Case Name: JACOB B. SMITH v. LUTHER LOOMIS, SAMUEL P. LYMAN, THE SOMERVILLE MANUFACTURING COMPANY ET AL.
Court: New Jersey Court of Chancery
Jurisdiction: New Jersey
Decision Date: 1845-06
Citations: 5 N.J. Eq. 60
Docket Number: 
Parties: JACOB B. SMITH v. LUTHER LOOMIS, SAMUEL P. LYMAN, THE SOMERVILLE MANUFACTURING COMPANY ET AL.
Judges: 
Reporter: New Jersey Equity Reports
Volume: 5
Pages: 60–76

Head Matter:
JACOB B. SMITH v. LUTHER LOOMIS, SAMUEL P. LYMAN, THE SOMERVILLE MANUFACTURING COMPANY ET AL.
1. A corporation being embarrassed in its circumstances, six of the stockholders, two of them being also directors, enter into an agreement that, at any sale that may be made of the property of the company, either on execution or by the directors of the company, the property shall be bought by two of the stockholders who are parties to the agreement, on the best terms possible, and that the property, when so purchased, shall be held by them in trust, half for themselves, and half for the other parties to the agreement, each party to the agreement to pay, pro ratd, for the purchase of the property, according to his interest in the same, to be thereafter declared. Two days after the making of this agreement, the two directors who are parties to it, and two other directors of the company, by an instrument executed under their individual hands and seals, convey to the two stockholders who by the said agreement were to be the purchasers, for a money consideration, acknowledged in the instrument to have been received, all the personal property of the company. On the day after this last writing was made, a judgment was confessed by the company, and a fi.fa. issued thereon, and levied on all the property of the company. A few days afterwards, in pursuance of a resolution passed by the votes of one of the directors, who is a party to the said agreement, and two other directors of the company, the president of the company executes and delivers to the two stockholders who, by the agreement, are to buy the property, a deed of all the real estate of the company, for a money consideration therein acknowledged to have been received, subject to the said confessed judgment. The two stockholders to whom all the property of the company is thus conveyed, then procure an assignment of this judgment, and cause the sheriff to advertise for sale by virtue of the execution issued thereon, all the property of the company. The answer states that it was a part of the arrangement that the consideration money for the property should be paid and applied directly on account of the company, to the creditors thereof, and that they, the two stockholders to whom the property was conveyed, should pay, out of the net earnings of the half held by them in truBt for the other parties to the arrangement, after paying the costs of completing and putting the works in operation, a further sum sufficient to satisfy the remaining debts of the company ; and that they should put the machinery in operation and make it productive as soon as circumstances would permit. A motion to dissolve an injunction issued on a bill filed by a subsequent judgment creditor, restraining the sale on the said execution, was denied.
2. In general, an injunction will not be dissolved unless all the defendants implicated in the charge have answered.
3. The substance of a charge must be admitted or denied ; a mere literal answer is insufficient.
4. Where a matter is charged in the bill which must, if true, be within the knowledge of the defendant, the substance of the charge should be answered directly, not evasively, nor by way of negative pregnant.
5. Where the circumstances charged are suspicious, or have the appearance of collusion and fraud, a defendant will be held to strict rule in answering.
The bill states the incorporation of the Somerville Manufaoturing Company, in March, 1837; the capital stock not to exceed $250,000, in shares of $100 each; five directors, being stockholders, to be elected when 500 shares should be subscribed for, to bold their offices for one year, and until others should be elected ; the directors to choose a president out of their own number when $40,000 should be paid in. That Henry Ibbotson owns, or pretends to own, 396 shares, Francis P. Schoals 288 shares; that Lather Loomis has standing in his name 40 shares; that Robert Van Renselaer claims 90 shares, Jared N. Stebbins 70 shares, and William Packer one share ; that other shares must be out, but in whose hands the complainant is ignorant, and has no meaus of ascertaining. That the first election for directors took place February 1st, 1839, and that other elections have been held from time to time, and that John I. Gaston, Robert Van Renselaer, Jared N. Stebbins, William Packer and Henry Ibbotson are now, or were lately, directors, and were elected on the 29th of March, 1842. That in the fall of 1839 the company commenced preparations, to erect buildings; and that they have obtained the title to about three acres of land, and erected thereon a stone factory 100 feet long and 36 wide, and three stories high, a stone foundry and stone machine shop, at a cost, with wheels, castings and gearings, of upwards of $10,000; and have purchased a valuable patent right for manufacturing screws, and costly machinery, at an expense of upwards of $150,000; all which property, real and personal, except about $5000, was in the possession of the company aud owned by them, till about October 15th, 1842, when it was taken possession of by Luther Loomis and Samuel P. Lyman, under a pretended conveyance and bill of sale to them by the company, or some of the directors thereof. That the complainant sued the company at the term of June, 1843, of the Circuit Court of Somerset, and recovered judgment against them for $840.81 debt, and $32.10 costs, and caused execution to be issued against the goods and lands of the company, and placed in the hands of the sheriff of Somerset, on the 29th of August, 1843, by virtue of which the sheriff levied on all the real and personal estate above mentioned, as belonging to the company, subject to all prior legal claims.
That previous to the completion of the said improvements the company became embarrassed, and Loomis and Lyman, being aware of it, and desiring to get possession and control of the works, in August or September, 1842, made a proposal to Ibbotson and to some persons unknown to the complainant, that if they would sell to them, Loomis and Lyman, the property of the company for a nominal value, or allow them to become the purchasers thereof at a public sale, they would hold the property in trust, one-half for themselves, Loomis and Lyman, and the other half for the individuals to whom said offer was made.
That Gaston, Stebbins, Van Renselaer and Packer, in violation of their trust as directors, did, without any resolution of the board of directors, and without any meeting of the board for the purpose, and to defraud the complainant and other creditors of the company, and a portion of the stockholders of the company, on or about the 3d of October, 1842, fraudulently, by articles of that date, made and executed between the said John I. Gaston, Stebbins, Van Renselaer and Packer, of the first part, and Luther Loomis and Samuel P. Lyman, of the second part, on a pretended consideration of $3000, acknowledged in said articles to have been received by the said parties of the first part in behalf of said company, sell and transfer to Loomis and Lyman the said letters patent and all the personal property of the company ; and that thereupon, Gaston, Stebbins, Van Renselaer and Packer, or some of them, delivered the said property to Loomis and Lyman, who are now in the wrongful possession thereof as the pretended owners. That said sale was made without any authority, and in violation of their duty as directors, on a mere pretended consideration, which Loomis and Lyman never paid or secured a cent of; and that it was the understanding between the parties that they were not to pay any part of it, but that they should hold the property in trust, one-half for themselves, and the other half for the said parties of the first part, and some other individuals connected with them in the attempt to get the property out of the control of the said “ The Somerville Manufacturing Company,” without paying any consideration for it. That., in pursuance of this design, at an irregular meeting of some of the directors at the Merchants’ Hotel, New York, on the 15th of October, 1842, at which meeting were present Gaston, Van Renselaer, Packer, and Henry Ibbotson, it was resolved, by the votes of Gaston, Van Renselaer, and Packer, that all the real estate of the company should be conveyed to the said Loomis and Lyman ; and Gaston was, by the said resolution, directed, as president, to execute a deed thereof accordingly; which said resolution was voted for by all the said directors present, except Ibbotson, who protested against it as a fraud on the creditors and stockholders, and a violation of the trust reposed in them as directors, and because all the directors had not been notified of the meeting, and were not all present. The bill charges that said meeting was not a lawful meeting of the board of directors, and was incapable of doing any valid corporate act; that no sum was stated in the resolution as a consideration, but that it was stated in the resolution that the conveyance should be made according to the terms of the arrangement theretofore made with Loomis and Lyman • but the complainant charges that no terms of arrangement had ever been made between said directors and Loomis and Lyman, but that the terms there referred to were the same terms before stated to have been proposed by Loomis and Lyman to Ibbotson and other persons unknown to complainant. That, in consequence of said pretended resolution, and without any other authority, Gaston, as president of the company, made, executed, and delivered to Loomis and Lyman a deed for all the real estate of the company, dated October 18th, 1842, and acknowledged the same day. That no money was paid or secured, or intended to be ; but that the conveyance was made to, and that the estate thereby granted is now held by Loomis and Lyman, under some understanding between them and Gaston, Van Renselaer, Stebbins, and Packer, or some of them, that the property shall be held in trust for them, and for their benefit, and without any agreement, understanding, or . intention that the company or its creditors, is or are ever to be paid anything for the property, or on account of their debts.
That, at a meeting of only three of the directors, on the 4th of October, 1842, at which Gaston, Packer, and Stebbins were present, it was resolved, under pretence of securing money to be loaned by Joshua Doughty to the company, that Gaston, the president, should execute a bond to Doughty, conditioned for the payment of $1176, to be loaned by Doughty to the company; to pay Gaston $860, which he pretended he had loaned to the company, and to pay two notes said to have been given to Packer, and $100 of sundry small debts pretended to be owing by the company ; and a warrant of attorney to confess judgment on said bond. That Gaston, by virtue of said resolution of a mere quorum, passed by the votes of Gaston and Packer, the persons to be benefited by the judgment, did execute such bond and warrant, and that, on the same day, judgment was entered thereon, in favor of Doughty against the company. That Doughty had not, nor has he since, paid a cent to the company, or to any other person for them, but that, to give some color to the transaction, and as a pretext for the affidavit of indebtedness he was obliged to make, Doughty, when the bond and warrant were delivered to him, made his note to the company for $1076, dated the same day, and delivered it to Gaston, and immediately after making his affidavit, received back the note, and destroyed it, or put it in his pocket, remarking that he was not going to have that note out against him, or words to that effect. That the company were not then indebted to Gaston in any way, but that Gaston was then largely indebted to the company ; that he was a subscriber for one hundred shares of the stock of the company, the par value of which was $10,000; that the whole par value had been called in, and that he had only paid in on said stock from $500 to $800; that the obtaining the said judgment was a contrivance'of his, to get back the money he had paid on the stock subscribed for by him ; that, notwithstanding Loomis and Lyman were informed of all. the circumstances under which the said judgment was confessed, and knew it was fraudulent, and Lyman admitted it was so, and that it ought to be set aside, yet that Loomis and Lyman procured an assignment of it to them from Doughty. That a ji. fa. has been issued on said judgment, and that the sheriff of Somerset, by virtue thereof, has levied on all the real estate of the company, and also on all the personal property of the company now in the possession of’said Loomis and Lyman, as hereinbefore stated, and has advertised the same for sale on the 9th of September, 1844.
The bill charges not only that the said sales of all the real and personal property of the company to Loomis and Lyman are fraudulent and in breach of trust, but that the said directors had no authority to sell all the real and personal estate of the company, or so much thereof as to prevent, the company from carrying on the business for which it was incorporated. That all the property of the company is included in the said transfers to Loomis and Lyman, and that if the said transfers are to prevail as valid, the complainant must lose the whole of his judgment. The bill then states several judgments obtained against the company ; one by the State Bank at Elizabeth, October 4th, 1842, for §672:21; one by Henry Ibbotson, October 24th, 1842, for §595; one by Ovriek, Grubbs and Parker, November 8th, 1842, for §345; one by B. Hunt, June 20th, 1843, for $387; on which three last-mentioned judgments executions were issued to the sheriff' of Somerset.
The bill charges an arrangement between Gaston, Van Renselaer, Stebbins, Packer, Loomis and Lyman, and Doughty, or some of them, that the said property so advertised to be sold as the property of the company, by virtue of the Doughty execution, should, at the sale, be bought by Loomis and Lyman in trust, and under the agreement and arrangement under which, as before stated, the conveyance of the property was made to them ; that they, knowing the conveyance to be fraudulent and void, have contrived this method of having the property sold by virtue of the judgment and execution of Doughty, themselves to become the purchasers, well knowing that no person will bid for the property while they set up a claim as owners thereof, by virtue of a conveyance prior in point of time to the said judgment ; all which the complainant charges as fraudulent — as being an attempt to purchase what they already claim to be their own property, at their own sale. That Loomis and Ly man, in preparing their plan, have already publicly declared that they are the owners of the property, and that no purchaser at the sheriff’s sale can reap any benefit from his purchase.
The Somerville Manufacturing Company, John I. Gaston, Robert Van Renselaer, Jared N. Stebbins, William Packer, Luther Loomis, Samuel P. Lyman, Henry Ibbotson, Francis P. Schoals, Joshua Doughty, and the other judgment creditors, and David T. Talmage, sheriff, are made defendants. The prayer of the bill is, that the bill of sale of the personal' estate, and the conveyance of the real estate, to Loomis and Lyman, may be set aside ; that all the property of the company received or obtained by Loomis and Lyman by virtue of the said pretended purchase, be given up to the company, for the benefit of the company and its creditors; that Loomis and Lyman may be charged with the rents, issues and profits of the property, and for the use and occupation thereof, and may be decreed to pay the same to the company, for the benefit of the creditors of the company, or may be decreed to pay the complainant the amount of his said judgment against the company • that the trusts under the said act of incorporation may be carried into execution that the judgment and execution in favor of Doughty may be declared fraudulent and void as against the company, or as against the complainant’s said judgment; and that Doughty, Loomis and Lyman, and the sheriff, may be enjoined from all further proceedings on the judgment and execution in favor of Doughty, against the company.
An injunction was granted, according to the prayer of the bill.
The defendants Luther Loomis and Samuel P. Lyman, and the defendant Joshua Doughty, have answered; the other defendants have not answered. The answer of Loomis and Lyman is of great length and particularity, but as the contents and character of the auswers appear sufficiently in the opinion of the court, an abstract of them is not here given. .
The cause was heard on a motion to dissolve the injunction.
S. P. Lyman and G. D. Wall, for the motion.
B. Williamson and Reading, contra.

Opinion:
The Chancellor.
On the 1st of March, 1837, "The Somerville Manufacturing Company " was incorporated. The charter provides for the election of five directors, who should be stockholders, and should hold their office for one year and till others should be elected, and that the directors should choose a president out of their own number. On the 29th of March, 1842, John I. Gaston, Robert Van Renselaer, Jared Is. Stebbins, William Packer and Henry Ibbotson were elected directors, and no others have been since elected directors. The company obtained the title to about three acres of land, and erected buildings thereon, at a cost, with wheels, castings and gearings, of upwards of ten thousand dollars, as charged in the bill, of upwards of five thousand dollars, as stated in the answer of Loomis and Lyman, two of the defendants; and bought certain patent rights and a quantity of machinery, at an expense of $150,000, paid for in stock of the company; which property was in the possession of the company in September, 1842. On or about the first of October, 1842, Van Renselaer and Stebbins, two of the directors, and Loomis and Lyman, and two other stockholders, entered into an agreement in writing, dated October 3d, 1842, purporting to be a memorandum of an agreement between Loomis and Lyman, two of the stockholders, of the one part, and the said Stebbins, Ibbotson, Van Renselaer, and two other stockholders, of the other part, to be binding on those only of the said persons named who should sign it, reciting that the affairs of the company had been long so embarrassed that its property could not be made productive, and must be sold to meet its liabilities ; that the parties to the memorandum are holders of a large amount of the stock of the company, and have expended large sums to make its property productive ; that it had become necessary that further sums be expended to save what had been laid out from total loss; that it was the intention of the parties to the memorandum to afford an opportunity to other parties who claim to have an equitable interest in the property, if they should wish to protect such interest, to make advances, pro rata, Which should be equal to the expenditures made by the parties named in said memorandum, in order that they, on making such advances, might share with the parties named in the memorandum, in the benefits or disadvantages to accrue from what had been undertaken by the parties named in the memorandum; and providing that it was therefore agreed by and between the parties to the memorandum as follows :
1st. At any sale of said property which might take place under any execution or decree against it, or at a private sale, assignment or transfer by the managers of the company, the said property of every description, should be bought by Loomis and Lyman, for the parties who should subscribe the memorandum, at the lowest price and on the most advantageous terms possible, provided the price of the whole of the property should not exceed the sum which Loomis and Lyman might be willing and ready to pay for the same; which property, when purchased, should be held by them for the benefit of the said Loomis and Lyman, and the others who should become parties to the memorandum by signing their names thereto, in the following proportions, viz., Loomis and Lyman should have six-twelfths, and the other parties thereto also six-twelfths; that each one should pay, pro ratá, for the purchase of the property, according to his respective interest in the same, to be thereafter declared.
2d. That immediately after the execution of the memorandum, the parties should proceed to inventory all the effects of the company, and have the same appraised by competent and disinterested persons, so that the value thereof might be known to the parties.
3d. That as soon as the property and effects could be obtained, and the title thereto perfected, for the benefit of the parties to the memorandum, a lease for the requisite water-power should be obtained from the Somerville Water-power Company, on the usual terms, at the rate of four dollars per annum for each square inch.
4th. That the title to the property, under, the sale contemplated, should be acquired as soon as the same could be done consistent with the interest of the said parties, and without doing violence to the rights of others.-
5th. That simultaneously with the steps therein agreed to be taken,, steps should be taken to clean up and put in order all the machinery and effects of the company, and prepare the same for use, as soon as the circumstances should permit.
6th. That, as soon as said purchases should be made, and the value of the same ascertained, articles of agreement more full, and defining the rights of the parties more particularly, should be made out and entered into between the parties, but that, until then, the said memorandum should be binding.
This memorandum was, or purported to be signed by or in behalf of the directors and stockholders among whom the arrangement was concluded on, except Ibbotson, a director and stockholder, who, it appears, refused to sign it.
On the 3d of October, 1842, another writing was made, the substance of which is as follows : " Agreement made, &e., October 3d, 1842, between J. N. Stebbins, Henry Ibbotson, Robert Van Renselaer, William Packer, and John I. Gaston, managers or directors of the Somerville Manufacturing Company, duly elected under the charter of the said company, of the first part, and Luther Loomis and Samuel P. Lyman, of the second part, witnesseth, that the party of the first part, for $3000 in hand paid by the parties of the second part, the receipt whereof is acknowledged in behalf of the company, have sold, &c., all and singular the letters patent, &c., and all and singular the right, title, and interest of the company, and of the parties of the first part, in the property and effects of the company described in a deed, a copy of which is annexed to said agreement, consisting of machinery, &e., chattels, and effects, of whatever name or nature, belonging to the company, to have and to hold to the said Luther Loomis and Samuel P. Lyman, free and clear of all encumbrances whatever. Given under the hands and seals of the parties of the first part, the day and year first above written, and to take effect as soon as a majority of the above named persons have hereunto subscribed their respective names." This writing is executed under the individual hands and seals of four of the five persons therein named, as parties thereto of the first part. Ibbotson, the other person named as of the first part, did not execute it.
The deed annexed to the said writing, and referred to in it, is a deed from the Poughkeepsie Screw Manufacturing Company to the Somerville Manufacturing Company, of certain patents and machinery, stsam engines, materials, lathes, tools, and chattels.
On or before the date of the said writing under the hands and seals of the said Van Renselaer, Stebbius, Packer, and Gaston, the property and effects mentioned .therein were delivered by them, or some or one of them, to Loomis and Lyman ; and they, in their answer, claim to hold the same under that writing. The bill charges that no part of the consideration mentioned in said agreement was ever paid by Loomis and Lyman, or secured in any way, and that it was the understanding between the parties to the said writing, that they were not to pay any part of it, but that they should hold the property in trust, one-half for themselves, and one-half for the said parties of the first part and some other individuals connected with them.
On the 4th of October, 1842, a judgment was confessed, or entered by way of confession, against the company, in favor of Joshua Doughty, for $1176, and a fi. fa. was issued thereon and levied on all the property of the company, real and personal. On the same day a judgment was confessed against the company to the State Bank at Elizabeth, for $672.21.
On the 15th of October, 1842, at a meeting of some of the directors, in the city of New York, at which meeting Gaston, Van Renselaer, Packer, and Ibbotson were present, it was resolved, by the votes of Gaston, Van Renselaer, and Packer, that all the real estate of the company be conveyed to Loomis and Lyman, and that Gaston, the president, execute a deed thereof; Ibbojson protesting against said resolution ; and Gaston, on or about the 18th of October, 1842, executed, acknowledged, and delivered to Loomis and Lyman a deed for all the real estate of the company, for a consideration therein mentioned, of $3000, the receipt whereof is, in the deed, acknowledged, subject to two certain liens by judgment and execution against the company— one in favor of Joshua Doughty, and one in favor of the State Bank at Elizabeth.
The bill charges that, though $3000 was mentioned in said deed as the consideration, yet that no money was paid or secured, or intended to be; but that the conveyance was made to, and the estate thereby granted is now held by Loomis and Lyman, under some understanding between them and Gaston, Van Renselaer, Stebbins, and Packer, or some of them, that the said property shall be held in trust for them and for their benefit, and without any agreement, understanding or intention that the company is ever to be paid anything for the property, or its creditors anything o« account of their debts.
The bill states particularly the circumstances by reason of which the complainant insists that the judgment confessed bv the company to Doughty, and assigned by him to Loomis ana Lyman, is fraudulent; and the answers of Loomis and Lyman and Doughty give their account of that judgment, and claim that it is good. But as the conclusion I have come to on the present motion to dissolve the injunction, is not founded on the validity or invalidity of that judgment, I have not thought fit to state fully the facts in reference to it. The decision to be made on this motion, is founded on the account given in the answer of Loomis and Lyman of the circumstances under which they claim to bo the owners of all the property of the company, and on the manner in which the answer gives that account, and on the nature of the arrangement made in reference to the property by and between the parties to the memorandum before alluded to. [The Chancellor here stated the charges in the bill as to the nature of the arrangement.]
Let us see what answer Loomis and Lyman give to these charges. They admit that previous to the completion of their improvements, the company became embarrassed, &c., but deny that they, these defendants, " being aware, &c., (as in the bill,) and being desirous, &c., (as in the bill,) and supposing, &c., (as in the bill,) would hold said property in trust, the one-half for themselves, and the other half for the other individuals to whom the said offer was made," following literally the language of the bill, and departing from the well-settled rule of answering, that the substanee of a charge must be answered or denied, and that a mere literal answer is insufficient; a departure which occurs in several portions of the answer. They proceed to say that the equitable interest they held in the property of the company, was equal to the value of half the said property, as it was then situated. They then state that the company was embarrassed and had no water power, nor lease for any, nor any power to propel machinery, and was largely indebted for work and materials; that the efforts which had been made to carry into effect the objects of the charter had entirely ceased, and the property was going to ruin; that the company had no property or means whatever, except the property aforesaid, to pay its debts, or complete the buildings, or obtain water, or put the works in operation ; that though other names appear on the books as stockholders, yet that, in fact and in equity, the interest in the property of the company belonged to them,Loomis and Lyman, and Van Eenselaer and the said two other stockholders, not naming Ibbotson,and that all other parties nominally interested in the company, except Stebbins, who acted as agent of the company, had long since, to all intents and purposes, abandoned it and neglected and refused to do anything-, or make advances for completing the building, or procuring water power, or putting the works in operation, or paying for what had already been done towards either of these objects. That they have no knowledge, information or belief that any of the nominal or pretended stockholders, except the parties last above mentioned, ever paid one cent for or on account of the company since it was chartered, organized and established at Somerville, towards any of the objects aforesaid; that they, Loomis and Lyman, Ibbotson,Stebbins, Van Renselaer and the said two other stockholders, the parties, as they say, interested in and claiming to be the owners, in fact and in equity, of the whole of the stock and property of the company as aforesaid, on the 1st of October, 1842, concluded a general arrangement for the purpose of paying the debts then owing by the company, for the purpose of procuring a water power, and for the purpose of completing the buildings and machinery and putting the same in operation, and rendering its effects valuable to those who were the owners thereof, after a full consultation among themselves, and with those who were the creditors of said company. [How is it that the word " the," before " creditors," is introduced in the last sentence; it is a word of great force in the connection in which it stands, and if they mean to say only " with creditors of the company," who were those creditors?]
They further say that as part of the arrangement, it was agreed by the parties aforesaid, that the $3000 consideration money should be paid and applied directly on account of the company to the creditors thereof, and that they should pay, out of the net earnings of the six-twelfths so held by them in trust for said Stebbins, Van Renselaer and others concerned in said arrangement, after paying the costs of completing and putting the works in operation, a further sum sufficient to pay off and satisfy the remaining debts of the company, and that they, Loomis and Lyman, should put the machinery in operation and make it productive as soon as circumstances would permit; that pursuant to said arrangement and the conveyances and agreements aforesaid, the property was delivered to them, and they took possession thereof on the 1st of October, 1842, and have held it ever, since.
They then say that in pursuance of said arrangements they have expended, in putting up the buildings, procuring waterpower and putting the machinery in operation, upwards of $12,000; that at the time they bought the property and made the agreements and arrangements aforesaid, situated as it was, and without the right to a water-power, had it been sold under execution, or at any absolute sale, unaccompanied with any arrangement for fitting it up and using it in connection with water-power, the property would not have brought enough to pay the debts of the company ; and that they knew of no other arrangement which it was in their power to make, whereby so much could be realized, either for the creditors or the stockholders, as by the arrangement and agreement set forth. They deny that the consideration of $3000 was a pretended consideration, and that it was the understanding that they were not to ¡ray it; but aver that the said consideration was bona fide, and that it was expressly agreed that these defendants should pay the same and every part thereof, " as in said answer before set forth."
It is not alleged in any previous or subsequent part of the answer that they ever paid, or secured, or promised or intended to pay the consideration, or any part of it, in the way consideration money is usually paid or secured ; and yet the frame of this clause of the answer looks very much as if they would have it understood as an averment that they were to pay tne consideration in the usual way.
They then go on and aver that the prominent objects the managers had in view were, to realize sufficient to pay the debts of the company, to put the works in operation, and to save the property from the sacrifices which, they say, would have been unavoidably made without the arrangement which they did make, " as herein before set forth." How these two last prominent objects might be promoted by the arrangement, we may in some measure comprehend; but how the other object stated as prominent, that of realizing sufficient to pay the debts of the company, was to be attained by the arrangement, it is difficult to perceive. It is easy to see that there is nothing in all this opposed to the truth of the charge in the bill, that no part of the said consideration money was ever paid or secured to the company, or intended to be, and that no part of it has been or was intended to be paid to the creditors of the company.
There is one part of the answer which seems to approach very nearly to an answer to the charge; but on close examination, it will be found to break the promise to the hope. It is that part which says, " That as part of the arrangement aforesaid, it- was agreed by the parties aforesaid, that the said $3000, the consideration for the' sale of the said property, mentioned and set forth in the said agreement, and acknowledged to have been received from the said defendants by the managers, should be paid and applied directly on account of the said company to the creditors; and it was also agreed that the said defendants should pay, out of the net earnings of the said six-twelfths so held in trust by them as aforesaid for the said Van Renselaer, Stebbins, &c., (naming the others interested in the arrangement,) after paying the costs of completing and putting the same in operation, a further sum sufficient to pay off and satisfy the remaining debts owing by the company; and it was also agreed that the said defendants should put the said machinery into operation and make the same productive as soon as circumstances would permit."
It is evident that these defendants felt the force of the charge and the importance of giving it an answer. Is the answer such as should be satisfactory to the court? I think not. Was the consideration money, or any part of it, paid ? If it had been, it would no doubt have been so stated in the answer; for they have thought itnworth their while to say "that it was acknowledged (that is, in the deed) to have been received from them by the managers." Was it secured to be paid ? If so, was any time fixed for its payment? To whom was it to be paid? No answer is given to any of these inquiries. But it is said it was agreed by the parties to the arrangement — themselves being parties to it — that it should be paid. How, and to whom ? The answer says it was agreed that it should be paid and applied directly on account of said company to the creditors. By whom was it to be so paid and applied ? By themselves ? The answer does not say so. Was it to be to any particular creditor, or to all the creditors pro raid ? Again, how was it agreed to be paid. What evidence is there of an agreement to pay ? No such agreement appears in any of the writings. The memorandum says that the property, when purchased by them, shall be held by them for their benefit and that of the other parties to the memorandum, half for them and half for the others, and that each should pay, pro raid, for the purchase of the property, according to his respective interest in the same, to be thereafter declared. To whom was each to pay his share? The answer says it was agreed that the consideration money should be paid and applied directly to the creditors. Are these defendants, Loomis and Lyman, or any or either of the parties to the memorandum, personally liable to the creditors, or any of them ? The title of the property is to be taken out of the company, no part of the purchase money is to be paid to the company, the property is to be removed from the reach of the creditors, and, at the same time, the parties to the memorandum are not to be personally liable to any creditor. If this is not the arrangement, the company, or those who acted for it, should have put in their answer to show the court what it was. Indeed, it is an objection to the dissolution of the injunction, that the company, or those who acted for it, have not answered, for, certainly, the gravamen of the bill rests partly on them. If this is the arrangement, it cannot receive the sanction of this court.
There is another rule for answering, which, as it seems to me, has been departed from in this answer. It is this: Where a matter is charged in the bill which must, if true, be within the knowledge of the defendant, the substance of the charge should be answered directly, not evasively, nor by way of negative pregnant. And I must be permitted to add, that where the circumstances charged are suspicious, or have the appearance of collusion and fraud, a defendant must be held to strict, rule in answering.
There is one view of the subject, on which, if it be the true view, it might be thought the injunction should be dissolved. I am not satisfied that the instrument transferring, or purporting to transfer the personal property of the company, executed under the hands and seals of four of the directors, and the resolutions mentioned in the answer, as afterwards made by the managers, or some of them, approving the transfer, are sufficient to transfer the property j and, if the personal property still belongs to the company, it may be asked, why not dissolve the injunction as to the personal property, and let the execution at law sell it as the property of the company ? The answer is, the party moving for the dissolution do not ask it on that ground. They claim the property as theirs. It may be said that the .sale enjoined was a sale about to be made on a judgment at law assigned to Loomis and Lyman. The answer is, if they acquired the title to the property, and then bought a judgment at law which was a lien on the property, they relieve the property from the lien of the judgment. It would be a singular proceeding to sell their own property to pay a judgment of which they had procured an assignment to themselves. If the property is theirs already, they cannot be injured by an injunction against selling it under the judgment; and if they claim the property as theirs, and as not subject to the judgment, is it likely that any person besides themselves would be willing to bid for the property and pay its value, at a sale under that judgment, and take their chance of recovering it or its value from Loomis and Lyman, in opposition to their assertion and claim of title in them prior to the judgment? This renders it unnecessary for me to look, at this time, into the transaction in reference to the Doughty judgment.
In my view of the case, as it stands upon the bill and answer, the injunction should be retained till the hearing of the case on the proofs.
Motion denied.
Cited m Vreeland v. N. J. Stone Co., 10 C. E. Gr. 143.