Card v. Moore

The question in this case is the title to the property and profits of a business carried on from August 26, 1897, to March 5, 1901. Card, the plaintiff, and Morehouse made a written agreement on August 26, 1897. That agreement provided that Card, who was a lawyer licensed to practice in the state of Connecticut, together with Morehouse and Crandall, should form a corporation to be known as the Salisbury Carbonate Iron Company of Connecticut, with a capital stock of $30,000, “and the company to be formed to the extent of obtaining the name, the election of directors and officers of said corporation, said Morehouse to be the president and treasurer, and said Card to be the vice president and secretary, of said corporation”; that, after the said name was obtained as aforesaid, the business be carried on under said name, and More-house should own one-half and Card one-half thereof; that Crandall should be director, but should have no interest; that Morehouse and Card should carry on the business as a copartnership between them in the said name, and that they should divide equally the profits and share equally the losses. The plaintiff contributed $2,000 in cash and stock in the Hamilton Iron & Steel Company and his half interest in the Kelley Mining Company and the Chatham Furnace Company as his half share. Morehouse made an equal contribution, but Crandall did not contribute. On August 31, 1897, articles of association were drawn up by Card, and executed between Card, Morehouse, and Crandall, whereby the corporation was located in the town of Salisbury, county of Litchfield, and state of Connecticut, and the subscribers were stated to be J. J. Morehouse, of Salisbury, Conn., 280 shares; A. M. Card, of Sharon, Conn., 19 shares; and E. L. Crandall, of New York, 1 share. In September, 1897, these articles were filed with the town clerk of Salisbury, Conn., and published in a newspaper of Litchfield county. The business was carried on thereafter for 15 years, with Morehouse in possession, management, and control thereof. During that period, and on April 11, 1900, an agreement was made between the “Salisbury Carbonate Iron Company of Chapinville, Conn., a corporation duly organized and existing under the laws of the state of Connecticut,” Morehouse, and Card, whereby Card abrogated and canceled his right and title and interest in a certain contract, and transferred his interest to Morehouse and the said company, and Morehouse and the said company in turn discharged Card, and whereby Card agreed to resign as secretary and director, and to cause Crandall to resign, and also agreed to perform any act or to sign any paper or to make any statement at the request of Morehouse which “would aid or facilitate in perfecting the corporate existence of the said company.” The agreement contained other provisions of adjustment and settlement not material to this case. On June 28, 1900, Morehouse and Card executed a further written agreement, reciting that the parties had been in business together in different enterprises for 15 years,—

Thus, chronologically, I have detailed such facts as are necessary in order to understand the objections raised by the appellants against the judgment of the special term. The plaintiff asserts title to the property and the profits of this business as the sole surviving partner of Morehouse, and seeks to enjoin the defendants from dominion over the property, to compel them to deliver it to him, to account, and to respond in damages. The defendants contend that the property is theirs as directors and officers of the Salisbury Carbonate Iron Company. The learned special term (Dickey, J., presiding) found that upon the agreement of June 28, 1900, Card and More-house entered into partnership in the business theretofore and since August 28, 1897, conducted under the name of the Salisbury Carbonate Iron Company; that Card was the sole surviving partner; that the statutes of Connecticut required, as a condition precedent, the filing of a certificate in the office of the secretary of state before the corporation could be formed; that this was not done prior to

The learned counsel for the appellants contends, first, that there was a corporation formed by Card, Morehouse, and Crandall. He says in his brief that "the only step omitted was the filing of one of two duplicate certificates. One was duly and timely filed in the office of the town clerk of Salisbury, Conn. The incorporators neglected to file the other one in the office of the secretary of state.” This is hardly accurate; for it assumes that the duplicate to be filed in the office of the town clerk is of the same potency and effect as that filed in the office of the secretary of state. Extracts from statutes of Connecticut for the formation of corporations were read in evidence. The germane provisions are as follows:

Gen. St. Conn. § 1944:

“Any three or more persons who shall associate by written articles which shall express their agreement to constitute a corporation, the name by which it shall be known, the purpose for which it is constituted, the town in this state in which it is to be located, the amount of its capital stock, and the number of shares each person is to take, * * * under any name commencing with ‘The’ and ending with ‘Company’ or ‘Corporation,’ which name is not then in use by any existing corporation in this state, for the purpose of carrying on any lawful business in this state, and out of this state, * * * shall, when so associated, and when a certificate shall have been filed with the secretary of state as hereinafter provided, become and remain a joint stock corporation under this chapter: * * * provided, that in such case the secretary and treasurer and the majority of the directors shall always be residents of this state. * * *”

Section 1948:

“The directors shall cause the articles of association to be published at full length in a newspaper published in the county where the corporation is located; and a majority of the directors shall make, sign and swear to a certificate setting forth a true copy of the articles of association, which certificate shall state that such publication has been made, and also the name of the newspaper containing such publication, with the date thereof, and shall also state the names and residences of the subscribers thereto, the amount of the stock taken by each, the amount actually paid for in cash, and the amount paid for in property, specifying the same and giving the actual value thereof, and in case any portion of said property consist of letters patent or rights under the same, the number and date of the patents, and the nature of the invention shall be given; which certificate shall be deposited in the office of the secretary of state, who shall cause the same to be recorded, and a duplicate thereof shall be recorded in the town clerk’s office of the town where the said corporation is located. No such certificate shall be received or recorded by the secretary of the state or by any town clerk which shall fail to state that twenty per cent, or more, as the case may be, of the stock has been paid for in cash, as required by tiffs chapter. * * *»

Section 1090:

“A copy certified by the secretary of this state, under its seal, of the original certificate of organization of any joint stock corporation, shall be prima facie evidence of the due formation, existence and capacity of such corporation.”

It is to be noted that the legislature had passed a general act, and that by proceeding under it Card, Morehouse, and Crandall were em

“Three of the directors are then to make affidavit in duplicate that the full- amount of stock has been subscribed in good faith. * * * The certificate and articles are to be filed in the office of the secretary of state, and a duplicate in the office of the clerk of the county wherever the railway or railways shall be located, and thereupon the persons who shall become stockholders shall be a corporation. The observance of all these essential requirements is therefore a condition precedent to a company of this description becoming a corporation, or acquiring the right to exercise any of the powers conferred upon such corporations by the rapid transit act.”

There are two answers to the contention of the learned counsel for the appellant: First. If the statute meant that the filing of a duplicate in the office of the town clerk should be of similar force and effect as the filing of the certificate in the office of the secretary of state, then I think that both requirements were material and conditions precedent. Thus, in the Cable Co. Case, supra, the provisions of the statute construed by Rapallo, J., required the affidavit of the

The further contends that the said agreement of April 11, 1900, wherein the Salisbury Carbonate Iron Company was named as a party, conclusively estops the plaintiff to deny the existence of the_ said corporation. It must be remembered that this is not an action brought against the Salisbury Carbonate Iron Company, born in igoi, but one brought to recover the business and proceeds of the business between plaintiff and Morehouse, in possession of the defendants. The precise question, then, is whether there was an estoppel on the plaintiff as to Morehouse. The learned court has found, and there is ample evidence to sustain it, that there never was intent to form a corporation on the part either of Morehouse or Card. The agreement of August 26, 1897, expressly declares their purpose, which was to carry on their copartnership under a corporate name. The agreement of April 11, 1900, in question, was between Card and Morehouse, who, upon the advice of counsel, also made the sham -corporation which they had set up. a party thereto. The contract -did not pretend to affect or to deal with the interests of third parties. There is no estoppel in favor of Morehouse if he knew that the statement was false, for it cannot be contended that Card’s act was calculated to mislead or did mislead Morehouse, acting in good faith. Trustees v. Smith, 118 N. Y. 634 , 23 N. E. 1002 , 7 L. R. A. 755 ; Hutchins v. Hebbard, 34 N. Y. 24 ; Maguire v. Selden, 103 N. Y. 642 , 644, 8 N. E. 517 ; Railroad Co. v. Van Horn, 57 N. Y. 473 . Vinegar Co. v. Schlegel, 143 N. Y. 537 , 38 N. E. 729 , cited by the learned counsel for the appellant, was an action brought by the corporation for an unpaid stock subscription. The plaintiff had executed written contracts with a copartner after his subscription, and there was also proof of. user. And the court held that, as the defendant had dealt with the plaintiff as a corporation, he was estopped from denying it; citing Warehousing Co. v. Badger, 67 N. Y. 294 ; Bank v. Pfeiffer, 22 Hun, 327 , affirmed 108 N. Y. 242 , 253, 15 N. E. 311 ; Eaton v. Aspinwall, 19 N. Y. 119 ; Railroad Co. v. Cary, 26 N. Y. 75 . Vinegar Co. v. Schlegel, supra, and the other cases cited supra (save one hereafter noted), turn upon the question of the liability of a stockholder, and therefore necessarily involved the rights of third

“The defendant was a shareholder of its capital stock, and that was apparent from the books of the corporation before the plaintiff gave it credit. This credit was given upon the faith not only of the liability of the corporation as such, but ultimately of the several shareholders of its capital.’’

Bank v. Pfeiffer, supra, concerned the dealings of third parties with the alleged corporation. The discrimination is plain between an estoppel where innocent third parties are concerned and an estoppel between parties dealing entirely among themselves and with their own interests. So far as the rights of the defendant are concerned, I shall discuss that question further on. Suffice it now to say that there was no estoppel as between Card and Morehouse. It certainly was not shown nor is it claimed that as to these defendants there was the slightest representation to them or dealing with them involved in the said agreement, or that they have suffered any loss or been -prejudiced in any way thereby. Indeed, it appears that years after-wards, when they first availed themselves of circumstances, they proceeded to complete the corporate formation by filing a certificate with' the secretary of state.

Nor can there be any question of a de facto corporation as between Card and Morehouse. Their omission to file a certificate was an overt act. User and a colorable creation may establish a corporation de facto. The basis of the principle is well stated by Bradley, J., in Lamming v. Galusha, 81 Hun, 247 , 257, 30 N. Y. Supp. 767 , affirmed 151 N. Y. 648 , 45 N. E. 1132 :

“As has already been observed, user as well as colorable creation is essential to a corporation de facto. Railroad Co. v. Cary, 26 N. Y. 75 . " And when it becomes such there is a relation between it and its officers, which will be recognized as effectual to enable them through such relation to justify the •exercise of their functions in the control, management, and operation of the business of the corporation de facto which they represent. For that purpose it is, as to third persons, no less effectual than a corporation de jure.”

But I think that Card and Morehouse, between themselves and as to themselves, could not create a corporation de facto. See Mor. Priv. Corp. § 778. In the leading case of Union Church v. Pickett, 19 N. Y. 482 , Selden, J., speaking of the dealings of a third party with .-an alleged corporation, says:

“In such cases, if the record is perfect, then perhaps nothing else need be shown; but, if imperfect, it may still stand in place of, and be equivalent to, a very considerable evidence of user. The imperfection of the record cannot be taken advantage of by a private individual who has entered into engagements with the corporation. The rightfulness of its existence not being in issue, of course evidence of any irregularities or defects in its organization, short of such as would show a want of good faith on the part of those concerned in the proceedings, would be wholly irrelevant. If the law exists, and the record exhibits a bona fide attempt to organize, very slight evidence of user beyond this is all that can be required.”

But in the case at bar, where the question is only between the parties, there is abundant evidence that there was an entire want of .-good faith, so far as the creation of a corporation was concerned. They deliberately set out, intending to stop short of forming a corporation. Unless, then, it be held that, as between the parties, those

The learned counsel for the appellants also raises the question of public policy, and cites the case of Van Dyke v. Brown, 8 N. J. Eq. 657 , 670. But the plaintiff is not asserting any right based upon the theory that there was a corporation formed. On the contrary, he is asserting that there was in truth a copartnership, and his contention that his rights are those of the sole surviving partner of More-house is inconsistent with any right founded upon the proposition that there was a corporation. In King v. Barnes, 109 N. Y. 267 , 285, 16 N. E. 336 , the court, per Ruger, C. J., says:

“A sufficient consideration is afforded to it by the mutual promises of the respective parties to contribute equally to the capital required to carry out the contemplated enterprise, and their agreement to share equally in the profits and advantages expected to accrue therefrom. It is entirely immaterial whether this agreement constituted a partnership in a technical legal sense, or whether it was a joint enterprise, to be conducted by the parties for their mutual benefit. So far as their rights and liabilities are concerned in this case, the result is the same, and rests upon the express terms of the agreement, and they are now to be enforced upon the principles applying to partnership transactions. Dyckman v. Valiente, 42 N. Y. 551 ; Anderson’s Case, 7 L. R. Ch. Div. 75.”

And, even if we assume that the business had been transacted in violation of a special statute, that would not be a defense to' an action by Card to recover the profits and proceeds of the business from these defendants. Wood v. Railway Co., 72 N. Y. 196 , 28 Am. Rep. 125 ; Hoyt v. Allen, 2 Hill, 322 . Van Dyke v. Brown, supra, cited by the learned counsel for the appellant, was reversed in 8 N. J. Eq. 795 ) 55 Am. Dec. 250 . The decision below did not deal with the rights oí A. and B., i. e., Card and Morehouse, but with those of C., a bona fide assignee of the rights of B. The higher court said that, if the claims of any of the parties depended upon giving their sanction to the proceedings in evasion of the statute, it would decline to do so.

The appellants attacked the agreement of June 28, 1900, as a forgery in respect to the signature of Morehouse and the date thereof. But the stress finally was laid upon the alleged change of the date. The testimony adduced by the appellants consisted of the opinion of certain experts that the signature was not that of Morehouse, of accounting for the presence of Morehouse elsewhere on the alleged day of execution, and the opinion of a famous expert that the typewritten agreement, both upon careful inspection and under the scrutiny of the microscope, showed that the date had been tampered with. The two witnesses to the agreement, one of them being the typewriter who prepared it, positively testified to its execution on that day. Four other witnesses gave very strong corroborative testimony as to its execution by Morehouse. The learned special term (Mr. Justice Dickey) justly says in his opinion that, if the evidence given by these witnesses be false, then six of them are perjur

We think that there is a failure of proof on the part of the defendant of any title to the business in question. The defendants alleged that they became bona fide stockholders of a defendant corporation upon the books, so far back as 1898, and that they acquired then, and have since retained, full legal and beneficial ownership of the shares of the stock then purchased by them, and they further alleged their right to possession is solely as directors. The defendant Moore testified that prior to the death of Morehouse he was secrétary of the company. He produced a separate paper of minutes of a meeting alleged to have been held on September 8, 1898, annexed to the minute book, which, he said, Morehouse told him he could have written in that way as well as in the book itself, as they could not typewrite in the minute book. The learned court struck out the contents of the paper, save the record of an election of officers. Moore testified that Morehouse agreed that he was to have one share of stock in part payment for work. He did not contend that he was a stockholder until the time of that meeting, but testified that one share was issued to him while the meeting was in progress. He testified that there was no writing made, but merely this agreement that he was to have one share of the stock; and, referring to the negotiations preceding the agreement of April 11, 1900, he testified that there was said, in relation to the transfer of Card’s share of the stock, that he was to have the 20 shares of that stock. It does not appear that the defendant ever paid anything for the stock, or that he ever received any stock, that he ever received any agreement for the stock, that there 'was in fact any stock, or that there was any corporation then in existence to issue stock, inasmuch as the minutes purport to have been made in 1898, while it is not pretended that the corporation was ever completed by the filing of the certificate with the secretary of state of Connecticut until 1901. So that the title comes down to this: That Mallory testified that before he attended the meeting of 1898, when Morehouse and Moore were present, he had received the transfer of a share of stock from Joseph J. Morehouse. He further testified: “I asked for a certificate. I didn’t obtain one. I obtained

The learned counsel for the appellant contends that the learned special term erred in the admission of evidence of the declaration of Morehouse, deceased. These declarations were made in the explanation of transactions between Card and himself. I think that evidence of these declarations was admissible as against interest. The theory of the defendants is that there was a corporation created by the acts of Card, Morehouse, and Crandall, in that there was a .substantial compliance with the statutes of Connecticut, or that there was a corporation de facto. If that were true, then the records of the corporation show that Morehouse owned almost all of the stock. If the real agreement between Card and Morehouse constituted an equal copartnership between Card and Morehouse, then any evidence of the declarations of Morehouse to that effect would be against his interest, and I think would be admissible in this case. Lyon v. Ricker, 141 N. Y. 225 , 36 N. E. 189 ; Greenl. Ev. § 147 et seq. But, if such evidence were incompetent, I think that its admission does not require a reversal of the judgment. Although the court of appeals in Foote v. Beecher, 78 N. Y. 155 , refused to sanction the rule stated in McSorley v. Hughes, 58 Hun, 360 , 12 N. Y. Supp. 179 , on the ground that it could perceive no reason therefor, yet it was careful to say: “If the evidence is slight or irrelevant, or if without it the fact is conclusively established by other evidence, it may be disregarded, because it could not have injured the other party.” See, too, Kelsey v. Cooley, 11 N. Y. Supp. 745 , and authorities cited; Granger v. Brooks, 3 App. Div. 129 , 132, 39 N. Y. Supp. 355 . The learned special term found the fact of partnership entirely upon the said written agreement made by Card and Morehouse on June 28, 1900, and I think that this alone, when established, was sufficient to warrant his finding. So far as the question of intent is concerned, the various writings heretofore discussed afford sufficient evidence in themselves to justify the finding that Card and Morehouse never intended to form a corporation. The other points raised by the appellants do not present such merit as to require comment.

The judgment should be affirmed, with costs. All concur, except WOODWARD, J., taking no part.