Case Name: PITTSBURG CARBON CO. v. McMILLIN
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1889-06
Citations: 23 Abb. N. Cas. 298
Docket Number: 
Parties: PITTSBURG CARBON CO. v. McMILLIN.
Judges: 
Reporter: Abbott's New Cases
Volume: 23
Pages: 298–311

Head Matter:
PITTSBURG CARBON CO. v. McMILLIN.
N. Y. Supreme Court, Fifth Department, General Term;
June, 1889.
1. Corporations ; combinations ; receiver enforcing contracts of member.], A receiver of the assets of a “trust ” or combination of corporations, represents creditors as well as the members of the combination; and can, for the benefit of innocent creditors, enforce contracts made by the illegal combination or its members in the course of the business for which the combination was formed.
2. Estoppel; corporation, when not permitted to set up its own illegal' agreement.] A member of such illegal combination, who carries-on business under it with third persons, is estopped from claiming that the receiver cannot enforce debts when due to the combination because of its being illegal.
Appeal from a judgment of the Erie Special Term in favor of the defendant.
In March, 1887, the Pittsburg Carbon Co. and eight other carbon companies and makers, united in an agreement appointing one Hawks, the trustee, lessee and exclusive manager of all their works, and Hawks was succeeded in that position by one Danglar.
Before this combination, known as The United Carbon ■Companies, was formed, the Pittsburg Carbon Company had a contract to supply the Brush Electric Light Company •of Buffalo with carbon. After the combination was formed, the Pittsburg Company, under the management of the trustee, continued to carry out the supply contract, and the trustee, at their request, made out bills for the supplies in terms payable to himself as trustee or agent.
It afterward withdrew from the combination and sent bills for subsequent supplies in its own name.
Two of the companies in the combination thereafter brought suit in Ohio against the others and had a receiver appointed, of all the property, etc., growing out of the contracts made by the companies with their manager and trustee, and of all the assets of the trusteeship.
The receiver and the Pittsburg Company, each sued the Brush Company for the price of the supplies, and the Brush Company was allowed to pay the sum into court, and be discharged, leaving the receiver of the trust and the Pittsburg Company to interplead.
The defendant succeeded below and the plaintiff now appeals to the general term.
C. C. Crosser, for the appellant.
I. The trust contract was null and void and could not in any way be satisfied. Hor can it be the foundation of a valid contract. The-original vice of an unlawful purpose tainted every part of the trust contract, including the assignment of the claim against the Brush Electric Light Company and all invoices,, inventories, bills and notifications made by the parties thereto about the business of the trust—all were null and void. The claim to said sum of $1,080 never in any sense became an asset of said trust or trustee (Bishop on Contract (enlarged ed.) 471, 473, 613, 614; Story's Eq. Jur. 306 3 Am. and Eng. Encyc. of Law, 872, and cases cited).
II. The court erred in so far as it found that the receiver is entitled to enforce rights against the appellant on behalf of creditors of said trust which the trustee could not enforce-on account of his complicity in the illegal contract. The receiver takes no better title than the trustee (Curtis v. Leavitt, 15 N. Y. 9-46, 47; Alexander v. Relfe, 74 Mo. 495, 516; Beach on Receivers, 433 ; High on Receivers, §315).
III. The court erred in its conclusion of law that the-plaintiff was estopped from setting up the invalidity of the-contract of March 1,1887, as against the defendant, receiver. 1. There can be no estoppel against asserting the invalidity of an illegal contract (Greenhood on Public Policy Rule,. 126; Herman, on Estoppel, § 543; 2 Kents Com. 463). 2.. The facts found do not invoke the extraordinary remedy of estoppel. The essential elements of estoppel are not found (Andrews v. Ætna Life Ins. Co., 85 N. Y. 334, 344; Hamlin v. Sears, 82 Id. 327-33 ; Merrill v. Tobin, 30 Fed. Rep. 738-743; Edmundson v. Thompson, 31 L. J. Ex. 207 Herman, on Estoppel ; Monks v. Belden, 80 Mo. 639 ; Sulphine v. Dunbar, 55 Miss. 255 ; Graves v. Blondell, 70 Me. 190, 194). 3. So far as the receiver claims title through the trust contract and trusteeship, he cannot invoke the aid of the court to enforce such claims or plead estoppel. 4. If the creditors have any claim which does not flow through the trustee, the receiver is not the “ real party in interest to prosecute such claim. 5. The creditors will be subrogated to the rights of the trustees, their rights to be subject to the equities subsisting between the trustee and the plaintiff (Lewin on Trusts and Trustees, 639).
IY. The appellant’s right to recover this fund antedates the trust contract and accrues independent thereof. The respondent to succeed must plant himself squarely upon the trust contract and secure the aid of the court to enforce the same. This is beside the purpose of equity (Keene v. Kent, 4 N. Y. State Rep. 431; Story’s Eq § 769).
Y. The contract upon its face shows that it is a mere executory contract, and the court has held it illegal and void. It follows that the judgment of the court is inconsistent in this: that it holds that the court will make itself the instrument by which to enforce this illegal executory, void contract, at the instance of the parties to it. The pretense upon which it is sought to sustain this ruling is that the receiver represents the creditors; but there is nothing in the record to show that any creditor sought the appointment of the receiver or is represented by the receiver. The bald fact appears by the record that the receiver is simply the instrument by which the aid of a court of equity in this State is invoked to enforce and carry out a void, illegal executory contract. If this can; be done, upon any such pretense, for every practical purpose-such contracts are not void or illegal. On the contrary, &. creditor dealing with the creature of such a contract is as-much bound to know whom and what he represents as is a. person dealing with an agent.
Ansley Wilcox (Allen, Movins db Wilcox, attorneys), for the respondent.
The question to be considered is-; whether the appellant can set up the illegality of its own. contract as against the receiver who represents not only itself and the other parties to the contract, but bonafidee creditors, who had dealt with the trust or combination and had given credit to it in the ordinary course of business. We assert that it cannot do so. The receiver or any statutory assignee of an insolvent corporation, association or individual, represents primarily the creditors of the insolvent, as well as the insolvent itself, and its stockholders or the parties who may be interested after its debts are paid. For this reason he is allowed to disaffirm the illegal acts of the insolvent and recover its assets wherever creditors might do so ; and in general he unites in himself all the rights of creditors and of the parties interested in the insolvent estate. This is expressly provided for in chapter 314 of the Laws of 1858, and the practice is regulated by rules 78 and 79 of the ■ General Fules of Practice. Illustrations of this doctrine may be found in the cases of Attorney-General v. Guardian .Mut. Life Ins. Co., 77 N. Y. 272,275 ; Talmage v. Pell, 7 N. Y. 328, 346, 347 ; Farmers’, etc. Bk. v. Jenks, 7 Metc. 592; Honegger v. Wettstein, 47 Super. Ct. (J. & S.) 125, 136, 137; Litchfield Bk. v. Church, 29 Conn. 137, 150. It is, therefore, obvious that the receiver of the United Carbon Companies is the proper person to prosecute this claim and to collect it for the benefit of all the creditors of the insolvent combination. It seemed to be admitted upon the argument in the court below that the parties to such a combination as this, if illegal, could not set up the illegality of their own acts to defeat the claim of a bona fide creditor in a suit brought by such a creditor directly against them ; and that any one of the fifteen or more creditors whom this receiver represents could bring a suit directly against the Pittsburg Carbon Company and recover his debt from that company. If so, it follows inevitably that the receiver of the insolvent combination can step in and maintain a right as against the parties to the combination to collect its assets for' the benefit of such creditors. The creation of such a receivership is expressly designed to avoid the complications and wastefulness of a multiplicity of individual suits and to unite the a-ights of all parties in one person, so that they can be •administered economically and equitably by a single court.
We cannot see upon what ground it can be claimed that '■the plaintiff can take advantage of the illegality of its own •acts to defeat the rights of creditors, whether in a suit ‘brought directly by them, or by a receiver as their representative. The principle is so elementary as to be embodied in a maxim that 16 no man should (or can) take advantage of his -own wrong ” (Broom's Legal Maxims, p. 279 and 288, and ■cases cited ; Litchfield Bank v. Church, 29 Conn. 137,150). If we attempt to analyze the combination which was effected by the separate contracts made by Mr. Hawks with these ••several carbon makers, it bears certain resemblances to a partnership. Looked at in this light, it is obvious that the members of a partnership cannot set up as against a creditor who had dealt with the partnership in good faith, the fact that the partnership was formed for an illegal purpose, in order to defeat their own liability for a just debt (1 Lindley on Partnership (Eng. ed.), 201, 205 ; Metcalfe on Contracts, 116 ; Adams v. Creditors, 14 La. 454, 461; Kinsman v. Parkhurst, 18 How. U. S. 289, 293). Treating the contract between the Pittsburg Carbon Company and Hawks as an agency for the management of its business by him, which might be void as between the parties because contemplating an illegal purpose, it is obvious that the principal could not set up the illegality of such a contract as against an innocent -creditor who had contracted with the agent in good faith, so as to defeat its liability for a just debt (Murray, Receiver, v. Vanderbilt, 39 Barb. 140, 152; Wharton on Agency, §§ 474, 542, also §§ 25, 26, 249, 250, 320). A corporation cannot set up any illegality in its incorporation to defeat the ■claim of creditors (Morawetz on Corporations, §§750 etseq / Phoenix Warehousing Company v. Badger, 67 N. Y. 294; Eaton v. Aspinwall, 19 Id. 119 ; Mead v. Keeler, 24 Barb. 20). These principles appear to be decisive of the question involved in this appeal. The precise question does not seem to have arisen in any of the cases involving the legality of so-called “ trusts ” or combinations, alleged to be illegal ob the ground that they are formed to prevent competition and restrain trade, whether, when such a combination becomes-insolvent, the parties to it can set up the illegality of their own acts to defeat the rights of creditors. Apparently no-one ever made such a claim before. But there is nothing novel in the principle involved, and it can be disposed of on familiar grounds of equitable estoppel. The very definition of an equitable estoppel, as stated in the leading text books, seems sufficient to dispose of the question. Prof.. Pomeroy (Equity Jurisprudence, § 804) says : “ Equitableestoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in. equity, from asserting rights which might perhaps have otherwise existed, either of property, or contract, or of remedy, as against another person who has in good faith relied upon such conduct, and has been led thereby to change-his position for the worse, and who on his part acquires some corresponding right either of property, of contract, or of remedy.” In all the cases which we have found where the illegality of so-called “ trusts,” or combinations in restraint of trade, has been asserted, the question has arisen between the parties to the unlawful contract directly. It has arisen either in the shape of a suit to restrain a breach of the contract, or of a suit for damages on account of its breach, or in a suit for an account of the profits, or in some such manner. In these cases between the parties, courts have gone to great lengths in holding that where such contracts are involved, no rights can be predicated upon them, and that the law will leave the parties who are in pari delicto where-it finds them. Even in such cases, however, where the-unlawful agreement has been executed, and new rights liavesprung up which do not necessarily involve the enforcement of the unlawful agreement itself, courts have refused to allow the parties to defeat such rights by going back to the unlawful agreement, even as between themselves (Keene v. Kent, 7 State Rep. 229, 232 ; Brooks v. Martin, 2 Wall... 70, 81, etc.; Marsh v. Russell, 66 N. Y. 288, 294 ; Wann v. Kelly, 5 Fed. Rep. 584; W. U. Tel. Co. v. Union P. R. R. Co., 3 Fed. Rep. 423 ; Cent. Trust Co. v. Ohio Cent. R. R. Co., 23 Fed. Rep. 306). No case has been cited which gives any support to the proposition that the parties to an illegal contract can set up the illegality of their own acts to defeat the rights of innocent creditors. ■Such creditors are not in pari delicto with the contractors. To allow the latter to use such a defense would be to make their own wrong-doing a shield for them and a sword for those who have innocently trusted them.
Present Barker, P. J., Dwight and Macomber, JJ
See note at the end of this case.
The contract was in the following form:
This agreement, made March 1, 1887, by and between Pittsburg Carbon Company, Limited, of Pittsburg, Pa., party of the first p>art, and Edward C. Hawks, of Buffalo, N. Y., as trustee for said party of the first part, and other carbon companies and makers, party of the second part.
Witnesseth; The party of the first part hereby leases to the said, trustee its carbon works, premises and business in the city of Pittsburg, Pa., together with all machinery, implements, tools, appliances and appurtenances, and all other propert}', except manufactured carbons, therein, thereon, or in any way connected therewith or relating thereto, to have and to hold the same for the term of five years, to commence March 1st, 1887, and to end March 1st, 1892, at the annual rent of ($5,000) five thousand dollars, payable quarterly at the end of each, quarter.
Said party of the first part further agrees to at once assign, transfer and deliver in due form the lease and all contracts or agreements contained herein or connected therewith now held by it, the said carbon works and premises, for the time this agreement is to run. If at any time the said party of the first part shall neglect or fail to pay rent due on such assigned lease, the said trustee may do so, and deduct the-amount so paid from the rent hereby reserved.
Said party of the first part further agrees that the policies of insurance against loss or damage by fire shall at once be made payable to said trustee and delivered to him, and in case said party of the first part shall at any time fail to pay any premiums of insurance or keep proper insurance, said trustee may do so, and deduct the amount so-paid from the rent herein reserved.
Said party of the first part further agrees not to engage or be in. any way directly or indirectly interested in or give, impart or convey any information, knowledge, advice, aid, counsel or assistance to the carbon business except as herein provided, in said city of Pittsburg as long as this agreement continues, or until it shall be finally adjudged and affirmed by a court of competent jurisdiction, after a full trial, that this contract is void and of no effect, or be determined by the voluntary act of the parties hereto.
The party of the first part further agrees that if any officer, trustee, partner or stockholder of or in its said works or company, or if any wife, family relation, connection or relation of any such officer, trustee- or stockholder, shall or do at any time prior to March 1st, 1892, engage or become in any way or capacity directly or indirectly interested or ■concerned in making or attempting to make any carbon in any way ■designed or intended for use in electric lighting, or in generating electricity, or in any battery, or for any purpose connected or intended to be connected with electricity either experimentally or commercially, or shall give, impart or convey any information, knowledge, advice, -aid, counsel or assistance to any one except said trustee, or refuse, neglect or fail for any reason to implicitly observe and follow any and •all directions of said trustee, then the rent hereby reserved, and profits accruing therefrom, shall be reduced immediately upon the happening -of any such event, to twelve dollars ($12) per annum, and 'no more, which twelve dollars ($12) shall be paid quarterly as herein provided.
It is hereby stipulated by and between the parties hereto, that such •reduction of rent and loss of profits is not made as a penalty, but as the amount of the carefully estimated, stipulated and agreed damages and actual loss of said trustee.
Said party of the first part further agrees to furnish to said trustee, prior to March 10th, 1887, a full and complete inventory, with present ■cash value, extended and footed, of all property hereby leased, and a second full and complete inventory of all carbons on hand at that time. ■Said inventories shall not be of force for any purpose until checked, corrected and approved by said trustee.
The said party of the first part further agrees that said trustee may ■at any time sub-let the whole or any part of the said leased premises for the whole or any part of said term, and that he may take and remove any property mentioned in said inventory at its improved and •certified value, upon paying in cash therefor before removing ; but the rent hereby reserved shall not be reduced because of such purchase.
The party of the first part further agrees to pay all taxes, levies and ■assessments, local, general and special, that are now or thereafter may become a lien upon said leased property, but in case of its failure to do so, said trustee may do so, and all costs, charges, interest and •additions thereto, and deduct from the rent herein reserved the amount or amounts paid.
The said party of the first part agrees, at the written request of the said trustee, to run its said works and business at such times, in such ■way, and in every respect as such trustee may direct, without any fur ther or extra compensation, provided that said trustee shall pay for all material used, and for all labor employed, and all expense of putting and keeping in order said works while so running. The said party of the first part further agrees that in case of the loss or damage by fire, covered by said policies, that said trustee shall rebuild, repair or replace said loss or not, as he may elect, and that in case he may elect to retain the insurance money, he shall pay such interest as he may receive on such money to said first party as fast as received, or may pay over the whole of such insurance money to said party of the first part.
In case said first party shall be in debt at the time of the execution hereof, and such indebtedness shall not have been paid at the time such loss and damage may occur, then the whole of such insurance money shall be at once applied toward the payment of such indebtedness.
The said trustee agrees on his part to pay such rent of ($5,000) five thousand dollars as herein provided, if realized out of the profits of the carbon business ; and in addition thereto to pay to the said party of the first part semi-annually its ratable proportion of the entire profits-of said business, after deducting all rents, running expenses, all expenses of conducting said business, all expenses of the trustee and of the trusteeship, and an annual salary to said trustee of eighteen thousand dollars ($18,000), beginning on the day of the date hereof, provided that said trustee shall receive no compensation for his personal services until said party of the first part shall have received at least the amount of rental herein agreed to be paid, and a further or additional amount equal to fifty per centum of the annual rental herein received from the profits of the carbon business conducted by the said trustee as herein contemplated.
All moneys received from the sale of carbons shall be deposited in the name of said trustee in such bank or banks as a majority of the carbon works or companies of the city of Cleveland shall from time to time designate; and no check or draft drawn on such fund by said trustee shall he valid until countersigned by the treasurer of the Cleveland Carbon Company and by the treasurer of the national Carbon Company, both of Cleveland, Ohio. The said trustee shall not be liable, personally or otherwise, by reason hereof, or for anything contained in this agreement or arising therefrom, except .for Willful neglect of duty.
The said trustee shall have the sole power to designate the fac•tories to be run, the kind or class of goods to be made ; to fix all prices at which carbon points, plates and other carbon goods are to be sold, .and to whom sold, the terms of the sale and how shipped, and to collect all bills therefor, to purchase all material and supplies, and to •audit the bills therefor ; which business shall be done by the trustee in his name as trustee, or general agent, or such other designation as he may elect.
The said trustee shall carry out all the valid existing contracts of •said party of the first part.
For the purpose of successfully carrying out the objects of this trust, and to enable the said trustee to pay such rent, and not to ■embarrass him in the organization or in the carrying on of said trust, we have insisted upon his not informing us of the rent or percentage of profits agreed by him to be paid to any other carbon works or company.
The said trustee can at any time resign his trusteeship upon giving ■all parties in interest three months’ written notice. The trustee can at any time be removed upon, the written demand of three-fourths of annual rentals of the companies or firms in interest, and he hereby agrees to immediately resign on such demand being made, and to turn over to his successor all property, money, books, and papers in any way relating to the business of such trusteeship. The successor of such trustee shall be elected by the companies in interest, a three-fourths vote being necessary for a choice.
The said trustee hereby agrees to purchase all of the manufactured carbons belonging to said party of the first part on hand at the time of the execution hereof at the following prices, to wit :
For 7-16 and for 7-16 full by 12 inch or smaller diameters, nine dollars ($9) per thousand.
For 1-2 x 12 inch, ten dollars (§10) per thousand ; and for larger sizes, twelve dollars ($12).per thousand; and for. lengths shorter than ■one foot, three dollars (§3) per thousand. The same prices to be paid for plain and plated, and said prices include boxing and marking at the works ready for shipment.
This lease and contract is not to bind in any way either party hereto until nine other companies shall have leased and contracted with •said trustee.
It is mutually agreed "that all the agreements and. stipulations herein •contained shall apply to and bind the successors and assigns of the respective parties hereto.
The said party of the first part further agrees that when running its said works it will use its utmost endeavor to make the very best carbon goods known to the trade ; that said trustee may have the product of said works tested at such times and in such way as he may •elect, and no goods shall be shipped or removed from said works or factory without the written order of said trustee.
If, at any time, and as often as, any goods arc made at said works that arc not satisfactory to said trustee, said trustee may deduct such sums as ho may in his discretion determine from the herein
reserved or the profits accruing to said party of the first part.
The trustee further agrees as follows:
First. To run the works of said first party to March 1, 1888.
Second. In case said works are closed by the trustee, to protect the property therein from being stolen or being injured, usual wear and tear excepted.
Third. That said first party shall at all reasonable times have .access to the books relating to the trusteeship.
Fourth. That said first party may, in such manner as it may elect, mark or designate all goods made at its works, and the same shall be billed by the trustee under such mark or designation.
Fifth. The party of the first part agrees to purchase and pay therefor the property of the Brilliant Carbon Co., advertised to be sold on the 15th inst. The trustee hereby agrees to repay the money •so paid with 25 per cent, added thereto for the services of said first party, with 6 per cent, interest on purchase money until paid.
In witness whereof, etc.

Opinion:
Macomber, J.
This appeal presents questions arising -upon exceptions only, and not upon the case.
Prior to the first day of March, 1887, the plaintiff had a contract for supplying the Brush Electric Light Company of Buffalo with certain electric light carbons, as they should be required. In the month of March, 1887, the plaintiff, together with eight other companies manufacturing electric light carbons, entered into an agreement by which the business of the nine companies should be exclusively managed -and directed by one Edward C. Hawks. Between the 30th day of April, 1887, and the 27th day of June, 1887, the plaintiff furnished to the Brush Electric Light Company, -electric light carbons, in several installments, at a contract price of $1,080, which sum, at the time of the beginning of the action, was unpaid. Hawks was subsequently superseded as the manager of this trust or combination, by one D. A. Danglar, of Cleveland, Ohio. From this time to the appointment of the defendant as receiver, the combination or organization of said nine companies was known as the United Carbon Companies. In the month of June, 1887, the plaintiff notified the Brush . Electric Light Company of Buffalo that it should no longer continue its combination or relation with the other companies after the first day of July of that year, and subsequently claimed that the Brush Electric Light Company of Buffalo should pay directly to the plaintiff, and not to the trustee or agent of the several combined companies, the amount owing by it for the electric light carbons.
Payment not being made this action was brought. The defendant, McMillin, was appointed receiver of the United Carbon Companies by a court of competent jurisdiction in the State of Ohio, upon the ground that, as an organization or combination, it was insolvent, owing a large number of' debts. Such receiver also brought an action against the-Brush Electric Light Company to recover for the same cause of action stated above, whereupon the two actions were consolidated and the receiver made the defendant in place of the Brush Electric Light Company, upon the latter depositing the amount claimed against it by the present parties to-this action.
The principal argument advanced by the counsel for the .appellant, is based upon the proposition that inasmuch, as the original combination or trust of the nine manufacturing companies was an illegal combination, no action by the-receiver of such combination can be maintained to enforce any liability to it. It seems to us, however, that the plaintiff is not in a position which will enable it to assert, successfully, the invalidity of the original illegal contract, and thus-prevent the payment to the receiver of such combination of the debts justly due to it. The receiver represents, primarily, the creditors of the insolvent combination as well as. the combination itself, together with the stockholders and parties who may be interested in the payment of the debts.. He is empowered to recover the assets of the combination wherever they are to be found. In him are united all the-rights of the creditors and of the parties interested in the-combination. This combination or trust, so called, was a combination of several incorporated companies or co-partnerships, and was itself a co-partnership composed of' such companies.
Though its general purpose was unlawful under the* common law. as administered alike in Ohio and Hew York,. yet the court is not powerless, when set in motion, to interpose its hand and save whatever property there may be in the co-partnership for the protection of innocent creditors.
The plaintiff cannot take advantage of its own participation in this wrong and deny its liability to any of the creditors, to which the combination, if it had been a lawful body, would have been liable. Each company, composing the trust or consolidated co-partnership, was separately liable to all creditors of the trust for the payment of-its just debts. Any one of the creditors represented by this receiver could have maintained an action against this plaintiff, or against any other member of the concern as a co-partner, to recover whatever indebtedness the co-partnership owed to him. The creditors of the trust are not in any sense i/n pari delicto with the several contracting companies.
Under these circumstances the receiver stands in a light much more favorable than the combined co-partnership of which he was appointed receiver, for the simple reason that he is charged with the duty of distributing the assets among the lawful creditors of the concern.
The judgment should be affirmed with costs.