Case ID: ny-st-rep_15/html/0052-01.html
Source: Caselaw Access Project
Author: {"author": "Ruger, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Thomas M. King et al., Resp’ts, v. Reon Barnes et al., App’lts.
    
    
      (Court of Appeals,
    
    
      Filed April 10, 1888.)
    
    1. Parties—Who proper parties—What parties entitled to costs.
    The complaint in this action made certain persons parties defendants. These persons were proper parties to the action, but the complaint asked for no relief or judgment against these defendants, except such as would be conclusively established by a determination of the issues against the defendant Barnes, and the relief sought was purely incidental thereto. These persons could safely have refrained from appearing without jeopardizing any right or interest which they owned or possessed, and without incurring any liability whatever for so doing. Held, that they could not, under these circumstances, have become entitled to costs in the action as against the plaintiffs, and that the only effect of their appearance was to subject themselves to costs, in the discretion of the court, if it should finally determine that they had unnecessarily defended.
    2. New trial •—When ordered on reversal by general term. •
    When there is an issue upon material facts, which may possibly be decided in more than one way on another trial, there should be a new trial ordered upon the reversal of a judgment by the general term. But unless it appears that there is some necessity for a new trial, arising either out of some material issue left untried or rendered necessary, by an amendment allowed to be made to the complaint, it is unnecessary for the general term to order a new trial upon the reversal of a judgment.
    3. Statue oe frauds—Parol agreement between parties to purchase LAND.
    A parol agreement between parties to purchase lands to be used for commercial purposes, or to be sold or transferred to other persons or corporations for such uses, does not violate the statute of frauds. Following Chester v. Dickerson, 54 N. Y., 1.
    4. Corporation—Agreement to organize valid.
    ,If a corporate organization intended to be formed is created according to the requirement of the statutes, and the objec's contemplated by it are lawful and proper, there is.no principle of public policy which forbids competent parties from entering into an agreement to form it and provide for its future management and control, if conducted according to the rules of law respecting such a subject.
    
      The object of the arrangement was that the plaintiffs should act in the purchase of certain lands in their individual capacity, and should enter into contracts as individuals and become liable in such character to each other for the performance of the contract. Such money as was furnished by them to carry out the contract was individual funds. There was an intention on the part of the plaintiffs ultimately to turn over this property to certain railroad companies and an expectation on their part to be reimbursed. Held, that upon the facts in this case this did not constitute a trust which relieved plaintiffs from personal liability under the contract, or deprive them of their individual interest therein.
    •8. Accounting—What constitutes—Equity action
    The agreement having been executed, an action, to establish the rights of parties advancing money and incurring liabilities in reliance thereon against other parties liable by the express terms of the contract to contribute equally to such advances and share such liabilities, is peculiarly one for the cognizance of a court of equity. A court of equity has jurisdiction to try all issues incidentally arising thereon upon the accounting.
    7. Payment by stranger—Does not benefit debtor.
    A payment by a stranger does not inure to the benefit of a debtor. Such payment certainty would not operate to discharge the obligation of the debtor without evidence showing that it was the intention of the parties to have it do so.
    8. Jury triad—Not a right in an accounting.
    There is no rule of law requiring that charges of fraud incidentally arising upon an accounting with reference to partnership transactions should be tried by a jury.
    Appeal from a judgment of the supreme court, general term, second department, affirming a judgment in favor of the plaintiff entered at special term.
    
      JohnH. Post, for app’Its; William W. MacFarland, for resp’ts.
    
      
       Affirming 12 N. Y. State Rep., 642.
    
   Ruger, Ch. J.

The questions involved in this case are -difficult and complicated, arising not only from the number and variety of the questions themselves, but also from the peculiar and unusual mode in which they are brought up for review.

Two appeals have been taken, one by all of the defendants directly from a final judgment, rendered at special term to this court. This appeal brings up nothing but an interlocutory judgment previously rendered by the general term and the order of that court denying defendant Barnes’, motion for a new trial. The other appeal is taken by the defendant, Barnes, alone from an affirmance by the general term of the final judgment, and brings before us for review the. proceedings had in the action subsequent to the interlocutory judgment.

Thus, in one form or another, it is claimed that most of the orders and judgments heretofore made and rendered in the action, are now before us for review.

The quite objectionable practice has also been pursued of entering orders upon incidental questions decided upon the trial and appealing from such orders, as well as from the judgments, thus bringing the same question up in two forms.

The nature of the action, as appears by the complaint concisely stated, was in equity to obtain an accounting between several partners of their respective payments and advances on account of the joint enterprise, and to secure a distribution of the partnership assets, consisting of shares in the defendant corporation among its members according to. their respective rights therein. The answers set up no affirmative defence and consisted mainly, if not altogether of denials of the allegations of the complaint.

A trial at special term resulted in an interlocutory judgment determining the issues in'favor of the plaintiffs and providing for the taking of an account. On appeal by the defendants from this judgment to the general term, it was modified in some respects and, as modified, was affirmed.

The parties originally named as defendants in the action were Barnes, The New York Transit and Terminal Company, Post, Carpenter, Disosway and Guión, president and directors of such company, and Bonner, Francis, Morrow and Coudert alleged to be custodians of the shares of stock in which the assets of the partnership were invested. The-defendants Bonner, Francis, Morrow and Coudert having no personal or pecuniary interest in the controversy very properly did not appear or answer in the action. The defendants, The New York Transit and Terminal Company and Post, Carpenter, Disosway and Guión, however, did appear and answer, and have since participated actively in its defense, as the aids and auxiliaries of the defendant, Barnes.

It will be convenient to treat the questions in which the' defendant corporation and its directors are solely interested before proceeding to consider those with which the defendant, Barnes, is exclusively concerned. These defendants, although having no pecuniary interest in the event of the action, were proper parties to an equity action under its general rules of practice as well as by section 441 of the Code of Civil Procedure, in order that a complete determination and settlement of the questions involved might be had, and that the plaintiffs might receive the full benefit and enjoyment of the property which the final judgment-might award them, relieved from any obstacle which such parties might interpose thereto. Daniels Chy. Pleadings 296, et seq; Robinson v. Smith, 3 Paige, 222. Their appearance in the action, however, was purely voluntary, and they could safely have refrained therefrom without jeopardizing any right or interest which they owned or possessed, either personally or officially and without incurring any liability whatever for so doing. They could not, under these circumstances, have become entitled to costs in the action as against the plaintiffs, and the only effect of their appearance was to subject them to costs in the discretion of the court if it should finally determine they had unnecessarily defended. The complaint asked for no relief or judgment against these defendants, except such as would be conclusively established by a determination of the issues against Barnes, and the relief sought is purely incidental thereto.

At the close of the plaintiff’s case on the trial, these defendants moved the trial court to dismiss the complaint as to them upon the ground .that no case, either upon the evidence or pleadings, had been made for an affirmative judgment against them, and that they were unnecessary parties to the action, which motion was granted. That court also declined to allow the plaintiffs to amend their complaint so as to set forth more in detail the facts authorizing a recovery against Barnes, and the necessity of retaining the other parties as defendants in the action; but upon an appeal from these orders by the plaintiffs to the general term, that court reversed them and restored the defendants as parties to the action and amended the complaint as requested by the plaintiffs. Upon an appeal by the defendants, The New York Transit and Terminal Company and its directors, from this order, to this court, it dismissed their appeal (11 N. Y. State Rep., 885), holding that the amendment was within the power of the court under section 733 of the Code, and did not substantially change the claim of the plaintiffs, and was therefore a discretionary order. Any question, therefore, as to the propriety of this order is ehminated from these appeals.

It is now claimed by the defendants that it was error in the general term to reverse the order of the trial court dismissing the complaint as to them, and rendering an absolute judgment thereon without affording them an opportunity, by a new trial, to controvert the allegations of the amended complaint and try the issues alleged to have been thereby presented. This court has, as before stated, decided that the amendment did not substantially change the plaintiff’s claim, and it is quite evident that the complaint did not, either before or after amendment, present any material issue in which these defendants were interested. The only real issue in the case was between the plaintiffs and the defendant Barnes, as to who were the real or equitable owners of the stock in Barnes’ possession, and in the settlement of this question these defendants had no interest. In case the plaintiffs succeed, they would be entitled to so much stock as the court might award to them respectively, and the consequent rights which their ownership of such stock gave them in the defendant corporation, and if they were defeated the title to the stock would remain as it was- and no right of the company would in either event be affected. Neither the regularity of the organization of the defendant corporation, nor the title to the property which it had acquired was questioned or disputed. It is quite immaterial to the real controversy whether the corporation was organized by Barnes, or by Barnes and the plaintiffs, acting together. It was in any event the custodian of certain property which in equity belonged to its stockholders, and the right to which was being litigated between them. The corporation had issued and delivered this stock to Barnes, or the persons indicated by him, and thereafter had no further interest in its ownership or control.

Under these circumstances the general term proceeded to. render judgment upon the facts of the case without ordering a new trial.

Unless it appeared that there was some necessity for a new trial arising either out of some material issue left untried or rendered necessary by the amendment to the complaint in which the defendant corporation had a legal interest, it was quite unnecessary to order a new trial. The-rule is stated in Guernsey v. Miller (80 N. Y., 184), that “when there is an issue upon material facts, which may possibly be decided in more than one way on another trial, there should be a new trial ordered upon the reversal of a judgment by the general term.” (See also, Ehrichs v. DeMill, 75 N. Y., 370.) As we have seen, there was no-"such issue, • and such was the claim of these same defendants when moving for a dismissal of the complaint, as to them, on the trial. This conclusion leaves for consideration only the questions raised by the two appeals taken by Barnes, viz: that from the final judgment rendered, and the order made overruling exceptions to the referee’s report by the special term, and the appeal from the judgment of general term modifying and affirming such final judgment.

These appeals, it is claimed, bring up for review the judgment of the general term, modifying and affirming the interlocutory judgment, and also its order denying defendant Barnes’ motion for a new trial upon exceptions. They also bring before us the questions raised upon the accounting and in the rendition of final judgment, both by the special and general terms.

The result arrived at leaves us to deal with the merits of the controversy, as existing between the plaintiffs and. the defendant Barnes, unembarrassed by extraneous questions. The trial court has found, upon conflicting evidence and substantially in accordance with allegations of the complaint, that “in the month of November, 1885, an agreement was made by and between the plaintiffs, to which the defendant Barnes was permitted to become a party, because of his representations o f his ability to render valuable services in the ■acquisition of the property thatit was proposed to purchase on Staten Island. This agreement provided that a corporation should be created and organized under the laws of this state, for the purpose of taking title to such property as might be purchased, and the development and use thereof for such terminal facilities as the railroad companies before mentioned might require, as well as for the erection of storehouses and other structures for commercial purposes generally. It was provided that the corporation so to be created should pay for the property such prices as might, upon consideration, appear to be just and reasonable, by means of the issue of full paid capital stock or otherwise. It was further provided, that the parties to this agreement and arrangement, namely, the plaintiffs and the defendant Barnes, should bear equally the cost of such properties as might be purchased, and all expenses incident to the creation and organization of the corporation, and of the contemplated enterprise generally; and they were to share equally in the profits, benefits and advantages that might accrue from the execution of the agreement.”

It was further found that such company was organized, and thereafter acquired large amounts of property, which were paid for by moneys advanced to or for it under such agreement by some of the parties thereto. It was also found that all of the stock of such company, consisting of one thousand .shares of the par value of $100 each, with the exception of five shares retained by each of the four directors, to vest them with a qualifying interest to enable them to act as directors, was subscribed for by said Barnes, and nine hundred and eighty shares thereof were issued and delivered to him, of which three hundred and twenty-six shares afterwards came to the hands of the respective appointees of the several plaintiffs, Wiman, Emmons and Boardman. It was also substantially found that the defendant Barnes subsequently wrongfully refused to deliver any shares of stock to the several plaintiffs, other than said Wiman, Emmons and Boardman, or to carry out and perform the provisions of the said agreement.

It is claimed by the appellant that the agreement referred to was void by the statute of frauds, as creating an interest in real estate by parol; that it was contrary to public policy and without adequate consideration, and was so incomplete and uncertain in its terms that specific performance of its provisions could not be decreed.

We consider these objections to be untenable, and some of them too frivolous to merit serious consideration. A sufficient consideration is afforded to it by the mutual promises of the respective parties to contribute equally to the capital required to carry out the contemplated enterprise, and their agreement to share equally in the profits and advantages expected to accrue therefrom. It is entirely immaterial whether this agreement constituted a partnership in a technical legal sense, or whether it was a joint enterprise to be conducted by the parties for their mutual benefit. So far as their rights and liabilities are concerned in this case the result is the same and rests upon the express terms of the agreement, and they are now to be enforced upon the principles applying to partnership transactions. Dyckman v. Valiente, 42 N. Y., 551; Anderson’s Case, 7 Law Rep. Ch. Div., 75.

The agreement was such a one as the parties were competent to make, and the objects contemplated by it, and the means selected to carry them out, were lawful and proper, and were not contrary to public policy or obnoxious to any law to which we have been referred. Story’s Eq. Juris., § 1207; In re Staten Island Rapid Transit Co., 103 N. Y., 251; 3 N. Y. Stat. Rep., 48.

The validity of a parol agreement between parties to engage in the business of buying and selling lands, and that it is not open to the objection that it violates the Statute of Frauds, was expressly decided by this court in the case of Chester v. Dickerson (54 N. Y., 1), and the principles there laid down apply equally to the case of lands purchased under a similar agreement to be used for commercial purposes or to be sold or transferred to other persons or corporations for such uses. The facts found by the trial court show that the purpose for which the lands in question were to be purchased as well as the methods by which they were to be transferred, were lawful, and the evidence in the case does not establish anything to the contrary of this finding.

What might have been the remedies of the parties to this contract if it had remained unexecuted and there had been a breach thereof, is quite unnecessary to inquire, inasmuch as the contract was subsequently executed and large sums of money were advanced and expended upon the faith of it, in the formation of the corporation, and in the purchase of the lands intended to be used in the contemplated enterprise.

The action is not one to enforce specific performance of the agreements, but, the agreement having been executed, it is to establish the rights of parties advancing money and incurring liabilities in reliance thereon against other parties liable by the express terms of the contract to contribute equally to such advances and share such liabilities. Such an action is peculiarly one for the cognizance of a court of equity, and it has entertained jurisdiction of like cases from time immemorial. 1 Spence’s Equitable Jurisdiction, 664; Story’s Eq. Jurisprudence, §§ 466, 1207; Dyckman v. Valiente, supra; Whiton v. Spring, 74 N. Y., 170.

The rule, as stated by Pomeroy in his Equity Jurisprudence, section 1421, is that “ the equity jurisdiction is also practically exclusive in proceedings for an account and settlement of partnership affairs. The equitable jurisdiction over partnerships is a necessary outgrowth of the jurisdiction over accounting, and the remedies of dissolution, injunction and receivership, are incidents necessary to a final and complete relief.” And he further says in section 112 that the remedy of accounting “is clearly analogous to the remedy of compensation, and is generally used in connection with and auxiliary to some form of it. It is also a legal remedy, but has become, to a great extent, equitable. It is a necessary step in many forms and varieties of pecuniary relief, and sometimes is an essential preliminary in establishing rights of property in lands or chattels.”

The contention of the defendant, Barnes, that he has the right to retain the possession and control of the property, mainly purchased with the money of his associates, violates the plainest principles of equity, and should receive the emphatic condemnation of the court.

The allegations of the complaint show a clear case for an accounting under established precedents and the jurisdiction of a court of equity to direct it, and to try all issues incidentally arising thereon upon the accounting is indisputable. Equity Draftsman (4 ed.), 301, et seq; Story’s Eq. Jurisprudence, §§ 466, 1207.

It is also urged by the appellant that the plaintiffs are not the real parties in interest, and cannot therefore maintain the action. This claim is founded upon the finding of the trial court, that the enterprise • of purchasing terminal facilities for railroads at Staten Island, was intended, so far as the plaintiffs were concerned, for the ultimate benefit of the Baltimore and Ohio Railroad Company and the Staten Island Rapid Transit Company, and that five of the plaintiffs were connected officially with the first named company; three others with the last named company, and that they consented, at the request of said companies, to engage in the enterprise of purchasing and taking title to lands for terminal facilities in their own names, or in that of some appointee of theirs, to serve the interests of such companies. We do not think that this understanding constituted a trust or made the railroad companies parties in interest to the contract. It was apparently the main object of the arrangement that the plaintiffs should act in the purchase of such lands in their individual capacity, and should enter into contract as individuals and become liable in such character to each other for the performance of the contract. Such money as was furnished by them to carry out the contract was individual funds, and the property thereby acquired became individual property. That there was an intention on the part of the plaintiffs ultimately to turn over this property to the several companies referred to, and an expectation on their part that they should be reimbursed for their risk, trouble and outlay by such companies, did not, upon the facts in this case, constitute a trust which relieved them from personal liability under the contract or deprived them of their individual interest therein.

Among the grounds upon which a dismissal of the complaint was requested was “that the agreement to form á corporation, and that other persons named shall be entitled to participate in that corporation in the manner proved here, is illegal and void as against public policy.” The exception to the refusal to grant this motion is the only one affording any basis for the argument made before us, that the contract "was contrary to public policy. The language employed in stating the motion is quite vague and indefinite, and affords but little information as to the real grounds upon which it was intended to be supported. How it can be illegal for parties to make an agreement to form a corporation, and to provide therein what their respective interests in such corporation shall be, we are quite unable to see. Anderson’s Case (supra).

A corporation cannot be formed without a preliminary agreement among parties proposing to form it, as to the mode and manner of doing so, and we see no objection to the parties forming such agreement and intending to furnish the capital to establish it, from also agreeing that one of their number should subscribe for the whole stock intended to be taken by the associates, and from determining the interest which they should respectively take therein. Anderson’s Case (supra).

If the corporate organization intended to be formed is created according to the requirements of the statute, and the objects contemplated by it are lawful and proper, there is no principle of public policy which forbids competent parties from entering into an agreement to form it and provide for its future management and control, if conducted according to the rules of law respecting such a subject. Anderson’s Case (supra).

In the modification or the interlocutory judgment made by the general term, it was determined that in the account to be thereafter taken the said plaintiffs, Wiman and Garrett, should be credited respectively, the said Wiman with $70,000 paid for the Barton property, and the said Garrett with $183,000, used in the purchase of the Duncan and Grace properties. The trial court found that the said Wiman and Garrett advanced, individually and respectively, the sums stated, and the judgment of the general term gave them only the legitimate benefit of these findings. Such findings were based upon satisfactory evidence of such payments, and no legal reason can be seen why these credits should not be made.

It is claimed by the appellants that the evidence showed that , the Rapid Transit Company subsequently repaid to Wiman the amount expended by him, but this furnishes no reason why, as between him and his associates, they should not respond to him for such advance. A payment by a stranger does not inure to the benefit of a debtor, and most certainly such payment would not operate to discharge the obligation of the debtor without evidence showing that it was the intention of the parties to have it do so. Clow v. Borst, 6 Johns., 37; Bleakley v. White, 4 Paige, 654; Muller v. Eno, 14 N. Y., 605.

It is also claimed that the sum of $183,000 should not be brought into the account, because a mortgage upon certain property owned by the defendant corporation was given by it to Thomas M. King, trustee, to temporarily secure such advance. It cannot be disputed but that Garrett advanced such money, individually, under the agreement in aid of the joint enterprise, and is entitled to rely thereon for reimbursement. That he had other security for a part, or the whole of such sum, is no defense to his associates when called on to account. What the effect of such accounting and the enforcement of the judgment rendered thereon may be upon the continued existence of such mortgage it is unnecessary now to determine. It is quite probable that as all of the parties interested therein are parties to this action, it would operate as a satisfaction thereof.

It is also urged by the appellants that the plaintiffs do not come into court with clean hands, and that, therefore, a court of equity should deny them any relief.

The result of such a view by this court would leave in the hands of the defendant a large amount of property to the purchase of which he has contributed an insignificant amount. Such an objection comes with an ill grace from one who has deliberately planned to defraud his associates. We are gratified to say that the objection has no basis to rest upon, either in the findings of the court or the evidence upon which they were made.

We have also carefully examined the several rulings made on the trial in the admission and rejection of evidence, and the refusals to make findings of fact and of law, and find no exception thereto of sufficient materiality of importance to disturb the judgment, and we are, therefore, of the opinion that the interlocutory judgment should be affirmed.

The exceptions taken upon the accounting ■ and to the referee’s report, and brought before us by Barnes’ appeal from final judgment, alone remain to be considered.

These exceptions relate to the allowance by the referee of the claim of Wiman for $70,000; of Garrett for $183,000, and ■of the sum of $12,500 debited to Barnes for an overcharge on account di, the purchase of the Duncan property. The validity of each of these claims was passed upon and determined by the interlocutory judgment, and they were not open to question or objection before the referee. It is claimed that the overcharge by Barnes of the cost of the Duncan property involved a question of fraud upon which he had the right of a trial by jury.

We are of the opinion that the trial of that question before the referee did not necessarily involve a charge of fraud ■against Barnes, as his liability thereon is predicated upon the circumstance that he had not, in fact, expended the moneys entrusted to him by his associates, in the purchase of such property. Whether his omission to do so was occasioned by fraud, mistake, inadvertance or otherwise, was immaterial, as he was liable to account to his associates for the moneys remaining unexpended in his hands belonging to them, in either event. But we know of no rule of law requiring that charges of fraud incidentally arising upon an ■accounting with reference to partnership transactions, shall be tried by a jury. It has been the unvariable practice of ■courts of equity to try all questions arising before a referee in the stating of accounts between partners or joint owners ■and necessarily involved in such accounting, since their, origin, and we are referred to no authority questioning their power to do "so.

The clause of the final judgment requiring the defendant ■corporation to appoint an annual meeting and proceed to an election of officers, cannot be questioned by the defendant corporation as their appeal brings up only questions arising on the interlocutory judgment. So far as Barnes is concerned, the judgment was fully warranted by the evidence and findings.

We are, therefore, of the opinion that each and all of the several orders and judgments appealed from should be affirmed with costs.

All concur.