108 N.Y.S. 1080 | N.Y. App. Div. | 1908
Lead Opinion
The defendant is a domestic trust company. It was incorporated under the name of the Trust Company of the Republic on the 29th day of March, 1902, and its name was changed on the 12th day of October, 1903. . The action is brought to recover damages for the breach of a contract in writing, bearing date the 28th day of August, 1902, and purporting to have been made by and. between the Trust Company of the Republic, as party of the first part, and the plaintiff as party of the second part. The agreement acknowledges the consideration of one dollar moving to the plaintiff from the trust company and “other good and valuable considerations,” and then provides as follows :
“Whereas, a selling syndicate, of which Thomas C. Clarke is named as Manager, has been formed to arrange for such sales and for other purposes, under an agreement providing for the deposit of all of said securities, except those of the party hereto of the second part with the party hereto of the first part for such purposes, both
“ 2. The party of the second part agrees that he will deposit with the party of the first part all of his bonds and.shares of preferred and common stock of the United . States Shipbuilding Company under the terms and conditions of this agreement as hereinafter set forth. .
“ 3. The party of the first part will use and dispose of said securities of- the party of the second part as in its judgment is necessary to further the purposes of said syndicate, and in so doing will do whatever is necessary to insure equal benefits to the party hereto of the second part pro rata to his holdings of said securities that are enjoyed at any time by the vendors who shall be or become parties to the agreement with said syndicate in connection with the Sale and disposition of said securities or the proceeds of sale of same; and it hereby guarantees to the party of the second part the sale of all of his said securities on or before August 25tli, 1903, whether through the efforts of said syndicate or otherwise, and the party of the first part agrees to account to the party of the second ' part, on or before the 25th day of August, 1903, and that the prices thereof shall be on a basis which will realize to the -party of the second part not less than 95 per cent of the par value of the bonds and 68 per cent- of the par value of the said preferred stock and 25 per- cent of the par value of the said common stock, less brokerage expenses, as hereinafter stated, and the party of the first part hereby agrees to pay to the party of the second part, the interest on the bonds as and when received from the United States Shipbuilding Company during the period of this agreement; and in case of their sale or -any of them during the period of this agreement and if under such circumstances it elects to retain the proceeds of the sale of the same under the provisions hereof until the final accounting hereunder, the party of the first part agrees to pay to the party of the second part the accrued interest on such bonds as may be sold up to the dates of théir sale, and also interest on the proceeds of the sale of same, at the same fate that the bonds would have earned if same had not been deposited under the terms of this agreement, said payments of interest to be made January 1st and July. 1st,
“ i. The party of the first part is hereby accorded the exclusive right to sell the 'said securities of the party of the second part during the period of this agreement.
“ 5. The party of the first part shall have authority from time to time, and at any time, to pay the usual brokerage and brokers’ expenses, if any, in connection with the sale of said securities of the party of the second part.
“ 6. Said party of the first part shall not be liable for any error of judgment or for any mistake of law or fact, nor shall it be liable for any act or omission while endeavoring .in good faith to carry out the purposes hereof according to its judgment, but such exemption of liability shall not affect its liability named in Clause 3 hereof. Ho obligation or liability in addition to those herein expressed shall be implied against the said party of the first part; it being the spirit and intent of this agreement that said securities are deposited as named under a guaranty of sale, at not less than the minimum figures hereinbefore mentioned, and all proceeds of sales are .to be accounted for at the figures at which such sales shall be made, and the same with all incidental net profits in connection with the same.
“ 7. This agreement and all it contains shall become null and void on August 25, 1903, or at any time prior thereto coincident with the sale, of and settlement for all of the said securities of the party of the second part or the.termination of the said syndicate by the fulfillment of its agreement with the other vendors and underwriters of the said securities.”
The agreement is signed “ Trust Company of the Republic, by James Duane Livingston, vice-president,” and the seal of the company is attached and is attested by W. Babcock, both as secretary and as witness. He was not - in fact secretary, but was assistant secretary. The plaintiff duly tendered the securities specified in the contract to Livingston, the vice-president of the trust company, and by his direction retained them until such time as they might be called for by the trust company. They were neither called for nor sold' by the trust company on or prior to the 25th day of August, 1903. The plaintiff, by his original complaint, sought to recover
The decision of this appeal involves the consideration of three questions: First, whether the officers who signed the. contract were authorized to execute it; second, if so, whether it was ultra vires, and third, whether the defendant is estopped from questioning the validity of the contract.
I am of opinion that there is no evidence legitimately tending ■ to show that the execution of the contract was authorized by the defendant and requiring the submission of that question to the jury and that the court properly disregarded the special finding of the jury that the execution of the contract was authorized. The learned trial justice wrote a careful and instructive -opinion in support of his determination to dismiss the complaint (55 Misc. Rep. 110), but the importance of the questions requires that we should express
. There is no force in the claim that the board of directors or the executive committee, in effect, failed to exercise their functions and left the-management of the company, at the times in question, in the hands óf the president. It appears that the board of directors met regularly in the year 1902 down to the twenty-second day of July. The meeting in August was adjourned for lack of a quorum, but a meeting was held on the sixteenth day of September. The executive committee met regularly in the year 1902 down to the fourth day of June, and thereafter the executive committee met on' June seventeenth, June twenty-fourth, July eighth, July- twenty-second, September ninth and September sixteenth. On the tenth of June a quorum was not present, and it does not appear that there was any attempt to meet on the other dates for regular meetings. This was during the vacation season, and there is nothing to show that the directors liad knowledge of any business of the company requiring either a meeting of the board of directors or of the executive committee at the times when meetings were not held. There is nothing in the defendant’s connection with the United States Shipbuilding Company which was organized in June, 1902, from which it could be inferred that implied authority was conferred Upon Dresser or Livingston to make the contract with the plaintiff. The Mercantile Trust Company of Hew York was one of -the principal promoters of the shipbuilding company. Prior to the incorporation of the shipbuilding company, which was in June, 1902, there were negotiations'between Dresser and Livingston and the Mercantile Trust Company, by which it was understood that on the incorporation of the shipbuilding company the defendant should act:
“a. As issuing bankers and perform all the duties incidental thereto.
“ b. Advertise prospectus.
“ c. Deceive all subscriptions.
“d. Pay the necessary cash to the trustees to clear the titles and commitments thereto.
“e. Deliver all bonds and shares to the subscribers.
Thereafter, at the meeting of the board of directors of the defendant, held .on the 17th day of June, 1902, Dresser .made a report “on the U. S. Shipbuilding consolidation.”- He testifies that he informed the hoard in substance of his negotiations in this matter and that the proposition was to have the defendant act as -the transfer agént of the stock,, as a bank of deposit for the shipbuilding company, to act as the house of issue of the securities that had been or could be submitted to the public for sale, and, in effect, that this-was acquiesced in. It appears that the plan of organization of the shipbuilding company contemplated subscriptions here in America, for $3,000,000 of the $9,000,000 of bonds of the shipbuilding company,-to be issued in the first instance for-the purchase of the constituent plants that were to be transferred to the shipbuilding company, and for expenses and a working capital. Dresser undertook with the Mercantile Company to obtain subscribers for the $3,000,000 of bonds among the customers of the defendant. Three directors of the defendant became subscribers under the underwriting agreemen.kwhich was between the Mercantile. Trust Company and tiie subscribers for bonds, but it does not appear that the defendant was a party thereto or was interested therein. Dresser succeeded in obtaining subscribers for that amount, and afterwards, on a failure of -the plan for obtaining subscriptions for the remainder of the issue in Europe, he obtained subscriptions for about $1,700,000 more. The options which the promoters of the shipbuilding company -had for the purchase -of the : plants to be transferred to it expired on the 11th day of August, 1902. Some of these options ran to Lewis Nixon, and others tb Dresser. On or about the 7th day of August, 1902, Dresser was ready-to pay over the subscriptions which he-had obtained; but on account of the failure of the plans to float the securities abroad lie was induced to undertake to obtain subscribers for upwards of $3,000,000 more in order to insure the consummation of the plan. To enable him to accomplish this the Mercantile Trust Company delivered, to him the securities, and it appears that they were used
The learned counsel for the appellant contends that these transactions show a recognition of the authority of Dresser to deal in the matter of shipbuilding securities without limitation or restraint. ' I am of opinion that they do not. They of course show a ratification of the particular acts involved but they do not aid the plaintiff. . The contract upon which the plaintiff seeks tó recover is quite different. hfo'knowledge that any directors possessed could have fed a reasonable man to believe that the making of such an agreement as that made with the plaintiff would be incident to the business relations which' were outlined by Dresser to the board of directors of thé defendant as intended to be established between the defendant and the shipbuilding company. At the time the agreement with the plaintiff was • made, the' defendant owned none of the shipbuilding securities. At most, assuming it to have' authorized all of Dresser’s other acts in connection therewith, it was interested in those securities only to the extent that it held them as collateral. It may be that its interest .was such that with a view to maintaining the market price of the securities, it would have been competent for
The seal of the defendant was attached to the agreement and that constituted prima facie evidence'that the agreement was signed by authority (Quackenboss v. Globe & R. F. Ins. Co., 177 N. Y. 71), but as already indicated, the evidence introduced by tile -defendant completely overcame that presumption. Parties dealing with a business corporation as distinguished from religious and other corporations may rely on the apparent authority of the officers (Karsch v. Pottier & Stymus Mfg., etc., Co., 82 App. Div. 230), but in the absence of evidence upon which estoppel may be predicated as-by holding out as authorized or a course of dealing, the question in all cases still is whether the contract was authorized, and when it appears that it ivas not and that there has been no estoppel, that becomes a complete defense: The rights of stockholders must not be entirely overlooked. Stockholders are powerless to protect their interests by electing competent- directors if the officers thus elected or appointed by the directors may without the knowledge or consent of the latter secretly make important contracts, like this, which are not within their apparent scope or authority for they are not within the ordinary business of the corporation. The. defense that the contract was Unauthorized must, therefore, be sustained as matter of law.
The plaintiff doubtless supposed that the contract was authorized. It appears that, he remained ready to perform, and he invokes estoppel against repudiation of the contract by the defendant; The defendant in fact received no benefit from the contract. -It is urged, however, that it derived the benefit contemplated of having plaintiff’s securities kept off the market. The difficulty with that contention is that it was an unconscious or involuntary benefit at
It follows, therefore, that the judgment should be affirmed, with costs.
Patterson, P. J., and-Scott, J.,. concurred; Ingraham and Clarke, JJ., dissented.
Since amd by Laws of 1904, chap. 607.— [Rep. •
Dissenting Opinion
The court submitted two questions to the jury. ..The first was : “ Were the officers who signéd or directed the signing of the alleged agreement — that is, the agreement in suit here — authorized by the •defendant corporation to execute it as its corporate act and affix thereto its corporate seal?” to which the jury answered “ Yes.” The other question was as to a question of fact raised by the evidence and is not important. After the jury had answered these questions and the amount due to the plaintiff had been determined the court dismissed the complaint. Mr. Justice Laughlin is of the opinion that there was no evidence to justify the submission of this question to the jury and that is the important question on this appeal.
The instrument was executed at the office of the trust company ; it was signed by one of the defendant’s vice-presidents by direction of the president in the name of the trust company; the seal of the trust company was placed upon it by one of the assistant secretaries who signed it as secretary of the company, and it was then delivered to the plaintiff who relied upon it and acted upon it. At the time this agreement was executed the plaintiff was the owner of 240 bonds of the Pnited States Shipbuilding Company of $1,000 each 1,916 shares of the preferred stock of the corporation of the par value of $100 each, and 1,916 shares of the common stock of the corporation of the par value of $100 each, the total par value of
Before considering the contract it will be useful to call to mind the situation of the defendant in reference to the securities in relation to which the contract in question was made. Sometime early in the year 1902 a corporation was organized known as the United States Shipbuilding Qompany, wfth a very large capital, which was intended to purchase the various shipbuilding establishments in the United States and consolidate them into one corporation. Early in May the president of the defendant had entered into relations with those engaged in organizing this shipbuilding company and had made an agreement which secured to the defendant trust company the transfer agency of the shipbuilding company, and by which it was to be a depository of its funds. On the-27th of June, 1902, the
The president of the defendant testified that at every meeting of the board of directors and of the executive 'committee at which he was present during the summer and fall of 1902 he advised the directors and executive committee in relation to the shipbuilding company; that he was trying to keep them informed of the general progress of the project and of what the situation was as it went on from time to time. There was certainly evidence from which the jury could find that both the directors.and the executive committee had knowledge of the relations between the trust company and the shipbuilding company; had knowledge of the obligations that the defendant had assumed in order to successfully carry through the promotion of the shipbuilding company; that this was approved by the directors and the executive committee as a transaction for the benefit of the trust company and to enable it to secure this very profitable connection ; that this relation between the trust company and the shipbuilding company had been widely published with the knowledge of -the directors, and persons dealing with the trust company were justified in relying upon the well-known relation, and that what was being done by the defendant in promoting this shipbuilding company was done with the authority and assent of its directors.
Prior to the year 1902 the plaintiff had been the owner of something more than one-half the capital stock of the Harlan & Hollingsworth Company, a shipbuilding company, which it was considered essential for ’ this new shipbuilding company that the defendant was promoting to acquire. Sometime in 1902 efforts were made to induce the plaintiff to sell his stock, and as all of the stockholders of the new company had entered into an agreement to pool their securities with the exception of the Harlan & Hollingsworth Company, thé president of the defendant instructed the vice-president to go to Wilmington to see the various people who held stock in the Harlan & Hollingsworth Company, at the same time handing him a contract under which the other stockholders of the new company had pooled their stock. The vice-president of the defendant went to Wilmington and saw the plaintiff and others interested. At
The contract is between the Trust Company of' the Republic, a corporation organized under the laws of the State of New York, party of the first part, and" Harry T. Gause, of Wilmington, Del., party of the second part. It recites that it is the mutual desire of the parties thereto that the securities of the Hnited States Shipbuilding Company should be sold to the best advantage, both parties being interested in the same, and that a selling syndicate, of which Thomas C. Clarke has been named as manager, has been formed to arrange for such sales and for other purposes, under an agreement providing for the deposit of all of-said securities except those of the plaintiff with the defendant trust company. It' was agreed
What was intended by this agreement seems to be quite plain. It recited that the trust company was interested m the successful
The plaintiff was not told and had no right to inquire as to the interest of the defendant in the securities or in the successful disposition of them. - He made his agreement with the responsible officers of the company; he saw the contract to which the parties had agreed executed by the responsible officer of the company and the seal of the company affixed, and delivered to him, and he has
The defendant was organized under the Banking Law (Laws of 1892, chap. 689). By subdivisions 1, 8 and' 9 of section 156 of that act (as amd. by Laws of 1893, chap. 696
The defendant, thus being expressly authorized by the statute under which it was incorporated to act as fiscal or transfer agent of any corporation, and to receive and disburse money, transfer, register and countersign certificates of stock, bonds or other evidences of indebtedness, and to take, accept and execute any and all such trusts and powers of whatever nature or description as may be conferred upon it, would certainly have authority to make such reasonable contracts as were essential to obtain such business or to carry it on. It had general banking power’s, power to loan money, to purchase and sell stocks and other securities; and it seems to me that the corporation clearly had authority to make a contract, such as the one now before us, if it related to or tended' to facilitate the defendant in making the arrangements for the business that it was expressly authorized to do. If this contract had been in form a contract to purchase the stock of this shipbuilding company within a time specified, there would have been no question but that the company would have had power to execute it. The fact that it gave the company either the option to sell it to somebody else, or to purchase it itself, does not, it, seems to me,, change the essential charac■ter of the agreement,- and itiseems, t© me that the contract was one clearly within the power of the corporation to execute; but if there was atiy question as to the power of the corporation, under the rule as established in this.Sit-ateythe.-defense of ultra vires is not open to the defendant. As before ■ stated,the plaintiff has executed the contract on his part,,and -of. the execution of that contract by the plaintiff the defendant ha-s received:the. full benefit. It was enabled, in the month of October,; to relieve -itself,of liability for upwards of $4,000,000 o'f securities1 by an .agreement:;for the sale of these shipbuilding securities, and the plamtiff-.was,- by this contract with the defendant, prevented from availing himself of that opportunity to dispose of his securities at that time.. ..The contract lias,.therefore, been fully performed on the part.-©£-.the plaintiff. He made no effort to sell his securities, and could -not without breach of his contract with the defendant. 1
There can be no question but that if-this shipbuilding company was successfully started there would result a valuable connection
In Whitney Arms Co. v. Barlow (63 N. Y. 62) the rule of this State as to an ultra vires contract was formulated, which has not since been departed from. The rule is there stated : “ It is now very well settled that a corporation cannot avail itself of the defense of ultra vires when the contract has been in good faith fully performed by the other party, and the corporation has had the full benefit of the performance and of the contract.” This principle has since been followed in Kent v. Quicksilver Mining Co. (78 N. Y. 159); Rider Life Raft Co. v. Roach (97 id. 378); Vought v. Eastern Building (& Loan Assn. (172 id. 508), and Bowers v. Ocean Accident & Guarantee Corp., Ltd. (110 App. Div. 691; affd., by the Court of Appeals, 187 N. Y. 561). This contract, therefore, not being ultra vires, or at any rate the defense of ultra vires not being avail
The evidence clearly shows a constant course of dealing by the president of this corporation without express reference to or authority from either the board of directors or the executive committee. There are a series.of contracts made by the president on its behalf, guaranteeing loans and making contracts- in relation to this shipbuilding company, of which tire contract with the plaintiff is one. They were made as carrying out the general arrangement in relation to this shipbuilding company that had been reported to the directors and had received its acquiescence. So far as appears, these contracts and obligations- were all carried out and performed, except the contract with the plaintiff. The relation of this defendant to the shipbuilding conipany’s securities was advertised in the newspapers and was apparently well known to everybody except these directors, who now claim that all this was done without their knowledge. But, without objection, the president of this corporation was allowed to make this, contract, giving to the defendant a decided advantage, which it availed itself of, and without the slightest notice to the plaintiff that the contract had been made without its authority, the plaintiff was prevented from protecting himself by his obligations to the defendant under this contract. It seems to me, under those circumstances, where the plaintiff has fully carried out the contract, relying upon the' authority of the president of the defendant to make this contract, without the slightest notice that such authority did not exist, that the defendant is estopped from disputing his authority. (People’s Bank v. National Bank, 101 U. S. 181.)
In Holmes v. Willard (125 N. Y. 75) the question of the. ultra vires of a. contract and the authority of an executive officer of a corporation to execute it were discussed by the court, and certain principles were established which, it seems to me, apply to this case. It was there said: “ While the plaintiff did not have the right under its charter to carry on this business, it had 'capacity to do so and could make contracts therein which would bind it and the persons with whom it dealt, and its acts therein could be regarded as corporate acts.’’ The evidence is undisputed that this contract, being one
I think that this contract was not ultra vires j that the finding of the jury that the defendant authorized its execution was sustained by the evidence, and that the plaintiff and not the defendant was entitled to judgment upon the verdict of the jury.
I think, therefore, that the judgment should be reversed and judgment ordered for the plaintiff, upon the verdict, with costs to the plaintiff.
Clarke, J., concurred.
Judgment affirmed, with costs.
Since amd. by Laws of 1904. chap. 492, and Laws of 1906, chap. 601.— [Rep.