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King v. Barnes

4 N.Y.S. 247 Court N.Y. Gen. Term Decision date 1889-02-11 English

Delivered by Dykman, J.

Contents

Majority

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King et al. v. Barnes et al.
(Supreme Court, General Term, Second Department.
February 11, 1889.)

Headnote

1. Equity—Decree—Relief Sought.
After a judgment had been entered directing defendants to transfer to plaintiffs certain shares of stock in a corporation, by means of which they had been assuming control of the company in fraud of plaintiffs’ rights, the court appointed a receiver to carry into effect the judgment, and enjoined the defendants from interfering, and appointed a referee to hold an election for directors. Held, that the order was proper, though the order to show cause contained no prayer or notice for an injunction, or for any direction to the referee to take charge of the election, or for general relief; the moving papers having sought the relief granted, and all the parties having been fully heard.
2. Receivers—Appointment—To Enforce Judgment.
The appointment of a receiver to carry .into effect the judgment was fully authorized by Code Civil Proc. § 713, authorizing the appointment of a receiver, in addition to the cases specially provided for, “by or after final judgment, to carry the judgment into effect. ”
3. Same—Receivers of Corporations—Equity Jurisdiction.
The general provisions of the Code respecting the appointment of receivers for corporations do not interfere with the powers of a court of equity to execute its judgment, especially where, as in this case, defendants are found to have usurped the franchises of the corporations, and are ordered to surrender them to the lawful owners.
4. Contempt—Refusal to Deliver Property to Receiver.
A copy of the order requiring all persons having possession of the corporate records, books, papers, and seal to surrender them to the receiver was served on P., an officer of the company, with a request to notify the receiver when he would be prepared to comply with the order. A time was appointed, but he failed to appear. After several appointments and failures to appear the receiver succeeded in meeting him, and making a formal demand, to which he replied, without alleging inability or non-possession, that he had been advised that the order was unauthorized by law, and that he had taken steps to have it vacated. On the motion for his punishment for contempt he stated that he did not have the books or papers in his possession. Held that his commitment for contempt was proper.
5. Same—Procedure—Preliminary Order.
The preliminary order commanded defendant B. to show cause why he should not be punished for contempt in refusing to transfer stock in compliance with the final judgment, and why plaintiff should not have other and further relief. Held, that a final order of commitment, based on a charge of aiding and abetting the officers of the company in their contumacy, was not improper; the final order having been made after a full hearing, with all the parties before the court.
6. Same—Abetting Disobedience to Order.
It appeared that the defendant P. had entered the corporation and been permitted to qualify as director by subscription to stock, without paying for it, and that he had been entirely subservient to the will of B., who had furnished him pecuniary aid as well as strength of purpose to resist the orders of the court. Held that B., by aiding and assisting P. in the violation of the orders, was guilty of a civil contempt, and the infliction of a fine and imprisonment was proper.
7. Same—Appeal—Objections not Raised Below.
It cannot he objected on appeal that the contempt proceeding was erroneous, because the court received testimony on the hearing, where the order for oral testimony is made and the testimony taken without objection from defendant, as it will be presumed that the whole proceeding was by consent.
Appeal from special term, Richmond county.
Action by Thomas M. King and others against Reon Barnes, John H. Post, and others, and the New York Transit & Terminal Company, to require the transfer to plaintiffs of certain shares of stock in defendant company, and other
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relief. On April 10, 1888, the court of appeals, affirming the various judgments of the general term, held that the plaintiffs were entitled to the relief prayed for ( 16 N. E. Rep. 332 .) On October 9, 1888, an order was entered by Justice Barnard requiring the defendants to show cause why an order should not be entered to carry into effect the final judgment directing and providing for the holding of a meeting for the election of directors of the company, and also to show cause why a receiver should not be appointed. On October 13,1888, the court entered an order appointing a receiver, and also a referee to carry into effect the final judgment, by making the transfers of stock therein provided, and-by holding a meeting for the election of directors of the company. From this order defendants appeal. A motion is also made to dismiss the appeal because the election has been held. The order appointing the receiver also ordered the persons having in possession the franchises, property, records, etc., of the company to surrender the same. Upon the refusal of John H. Post to deliver the books, seal, and other property of the corporation, he was, on October 27, 1888, found guilty of contempt, and ordered to pay a fine of $250, or stand committed to the county jail until the fine be paid, from which order he appeals. It being shown to the court that said Post was under the control of Reon Barnes, who had aided, abetted, counseled, advised, and directed him in his contempt, the said Barnes was, on October 27, 1888, found guilty of contempt, and ordered to pay a fine of $250, and stand committed to the county jail for six months, and until said fine-be paid, from which order he appeals.
Argued before Dykman and Pratt, JJ.
John. H. Post, for appellants. McFarland, Boardman <& Platt, for respondents.

APPEAL FROM ORDER APPOINTING- RECEIVER.

The litigation in this case has been severe, and the matters involved were complicated and unusual; but the defense has been found destitute of merit,'and all the questions presented have been decided adversely to the contention of the defendants. Under the decision of the court of last resort the plaintiffs became entitled to full relief, and the execution of that judgment has now devolved upon the supreme court. Upon the failure of the defendants to comply with the requirements of the judgment, an application to the court for the enforcement of such compliance became necessary, and, in obedience to such necessity, an order was made by a justice of the supreme court, requiring the defendant to show cause at a special term why an order should not be entered at the foot of the final judgment in this action, and, in order to carry the same into effect, directing and providing for the holding of a meeting for the election of directors of the defendant the Sew York Transit & Terminal Company, Limited, and also why a receiver should not be appointed of the franchises, property, records, and papers of the said defendant company, in order to carry the judgment into effect.

The motion came on and was heard, and all the matters stated in the moving papers were found to be true, and a receiver of all the franchises, the property, and of the seal of the corporation was thereupon appointed, and all persons in possession of such property, franchises, and seal were ordered to surrender the same to the receiver. A referee was also appointed to hold and conduct the meeting for the election of new directors for the New York Transit & Terminal Company, Limited. The defendants have appealed from the last recited order, and the sole question presented or argued by the appellants, as stated by their counsel, is this: “Did the court below have jurisdiction to make the order appealed from, and is it in accordance with law, and a proper exercise of judicial power?”

The appellants maintain the negative of their proposition, and make a preliminary challenge to the order, because it transcends the relief sought for by

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the preliminary order to show cause. There was in that order no prayer or notice for an injunction, or for any direction to the referee to take charge of the election, and no prayer for other or further relief; but the moving paper sought ail the relief granted, and laid the foundation for its bestowment, and the parties appeared and were fully heard, and the court therefore acquired jurisdiction and possessed sufficient power to grant all appropriate relief, so far as the same was germane to the subject involved.

Upon the merits we think the appointment of the receiver was authorized by section 718 of the Code of Civil Procedure, which is as follows: “In addition to the cases where the appointment of a receiver is specially provided for by law, a receiver of property, which is the subject of an action in the supreme court, a superior city court, or a county court, may be appointed by the court in either of the following cases, * * * by or after the final judgment, to carry the judgment into effect, or to dispose of the property according to its directions.” We think the section has a very salutary application here, and was designed to meet an emergency such as has arisen in this case. The judgment cannot be carried into effect, and a disposition made of the property according to its direction, without wresting such property from the fraudulent possession of the defendants, and placing it in the custody of an officer of the court. We are unwilling to confess the inability of the supreme court, with the equity powers of the old court of chancery, to carry into execution the judgment of this action by the employment of all the mysticism known to the law, and ordinarily utilized for such purposes, even without the provision of section 713 of the Code, neither do we think the general provision of the Code of Procedure respecting the appointment of receivers of the property of corporations antagonistic to the exercise of the powers vested in the courts of equity to execute their judgments.

These provisions, as well as those of chapter 378 of the Laws of 1883, apply only to the appointment of receivers in cases of insolvency. Applications for the appointment of receivers in equity actions in all stages are by no means uncommon, and they are appointed on general principles of equity, independent of all statutory provisions. They are common-law receivers, and custodians of the property for its protection, and their appointment may be made without reference to the location of the principal office of the company. Trust Co. v. Railroad Co., 35 Hun, 341 , 101 N. Y. 478 , 5 N. E. Rep. 316 . Besides all these, under the judgments of the courts, these defendants now occupy the position of contumacious usurpers. They have no right to represent this corporation. They have been detected in efforts to prostitute the company to fraudulent purposes, anda solemn adjudication has been made requiring them to surrender all the property and franchises to the equitable and lawful owners. This terminal company was formed in pursuance of an agreement between the plaintiffs and the defendant Barnes, providing for the organization of a corporation under the laws of this state, for the purpose of taking title to such property as might be purchased, and for the payment therefor by the issuance of full paid capital stock or otherwise. This agreement provided that the parties thereto, the plaintiffs and the defendant Barnes, should bear equally the costs of such property as might be purchased, and all expenses incident to the creation and organization of the corporation, and of the contemplated enterprise generally, and they were to share equally in the profits, benefits, and advantages that mi git accrue from the execution of the agreement. It is therefore the agreement which is beyond the corporation which controls the rights of these parties in this action, and it is the execution of that agreement which the courts are called upon to enforce, and the profits, benefits, and advantages to accrue from the execution of the agreement were to be shared equally by the parties thereto. By the agreement, the parties entered upon a joint enterprise, for their mutual benefit, and their rights and liabilities rest upon the express terms thereof, and

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are to be enforced upon the principles applicable to partnership transactions.

The action is prosecuted to establish and enforce the rights of the parties who have advanced money and incurred liabilities in reliance upon the agreement for the joint enterprise, and is therefore peculiarly and indisputably within the jurisdiction of a court of equity, and the remedies of injunction and receivership are incidental and necessary to the final and complete relief. King v. Barnes, 109 N. Y. 285 , 286, 16 N. E. Rep. 332 . “These litigating defendants cannot shroud themselves behind the company. The rights, duties, and liabilities of the parties to the agreement are not to be determined by the rules of law applicable to corporations in actions brought against them, and these rules of law cannot be invoked by these defendants in any stage of this litigation. This action is based upon the original agreement and general principles of equity jurisprudence, and applies to the general jurisdiction of courts of equity under which those courts decree the specific performance of agreements, relief against fraud, marshal property, adjust equities between parties to partnerships and joint adventurers, and vary their adjustments and operations so as to meet the very form and pressure of each particular case in all its complex habitudes.” 1 Story, Eq. Jur. § 439.

These defendants cannot, therefore, defend themselves against the charge of fraud made against them by setting up rules of law available to corporations. They are required to defend themselves and answer the charges made against them, without regard to the artificial body created under the agreement as a mere instrument to be utilized in the execution of a great scheme. They can claim no immunity under that organization. Neither can they place that body between them and justice; and the plaintiffs cannot be embarrassed in any way by reason of its existence, or by reason of any rules of law which it might invoke for its protection in a proper ease. The order appealed from should be affirmed, with $10 costs and disbursements.

MOTION TO DISMISS APPEAL.

A motion was made at the general term in December, in Brooklyn, to dismiss the appeal from the order of October 13, 1888, for the appointment of a receiver. The terminal company has passed into the hands and under the control of new officers, who do not desire further litigation on that subject. We have affirmed the order of October 13, 1888, at the present term of the court, and it is unnecessary for us now to dismiss the appeal. We will therefore deny this motion to dismiss, without costs.

APPEAL OP POST.

This is an appeal from an order of the special term of the supreme court inflicting punishment on the defendant Post for contempt in refusing to obey the mandate of the court. On the 13th day of October, 1888, an order was made at a special term of this court appointing a receiver of all the franchises, seal, and property of every description, records, books, and papers of the corporation known as the New York Transit & Terminal Company, Limited. That order also required all persons in possession of any such franchises, property, records, books, papers, and seal to surrender the same to the receiver on demand forthwith. A copy of the order was served on the defendant Post, personally, on the 19th day of October, 1888, accompanied by a letter from the receiver requesting Post to inform him at what hour that afternoon, or on the following Monday, the officers of the terminal company (Post being one) would deliver to him the property, books, papers, and seal of that company, as directed by the order. Post stated in reply that he would meet the receiver at the office of the company on Monday, November 22,1888, at noon. The receiver, with his counsel, attended at the appointed time and place, but Post was not there. Another appointment was made for a meeting at the same place on the following Wednesday, at noon, and the receiver and his

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counsel, Mr. Boardman, then met the defendants Barnes and Post and had an interview. A formal demand was then made for the books, seal, and properly of the Transit & Terminal Company, in accordance with the order of October 13, 1888, accompanied with a statement that the whole or any part thereof would be accepted. In reply to the demand, Mr. Post said he had taken counsel, and was advised that the order of October 13, 1888, was made in a case not authorized by law, and contrary to the express provision of the statute. He stated further that, in order to have the matter judicially determined, he had that morning obtained from the supreme court an order to show cause why the order of October 13th should not be vacated and declared void, which order was returnable on the following Friday, and he suggested that matters should be allowed to stand as they were until the hearing upon such order. To that suggestion no reply was made. At this interview Post made no denial of his inability to deliver the property demanded, and based his refusal to-comply with the order upon its illegality and invalidity solely. In his affidavit to oppose the motion for his punishment for contempt he says he did not then have any of the books or papers in his possession, which means only actual possession, and is far from a statement of want of control or ability to-comply with the order. On the contrary, his conduct and language amounted to an admission of ability to comply with, and obey, the order, and a refusal to obey because the order was illegal and void. Such conduct and refusal was-clearly contumacious. While the order was in force it was the duty of the defendant to obey it, and not to avoid it by subterfuges. If a party can be-permitted to disobey an order of the court because he deems it invalid, there will be a speedy end to obedience of legal process. Mandates of courts of general jurisdiction issued in the usual course of legal procedure are valid until reversed, and impose a duty of compliance, and disobedience thereto is contempt. 1

In this case, however, the design of the defendant was to avoid and defy the order. His pretense was false and frivolous. His conduct amounted to-a willful contempt, and presents a case for the interposition of the court for the vindication of its process. It is true that no punishment can be imposed for disobedience of a mandate in excess of the jurisdiction, and beyond the-power of the tribunal from which it issued; and the authorities cited by the appellant relate to that class of writs and orders. “Errors committed by a court upon the hearing of an action or proceeding which it is authorized to-hear, but not affecting any jurisdictional fact, do not invalidate its orders, or authorize a party to treat them as void, but can be taken advantage of only by.appeal or motion in the original action.” Fischer v. Langbein, 103 N. Y. 90 , 8 N. E. Rep. 251 ; Day v. Bach, 87 N. Y. 56 . Here the order for the-appointment of a receiver was within the powers and jurisdiction of the supreme court, and was made on notice and after full hearing in an action where the court had jurisdiction of the parties and of the subject-matter. Moreover, the order has been affirmed at the present term of this court, and our reasons for such affirmance are contained in the opinion prepared upon that appeal and require no repetition here. The order should therefore be affirmed, with $10 costs and disbursements.

APPEAL OF BARNES.

This is an appeal from an order made at a special term of this court judging the defendant Barnes guilty of contempt for aiding and abetting the defendant Post and Diosway in their contempt in willfully disobeying the order of this court. An order was made requiring the defendant Barnes and others-to show cause why they should not be punished for contempt, and, on the return of that order, an order was made adjourning the motion to October 20,. 1888, and directing the parties to attend at the court on the last-named day, with their witnesses, and that the testimony of such witnesses, and such-

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documentary proof as might be then produced by either party in respect to the charges made against said Barnes in the moving papers, be taken in open court. No opposition or objection was made to that order. The motion was subsequently adjourned to October 27,1888, and on that day the counsel for plaintiffs and for defendant Barnes both appeared, and testimony was taken before the judge in open court, and thereupon an order was made which adjudged the defendant Barnes guilty of the misconduct alleged against him in the moving papers, and that he had aided and abetted the other two defendants in their contempt and willful disobedience of the order of this court. A fine was imposed upon him of $250, and he was also committed to the county jail for six months. No objection was lodged against the order for taking testimony, or against the taking of the testimony in that way, or to the mode of procedure in any way at any stage of the proceedings, and it seems to have been assumed that all the proceedings in that respect were assented to by the defendant Barnes. No appeal was made from the order for taking the testimony until the time had expired, and then an order was made at special term permitting the defendant Barnes to amend his notice of appeal from the order inflicting his punishment for contempt so as to bring up for review the first order.

The first objection made to the final order is this: The preliminary order commanded Barnes to show cause why he should not be punished for contempt in refusing to transfer stock in compliance with the final judgment in tiiis action, and why the plaintiff should not have such other and further relief; whereas the final order for punishment was based upon a charge of aiding and abetting the officers of the company in their contumacy, and that variance is now claimed to be fatal. The final order was made after a full hearing, when all the parties were before the court, and is not beyond the scope of the preliminary order which did require Barnes to show cause why he should not be punished for the alleged offense of contempt, and the objection cannot prevail.

Again, it is insisted that the whole proceeding was erroneous because the judge received testimony on the hearing of the motion. We are by no .means prepared to yield assent to the claim of error here put forth as a proposition of law; but we are not required to decide the question because the defendant is not in a position to raise it. The order for oral testimony was made, and the testimony taken, without objection, and the defendant being present by his counsel must be deemed to have assented to the proceeding, and to have waived all objection which might have been made thereto. The legal view therefore is, the whole proceeding was by consent. There was no compulsory obedience to the order for oral proof, and the parties appeared voluntarily, and the testimony was taken, and it would be quite unjust to the plaintiff to permit no objection after such voluntary acquiescence in*the proceedings.

Upon the merits we find the conviction well sustained and fully justified. The proceedings show the infusion of the master will of Barnes to control the other defendants, and especially the defendant Post, to whom he furnished pecuniary aid as well as strength of purpose to resist the judgment and orders of the court. Entering the company upon the selection of others, under an agreement or understanding to resign on request, and permitted to qualify himself for a director by subscription for stock without paying therefor, the defendant Post has been from the first entirely subservient to the wishes of Barnes, sustained by his care, and moulded by his will, without freedom of thought or independence of action. We are prepared to sustain the conviction, and although the question of punishment is involved in some obscurity in all these cases of civil contempt, yet we think the punishment imposed on this defendant is neither beyond the requirement of the offense nor the authority of the statute. Aiding and assisting others in the violation and defiance of the orders of the court amounts to a civil contempt, and may be pun

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islied as such. People v. Pendleton, 64 N. Y. 624 . A civil contempt may be punished by both fine and imprisonment, and, if the act or duty cannot be performed, then the imprisonment may not exceed six months and until the fine is paid. People v. Court of Oyer and Terminer, 101 N. Y. 245 , 4 N. E. Rep. 259 .

It was the duty of the defendant Barnes to refrain from evil, and exert no malign influence upon his co-defendants, and for a failure of duty in that respect he has been punished. That duty cannot now be performed, and he may now be punished for his violation of the private rights of the defendants; and even though there be in such imprisonment a trace of the element of punishment, yet such punishment may be imposed to check similar violations in the future. 101 N. Y. 247 , 4 N. E. Rep. 259 . The order should be affirmed, with $10 costs and disbursements.

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