Case ID: ad_85/html/0485-01.html
Source: Caselaw Access Project
Author: {"author": "Ing-baham, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Willard B. Hosmer and Others, Respondents, v. James N. Darrah and Others, Defendants. Ebenezer B. Beecher, Appellant.
    
      Right of an indorser to intervene, where his rights are likely to he prejudiced hy the settlement of an action to which he is not a party.
    
    ■ In an action brought to rescind,- upon the ground of fraud, a contract for the sale of stock by the plaintiffs to the defendant corporation, the defendants interposed an answer denying fraud on their part and alleging fraud upon the part of the plaintiffs, and asking for a rescission of the sale. Before the trial of the action the corporation became insolvent and a receiver of its property was appointed. The- receiver was substituted as a defendant in place of the corporation. Thereafter the receiver entered into .an agreement. with the plaintiffs, by which the plaintiffs were to pay him §10,000, and-he was to transfer the stock in suit to the plaintiffs and a judgment was to be entered adjudging that neither party was entitled to rescind the sale.
    As a part of. the purchase price of the stock the corporation had delivered to the plaintiffs certain promissory notes, §10,000 of which remained unpaid, upon which one Beecher, who was a large stockholder in the corporation, was liable as indorser. The result of the settlement was that the plaintiffs obtained the stock which they sold to the corporation and retained §20,000 of the purchase price over and above the sum paid to the receiver, together with the claim against Beecher as. indorser.
    
      Held, that Beecher was entitled to intervene in the action.
    Laughlin, J., dissented.
    Appeal by Ebenezer B. Beecher from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 28th day of Hovember, 1902, denying his motion to intervene in the above-entitled action.
    
      Charles E. liushmore, for the appellant. .
    
      Henry B. Twombly, for the respondents. •
    
      Frederick E. Anderson, for the defendant receiver.
   Ing-baham, J.:

The action was brought for a rescission of a contract for the sale of the stock of a corporation owned by the plaintiffs to the defendant, the Standard Shoe Machinery Company, upon the ground of fraud. The defendants answered denying the fraud alleged in the complaint, alleging fraud on the part of the plaintiffs and asking as affirmative, relief for a rescission of the sale. An injunction was granted restraining the defendants from delivering the stock that the plaintiffs had sold to the defendant corporation. Before the action could be tried the Standard Company became insolvent, a receiver was appointed by the Court of Chancery of the State of Hew Jersey, and such receiver was subsequently substituted as a .defendant in the place of the Standard Company. As á part of the consideration for the sale of this stock by the plaintiffs to the defendant corporation certain promissory notes were given which were indorsed by Beecher, the appellant. Some of these notes were paid, but others remained unpaid, amounting in the aggregate to over $10,000. After the appointment of the receiver negotiations were had between him and the plaintiffs, and a settlement was arrived at by which the plaintiffs agreed to pay to the receiver the sum of $10,000; the receiver to consent that a judgment in this action be entered adjudging that neither party is entitled to rescind the contract of sale of the stock made by the plaintiff to the defendants ; the receiver to transfer the stock back to the plaintiffs. The effect of such a judgment would be that Beecher would be liable to the plaintiffs on his indorsements upon the promissory notes given by the defendant corporation to the plaintiffs. As a result of this settlement the plaintiffs will have received back the stock that they sold to the corporation, and retain in their possession, over and above the amount actually paid to the receiver, upwards of $20,000, with this claim against Beecher as indorser of the promissory notes given by the Standard Company for $10,000. While this may be a good bargain for the receiver, it does not appear to be advantageous to Beecher. It is alleged, and not disputed, that Beecher and the defendant Darrah are the owners of a large majority of the stock of the Standard Company, but that corporation seems to have been dissolved by the appointment of the receiver, as he was substituted in its place as defendant, and he has agreed with the plaintiffs to enter a judgment in this action confirming the sale.

I think the court has power, under section 452 of the Code, to allow Beecher to intervene and to be made a party to the action. That section provides that “ where a person, not a party to the action, has an interest in the subject thereof, * * * and makes application to the court to be made a party, it must direct him to be brought in by the proper amendment.” Beecher is not a party to the action, but has an interest in the subject thereof. He is a large stockholder of. the corporation whose rights are to be determined by the judgment to be entered in this action. He is also a large creditor of that corporation. He is also contingently liable upon these notes given by the corporation if there is not a rescission of th.^ sale as demanded by both parties. The action is in equity, and if the settlement with the receiver is a proper one to be carried out, Beecher’s intervention will not prevent the proper judgment from being entered. The receiver has, by his action in making this settlement, placed himself in antagonism to Beecher. The court below denied the motion upon the ground that the plaintiff was represented in this action by the receiver, but as the receiver by this settlement has agreed that a judgment in this action should be entered which would seriously affect Beecher, he should have an opportunity of appearing and contesting the right of the plaintiffs and the receiver to enter a judgment which is directly contrary to what' is- claimed by both of the parties in the original pleading and which would devolve upon Beecher a liability which, if the allegations in either the complaint or answer are correct, should not be enforced against him.-

The order appealed from should, therefore, be reversed and the motion granted to the extent of allowing Beecher to intervene in the action upon condition, however, that Beecher stipulate that such intervention will be without prejudice to the position of the case upon the calendar; that he serve an answer within ten days after the entry of the order, and that the case proceed to trial without further notice, and with ten dollars costs and disbursements of this appeal to the appellant to abide the final result of the action.

Van Brunt, P. J., Patterson and Hatch, JJ., concurred; Laughlin, J., dissented.

Order reversed and motion granted to the extent and on the conditions stated in opinion, with ten dollars costs and disbursements to appellant to abide event.