Case ID: ad_10/html/0151-01.html
Source: Caselaw Access Project
Author: {"author": "Ingraham, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John C. Schantz, Appellant, v. Walter G. Oakman and Others, Respondents.
    
      Agreement for the organization of a consolidated railroad corporation and the transfer of properties to it—until its creation no action for an accounting lies.
    
    In an action in equity for an accounting — under a contract which contemplated the formation of a new corporation to which were to he transferred certain railroad properties (controlled in part by the plaintiff and in part by the defendants), and of the capital stock of which new corporation the plaintiff was to be entitled to a certain portion in full-paid stock —the plaintiff alleged that the new corporation had not been organized, but claimed that the defendants should account to him for the proceeds of transactions, subsequent to the agreement, in relation to the street railroads and pay him a moiety of the profits realized therefrom. The complaint did not allege, or seek to recover upon the ground of, any breach of the contract by the defendants.
    
      Held, that as the action was one simply for an accounting, and not for damages for a breach of contract, it could not be maintained ;
    That as there was no agreement of partnership or joint adventure between the plaintiff and the defendants, the plaintiff could not claim for any profits realized by them from other subsequent transactions relating to street railroads in the city of Milwaukee;
    That as the new corporation, the sole object of the contract, had never, been organized, the plaintiff never became entitled to any of its fully-paid stock.
    Appeal by the plaintiff, John C. Schantz, from an interlocutory judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Rew York on the 9th day of March, 1896, upon the decision of the court, rendered after a trial at the Rew York Special Term, sustaining the defendant’s demurrer to the plaintiff’s complaint.
    
      John McCrone, for the appellant.
    
      S. B. Clark, for defendants Oakman and Ryan.
    
      Lloyd McK. Garrison, for defendant Villard.
   Ingraham, J.:

Two demurrers were interposed to the complaint, one on behalf of the defendants Oakman and Ryan, which stated three causes of demurrer, one being that the complaint did not state facts sufficient to constitute a cause of action; and one interposed by the defendant Yillard, alleging four distinct causes of demurrer, the fourth being that the complaint did not state facts sufficient to constitute a cause of action. The issues of law raised by these demurrers were sustained by the Special Term upon the ground, as appeared by the opinion of the learned judge, that the complaint did not state facts sufficient to constitute a cause of action against either of the defendants.

As to the defendant Yillard, it is quite clear that no cause of action either at law or in equity was alleged. It was not alleged that he was a party to any agreement as between this plaintiff and the defendants Oakman and Ryan. It was not alleged that he had in his possession any property in which this plaintiff had any interest, nor was any fact alleged that would entitle this plaintiff to an accounting, or which would create any liability in favor of the plaintiff against him. Whatever rights the plaintiff acquired as between himself, Oakman and Ryan, could only be enforced against Oak-man and Ryan ; and in such an action it is quite clear that Yillard had no interest. The judgment so far as it sustains Yillard’s demurrer is clearly right, and should be affirmed.

The demurrer of the defendants Oakman and Ryan presents a somewhat different question, and requires a short analysis of the complaint. It is well to keep clearly in mind, however, that the action is in equity, and asks that an account be taken of all the transactions and dealings of the defendants and each of them, and of all the moneys received and paid by them respectively in relation to the business prosecuted by the said defendants in consolidating certain street railway companies in the city of Milwaukee, and that the amount which may be found to have been acquired and received by or which became payable to the defendants Oakman and Ryan as profits of the said business should be adjudged to be the property of Oakman and Ryan and this plaintiff jointly, and that the plaintiff recover his share thereof. No judgment of any kind is asked as against Yillard or Payne, but an accounting is asked as to all of the moneys received by Oakman and Ryan as profits, and for a recovery by the plaintiff of one-half of such profits. No cause of action is alleged to recover the damages sustained for a breach of any contract made between the plaintiff and Oakman and Ryan; the plaintiff does not claim that any such action for damages is alleged, or insist upon liis right to maintain this action as an action for damages. This action will, therefore, be treated upon this appeal as an action for an accounting in equity, and the question determined will be whether or not, upon the allegations of the complaint, the plaintiff is entitled to such equitable relief.

The complaint alleges that prior to October 16,1889, the plaintiff was in possession and the owner of certain rights and privileges for the purchase and delivery and transfer to him of a large majority of the shares of the capital stock of certain companies or corporations operating street railroads in the city of Milwaukee ; and that the defendants Oakman and Ryan "were the owners of a majority of the shares of the capital stock of the Milwaukee City Railroad Company, a corporation operating a street railroad in the city of Milwaukee. The complaint then alleges that the defendants Oak-man and Ryan, being desirous that there should be formed a new corpoi’ation, to be known as the Consolidated Company, and that there should be a union of interest between the plaintiff and the said defendants, an agreement was' entered into between this plaintiff and said defendants Oakman and Ryan, the object and intent of which is expressly stated to be the promotion of the interests of said Consolidated Company. The agreement is not set out in full, •but its substance is alleged. The consideration is stated to be ■mutual covenants and agreements to do and refrain from doing the things and acts therein specified; and it is alleged that the plaintiff undertook “ to arrange to deliver to said Consolidated Company the entire capital stock of said Milwaukee Cable Railway Company, controlling its railroad, property and franchises, free of mortgage lien, free of any contract for construction, or other expenditure, and free of any claim upon said stock or property upon the part of one Hinckley or other person.” This is the only provision of the contract by Avhicli either of the parties expressly agreed to do any particular thing. The complaint then alleges that, in addition to this obligation of the plaintiff, there Avere certain other prolusions Avhich provided that the Milwaukee City Railroad Company and the Milwaukee Cable Railroad Company Avere to maintain and operate their respective properties; that the stockholders of the Mihvaukee City Railroad Company were to turn into the treasury of the Consolidated Company the capital stock of said Milwaukee City Railroad Company ; that the Milwaukee Cable Railroad Company was to issue bonds secured by a mortgage upon its property to an amount specified, which were also to be turned over to the Consolidated Company, which company was also to make certain payments to other persons named, with a provision that the Consolidated Company, which had not been incorporated, and which, so far as appears, no one agreed to have incorporated, was to issue certain 'stock, and that plaintiff and his associates were to refrain from undertaking any street railway enterprise to conflict with the interests of the said Consolidated Company.

This is the contract that is alleged, and from its form as alleged it would appear that all of these provisions, except that in relation to the obligation of the plaintiff to deliver to the Consolidated Company the entire capital stock of the Milwaukee Cable Railroad Company, were executory in their nature and contemplated the execution of further agreements to carry them into effect. Be that, however, as it may, there was no express obligation on the part of these defendants, any more than there was on the part of the plaintiff, to organize or have incorporated the Consolidated Company, or to procure that the other corporations named or their stockholders would do and perform the acts provided for in this contract. There, was certainly no greater obligation upon the defendants Calcinan, and Ryan to organize the Consolidated Company than there was upon the plaintiff, and the complaint expressly alleges that the said company was never organized or incorporated, and the obligation to turn over to said company the entire capital stock of the Milwaukee Cable Company was never performed by the plaintiff. The carrying out of this contract depended entirely upon the organization of the Consolidated Company, the sole object of the parties to the contract being that there should be formed a new company to be known as the Consolidated Company and that the interests of such Consolidated Company should be promoted. Tet the agreement is silent as to the persons who are to organize such company, and before the contract could become in any way effectual, or capable of being enforced, the incorporation of such new company was necessary. It thus appearing that the new corporation (the sole object of the contract being to promote its interests) was never in fact organized, the plaintiff, therefore, never became entitled to the only interest which, under the contract, he ever was to become entitled to, namely, $300,000 of the full-paid capital stock of such Consolidated Company. We - are not here dealing with a cause of action for a breach by the defendants of their contract or obligation, if any there was, to organize this new company, or to cause to be paid to-plaintiff a portion of the capital stock in the new company which he was to receive. But what plaintiff asks in this action is that the defendants should account to him for subsequent transactions in relation to railroads in* the city of Milwaukee and pay to him a moiety of any profits that they may have realized in consequence of their dealings in relation to such railroad companies with others. Now, it seems to us entirely clear that nothing in this contract as alleged in the complaint created any partnership or joint adventure between the plaintiff and the defendants Oakman and Ryan, or any relation between them which would entitle the plaintiff to claim that all that Oakman and Ryan subsequently did in relation to street railroads in the city of Milwaukee was part of the business which said co-partnership or joint adventure was organized to carry out. There was no agreement for a division of profits resulting from a partnership or joint adventure, no property in which the parties were to have a joint interest.

What appears to have been contemplated by the contract was the-formation of a new corporation, to which were to be transferred certain properties, and of the capital stock of which this plaintiff was to be entitled to a certain portion in full-paid stock. That corporation was never organized. If there was any liability for such a failure to organize that corporation, in consequence of which the plaintiff sustained damage, his proper remedy is an action for damages against the person or persons who were bound to organize the corporation and in consequence of whose default he lost what he would have gained had the contract been carried out. Upon no principle that we can discover is the plaintiff authorized to call upon any one for an accounting as to operations or other adventures having no relation to this company and in which this plaintiff had no interest.

The question here presented was examined by the learned judge at Special Term, and we might well have rested our affirmance of his judgment upon his opinion. W"e wish, however, to emphasize the distinction between an action in equity brought by the plaintiff and an action upon the allegation of proper facts to recover damages for a breach of a contract, and to hold on this appeal that upon the allegations of this complaint the plaintiff is not entitled to maintain this action against these defendants, or either of them, for an accounting, and that in the absence of any allegation that these defendants, or either of them, violated any contract, the plaintiff would not be entitled to maintain any action for damages.

We think, therefore, that the judgment below was clearly right, and that it should be affirmed, with costs, with leave to the plaintiff, upon payment of the costs of appeal and costs of the court below, to amend his complaint if so advised.

Van Brunt, P. J., Barrett, Bumsey and O’Brien, JJ., ■concurred.

Judgment affirmed, with costs, with leave to the plaintiff, on payment of costs of appeal and costs in the court below, to amend ■ complaint if so advised.