Holmes & Griggs Manuf'g Co. v. Holmes & Wessel Metal Co.

Van Brunt, P. J. This is an action on a promissory note bearing date December, 1884, for $2,500, made by the defendant, the Holmes & Wessel Metal Company, payable to the order of Frederick Shonnard, one of the defendants, and indorsed by the defendants Shonnard, Morse, and Wessel, and delivered to the plaintiff. The defenses were ultra vires, failure of or no ■consideration, and non-tender of certain stock for the purchase price of which the note in suit was given. The case was tried before a referee, and upon his report a judgment was entered in favor of the plaintiff, from which this appeal is taken. In view of the rule of law applicable to the facts developed upon the trial it may be entirely unnecessary to recite many of the facts found by the referee, but it may be best to do so in order that the whole transaction may be ■understandingly set forth. The plaintiff was organized in July, 1869, under the manufacturing act of 1848; the objects of the corporation being the manufacture and sale of sheet and roll brass, wire, and other articles composed wholly or in part of metal. In July, 1881, one Holmes, the president, and •one Edwards, the secretary, of the plaintiff entered into an agreement with the defendants Morse, Shonnard, and Wessel, by which they agreed to organize a new company under the manufacturing act, to be known as the Holmes & Wessel Metal Company, with a capital stock of $100,000, three-fourths thereof to be subscribed and paid for by said Holmes and Edwards, and the remaining one-fourth by the other parties to the agreement. The agreement further provided that the new company should buy from the plaintiff its plant at the price of $50,000. In pursuance of this agreement the parties signed •and acknowledged the certificate incorporating the Holmes & Wessel Metal Company, which certificate was duly filed, and in which were named the said Holmes, Edwards, Shonnard, and Wessel as trustees. On the 20th of July, 1881, a meeting of the plaintiff’s stockholders was had, at which a resolution was adopted authorizing the sale of the plant for $50,000, and also authorizing a sale of all the stock and material owned by the plaintiff at certain prices ■amounting to about $31,000. The further resolution was adopted authorizing the president and secretary to subscribe for 3,000 shares of the capital .stock of the Holmes & Wessel Company, and to pay for the same out of the proceeds of the sale of the plant and materials of the plaintiff company, and to hold the same as trustees, or to transfer the same directly to the plaintiff. The first meeting of the stockholders of the defendant company was held on [938] July 23, 1881, at which meeting all of its capital stock was subscribed for, and a resolution was adopted authorizing the purchase from the plaintiff of its plant, machinery, and stock of metal at the price of $81,333.96. The stock of the defendant company was issued to the respective parties as subscribed for by them. Heither Holmes nor Edwards paid any cash for the stock subscribed for by them, but the stock subscribed for by Shonnard, Wessel, and Morse was paid for in cash. On the 1st of September, 1881, the plaintiff company transferred to the defendant company its entire plant and machinery, etc., at the agreed price. Seventy-five thousand dollars of that amount was in payment of stock subscribed for in the names of Holmes & Edwards, and the balance, $6,333.96, was paid in cash by the defendant company. After the transfer of its plant the plaintiff discontinuedpts business, and has not carried on the same since that time. The note in suit was made in pursuance of an agreement dated December 1,1884, executed by the plaintiff and the defendants Morse, Shonnard, and one Charles Wessel. In that agreement the plaintiff agrees to sell to the other parties thereto 1,440 shares of the stock of the defendant company standing on the books of said company in the name of Edwards as trustee, for the sum of $30,000, payable $5,000 in cash on signing the agreement, and the balance by certain promissory notes, of which the note in suit is one, being a note given by the defendant company, and indorsed by Shonnard and others. The agreement provided that the stock should remain in the name of Edwards or some other officer of the plaintiff as trustee, and might be voted on by him until delivered; also that the stock should be delivered as follows: On payment of notes 1 and 2, $6,000-of the par value thereof, and, as each of said other notes was paid at maturity, $2,500 to the maker thereof, except that for the notes of said defendant company the stock was to be delivered to said Shonnard. Hone of the stock represented by the note in suit, which was a note made by the defendant company, and indorsed by the individual defendants, has been delivered, and none of it has been tendered, although the plaintiff has been ready and willing to deliver the stock called for by the contract under which the notes were given at the maturity of the notes, and at all times since upon the payment of the notes. There were various other provisions in the agreement in regard to the election of trustees and the salaries of the officers, etc. Upon this state of facts the defendant claimed that the plaintiff, being a domestic manufacturing corporation, could not acquire any ownership in or title to the stock either by original subscription in its own name or in the name of its officers assuming to act as trustees, and in considering this proposition it is conceded that the plaintiff company was the real owner of this stock, and the persons in whose name the stock stood were simply acting as its trustees. And the case is to be determined upon the assumption that the plaintiff was the real owner of the stock, and that the stock was being held for it. Our attention has been called to numerous authorities going to show that the acquirement of this stock was contrary to law, and therefore void. Conceding that the plaintiff corporation was prohibited by its charter from entering into such an arrangement, or dealing in such securities as the stock of the defendant company, the validity of that transaction is not the subject of investigation in this action. If the plaintiff company has violated its charter by this transaction, upon a proper action brought by the people its franchise may be forfeited, the corporation dissolved, and its business wound up. But the action now before the court is not upon any illegal contract which the plaintiff company has made for the purpose of acquiring the stock of the defendant corporation, but is to recover upon a promissory note given in payment of stock the title to which was vested in the plaintiff. That this is the true situation is distinctly held by the court of appeals in the case of Sistare v. Best, 88 N. Y. 527. In that case the plaintiff was employed as a broker to sell certain stock, the title to which the bank of which the defendant was re [939] eeiver had acquired in violation of the provisions of its charter, and the plaintiff was held entitled to recover, because in accepting the employment he was not bound to inquire in respect to the title of the bank to the stock. In that case it was held that, although the transaction by which the bank acquired possession of the stock in question was in violation of its charter, the title of the stock was vested in the bank as pledgee, and that it was not void, but at most was voidable only. Whether under such circumstances the pledgeors could reclaim the stock without paying the lien, the court declined to consider. In the case at bar, therefore, the title to the stock in question was vested in the plaintiff company. It had a right to sell the same, as was held in the case of the savings bank, and to contract in reference thereto, and it could be held to the obligations of such a contract. The position of the defendants might be well taken if the plaintiff were suing to compel the defendants to deliver the stock" in pursuance of an agreement so to do. It might very well be then held that the contract for the sale of the stock was an illegal one, and that an action to enforce an illegal contract could not be maintained. But in the case at bar the contract had been completed; the title to the stock had passed to the plaintiff. It had a right to sell it, as was held in the case of Sistare v. Best, supra; and, having the right to sell it, it had a right to take as a part of the purchase price such securities as they saw flt, provided it acted in good faith. Questions of public policy as to the right of one corporation to invest in the shares of another are not questions which need to be considered in the determination of this appeal, because the contract under which the corporation acquired the title is not now under consideration; and, whatever may have been the decision in other states, it is clear that contracts of this kind are not absolutely void but at most are voidable only. Our attention is called to the case of Crocker v. Whitney, 71 N. Y. 161, where it was held that a mortgage given to a national bank to secure future advances was void, and could not be enforced for advances which were subsequently made, because the act under which such banks are incorporated prohibited them from taking a mortgage on real estate except to secure a preexisting indebtedness. In that case there was an attempt to enforce an illegal contract. So the case of Pratt v. Short, 79 N. Y. 437, and all the other cases cited on this point, were cases where an attempt was made to enforce a contract which was illegal. There was no illegality in. the contract of the plaintiff, being the owner of the stock, to sell the same in the manner in which it was proposed to do, and which it attempted to do, by the agreement of December, 1884. The only other question which it is necessary to consider is the necessity of a tender of the stock in question. The ordinary rule in reference to the payment of promissory notes is that where by the form of the note stock or merchandise is to be delivered, or where collaterals have been deposited for the note, a tender of the collaterals or stock and merchandise at the time of the demand of payment of the note is necessary in order to make a complete default. But in all these cases it would appear that the maker of the note, upon payment, was to be entitled to the collaterals, or to the stock or merchandise, and therefore it is assumed that the payment of the note and the delivery of the consideration thereof are to be simultaneous acts, and one cannot be demanded without a tender of the other. But in the case at bar the stock was to be delivered to a third party not the maker of the note. The-plaintiff therefore could not upon demanding the payment of the note deliver the stock, because it was not to be delivered to the maker, but, as already said, to a third party; and therefore it must have been the intention of the-parties that .after the payment of the note, then the claim to a delivery of the stock should become vested in the third person, and it could not have been the intention in that case that the delivery of the stock and the payment of [940] the note should be simultaneous acts. We think, therefore, for the reasons above stated, that there was a good consideration for the note in question, and that there was no failure thereof, and that a tender of the stock was not necessary before claiming payment of the note. The judgment must be affirmed, with costs. All concur.