Collins v. Coggill — 30 N.Y. Super. Ct. 81

Majority

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Joseph N. Collins, plaintiff and respondent, vs. Frederick W. Coggill, defendant and appellant.

Headnote

1. Separate allegations or part of a defense cannot be stricken out as sham or false. Nor can a whole defense be stricken out as irrelevant or redundant.

2. A motion for judgment may be made upon an irrelevant defense if it stands alone, or it may be demurred to, or disregarded on the trial, if there are other defenses.

3. If a defense be relevant, irrelevant or repetitious matter in it may be struck out, but only in such manner as to leave the defense to remain in substance, after striking out such matter.

4. Separate allegations in a defense will not be stricken out as false and sham or irrelevant or redundant, when the parts left will consist of allegations which, standing alone, will be unintelligible.

6. Where an answer or defense contains several allegations constituting an entire defense, the whole should be struck out, or none.

(Before Robertson, Ch. J., and Monell and McCunn, JJ.)

Heard December 9, 1867;

decided May 3, 1868.

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This was an appeal from an order striking out portions of two defenses, (first and second,) and the whole of two others (fourth and fifth) in the answer as false, sham, irrelevant and redundant, and requiring one defense therein (the third) to be made more definite and certain. The action was brought against the defendant as a stockholder in a company, (the European Petroleum,) organized as a mining corporation under the statutes of this state which authorize the formation of corporations for such purposes, in order to render him liable to the extent of the par value of his stock, for a debt claimed to be due by such, company to Messrs. (Leonard B.) Lindsley and (Isaac B.) Cotterell, and assigned to the plaintiff! Upon that debt judgment had been obtained, and an execution issued thereon had been returned unsatisfied.

The complaint set forth the organization of such company under the statutes before mentioned; the amount of its capital stock ($100,000;) its division into a certain number of shares (10,000) of a certain par value each ($10 j) and that the defendant held stock therein' on the 10th of June, 1865, to the amount of one hundred shares, (at the par value, worth $1000.) It alleged that on that day that company made thirteen promissory notes bearing date of the same day, payable to the order of a Mr. (L. E.) Lahens, promising by six of them to pay, in the aggregate, at the end of a certain period (sixty days) from their date, a certain sum, ($9163.40,) and by the remaining seven to pay, in the aggregate, at the end of a certain longer period (ninety days) from their date, a certain other sum, ($9187.90,) and delivered them to Lahens, who, for a valuable consideration, and before maturity, indorsed and delivered them to Lindsley & Cotterell. It also alleged that such company renewed sucb notes by giving to the payee (Lahens) thirteen new notes, bearing date subsequently, (August 12, 1865,) payable in the sapae manner,

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six for the like aggegate amount as the first sixty days notes, at the end of a similar period, and seven for the like aggregate amount as the first ninety days notes, at the end of a similar period ; and that such payee indorsed and delivered the same to Lindsley & Cotterell in lieu of such first notes. It further alleged that Lindsley & Cotterell subsequently (January 22, 1867,) recovered judgment upon such last mentioned notes, in the Supreme Court of this state, against such company, upon which an execution was subsequently issued and returned unsatisfied, in March, 1867.

The defendant "set up five separate defenses in his answer. In the first he denied his being, on the 10th of June, 1865, or at1 any other time, a stockholder in the company mentioned in the complaint to any amount of shares; but averred that on a prior day to that date, (December 17,1864,) he was induced to subscribe for, and agree to purchase a certain number (100) shares of the stock of such company formed previously thereto (in which Lindsley & Cotterell had already become stockholders to a larger amount (2000) of shares, and had ever since continued so to be,) by certain representations “made on behalf of such corporation.” These representations were, that there were to be only a certain number (10,000) shares of stock, of a certain par value ($10) each. That all of them would, at or about the time of such subscription, be paid for in full at their par value, and the whole amount realized, (viz. $100,000,) be used and, applied in working and developing certain oil lands represented, also, to be under the control of such company; that such subscription should be void if all such shares were not so paid for at or about that time; that said corporation had purchased certain land, leasehold property and effects, (in the state of Pennsylvania;) and that parts of such lands had produced certain- quantities of oil; that one of their wells on

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a certain parcel of such land, had produced a certain number of (from 15 to 20) barrels of it daily; that one of other three wells on another parcel had produced a certain larger number (from 30 to 40 barrels) daily; another, a certain other number (20) of barrels; and the last had yielded some. Such first' defense then alleged that all of such representations were false and fraudulently made, to induce the defendant to subscribe for such stock, and that without them he would not have subscribed for the same. It also averred that $100,000 was not obtained from the sale of such stock or applied to working such oil lands; that the defendant did not know that such representations were false and-fraudulent, until after he had paid such company a certain sum ($500) on account of his.subscription; that in consequence of the failure to obtain such sum ($100,000) and apply it as before mentioned, such stock became worthless, and the defendant, in consequence of the falsity and fraud of such representations, offered to surrender up his certificates of stock issued to him on the return of such sum paid by him. Such defense admitted that one half of the capital stock had not been paid in, but took issue upon the indorsement and delivery of the notes of June, 1865, mentioned in the complaint, to Lindsley & Cotterell, the indebtedness of the company to them on the notes mentioned in the complaint, and the assignment of their judgment against the company to the plaintiff.

The second defense contained in the answer set forth, that Lahens negotiated with Lindsley & Cotterell for the purchase of certain real estate, and leasehold property, (in Pennsylvania,) on behalf of himself and others, including those who, in case of such purchase, should become shareholders in a company to be organized, in whom a title to such property should be vested, and that Lindsley & Cotterell knew of such agency; that to procure such purchase to be made, Lindsley & Cotterell made repre

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sentations ex'actly similar to those alleged in the first defense to have been made to the defendant, on behalf of such company, to induces him1 to subscribe; and that . Lahens, on a certain day, (November 28, 1864,) relying on such representations, entered into a written contract, under seal, signed by both parties, for the purchase of such property from Lindsley & Cotterell, therein set out verbatim.

By that agreement, as appeared from its contents, Lindsley & Cotterell sold all the real estate and leasehold property, described in a memorandum annexed thereto, for a certain sum ($50,000) in cash, and a certain other sum ($20,000) in stock of a company,, about to be organized by Lahens to own and use such lands and property.- A certain part ($25,000) of such cash, was to be paid on or before a certain day, (January 15,1865,) at an office in the city of New York, (Guerber & Co.’s.) Upon the title proving satisfactory on examination, the deeds for the property to Lahens being executed and delivered in escrow to a depositary, (H. A. Smythe, Esq.) the specified amount ($20,000) of stock was to be delivered. The residue of such cash, was to be paid in two equal installments at the same place, one in thirty and the other in sixty days from the time of such first payment, or sooner, at the purchaser’s option, when the deeds were to be delivered. -The property was to be conveyed free and clear of any and every incumbrance, by proper deeds and conveyances, with warranty and full covenants, and the possession of it delivered with such deeds. The memorandum annexed to such agreement set forth seven numbered parcels of land and property, whereof the first and second described the property set forth in the first and second defenses of the answer, and contained a statement of the yield of oil from wells on the same, precisely similar to that in such first defense alleged

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to have been made by the company to the defendant; and, in the second, by Lindsley & Cotterell to Lahens.

Such second defense, after setting out such contract, alleged that the company mentioned therein, and referred to in the complaint, was organized about a certain time, (December 4th,) in 1864, and that such contract was, on the same day, duly assigned to them, for whom it had originally been made'; that such company, upon the faith that the representations so made by Lindsley & Cotterell to Lahens, acting on behalf of such company, were true, assumed the obligations of such contract, and became the purchasers of the premises therein mentioned, in the, place of Lahens, and, with the privity and assent of Lindsley $• Cotterell, agreed to pay them the purchase money therein mentioned; that prior to a certain date, (June 10th,) in" 1865, such company actually paid, on account of such purchase, to Lindsley & Cotterell a certain sum, ($26,000,) and about that day gave the promissory notes mentioned in the complaint, as "part of the' consideration therefor; that both such notes and their renewals were made upon the belief of the company that such representations of Lindsley & Cotterell, to induce Lahens to enter into such contract, were true; but that they were false.

Such second defense then proceeded to negative such representations separately, and averred that consequently the property never had in fact been worth $26,500, as Lindsley & Cotterell well knew, and claimed that such notes mentioned in the complaint were without consideration and void, and the company were not indebted to the original payees (Lindsley & Cotterell) in the amount thereof.

The fourth of such defenses, after reaffirming the alie- • gations in the second, in respect to the consideration of' the notes mentioned in the complaint, averred that the defendant was not a stockholder of the company in question. The fifth of such defenses averred that the judg-"

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ment mentioned in the complaint had been wholly or partially paid by divers stockholders of such company, who were compromised with or released by the plaintiffs. The third of such defenses alleged, that in 1865, (June 10th,) and at the time of giving the notes mentioned in the complaint, and from the organization of the company in question, Lindsley & Cotterell owned a certain number (§2000) of shares in the capital stock of such company.

The motion to strike out was made upon the pleadings and an affidavit of the attorney for the plaintiff, (G. C. Genet, Esq.) That affidavit stated that such attorney acted as counsel for Messrs. Lindsley & Cotterell in the matter of the sale of the property in question to Lahens; that by the written order of the latter, and to save the expense of stamps, the conveyances of the property were made directly to the company, to whom he claimed to have sold the property, and (except one, which was deposited with the affiant,) were deposited with the depositary (Mr. Smythe) mentioned in their contract; that none of them were delivered to the ■company until a day in 1865, (June 10th,) when they were so delivered and the notes of the company received from Lahens; that notes of such company to Lindsley & Cotterell were refused, and new notes were made by them to Lahens and indorsed by him ; and that they never dealt with such company, except to receive money from them on Lahens’ contract.

On the part of the defendant, his own affidavit was read, containing the usual affidavit of merits, an averment of good faith in putting in the answer, an expectation of ability to prove the statements in it, by witnesses, his inability to get the testimony of such witnesses without considerable labor and expense, and his pecuniary ability to pay any claim.

The order appealed from struck out the fourth and fifth defenses; all of the first except the two admissions con

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tained therein that the defendant had been induced to subscribe for the number of shares of the stock of the company in question mentioned therein, on the day in 1864 therein specified, (December 17th,) and that one half of the stock of such company had not been paid in ; also all of the second defense except an admission that a company, mentioned in some undescribed contract and in the complaint, was duly organized, and that such contract was transferred to them; and an averment that prior to J une 10th, 1865, such company paid to Lindsley & Cotterell on account of some purchase, $26,500, and the denial that such company was on the 31st of January, 1866, indebted to Lindsley & Cotterell in any sum whatever. Such order also required the defendant to make his third defense more definite and certain by setting forth whether the (2000) shares of stock therein mentioned were those which Lahens agreed to give Lindsley & Cotterell for some property (not described) and the time when such stocks was issued. It also charges the defendant with the payment of the costs of the motion.

E. S. Van Winkle, for the appellant, defendant.

G. C. Genet, for the respondent, plaintiff.

The order appealed from in this, case not only strikes out two defenses as false and sham, as well as irrelevant and redundant, but also some of the allegations of two other defenses, for the same reasons. Separate allegations or part of a defense cannot be stricken out as sham or false. (Slack v. Cotton, 2 E. D. Smith, 398. Bell v. Ogden, 13 Abb. 93 , n.) No such piecemeal mode of trying issues can he tolerated. (Littlejohn v. Greeley, Id. 311.) Hor can a whole defense be stricken out as irrelevant or redundant. Upon an irrelevant defense

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either a judgment may be moved for, if it stands alone, or it may be demurred to or disregarded on the trial if there are other defenses. If a defense be relevant, irrelevant or repetitious matter in it may be struck out, but in such case the defense must be still left to stand in substance, after striking out such matter as was there before.

The order in question strikes out from the first defense, which is personal to the defendant, every particle of new matter set up as a defense, and leaves therein only two admissions, by which the defendant acknowledges in -one that he subscribed for a certain number of shares of stock of the company against which the plaintiff holds a judgment, at a time before the debt, upon which such judgment was obtained accrued, and in the other that not half of the capital stock was paid in. These admissions undoubtedly do not constitute any part of the original defense, as such, and strictly might have been stricken out as redundant, since the mere omission to deny the allegations to that effect in the complaint would have operated as an admission. Such order also strikes out from the second defense all new matter therein set up as a -defense, and leaves only incoherent and, (standing by themselves,) unintelligible allegations. The first alleges that some undefined contract having been made, a company, referred to in such contract, was on a certain day (December 4, 1864,) duly organized, and is the same as that mentioned in the complaint, and such contract was on that day duly transferred to it; the second, that such company had paid to Lindsley & Cotterell (the original judgment creditors mentioned in the complaint,) on account of such purchase, a certain sum ($26,500;) and the third that such company was not in January, 1866, indebted to said Lindsley & Cotterell in the full amount “ thereof” without stating of what or in any sum whatever.

It is very evident that the admissionsin the first defense,

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of the defendant’s subscription for stock as originally inserted, was modified by subsequent allegations of fraudulent representations on behalf of the company, by which he was induced so to subscribe, so that it could not have been read at the trial by the plaintiff as a simple admission, but piust have carried with it all such allegations, which the defendant could then have read on his own behalf. He also insisted, that the subscription,' which he admitted, was void, by reason of fraudulent misrepresentations. While even such admission was left as a fragment of a defense, with every thing else struck out which qualified it, the whole defense was not struck out as sham or frivolous. And I am not aware of any principle of law which entitles either party, to have stricken out of an entire defense or pleading, whatever controverts his right, as sham and frivolous, and that part alone left which admits what is necessary to sustain his case. The parts stricken out, were "not so stricken out, for either irrelevancy or redundancy, because nothing was left by which to test either. The order" appealed from was therefore clearly erroneous, for striking out either too much or too little.

Hnder the mode, in which the order appealed from deals with the first defense, I do not think we ought.to express any opinion as to the merits of such defense, as they may come up on a demurrer to it. I am inclined to think the learned justice, who .made the order, labored under the impression, that it was not alleged therein, that the fraudulent representations therein set forth were made by the corporation, whereas it is expressly charged therein, that the representations, at least as to the productiveness of the oil wells therein mentioned, were made by the corporation. It is not necessary to take into view, the other representations, as to the realization of a certain amount of money and the application of it in a certain way; for being merely promissory, they may be disregarded. There

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is no contradiction of any of such allegations in any affidavit on the part of the plaintiff so as to render the answer sham. If the validity of such defense were fairly before the court, it would be a. serious question, which does not seem yet to be fully settled, how far a stockholder of a company, induced to become so by its fraud, can escape liability to a creditor, in a proceeding directly by such creditor against him. (Bell’s case, 22 Beav. 35. Ex parte Ginger, 5 Ir. Ch. 174. Brockwell’s case, 4 Drew. 205. Nicoll’s case, 5 Jur. N. S. 205. Ayre's case, 25 Beav. 113. Henderson v. Royal Br. Bk. 7 E. & B. 356, E. C. L. 90. Daniel v. The Same, 1 H. & N. 681. Powis v. Harding, 1 C. B. N. S. 533, E. C. L. 87. Howard v. Shaw, 9 Ir. Law Rep. 335.) It had therefore better be left for consideration, on a motion to strike out the whole defense for irrelevancy, or, more properly, on a demurrer, as no court would probably hold that the defense was clearly frivolous.

The defense secondly set up in the answer is one to the" liability of-the company upon the original cause of action, on which the judgment was recovered. The same remarks are applicable to the parts stricken from this, as to those stricken from the first defense. Part of it is left, consisting of allegations unintelligible by themselves, as to a transfer by some unknown purchaser to the company, (involving the payment by them of some money to Lindsley & Cotterell,) and a denial of indebtedness to the latter. This last allegation might stand perhaps as a defense, even unaccompanied by any other allegations, but it was evidently part of an entire defense, and the whole should have been struck out, or none. The affidavit of the plaintiffs’ attorney undoubtedly tends to show, that Lahens was personally the only one with whom Lindsley & Cotterell dealt} but it does not deny that the former, (as alleged in such second defense,) acted in such negotiations with the latter, on behalf of the company, and the con

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tract between such parties for the purchase of land recites, that such company was to own and use such property. The allegations of such second defense are not therefore shown to be false, and the defense itself therefore sham. It is too serious a question, upon which to express any opinion, unless on more full argument, how far, notwithstanding misrepresentations fraudulently made by vendors of land to the agent of a future company, (whose organization is contemplated by both parties, as well as the transfer to them, when organized, of such lands,) when their obligations are subsequently received for its purchase money, the vendors can recover them; particularly where the original contract was not performed, either as to the time fixed thereby for the delivery of deeds or the persons to whom they were to be executed. The settlement of that question had also better be left to the determination of a motion to strike out the whole, or what is ‘more appropriate, a demurrer. I may also remark that the literal terms of the order leave in, the whole of the certificate of the execution of the contract' in the second defense without the .contract itself. I think this part of the order was also erroneous.

The fourth and fifth defenses are against any liability by the defendant for the original cause of action. In the first of them, he denies that he was a stockholder, when the purchase on behalf of such company, mentioned in the second defense, was made. There may possibly be some question, how far the two defenses may be consistent ; that is, if the execution of the deeds to such company in June, 1865, and the delivery of their notes to the assignors of the plaintiff at that time, be looked upon as an execution of the first contract made by the company, for which the defendant is sought to be made liable; because the original contract with' Lahens was not performed according to its terms, in January previous; in such case

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the defendant should have been only required to elect. As it is, the question also is too serious how far a new contract entered into by a company after the non-performance of or as a substitute'for a previous one, may be considered as binding upon those who have become stockholders in the mean time, to justify striking out such a defense on a motion, as irrelevant. ISTo argument seems to have been presented on the point at special term, and it was but slightly alluded to in the argument before us. The plaintiff’s point, that there is no indebtedness on an executory contract, until it is fulfilled, for which Garrison v. Howe, ( 17 N. Y. Rep. 465 ,) is cited as authority, might still be doubted, as that case arose on the interpretation of the twelfth section of the act in regard to the liability of trustees, which uses only the term “ debts,” while the section under which the defendant. is sued, speaks both of debts and contracts. Besides, by the terms of the contract of Lahens, the deeds were only deliverable on the payment of the money, while in Garrison v. Howe, (ubi sup.) the company were not to be liable until the delivery of the lumber. If the action in that case had been for damages for not taking the lumber, instead of for its price, the rule might have been different.

The last defense was objected to, only because it was not a complete bar. I apprehend, that that technicality is done away with, and a partial defense, such as part payment, may always be pleaded. Besides, there is a grave question presented, whether a release by the plaintiff of one of several joint stockholders in a company, is not a • discharge of all.

As to the third defense, it is admitted to be good as it stands, but the defendant is called upon to make it more definite and certain, by an independent allegation, whether the stock owned by the plaintiff’s assignors was given for the lands, the boring and mining of which was the pur

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pose of the company in question. I do not see that that would make it less indefinite or uncertain. What the stock was given for, is an entirely separate fact, not making the quantity or description of stock more definite. If it was such stock, that was a matter to come from the other side by way of rebuttal, or perhaps the defense might have been struck out as sham, on proof of the fact.

On the whole, therefore, I think the plaintiff should have been left to his remedy on demurrer or on the trial, and that none of the defenses were so plainly and palpably sham as to have justified their being stricken out on motion, even if they had been as such. The denial in the first defense of the allegation in the complaint, of the delivery of the company’s notes to Lindsley & Cotterell for a valuable consideration, was not inconsistent with the allegation in the second defense, that such notes were given in payment of the purchase money for the land in question, if it was worthless, as the defendant alleges.

The order in this case must be reversed, without costs to .either party.