26 N.Y.S. 502 | N.Y. Sup. Ct. | 1893
Lead Opinion
Seldom is the court called upon to pass upon a record containing so many and conflicting questions of fact as are here necessary to be resolved in order to determine what relief, if any, should be accorded to the plaintiff. Such a determination, involving an examination into the transactions of individuals, and their relations to a company projected for the purpose of fostering a large land scheme, renders it impossible to. reduce the facts into,
The record shows that the plaintiff in 1886 was the owner of 4,076 acres of land in Ocean county, IT. J., the title to 2,566 of which had been transferred in July, 1889, to John B. Larner, a lawyer, of Washington; D. O. A portion of Larner’s land, containing 311 acres, known as “Barnegat Park,” had been surveyed and laid off in streets by plaintiff under Lamer’s employ, and lots sold to various parties, when in August, 1889, the Barnegat Park Company was organized as a corporation under the laws of Hew Jersey, with a capital stock of $300,000. Larner became president, and plaintiff secretary and treasurer. In October, 1889, the portion of Barnegat Park remaining unsold, viz. 303 acres, was conveyed by Larner to the company, Larner taking in full payment of the land 2,996 shares of the stock, (all of the stock of the company except four shares.) By various deeds of conveyance the company also obtained title to about 6,000 acres of land, including that formerly owned by plaintiff, and, in addition, the company holds quitclaim deeds to certain other land which has never been surveyed, but which plaintiff states contains about 8,000 acres, the title to which has never been traced on the public records. Larner wishing to retire from the presidency, Marcus W. Conkling, the plaintiff’s partner, came in as president, and Larner sold all his stock to plaintiff and Conkling, retaining only a small mortgage interest in the company, under an unrecorded mortgage dated March 14, 1890. Plaintiff was an officer in the United States army. Conkling, as president, and plaintiff, as secretary and treasurer, continued the business of the company, which was selling lots. An hotel called “The Pines” was built and opened, and efforts were made to sell lots to officers in' the army and navy, the design being to make the park an army and navy resort. They made some sales, but on the installment plan. The purchaser of a lot would make a small payment in cash, and give his notes, maturing at intervals of a month or three months. A deed of the property would then be made to the purchaser, containing what in Hew Jersey is known as a vendor’s lien clause for the unpaid balance of the purchase money. Indorsed on the note was a statement of the amount of the purchase price, the amount of cash paid, and that.
“I inclose the $1,125 note, previously referred to, for consideration. It has occurred to me that I might open a personal account with Holland Trust. I could then, from time to time, submit to you items which I personally receive on sales of lots for individuals; not company sales. For instance, I have to-day sold for Capt. Snyder lot No. 9, block 25, and on this sale 1 have a 4 mos. note, $500. I have this note, subject to a 10% off the face. ■On all this paper I can divide the discount, making it 5% off on such as you can conveniently handle. I have heretofore used this paper in Baltimore. If you think well of this idea, let me know, and I will send you some funds, and ■open account.”
April 22, 1890, Van Siclen replied:
■“Lieut. E. S. Farrow—My dear Sir: In regard to your personal account, we can, from time to time, take some of those notes as indicated by you in yours of 21st. I understand that they will always be notes of officers of army and navy, and the first lien on property sold, and for not over half the prices actually received from sales. So you can, if you please, open such account.”
April 26, 1890, Van Siclen wrote to plaintiff:
■“Yours of 24th received, with three notes inclosed, which I have discounted, and placed $1,145.36 net amount to the credit of your personal account. I will occasionally take notes of civilians, where at least one-half cash has been paid upon the property; but you must always give me lot and block numbers, prices, and correct address of maker.”
April 28, 1890, plaintiff replied:
“My dear Mr. Van 'Siclen: Yours of the 26th at hand this morning. All right. I will, from time to time, send you some items of paper made by civilians for lots bought from me personally. I have a large quantity of this paper which will soon be within 4 mos. of maturity. I am not in need of the proceeds of these discounts, therefore when I send you such items you need not trouble to submit them: to your board, unless you think your board at such times would desire them. I will always reinvest the proceeds of such discounts in Park Company paper or in company lots, which I can either hold until maturity or rediscount at a profit, when such paper comes within 4 mos. limit. These lots I can always sell for cash and good notes.”
And off April 30, 1890, plaintiff wrote to Van Siclen:
“I inclose some notes for personal account. Take any you may desire, and either return me the balance or keep them until such time as you might desire them. * * * " The inclosed Stanton notes are ‘civilian’ notes. Stanton has just purchased the two cottages opposite the hotel, and is to-day mdving into same for permanent residence.”
Besides notes given for genuine sales of land, what plaintiff calls “accommodation notes,” with the accompanying vendor’s lien, were prepared, signed by employes of the Barnegat Company, laborers, and others of no responsibility. In July, 1890, one Orson Adams became connected with the company, and August 13th was made president, on the strength of representations that he would bring in
“We would add that the hotel property and furniture is insured for $70,000, the policy for which will also be handed over to you, it being resolved by the-company to make you its trustee in the matter of a mortgage bond issue of $500,000 to be arranged for. It is further understood that any moneys advanced by you are to be paid, if not sooner, from the first sales of the bonds which are to accompany said mortgage as per previous arrangements.”
From this documentary evidence it would appear that the $500,-000 trust mortgage was a transaction arranged subsequent to the $35,000, contradicting Conkling’s oral evidence on this point, and:
A declaration of no set-off against the Simon mortgage, certifying that it was "a good, valid, and existing lien, and based on a full and proper consideration, and the Barnegat Park Company had no defense thereto, either in law or equity,” was made by Barnegat Park Company, signed by Adams as president and Farrow as treasurer, and Farrow acknowledged his signature thereto on the witness stand. These five mortgages are all dated December 16, 1890, and were recorded December 20th, at 12 M. The first four mentioned state that they are concurrent liens, and are in all respects to prorate with each other upon the lands of the company, due one day from date. By the terms of the resolution authorizing their creation the said mortgages were to come equally as to priority immediately after the first mortgage of $35,000 already held by the Holland Trust Company. The $500,000 trust mortgage was recorded at 7:30 P. M., December 20th, 7-¡- hours after the five mortgages above mentioned. The mortgage to the New York Improvement Company was assigned by that company to Murphy, as security for money loaned by him to Simmons. The laborers employed by the improvement company at the park being unpaid, and rioting for their money, the Holland Trust Company advanced $3,500 to pay the laborers on account, and took the mortgage as security for such advance. By agreement made December 18, 1890, between the Barnegat Company, Van Siclen, as trustee, and the mortgagees
On December 30, 1890, Adams, by request, resigned as president of the company. The plaintiff at the same time resigned as treasurer, retaining the office of secretary. R B. Roosevelt, Jr., succeeded as president, and defendant Schramme. as. treasurer; and, on January 7, 1891, Roosevelt, Jr., Farrow, Conkling, and James L. Phelps—the latter a clerk in plaintiff’s employ—were elected dl-"
“Look out for Simon. He wants to pay you the $35,000. He now has the •money on hand to do it, and he will do his best to get control.”
January 14, 1891, plaintiff wrote to Van Siclen as follows:
“If Messrs". Roosevelt and Schramme will contribute $12,500 each at once to the treasury of B. P. Co., give them each $25,000 of the first mortgage bonds •of the company; also $15,000 Simon bonds. A resolution to this effect will at once be passed. As soon as this $25,000 is paid in the B. P. Co., pay off the Simon mortgage, $15,000', pay E. D. Murphy $5,000, and expend the remaining $5,000 for pressing company bills. When the Simon $15,000 is paid off, return to Farrow & Conkling the $11,700 belonging to Farrow & Conkling, now held by Simon as collateral. Also recover for B. P. Co. $2,600 worth of diamonds likewise held by Mr. Simon as collateral.”
Plaintiff says he was coerced by-Van Siclen to write this letter; that he wrote it at Van Siclen’s dictation, in the office of the Holland Trust Company. The $25,000 was advanced by the Holland Trust Company and Ladenburg, Thallman & Co., and the money expended as indicated in the letter. January 7,1891, the Barnegat Park Company adopted at a directors’ meeting a resolution that, in •order to fulfill a former agreement, this company at once pay to Mr. George W. Van Siclen $25,000 in first mortgage bonds of - the Barnegat Park Company and $25,000 in cash; and as at the present time there is not sufficient cash in the treasury to pay said amount, to give him $50,000 in first mortgage bonds of the Barnegat Park •Company as collateral to secure said payment of $25,000 in cash. By agreement dated January 17, 1891, the agreement of the 18th of December, 1890, wherein Van Siclen, as trustee, was recited as party of the second part, and certain creditors as party of the third part, was rescinded by the creditors in said agreement named, and January 20,1891, at a directors’ meeting of the Barnegat Park Company, a resolution offered by Conkling, seconded by the plaintiff, was unanimously passed that said agreement, so far as Barnegat Park Company was concerned, was rescinded and annulled, and Mr. Van Siclen assented thereto. In and by virtue of the same resolution the Barnegat Park Company was empowered to execute
Although the parties differ as to whether what are described as the concurrent mortgages were to be placed on record prior to the $500,000 mortgage or subsequent thereto, it is evident that, with knowledge of all the facts as to the actual order in which they were recorded, this agreement of January 17,1891, was entered into. An. attempt to carry out its terms was made, and the failure resulting hastened the collapse of the company. Each one was left to protect his particular interests in the best way that he could, and the first step seemingly taken was that of January 23, 1891, in a suit ■brought by Schramme and Van Siclen to foreclose the $32,000 mortgage, which, according to its terms, had been assigned by plaintiff as collateral security for his indebtedness. Subsequently creditors’ meetings were held, a report of the condition of the company presented, and an effort made to induce the creditors and those holding mechanics’ liens on the property to extend the time of payment, and to take notes secured by first mortgage bonds as collateral. This effort was likewise abortive, and again the affairs
In all this the learned judge seems to have lost sight of the very prominent part which the plaintiff took in every transaction excepting the actual placing by Adams and Simmons of some of the spurious notes with the trust company, proven to have been fraudulent. He it was who cunningly laid the plan by which, working upon the cupidity of'Van Siclen. he induced him to forget the duty which he owed to the trust company, of which he was an officer, and to advance its moneys upon false securities. The result is that the trust company now holds worthless notes to the amount of about $46,000, which it purchased from the park company, some with and some without plaintiff’s indorsement. The makers of such notes were either myths or totally irresponsible persons; and these were secured by pretended vendor’s liens, which were fictitious and sham. In this way the trust company, by Farrow and those who can be justly regarded as his accomplices, has been swindled out of that amount of money.
In this condition of the record, we are unable to conceive how any relief could be accorded to one standing in the position of this plaintiff, coming, as he has done, into a court of equity, his hands soiled with his fraudulent acts resulting in injury to third parties. It has ever been a salutary principle of courts of equity that suitors
If, however, we were to assume that the plaintiff ought not to be turned out of court, but had the right to present his grievances and those of the company to a court of equity, there are many other serious objections to the judgment entered. The complaint sets forth two separate and distinct causes of action,—one for grievances of the plaintiff individually, and another for injuries inflicted upon the Barnegat Company. The judgment decrees relief upon both causes of action. The cause of action in favor of plaintiff was predicated upon the theory that by false representations he was induced to assign without consideration two mortgages, together with certain certificates of stock of and claims against the Barnegat Company, to certain of the defendants. One of these mortgages, namely*
The sweeping character of the judgment is further evidenced when we consider its bearing upon the Simon mortgage for $15,000, which was transferred to the Holland Trust Company. The latter, it is conceded, paid, in the plaintiff’s presence, and at his request, and on the faith of a certificate signed by him that it was a valid and subsisting security-, the full amount therefor; and yet in this action the plaintiff is awarded, on behalf of the. corporation, a judgment decreeing that this mortgage is void. We think, too, that whatever reflections may be made upon the defendant Van Siclen, whose conduct throughout was most reprehensible, this should not unjustly bear upon the trust company, which ought not to be held responsible for all his acts, and thus be deprived of the security it received for money advanced. That in some of his acts he represented and bound the trust company is clear; but, regard being had to his individual relation to some of the transactions, we think the court erred in holding that he acted as an officer and agent of the trust company in all the transactions of which the plaintiff complains.
It will be seen that we are also unable to agree with the judge below in his opinion that the record fails to disclose any action or representation of the plaintiff calling for condemnation by the court. Far from regarding him blameless, we think his plan for raising the money necessary for “the development of his ideas” by procuring the discount of worthless notes pretended to be given in part payment for lots was a canker which so gnawed the roots of the enterprise as that disaster was inevitable, and might have been reckoned upon with the inception of such methods. In addition, there are many errors in the findings, some of which only it will be necessary to point out. Although the evidence was uncontradicted, the court refused to find that there were prior mortgages covering parcels of the land, which were created prior to the ownership of the Barnegat Company. And in the finding that the notes on which the Barnegat Park Company obtained money from
It is unnecessary for us to discuss the numerous findings and conclusions, because we regard one salient feature, which pervades the whole record, and which has already been alluded to, as fatal to the interlocutory judgment. This consists of the effort to try two separate and distinct causes of action, one in favor of plaintiff and one in favor of the Barnegat Park Company, in a suit brought by this plaintiff; and in such an action not only to accord to the plaintiff such relief as he might upon the evidence have been entitled to, but also, in effect, to destroy all the corporate acts of the corporation, and adjudicate as to the amounts and priorities of claims ■against it which by the interlocutory judgment are directed to be tried before a referee. The Barnegat Park Company is a New Jersey corporation, now in the hands of a receiver appointed by the •court of chancery of that state. It is not claimed that it has any assets in this state, its property consisting exclusively of lands in New Jersey. Yet by the judgment, in the absence of the receiver as a party to the action, and at the suit of a plaintiff who has no right to maintain such an action on the company’s behalf, the court assumes such right, without declaring the corporation insolvent, and requires creditors to prove their claims before a referee, under the penalty of having all claims adjudged void that are not so proven. Our conclusion, therefore, is that this judgment should not be permitted to stand, but in all respects should be reversed, and a new trial ordered, with costs to appellants to abide the event.
FOLLETT, J., concurs.
Concurrence Opinion
(concurring.) I concur in the conclusion reached by Mr. Justice O’BRIEN. It is difficult to see upon what basis the learned court below arrived at the judgment which was entered in this action. It appears from the evidence in this action, established beyond contradiction, that very early in the history of this enterprise the plaintiff began the manufacture of fraudulent securities, because, as far back as March, 1890, and shortly before the plaintiff opened his individual account with the defendant the Holland Trust Company, we find that fictitious notes were issued, ■stating over the plaintiff’s own signature that a large part of the purchase price of certain lots had been paid by the maker of the note, and who, the plaintiff testified, had simply gone through the ■ceremony of buying the lots without paying a cent. It further ap- • pears that the plaintiff made and negotiated (although he denies the latter fact, yet it is proved beyond peradventure) notes made by the employes and laborers of the Barnegat Company, which notes were represented to be the notes of purchasers of lots who had paid part of the purchase price, and that the company held vendors’ deeds as security for the notes. This is the class of securities which the cupidity of the Holland Trust Company and its secretary induced
FOLLETT, J., concurs.