Court Opinion

ID: 5249481
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:09:02.208519+00
Date Added: 2024-06-11T08:27:55.403396
License: Public Domain

Shearn, J. (dissenting):
The effect of the judgment appealed from, although it is nominally in favor of the plaintiff, is to deny the plaintiff any relief from an obvious fraud, to which the defaulting Mexican National Packing Company, Ltd., was a party, and as result of which the plaintiff’s bond of the par value of $100,000 has been rendered practically worthless. This result has been worked out notwithstanding the finding of fact: “ That the defendant Packing Company and its president, John W. DeKay aforesaid, intending to defraud the plaintiff and any holder of said bond of and from the security *852of the said bond and to destroy the value and marketability thereof, devised a scheme or device by which the plaintiff’s bond was to be ignored in the delivery and exchange of permanent or definitive engraved bonds, and by which the plaintiff would be deprived of the benefit of the guaranty of the payment of the interest and capital of said bonds aforesaid by the Republic of Mexico; ” and notwithstanding the findings that, when the bonds, including plaintiff’s bond, were issued by the packing company, payment was secured by a mortgage covering all the property of the packing company, which was engaged in “ the operation of a rastro or slaughtering place and packing company, in the Republic of Mexico, under concessions, rights and franchises from the Mexican Government,” and that the only property which it possessed was the property in the Republic of Mexico which was' taken by the government of the Republic of Mexico when all of the bonds were guaranteed by that government with the exception of plaintiff’s bond, which the packing company and DeKay caused to be omitted from the guaranty for the express purpose of defrauding plaintiff and rendering his bond worthless. True, the proof that the Mexican government had taken over all of the packing company’s property and that there had been substituted, or attempted to be substituted, as security the guaranty of the Mexican government in the place of the packing company’s property, was slight, but it was sufficient as against the defaulting defendant packing company. Such a result should not stand if there is any lawful way to obviate it.
The trouble with the plaintiff’s case from the start has been the absence of parties without whose presence a complete determination of the controversy could not be had, namely,. the holders of the balance of the bond issue. When the case was before this court (167 App. Div. 897) on an appeal of the defendant trust company from an order granting an injunction pendente lite, restraining the trust company from delivering the definitive bonds in its possession in exchange for temporary bonds theretofore issued, the court said, Scott, J., writing for the reversal of the order: “ For some reason, not disclosed by the moving papers, the mortgagor corporation has not deposited with the trust company permanent bonds *853to be exchanged for plaintiff’s temporary receipt. The order appealed from enjoins defendant trust company from delivering to any other holder of a temporary receipt (none of whom are parties to the action) the permanent bonds to which it is apparently not denied by any one, including the plaintiff, that they are entitled. It is quite apparent that the injunction must have been granted by inadvertence. To prevent others from receiving the bonds to which they are entitled cannot be said to be in furtherance of any claim plaintiff may have that bonds be issued to him.”
When the case was tried, however, the reason was disclosed why the mortgagor corporation had not deposited with the trust company permanent bonds to be exchanged for plaintiff’s temporary receipt. The reason was that the packing company and DeKay, as found by the Special Term, had perfected a scheme to defraud the plaintiff and render his bond practically worthless by turning over to the Mexican government all the packing company’s property in exchange for a guaranty of all of the company’s bonds except the .bond of the plaintiff. Of course the Mexican government, as a matter of law, took the property subject to the lien of the mortgage and, theoretically, the plaintiff might be able, if aided by his government, to procure a foreclosure and a sale of the property to pay his bond at maturity, but, as a practical matter, it is readily apparent that there has been effected a substitution of the Mexican government’s guaranty in the place of the mortgage security, and as that guaranty doe's not inure to the benefit of the plaintiff, his bond is practically worthless. As it is impossible to require the Mexican government to guarantee plaintiff’s bond, the plain equity of the situation is that, as between the packing company and its bondholders, the plaintiff is entitled to share ratably with the other bondholders in the security of the guaranty, substituted for the mortgaged property. Certainly this is so as to any bondholders who were either parties to or had notice of the fraud. But it is equally clear that no bondholder could be required either directly or indirectly to forego any of his rights in the guaranty for the benefit of the plaintiff without having his day in court. To require the trust company to deliver to the plaintiff in exchange for his temporary bond an equal *854amount of definitive guaranteed bonds might prejudice the rights of some bona fide holder of a temporary receipt who had not yet presented the same to the trust company in exchange for the definitive guaranteed bonds to which he was entitled. Accordingly, the learned justice at Special Term was right in refusing, as the case stood, to compel the trust company to deliver such definitive guaranteed bonds to the plaintiff. But when confronted with proof of such a fraud as has been perpetrated against the plaintiff, the court should not have in effect denied the plaintiff all relief. Section 452 of the Code of Civil Procedure provides that “ Where a complete determination of the controversy cannot be had without the presence of other parties, the court must direct them to be brought in.” There are numerous authorities sustaining the right of the court, under this section, to halt the proceeding before judgment and to require the other bondholders to be brought in as defendants in the action. With all the bondholders before the court, it would have been readily possible to have rendered a judgment that would have at once given the plaintiff relief from the fraud practiced upon him and that would at the same time have been entirely fan to the holders of the definitive guaranteed bonds. In the prevailing opinion, Mr. Justice Smith lays stress upon the fact that the complaint fails to allege that any of the definitive bonds were guaranteed by the Mexican government, or that the Mexican government had taken over either the business or the property of the packing company, and that, on the contrary, the complaint alleges that the only property of which the packing company “ is possessed, is the property covered by the said mortgage given to secure the said bonds including the plaintiff’s bond, which property is situated in the Republic of Mexico.” It is accordingly held that not having pleaded these facts as ground for equitable relief, the plaintiff is not entitled to any equitable relief based thereupon, unless the complaint be amended so as to present these issues for trial, and that this court is without power to amend the pleadings here to conform to the proof. This situation is aggravated by the fact that the plaintiff had notice of this defect in the pleading when this court reversed an order granting a commission to take testimony in Mexico to establish the facts *855bearing upon the guaranty and the substitution of the guaranty for the property mortgaged, for this court based its decision upon the ground that the facts were not pertinent to the issues raised by the pleadings. But it is not necessary to turn the plaintiff out of court upon this ground, where the facts as found by the Special Term show that the plaintiff is entitled to relief. No motion was made to dismiss the complaint at the beginning of the trial and no point was made of any discrepancy between the theory of the complaint and the facts proved at the conclusion of the trial. When the evidence was received showing the guaranty, there was no objection on behalf of the packing company, for it was not represented on the trial. The evidence was objected to by the trust company, but not upon the ground that it was not within the pleadings. Now that the evidence is in the record, and has been made the basis of a finding, and no point having been made on the trial that the evidence was not within the issues, it should not be disregarded, especially where, if the point had been made on the trial, the plaintiff might have been given leave to apply at Special Term for leave to amend the complaint. Such an amendment should be made before the case is retried, and doubtless application for leave to amend will be made if it shall be finally decided that the facts warrant equitable relief in view of the fraud disclosed, and a new trial is ordered.
Therefore, I think that the judgment should be reversed and a new trial ordered, and that the plaintiff should be directed to bring in as defendants the holders of all of the outstanding bonds and holders of temporary receipts for bonds exchangeable for definitive bonds. •
The circumstances warrant further relief to the plaintiff pending such new .trial. It appears that when the temporary bonds were originally issued, they were delivered to DeKay as president of the packing company and that they were all delivered to him. It does not appear by whom the surrender was made of all such temporary bonds as were delivered to the trustee to be exchanged for the definitive guaranteed bonds, but as 628 of the guaranteed bonds are still in the possession of the trustee, uncalled for, it may well be that these 628 bonds belong to the packing company, *856to 'whom all the temporary bonds were originally issued, and that they may be withdrawn by that company before a new trial proceeds to judgment. If such should be the case, and it may be inferred from the evidence, equity should halt this fraud and refuse to permit these 628 guaranteed bonds being turned over to the packing company, or to DeKay, both of whom were parties to the fraud, or to any one on the order of either of them. This would in no respect interfere with the rights of any bona fide owner of these bonds, and it would protect the rights of the plaintiff while he is pursuing the difficult, expensive and protracted proceedings which may be necessary in order to establish definitely his rights.
. Laüghlin, J., concurred.
Judgment affirmed, with costs