Case Name: Nathan I. Berger, Respondent, v. National Architects' Bronze Company, Defendant, Impleaded with Peter Burden and J. Russell Parker, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1916-07-10
Citations: 173 A.D. 680
Docket Number: 
Parties: Nathan I. Berger, Respondent, v. National Architects’ Bronze Company, Defendant, Impleaded with Peter Burden and J. Russell Parker, Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 173
Pages: 680–685

Head Matter:
Nathan I. Berger, Respondent, v. National Architects’ Bronze Company, Defendant, Impleaded with Peter Burden and J. Russell Parker, Appellants.
First Department,
July 10, 1916.
Corporations — stockholder’s action for accounting — to whom accounting to be rendered — consideration for issue of stock.
In a stockholder’s action for an accounting, the plaintiff claimed that stock was to be issued for certain secret formuke to be transferred to the corporation. Evidence examined, and held, that a finding that such formuke were delivered is against the weight of evidence, and that there were no secret formulae of any value.
In such an action the plaintiff must be a stockholder, and without showing his right to the stock whióh has never been issued, he is not qualified to maintain the action.
Under section 55 of the Stock Corporation Law no stock can be issued except for money or for services actually rendered or for property of equal value actually transferred.
Appeal by the defendants, Peter Burden and another, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 9th day of November, 1915, upon the decision of the court after a trial at the New York Special Term.
The judgment directed the individual defendants to account to the plaintiff for all damages by reason of an unlawful transfer of property, assets and good will of the defendant National Architects’ Bronze Company.
Frederick A. Keck, for the appellants.
Edward J. Shumway, for the respondent.

Opinion:
Smith, J.:
This is a stockholder's action brought by one Berger against Burden and Parker on behalf of the National Architects' Bronze Company, the wrong alleged being that the defendants sold all the property of the company and appropriated the proceeds.
It appears that in August, 1910, the plaintiff and one Switzer called on Burden and informed him that the factory where they were employed had gone into the hands of a receiver, suggested that he could purchase it at a bargain and run it with their assistance at a large profit, and the parties thereupon made the following agreement:
"Memorandum of Agreement made this 30 th day of August, 1910, between J. Bussell Parker, party of the first part, Nathan I. Berger, party of the second part and Andrew Switzer party of the third part.
" Witnesseth, that for and in consideration of the sum of $1.00 each to the other in hand paid the receipt whereof is hereby acknowledged have agreed to the following covenants and agreements.
" First. The parties hereby agree to incorporate under the Laws of the State of New York, under a suitable name and for a capital stock to be agreed upon and to divide the capital stock as follows: To J. Bussell Parker 51% of the capital stock, Nathan I. Berger 35% of the capital stock and to Andrew Switzer 14% of the capital stock.
"Second. The said Parker agrees to transfer and deliver all goods, chattels, machinery and fixtures purchased this day by him from Balph Folk, receiver of the Architects Standard Bronze Co. to the newly organized corporation for the said 51%.
" Third. The minutes and by-laws of said corporation to be mutually agreed upon by the parties hereto. The said by-laws to provide for a Directorate of four.
'1 In Witness Whereof, we have hereunto set our hands and seals the day & year first above written.
1 ' In presence of ANDBEW SWITZEB [l. s.]
"NATHAN I. BEBGEB [l. s.] "J. BUSSELL PABKEB [l. s.] "Per Peter Burden, agtT
In pursuance of this agreement Burden bought the factory for $2,100, turned it over to the corporation and commenced the operation of the business under the corporate name with the assistance of Berger and Switzer, who received salaries of $50 and $35 a week, respectively. He also advanced $2,900 for working capital and made further advances, which sums were to be repaid to him from earnings, of the company, taking a note therefor for $5,815.73, dated October 7, 1910, payable to Burden & Co., "for moneys advanced and loaned to the National Architects' Bronze Co.," and signed "Peter Burden, President, Andrew Switzer, Vice President, Nathan I. Berger."
The contention of the defendants is that the plaintiff and Switzer were out of employment and came to the defendant Burden and induced bim to make the agreement set forth, representing to him that they, could do a business of $2,000 a week and make thereon a net profit of fifty per cent; that as a part of the agreement it was stipulated between them that the money should be advanced and the experiment made, and if successful the corporation's stock should be divided in the proportion specified in said agreement and the business continued; that the experiment was made for two months, but that instead of making a profit the business was run at a substantial loss, so that the incorporation was abandoned and the stock never delivered, and that the defendant Burden lawfully resumed possession of the property which he had turned over for the purposes of the experiment and sold the same, and is not liable either to the plaintiff individually orto the corporation for his acts.
In the 11th paragraph of plaintiff's complaint it is alleged that this action is brought by plaintiff " as director, secretary, general manager and stockholder of said defendant, National Architects' Bronze Company, and on behalf of said company and of the stockholders thereof, who will come in and pay their share of the expense of this suit." The judgment in the action requires the defendants to account to the plaintiff individually. If this be a stockholder's action this judgment is clearly irregular, and the defendants should be required to account only to the corporation or a receiver to be appointed. But the difficulty, in my judgment, lies in the fact that the plaintiff is not a stockholder. While the certificate of incorporation was filed and business was done for two months under the corporate name, no stock was in fact ever signed or issued. This is not •a case of stock once issued which has not in form been transferred to one who claims to be a stockholder. It is the case of an uncompleted incorporation with stock wholly unissued, and until plaintiff can have issued to him the stock to which he claims he is entitled he has no standing to proceed in behalf of himself or of the other stockholders in an action to compel an accounting to the corporation.
Nor has plaintiff shown himself entitled to receive the stock stipulated for in the agreement. By section 55 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61) no stock can be issued except for money or for sendees actually rendered or for property of equal value actually transferred. There is no claim that Berger's stock was to be issued for services rendered, but it is claimed that it was to be issued for certain secret formulae to be transferred to the corporation. The trial court has in its formal decision found that these formulae were delivered, but this finding is clearly against the weight of evidence. The defendant Burden and his son both swear to the contrary; the purchaser from Burden of this property swears that no such formulae were found among the papers transferred; Werblin, the confidential man of the plaintiff, swears that no such formulae were delivered to him. While in the decision it is found that such formulae were delivered, in response to defendants' request the court found: " 27. The defendants Burden and Parker never received from Berger any formulae for any process of manufacture of any kind. " This finding is clearly inconsistent with the testimony of Berger, and is consistent with the testimony of the defendant and, in our judgment, with the weight of the evidence.
But there is another difficulty here. The weight of the evidence is to the effect that there were no secret formulae such as to constitute a separate property of value. This is distinctly sworn to by two witnesses in behalf of the defendant. After the property was sold to Lebowitz, Berger remained with him about a week. Thereafter the same goods were manufactured by others without any pretense that any formulae were transferred. The evidence of the vendor of the chemicals used in this process is to the effect that the process is not a secret one but is used by five or six different concerns who manufacture the same goods. This evidence is not denied by plaintiff. The process is called the galvano plastic operation, which is a common process that has been known for 100 years. It is true that there are slight modifications used in the process by each operator, as each kitchen cook will use a slightly different mixture in her compounds. There is no evidence in the case, however, that there is any such variation from the general formulas as to constitute any secret process which was of substantial value to this corporation. That no substantial value was contemplated to be delivered by this plaintiff to the corporation is confessed by the acts of Werblin, the confidential adviser of the plaintiff and his witness upon the stand, to the effect that while the agreement provided that fifty-one shares should go to Burden and the remaining forty nine to Berger and Switzer, nevertheless it was arranged that ninety-seven of the shares of stock should be made out directly to Burden and that Berger and Switzer should procure their stock to be assigned from Burden. This arrangement is only explained by the knowledge that no value was given either by Berger or Switzer for this stock within section 55 of the Stock Corporation Law.
We have here, then, two workmen out of employment, both of them, if you please, skilled workmen. Upon their representation to a third party with capital that money can be made, a plant is purchased for about $2,000. Five thousand eight hundred dollars is further advanced to begin the operation, which in two months demonstrates that no profit can be made. After the loss by this third party of his $5,800 invested, it is claimed that he should give forty-nine per cent of the value of the plant that he has furnished to the parties who induced him to try the experiment. The equities are all with-the defendants, and the plaintiff should not be allowed to recover except upon a clear showing of right.
The judgment should, therefore,- he reversed upon the law and facts, and a new trial ordered, with costs to appellants to abide the event.
The findings of fact of which this court disapproves are the third, tenth, eleventh, fourteenth, fifteenth, seventeenth, twentieth and twenty-fourth.
Clarke, P. J.. McLaughlin, Scott and Page, JJ., concurred