Court Opinion

ID: 5249981
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:10:29.460425+00
Date Added: 2024-06-11T08:27:55.776513
License: Public Domain

Woodward, J. (concurring):
The careful analysis of the evidence by the learned presiding justice makes any extended discussion of this case unnecessary; but it .occurs to me that it may be proper to consider the 12th paragraph of the certificate of incorporation made on the 12th day of January, 1912, and which counsel for the appellants suggests is “ not to be so lightly, so easily eliminated from this case,” referring to the comment of the trial court that it is of no avail. To my mind this 12th paragraph is of vital importance, not for the purpose of reversing, but for the purpose of sustaining the judgment in this case. It sets the seal of fraud upon the transaction from this date at least. This paragraph reads as follows:
“ Twelfth. It is within the contemplation of the incorporators that the directors will have occasion to take action with respect to matters in which they, or some of them, may be interested, either individually or as trustee for or representative of other persons. In the absence of actual fraud, no contract made or other action taken by the concurrent votes of a majority of the entire number of directors shall be invalid or voidable by reason of the fact that some or all of the directors are interested, nor shall any director be incapacitated from voting upon any such contract or with respect to any such action by reason of such interest.”
Can there be anything clearer than that these incorporators, the promoters of the Hudson Hotel Company, were here laying the foundations for the fraudulent transactions which might be deemed necessary in the course of the enterprise? No *329specific acts are suggested; simply broad generalities intended to relieve the directors named for the first year in the certificate of the ordinary duties, obligations and responsibilities of the office. It is a maxim of the law that “ a person intending to deceive deals in general terms ” (Broom Leg. Max. [8th Am. ed.] 289), and the same thought is expressed in that other maxim, dolus latet in generalibus. (14 Cyc. 828; Trayner Leg. Max.) In the paragraph here under consideration these promoters have sought to provide that in the “ absence of actual fraud,” as distinguished from constructive or implied fraud, they shall not be governed by the ordinary rules of law, and their transactions shall be valid, notwithstanding any contrary rules of law. And this agreement it is remembered was made at a time when it was proposed to name the particular directors for one year and to go out into the city of Albany and elsewhere and to sell the stock necessary to finance this hotel scheme. None of the prospective stockholders had any voice in this charter making; the promoters were agreeing among themselves that the affairs of this particular corporation in the absence of actual or legal fraud should be above the ordinary rules of law.
This view is not without “ reason, argument or authority,” as suggested by counsel; it has been recognized from the time “ when the memory of man runneth not to the contrary ” that “unusual clauses always excite suspicion.” (Broom Leg. Max. [8th Am. ed.] 289; Whart. L. Lex. [12th ed.] 178; 11 C. J. 831; State v. O’ Neil, 151 Mo. 67; Baldwin v. Whitcomb, 71 id. 651, 659; Girard v. St. Louis Car-Wheel Company, 46 Mo. App. 79, 97.) In the latter case, cited in Baldwin v. Whitcomb (supra), the court say: “ Whenever fraud is the matter in issue, any unusual clause in an instrument, any unusual method of transacting the business, apparently done with the view for effect, and to give the transaction an air of honesty, is of itself a badge of fraud. For 'when the part is .overacted the delusion is broken, and the fiction appears.’ * * * This has been the rule ever since Twyne’s Case, 3 Coke, 80-b.” Not only did these promoters make use of the most general language, but while apparently frankly proclaiming an intention to do things not ordinarily done they seek by this most unusual provision to give effect which the law would deny to their *330acts, and they carefully conceal this declaration in the 12th paragraph of a certificate of incorporation, which rarely comes to view except in the event of litigation. Fortified with this, they go out into the business community- and solicit subscriptions to a fund to build a hotel well knowing that they have already appropriated to themselves through manipulation of the property selected as a site a large part of the possible profits of the enterprise.
It is true of course that no covenant of immunity can be drawn that will protect a person who acts in bad faith, because such a stipulation is against public policy, and the courts will not enforce it (Industrial & General Trust, Ltd., v. Tod, 180 N. Y. 215, 225), but this only serves to emphasize the rule and to give construction to the acts of the promoters of this hotel scheme. It is not what the law will prevent their doing, but what they have attempted to do, which characterizes their acts and determines the status of the parties in an action of this character. Andrews, Ulman and Rhodes, among the defendants now claiming compensation from the cash subscribers were among the incorporators of this company and participated in the laying of this foundation of fraud, while the other claimants are so intimately associated that it is difficult to believe that they were not fully aware of the fact that they were investing their time and money, not in the interests of the corporation, but in the promotion of their own individual ends. “ The law requires the exercise of good faith, and no matter how strong the provision to shield from liability may be, there is no protection unless good faith is observed.” (Industrial & General Trust, Ltd., v. Tod, supra.)
We find, therefore, not only that the 12th paragraph is not in the way of our sustaining this judgment, but that it makes for the conclusion reached by the learned presiding justice that the transaction is so honeycombed with fraud that it would be inequitable to permit of any recovery against the plaintiffs in this action on account of alleged expenditures of time or money in behalf of the corporation. Such expenditures were clearly made in the effort to promote the fraud, not in the interests of the corporation which was used merely as a convenient cover for the fraud and which appears never to have had a legal existence entitling it to incur indebtedness.
*331For these reasons in connection with those stated by the presiding justice, I concur in the affirmance of the judgment.
Judgment unanimously affirmed, with costs.
The court makes additional findings of fact as follows:
(A) The $1,000 required by the certificate of incorporation of the hotel company was never paid in in money or in property until January, 1913.
(B) The property covered by the Kieman contract was not worth more than the amount unpaid thereon at the time that the directors of the company voted to take ‘over the contract to the knowledge of all the directors present, and their act in voting away the common stock was without consideration, was in bad faith, not for the interests of the company, but was solely in their own interest.
(C) The alleged indebtednesses referred to in the counterclaim never were just debts against the company, but were for services and payments made solely in the interest of the promoters at a time when the company could not engage in business or have any benefit therefrom.
(D) The statements in the subscription paper signed by the plaintiffs that the company had acquired the Globe Hotel site and that it was to expend any part of the common stock for the purposes mentioned in said subscription paper, were untrue and were known to be so by the directors who prepared said paper and caused it to be prepared and submitted • to the plaintiffs and the plaintiffs relied on said statements in making their subscriptions.
(E) The various actions taken by the board of directors were voted by directors who as promoters were interested in the action taken and the alleged corporate acts were intended by them to benefit themselves and the promoters rather than the company and are not valid acts of the company.