Case ID: ad_2/html/0301-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Barrett, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Henry W. T. Steinway, Appellant, v. William Steinway and Steinway & Sons, Respondents.
    
      Corporations — when a trustee may deal individually with his corporation — unprofitable foreign branch — election — estoppel — release.
    
    In an action brought by a stockholder of a corporation known as Steinway & Sons to compel the defendant William Steinway, its president, and one of its trustees, to pay over certain profits alleged to have been illegally acquired by hint in the course of his individual dealings with the corporation, it appeared that in 1880 Steinway & Sons had an unprofitable branch office in London and that the defendant William Steinway and his brother, Theodore Steinway, since deceased, proposed to establish a branch in Hamburg, which could sell more" cheaply to the London house than could the house in New York. The corporation was unwilling to embark in this undertaking because of the risk, hut the-Hamburg branch was established by Theodore aud William Steinway, who agreed to turn over that branch to the corporation at cost when the business-became a success, and this plan was unanimously approved by all the stockholders. The undertaking proved to be very lucrative.
    By his will Theodore Steinway bequeathed all his interest in the Hamburg branch to William Steinway, and in December, 1889, William Steinway made an offer to-turn over the business to the corporation at cost, which was unanimously accepted at a meeting of the stockholders at which the plaintiff was present and did not object, and a Written agreement to that effect and a release of all claims as against each other was exchanged between the parties.
    The claim made by the plaintiff was based upon the fact that such material as the Hamburg branch had occasion to get from this side of the water was furnished . by Steinway & Sons at inadequate prices, although he had full -knowledge in regard to them during the time that the material was being furnished.
    
      Held, that the transaction on the part of William and Theoddre Steinway was not prohibited within the rule forbidding a trustee to make a profit out of individual dealings with his cestui que trust;
    
    That the plaintiff and the corporation, knowing of the proposed Hamburg branch, and having consented that its establishment be undertaken by William and Theodore Steinway on the terms proposed, and having finally ratified the entire transaction, were concluded by their acts ;.' - That, having received the fruits of the contract, the plaintiff was not in a position now to complain;
    That the corporation itself was concluded by the release accompanying the transfer.
    Appeal by the plaintiff, Henry W. T. Steinway, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 19th day of April, 1895, upon the' decision of the court, rendered after a trial at the New York Special Term, dismissing the plaintiff’s complaint.
    This action was brought by a stockholder of the corporation of .Steinway & Sons,, in behalf of himself and all other stockholders, to ■compel the defendant William Steinway, its president and one of its trustees and directors, to account for, and pay over to the corporation certain profits alleged to have béen illegally acquired through individual dealings with it. The corporation is joined as defendant because it refused to bring the action. The following facts are either undisputed, or are established by a decisive preponderance of evidence:
    In 1880 Steinway & Sons_ had a branch office in London, which was not profitable. Its non-success was mainly due to the fact that the New York factories could not supply it cheaply enough with pianos, and that those manufactured here were not suited to the English climate, neither the wood nor the varnish lasting well in the moister atmosphere. In 1880 matters were brought to' a crisis by the rise of American money, which decreased the purchasing power of British currency, and by a serious strike in the New York factories, which made it impossible to furnish the London house ■even so Well as before. In this emergency Theodore. Steinway, the defendant William Steinway’s brother, proposed to the stockholders that a co-partnership be formed to establish a branch of the business in Hamburg, which could sell to the London house cheaper, and, for its purpose, better, instruments -than had theretofore been furnished it, and which could aid and strengthen the New York house in time of labor troubles. In addition to these particular reasons, the extension of the business to Hamburg was manifestly desirable and advantageous. The risk, however, was considerable, and Theodore and William agreed to assume it personally, each supplying half of the ■capital. When the business became a, success, it was to be turned over to the corporation at cost prices. ■ This plan met with the unanimous approval of all the stockholders, including'the plaintiff.
    ■ The co-partnership thus formed was known as Steinway’s Piano■fabrik.' Erom November, 1880, when the fabrik went into operation, until December, 1889, when it went out of existence* the corporation sold to it at certain special prices (of which plaintiff -now ■complains) such materials as it had occasion to get from this .side of the water. Of these prices, however, plaintiff had full knowledge during the whole of the period. The fabrik sold to the London house at from twenty to forty-five per cent cheaper than the prices at which the New York house had been able to consign the goods, and the London branch of the business quadrupled, and, from being scarcely self-supporting, became very lucrative. In 1889 Theodore died, leaving by his will his interest in the fabrik, and all patents taken out by him in Europe, to the defendant William Steinway. The latter thereupon fulfilled to the letter. his agreement with the corporation. A meeting of the trustees was held on December 29, 1889, at which he submitted an offer to transfer the business to the corporation for the amount of the capital invested therein, as shown by an inventory annexed, the correctness of which was guaranteed. In addition to other concessions not necessary to mention, this defendant agreed to transfer to the corporation all patents, whether taken out in Europe or America. Of these the corporations had been a licensee, paying royalties thereon. This offer was unanimously accepted, all the stock being voted on either personally or by proxy. The plaintiff was present, and made no objection. The minutes state that he participated in the discussion, but expressed no opinion upon the final vote. The arrangement was carried out, and the Hamburg house has ever since been part of the Stein way system. The offer contained the following provision: “ 11th. All claims that Steinway’s Pianofabrik of Hamburg may have for com missions, spoiled or broken material furnished, or repairing Steinway & Sons of New York pianos in Germany or Europe, for making good Steinway & Sons’ warranties, if not already booked and allowed by said Stein way & Sons, against Steiriway & Sons, New York, and also all claims by Stein way & Sons, of whatever kind and nature, against ‘ Steinway’s Pianofabrik,’ if not already booked and allowed by said ‘ Steinway’s Pianofabrik,’ be forever canceled and quit claimed to each other, on the' consummation of Steinway &. Sons’ purchase of Steinway’s Pianofabrik ’ under my within offer, by passing the resolution by Steinway & Sons’ Board of Trustees, at its meeting on the 26th day. of December, 1889.”
    
      Edward JB. Hill, for the appellant.
    
      George W. Gotterill, for the respondents.
   Barrett, J.:

1. We agree with the plaintiff that an officer and director sustains a trust relation toward the corporation, and that a trustee is prohibited from dealing individually with -himself in his trust capacity. Such transactions are Undoubtedly voidable at the option of the interested parties, whether fair or otherwise. (Davoue v. Fanning, 2 Johns. Ch. 251; Munson v. S. G. e& C. R. R. Co., 103 N. Y. 58.) But this general and wholesome principle is entirely inapplicable to the facts of the present case. The defendant William Stein way did not here attempt to represent both sides. ■ He not only consulted the stockholders,"but he dealt directly with ■ them. They gladly assented to the enterprise, and fully sanctioned all that was contemplated and proposed. The enterprise was, in fact, a pressing necessity, inaugurated for their benefit^ and for the benefit of all concerned. The rule applicable to this state of facts was well stated by Follett, Ch. J., in Welch v. I. & T. N. Bank (122 N. Y. 177, at p. 189) as follows: “ If the contract so entered into is in all respects just as between the' parties, and all of the . shareholders and directors or trustees are competent to assent, and with full knowledge. of the terms of the contract, do assenf and direct that it be made, it is binding on the corporation, and cannot be avoided by its. shareholders.” . To the same effect: Hotel Company v. Wade (97 U. S. 23), and Barr v. Pittsburgh Plate Glass Co. (17 U. S. Appeals, 124). In thus dealing with the stockholders,, the ti’ustee is dealing with the collection of individuals constituting' the corporation, and they may make any bargain they please with . him, or permit any act which is not radically ultra vires. Even if the directors misapply the funds of the corporation, their acts in that regard may be cured by the unanimous consent or ratification. of the shareholders. (Morawetz on Corporations, § 625, and cases, there cited.) So a. transaction in which the directors have no authority to represent the corporation, because personally interested in obtaining an advantage at the expense of the corporation,, may subsequently be ratified even by the majority, if the transaction was not in fact fraudulent or detrimental to the corporate rights. (Id. § 626, and cases there cited.) If the shareholders may thus ratify illegal acts of the trustees, they may agree originally that such acts shall be lawful and proper. And where they have done so, the corporation cannot complain. That is precisely this case, and the only question, therefore, is whether the authorized enterprise was conducted fairly tb the corporation. We have scrutinized the evidence on this head with great care, and our' conclusion is adverse to the plaintiff’s contention. The more the evidence is scrutinized the clearer seems the fairness and the correctness Of the dealings between the corporation and the fabrik.

The plaintiff claims that he did not consent to the system of charges made by the corporation to the fabrik, but this claim is wholly without merit. His conduct is inconsistent throughout with any other theory than that he assented to this system and to these charges. Then, too, he participated in the resultant benefits of the system. During the whole period from 1880 to 1889 he accepted his dividends, which increased steadily from six per cent to eighteen per cent, an increase due largely to the success which the fabrik ■ under this very system enabled the London house to achieve. His occasional expressions of dissatisfaction cannot weigh against such facts. The only definite and formal claim he made, with the exception of the formal demand which preceded the commencement of the action, was after Theodore Steinway’s death, when he declared that the stockholders were entitled to be paid the amount of the decedent’s profits in the firm. And it is significant that he dropped this claim on learning that he would receive as legatee under Theodore’s will more than c'ould possibly' come to him as a stockholder, What he really wanted was not to repudiate the whole affair (it was too advantageous for that), but to get all there was in it legitimately, and then something that was not. He assented to the entire transaction, profited by its operations and resolved to retain its resultant benefits. These operations were not only just and fair in themselves, hut they were directly and indirectly beneficial to the corporation and all its stockholders. The plaintiff, therefore, has no just cause of complaint. .

2. The plaintiff is also concluded by the transfer of the fabrik and of the other property which accompanied it. This transfer was the consummation by the defendant William Steinway of his original agreement with the corporation. All that the plaintiff now complains of was then, and had long been, kpown to him and every other stockholder. If any intention existed of assailing the bargain, or of attempting to deprive the defendant Steinway of whatever incidental benefits he had realized under it, this was the last chance of asserting it. A cestui que trust is not," any more than another, exempted from the operation of those salutary rules of law which prohibit one from taking inconsistent. positions with regard to' a contract. If he decides to disaffirm an agreement made by the trustee, he must restore what he has received under it. (Duncomb v. N. Y., H. & N. R. R. Co., 84 N. Y. 190; Barr v. N. Y., L. E. & W. R. R. Co., 125 id. 263.) If he learns in time of what has been done, he must make his election, like another, as to whether he will abide by the contract, and, if not, he may not receive benefits ■therefrom. As Judge Finch said iii the Bwacomb case of the rule permitting the beneficiary to disaffirm (p. 199): The rule was .adopted to secure justice, not to work injustice, to prevent a wrong, not to substitute ofie wrong for another.” To permit the plaintiff here to benefit from the ownership by the corporation of the very valuable Hamburg plant, and the many other advantages surrendered by the - defendant Steinway, and at the same time allow him to strip ■ that defendant of every vestige of profit secured by the risk of capital and the labor of nine years, would be grossly unconscionable. It would, in fact, be a fraud upon the defendant William Steinway.

3. The corporation itself is also concluded by the release which accompanied the transfer. The proposition which resulted, in this transfer provided for the cancellation of all claims by Steinway & Sons of whatever kind and nature, against ‘ Steinway’s Pianofabrik,’ ” that is, against those who constituted the fabrik. The context shows, it is true, that what was particularly in the minds of the parties was the book accounts. But there was no' limitation except where allowances had already been made upon the books.. The words of release, save in .this particular inspect, are as broad as they well can be, and the intention that all other past liabilities of whatever nature, should be wiped out is undeniable. No special reference was made to the claim which is asserted in this action for the obvious reason that the possibility of its assertion was not contemplated. It would, indeed, have been an affront to the proposer of such a transfer to suggest' .that the mutual releases which were to accompany his generous offer should specify a claim which could only be founded upon his lack of integrity. If at that time there was any stockholder of the corporation ungrateful enough to contemplate such a claim, he was sufficiently prudent to keep the thought to himself.

The views expressed render unnecessary a consideration of the plaintiff’s delay in bringing suit, though the judgment might well rest upon the ground of inexcusable loches. Our decision, however, is based upon the demerits of the plaintiff’s case. He has no indepen dent equity, and that which he puts forward on behalf of the corporation is as weak as his own. As Mr. Justice Field remarked in Pneumatic Gas Company v. Berry (113 U. S. 322, at p. 327): “ A court of equity does not listen with much satisfaction to the complaints of a company that transactions were illegal which had its approval, which were essential to its protection, and the benefits of which it has fully received.”

None of the exceptions taken to the admission or exclusion of evidence deserve special mention. Upon the whole case there could have been no other just result than that which was arrived at by the learned judge at Special Term, and the judgment appealed from should, therefore, be affirmed, with costs.

Yah Beuht, P. J., Rtjmsey, Williams and Patteesoh, JJ.. concurred.

Judgment affirmed, with costs.