American Water Works Co. of New Jersey v. Venner

The complaint in this action alleges the; incorporation of the plaintiff in New Jersey, and that on the 1st of May, 1891, it became the owner and entered into possession of certain real and personal property rights, franchises, choses in action and assets situated in the states of Nebraska and Colorado,, namely, the water works, franchises, property, estate and assets which had belonged to a corporation under the similar and same-name organized under the laws of Illinois, and which was know Li-as the Omaha Water Works, by which the cities of Omaha, South Omaha and Florence, Douglass county, Nebraska, and the inhabitants thereof, were supplied with watei’, and the property which had belonged to the Denver City WaterWorks Co., a coi’poration organized under the laws of Colorado, consisting of the waterworks situated in and by which the city of Denver and the towns of Barnham, Highlands, Ellyria and Montclair, in the county of Arrapahoe and State of Colorado, and the inhabitants thereof, are supplied with water; that on or about the first day of March,. 1891, a contract was entered into between said The American Water Works Go. of Illinois, then being the owner of said water works in Nebraska, and the Denver City Water Works Co. aforesaid, 'then being the owner of the said water works in Colorado, wherein it is recited, among other things, that, whereas, the said companies regard the consolidation of their respective property and assets as advantageous both for economy and convenience of operation and maintenance of their respective properties, and for the strengthening of their respective positions, and whereby it was agreed that a new corporation should be formed whose name should be the American Water Works Company, with a capital stock of $13,000,000; $3,000,000 of preferred stock and $10,000,-000 of common stock, $1,501,000 of said preferred stock to be given to the Denver City Water Works Co. for distribution-among the preferred stockholders of that company and $1,000,000 to the-American Water Worses Co. of Illinois for the same purpose: $499,000 of said stock to be kept in the treasury of the consolidated company as treasury stock, and the $10,000,000 of common stock to be divided equally between the two companies. The agreement further provided'that each company was to convey to the new company its respective property and assets.

The complaint further alleged that upon the same day another contract was entered into between said two companies and the firm of H. Yenner & Co., whereby it was provider! that the Denver City Co. should forthwith, upon the execution of the agreement, deliver to Yenner & Co. a large number of its general mortgage five per cent, twenty year gold bonds (apparently of the face value of $1,000 each, although it nowhere distinctly appears), and that Yenner & Co. was to make disposition of these bonds in the-manner named in said agreement, with the exception of 640 of the bonds, which were to be taken by Yenner & Co. at the price of ninety and interest to date of delivery, and the purchase price

The complaint further alleges that Venner & Co. began to make and did make payments against said credit upon the account of said water works companies, so that in August, 1891, there remained due from them the sum of about $200.000; that in said month of August the firm of Venner & Co., who entered into the .agreement, was dissolved and a new firm formed under the same firm name who assumed and accepted all the benefits and obliga? tians of said agreement, and since said time have continued under the terms of said agreement to perform the same as the same had been demanded, until on or about the 23d day of September, 1891, when they, having to the credit of the plaintiff the sum of $184,000, notified the plaintiff that they would pay no further moneys on account of said indebtedness under said contract, and would not complete the performance of the same ; and that they refused the acceptance of a draft which was drawn against the account, and which was duly presented to the defendants for acceptance.

The defendants denied their refusal to carry out. the contract,

The complaint further alleges that at the time of the dissolution of the firm of Yenner & Co., the plaintiff was indebted on an open account to said firm, not referred to in the agreement above-mentioned, in a sum which the firm claimed to be about $73,000-but the exact amount of which the plaintiff was not able to state; that the new firm of Yenner & Co. claimed that this account had been transferred to it, and that after the formation of said new firm of Yenner & Co. the said last mentioned firm paid out some-further amounts on the same account as said $73,000, so that the-defendants claimed that the whole amount due to them on account of payments by them aside from their obligations under the agreement in question amounted to about the sum of $110,000, but the-accuracy of this claim the complaint states is unknown to the plaintiff.

It further appears that in August a meeting of the finance committee of the plaintiff was held and a resolution was passed authorizing the making of notes to the defendants on such time or times as might be found suitable, for such amounts of money as might from time to time be outstanding and ipwing by the-company; and that notes (which it is admitted were demand notes) were thereupon made for the sum of $1Q0,000 and delivered to the defendants ; and that at a meeting of the board of directors of the plaintiff on the 23d of September, 1891, the defendants demanded payment of said notes, and of a further sum said to be $10,000 on open account for which no note had yet been given.

The complaint further alleges that the plaintiff company was-on the 1st day of May, 1891, and ever since has been and now is, the owner of the credit mentioned in and all the rights under said contract between said companies and Yenner & Co. which belonged -to either of said companies parties thereto.

It is further alleged that at the meeting of the 23d of September, 1891, the plaintiff demanded of the defendants that.-they should fulfil their obligations under said contract, and make the-payments thereby required, and in response the defendants answered that they w'ould not perform said agreement and would, make no further payment of the notes and open account. What this last paragraph of the allegations means we are unable to comprehend.

Then follows an allegation that the meeting of the 23d of September, 1891, having been adjourned to the 3d of October, 1891,. the defendant Yenner stated that when the directors assembled on that day they would assemble at a funeral.

The complaint further alleges that the plaintiff is a solvent corporation, and from the statements made at the meeting of the said board of directors by the defendants as to their inability to make the payments under their said agreement the plaintiff was led to-the conclusion that the defendants were insolvent; and further

For a second cause of action the plaintiff, adopting many of the-allegations above mentioned, further alleges that the defendant Tenner and one Sullivan were the two vice-presidents of the plaintiff corporation; and that by resolution of the board of directors, passed on the 1st of May, 1891, the said Tenner & Co. were appointed transfer agents of the company, and as such transfer agents had possession of the stock books of the company; and that under and by virtue of the tenth paragraph of the contract before referred to (being the paragraph wherein said Denver Waterworks Company agreed to deliver to Tenner & Co. $3,599,000 [sic] of the common stock received from the plaintiff), said Tenner & Co. caused to be issued to themselves the amount of $3,499,000 of said common stock for the purposes in said tenth paragraph mentioned; and further,, that said amount was so fixed in order that Tenner & Co. might-have $2,500,000 of said stock for the purposes in said paragraph mentioned, and deliver $999,000 of the same to the order of divers parties in Denver on account of services which had been rendered to the company; and that Tenner & Co. did deliver said $999,000 to said parties in accordance with the understanding and agreement concerning the same, and retained $2,500,000 of said stock.

It further alleged that the sole consideration for the delivery of said stock to said Tenner & Co. was the performance by them of their agreement, namely, the furnishing of money to the amount-of $1,250,000 ; and that the plaintiff, by reason of the breach on the part of the defendants of their several agreements, is entitled to have said $2,500,000 transferred to it, or its order, for use for the purposes of the company; and that should said stock be-transferred by said defendants to strangers, the plaintiff would he deprived of a large and valuable consideration to give to othereto induce the furnishing of the moneys and procure the finishing-of the work of construction contemplated by the contracts ;* and that the defendants had lately given out and threatened that notwithstanding the failure and refusal on their part to keep their contract, the plaintiff should never have any benefit of said stock, and the plaintiff believed that unless restrained therefrom and said stock placed in the hands of a receiver, the defendants, to avoid the result of actions by the plaintiff, would transfer the stock, put the same afloat in the .markets of the world, and-put the same beyond the reach of the plaintiff.

This complaint was verified by a vice-president and an affidavit made by the secretary, who swore that the allegations contained in the complaint were true of his own knowledge.

The defendants denied having made any statements as to their inability to carry out their contract; and alleged that all they had .stated was that they could not make payments under said agreements and also go on making advances for other purposes, and so carry the entire burden of the enterprise without assistance from other people interested in it; and that the fact was that they had not only advanced money under the credit called for in the contract, but also advanced large sums of money which they were under no obligation to advance, and were the only ones connected with the company who advanced money for any purpose.

They denied that they were insolvent, and alleged that although they subsequently suspended it was caused by the institution of this suit, the result of which was to injure their credit and induce creditors to call loans which could not be met immediately, although their assets were amply sufficient to pay such debts.

The defendants further allege, in respect to the $8,499,000 of stock which was issued, that, in fact, the whole amount of $5,000,000 of said stock was issued to the Denver company, which transferred $2,500,000 thereof to them, and that no more had ever been transferred to them. They denied that the sole consideration for the delivery of said stock was the performance Try Yenner & Go. of their agreements in the said contract.

They also allege that there was no authority whatever for the commencement of this action; and that at the meeting of the 23d September the subject of adjusting the account between the company and the defendants was referred to the finance committee with instructions to report at the time to which said meeting might be adjourned, and that since said 23d of September there had been no meeting of the board of directors.

Upon the 29th of September, 1891, upon the complaint above mentioned, verified as above stated, this action was commenced, and a preliminary injunction granted, with an order to show cause returnable on the 2d of October. Upon the hearing of this motion, the foregoing facts appearing, the injunction was continued pendente lite, and from the order thereupon entered this .appeal is taken.

We do not see upon what theory this action can be maintained.

In the first place it seems to have been instituted absolutely

The defendant Yenner has precisely the same authority to direct the discontinuance of the suit as Yice-President Sullivan has to direct its institution. ■

But there are other points which seem to be equally fatal to the maintenance of the action. It is difficult to see what interest the plaintiff has in the $2,500,000 of stock issued to Yenner & Co. Although by the allegations of the complaint it seems to be alleged that this stock was issued by the plaintiff to the defendants Yenner & Co., yet the allegation of Yenner & Co. that this stock was issued to them by the Denver Co. is undoubtedly the fact, because such an issue harmonizes with the provisions of the contract which the defendants had entered into with the water works companies, and no other issue of stock could be a compliance with, the provisions of that contract, as this issue of stock is in the complaint alleged to have been. The agreement between the WaterWorks Companies for the formation of the new company shows that the Denver Company was to be entitled to $5,000,000 of the common stock of said new company; and then the contract between the companies and Yenner provides that the Denver Co., as soon as it receives the $5,000,000 of the stock from the plaintiff, shall deliver a certain amount to Yenner & Co. Where the title of the plaintiff to this $2,500,000 of stock is acquired is not. shown.

There is not a single allegation in the complaint tending to show the slightest particle of title in the plaintiff to this stock.

If it be said that the allegation in the complaint that on or about the 1st of May, 1891, the plaintiff became the owner and entered into the possession of certain real and personal property rights, franchises, dioses in action and assets situated in the states of Nebraska and Colorado, namely, the water works, franchises, property, estate and assets which had belonged to a corporation under the similar and same name, organized under the laws of Illinois, and which was known as the Omaha Water Works, and the property which had belonged to the Denver City Water Works Co., a corporation organized under the laws of the state of Colorado, comprised an allegation of title to this stock, it will be seen by a further reference to this allegation that the real and personal property, rights, franchises, choses in action and assets consisted of the water works by which the cities of Omaha, South Omaha and Florence, Nebraska, and the water works situated in and by which the city of Denver and towns of Barnham, Highlands,* Ellyria and Montclair, in the county of Arrapahoe and state of Colorado, are supplied with water; and that these are the

But reference may be had possibly to another allegation of the complaint, which is to the effect that the plaintiff company was on the 1st of May, 1891, and ever since has been and now is the owner of the credit mentioned in and all the rights under said ■contract Ex. B (being the contract between the companies and the defendants), which belonged to either of said water works companies and had succeeded to the same. But it appears that this was a succession to the rights under the contract between the water works companies and Yenner, and nothing more; whereas, the Denver Company’s right to the stock arose under the contract between the two companies, to which contract Yenner & Co. were not parties. It would appear, therefore, that the plaintiff was absolutely without the shadow of a title or claim, so far as these papers disclose, to a single share of the stock in question.

But if this were not so, there is another complete answer to the claim of the plaintiff, so far as this stock is concerned. By this agreement, Yenner & Co. agreed to purchase certain bonds at a given price and make certain advances; and as an inducement to the purchase, these shares of stock were to be delivered to them as soon as received by the Denver Co.

The allegation in the complaint is that the bonds were purchased and the stock delivered, and that Yenner & Co. paid out ■of said purchase money upon account of the plaintiff a large amount of money, although a balance still remained due at the time this action was commenced.

Upon what theory can the plaintiff rescind this contract in part, and retain the benefits in part ? It claims the right to recover the balance of the purchase price of the bonds from Yenner & Co., and yet denies the right of Yenner & Co. to hold the stock which was delivered to them to induce them to purchase the bonds. Yenner & Go. have precisely the same title to this stock as any other purchaser for valúa They have the same title to this stock that they have to the bonds. They agreed to pay ninety per cent, for the bonds. The stock was to accompany the bonds, and if there has been a failure of. consideration (even if the plaintiff was the owner and seller of the stock) it could not recover it back without returning that which it had received. Simply because ■a party has not paid the full purchase price which he has agreed to pay for articles, does not justify the purchaser in taking some of them out of his possession unless some such provision is made in the agreement

But it is said that the consideration for this stock was the performance of the agreement between the water works companies and Yenner & Co., and that they have failed to perform their agreement. The construction of the agreement does not bear out this contention. The tenth paragraph of the contract is that the Denver Co. has found it is unable to raise the money with which to complete the proposed works, etc., and that Yenner & Go. were

Now, there is no question but that Yenner & Co. have taken a large amount of these bonds and paid ninety and interest for them, and it is claimed by the plaintiff that they are indebted to it for a large amount of said bonds in addition to the amount of money which they have already paid. Can it be possible that they can be compelled to pay for these bonds, and not have that which was to accompany them ?

The claim that- defendants were insolvent is certainly not substantiated. The fact that they suspended subsequent to the commencement of the action does not establish that result. It does not follow that they would have suspended had it not been for the difficulties arising out of the commencement of the action.

The claim that they have refused to continue their advances is entirely unsubstantiated, the foundation of the allegation being the refusal to accept a draft which defendants allege, and which is not denied, was irregularly drawn. And there is not the slightest pretence that the defendants had failed up to that time in performing any of the obligations of this contract; and certainly the failure to accept an irregular draft could not be considered such a violation. It appears from the allegations in the complaint that the defendants had been advancing money to the plaintiff outside of and beyond anything which they were required to do by their •contract, and beyond that which they were to make for the purposes of Denver construction.

Thus it would seem that all the equities of the bill have been met, because this injunction cannot be sustained by anything that may have occurred afterwards.

It is claimed in the points of the counsel for the respondent that Yenner & Co., subsequent to the commencement of the action, made an assignment But there is no evidence to that effect; -and even if the fact were so, it could not support an injunction which had no foundation whatever at the time it was made.

There, therefore, seems to be no basis whatever for the injunction restraining the defendants in respect to the stock.

We next come to that part of the injunction which forbids the defendants from in any manner bringing any actions upon or assigning the notes of the plaintiff or the open account due from the plaintiff. This claim for injunction is apparently founded upon the allegation that the plaintiff believed that it is the intention of the defendants to either transfer the aforesaid notes of the plaintiff for the purpose of having an action brought upon them against the plaintiff or bring action upon them by themselves, or transfer the same by assignment to creditors, and by reason of the Jaws of the states of Colorado and Nebraska upon an action being

In other words the plaintiff, a foreign corporation, being indebted to the defendants in a certain sum of money, and claiming an indebtedness from the defendants to it in another sum of money, comes into the jurisdiction where the defendants reside (we say where the defendants reside, because they are presumed to reside in this state, they doing business here and no other place of residence being given) and does the very thing which it alleges the defendants intended to do, viz.:-issue an execution before judgment. We say issue an execution before judgment, because the injunction which they have issued serves the same purpose.

Mow apart from any other consideration; can a foreign corporation be permitted to use the courts of this state for any such purpose? Gan the plaintiff be' allowed to issue execution before' judgment against the property of the defendants (these notes being their property), founded upon another claim against the defendants because the defendants may in the.state where the plaintiffs have property pursue their rights by the issuing of an attachment before judgment. We think not.

Besides, it is well settled that where a party has a defense at, law to an obligation a court of equity will not interfere to prevent an action at law being brought upon such obligation.

In Grand Chute v. Winegar, 15 Wall, 373 , it was held that a municipal corporation, the obligor in a bond, cannot .ask in equity that the obligee be enjoined from proceeding at law and that the bond be surrendered, where the bill alleges that the bond was issued without authority, in violation of law.and in fraud of the plaintiff and that the obligee knew this when he took it and his possession is merely colorable and that be gave no value for it, and never had any right or title to it. It was held that such allegations show a complete defense at law, and a judgment, against the obligee at law would give as full’ protection to the obligor as a decree in equity.

Mr. Justice Hunt uses language as follows: “And the result of the argument is that wherever a court of law is competent to take cognizance of a right, and has power to proceed to a judgment which affords a plain, adequate and complete remedy without the aid of a court of equity, the plaintiff must proceed at law because the defendant has a constitutional right to a trial by jury. The right to a trial by jury is a great constitutional right, and it is only in exceptional cases that a party may be deprived of it.”

In Allerton v. Belden, 49 N. Y., 373 , it was held that the right to apply to a court of equity to avoid a eontraet exists only where from the form of thé security the defense cannot be made available at law, or where the instrument sought to be avoided is a cloud upon the title to land or some other necessity for the in

“ The most usual ground for going into equity in such cases formerly was the necessity for a discovery to prove the usury. Bills of discovery being now abolished, some other of the grounds which formerly would have justified the filing of a bill for relief must appear in the complaint or it shows no right of action.”

No authority has been cited sustaining an equitable action on such ground, but on the contrary it has been uniformly held that where a perfect remedy both as to discovery and relief can be had at law, the action in equity cannot be maintained, and that the objection is available on demurrer.

So in the case of Town of Venice v. Woodruff, 62 N. Y., 462 , the same principle is laid down. And in Fowler v. Palmer, 62 N. Y., 533 , which was an action to compel the surrender of a note based on the ground that it had been paid but not taken up, the court held that the action could not be maintained in equity, and that the defense of payment was available in an action upon the note and no transfer could prejudice it.

In the Globe Mut. L. Ins. Co. v. Reals, 79 N. Y., 202 , it was held that an action to procure the cancellation of a written instrument cannot be maintained unless some special circumstance exists establishing the necessity of a resort to equity to prevent an injury which may be irreparable, and which equity alone is competent to avert. It is not sufficient that a defense exists against the instrument, or that evidence may be lost.

To the same effect is the case of Troy & Boston R. Co. v. Boston, Hoosac Tunnel, etc., Co., 86 N. Y., 107 .

Many other cases might be cited to show that courts of equity will not take cognizance of a cause of action simply to perpetuate a defense.

In the case at bar, if the plaintiff has any defense to the notes held by the defendants it is available to it.

The notes are payable on demand, have been demanded, and are due, and any defense which the plaintiff has against the notes may be available. But in the complaint they do not allege any defense, they virtually acknowledge that $100,000 is due upon the notes and $10,000 on the open account. They set up no defense whatever, but simply that they do not know what amount is due.

As far as their claim of indebtedness from the defendants to them is concerned, if the defendants proceed upon the notes in question the plaintiff has a right to offset or counterclaim the indebtedness. And it is no reason for the issuing of an execution before judgment that these reciprocal demands exist. It is impossible for the plaintiff by this method of procedure to prevent the defendants from having that trial of th$^ claim against the plaintiff before a jury which the constitution guarantees to them.

O’Brien" and Patterson", JJ., concur.