Gray v. Oxnard Bros.

The plaintiff was appointed the receiver of the property and effects of .the North Eiver Sugar Eefining Company under a judgment dissolving the corporation on account of its having become a party to an illegal combination formed for the manufacture and sale of sugars, syrups and molasses. The judgment dissolving the corporation was brought by appeal before this general term, where it was affirmed. People v. North River Sugar Co., 54 Hun, 354 ; 27 N.Y.State Rep., 282. An appeal was then taken to the court of appeals, upon the disposition of which the judgment was again affirmed. People v. North River Sugar Refining Co., 121 N.Y., 582 ; 31 N.Y. State Rep.,781. By the complaint it appears that the plaintiff as receiver has obtained possession of the money and property of the North Eiver Sugar Eefining Co. and now has the same under his undisputed control.

But it is further alleged that the company entering into and forming the combination, which was formed between it and other incorporated companies, created a partnership under which the business has since been carried on. And that gains and profits have been derived from the business, which, by the deed creating the association, are to be divided and distributed,- and that he as receiver of this company is entitled to participate in that distribution. And judgment has been demanded that the partnership or association shall be dissolved on account of the dissolution by operation of law of the North Eiver Sugar Eefining Company, and that a settlement of its affairs shall take place. The theory of the plaintiff’s action is that he, as receiver of the North Eiver Sugar Eefining Company, is entitled to maintain this action for the settlement of the affairs of the combination and the distribution of its assets. And his authority to maintain the action must necessarily depend upon the fact that the company represented by him as receiver is entitled to the relief in whole or in part which he has demanded. If he as receiver has no interest in or right to recover any part of the assets or profits of the combination, then it follows that the action which he has instituted cannot be maintained.

Whether he has that right must be determined by the consideration of the deed under which the combination was formed and the transactions following the execution of that deed. The deed itself will be found in the report of the case of the People v. The North River Sugar Refining Co., in the court of appeals, supra. By this deed the combination which was formed was denominated the Sugar Refineries Company. Its affairs were to be managed by a board of eleven trustees, which might be increased to thirteen by a vote of a majority of its own members. And it

It was further provided that, in the allotment of shares, fifteen per cent of the certificates should be left with the board. The deed then declared that the profits arising from the business of each corporation should be paid over to the board, and the aggregate, or such amount as might be designated for dividends, proportionately distributed by the board to the holders of the certificates issued by it for capital stock. It is quite plain from this, as well as other provisions contained in the deed, that it was intended as a part of the plan that the entire shares of stock in each of the eorporations becoming a party to it should be surrendered to this board and afterwards held by the board, and that in place of the shares transferred in that manner the combination, or Sugar Refineries Company, through the board, should issue equivalent certificates of its own, which would pass over to the owners of the shares in the several corporations, and that the profits of the business carried on by the combination should be paid and distributed among the persons holding these certificates. The complaint then proceeds to allege that, shortly after the execution of the deed, the entire capital stock belonging to each of the corporations was assigned and transferred to the board of the Sugar Refineries Company, and that certificates were issued in the manner provided by the agreement and delivered in return therefor to each of the corporations, and that certain of such certificates were distributed among the original stockholders in the corporations, in accordance with the terms of the deed or agreeement. It is further alleged as to this particular corporation that at or about the time of the execution of the agreement, the entire capital stock of the North

These allegations disclose the fact to be that after the deed or agreement was entered into its requirements were so far complied with as they provided for the delivery of the stock or shares of the North Eiver Sugar Eefining Company to the Board of Trustees of the Sugar Eefineries Company, and that this board had issued for the benefit of the persons entitled to receive them under the agreement the certificates which were to be exchanged for such shares. It does not appear by the complaint that either one of these certificates at any time became the property of the North Eiver Sugar Eefining Company; neither does it appear that any share of its own stock was surrendered by it to the board of trustees to be replaced by the certificate or certificates to be issued by the Eefineries Company. But the plain inference sustained by the complaint is that the shares of the North Eiver Sugar Eefining Company were outstanding in the hands of persons who had previously acquired the title to them, and that these shares had all been purchased by Mr. Havemeyer and the Trustees of the Sugar Eefineries Company, and that it was in place of these shares that the Board of the Eefineries Company issued their certificates. And they, from the tenor of the deed or agreement, may reasonably be presumed to have been passed over to the holders of the shares in the corporation in place of which the certificates were issued. These holders of the certificates consequently became the persons entitled to the earnings and profits of the Eefineries Company. The North Eiver Sugar Eefining Company is not shown to be entitled, as against the holders of the certificates, to participate in these profits, or either directly or indirectly to own any part of the assets of the Eefineries Company. And the result appears to follow that the title to these assets or profits never in any form vested in this receiver and he consequently has no right to recover the one or the other in this action. And that the persons who are entitled to the earnings and the assets of the Sugar Eefineries Company are the holders of the certificates issued by its own board, and that they, and not the corporations becoming parties to the agreement or deed, are the persons entitled to insist upon a dissolution of the combination and the distribution of its assets if that may legally be accomplished.

This receiver has by his own statements received all the property of the North Eiver Sugar Eefining Company. There is nothing further for him to obtain. But what has accrued from the combination and the transaction of the business is, by the terms of the deed as well as of the certificates, distributable only among their holders, and he is not one of those persons.

While the North Eiver Sugar Eefining Company continued^ to be a party to this combination it does not appear that anything

' It has also been alleged in the complaint that the combination was entered into for the unlawful purpose of controlling the manufacture' and sale of sugar, syrup and molasses throughout the United States, and increasing or advancing the prices thereon, and that this was an unlawful and illegal object. And so it was held by this general term when the case of the People was decided by it. If the plaintiff could maintain the action it could only be by enforcing the agreement or deed which was made against the Board of the Sugar Refineries Company and the other parties to the action. It is not for a rescission of the instrument and the recovery of any money or property of the North River Sugar Refining Company that the action has been brought, and the case therefore is not within the principle of Spring Co. v. Knowlton, 103 U. S., 49 . But it is for the recovery of the profits and earnings of the combination in the execution of this unlawful agreement, and to recover those profits or earnings the terms of the agreement must be maintained and enforced. And when that is the case the law has become settled that a party to such a combination cannot maintain an action dependent upon the agreement. Keene v. Kent, 4 N. Y. State Rep., 431; Woodworth v. Bennett, 43 N. Y., 273 .

This latter authority seems to be specially applicable to this appeal, for the action there was by one of the parties to an illegal partnership for the recovery of its effects so far as they were designed to be secured to him by the unlawful agreement And it was held by the court that the action could not be maintained. A very large number of authorities have been collected and cited in the brief of the counsel for the appellant illustrating the cases in which the parties to an unlawful agreement were not deprived of redress by reason of its illegality, but they all differ so essentially from this case as not to require any special examination. Some of them are peculiar in their consideration of the legal principle applicable to illegal contracts, but neither has gone so far as to maintain the right of a party to recover the fruits of the illegal transaction when an appeal to and dependence upon the terms of the agreement is required for that purpose. On the contrary, the courts have uniformly held that an action for redress under those circumstances cannot be maintained. And this has been finally sanctioned by Leonard v. Poole, 114 N. Y., 371 ; 23 N. Y. State Rep., 753.

I cannot concur in the conclusion arrived at by Mr. Justice Daniels, that even if the combination which resulted in the formation of the Sugar Refineries Company had been lawful, that the receiver of one of the combiners would have no right to an accounting for profits earned by the company because all such profits belonged to the holders of the certificates issued by the trustees of the combination. Because, as the receiver represents both the stockholders and creditors of the corporation of which he has been appointed receiver, and as the certificates issued by the combination simply represent the stock held in trust by the combination, and as it is because of the deposits of this stock that certificates were issued to the depositors of the stock by the combination, the receiver of the corporation representing this stock seems to have the right to enforce any obligation inuring to the advantage of the stock. The corporation having died, its shares of stock, as such, have been extinguished, and the receiver has succeeded to all the rights of the stockholders to gather in property which they, as stockholders, have the right to claim. The certificates issued by the combination represent nothing but this stock; stand in lieu of it, and when all the rights arising from the holding of the stock are transferred by operation of law, it would seem that no rights could be enforced by the holder of a certificate issued to represent the stock but which no longer did so.

I concur in the view that the action cannot be maintained because of the illegal character of the contract by which the combination was formed. This action is brought for the enforcement of the provisions of that agreement, and as a court will never lend itself to the enforcement of an illegal contract this action must fail.

Brady, J., concurs.