188 A.D. 684 | N.Y. App. Div. | 1919
This is an appeal by the defendant from a judgment entered on the report of a referee appointed herein to hear, try and determine the issues in the action, in favor of the plaintiffs and against the defendant for $715,975.70,' principal and interest. The plaintiffs are trustees representing the holders of 1,127 of the corporate bonds of the Continental Coal Company, a West Virginia corporation. The defendant has been held liable as the guarantor of the bonds of said corporation. The Toledo and Ohio Central Railway Company, another corporation, also guaranteed the payment of said bonds, and in a separate action judgment has been obtained against said last-mentioned railway company upon its guaranty. The corporate bonds of said Continental Coal Company were secured by mortgage upon its corporate property. The mortgage has been foreclosed, the property sold, and from the
*687 “ Columbus, Ohio, February 10, 1902.
“ In consideration of the purchase of the within bond and of the sum of One Dollar, The Hocking Valley Railway Company, the holder thereof, hereby guarantees to the several and successive holders thereof the due, regular and punctual payment of the principal and interest of the within bond, and covenants itself to pay the same upon demand of the holder hereof in case of non-payment by the obligor when due. “ (Signed) THE HOCKING VALLEY RAILWAY CO.,
“By N. Monsabbat, President.
“ Attest: Wm. N. Cott,
“ Secretary. [Corporate Seal] ”
Subsequently to the commencement of this action the New York Central Railroad Company relieved the bondholders represented by the plaintiffs and took over all the bonds involved in this action at par and interest, paying cash therefor and receiving assignments of this and the other causes of action as well as assignments of the judgments heretofore obtained against defendant’s coguarantor, the Toledo and Ohio Central Railway Company. Such assignment was made, however, with the understanding that the action should be prosecuted in the name of the parties plaintiff who commenced the same. The real party in interest, therefore, as assignee of the plaintiffs, is the New York Central Railroad Company.
The Continental Coal Company was organized on or about July 1, 1901, under the laws of the State of West Virginia for the purpose of acquiring certain coal lands in southern Ohio situate in the vicinity of the line of the Hocking Valley Railway Company and of the Toledo and Ohio Central Railway Company. These two railroads had their northern terminus at Toledo, 0., and ran from thence in a southeasterly direction nearly parallel to the southeastern part of the State. They were rival companies engaged largely in the transportation of coal, some of which came from the Hocking Valley coal fields in southern Ohio and some of which came from the Kanawha coal district in West Virginia. From the latter district the coal was shipped northward over the Kanawha and Michigan Railway Company to the southern terminus
In addition to complaining upon the contracts of guaranty indorsed upon the bonds in question, the plaintiffs, in their complaint, allege, as a second cause of action, that at the time of the execution of said guaranties by the defendant and the sale of the bonds, the defendant received from the purchaser of said bonds, for. the use of the purchaser, the said moneys for which judgment was demanded, with interest. The complaint further alleges that default in the payment of the interest was made by the Continental Coal Company in 1915 and 1916. Thereupon a majority of the bondholders declared the principal due under the terms of the bonds, and brought said action to foreclose the mortgage securing the same. The due execution of the bonds in suit is conceded by the defendant as well as the execution by defendant of the guaranty agreements thereon. It is also undisputed that the bonds were duly issued and sold and became the property of the plaintiffs and those whom they represent; that in 1915 and 1916 default was made in the payment of two successive coupons attached to each of said bonds; that thereupon a majority of the holders thereof declared the bonds to be due and due demand was made upon the defendant to pay the bonds and interest under its guaranty agreement, and that no part thereof has been paid.
The defendant, answering, asserts, first, that the guaranty agreement was illegal, and part of a transaction held by the State courts of the State of Ohio and by the Federal courts to be in violation of the statutes of the State of Ohio, of the Interstate Commerce Act and of the so-called Sherman Antitrust Act; second, that the act of the corporation in executing the guaranty agreements upon which plaintiffs claim was ultra vires; third, that the plaintiffs had no cause of action for money had and received; fourth, that the plaintiffs had no authority to establish a right of action to recover the principal of the bonds; and, fifth, that the judgment of the Ohio court having made it impossible for the defendant to pay the interest upon the bonds, plaintiffs cannot equitably take
The facts leading up to the issuance of these bonds are, briefly, as follows:
As before stated, the lines of the Hocking Valley Railway Company and of the Toledo and Ohio Central Railway Company substantially parallel each other in the State of Ohio. Both were engaged largely in the transportation of coal. Aside from the coal produced in the State of Ohio the coal shipped over these roads was received from the Kanawha coal district in West Virginia over the Une of the Kanawha and Michigan Railway Company, which connected with the termini of the two Ohio railways. Coal received from the Kanawha district and destined for Toledo and points in the west and northwest could be carried over either of said Ohio roads. The Toledo and Ohio Central Railway Company had a controlling interest in the stock of the Kanawha and Michigan Railway Company, and prior to 1901, when the combination hereinafter referred to was formed, most of the coal shipped over the Kanawha and Michigan Railway Company was shipped through Ohio over the Toledo and Ohio Central Railway Company. At that time the latter company and the Kanawha Railway Company were short of rolling stock, and required more cars to ship coal upon their lines. The purchase of 1,500 new coal cars was considered, but the companies were unable to finance such purchase. The Hocking Valley Railway Company had sufficient cars at its disposal in addition to those required upon its own road, and sent a number of cars over the Kanawha railway to be used in the transportation of coal from the Kanawha coal district. Some years prior the defendant company had been reorganized by the banking firm of J. P. Morgan & Co. of New York. A member of that firm was placed upon its board of directors. A majority of the stock of the Toledo and Ohio Central Railway Company had been acquired by the same, interests, and in the spring of 1901 the control of the defendant company, of the Toledo and Ohio Central Railway Company and of the Kanawha and
Two years after the formation of this combination and the flotation of said bonds, quo warranto proceedings were taken by the State of Ohio to set aside such combination. Therein judgment was rendered that the contract between the defendant company, the Toledo and Ohio Central Railway
It was held, however, in the Ohio case that the contracts in question were more than mere tonnage contracts and were, in fact, unlawful combinations tending to stifle competition and were illegal under the laws of that State. In the opinion of the Ohio court, among other things, it was further said (p. 150): “ The court agrees with counsel that it has no jurisdiction to determine in this action the rights of the bondholders. The suggestion in the original opinion as to the validity of the bonds as against the property of the railway company was employed in an effort to distinguish the decision by Ltjeton, J., in the Hocking Valley case [Central Trust Co. v. Columbus, H. V. & T. Ry. Co], reported in 87 Fed. 815, from the case at bar. It is clear to the court that the rights of the bondholders can only be determined when an appropriate suit is brought, wherein they are made parties. Whether, therefore, the bondholders can exact of the railway company the full amount with interest to maturity, or whether the vice of ultra vires affects the validity of the bond, is not now for decision. But as against the railway company, the State has the right to call upon the defendant, as an alternative to save its charter, that it purge itself of the illegal act.”
In so far as the validity of the guaranty agreement was questioned, it was upon the fact that it formed a part of the general monopolistic agreement violative of the Ohio statutes. All that the decisions of the United States District Court and the State court of Ohio held was that the agreements entered into between the defendant and the other companies created
• “ § 20. Form of negotiable instrument. An instrument to be negotiable must conform to the following requirements:
“ 1. It must be in writing and signed by the maker or drawer;
*695 “ 2. Must contain an unconditional promise or order to pay a sum certain in money;
“ 3. Must be payable on demand, or at a fixed or determinable future time;
“ 4. Must be payable to order or to bearer; and
“ 5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.”
These bonds answer every requirement thus prescribed by the Negotiable Instruments Law. They were in writing, signed by the Continental Coal Company; each contained an unconditional promise to pay the sum of $1,000 and interest at five per cent in gold; they were made payable on the 1st day of February, 1952; they were payable to bearer. Every requirement of the statute was, therefore, met. (Louisville, etc., R. Co. v. Louisville Trust Co., 174 U. S. 552; Hibbs v. Brown, 112 App. Div. 214; affd., 190 N. Y. 167.) In Hibbs v. Brown (supra) the negotiability of bonds was upheld, notwithstanding that the bonds referred to the deed of trust given as collateral security for their payment, for the terms and conditions upon which said bonds were issued and secured. The mere fact that in these bonds of the Continental Coal Company reference is made to the mortgage or deed of trust of even date, executed by said coal company to secure said bonds, for a description of the property and franchises thus mortgaged and the nature and extent and the rights of the holders of the bonds under the same, and the terms and conditions upon which said bonds were issued, does not, I apprehend, affect their negotiability. The bond themselves were the principal security, and the mortgage or deed of trust was given only as collateral security for their payment. It is true that under the terms of the mortgage, upon default in making payments of interest as and when provided by the bonds, the holders might, as they in fact did, accelerate the due day for the payment of the principal secured and foreclose the mortgage. The bonds, by their terms, were payable “ at a fixed or determinable future time.” The phrase of subdivision 3 of section 20 of the Negotiable Instruments Law thus quoted is by section 23 of the same law defined as “ on or before a fixed or determinable future time specified therein.”
Moreover, it seems to me that, having executed the guaranty agreement, the defendant is estopped from claiming the illegality thereof. The guaranty agreement bears date July 20, 1901, and was evidently drawn with a view of creating an estoppel on the part of said defendant from thereafter disclaiming legal liability upon said guaranty agreement. It was stated in the agreement that the guaranty was made “ in consideration of the purchase of the within bond and the. sum of One Dollar, The Hocking Valley Railway Company, the holder thereof, hereby guarantees to the several and successive holders thereof the due, regular and punctual payment of the principal and interest" of the within bond,” etc. Thereby the defendant represented that it had purchased and owned the bond which it was guaranteeing “ to the several and successive holders thereof.” The intention was manifest that
Likewise, as to the defense of ultra vires, it seems to me that the defendant is estopped from'urging the same. The defendant company received all the benefits from these bonds. It received full pay from the purchasers thereof and should not now be permitted to plead ultra vires. The law is well settled that where a corporation has received the consideration for a contract which the corporation was, in fact, powerless to make, it is estopped from pleading its lack of power to execute the contract. (Whitney Arms Co. v. Barlow, 63 N. Y. 62; Kent v. Quicksilver Mining Co., 78 id. 159.) As was said by Allen, J., in Whitney Arms Co. v. Barlow (supra, 69, 70): “ 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.”
“ The plea of ultra vires should not as a general rule prevail, whether interposed for or against a corporation, when it would not advance justice, but on the contrary would accomplish a legal wrong.”
Referring to an attempt to retain benefits received from a contract which a party seeks to repudiate as ultra vires, Judge Finch said in Seymour v. Spring Forest Cemetery Association (144 N. Y. 333, 341): “ That kind of plunder which holds on to the property but pleads the doctrine of ultra vires against the obligation to pay for it, has no recognition or support in the law of this State.”
The defendant company, as the result of the arrangement, and upon its guaranty, was able to float said bonds, all of which were in the first instance held by the defendant. Upon its guaranty it was able to dispose of said bonds and to obtain good money therefor from the purchasers. Moreover, it has received the benefit which it expected to' receive, to wit, the profits arising from the additional coal transported over 'its Unes. While there is a dispute in the testimony as to the amount of profit, it is apparent that the defendant company has materially profited by the arrangement.
It, furthermore, seems to me that the plaintiffs have made out a prima facie case against the defendant to the amount recovered as for money had and received. The contract of guaranty was between the defendant company and the holders of the bonds in suit, and was a direct contract with said bondholders. By said agreement it covenanted to pay upon demand to the holder of each bond the amount thereof in case of non-payment by the obligor when due.
Under such circumstances, and upon every consideration of justice and fair dealing, it seems to me, the defendant should be held upon its contract of guaranty, and that the learned referee properly disposed of the issues herein.
The judgment appealed from should be affirmed, with costs.
Clarke, P. J., Laughlin, Dowling and Page, JJ., concurred.
Judgment affirmed, with costs.