74 N.J. Eq. 751 | New York Court of Chancery | 1908
The bill in this case prays that it may be decreed that the defendant, the American Sugar Refining Company, on December 30th, 1903, became trustee in the control of the affairs and plant of tire Pennsylvania Sugar Refining Company, for the benefit of that company and its creditors and stockholders; that as such trustee the defendant make discovery of all profits made and acquired by it by reason of its actions in controlling the . affairs and plant of the Pennsylvania. Sugar Refining Company, and account to the complainant as auxiliary receiver of that company for such profits; that whatever profits have been made by the American Sugar Refining Company, by reason of its actions in so. controlling the Pennsylvania Sugar Refining Company, belong to, and be paid to, the complainant as such receiver, and for further and other relief. For the sake of brevity the defendant will be referred to. as the American Sugar Company, and the complainant’s insolvent corporation as the Pennsylvania Sugar Company.
The state of facts upon which the defendant’s liability is said to arise are, succinctly stated, these: The Pennsylvania Sugar Company, a corporation, built a plant and works for the refining of sugar in Philadelphia, which plant was practically completed in the winter of 1903-1904. Its- construction was commenced in or about the year 1901. The plant was erected for the Pennsylvania Sugar Company by a corporation known as the "Champion Construction Company.” Mr. Adolph Segal was the owner of the majority of the stock of tire Champion Construction Company, which company owned a majority of the stock of the Pennsylvania Sugar Company. He was, therefore, the master of
Prior to December 17th, 1903, Mr. Gustav E. Kissel called upon Mr. John E. Parsons, the counsel and one of the directors of the American Sugar Company, concerning an application for a loan by that company to Mr. Segal. Mr. Kissel, the defendant asserts, was Mr. Segal’s agent at that time, but that he after-wards became the defendant’s agent. My judgment is that he never was the agent of Segal in any legal sense, but was always the agent of the American Sugar Company. Segal undoubtedly acted for himself so far as he was not represented by Mr. Thomas B. Iiarned. The amount of the loan asked for was $1,250,000. At an interview between Mr. Hamed, counsel for Mr. Segal, and Mr. Kissel, with Mr. John E. Parsons, Mr. Parsons was informed that the loan would be secured by $1,000,000 of bonds of a property, known as the “Majestic Apartment House,” in Philadelphia, by $500,000 of bonds of the Pennsylvania Sugar Company, and by twenty-six thousand shares of that company. There was a voting trust in respect to this stock, which was incomplete. It was stated, either by Mr. Earned or Mr. Kissel, that there was to be an arrangement that the Pennsylvania Sugar Company should not run during the pendency of the loan, which was to be for a year. On another occasion Mr. Segal was present, as well as the persons just mentioned. It was stated that Mr. Segal was not willing to apply for consent from the other stockholders, and that he did not wish anything about the transaction in writing. Mr. Parsons declined to have anything to do with the transaction unless all of the particulars were committed to writing. In passing it might be observed that on the first visit of Mr. Segal in company with Messrs. Harned and Kissel to
In order to secure his client, not so much for the repayment of the loan, for which the security appeared to be inadequate, but more for the purpose of the principal object for which the loan was made, namely, that the Pennsylvania Sugar Company should not run and operate, Mr. Parsons prepared what is called in the pleadings and proofs “Mem. re Segal Loan.” It provides that an agreement be made and exchanged; that a stock note be signed and securities be turned over; that Mr. Hippie (the trustee named in the incomplete voting trust agreement) must give a certificate that he holds twenty-six thousand shares subject to the control of the lender, and that he will not accept directions from the proposed committee (provided for in the voting trust agreement), or does accept notice from the majority of the stockholders; that they will not appoint, or consent to the appointment of, the committee; that the construction company notify Mr. Hippie, as depositary of the stock, that inasmuch as no names for a committee have been agreed to in the pooling agreement, as owner of twenty-six thousand shares (a majority of the stock of the Pennsylvania Sugar'Company), it elects to treat the agreement as not complete, and that Mr. Hippie will be so good as to act accordingly, accepting no directions from a committee, should names for a committee be proposed, and accepting notice that the construction company, as the holder of
.“Referring to the resolution of the directors of the Pennsylvania Sugar Refining Company, passed this day, with reference to the starting of the refinery, I wish to say that I recognize the authority of that resolution, and will act in conformity with it, subject to any change that may hereafter be made by a majority of the board of directors
that a resolution of the directors may be in this form:
“Whereas, to start the refinery at the present time would involve an outlay of a large sum of money which would need to be provided, for which the time is not opportune: Resolved, that the refinery do not run, and that no proceedings looking to the beginning of operations be taken until the further order of the board.”
The reason I say that the principal object of the loan was to prevent the operation of the Pennsylvania Sugar Company rather than to secure a return of the money is that a corporation, no part of whose legitimate business was the loaning of money, would never have made such a loan at legal interest, unless lurking behind the transaction there was some advantage of great importance to the lender. The American Sugar Company was safe. If the loan were repaid, it lost nothing, and had the ad
On December 30th, 1903, an agreement in writing was signed by Mr. Segal and Mr. Kissel, “as agent.” It was expressed to be made between Mr. Segal, therein called the borrower, and Mr. Kissel, “as agent, his principals and assigns,” therein called the lenders. It recited Mr. SegaPs desire to borrow $1,250,000 upon a stock note to be given therefor, a copy of which is recited in the agreement. The form of note recited that Mr. Segal, twelvemonths after date, for value received, promised to pay Mr. Kissel, agent,- or his assigns, $1,250,000, with interest at six per cent., having deposited with him as collateral security the following property: One thousand first mortgage bonds of $1,000 each of the Majestic Apartment House Company; five hundred first mortgage bonds of $1,000 each of the Pennsylvania Sugar Company; receipt of Mr. Hippie for twenty-six thousand shares of the capital stock of the Pennsylvania Sugar Company, the-right to the stock, and all voting and other rights which belonged to it. Then followed the usual undertaking of a collateral note concerning the sale of the securities, after default, at public or private sale without advertisement or notice, &c. Then a recital that the bonds of the Pennsylvania Sugar Company, and the right to the twenty-six thousand shares of the stock of that company, and the voting and other powers which belonged to-that stock, were regular, and the stock regularly issued and continued a majority of all of the stock of the company. The agreement 'then proceeds to recite that the bonds of the Majestic Apartment House Company are the entire issue of such bonds; that the entire issue of first mortgage bonds of the Pennsylvania Sugar Company is $3,000,000, the five hundred bonds being one-sixth of the total authorized issue; that the borrower (Mr. Segal) will so arrange that the absolute voting power of the twentjf-six thousand shares of the stock of the Pennsylvania Sugar Company shall be in the lenders, who shall have the right to use such voting power as may be suitable to aid or effectuate
To effectuate the purposes of the agreement, and to carry out the terms of the transaction, the Champion Construction Company on the same date, December 30th, 1903, gave Mr. Kissel its proxy to vote the stock owned by it and standing in its name, which proxy is expressed to be irrevocable pending the life of the agreement mentioned. It is signed for the company by Mr. Harned, president, and is attested by its secretary. On the same date Mr. Harned wrote a letter to Mr. Hippie, which stated that, inasmuch as no names for a committee had been agreed upon, the construction company, as owner of twenty-six thousand shares of the stock of the Pennsylvania Sugar Company (a majority of the stock), notified him, as depositary of the stock, that it elected to treat the agreement as not complete, and that he would be so good as to act accordingly, accepting no directions from a committee should names for a committee be proposed. This letter Mr. Harned signed as president, stating it was by order of the board of directors. To this Mr. Hippie replied, by letter of the same date, acknowledging the receipt of Mr. Harned’s communication, and stating that, as there was no committee in existence to direct him in voting the stock, and none could be nominated except by the holders of the majority of the stock, he could not exercise any right to vote the stock deposited with him until such committee of direction be appointed. This letter from Mr. Hippie to Mr. Harned, president of the Cham
“Whereas, to start the refinery at the present time would involve an outlay of a large sum of money, which, would need to be provided, and for which the time is not opportune: Resolved, that the refinery do not. run. and that no proceedings looking to the beginning of operations be taken until the further order of the board.”
On June 16th, 1904, Mr. Harned wrote Mr. Parsons that Mr. Segal requested a return of the twenty-six thousand shares of stock against a cash payment of $100,000 on account of the loan, in which case he would enter into such guaranty as necessary to insure refinery remaining closed until October 1st, 1904; that he would pay off unconditionally the entire loan with interest to October 1st, against return of all securities; that if neither proposition be acceptable, he would like to feel free to make sale of his entire position, legal and otherwise, and it would be more satisfactory to all concerned if that be not objectionable. Segal did n,ot pay the loan, either on October 1st, 1904, or at maturity (nor has he at any time, as it appears), and on July 6th, 1905, Mr. Parsons, representing the American Sugar Company, wrote to Mr. ITntermeyer, then representing Segal, in which he said
“Referring to the loan .made by you [Kissel] as agent for us to Mr. Segal, under the agreement o£ December 30th, 1903, we will hold you harmless by reason of the execution of that agreement and of any action taken under it.”
This shows conclusively the character of the transaction. It was a scheme on the part of the defendant company, born of Segal’s necessities, to tie up the Pennsylvania Sugar Company .and prevent its operation in competition with the defendant company so long as the loan should be outstanding. And it was entered into in a secretive manner — that is, the name of the defendant companj'- did not appear in the transaction, and the form in which the papers were cast might have protected the defendant from disclosure in any attack by third parties, or in any investigation by public authorities. But when attacked by one of the parties, or, wliat is the same thing, by the receiver of the
And now an appeal is made to a court of equity, which penetrates all disguises of form, and, disregarding the shadow, grasps the substance. Stockton v. Central Railroad Co., 50 N. J. Eq. (5 Dick.) 52. If the complainant were entitled to the relief he asks upon the state of facts which is disclosed by this cause, it would unhesitatingly be accorded to him. It is, however, conceded by the complainant that there is no precedent for the relief he prays, and I am asked to go a step further than the courts have yet done in dealing with the operations of corporations in the stifling of competition and the restraint of trade. Want of precedent would not deter me for a moment in awarding the complainant a decree if I could find law upon which to rest it. The principles of equity will be applied to new cases as they are presented, and relief will not be withheld merely on the ground that no precedent can be found. Van Duyne v. Vreeland, 12 N. J. Eq. (1 Beas.) 142. The absence of precedents or novelty in incident presents no obstacle to the exercise of the jurisdiction of a court of equity. It is no objection to the exercise of jurisdiction that, in the everchanging phases of social relations, a new case is presented and new -features of wrong are involved. Vanderbilt v. Mitchell, 72 N. J. Eq. (2 Buch.) 910 (Court of Errors and Appeals). While it is trué that equity will make a precedent to fit a case novel in incident, yet in my judgment the facts of the case must come within some head of equity jurisprudence. This observation is not, as I understand it, in conflict with the broad doctrine of the expansive and expanding jurisdiction of this court as laid down in Vanderbilt v. Mitchell. Each of the cases cited by Judge Dill, in the opinion of the court of errors and appeals in that case upon this head, were cases in which the facts involved were referable to some head of existing equity jurisprudence. Chancellor Pitney, in his opinion in Bigelow v. Old Dominion Copper Mining and Smelting Co. (May Term, 1908), ante p. 2, in dealing with the question of promoters’ liability, says that it “is not the creature of statute; it is ‘judge-made’ law, in the sense that courts of equity everywhere, recognizing the obliga
The doctrine invoked here is the right to an accounting, and that right must be denied, unless the complainant can show, under the law, that he is entitled to an accounting. Because the American Sugar Company loaned the owner or controller of a majority of the stock of the Pennsylvania Sugar Company a large sum of money, and took from that owner a pledge of that stock and an agreement whereby the Pennsylvania company could not be run and operated in competition with the American company during the pendency of the loan, will not entitle the complainant to an accounting, unless the more ancient law, or the more recent policy of the state, affords the remedy which the complainant seeks. I cannot make law. I can only apply it. This observation is probably subject to this exception, namely, I can make law by the application of existing principles to new cases. Nevertheless, I cannot call into being principles which have no existence in equity, the common law, the statute law, or what may be called the “public policy of the state.” The legislature may make public policjr, but not the courts. Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. (13 Dick.) 507, 524; Dittman v. Distilling Company of America, 64 N. J. Eq. (19 Dick.) 537, 545; 54 Atl. Rep. 570.
It ought to be observed in passing that it was no part of the business of the American Sugar Company to loan money. The objects for which the company was formed are the purchase, manufacture, refining and sale of sugar, molasses, and melada, and all lawful business incident thereto. These are the only objects expressed in the charter under which this corporation was organized, and its charter limits its powers. Robotham v. Prudential Insurance Co., 64 N. J. Eq. (19 Dick.) 673, 682. The loan to Segal was in direct violation of the third section of our Corporation act, April 21st, 1896 (P. L. 1896 p. 278), which provides, among other things, that no corporation created under the provisions of the act shall, by implication or construction, be
The complainant contends that the defendant, under the contract of loan, put those who would do its bidding upon the board of directors of the Pennsylvania Sugar Company, and controlled that company as against the interests of its minority stockholders, and that the defendant is therefore bound to account for the profits it made in the transaction. To this doctrine, thus broadly stated, I assent. Bu;fc my trouble is to find that the complainant has made a case which shows him to be entitled to an accounting upon the theory that profits were made by the defendant company in consequence of its illegal act. To better apply the law upon this branch of the case the facts with reference to the situation of the Pennsylvania Sugar Company at and before the making of the agreement and loan should be understood. They were these: Assuming its plant to have been practically complete in the winter of 1903-04, as stated by Mr. Newhall, its architect and builder, nevertheless, it clearly appears from the evidence that the refinery could not have been operated economically without an expenditure of about $150,000 for boneblack, filter bags, tools and sundries. The company’s treasury was empty, and all its prop
We have now reached the last analysis in the facts of this case, and it remains only to apply the law arising upon those facts. As already remarked, the complainant may prevail, if prevail he can, by calling upon the defendant to account. The cases cited by the complainant do not support his contention. For instance, in Docker v. Somes, 2 Myl. & K. 655, the executors of the decedent continued his business, gradually closing it out. They went into the same business themselves, and used the money of the estate in their enterprise. They accounted for the moneys, and charged themselves with interest on the same, and the court held that they were chargeable with the actual profits that they made by use of the trust funds in their business. Manifestly that case has no application to the one sub judice. The numerous cases relied on by the complainant do not, in my opinion, any more nearly apply to the facts of the case under consideration than does Docker v. Somes, to which allusion has just been made. Vice-Chancellor Reed said, in Clark Thread Co. v. William Clark Co., 55 N. J. Eq. (10 Dick.) 658 (at p. 667); 37 Atl. Rep. 599, that a decree for an accounting could only go if it appeared that there was something for which the defendant was liable to render an account. In Bergmann v. Macmillan, L. R. 17 Ch. Div. 423, Mr. Justice Fry held that an account of profits will not be directed if it is clear that no profits have been made. On a bill for an accounting the court must always decide in the first instance whether or not there is anything for which the defendant is liable to account, and will not, I take it, direct an accounting in any transaction unless the evidence discloses the profits were made. Surely an accounting will not be directed for the business of a company which hover commenced operations, and certainly not unless it be shown that the concern, if operated, could have made profits. The language of Chief-Justice Green, speaking for the court of errors and appeals in Campbell v. Campbell's Administrator, 8 N. J. Eq. (4 Halst.) 738 (at p. 743), is particularly'apposite. He said: “But if the court be satisfied that there is nothing due, no ac
Aside from the trustee aspect of this case, the accounting feature involves the law of loss of profits, which is usually to be found in cases sounding in contract or in tort. The law concerning speculative, remote and contingent profits is here applicable. They are never allowed, as I understand it, in either class of cases. In Poll. Torts (6th ed.) 538 (1901), it is laid clown:
“With regard to the measure of damages, the same principles are, to a great extent, applicable to cases of contract and of tort. * * * The rule with regard to remoteness of damage is precisely the same whether the damages are claimed in actions of contract or of tort.”
And (at p. 540) :
*768 “One point may be suggested as needful to be borne in mind to give a consistent doctrine. Strictly speaking, it is not notice of apprehended consequences that is material, but notice of the existing facts, by reason whereof those consequences will naturally and probably ensue.”
In States v. Durkin, 65 Kan. 101; 68 Pac. Rep. 1091, it was held: “Before one may recover damages, occasioned by the wrongful acts of another, for loss of profits to an established general business, it must be made to appear that the business had been in successful operation for such period of time as to give it permanency and recognition, and that such business was earning a profit which may reasonably be ascertained or approximated.” In Kenny v. Collier, 79 Ga. 743; 8 S. E. Rep. 58, it was held (at p. 747 of 79 Ga., at p. 60 of 8 S. E. Rep.) : “That anticipated profits from a business intended to be carried on * * * cannot be allowed is as well settled as anything can be in an age of legal skepticism.” These cases of States v. Durkin and Kenny v. Collier were contract cases, but Dudley v. Briggs, 141 Mass. 582; 6 N. E. Rep. 717; 55 Am. Rep. 494, was a tort case, in which the court held (at p. 586 of 141 Mass., at p. 720 of 6 N. E. Rep.; 55 Am. Rep. 494) : “Until the plaintiff had entered upon the compilation of the directory for 1885, we do not think there was any business of publishing a directory for 1885 carried on by the plaintiff, or anything that, for example, could have been sold as a going concern by an assignee in insolvency, if the plaintiff had become an insolvent debtor.” And (at p. 587 of 141 Mass., at p. 721 of 6 N. E. Rep.; 55 Am. Rep. 494) : “The fatal objection to the present case is that it is entirely problematical whether the plaintiff would actually have published a directory if the defendant had not made the fraudulent misrepresentations alleged. The plaintiff abandoned his intention to compile and publish a directory in consequence of the defendant’s acts, but this, upon the principle stated in Bradley v. Fuller, 118 Mass. 239, and the cases therein cited, is not sufficient to support an action.” Among the cases cited in Bradley v. Fuller, just referred to, is that of Wellington v. Small, 3 Cush. (Mass.) 145; 50 Am. Dec. 719, wherein the court said (at p. 149 of 3 Cush. (Mass.) : “The uncertainty of the plaintiff’s damage seems, of itself alone, to be a sufficient reason for his not
And now, finally, the case on the law of accounting may be summarized as follows: That the Pennsylvania Sugar Company was not a going concern at the time its stock was hypothecated; that its business had never been established; that it cannot be postulated that, if its business had been established, it would have been profitable, but, on the contrary, it is entirely problematical whether its business would have been successful in the fierce competition it would necessarily have encountered from the defendant company; that, while the complainant may have shown injury t.o his insolvent corporation, he has not shown damage; that if damage has been suffered, it has not been proven, because it is incapable of proof; that anticipated profits from a business intended to be, but actually not, carried on, cannot be allowed.
Hpon the whole case, I am constrained to the conclusion that nothing has been shown to be due from the defendant to the complainant, and that consequently the complainant is remediless, and therefore his bill must be dismissed, with costs.
