Persse & Brooks Paper-Works v. Willett

By the Court.*—Bosworth, Ch. J. I. The act of the General Assembly of the State of Connecticut, incorporating the plaintiffs, is a law, within the meaning of that word as used in section 426 of the Code of Procedure. According to the legislative lexicology of the State of New York, every act of the Legislature, whether public or private, is a law within the meaning of the statutory provisions, as to the time it takes effect, and the manner of proving it. (1 Rev. Stat., 157, 10-13; Ib., 184, § 12; Duncan a. Duboys, 3 J. C., 125.) Every bill which has been passed by the Legislature, as provided by the constitution and statutes, and been approved and signed by the governor, or which he shall not return with objections within the prescribed period, or which, if returned with objections, shall be agreed to by the requisite number of each house, thereupon becomes a law, within the meaning of section 426 of the Code, whether it affects all the people of the State alike, or merely creates a body politic. II. The court charged the jury that, “If you shall find the al — 432 — legations of an intent to hinder, delay, or defraud the creditors of Persse & Brooks to be unproved, then there is no such defect or vice in the proceedings taken -to organize the corporation, as creates any answer to the plaintiff’s action;”' that “ if the plaintiff’s right to recover in this action depended solely on the question, whether in organizing the company there has been such a compliance with the requirements of the charter, .as con- . fers upon the corporation a capacity to acquire and hold property, and to sue and be sued, the plaintiff would be entitled to your verdict.” The defendant excepted to the portion of the charge last quoted, but not to the part first cited, and requested the court to charge that “ the stock of the corporation was never subscribed for and taken up, so as to satisfy the conditions of the charter, and so the corporation never had a legal existence, entitling it to purchase property;” and also, that “ upon the proofs as to the taking of stock, and compliance with the conditions of the charter, the plaintiff has no right to maintain this action.” The court refused to charge conformably to either of these requests, and the defendant excepted. By the first ^section of the act, D. Persse, EL Brooks, and D. H. Magie, with all others who are or shall thereafter be associated with them, “ be, and hereby are, with their successors and assigns, made and established a body politic arid corporate.” By the third section, the first meeting of the corporation was to be called by a person or persons appointed for that purpose by the corporators named in the first section, and upon such notice thereof as they “ shall deem reasonable and proper.” The second section declares, that “ said corporation may organize, go into operation, and commence business, whenever, and as soon, as three hundred thousand dollars of said stock shall be taken up and subscribed for.” A meeting was called and held at the place designated,' on the 1st of August, 1857; subscriptions to the amount of $450,000 were made ; officers were elected, and a certificate of the fact of such organization was filed forthwith with the town clerk of the town of Windsor Locks, and with the secretary of State on the 3d of August, 1857. The words “ taken up,” found in the concluding sentence of section two, aré not used as synonymous with paid for; for by — 433 — section seven, the subscriptions might be called in by instalments. A subscription for $300,000 of the stock, the election of officers, and filing of the certificate, would complete an organization which authoi’ized the corporation to commence business. (Schenectady and Saratoga Plankroad Co. a. Thatcher, 1 Kern., 102.) It has since continued to transact business, as a corporation, in the State of Connecticut. At least the evidence tends to show that it has, and no contrary inference from the evidence is admissible. If the corporators so abused their powers in respect of the notice given of the first meeting, or by reason of any informality in the proceedings of that meeting, or by reason of taking property instead of money in payment of the subscriptions for stock then made, as thereby to make a cause of forfeiture, the matter cannot be taken advantage of collaterally or incidentally, or on any other mode than by a direct proceeding against the corporation for that purpose. And such a proceeding must be instituted in the State which created the corporation, and in which it is located. (Trustees of Vernon a. Hills, 6 Cow., 23; Slee a. Bloom, 5 Johns. Ch,. R., 379, 380; Chester Glass Co. a. Dewey, 16 Mass., 94; Willard’s Real Estate, 101, 102.) Brouwer a. Appleby (1 Sandf., 158) is an authority that the alleged defects could not be raised even against a domestic corporation in a suit against one dealing with it as a corporation. It would seem to be equally clear, that a trespasser, sued for wrongfully taking' property from its possession, would not be in a more favorable position. And the defendant must be viewed as appearing in the latter character, in determining the accuracy of the instruction. Upon the question, whether the creation of the corporation was a fraudulent scheme to shield the property of Persse & Brooks from their creditors, all - the circumstances proved in relation to the manner of its organization were allowed to go to the jury, and some of the more prominent of them were specially called to their attention in the charge given. With reference to the part of the charge above excepted to, and the request to charge, see also The Bank of Niagara a. Johnson .(8 Wend., 645); The People a. The President, &c., of — 434 — the Manhattan Co. (9 Ib., 351, 382); United States Bank a. Stearns (15 Ib., 314); Methodist Episcopal Union Church a. Pickett (19 N. Y., 482); Robinson a. The Governors of the London Hospital (21 Eng. L. & Eg. R., 371). The exception to this part of the charge is not well taken. If the views already expressed, in relation to the sufficiency of the proof of the act of incorporation, and the effect of the acts done to organize the company, are correct, it was not error to refuse to dismiss the complaint, when the plaintiffs rested, unless the third, fourth, fifth, and sixth requests to charge, or one of them, should have been complied with. Those requests, and the matter of the charge in respect to. them, will be considered in connection with the exceptions to the charge not already considered. IH. The third to the eleventh of the appellant’s points, inclusive, relate to exceptions admitting or rejecting evidence. ■To determine the accuracy of some of these rulings, it is important to bear in mind the theory of the defence, and the evidence that had been given when the question arose; and as to others, the line of examination, which had been previously pursued. The theory of the defence .sought to be established was, that the incorporation of the plaintiffs was a scheme devised by Persse & Brooks to convert their property into a form which would hinder, delay, or defraud their creditors, and with that intent, and. by which they would be enabled to control it as officers and agents of such corporation; and that the transfers made in August and September were made with that intent, and necessarily had that effect. Evidence of the acts of the assignor of property who continues in actual possession of it after the transfer, respecting his manner of using or disposing of it, tending to show that he is using and disposing of it as if it were his own, is admissible upon the question of the bonafides of the transfer. So, too, are his declarations relating to its control and the disposition of it, while he continues in the actual possession, where such declarations, in connection with the use or disposition which they authorize, tend to establish the same result. (Adams a. Davidson, 10 N. Y., 309.) Such a rule does not conflict with the statutory provision, — 435 — that “ in suits by or against an aggregate corporation, the admission of any member thereof not named on the record as a party to such suit, shall not be received as evidence against such corporation, unless such admission was made concerning some transaction, in which such member was the authorized agent of such corporation.” (2 Rev. Stat., 407, § 80.) Nor is it an answer, that the person whose declarations are sought to be proved, in the present case, was in possession as an officer of a corporation, and that his possession is its possession, and the case does not, therefore, fall within the rule. That is objecting to the exclusion of the offered evidence, the very fact in dispute, and is no more an answer than if his assignee were a natural person. When.it appears that his possession is that of an officer, and bona fide as such, the question is solved, in so far as its solution depends merely upon the fact of a continued possession.' But whether he uses it, and deals in regard to it, as if it were his own, is an entirely different matter. Booth a. Bunce et al. (24 N. Y., 592) is an authority for the proposition, that it is open to the defendant to establish his defence if he can; and it would seem that the same rules of evidence must be applied, as if the assignee or vendee were a natural person.; having at all times a due regard for the proposition that a corporation can, generally, act only by the agency of natural persons. We think it quite-clear, therefore, that it was competent for the defendant to prove that Horace Brooks, and Mr. Forrest, the assignee of his firm, immediately after the assignment was executed, went to Windsor Locks; and that Forrest, in the presence of Mr. Barnes, and of H. Brooks, and T. B. Persse, gave the directions and made the statement offered to be proved; and that such instruction was obeyed. Horace Brooks was the president of the plaintiff; was the principal actor in takiug the steps pursued to organize the company, and seems substantially to have been the officer most influential in conducting its operations. The rejected evidence, if it came up to the offer, would show that even after the assignment he subjected it to the control of the assignee, as property transferred by the assignment. Whether such proof as was offered could have been made, or would have been credited if given, are not questions now' — 436 — before the court. We must assume it would have been given but- for the ruling excepted to, and may have been fully credited. .For the same reason, evidence of the declarations of H. Brooks, offered' to be proved by Zebley, should have been admitted, if made while he was in the possession of, and controlling the property, now claimed to belong to the plaintiff. So, too, I think the evidence offered .to b¿ given by J. H. Benedict should have been received." The evidence was to show what Mr. Persse said, while negotiating for the purchase of stock to be manufactured into paper, at the plaintiff’s mills. Though the offer does not specify the statements alleged to have been made, yet it should not be now assumed that it was overruled for that cause ; especially as it appears that offered evidence, in all respects very specific in respect to the facts proposed to be proved, was excluded. It is hardly necessary to state, by way of precaution, that all declarations which either Persse or Brooks may have made are not admissible, merely because they made them and they relate to the business and property now claimed by the plaintiff to be its own business and property, and were made while in possession of the property and conducting the business. To be admissible, they must have been relevant to the issue. Whether Benedict observed any change, during the year 1857, in the manner of doing business, or the appearance of the store, I do not deem admissible. If he transacted business with Persse & Brooks during that time, and if they then transacted in their own names the business, which the plaintiff now claims was its business; or if he saw that the signs on the store, or other indicia of ownership continued unchanged, he could so testify. Before the exceptions were taken to H. Brooks’ testifying to the fact that, anterior to the creating of the corporation, he conversed on the subject of forming it; and what was his reason for forming it; and whether or not there was" any motive to defraud creditors; he had stated without objection, that the first design of forming it was talked of between Persse and himself; and he had talked with Mr. Dexter about it; that he had spoken to a great .many people on the subject; and in the parlor of the Nassau Bank among the directors. He had also — 437 — been examined, by the defendant (on a cross-examination), as to the meeting to organize the corporation; the call of that meeting, and how made; as to the transfers of property made on the 1st of August and 1st of September, and as to the conduct of Persse & Brooks in regard to the property and the management of the business down to a period subsequent to their failure. The evidence given did not tend to show any very general or circulated notice of holding the first meeting; and this, in connection with the fact that Persse & Brooks continued the manufacturing business on their own account, down to the 1st of September, 1857, furnished the basis for an argument that the fact of the organization was not generally known nor designed to be; and that their continuance of the business for a month subsequently, was calculated, if not designed, to prevent any inference being generally drawn that they had ceased to be owners of the mills. As pertinent to that question, it appeared to me at the trial to be proper, and does still, to admit evidence that the formation of the company was publicly spoken of by them, and to persons with whom they were dealing. And as the evidence then given, had there been no other, would have required the submission to the jury whether the plaintiffs had been incorporated as a cover and shield, to defraud, hinder, or delay the creditors of the firm of Persse & Brooks,—and as such evidence had been given by H. Brooks himself,—the question whether this was done, and the property transferred, with a fraudulent intent, was one proper to be put on a re-examination (which as to this matter was a cross-examination, under the decision in Seymour a. Wilson, 14 N. Y., 567). If that general question, under such circumstances, is competent and proper for the consideration of the jury, it is difficult to perceive any objection to his stating what the actual motive or intent was. He is as competent to know and to state that, as to affirm generally that his intent was honest and not fraudulent. If the motives or reasons assigned evince an honest intent, the statement of them is but specifying the reasons for his acts, which the answer to the general question of intent characterizes as being an honest intent. And if he may testify that his intent was honest, or, as an equivalent thing (when — 438 — showing an honest intent), may state the particular reasons which induced the act, it would seem to follow that he may also testify that he communicated these reasons to his creditors and others before the act of incorporation was applied for. It may be conceded that such matters would not be competent evidence in the first instance, and yet may be upon the question whether the organization was designedly concealed at the time it took place, or whether the act of incorporation was procured and the transfers made with an actual intent to defraud, in answer to evidence by the same witness of acts on his part tending in any degree to justify an inference of such an intent to conceal and defraud. H. Brooks was permitted to testify, that between the 1st of September, 1857, and the 1st of July, 1858, the corporation made profits; and that there was a very great panic in the market, beginning in July or August, and lasting several months; and the defendant objected and excepted to the decision admitting the evidence. The first item of evidence, if admissible at all, can only be so because it bears on the question whether Persse & Brooks obtained the charter in contemplation of insolvency, and with a view to their immediate failure. The second item of evidence bears upon the question of the cause of their failure; and whether it resulted from an actually embarrassed condition of which they were conscious, and against the consequences of which they ought to provide when they organized the company, or was induced wholly or in part from causes not then within their contemplation. But it does not follow that the admission or admissibility of such evidence makes it competent to inquire whether, up to the time of the trial (March, 1862), profits had been made. Merchandise of the plaintiff, or claimed to be such, had been seized in March, 1858, by creditors of Persse & Brooks, amounting in value to some $11,000 to $12,000, on an allegation that the formation of the corporation was a cheat and a fraud, and that the property it claimed to own was liable to be seized on execution issued on judgments in favor of the creditors of Persse & Brooks, and had been sold notwithstanding notice of the plaintiff’s claim of ownership. Such acts would necessarily interfere with the successful transaction of the plain — 439 — tiff’s business, tend to impair its credit, and would leave the jury without any reasonably certain means of determining what would have been the result of the business if it had not been interfered with. The evidence offered and rejected neither furnishes any evidence of an original fraudulent intent, nor impairs in any degree whatever weight the rebutting evidence, as to making profits up to July, 1858, may justly deserve. The defendant was permitted to inquire whether profits were made within the period of which H. Brooks testified ; and the evidence excluded was, whether profits had been made up to the time of the trial. It was not proposed to inquire with reference to any intermediate point of time; and if that was desired it should have been so stated, that it might have been considered whether, upon any grounds that might have been suggested, such an inquiry would have been pertinent. But we think that all evidence in respect to the fact of making profits up to July, 1858, or sustaining losses subsequently, should have been excluded. That the corporation made profits, does not tend to show that its organization was without fraud ; that it suffered losses, does not tend to show that its organization was fraudulent. The exception to the ruling that H. Brooks may state any thing which the parties said in negotiating the agreement by parol, and which of itself constituted the contract, is not tenable. Such evidence was in its nature clearly competent; and it was a matter resting in the discretion of the court, in its view of what was proper to elicit the whole truth, to permit the inquiry, although the witness had previously been examined to the same matter. . The question to Mickle, “Was you superintendent of the works under the' corporation ?” was clearly competent. This was put on his cross-examination. He had testified on his direct examination that he was in the employment of the firm of Persse & Brooks, “ as superintendent of the manufacture of paper at Windsor Lock, from the spring of 1855 to the end of October, 1857.” This fact, if true, was in itself very material, and tended to show that the manufacture of paper was continued by the firm, under the superintendence of a person employed by the firm, — 440 — to the end of October, 1857. It was clearly competent for the plaintiffs to show, if they could, that from September 1, 1857, he acted as the agent of the corporation. The defendant asked H. B. Dixon, who was examined as an expert in the science of book-keeping, this question : “ Do the books (of Persse & Brooks) show whether, on the 30th of June, 1857, the firm was insolvent ?” The court excluded the question, and the defendant excepted. It was competent to show the entries in the books in respect to the firm’s assets and liabilities, and it was for the jury to determine upon the whole evidence whether the firm was insolvent. The witness was asked to determine the question upon such evidénce as the book-entries furnished, instead of pointing out the entries and reading them to the jury. This exception is untenable. The defendant also excepted to the exclusion of evidence of the contents of an entry made in the firm’s books in October, 1857. At this time the books were under the control of the firm’s assignee and his agents, and the entries were not the acts of Persse & Brooks. Any entries made by Brooks himself, the defendant was permitted to prove. This ruling is free from objection. The questions as to what the paper of the firm, without their knowledge, was offered to be sold for in the spring or summer of 1857, or whether Mr. Bennett was induced to withdraw his funds in their hands in consequence of an offer to sell him the firm’s paper made in March, 1857, were properly overruled. The evidence, if given, would not tend to show that the firm contemplated insolvency as probable or possible, or had disposed of its property to the plaintiff fraudulently. Ror do I think evidence should have been received of the application which Mr. Bennett made of the $20,000, which he received from the firm. The fact that he or any other person called for payment, in whole or in part, of money lent on interest, and payable at call, raises no inference that the debtor was insolvent, or embarrassed, or considered himself to be so, and laid no foundation for evidence of the use which the creditor made of the money, on receiving it. I do not see any good objection to proof of the manner in — 441 — which the transactions between Bennett and the firm were finally closed. If any of the testimony on behalf of the defendant in relation to these transactions can be supposed to furnish any evidence of the fraudulent intent imputed to Persse & Brooks, the whole truth in relation to the true character of these transactions would seem to be pertinent. A short answer to the exceptions is, that in the answer to the question, “ Were any papers exchanged between you and any other person in reference to that payment ?” and in answer to the further question, “Was the-final settlement made between you and Seymour, and Persse & Brooks, and Forrest or Mr. Eaton representing them ?” nothing was said, of the slightest consequence, or which by any probability could have had any influence on the verdict. ■ The whole evidence of the witness, according to my view of it, renders the questions admissible, as a reasonable cross-examination. The question put to Zebley, whether he knew from Persse & Brooks, that the notes made by them in July or August, 1857, were issued by them to be sold, should not have been overruled, if such knowledge was acquired before the transfers made by them of the property in question. It would bear on the question of-their then opinion of their financial condition, but might be entitled to but little weight, if the rates at which a sale was authorized were such as were paid for the paper of houses in good credit. If made after the transfers, they would be declarations in no way characterizing their possession of the transferred property, and should not be admitted against the plaintiffs to affect a title they had previously acquired. The defendant, without objection, was permitted to examine Messrs. F. Bacon and O. S. Delavan, as to the general credit of Persse & Brooks, but was not allowed to prove “ what their (Persse & Brooks’) paper would sell for in the market,” or that the notes of the firm were brought into Delavan’s office, and offered for sale by street brokers; or whether “ the fact that the paper of a house is in the hands of street brokers frequently for sale, affects the character of that houseand he excepted to the decisions excluding such evidence. I think the evidence is too remote, and does not legitimately — 442 — tend to show eithei* that the firm was embarrassed when the corporation was organized, or that they then contemplated a failure. The fact that the paper was in the hands of street brokers, prima facie, tends rather to show the wants of the holder than of the makers of it. Delavan was out of the country from the 17th of May to the 5th of October, 1857, and if the question related to a period later than the 5th of October, the offered evidence would clearly be inadmissible. It was not proposed to show that the firm knew of the suggested sales, or offers to sell, or had any difficulty in procuring on credit any amount it desired in its operations. The declarations of Persse & Brooks, whether oral,, or in the form of a sworn answer, made February 13, 1858, to the effect that the notes therein mentioned were made by the firm to raise money, and were discounted at usurious rates, I deem inadmissible. The plaintiffs’ title cannot be affected by mere declarations made by their vendors, subsequent to their purchase, when not made in relation to the transferred property at the time in their possession, or in any way qualifying such possession. Bone other of the exceptions taken to the admission or rejection of evidence are noticed in the appellant’s points. IV. It only remains to consider the exceptions to refusals to charge as requested, and to the charge made. The first and second requests to charge have already been disposed of; the third, fourth, and fifth requests relate to the legal effect of the transfers made to the corporation, and taking stock in the individual names of the .partners. I think the charge made in answer to these requests, was a correct exposition of the law. The mere fact that partnership property is transferred for other property, and the substituted property transferred to the members of the firm individually, is not per se fraudulent, nor conclusive evidence of an intent to hinder or delay the creditors of the firm in the collection of their debts. If the substituted property is as valuable as that sold, is as accessible to process, and can be as readily converted into money, by judicial proceedings, the transaction does not, of itself and alone, either in fact hinder or delay, or furnish conclusive evidence of an intent to hinder or delay creditors, or render the transferse fraudulent and void. — 443 — The fact that title to the substituted property was taken by the members of the firm in severalty, instead of the firm’s name, may be an important circumstance, if there be any other evidence tending to show a fraudulent intent. But if there be no evidence of a fraudulent intent, except such as is furnished by the mere fact of a transfer of a firm’s property, and the division in form, among the partners, of property taken in exchange, the transaction is not per se fraudulent. If the firm’s remaining assets had been abundantly sufficient to satisfy all its liabilities as they matured, I cannot think that a transfer of property of the value of that in question, and taking the stock óf a corporation therefor, in which corporation the transferred property was converted into capital, would suggest the idea, that there could possibly be in the transaction any evidence of an intent to hinder, delay, or defraud. If this be so, then it was correct to refuse to give the instructions sought, and the charge, as made, was just and proper. Because the requésts affirm, that the naked fact of the transfer and taking the stock in the individual names of the partners was fraudulent. That it was important and material, in connection with the other evidence, and entitled to be fully weighed by the jury in determining the question of an actual fraudulent intent, was pressed upon them by counsel, and it is among the leading facts relied on as evidence of frauds, which the court specially called to their attention. And in this connection, it is appropriate to advert to the colloquy between the court and a juror, when the jury returned into court without having agreed on a verdict. The only "remark which I deem open to criticism, is that, “It must be something which interferes, and is done for the purpose bf interfering with a party’s ordinary remedy by suit to collect his debt.” Substituting or for a/nd, and the sentence would be unobjectionable. The next sentence indicates that the court intended to so express itself. And the concluding sentence corroborates this view. If there be nothing in the nature of the property taken in exchange, which would cause a delay in converting it by judi — 444 — cial proceedings, or in creating a lien upon it thereby, the mere fact of the exchange would not furnish evidence of an intent to hinder or delay. There may be a transfer with intent to hinder or delay, when the transaction itself would not have any such legal effect. And when such an intent is proved, the transfer is void, though the substituted property is as valuable, and as convertible by judicial proceedings as that given for it. But when such a transfer is shown to have been made with intent to hinder or delay, the intent will be established by other evidence than the naked fact of a mere exchange of property. Y. The sixth and seventh requests to charge were properly overruled. The sixth assumes that it was a necessary effect of these transfers “ to hinder, delay, and defraud their creditors.” This fact was one for the jury to determine on the whole evidence. The jury were instructed that Persse & Brooks must be deemed to have “ intended to produce such results as are the natural and necessary consequence of their acts; and if it can be seen that the natural and necessary consequence of the acts of Persse & Brooks in transferring property to the corporation, in the view they then had of their condition and resources, was to defraud, or hinder, or delay their creditors in collecting their debts, then they should be deemed to have done what they did do, with that intent, and the transfers would be void as to their creditors.” The request was erroneous, because it assumed as an established fact, a question of fact which was a matter of controversy, and in regard to which it was the exclusive province of the jury to determine whether it existed or not. YI. The seventh request was also properly overruled. That imports, that though there was no fraudulent intent in organizing the corporation, yet a transfer to it of property by Persse & Brooks, and such possession of it as the lawful officers of the corporation would necessarily have in the proper performance of their official duties, would be presumptive evidence of a fraudulent intent, though they were in fact officers, and professed to hold and control it in that capacity, and did no act impeaching the truthfulness of their professions, or casting a suspicion upon the transaction beyond such as is justified by the fact of such a possession. — 445 — I think the charge, on this branch of the case, presented it accurately and fully to the jury. VII. Our attention is called to a portion of the charge to which no exception was taken at the trial, and which, it is now urged, submitted to the jury a question which the case did not present, and in a manner calculated to mislead. It'is not urged, as I understand the argument, that the proposition is not sound as an abstract one. The court stated to the jury the requests to charge presented by either party, and the views of the court in regard to their accuracy as legal propositions. The court had already informed the jury, that as Persse & Brooks “ acted as well for the corporation in taking the transfers as for themselves in making them, it follows that if they were actuated with this fraudulent intent, the plaintiffs had notice of it, and cannot recover in this suit.” After stating the rule of law, the stating of which is now complained of, the court further said that, if the corporation was formed, and the transfers made with the intent alleged, “ then the title is invalidated by transactions between Persse & Brooks and the corporation, had after its organization.” The full pertinency of this part of the charge cannot -be so clearly seen as it would be, if the requests to charge were in the case. The words above quoted are there contained in one of the plaintiffs’ requests, and the charge given was adverse to them. I cannot think that counsel or the jury understood the judge to submit to the jury to find whether the transfers of the property may not have been honestly made, and therefore valid, even though they should find that the charter was obtained and the company organized with the fraudulent intent imputed. ■ If there were no error other than that suggested in stating to the jury the legal proposition to which this objection is made, I should be quite clear that the judgment should be affirmed. But there are errors, before stated, which entitle the defendant to an order reversing the judgment, and to a new trial, with costs to abide the event. Ordered accordingly. Footnotes [*] Present, Bosworth, Ch. J., and Moncrief and White, JJ.