Case ID: misc_39/html/0420-01.html
Source: Caselaw Access Project
Author: {"author": "Wright, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Solomon Ranger, Suing on his own Behalf and on Behalf of all Other Bondholders of the Tennessee Central Railroad Co., Plaintiff, v. Ernst Thalmann and Richard Limburger, Composing the Firm of Ladenburg, Thalmann & Co., Defendants.
    (Supreme Court, New York Special Term,
    December, 1902.)
    Principal and agent — Complaint against an undisclosed principal — Election.
    A complaint, on behalf of bondholders under a railroad mortgage, ¿1 which alleges that, upon a foreclosure and a • sale by a master in chancery, a third person bid in the mortgaged property for a firm, whose obligations the defendants have assumed, for part cash furnished by the old firm and part notes made by him, the master re-taming an express lien on the property sold to secure the notes, that they, not' being paid by the third person, another sale was ordered, had, and confirmed, that the proceeds of the sale satisfied the payments ordered by the decree, that the old firm thereafter took the property and paid all the expenses in regard to the matter, and that, subsequently, the master, not then knowing that the third person had been acting as agent, sued him for a balance due upon the notes without result, states a good cause of action against the defendants to recover of 'them, as undisclosed principals, the amount due upon the notes.
    Suing upon an obligation of a person, at a time when his agency was undisclosed, does not show an election by the plaintiff to hold him and release his undisclosed principals, nor does a recovery against him release them.
    Tins action is brought by the plaintiff, suing on his own behalf, and. on behalf of all other bondholders of the Tennessee Central Railroad Company, to recover a balance of $11,975 remaining unpaid of a hid made by one C. 0. Godfrey, as the agent of the defendants, upon a foreclosure sale in the Chancery Court of Tennessee.
    Arthur C. Palmer, for plaintiff.
    Underwood, Van Vorst, Rosen & Hoyt, for defendants.
   Wright, J.

The mortgage was made by the railroad company to secure an issue of $250,000 in bonds. On the sale by the master in chancery, Godfrey bid in the property for $20,000 and paid thereon $2,000 cash, and gave his individual notes for the balance. The master retained an express lien on the property to secure the payment of the notes. This sale was confirmed by the court.

The notes not being paid another sale was decreed, upon which $6,025 were realized, which sale was duly confirmed. The amount realized on these sales was sufficient for the payments directed by the decree so that the bondholders are entitled to the surplus.

An action was brought by the master against Godfrey upon his promissory notes; judgment was obtained for the balance due; execution issued and was returned unsatisfied. When this case was before the Appellate Division on a demurrer to the original complaint (65 App. Div. 5), Judge Ingraham, in his opinion, said: “ The only allegations connecting these defendants with the transaction is that they directed Godfrey to purchase the property in their hehalf as.their agent; that such purchase was made hy Godfrey pursuant to such instructions, * * * that, during all the proceedings had in said action under the bid made by Godfrey, including the final decree confirming the sale, the said Godfrey was the agent of said firm and acted on their behalf. * * * It is not alleged that the defendants paid the consideration or even became the owners of the property. No trust resulted in their favor, nor does it appear that the defendants would have been entitled to the property as against Godfrey. When, therefore, * * * the special commissioner assumed to hold Godfrey as the purchaser, and to collect the notes, * .* * without making a request or giving notice to these defendants or their predecessors as principals, it seems that he elected to hold Godfrey as the principal. * * * It is not alleged that' the relation of the defendant to the transaction was that of an undis: closed principal, or' that at the time the special master sought to enforce the obligation against Godfrey the relation of the defendant to the transaction was unknown either to the plaintiff or those acting in his behalf.”

For these objections the demurrer was sustained. But by the amended complaint the objections are cured, by proper, allegations. The amended complaint in addition to the allegations of the original complaint, alleges, in effect, that Godfrey bid off the property pursuant to an agreement theretofore made with a firm whose obligations the defendants have assumed; that said firm furnished Godfrey with the cash payment of $2,000, and authorized the giving of said notes, and, after the sale was confirmed by the court, ratified the purchase, paid all expenses incident thereto, and accepted the property, and paid all expenses incurred in caring for the same after the purchase.^

Therefore, taking all the allegations together, the firm was the purchaser of the property by its agent Godfrey, made the cash payment through him, and the sale being confirmed by the court, became obligated to pay the balance of the hid as represented by the agent’s promissory notes. When, therefore, the agent took the title in bis own name a trust resulted to the firm and it became the equitable owner.

The amended complaint also contains the allegation additional to those in the original, as follows: That the master in chancery, prior to the return of the executions against Godfrey, had no knowledge or information that said firm was his principal, or was interested in the purchase.

The master in chancery having no knowledge or information that the firm was Godfrey’s principal, did not elect to hold the •agent instead of the principal. Such an election requires, as the very term implies, knowledge or information of the existence of the relationship of principal and agent. In that way only is an ■opportunity afforded for an exercise of a preference. Kayton v. Barnett, 116 N. Y. 625; Remmel v. Townsend, 83 Hun, 353; Brown v. Reiman, 48 App. Div. 295; Albany Hardware & Iron Co. v. Day, 11 id. 230; Rochester Distilling Co. v. Devendorf, 72 Hun, 428.

The fact that the master in chancery obtained judgment against-the agent on his promissory notes did not release the undisclosed principal from its original obligation. Ib.

The demurrer must, therefore, he overruled, with costs, with leave to the defendants to answer within twenty days after the ¡service of the interlocutory judgment to he entered hereon.

Demurrer overruled, with costs, with leave to defendants to answer within twenty days after service of interlocutory judgment ■to be entered hereon.