30 Barb. 553 | N.Y. Sup. Ct. | 1859
The question presented for my decision is, whether I will dissolve the preliminary injunction granted in the cause, or continue the same till the hearing.
If the plaintiffs have made out a prima facie case for the relief asked for in the complaint, they are entitled to the remedy asked for ; or in the language of § 219 of the code, if it shall appear by the complaint that the plaintiff is entitled to the relief demanded, and such relief, or any part thereof, consists in restraining the commission of some act, the commission of which during the litigation would produce injury to the plaintiff, a temporary injunction may be granted to restrain such act.
The solution of the question depends upon the fact whether or not the plaintiffs have made out an apparent right to the relief demanded. They insist that they have. That it appearing that the defendant Sherman was, at the time he became the purchaser of the lands conveyed by deed of April 22, 1856, and of the privileges and advantages secured by the contract of the same date, the agent and trustee of the plaintiffs, he was incompetent to purchase said land; and by reason of such inability, the plaintiffs have the legal right to have said deed and contract canceled, and the lands reconveyed to them, and be restored to all things which they have lost by reason of the acts of their agent and trustee, in making said sale and contracts. That the defendant Dean is a representative man, having no personal interest in the matter, and that
From the facts not denied before me, it appears that Sherman organized the Hoffman Coal Company in August, 1858, and that he became one of its directors, and he and Dean owned 4990 shares of the 5000 shares of its capital stock. Tt is therefore too clear to need illustration, that whatever knowledge they had of these transactions, the Hoffman Coal Company had. They were its creators; they breathed into it life, and gave it all it had, and owned the whole of it at its creation, and all but a small fragment after; and, therefore, what they knew their creature knew.
It is well settled that notice to either of the directors of a bank or company, while engaged in its business, is notice to the principal, the bank. (Angell & Ames on Corporations, 299, and cases there, cited.) So, also, it is well settled, both in law and in equity, that notice to an agent in the transactions for which he is employed, is notice to the principal; and this rule applies as well to a corporation as to a natural person. (Same authority.) With much more force does the rule apply, when the principal—in this case, the stockholders—have full and ample notice. It must therefore be assumed that the defendant Postley, as president of the Hoffman Coal Company, stands in no better position before this court than the other defendants.
Sext, as to the defendant Dean. It appears from his state-
The rule in reference to the dealings of an agent or trustee, in reference to property committed to his management or care, is clearly and well laid down by Sir Edward Sugden, in his work on Vendors and Purchasers. (2 Sug. 109, Lond. ed. of 1824.) It is in these words: “ It may be laid down as a general proposition, that trustees, unless nominally such to preserve contingent remainders—agents, commissioners of bankrupts, assignees of bankrupts, solicitors to the commission, auctioneers, creditors who have been consulted as to the mode of the sale, or any person who by their connection with any other person, or by being employed or concerned in his affairs, have acquired a knowledge of his property—are incapable of purchasing such property themselves, except under the restraints which will shortly be mentioned. For if persons having a confidential character, were permitted to avail themselves of any knowledge acquired in that capacity, they might be induced to conceal their information and not to exercise it for the benefit of the persons relying upon their integrity. The characters are inconsistent. Emptor emit quam mínimo potest, venditor vendit quam máximo potest.”
Mr. Justice Wayne, of the supreme court of the United States, in Michoud v. Girod, (4 How. 554,) in delivering the opinion of the court, cites this rule with approbation, and says: “ It has been adopted by almost every subsequent writer, and we cite the passage with confidence, having verified its correctness by an examination of all the cases cited by him ; by an examination also of other cases in the English courts, and of cases in the courts of chancery of several of the states in our union, sustaining the doctrine, to the fullest extent, of the incapability of trustees and agents to purchase particular property, for the sale of which they act representatively, or in whom the title may be for another.”
The cases relating to the dealings of an agent or trustee with the property, in reference to which his agency or trust exists, may be arranged into two classes: First. Oases in which a trustee buys or contracts with himself, or several, trustees of which he is one, or a board of trustees of which he is one; and it will be seen by reference to the authorities hereinafter cited, that the incapacity to purchase applies to all these cases. Second. Oases in which a trustee buys of or contracts with his cestui qui trust who is sui juris, and is competent to deal independently of the trustee, in respect to the trust estate.
And in Davison v. Gardner, in 1743, Lord Hardwicke observed, that the court always looks with. a jealous eye "at a trustee purchasing of his cestui que trust; and in Whelpdale v. Cookson, in 1747, (1 Vesey, 9; S. C., 5 id. 682,) the chancellor would not permit a purchase at auction to stand, as he said he knew the dangerous consequence of sanctioning
Chancellor Kent says that there is one more important case, that of the York Building Company v. Mackenzie, decided in the house of lords in 1795, on appeal from the court of session in Scotland. It had then only appeared in 8 Bro. P. C. by Tom., in App., but has since been reported in 3 Pa-ton, 378. He says of this case, that it is a complete vindication of the doctrine he was there applying; and he remarks that, considering the eminent character of the counsel who were concerned and who had since filled the highest judicial stations, and the ability and learning which they displayed in
In Ta,ylor v. Watson, decided in Scotland, January 20, 1846, the same rule as laid down in Mackenzie’s case was reiterated and adhered to. Lord Jeffrey said, “ The principle involved in this case is a very familiar and general one in our laws—that no person can be actor in rem suam. The stringency of the maxim has been ruled and held settled by the house of lords, in the case of Mackenzie. * ® * It is now presumptio juris et de jure, that where a person stands in these inconsistent relations of both buyer and seller, there are dangers, and it is not relevant to say that it is impossible there could be any in the particular case. I should be sorry
In the case of the Aberdeen Railway Company v. Blaikie, July 20, 1854, (1 McQueen’s Rep. 461,) the house of lords, reversing the judgment of the court below, held that a contract entered into by a manufacturer, for the supply of iron furnishings to a railway company of which he was a director, or the chairman at the date of the contract, was invalid and not enforceable against the company. Lord Cranworth, in delivering the opinion of the court, says : “ A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation, whose affairs they are conducting. Such an agent has duties to discharge, of a fiduciary character toward his principal ; and it is a rule of universal application, that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting, or which possibly may conflict with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to Ifie raised as to the fairness or unfairness of a contract so entered into. It obviously is or may be impossible to demonstrate how far, in any particular case, the terms of such a contract have been the best for the cestui que trust, which it was possible to obtain. It may sometimes happen that the terms on which a trustee has dealt, or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained from any other person; they may even, at the time, have been better. But still so inflexible is the rule, that no inquiry on that subject is permitted. The English authorities on this subject are numerous and uniform.”
The same subject has had a full and careful discussion and examination in the supreme court of the United States, in the case of Michoud v. Girod, cited supra. The opinion of the
The language of Pothier is distinct and unequivocal: “Nous ne pouvons acheter, ni par nous-mémes, ni par personnes interposées, les choses que font partie des Mens dont nous avons 1’administration.” (Tr. du Gontrat de Vente, part 1, p. 13.) The rule of the civil law, without qualification, is adopted in Holland: “ Quae vero de tutoribus cauta, ea quoque in curatoribus pro curatoribus, testamentorum, executoribus, aliis similibus, qui aliena gerunt negotia, probanda sunt.” In Spain the rule is enforced without relaxation, and with stern uniformity. Judge Wayne, in the case of Michoud, in his opinion, cited the rule from the Novissima Eecopilacion, in these words, “No man who is testamentary executor, a guardian of minors, nor any other man or woman, can purchase the property which they administer, and whether they purchase publicly or privately, the act is invalid, and on proof being made of the fact, the sale must be set aside.” It is thus seen that the rule by which agents or trustees are prohibited and rendered incapable of purchasing or dealing with the property of their cestuis que trust, is one of universal application, justified by a current of strong and high authorities, and is adhered to with stern and inflexible integrity; and the consequence of such dealing and purchasing is, that the agent or trustee is liable at any time, on the application of the cestui que trust, and as a matter of course, and without reference to the fairness or unfairness of the transaction, the adequacy or inadequacy of the price paid, or any other equities of the agent or trustee, to have the sale set aside; such has been the uniform administration of the law in England, and where the
Nay, the rule, as applicable to managers of corporations, should in no particular be relaxed. Those who assume the position of directors and trustees, assume also the obligations which the law imposes on such a relation. The stockholders confide to their integrity, to their faithfulness, and to their watchfulness, the protection of their interests. This duty they have assumed, this the law imposes on them, and this those for whom they act have a right to expect. The principals are not present to watch over their own interests; they cannot speak in their own behalf; they must trust to the fidelity of their agents. If they discharge these important duties and trusts faithfully, the law interposes its shield for their protection and defense; if they depart from the line of their duty, and waste, or take themselves, instead of protecting, the property and interests confided to them, the law, on the application of' those thus wronged or despoiled, promptly steps in to apply the corrective, and restores to the injured what has been lost by the unfaithfulness of the agent. This right of the cestui que trust to have the sale vacated and set aside, where his trustee is the purchaser, is not impaired or defeated by the circumstance that the trustee purchases for another. This point is fully discussed by Lord Eldon, in Ex parte Bennett, (10 Vesey, 381.) In this case he held, that as the solicitor to a commission of bankruptcy could not pur
There can be no question, I think, at the present time, that a director of a corporation is the agent or trustee of the stocknolders, and as such has duties to discharge of a fiduciary-nature, towards his principal, and is subject to the obligations and disabilities incidental to that relation. (Robinson v. Smith, 3 Paige, 222. Angell & Ames on Corp. 258, 260. Percy v.
Neither are the duties or obligations of a director or trustee altered from the circumstance that he is one of a number of directors or trustees, and that this circumstance diminishes his responsibility, or relieves him from any incapacity to deal with the property of his cestui que trust. The same principles apply to him as one of a number, as if he was acting as a sole trustee. It is not doubted that it has been shown, that the relation of the director to the stockholders is the same as that of the agent to his principal, the trustee to his cestui que trust; and out of the identity of these relations necessarily spring the same duties, the same danger and the same policy of the law.
The number of directors or trustees does not lessen the danger or insure security, that the interests of the cestui que trust will be protected. The moment the directors permit one or more of their number to deal with the property of the stockholders, they surrender their own independence and self control. If five directors permit the sixth to purchase the property intrusted to their care, the same thing must be done with the others if they desire it. Increase of the number of the agents in no degree diminishes the danger of unfaithfulness. WMchcote v. Lawrence (3 Vesey, 740) was a case of several trustees. In this case Lord Loughborough says: “ There was more opportunity for that species of management, which does not betray itself much in the conduct and language of the party, when several trustees are acting together. I am sorry to say there is greater negligence where there is a number of trustees.”
But it is insisted on the part of the defendants, that the purchase was made at the request of some of the stockholders, and that its alleged ratification at the meeting in June, 1857, by the stockholders, is equivalent to a purchase from them; and this brings me to the consideration of the second class of cases, where the trustee buys of, or contracts with, his cestui que trust. In reference to them, the presumption of law is against the validity of the transaction, with degrees of strength varying according to the circumstances; but the trustee is permitted to show affirmatively the fairness of the transaction, and to establish thp other conditions necessary to its validity.
Taking, therefore, the ground assumed in the argument, that this was a sale in fact, made by the stockholders, the cestuis que trust, does it appear that all these requisites were complied with by the purchaser who stood to them in the relation of confidence ? The burthen is on him to establish them, and, if he fails, the sale, though made by the cestuis que trust, may be set aside on their application.
Has the trustee shown that he took no advantage whatever of his cestuis que trust ? That he gave to them all the information which he possessed, or could obtain, in reference to the lands sold to him P I have looked in vain for any evidence that such information as he possessed was communicated to the stockholders. Did he advise them as he would have done if a third person had offered to become the purchaser ? Ho evidence of that character is presented. Has he shown that the price was fair and adequate ? He is entirely silent on this point, and by that silence admits the truth of the allegation of the complaint, that the price was grossly inadequate.
I cannot, therefore, upon these facts and principles, say that
Applying these principles to the present case, has the party seeking the confirmation of the stockholders to this sale and contract, shown that these essential prerequisites have been complied with on his part ? I do not understand it to be pretended that all the facts and circumstances of the case were made known to the stockholders at this time. It is not asserted that the statement made by Mehaffey to the stockholders, at their meeting in June, 1856, that the whole consideration of this sale, $140,000, had been paid in money, and that $112,000 thereof had been applied in the extinguishing of that amount of bonds of the plaintiffs, and which was undeniably incorrect, and well calculated to deceive and impose on the stockholders, was in fact untrue, and they so understood it. Can I assume that the defendant Sherman was ignorant of this report, and this incorrect statement ? If he had knowledge of them, it was clearly his duty, when he sought the stockholders to obtain from them a confirmation of this sale, to have made them acquainted with the material facts as they truly existed. Hot having done so, it was á sup-pi*essio veri; and whether made designedly or not, is equally fatal, and the confirmation, if obtained, will not avail him. The confirmation must not have been made in pursuance of the original transaction, or under the influence of that transaction, ( Wood v. Downes, 18 Vesey, 125,) or under the same state of circumstances which produced that transaction. (Crowe v. Ballard, 1 id. 215.) A confirmation given under the idea that the original transaction was valid when it was not, will be set aside. (Roche v. O’Brien, 1 Ball & Beat. 338. Gowland v. De Faria, 17 Vesey, 18. Dunbar v. Frederick, 2 Ball & Beat. 317.)
It is very doubtful, I think, whether the confirmation or
But even if the confirmation had been legally made, and by-a majority of the • stockholders, which it clearly was not, when, as in this case, it was to be made by a class, the sanction of a major part will not be obligatory on the rest; but the confirmation, to be complete, must be the joint act of the whole body. (Ex parte Hughes, 6 Vesey, 622. Ex parte Lacey, Id. 628. Ex parte James, 8 id. 337. Davoue v. Fanning, 2 John. Ch. B. 264.)
At the meeting of June, 1857, certain stipulations of the transportation contracts were relinquished by the defendant Sherman, and it is contended that the acceptance of this release bound the corporation and the stockholders to the contracts, and operated as a ratification of the same. What would have been its effect had the defendant Sherman stood in the attitude of a stranger to the plaintiffs and the stockholders, it is not necessary to determine. But in view of their actual relations, and in accordance with the principles above stated, as applicable to confirmations in such cases, it can have no binding effect. Sherman, in his affidavit, speaks of the release proposed to be given, as “his concession or consent to
It is very apparent that no actual ratification or confirma-, tion took place, and I am unable to see that any thing was done which would authorize one to be implied. Even if obtained, Sherman was dealing with his cestuis que trust, and standing on the original transaction, claiming its validity and binding character; and his cestuis que trust_ believing it so to be, he is debarred, on the authority of the cases already cited, from claiming any benefits from such confirmation, even if it had been made as distinctly and unequivocally as he pretends.
After a most patient investigation of the facts in this case, and the numerous authorities cited in the protracted and very able arguments made by the learned counsel for the respective parties in this cause, I have arrived at the conclusion, entirely clear to my own mind, that this deed of sale and contract cannot be sustained. To hold otherwise, would be to overturn principles of equity which have been regarded as well settled since the days of Lord Keeper Bridgman, in the 22d
I have arrived at this result without considering the question of fraud raised in the complaint, and denied by the answering affidavits. I have chosen to place my decision on higher and more satisfactory grounds. I adopt the language of Lord Eldon in Ex parte James, (8 Vesey, 345 :) “ It rests upon this, that the purchase is not permitted in any case, however honest the circumstances, the general interests of justice requiring it to be destroyed in every instance, as no court is equal to the examination and ascertainment of the truth, in much the greater number of oases.” There may be fraud, as Lord Hardwicke observed, and the party not be able to prove it. To quote Chancellor Kent: “ It is to guard against this uncertainty and hazard of abuse, and to remove the trustee • # Í from temptation, that the rule does and will permit the cestui que trust to come at his own option, and, without showing any actual injury, insist upon the experiment of a resale. This is a remedy which goes deep and touches the very root of the evil. It is one which appears to me from the cases which have been already cited, and from those which are to follow, to be most conclusively established.” The trustee purchased with this clog upon his title, and with a knowledge that his cestui que trust might, at his option, in the absence of all fraud, apply within any reasonable time to have the sale vacated.
For the reasons herein stated, I have no doubt such are the rights of the present cestuis que trust, the plaintiffs in this suit, and they having established a prima facie right to have the deed and contracts canceled, and the lands sold reconveyed to them, it is my duty to restrain the defendants until the
The plaintiffs have the right to their real estate, or any thing into which it has been transmuted. It is therefore proper to restrain the defendants from transferring the stock owned by them in the Hoffman Coal Company, which but represents the real estaté of the plaintiffs, and the privileges and advantages secured by the transportation contract.
The motion for an injunction is therefore granted.
Davies, Justice.]