Coleman v. Second Avenue Railroad — 38 N.Y. 201

Majority

p. 201

William Coleman et al., Appellants, v. The Second Avenue Railroad Company, Respondent.

Headnote

Mayor and Common Council of New York. Second Avenue Railroad Company. Conveyance of invalid grant. Confirmation of INVALID GRANT BY LEGISLATURE, IN SECTION THREE, CHAPTER 140, 1864. Power of directors of corporations to contract with THEMSELVES AS INDIVIDUALS ON BEHALF OF THE CORPORATION. STATUTE OF LIMITATIONS. REMEDY; JUDGMENT AWARDED MUST HAVE SOME relation TO judgment sought. In 1852, the mayor and common council of New York granted to plaintiffe the right to construct a railroad in said city. The plaintiffs conveyed this grant to the defendant, a corporation, in which the grantees (plaintiffs) all became corporators, and a majority of the directors of which were grantees at the time of incorpotion. The conveyance contained no covenant on the part of the company to pay the plaintiffs any sum whatever, for the grant. The road was constructed and equipped by the company. It appears, that, by a resolution of the board of directors, an indebtedness by the company to the grantees (plaintiffe), in the sum of §200,000, was acknowledged for the grant. This action was brought to enforce payment of that sum; and judgment was found in favor of the plaintiffs by the referee before whom the cause was tried, which was reversed, and a new trial ordered by the General Term. Held:

1. That the grant to plaintiffs was absolutely void, the mayor and common council having no power to make such grant. Hence, the plaintiffs never conveyed any thing of value.

2. Section three, of chapter 140, Laws of 1864, makes valid such grants in favor only of such parties, and their assigns, as have wholly, or in part, constructed the road authorized by the grant. That party in this case was the defendant.

3. The grantees (plaintiffs), acting as directors of the company, and composing a majority of the board, could not make a bargain with themselves as individuals, binding upon the company, to purchase the grant of plaintiffs upon terms fixed by them as directors. {Butts v.

Wood, 37 N. Y. 817 .) Nor could they create, revive or continue, a debt to themselves, against the company, by passing resolutions to that effect, as directors.

4. The statute of limitations was a bar to the action of plaintiffe, the conveyance of the grant being more than six years prior to the commencement of the action; and, though the instrument of conveyance was under seal, the action not being brought upon the instrument, but upon the promise of the company, expressed or implied, to pay in consideration of the conveyance, the transaction is clearly brought within the statute.

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5. The plaintiffs having based their claim to recover entirely upon the validity of the acts of the grantees (themselves), as directors, and the judgment of the referee in their favor being likewise based upon this only, there is no foundation for a judgment to the effect, that, as the company repudiate the acts of the directors in purchasing the grant, they must restore the grant-to the plaintiffs. No such judgment is asked by the plaintiffs.

6. The acts, to enforce which this action was brought, being invalid, no other judgment can be rendered, than one affirming the reversal of the referee’s judgment.

Code oe Procedure. Appeal review. Where an order reversing judgment, and directing a new trial, is made by the General Term, upon questions of both fact and law, it is the duty of the court, under section 398 of the Code, upon an appeal from such order, to determine whether it was correctly made on either ground.

Messrs. J. W. Edmonds and. J. H. Reynolds, for the appellants.

Messrs. John Slosson, William F. Allen and Waldo Hutchins, for the respondent.

It appears, from the order reversing the judgment and ordering a new trial, made by the General Term of the Supreme Court, that it was made upon questions both of fact and law. The Code, section 268, makes it the duty of this court, upon appeal therefrom, to determine whether it was correctly made upon either ground. In 1852, when the grant was made to the plaintiffs and their assignors, the mayor and common council of the city of New York had no power to make the grant in question. (Milbau v. Sharp, 27 N. Y. 611 , and cases cited.) The grant or license was, therefore, void, and of no value. The railroad was constructed, not by the grantees, but by the corporation (defendant). Section three of the act, relative to the construction of railroads in cities (Laws of 1864, chap. 140) makes valid such grants, only in favor of such parties and their assigns, as have constructed the road in whole or part, and such parties only and their assigns are authorized to continue the use of the road upon the route specified in the grant. The plaintiffs and their assignors, not having constructed any part of the rail

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road, it is difficult to see how this legislative confirmation of the grant could inure to their benefit. The grant not having been made to the corporation by which the road had been constructed, the confirmation would not inure to its benefit, unless they had become the assignors of the city grantees prior to the passage of the act. From the evidence it would appear, that this was probably the case, but this question is not necessarily involved in the decision of this case, and I shall not examine or determine it. The question in this case is, simply whether the plaintiffs are entitled to recover of the defendants the $200,000, and the interest thereon, for which the referee gave judgment in their favor. We commence this inquiry with the fact appearing, that, at the time the defendant was incorporated and commenced the construction of the road, the plaintiffs and their assignors had not any grant, license or franchise of any validity or value. The defendant was incorporated for the express purpose of constructing and operating this road upon the route specified in the grant by the city, upon the terms, and according to the conditions required by the city upon making the grant, and to which the grantees agreed, and with which they were bound to comply. The grantees all became corporators, and a majority of the directors at the time of the incorporation of the company were grantees, and these constituted such majority until 1856. The grant from the city was, at the time, undoubtedly considered valid. Money was necessary to construct and equip the road, and for this purpose subscriptions were made for stock by the grantees and others. That others should subscribe for stock in a company formed to construct and operate this road, with a belief that the grantees, as individuals, had the sole right to do either, and that these grantees could exclude the company from all use of the road, except upon terms thereafter to be prescribed by them, is possible, but hardly supposable. That the grantees, directors, acting as directors and composing a majority of the board, could not make a bargain with themselves as individuals, binding upon the company, to purchase their grant upon the terms fixed by them as directors, is a point already determined by

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this court in Butts v. Wood ( 37 N. Y. 317 .) If they could not as directors make such a contract obligatory upon the company, they could not by their acts as a board bind the company to pay them any specific sum for their grant. If right in this, it follows, that the Supreme Court was right in reversing the judgment of the referee, for that judgment can only be sustained upon the ground, that this majority of directors, being grantees, had bound the company to them and their associate grantees, to pay $200,000, as the purchase price of their grant.

I also think, the statute of limitations was a bar to the plaintiffs’ action. The grantees made a conveyance of the grant to the company more than six years before the commencement of this action. That conveyance was by an instrument under seal, and it is claimed by the counsel for the plaintiffs, that this brings the case within the limitation of twenty years, the time prescribed for the commencement of actions upon sealed instruments. But the action is not upon the instrument. That contains no covenant on the part of the company to pay the plaintiffs or their assignors any thing. The action is upon the promise of the company, express or implied, to pay in consideration of the conveyance. This clearly falls within the six years’ limitation. It is also claimed, that the resolution passed by the board within six years before the commencement of the suit, acknowledging a debt to the plaintiffs and their assignors of $200,000 for the grant, takes the case out of the statute. The answer to this is, that a majority of the board passing the resolution were grantees, and, that, if they could not as • directors buy the grant of themselves for the company, they cannot create, revive or continue a debt against the company to themselves; by passing resolutions as directors.

Again, it is claimed, that, if the company repudiate the acts of the directors in purchasing the grant of themselves for the company, they must restore the grant. The answer to this is, that the plaintiffs have not asked any such judgment. Their claim to recover was based entirely upon the validity of the acts of the grantees as directors, and the judgment of

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the referee was based upon that only. These acts being invalid, that judgment was rightly reversed, and the order appealed from must be affirmed with costs, and judgment final given against the plaintiffs.

Judgment affirmed.

Cases cited

Milhau v. Sharp 27 N. Y. 611 N.Y. p. 202