New York Trust Co. v. Bermuda-Atlantic S. S. Co.

HAND, District Judge. [1] The Canada Company was organized, as all agree, only to hold the title to the Oceana so- as to avoid the laws of the United States. Not only was there no independent interest outstanding, but the complete actual management of the vessel and of the Canada Company was in the hands of the'New York Company. The Canada Company never did anything, or was meant to do anything, except hold the title to the vessel, give the mortgage and charter, and get the registry; it carried on no subsequent business thereafter, and its directors were mere dummies directed by the New York Company. This case depends simply upon whether, under these circumstances, the New York Company was either an owner, or a person authorized by the owner to order the supplies. We may, for the sake of argument, allow that the corporate entities remained distinct, and that the equitable title was in the Canada Company, so that a convenient fiction shall not become confused, and we shall retain the shorthand of clear concepts. When, however, we come to the question of authority, we are not bound by the whole sleight-of-hand paraphernalia of resolutions, deeds, leases, mortgages, and the like, because authority may rest in pais, and one may have authority to act for a corporation without the formal action of its board of directors. Phillips v. Campbell, 43 N. Y. 271. So the question changes form into whether the New York Company had such authority from the Canada Company. Their relations are so intricately interwoven that either may be regarded as the agent of the other without violence to the facts, though eventually it must be recognized that the only actor was the New York Company. It will do as well as any way to think of the New York Company as agent and the Canada Company as principal, or owner, and to think of the basis de jure of the New York Company’s authority as depending upon the knowledge and acquiescence of all the principal’s stockholders (i. e., the New York Company itself), and of its directors, who were merely its puppets, who consented to whatever they were told to do, and who in fact did nothing. In such a situation, when the knowledge is clearly-brought home to the stockholders and directors, there is a valid ratification. Pennsylvania R. R. v. Keokuk Bridge Co., 131 U. S. 371, 9 Sup. Ct. 770, 33 L. Ed. 157. It is, of course, true that the New York Company had no right as against the mortgagee to incur these liens, or the Canada Company to authorize them, for they violated the mortgage, but that does not. affect the question whether the New York Company had actual authority from the Canada Company, which is the relevant question under section 1 of this act. Nor does it affect that authority [999] that there had been previously executed a charter party which provided to the contrary, because these orders for supplies were given after the charter party was signed, and with the fullest acquiescence of the Canada Company. [2] I am not quite clear that the mortgagee agrees that, if the Canada Company had given formal authority to the New York Company to create the liens, they would have been valid in the face of the mortgage; but there cannot be any question of that, for the statute gives a lien for supplies on the owner’s order or his agent’s, in that respect differing from the maritime law, which it changed. The St. Jago de Cuba, 9 Wheat. 410, 417, 6 L. Ed. 122. Furthermore, I need not consider the result, had the lienors known the terms of the mortgage, for no one contends that they are so chargeable; and, since they did not know of the mortgage, it is of no moment whether they knew of the charter party, because it is only when the charterer orders supplies without real authority that the question can arise under the proviso of section 3. In other words, since the charter did not refer to the mortgage, knowledge of it would only have shown that originally the Canada Company had refused an authority which, as a matter of fact, the New York Company had been exercising with the complete acquiescence of the Canada .-Company for some time. It is therefore irrelevant to inquire how far the lienors were put on notice of the charter party, under The Valencia, 165 U. S. 264, 17 Sup. Ct. 323, 41 L. Ed. 710, and The Kate, 164 U. S. 458, 17 Sup. Ct. 135, 41 L. Ed. 512. Certainly any other result would be absurd. The statute means to give a lien when the owner orders the supplies or when any one having apparent authority orders for him. The proviso is only to protect the owner against the charterer if he has tried to protect himself. It does not try to protect prior mortgagees, nor does it prevent the owner from agreeing that the charterer may order supplies which will become prior liens to a mortgage. Bearing this in mind, it would be unreasonable to apply the protection of the proviso to the Canada Company. To protect it against the New York Company was to pro-, tect it against itself, for it had no independent existence. Unless the mortgage would have been good even against a formal resolution conferring authority by the directors of the Canada Company, it is not good against the course of conduct here shown. We should not suppose that the charter party was intended, as a kind of moral bulwark protecting the Canada Company- against subsequent changes of mind of its own controlling spirits. There is no magic about the drawing of corporate papers. The relations between these corporations are not- to be measured, as the mortgagee seems to suppose, merely by the fact that one owned all the stock of the other. I agree that there is nothing in itself illegal in holding all the stock of a corporation and doing business in the corporate form, if you really mean to do it that way and everybody knows it. Salomon v. Salomon & Co., [1897] A. C. 22; C. Crane & Co. v. Fry, 126 Fed. 278, 61 C. C. A. 260; Gramophone Typewriter, [1000] Ltd., v. Stanley, 99 Law Times Rep. 39. Yet, on the other hand, there is nothing merely in the fact that you have adopted a corporate form, whic'h prevents you from so interjecting yourself into the corporate business as to become the principal though the form remain corporate. Chicago Junction Ry. Co. v. U. S., 226 U. S. 286, 33 Sup. Ct. 83, 57 L. Ed. 226. If, as here, you not only own all the stock, but also personally conduct the whole of the supposed corporate affairs, disregarding the corporate forms, you may be doing the business yourself, or at least your corporation may be an agent only. Apthorpe v. Peter Schoenhofen Breweries, Ltd., 80 Law Times Rep. 395. In the case at bar, it is, however, not necessary to take that final step, for even with the strictest observance of formalities we must say that the Canada Company authorized the New York Company to do all it did. This disposes of all the general objections to the claims. The mortgagee does not except to the Morse claim as insufficiently proved, and it is clear that the receiver is bound by the account stated between the New York Company and the lienor for the bills rendered on December 16th and 29th, January 9th, and March 11th. Not only was acquiescence shown by failure to object, but by 12 large payments. The small items of May 31st and June 8th probably are not so- proved, but I scarcely suppose these are seriously disputed. In its brief the mortgagee also objects to claims 28, 29, 40, 41, 42, 43, and 44; but there are no exceptions to any of them, either of the mortgagee, or the receiver. The. sixth exception 'of the receiver does not cover-these, and I can find no exception of the mortgagee which even suggests any of these specific liens, though others are mentioned in some of the exceptions. It would hardly be fair to those lienors upon such a record to allow their liens to be attacked; They may have been content to let the larger lienors carry the main questions, and may have therefore defaulted in reliance ujpon the absence of any specific exceptions to their own liens. As to the disbursements the mortgagee and receiver will have to share them equitably. It is a little hard to know what proportion will be equitable, and if the parties cannot agree they will have to submit the matter, again. A decree may be submitted in accordance with this opinion.