Welling v. Ivoroyd Manufacturing Co.

Cullen, J.: The plaintiff, as assignor of her husband, William M. Welling, sued the defendant on three causes of action: The first for goods sold and delivered, the second for salary of the plaintiff’s assignor as president of the defendant, the third for moneys expended for the defendant’s benefit. The referee reported in favor of the plaintiff on the first cause of action and for part of the claim the subject of the third cause of action, and for the defendant on the second cause of action. The defendant moved for leave to tax a bill of costs on its recovery on the second cause of action. This application was denied. Judgment was entered in favor of the plaintiff, on the report of the referee, with costs. From that judgment this appeal is taken, and the defendant gave notice of its intention to review the order denying it a bill of costs. The learned referee wrote an elaborate opinion upon his decision of the case. It deals so fully with the questions of fact involved that [118] it is unnecessary to review those questions further than to answer some criticisms on his decision made by the appellant. We think the answer of the defendant did not put in issue the sale and delivery of the goods claimed to have been sold by the plaintiff’s assignor to the defendant. The answer simply put in issue the value of the goods. The learned referee held that the written contracts under which these sales were made, and also the services rendered by the plaintiff’s assignor and the subject of the claim in the second cause of action, were invalid on account of the relation the plaintiff’s assignor bore to the defendant — that of director. He held, however, that the defendant, having received and appropriated the goods sold, was liable for their value apart from the validity of the written contract. The only evidence of the value of the goods sold, which were partly manufactured and partly in process of manufacture or raw stock, was their cost price. The contract between the parties provided that the plaintiff’s assignor should be paid for them at such price. In his opinion the referee seems to have regarded this provision as controlling. But, as he had held that contract void, we do not see how the provision as to the price to be paid could have any effect. The plaintiff was only entitled to recover the fair and reasonable value of the goods. But the cost of the goods was, undoubtedly, some evidence of their value; in fact, in this case it was the only-evidence offered on either side, and it is sufficient to uphold the finding of the referee in this respect. No error was committed -in refusing to allow the defendant to show that the goods were of less value to it than their reasonable market value. The argument of the appellant, that it should have been allowed to prove that the goods were not suitable for defendant’s purposes, or that it did not require them, is apart from any question raised by the pleadings. It did not deny that the plaintiff’s assignor sold the goods, and it did not allege any rejection. The claim 'that the defendant should have been allowed its counterclaim to the extent of $5,000, the value of the brush machine, which it is claimed the plaintiff’s assignor agreed to sell to it, is not well founded. It was not part of the plant in Welling’s factory in Centre street which he had agreed to sell to the defendant, but was then at Brooklyn' in the process of construction. The appellant asserts that it was included in the schedule part of the bill of sale subsequently [119] executed by Welling to the defendant. I can find no evidence of this fact in the case. But, assuming it to be the fact, by that bill of sale the title passed to the defendant. There is no evidence that Welling ever converted it or refused to deliver it. We can, therefore, see no ground on which this set-off or counterclaim can be sustained, though we differ from the referee in his opinion that the proof of the cost of the machine was not sufficient evidence to justify a finding of its value. The plaintiff’s assignor was a director of the defendant, a foreign corporation organized under the laws of the State of New Jersey. Shortly before the commencement of the action, he transferred to the plaintiff his claims against the defendant. The defendant, in its answer, set forth the relation the plaintiff’s assignor bore to the defendant; the assignment to the plaintiff alleged that at the time the defendant was insolvent and unable to pay its debts, and that the assignment was made to the plaintiff for the benefit of the assignor with intent to get a preference in the layment of his claims over those of other creditors of the corporation. The referee disposed of this defense on the ground that the law of this State prohibiting transfers by corporations in contemplation, of insolvency did not apply to a New Jersey corporation, and that, by the laws of New Jersey, preferential transfers were not illegal. We are inclined to the opinion that the referee erred in his determination as to the law of the State of New Jersey on this subject. The case of Montgomery v. Phillips (53 N. J. Eq. 203), a later decision than any cited by the referee, holds that a director of an insolvent corporation cannot obtain, by the action of the board of directors, a preference over other creditors of the corporation. But, however this may be, and also, however the question may be determined, whether the laws of this State affect the disposition of property of insolvent foreign corporations doing business within this State, we think that the question does not properly arise as a defense to the action. In Throop v. H. L. Co. (125 N. Y. 530) the question arose on a motion to vacate an attachment which the plaintiff had obtained in the action. It was there held that the director of a domestic corporation could not, by attachment, obtain a preference in the payment of his claim. But in that case the objection was raised by a motion to vacate the attachment, which was granted. The only [120] oilier ease on the subject, of importance, is that of Kingsley v. First Nat. Bank (31 Hun, 329), the reasoning of which is referred to with approval by the Court of Appeals in the Throop case. In the Kingsley case a director had recovered judgment against the insolvent corporation and, under an execution issued on the judgment, levied on the property of the corporation. The action was brought by the receiver of the corporation to set aside the judgment and execution as creating an illegal preference. The court held that the director had the right to bring the action, that there was no statutory restraint upon it, and that it might be necessary and proper so as to determine the existence, validity or extent of the claim of the director against the company. But it was held that he had no right to obtain a preference by the execution levy on the assets of the corporation. In accordance with this determination the judgment was allowed to stand, but the execution and levy under it were set aside. Therefore, Kingsley v. Bank is authority that the facts pleaded on this subject by the defendant do not constitute a defense to the cause of action, but that relief against an unlawful preference must be obtained in another way. Here the plaintiff obtained an attachment and, we may assume, has levied execution on her judgment upon the attached property. If the proceedings taken by the plaintiff to obtain satisfaction of her claim have resulted in an unlawful preference in favor of a director or officer of the corporation against other creditors, the defendant may proceed by a motion to vacate her attachment and to set aside the execution; or the receiver of the corporation may maintain an action to set aside such attachment and execution. But we think that the facts shown do not constitute a defense to the action. We are of opinion-that the defendant was improperly denied its costs. As to the second cause of action it obtained, not a nonsuit, but an affirmative finding in its .favor that “ judgment should be entered for the defendant upon the second cause of action set forth in the complaint,” upon the ground that “the contract or contracts with the defendant upon which the said cause of action is based were invalid.” This effectively disposed of that cause of action. No new suit upon it can ever be brought. It is, therefore, precisely such a case as is stated in the opinion of Judge O’Brien in Burns v. D., L. & W. R. R. Co. (135 N. Y. 268) entitles the [121] defendant to his costs within the provisions of the Code. In Moosbrugger v. Kaufman (7 App. Div. 380) the Appellate Division in the fourth department, by a vote of three to two, in a case substantially the same as' that now before us, held that the defendant was not entitled to costs. We look upon this decision as opposed to the doctrine of the Burns case, and while it may be that the statement of the Court of Appeals on this question was obiter and not necessary to the determination of the question before it, it certainly was related to the subject-matter and fairly jn’oceeded from its discussion. It should, therefore, be regarded as controlling authority. The case of Dougherty v. Metropolitan Life Ins. Co. (3 App. Div. 317) is not in point. There there was not a decision of the second cause of action in favor of the defendant. On the contrary, the plaintiff on that cause of action recovered three dollars. Judgment appealed from should be affirmed, with costs, except that the order appealed from should be reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs, and that such costs and the costs of the action, as they may be taxed by the defendant, be applied upon the judgment hereby affirmed, and such judgment reduced accordingly. All concurred. Judgment affirmed, with costs, except that order as to costs is reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs, and such costs and the costs of the defendant, as they may be taxed, must be applied on the judgment affirmed, and such judgment reduced accordingly.