Rittenhouse v. Winch — 32 N.Y. St. Rep. 506

Majority

p. 506

Stacy B. Rittenhouse, App’lt, v. Minot F. Winch et al., Res’pts.

(Supreme Court, General Term, First Department

Filed June 6, 1890.)

Headnote

Manufacturing companies — Mortgage.

While the fact that the resolution authorizing the execution of a mortgage by the corporation was adopted by the votes of the persons owning the indebtedness to be secured thereby is a circumstance subjecting their action to scrutiny, it does not affect the validity of the mortgage where it appears that such indebtedness was a valid one incurred for the benefit of the corporation; that the rate of interest was reduced by means of the mortgage and the persons voting therefor were not individually benefited by this action.

Appeal from judgment of the special term dismissing the plaintiff’s complaint.

Isaac N. Miller, for app’lt; John A. Mapes, for resp’ts.

The plaintiff owns fifty-six shares of the capital stock of the New York City Ice Company. The company was formed under the general laws of this state for the formation of manufacturing corporations. Its capital was the sum of $250,-000, divided into 2,500 shares of $100 each. And the individual defendants owned all the shares not owned by the plaintiff. The company had become indebted to the extent of about the sum of $90,000. The indebtedness was secured by one mortgage for $20,000, on property purchased by it, and which the company assumed. And by another mortgage of the like amount to secure a debt owing by it. And the residue consisted in simple contract obligations. The mortgages and these other obligations seem to have been held by these individual defendants, and were carrying interest at the rate of six per cent.

The evidence, which was all given by the plaintiff himself, supports the conclusion that the mortgage and notes given by the company were all legal obligations enforceable against it. And no objection whatever existed against the other mortgage which the company assumed when the property incumbered by it was purchased from the plaintiff. The indebtedness afterwards created was for the improvement of the company’s property, its ice house having been enlarged from a capacity of eight or ten thousand to forty thousand tons. Indeed, no evidence was given from which it could be held that any part of the debt was subject to the least degree of suspicion, or that its enforcement against the company could to any extent be successfully resisted.

After this indebtedness had been incurred, a meeting was held at which all the trustees and shareholders, including the plaintiff, were present. And at that meeting it was proposed to make a mortgage on the property of the company to secure bonds, with interest at the rate of five per cent., to- take the place of an equal amount of the indebtedness. A resolution to that effect was offered, and it received the support of all the individual defendants and the opposition alone of the plaintiff. This support fully complied with chapter 163 of the Laws of 1878, permitting

p. 507

the company to mortgage its property to secure the payment of its indebtedness when a majority of at least two-thirds of its stockholders assented thereto. For the persons voting in favor of the mortgage owned all the stock of the company except fifty-six shares owned by the plaintiff. And it is this mortgage that the plaintiff by this action endeavored to set aside and annul. The ground of objection to it was that the resolution authorizing it was adopted by the votes of the persons owning the indebtedness. And that is á circumstance subjecting their action to scrutiny. But it is quite evident that they were not individually benefited by this action, for it in no degree increased the liability of the company to them. The result was otherwise, for the rate of interest was reduced to the extent of one per cent If the mortgage had not in this manner been sanctioned, there is no evidence in the case warranting the belief that the company could have avoided payment of any part of the debt provided for by the mortgage. It therefore was in no respect injured by this action of the trustees and shareholders.

In case an obligation had been created for the benefit of these trustees which previously had no existence, then, without doubt, the plaintiff’s action would have been a proper means of avoiding it. For the law will not allow persons occupying the position of trustees to a corporation to create a pecuniary, or other advantage for themselves, or any one of their number acting with them. But nothing was done by these defendants violating this legal principle. And this case is not therefore within those cases which have been cited to support; the appeal. In Duncomb v. New York etc. R. R. Co., 84 N. Y., 190 , it was said that the rule which has been alluded to, will not apply, “ where the trustee’s act consists, not in possessing himself of the property of the beneficiary, as owner, but in taking collateral security for a debt honestly due him, or a liability justly incurred,” for the security cannot be avoided without making payment of the debt. Id., 199 . And neither the cases of Harpending v. Munson, 91 N. Y., 650 , or Munson v. Syracuse, etc. R. R. Co., 103 id., 58; 3 N. Y. State Rep., 31, or any other which has been mentioned by the counsel, disturbs or questions this principle. But it has been still more recently sanctioned by the case of Richardson v. Green, 133 U. S., 30 , where it was said that, “ undoubtedly his relation as a director and- officer, or as a stockholder of the company, does not preclude him from entering into contracts with it, making loans to it, and taking its bonds as collateral security, but courts of equity regard such personal transactions of a party in either of these positions, not perhaps with distrust, but with a large measure of watchful care; and unless satisfied by the proof that the transaction was entered into in good faith with a view to the benefit of the company, as well as its creditors, and not solely with a view to his own benefit, they refuse to lend their aid to its enforcement.” Id., 43 .

The security now in question was provided for the benefit ol the company as well as that of the individual defendants, and it has its foundation in good faith as well as honest dealings. There

p. 508

was no legal ground disclosed on which it could be successfully impugned or reduced.

And the judgment should be affirmed, with costs.

Yak Brunt, P. J., ánd Brady, J., concur.