Robinson v. Jewett — 14 N.Y. St. Rep. 223

Majority

p. 223

Charles Robinson, App’lt, v. Hugh J. Jewett, as Receiver, etc., Resp’t.

(Supreme Court, General Term, First Department,

Filed January 23, 1888.)

Headnote

Corporations—Duty of officers in selling to the corporation— Obtaining profit for the performance of duty as such an ABUSE OF TRUST.

The plaintiff was a director and the president of the National Stock Yard Company. He had obtained a lease of certain property, and subsequently that company and the Union Stock Yard and Market Company were in actual possession of the leased premises. The plaintiff had obtained the lease for the benefit of both companies. The Erie Railway Company was the largest stockholder of the National Stock Yard Company On the 28th day of July, 1875, Hugh J. Jewett, as receiver of the-Erie Railway Company, entered into a contract with the plaintiff that the plaintiff should assign to the National Stock Yard Company whenever requested the said lease, etc., and the Erie Company, or the said receiver, thereby guaranteed the payment of taxes, etc., and one-fifth of the net. profits arising from the business carried on upon said premises or from the. use and occupation thereof. This action is brought by the plaintiff to recover one-fifth of the profits under the terms of the agreement. Held, that the plaintiff could not and it would be against all the rules of public policy to allow such officers to take a bonus for doing that which it was their duty to do for the benefit of their cestuis que trust. That this was an abuse of the trust imposed on the director and president of the corporation which cannot form a basis of recovery.

On the 8th day of April, 1875, Charles Edgar Appleby leased to the plaintiff certain premises in the city of New York, situate on the Eleventh avenue and between Fortieth and Forty-first streets, which had been used as stock yards for the term of ten years'from the 1st day of May, 1875, at a yearly rental of $21,370, payable quarterly, and the taxes-which might be imposed upon said premises. On the 26th of May, 1875, the defendant was appointed a receiver of the Erie Railway Company by an order of this court in an action pending therein between the People of the State of

p. 224

New York and the Erie- Railway Company, and also by like orders dated the 15th of June, 1875, in two other actions pending therein between the Farmers’ Loan and Trust Company trustees and the Erie Railway Company and John C. Bancroft Davis, as trustee, etc., and the Erie Railway Company.

At the times hereinbefore and hereinafter mentioned the plaintiff was a director and president of the National Stock Yard Company, and the said company and the Union Stock Yard and Market Company were in the joint occupation and use of said leasehold premises.

On the 28th day of May, 1875, at a meeting of the board of directors of the National Stock Yard Company, at which the plaintiff was present, the following resolution was adopted:

“ Whereas, Mr. Charles Robinson, for the benefit of this company, has taken a half interest in the lease of the West Fortieth street yard;

“Resolved, therefore, that the same be assumed by the National Stock Yard Company and that Mr. Robinson assign his interest in the lease to this company.”

And upon the same day the plaintiff executed an agreement, the parties to which were declared to be the plaintiff, the Union Stock Yard and Market Company and the National Stock Yard Company. This agreement, after reciting the lease hereinbefore mentioned and the fact that said lease was taken by the plaintiff for the joint benefit of said two companies, purported to assign the said lease to the said two companies.

The evidence in the case does not show that this agreement was ever delivered to the Union Stock Yard and Market Company, but it appears to have been delivered to the National Stock Yard Company, as it was produced upon the trial of this action from the papers of the largest stockholders of that company, namely, the Erie Railway Company.

Upon the 23 of July, 1875, the plaintiff appears to have executed another assignment of this lease whereby he assigned the whole of the lease to the National Stock Yard company. On the 28th of July, 1875, the defendant Mr. Hugh J. Jewett, as receiver of the Erie Railway Company, presented his petition to the supreme court by which he asked leave to execute certain contracts which were annexed to said petition, the said contracts being the two contracts hereinafter mentioiied between Mr. Jewett as re-receiver, and the plaintiff. On the same day the court granted an order authorizing the said receiver to execute the several contracts mentioned in the petition and to perform the same according to the tenor thereof. In pursu

p. 225

anee of such supposed authority a contract was entered into between the plaintiff and the defendant, as receiver of the Erie Railway Company which after reciting the lease in question and that on the 28th of May, 1875, the plaintiff had entered into an agreement with the National Stock Yard Company for the assignment to said company of said lease and that the Erie Railway Company had become largely interested in the National Stock Yard Company and thereby in said lease, provided as follows: that the said plaintiff should assign to the National Stock Yard Company whenever requested by its board of directors or the Erie Railway Company the said lease with proper covenants and ■conditions to secure the payment of the rent of said premises, and the Erie Railway Company, or the said receiver thereby guaranteed the payment on the part of the Stock Yard Company of the rent and taxes of said premises as provided for in the lease, and the said .Erie Railway Company, or the said receiver on its behalf, guaranteed to the said Robinson from the date of such transfer the payment by said National Stock Yard Company of the fifth of the net profits arising from the business to be carried on upon said premises or from their use and occupation as aforesaid. On the 30th day of July the plaintiff and the defendant as receiver as aforesaid, assumed to enter into another contract in pursuance of the power conferred by said order whereby the said Robinson sold and conveyed to the Erie Railway Company his right, title and interest in 3623 shares of stock of the National Stock Yard Company upon terms therein stated.

At the time of these several transactions the Erie Railway Company was the largest stockholder of the National Stock Yard Company.

On the 12th of January, 1876, the National Stock Yard Company and Market Company executed an agreement bearing date the 25th of October, 1875, whereby the National Stock Yard Company agreed to assign one half of the lease in question subject to certain conditions therein named: First, The Union Stockyard and Market Company agreed to assume and pay one half of all sums due the lessor from the date of the lease and of the costs of the pens and buildings erected thereon and all other expenses connected with the said lease and yards since the first of May, 1875, and to share in the same proportion any and all like expenses, risks, etc., due or arising under the said lease during its full period.

The said companies then agreed to call the said yards the Western Stock Yards, in which name the accounts, receipts and disbursements of the yard should be kept. The said

p. 226

agreement then proceeded to designate with particularity as to how the business of said yards should be conducted, and the profits divided.

On the 28th day of January, 1876, another agreement was entered into between the National Stock Yard Company, the Brie Railway Company, John R. McPherson, Hugh J. Jewett, as receiver, the Union Stock Yard and Market Company and others, whereby another arrangement was made in reference to the five stock which should be transported from the Erie Railway Company.

The business contemplated by these various agreements having been carried on thereunder, this action was brought by the plaintiff to recover his one-fifth of the profits arising, from the business carried on upon the said premises at the foot of West Fortieth street in the city of New York. The answer of the defendants alleged that there were no profits; that the agreement' was without consideration and void, and being a guaranty, and the principal not being bound,, there could be no recovery therein.

The issues thus raised were tried before a referee, who decided, upon the evidence before him, that there were no profits arising from this enterprise in which the plaintiff was entitled to share, and dismissed the complaint upon its merits. From the judgment thereupon entered this appeal is taken.

Joseph H. Choate, for app’lt; W. D. Shipman, for resp’t.

Without, in any manner, admitting that the court had any power to authorize the defendant, as receiver of the Erie Railway Company, to execute the guaranty sued upon, we will proceed to consider a question which seems to lie at the foundation of this whole action, and which is fatal to any recovery upon the part of the plaintiff.

At the time of these various transactions the plaintiff was a director and the president of the National Stock Yard Company. That company and the Union Stock Yard and Market Company were in the actual possession of the premises, the lease of which was on the 8th of April, 1875, taken by the plaintiff. By the instrument of the 28th of May, 1875, whether the same was delivered to the Union Stock Yard and Market Company or not, the plaintiff declared over his hand and seal that he had taken the lease not for his individual benefit, but for the benefit of the stock yard companies, and that this was the fact seems to harmonize entirely with the whole of the action of the. parties. '

It is true that Robinson, the plaintiff, subsequently as

p. 227

signed the whole of this lease to the National Stock Yard Company by an instrument bearing date the 23d day of July, 1875.

But in view of the subsequent transactions between the National Stock Yard Company and the Union Stock Yard and Market Company it is apparent that that transfer was made in the interests of both of those corporations, because we find that as prior to the lease, so from the moment the lease went into operation these two companies continued to carry on their business upon these premises uninterrupted by any of these changes in the nominal proprietorship of the lease of the premises occupied by them, and on the 12th of January, 1876, by the instrument bearing date the 25th of October, 1875, and executed by the National Stock Yard Company through the plaintiff its president and the Union Stock Yard and Market Company through Mr. Butcher its president, the rights of these two companies are definitely fixed.

At the time of the execution of the guaranty which forms the basis of this suit, the plaintiff as has been above stated was a director and president of the National Stock Yard Company and the Erie Railway company the largest stockholder of that company, and the plaintiff had taken this lease for the benefit of the stock yard companies and was in equity bound to transfer the lease to the stock yard com-j panies upon demand.

It is true that there seems to be some confusion in regard' to the interests which these various stock yard companies had in this lease; the plaintiff at one time alleging that he held the lease for the benefit of the two companies and at another assigning the whole of the lease to the National] Stock Yard company.

It does not appear however to be very material as to' whether he intended to assign the whole of the lease to the' National Stock Yard company because that company hadi notice of the equitable claims of the Union Stock Yard and I Market Company, and could not hold the lease as against■ those claims of the Union company, and recognized such rights by the agreement signed as before stated oh the 12th of January, 1876.

The agreement sued upon is sought to be maintained upon the grounds:

First. That the plaintiff was not bound to assign because of his official position and therefore upon his agreeing to assign he had the right to make such terms as he saw fit.

Second. That Robinson was not under contract to assign the lease to the National Stock Yard Company, and

Third. Had the plaintiff been under an express agreement with the National Stock Yard Company to assign to

p. 228

it the lease on demand without indemnity yet the contract in suit would have been for a valid and valuable consideration.

The claim that the plaintiff was not bound to assign because of his official position and that he was under no agreement to assign seems to run counter to all the evidence in the case and to the express declaration in writing of the plaintiff himself. He has over his own hand and seal declared that he took, this lease for the benefit of the National Stock Yard Company and the Union Stock Yard and Market Company, which is the most formal and decisive kind of evidence that could be offered in favor of the obligation resting upon him.

In view of this declaration it is not necessary for us to consider what would have been the obligation arising from his official position had he taken the lease to himself individually, being at the time a director and president of the National Stock Yard Company.

No matter what may be the general rule in reference to parties to a promise of reward for the fulfillment of a legal obligation, it is perfectly apparent that the plaintiff could not, and it would be against aE the rules of pubhc policy, governing the relations of the officers of corporations to the stockholders and to the corporations themselves to allow such officers to take a bonus for doing that which it was their duty to do for the benefit of their cestuis que trust.

If the plaintiff’s position can be maintained, then he as president of the National Stock Yard Company, having in his possession property which he declares to belong to that company, can exact a bonus from the largest stockholder of the company, as a condition of giving it up to the company.

The mere statement of this proposition seems to show that no such rule could possibly obtain in any court of justice. It might be true that the plaintiff would have had the right to claim indemnity upon the transfer of this lease, and that if the court had any power to authorize the receiver to execute a guaranty, such guaranty to that extent might be binding. But when a bonus is exacted, which the one-fifth of the profits clearly was, then there is an abuse of the trust imposed in the director and president of the corporation, which cannot form a basis of recovery in any court.

It seems to us that the plaintiff’s. proposition needs no argument to contradict it. It carries its answer upon its very face, and need only be stated in order to be distinctly understood.

If the citation of any authority is needed the case of The Metropolitan Railway Company v. The Manhattan Rail

p. 229

way Company and others ( 11 Daly, 373 ), and the cases therein cited sufficiently discuss the grounds upon which the rule above stated is founded, and need no repetition here.

It is true that the learned referee did not base his decision upon this point, but it appears in the case, as a question which was raised upon the trial, was discussed by the counsel upon both sides and is conclusive as to the right of the plaintiff to recover.

It has not been considered necessary to determine the question whether the contract was valid as a guaranty or not; nor as to whether it was the contract of the defendant or of the Erie Railway Company; nor as to whether there was any proof as to profits or any error in the exclusion of evidence in reference to that issue because none of these points have any relevancy whatever to the question which has been hereinbefore considered.

The result is that the judgment should be affirmed with costs.

Bartlett and Daniels, JJ., concur.