#### Enoch H. Gurney, Resp’t, *v.*The Union Transfer & Storage Co., App’lt.

*(New York Superior Court, General Term,*

*Filed February 6, 1890.)*

*1.*Stock—Contbact bob—Bbbobs in valuation of accounts assigned AS CONSIDEBATION.

Defendant, on receiving an assignment of accounts from plaintiff, resolved that stock to a certain amount should be issued to him therefor, and also that “ all further errors found in the accepted accounts ” should be charged against the stock. In an action for a certificate for the stock it was shown, to prove value of the warehouse accounts for storage which had been assigned, that the property stored had been sold pursuant to the statute, but no proof of the value of the owner’s original obligation to pay storage was "shown. *Held,*that error in the valuation of the resolution was not shown.

"2. Same—Pleading.

In such action the complaint need not state that no further error has been found.

*2753. Corporations—Power op directors to issue stock por accounts.

Where the accounts assigned are incidents of the business transferred by plaintiff to the corporation the directors have power to issue stock to him therefor.

4. Same.

A resolution to issue stock in exchange for accounts cannot be avoided on the ground that the person to benefit thereby voted in favor of the resolution without restoring to him what he had transferred in pursuance thereof.

5. Same.

A person who is entitled to shares of stock cannot be deprived of such right by a subsequent resolution of the directors of the corporation.

(Ingraham:, J., dissents.)

Appeal from judgment entered upon pending, etc., at special term.

*Henry 0.*Andrew, for app’lt; *A. C.*Fransidli, for resp’t.

Sedgwick, Ch. J.

The action was brought to compel the defendant to issue to plaintiff a certificate that he was entitled to shares of capital stock of the defendants to the nominal amount of $3,658.14 under a resolution of the board of directors made June 16, 1888. The resolution was :

> “ Whereas, It has appeared to the satisfaction of the company and of Mr. Gurney that the estimated value of the plant and accounts offered by Mr. Gurney for his stock was too high; and whereas, the company has assumed certain additional liabilities of Mr, .Gurney as set forth in his account to date, it is hereby mutually agreed between the company that in consideration of the less value paid in by Mr. Gurney, as above stated, and the additional liabilities assumed by the company as aforesaid, he, the said Mr. Gurney, shall be entitled to $3,658.14 of the company’s stock par value and the rest of the $10,000 be turned into the treasury.

> “It is further agreed that all further errors found in the accepted accounts from him shall be a charge against his stock. This settlement includes the $274.38 already agreed upon as consideration in the purchase of the good will of Mr. Gurney’s-business.”

The plaintiff had judgment that the defendant issue to him stock to the nominal amount of $3,600.

The principal difference between the parties relates to the meaning of the phrase “ all further errors found in the accepted accounts from him shall be a charge against his stock.” The plaintiff does not deny that the amount of “further errors” should be deducted from the amount of shares of stock just mentionéd, that is $3,658.14, and that the company was bound to issue certificates of shares only to the amount of the difference.

The dispute relates to the meaning of the words “ further errors-found in the accepted accounts from him.” The defendant argues that the errors intended included erroneous estimate of the value of the accepted accounts, as well as mistakes of statement or computation in the accounts, which would make them erroneous as accounts. The plaintiff argues that the errors were only such *276as make errors in accounting, like mistakes of fact or calculation. The court agreed with the plaintiff, but nevertheless allowed the defendant to give full proof of what the defendant claimed to have been an erroneous estimate of the value of the accepted accounts.

These accounts related to the business of the plaintiff as warehouseman, and were statements of the amounts due to him by third parties for storage. As security for the payment of these amounts were the goods stored. To show the value of these accounts, the defendants sold, under the statute, the goods stored. Assuming that the proof on this subject showed the value of the security, there was yet to be. ascertained the value of the. original obligation of the owners to pay the storage. There was no proof on this point.

As the case stood the owners remained liable for the amount of the storage, less the value received upon the sales. The presumption of law is that these owners were solvent and could be made to respond. The defendants therefore failed to prove that the valuation of the resolution was erroneous.

The defendants did prove that there were mistakes of statement and computation in the accounts. The court deducted from the amount agreed to be issued these mistakes.

The learned counsel for defendant argues that under the complaint and resolution there could be on a view unfavorable to the defendant judgment for the issuing of shares to the amount of $3,658.14, no more and no less. I do not perceive the validity of this proposition. The plaintiff fails as to quantity because the defendant establishes a modification of plaintiff’s claim.

It is also argued that the complaint is defective, because it does not aver that no further error had been found. This is not correct, because the not finding of errors was not a condition precedent to the acquirement of the cause of action for such 'number of shares as the plaintiff was entitled to have issued to him, and the lessening of the number of shares to which the defendant might be entitled was founded upon an independent stipulation upon which the defendant should take an affirmative stand.

It was also objected to the complaint that it did not aver that the property turned over to the company by the plaintiff for the shares was worth $3,658.14. This was not essential to the validity of the agreement The mere fact that property is not worth the amount of the shares is insignificant if the estimate of the value is made in good faith. The answer does not allege that there was any intent to evade the statute.

It was further urged that the amount of $3,658.14 was in part made-up of sums that were allowed as due to the plaintiff, whereas in fact they were not due to the plaintiff by the defendant. One of these sums was for salary which the plaintiff credited himself with when, as defendant now claims, no salary was due to him.

Whatever may be the rights of the parties as to these sums, and in particular that claimed for salary, the answer alleged no defense based upon the plaintiff taking the sums or the salary. The answer confines itself, in respect of the value of the property *277transferred by plaintiff, to an assertion of an erroneous estimate of the accepted accounts, or to errors in the accounts. The ■ case showed that there was no mistake or error, even1 if there were invalidity in the settlement between the parties, as to the company allowing the plaintiff certain amounts when it was not liable to the plaintiff, and the answer makes no allegation as to this.

It is also argued that the “ accepted accounts ” were not necessary for the business of the defendant, and for that reason the directors had not power to issue stock for them. Such a defense was not made. If it had been pleaded, it could not have prevailed under the circumstances.

The accounts were incidents of the business that the plaintiff transferred to the defendant, and the transaction of that kind of business was within the power of the defendants.

The defendants’ counsel argues that as the agreement is contained in a resolution which was passed at a meeting of directors, the plaintiff being present and voting for the resolution, it is void. The answer avers, and the testimony shows that he did vote. The answer does not attempt to avoid the contract for this reason, and the contract could not be avoided without restoring to the plaintiff what he had transferred. There was no offer to restore, and, indeed, restoration was impossible from the manner in which the defendants had dealt with the property.

The defendant set up as a defense that after the making of the contract in question the defendant passed a resolution that no certificates of stock should yet be issued to any stockholder. The plaintiff did not bind himself to omit to demand his shares of stock, and if, before the resolution, his right to shares was perfect, the defendants could not diminish or annul his right and absolve themselves from their obligation by resolving to do so.

I am of opinion that there was no error during the trial.

Freedman, J., concurs.

Ingraham, J.

(dissenting.)—I am unable to agree with my associates in the conclusion to which they have arrived that this judgment should be affirmed. It was at least doubtful whether the “further errors” mentioned in the agreement of June 16, 1888, related to the amounts that could be realized from the accounts or errors in the method by which the amounts due had been determined. '

If plaintiffs had transferred to defendants certain accounts which represented debts to him secured by the personal property which was deposited with him on storage, and had represented that such accounts were good and collectible and that the property upon which he had a lien for the several amounts due him was sufficient security, for which the defendant had agreed to pay him $10,000, to be applied in payment of a subscription for that amount of the capital stock of the company, and that it subsequently appeared that such representation was false as to the collectibility of a portion of the accounts, and the parties liad deducted the amounts that up to that time had been ascertained to be uncollectible, and then fixed the amount of stock to which the *278plaintiff was entitled from the accounts before transferred, but providing “that all further error found in the accepted accounts for him shall be a charge upon his stock,” it would be, I think, clear that the “further errors” would be errors of like character to the ones that had been corrected by the agreement of June 16, 1888. The defendant offered to prove the original agreement whereby plaintiff subscribed to the stock of the defendant, offered to show the terms of the subscription and the representations made by plaintiff as to the value of the business, of the value of the plant turned over; as to the value of the accounts receivable and that there was a shrinkage in the accounts.

All of this evidence was excluded and the defendant excepted.

Defendant also offered to show the condition of things that led up to the agreement of June 16, 1888, upon which the cause of action was based, which was excluded by the court and to which the plaintiff excepted. I think all of this testimony was material and necessary to enable the court to determine the meaning of the' words “further errors in the accepted accounts.”

Several other questions are presented which are not free from doubt, but I think it clear that the exclusion of the evidence before referred to required that there should be a new trial.

Judgment affirmed, with costs.