9 N.Y.S. 184 | N.Y. Sup. Ct. | 1890
This is an appeal from a judgment for the defendants entered upon the verdict of a jury at circuit, and also from an order awarding the defendants an extra allowance of $2,000. The action is brought by the plaintiff, as receiver of the national Ammonia Company, to recover the sum of $44,000 on the subscription by the defendants to the capital stock of that company, and also for damages for a breach of a contract made between the defendants and the Ammonia Company for the erection of works, and the manufacture and sale of the company’s products. On the trial the latter claim seems to have been abandoned; at least no evidence of damages for its breach was given. The facts of the case are substantially as follows: A corporation known as the “City Chemical Company” was engaged in the manufacture of aqua ammonia, and was the owner of patents covering a particular process of manufacture. The defendants were manufacturing chemists, dealing in, but not manufacturing, aqua ammonia. In May, 1880, the defendant sentered into an agreement with the City Chemical Company, whereby the former agreed to take the whole product of the company at a stipulated price, the defendants accepting the drafts of the company for the product as it was manufactured. Business was done under this contract until August, in the same year, at which time one W. W. Post (who, in the absence of his brother Eugene Post, the secretary and treasurer of the company, assumed to act as
The facts as to the alleged fraud practiced on the defendants, as found by the jury in their special findings, are these: Post represented to the defendants that the patented process held by the City Chemical Company was producing and had produced seventeen or eighteen hundred pounds of aqua ammonia, 20 deg. Beaume, for 1,000 pounds of sulphate ammonia. To ascertain the truth of that statement, tests were made by the defendants’ chemist, who witnessed trials at the company’s works. At these trials the results represented were apparently produced, but these results were obtained by •secretly packing sulphate of ammonia in the retort in which the experiment was had, before it was charged in the presence of the defendants’ chemists, and also by weighting the hydrometer so as to falsify the strength of liquor it would indicate. The jury also found that the defendants agreed to subscribe to the capital stock of the ammonia company, and to erect the works in reliance on the representation of the product obtained by the patented process, and that such representations were false, and made to defraud the defendants, and so made with the authority and consent of the City Chemical Company.
As the jury have made specific findings of the fraud practiced on the defendants, it is not necessary to examine the charge of the learned trial judge as to what facts would authorize the jury to render a general verdict for the defendants. It is sufficient to sustain this judgment if the special findings entitled the defendants to the verdict, and no error was made by the trial judge in the charge as to such findings. The theory of the plaintiff is that the resolution of December, 1880, releasing the defendants from their sub
We think that in this case we should pierce through the mere legal shell of the corporation, and look at the real parties in interest,—those who were to-own its stock. These were the City Chemical Company,—for the transfer of the stock to the stockholders of that company was the same as a transfer to the company itself,—and the defendants. The agreement to form a corporation was not an agreement to carry on manufacturing business generally, but to do a particular business in a certain specific manner. Had the corporation feature been omitted, plainly that agreement could have been rescinded on account of fraud. Till the rights of creditors attached, or by dealings in the stock rights of subsequent stockholders accrued, the real parties in interest were the stockholders, and we see no reason why the City Chemical Company should be able to hold the defendants to a contract obtained by fraud, simply because that contract provided for carrying on business under a corporate management. But even if the general rule as to the connection between promoters and corporations applies to a company like this, on the facts found by the jury the defendants were entitled to avoid their subscription. While corporations are not liable for the contracts of their promoters without action on their part, still they may adopt and ratify such contracts, and thereupon they become liable. The subscription of the defendants to the-ammonia company’s stock was not a new and independent one, but was made in pursuance of the previous agreement entered into with the City Chemical Company. That agreement the jury have found to have been obtained by fraud. The corporation could not retain the benefits of that agreement, and repudiate the liability for the fraud committed by the agents who obtained that agreement. Its receipt and retention of the fruits and product of the fraud involve the liability on account of it, although innocent of personal participation in the wrong. Krumm v. Beach, 96 N. Y. 398. The