill. Some of these circumstances have already been anticipated under the foregoing heads, but there are others still more important. (1.) The lease of the 30th April, 1845, of all the estate and property of the Port Henry Iron Company to Horace Gray, for two years and a half, was void. It was not" made in pursuance of any act of the directors of the company, but was authorized to be executed at a meeting of the stockholders, held at the counting house of Horace Gray, on the 21st April, 1845. The charter of the company appointed the first directors, who were to hold their offices until others should be elected in their stead. (Laws of 1840, p. 208, § 4.) The corporation was vested with the general
(2.) Suppose this objection be untenable, we think it is not competent for a corporation, without authority from the legislature, to do any act which will have the effect of suspending its ordinary and lawful business, for any period, and much less for above a year. The 38th section of the act “ of proceedings against corporations in equity,” (2 R. S. 463,) among other things, enacts that whenever a corporation shall have suspended for one year, the ordinary and lawful business of such corporation, it shall be deemed to have surrendered the rights, privileges and franchises granted by any act of incorporation, or acquired under the laws of this state, and shall be adjudged to be dissolved. If the lease in this case was obligatory upon the cor
When this case was before us on appeal from the order appointing a receiver, we held that the case made by the bill brought it within the equity of the provisions of the foregoing statute. (2 R. S. 463, 6, §§ 38, 56. 4 How. Pr. Rep. 166.) Horace Gray, as president of the Port Henry Iron Company, was a trustee for the creditors of the company. The profits made by bim in carrying on the works, belong to the trust fund, which in this case is the whole property of the corporation. A trustee is not permitted to speculate out of the funds of the cestui que trust. He is not allowed to make any gain, profit or advantage from the use of the trust fund. (Green v. Winter, 1 John. Ch. Rep. 27. S. P. Parkist v. Alexander, Id. 394. Shuflin v. Stewart, Id. 620. Brown v. Rickets, 4 Id. 303.)
(3.) The assignment of the corporate property by Gray, in payment of his individual debts, was a breach of trust, and properly cognizable in equity. The assignees, by accepting of the assignment, participated in this breach of trust. The assignment to Tuckerman was void on its face, if the dictum of Bronson, J. in Barney v. Griffin, (2 Cowen, 365,) be law. The lease by the corporation to Horace Gray, and the assignment of the latter to Tuckerman, were obstructions in the way of the ordinary remedies by an action at law against the corporation, which rendered the case a fit one for the interposition of a court of
The assignment by Gray to Hooper, Coffin and Bullard, on the 10th December, 1847, of his 590 shares in the capital stock of the Port Henry Iron Company, does not aid the defendants. If the assignment be valid, the assignees take it subject to the equities of the creditors of the corporation. The interest which they acquire under the assignment is whatever remains after all the claims against the corporation shall have been first satisfied. In short, they stand in no better plight than Horace Gray, if no assignment had been made.
It has been objected that the bill does not aver the insolvency of the corporation, nor of the assignees. To this it may be answered, that the insolvency of a corporation is not made, by the revised statutes, the exclusive ground for relief in equity. The suspension of its ordinary and lawful business for a year, gives jurisdiction to the court, and that fact is sufficiently alledged. The insolvency of the assignees is not material. They create a cloud upon the plaintiffs’ remedy at law, as effectually, if they are gentlemen of substance and respectability, as if they were men of straw. Equity having rightfully obtained jurisdiction to remove these obstructions and to dissipate these clouds, may retain it for all the purposes of remedial justice.
If it is not averred in terms that the lease to Gray and the assignment to Tuckerman were void, the allegation upon that subject can, if necessary, be made more specific by an amendment. The 6th chapter of title 6 of part 2 of the code of procedure, §§ 169,176, is made applicable to existing suits, by title 1, ch. 1, sec. 2, sub. 1, of the act to facilitate the determination of existing suits in the courts of this state. The provisions of the code are amply sufficient to admit of any amendment to the bill, that would cure the defect; or which is the same thing in substance, justify the court in disregarding the omission of averments which have not misled the defendants. The proof was received without objection, both of the lease and assignments, and of all the acts bearing upon the question of fraud and trust.
The plaintiffs are entitled to a decree against the Port Henry Iron Company for their respective debts, and must surrender up, to be deposited with the clerk of this court for Essex county, the various bills of exchange and other evidences of debt, if any, after the same shall have been exhibited to the referee hereinafter named. The assignment of the Stone property by Horace Gray to Hooper, Coffin and Bullard, must be declared void, and that property declared to be a part of the property of the corporation. The assignment to Tuckerman must be declared void, and the property therein mentioned declared to belong to the said corporation. But Tuckerman must be protected by the decree, and credited with all payments and expenses properly chargeable, prior to the service of the injunction, and be liable only for the residue. The cause must be remitted back to the same referee, John M’Lean, Esq., unless the parties agree upon another to compute the various amounts due to the plaintiffs, and to examine and cause to be filed the said bills of exchange, as above. On the filing and confirmation of the report the plaintiffs will be entitled to execution or other proper process to carry this decree into effect.
The plaintiffs are also entitled to their costs. These costs in equity should be paid by Horace Gray, by whose acts, omissions or misfortunes, the present controversy has been occasioned. Hone of the assignees are shown to be guilty of any wrong except the technical wrong of accepting an assignment, which amounted to a breach of trust in the assignor. Heither of them should be charged with costs personally, unless the property reached by the decree should prove insufficient to pay the whole of the plaintiffs’ debts and costs, and the debts and costs of others similarly situated, who became parties hereto; and then they should be liable only for such portion of the costs as are not-paid by the fund in controversy. The order in which the
Willard, Paige and Cady, Justices.]
See 11 Bari. 645.