Case Name: Samuel C. Reed, Resp't, v. Ezra A. Hayt, App'lt
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1888-06-05
Citations: 17 N.Y. St. Rep. 137
Docket Number: 
Parties: Samuel C. Reed, Resp’t, v. Ezra A. Hayt, App’lt.
Judges: 
Reporter: New York State Reporter
Volume: 17
Pages: 137–145

Head Matter:
Samuel C. Reed, Resp’t, v. Ezra A. Hayt, App’lt.
(Court of Appeals,
Filed June 5, 1888.)
1. Pleadings—Answer—Effect of denial coupled with affirmative ALLEGATIONS.
Where the complaint averred that the plaintiff had performed all conditions precedent of defendant’s liability and the answer “denied each and every allegation in the complaint not herein admitted,” and alleged “ that plaintiff has not duly performed all the conditions of said agreement on his part,” specifying certain things which it specifically alleged show that the conditions had not been performed, Held, that the issue was confined to the particular breaches of condition specifically referred to.
3. Parties—Non-joinder of—When recovery will not be prevented THEREBY.
In the absence of an allegation in the answer that another party (here the corporation) should have been made a defendant, the plaintiff should not be prevented from recovering unless it appears that without said additional party as a defendant, the rights of the parties to the action cannot be definitely determined.
3. Contract for sale of stock—Tender when not necessary.
Where a contract for the sale of the stock of a certain corporation provided that the shares should be placed with a certain trust company, that while there the defendant should pay as provided therein, and that when so paid for they were to he delivered to the defendant, Held, that a tender of the shares to the defendant was not necessary in addition to such deposit.
4. Corporation—Transfer of stock by a corporation to one of its officers—Satisfaction of debt a good consideration.
The plaintiff, as the president of a certain corporation, had received no salary for his services, and in addition to said services had advanced to the company considerable sums of money, Held, that the satisfaction of these debts was a good consideration for the transfer of some of its stock by the corporation to the plaintiff. Barnes v. Brown, 80 N. Y., 530, distinguished.
5. Same—Transfer of stock—What an affirmance by stockholders— Who can take advantage of invalid transfer.
The issue of said stock to the plaintiff was made at a meeting of the board of directors of said company, held without notice to all of said directors, at which meeting were present only the plaintiff and two others of said company. The three directors which included plaintiff, voted for the transfer of the stock to the plaintiff in payment of the aforesaid debt. The Stockholders and creditors of the corporation had tacitly ratified the said issue of stock. The defendant who questioned its validity in this action, did not object thereto upon learning the facts of the issuing of the stock, but thereafter took the benefit of an extension of time of performance. Held, that the defendant in effect affirmed it. That he could not object on the ground that some other stockholder might disaffirm it.
6. Same—When an action to set aside transfer must be brought in COURT OF EQUITY.
Besides the mere resolution at the meeting, the transaction had been executed, the plaintiff had received the certificate and had satisfied his demand against the company. Held, that this executed transaction could not be opened by any one except through the action of a court of equitable jurisdiction, and it would require that the plaintiff be placed in his original position.
7. Contract—What is not an abandonment by mutual consent.
After a breach by defendant, the plaintiff, at defendant’s request, gave certain options to take these shares upon the payment of the sum which was to he applied to the defendant’s indebtedness, under the present contract. None of these options were carried out. Held, that they did not show an abandonment of the contract by mutual consent.
Appeal from a judgment of the general term of the superior court of New York city, entered upon a verdict directed by the trial term, in favor of the plaintiff, subject to the opinion of the general term.
The plaintiff, the United States Ice and Eefrigerating Company of the city of New York and the defendant entered into a written contract whereby defendant agreed to buy and plaintiff agreed to sell 4,550 shares of the United States Ice and Eefrigerating Company, at ten dollars per share, payable as follows: $5,000 on August 27, 1880; $15,000 on October 1, 1880; and the remaining $25,000 prior to the 15th day of February, 1881, which $25,000 were to be held by the Central Trust Company of New York for six months, as security for the performance of the plaintiff’s covenants contained in the contract.
By said contract it was further agreed that said payments should be made to the Central Trust Company of the city of New York for account of the plaintiff, and that the plaintiff should deposit at once said 4,550 shares and the certificates therefor duly assigned in blank and the resignation of three of the directors of said company with said •Central Trust Company in trust; the said stock to be delivered to the defendant by said Central Trust Company ratably as defendant made said payments, plaintiff to keep 2,525 of said shares on deposit with said Central Trust Company until said last installment of $25,000 was paid by defendant, when said shares and the certificate therefor were to be delivered to the defendant.
Plaintiff further covenanted and agreed that the said stock should be delivered free and clear from all liabilties or incumbrances whatsoever, and if there should be any debts or liabilities owing by the said United States Ice and Refrigerating Company of the city of New York or any incumbrances on or liability against any of its patents or inventions, or if there should be any debts, liabilities or incumbrances against the said stock, or any part thereof, all such debts, liabilities and incumbrances should be paid off by the company or by him, before February 1, 1881. And it was agreed that in the event of any dispute between the parties as to any alleged debt, liability or incumbrance, a sum sufficient to fully pay the amount or amounts of any such disputed matter, with all costs that could be incurred in settling the same, should be retained by the said trust company out of the said $25,000, until the same were fully settled and discharged.
Plaintiff stipulated and covenanted that he was the lawful owner of the 4,550 shares of said stock so deposited, fully paid and unassessable.
Defendant paid on account of said contract the sum of $20,000.
The balance of $25,000 was never paid thereon.
On or about March 20, 1881, one Stearns recovered a judgment amounting altogether to $3,580.65 against the company, which plaintiff refused to pay.
, Plaintiff obtained 1,622 of said shares at a special meeting of the board of directors of said company at which said stock was allotted to him, he then being president and director and only two other directors being present at that meeting he voting for the resolution giving said stock to himself. There were but four directors of the company at the time this resolution was passed. Notice was sent to the fourth director ten days previous but' he was absent from the meeting. Three directors constituted a quorum and without plaintiff’s presence at and participation in the meeting there could have been no quorum and no meeting of the company.
Other facts are set forth in the following opinion of the court below from which the appeal is taken:
Sedgwick, Ch. J.—The propositions which have been argued, must, of necessity, be confined to the issues raised by the answer. The complaint averred that the plaintiff had performed all conditions precedent of defendant’s liability. The answer denied each and every allegation in the complaint not herein admitted. This, if left by itself, might have made an issue as to each condition precedent in the complaint. Such was not its intention, for the answer proceeds: “ That plaintiff has not duly performed all the conditions of said agreement on his part, but, on the contrary, although said agreements contained” conditions, etc., and then it enumerates certain things which it specifically alleges show that the conditions had not all been performed. The issue is thus confined to the particular breaches of conditions specifically referred to. These matters will have further attention in considering the reasons urged by the learned counsel for defendant for setting aside the verdict.
In the absence of an allegation in the answer that the corporation should have been made a defendant, the plaintiff should not be prevented from recovering, as it does not appear that without the corporation as a defendant the rights of the present parties cannot be definitely determined.
A tender of the shares was not necessary, as the contract provided that they should be placed with the trust company, and that while there the defendant should paj7 as provided.
The answer does not defend on the ground that the plaintiff had not deposited the resignations of their directors as required by the contract. It has already been shown in what manner the defendant pleaded the breaches of conditions. The answer makes no reference to this subject, but the testimony shows that plaintiff performed in this respect.
The counsel for defendant relies upon the correctness of the following propositions maintained by him:
First. That the plaintiff was not the owner of 1,622 of the 4,550 shares which he contracted to sell to the defendant; and,
Second. That these 1,622 shares were not full paid and unassessable shares.
The contract provided that “the party hereto of the first part,” that is, the plaintiff, is “ the owner of the 4,550 shares of the said stock, full paid and unassessable as aforesaid.”
The defense in the answer as to this subject-matter is that “ the plaintiff was not, and never was, the owner in good faith of about 1,622 shares of the said stock so deposited by him, and could not lawfully transfer the same to the defendant so as to create an absolute and unimpeachable title thereto in this defendant, for the reason that said shares of stock were the property of the said company, and had been (at a meeting of the board of directors of said company held without notice to all of said directors, at which meeting were present only the plaintiff and two others of said company) unlawfully voted to the plaintiff, without consideration therefor, and thereupon transferred to him in fraud of the rights of said company and of the stockholders therein.”
The proof that certificates for such shares had been issued to the plaintiff made it necessary for the defendant to show that the facts existed which would invalidate the shares in the hands of the defendant. He proved the following facts: About a year before making the contract in question, there was held a special meeting of the board of directors. Three directors, including the plaintiff, were present.
The following resolution was adopted: “That, whereas, the president,” the present plaintiff, “has filled that office since the organization of the company, in January, 1869, without the receipt of any salary, and had also advanced to the company considerable sums of money which have not been repaid to him, resolved, that all the shares of stock now remaining in the treasury, as well as all that may now be due to it, held as collateral, be and hereby is, donated and given to the said Reed; the same to be in full payment for such services and such advances as aforesaid.”
The certificate for the 1,622 shares was thereupon issued to the plaintiff, he himself signing the certificate as president. There was no proof that the shares held as collateral amounted to any particular sum; or that any such shares had been issued to the plaintiff. It was proved that one of the directors had not received notice of the intended meeting. The plaintiff testified that he had given one to a boy to be delivered to that director. He further testified that before the meeting he had advanced in money to the corporation $20,000; that he had received no compensation for his services as president, and had never claimed any, and that the offer of compensation was made by the other directors present at the meeting.
The answer, it will have been noticed, does not rest the defense upon the stock not being fully paid and being “unassessable.” Such a defense would imply that the plaintiff might be the owner, although liable to respond to the creditors on certain conditions. The defense is that the corporation was the owner of the shares, and the plaintiff was not the owner, because the transaction by which they were issued was void, or might be avoided as against the defendant who took with notice of the facts, for the reasons: 1. There was no consideration for the transfer. 2. It was invalid, because the plaintiff, being the trustee of the company, could not make a quorum, when, without him, there would be no quorum competent to transact business in the interest of himself personally; and 3. The meeting was invalid for want of notice to all the trustees.
The first position is against the fact. The consideration was the satisfaction of a debt due by the company to the plaintiff. In Barnes v. Brown (80 N. Y., 530), the plaintiff took broader ground than is occupied by the plaintiff here, and alleged that the stock which had been transferred to him “was not full paid stock, but the certificates were unlawfully issued without any consideration, for the purpose of making up stock to be delivered under the contract.”' The action was for damages for the fraud in delivering to him the stock under a contract which called for full paid capital stock. _ The complaint did not allege that the company had not issued or transferred the shares, or that the defendants were not the owners thereof. The case has some-bearing upon this appeal, because it referred to the consideration for which the company issued the certificates of shares.
The court, in the opinion, says that the plaintiff proved, by the minutes of the company, that the shares were issued, to the defendants ostensibly for moneys advanced and services rendered. Thereupon the plaintiff offered to prove that the stock was issued without any valid consideration of payment, and for the purpose of making up stock to be delivered to the plaintiff under the contract in action. It there said: “The obligation to bind the plaintiff for such stock could not be discharged by delivering to him worthless, spurious stock, wrongfully issued by the company without any consideration received therefor. It is not claimed, and could not be claimed, that the corporation or its directors could create any valid stock by issuing the same without any consideration.” “The proof, thus offered, was very material, and, if received, would have gone far towards completing the proof requisite to sustain the action.” The court did not hold that the proof given of the minutes showed that issuing of stock for moneys advanced was no consideration, but did hold that the plaintiff was entitled to show that, in fact, there was no consideration; in other words that the consideration appearing in the minutes did not exist in fact. In the present case, there was no dispute that the plaintiff had made the advances, as testified by him, and took the shares in satisfaction of that demand. The fact of the advance and that good faith were not denied, it seems to me, make the issuing of the shares the equivalent of a money subscription, offset, as it might be, by the amount due to the plaintiff. There was intrinsically no fraud upon the company, the stockholders, or creditors, for each of these was placed in a better relation to their interests in the property of the company by the plaintiff relinquishing his place or preference or creditor for a right to share after payment of debts. The first position should be held not to be valid.
As to the second position, its merits rest upon the fact that the plaintiff as a trustee could not act for the company in a transaction from which he received a benefit. This, how ever, is to be limited by further saying that his beneficiaries could, if they thought it to their interest, ratify his act, or at their option, avoid it. The company was a party to the agreement in this case, and would be held to have ratified the issuing of the certificate of the shares, if it was not that their execution of the agreement was made by the plaintiff himself. The company, as appears by the plaintiff’s testimony, forthwith went into the control of other persons, the plaintiff resigning, and the defendant taking the office of president. There was no avoidance of the issuing of the shares, and the assent and tacit ratification by the company was guided by the defendant himself.
•The other beneficiaries were stockholders. None of these have, in fact, assailed the issuing of the certificate. Whether they might do so in a proper action should be considered, in view of the fact that the defendant was to become a stockholder upon performance of the agreement. He did, upon part performance, receive some of the shares of another kind, as to which there was no dispute. At the end of nine months from the making of the contract, he learned the facts of the issuing of the stock, and after that he took the benefit of an extension of time of performance (for such substantially was the option that will be hereafter referred to) until the 7th of June. The plaintiff’s position, in the meantime, was that he could not enforce his claim against the company for the advance. This made it necessary for the defendant, as stockholder, to avoid at once the action of his trustee, the plaintiff, unless he wished to affirm the validity of the shares. No steps were taken towards disaffirmance, and he consequently, in effect, affirmed. If he did not disaffirm, there is no reason for supporting the defense, that some other stockholder might, therefore, disaffirm. Such a possibility cannot be entertained in favor of the defendant, in view of his own acts.
Similar considerations apply to the third position, that the meeting of directors was invalid for want of notice to them. Beside the mere resolution at the meeting the transaction had been executed, the plaintiff had received the certificate and had satisfied his demand against the company. This executed transaction could not be opened by any one except through the action of a court of equitable jurisdiction, and it would require that the plaintiff be placed in his original position So far as the proof of the defendant discloses, every one interested had countenanced or ratified the plaintiff’s dealing with the stock as owner with a knowledge of the facts, and the action referred to would not lie.
Another defense was that before the time for the delivery of the shares in question, the company had become indebted to Mr. Stearns in the sum of 13,000. If this indebtedness was within the intention of the agreement, it was to be provided for by being paid out of the $25,000, which the defendant was to pay, and perhaps the defendant might have in that amount reduced the recovery directed below. This was not requested by him.
There are many phrases in the contract which refer to the matter of the company’s indebtedness. It is impracticable to state them all. I will have to be content with giving my opinion that, in view of the whole contract, it did not intend that the indebtedness of the company it referred to should be a debt contracted by the company after the defendant had become its president according to the purposes of the contract.
Another defense was that the contract was abandoned by mutual consent and agreement of the parties. There was no express agreement of that kind. The facts that were relevant to the defense were, that after a breach by defendant, the plaintiff, at defendant’s request, gave in writing an option to defendant to take the shares undelivered under the contract upon payment to the Central Trust company of the money that the defendant had promised to pay by the contract. Also, at the request of defendant, the plaintiff had given a third person an option to take these shares, and another 1,000 shares, upon payment of the sum which was to be applied to the defendant’s indebtedness under the present contract. Neither of these options was carried out. The evidence showed that it was not the intention of the parties that the giving of the options should annul the present contract, but that, if money should be paid upon them, that money should go in liquidation of the amount due upon the contract, which was intended should be kept alive. In fact the option given to the defendant was nothing more than an extension of time for the purpose of his performing the contract.
The last position to be noticed is that the true measure of damages was the difference between the market value of the stock and the price named in the agreement. This implies that the plaintiff, upon breach of the contract, had taken the stock and appropriated it to himself, and did not hold it for the defendant. The facts do not show such an implication. The testimony did not prove that the plaintiff held the stock, otherwise than for the defendant.
Motion for judgment for plaintiff in the amount of the verdict granted, with costs.
N. C. Moak, for app’lt; Samuel C. Reed and E. L. Fancher for resp’t.

Opinion:
Per Curiam.
So far as the questions raised on this appeal are material, they were fully discussed by the learned court, whose judgment is complained of. 51 N. Y. Super. Ct. Rep.; 19 J. & S., 121. The appellant fails to show any -error in the steps by which the conclusion of that court was reached, and with it we fully concur.
The judgment should be affirmed.
All concur.