Leinkauf v. Lombard — 60 N.Y. Super. Ct. 142

Majority

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JOSEPH A. LEINKAUF, et al., Respondents v. JOSIAH LOMBARD, et al., Appellants.

Headnote

Contract for insurance on merchandise shipped,—Seaworthiness of vessel— Partnership or corporation—When officers or agents become personally liable in directing the action of a corporation beyond its corporate powers.

Held, that the real controversy in this action was narrowed down to three questions, namely: (1.) Whether there was a binding contract on the part of the steamship line to insure the value of the goods without any declaration of their value before the sailing of the Yidette, and if so, whether there was a failure of the steamship line to perform such contract; (2.) Whether the Yidette was or was not seaworthy, and (3.) Whether the defendants were associated in the control and management of the steamship line as individuals, or in their corporate interests and acting as officers of a corporation known as Lombard, Ayres & Co.

There was a mass of conflicting testimony on each of these questions and each of them was submitted to the jury. Held, that, upon the whole case, there was sufficient evidence to call for such a submission. That it would have been error to have dismissed the complaint or to have directed a verdict for the defendants. That the jury having determined the questions submitted to them in favor of plaintiffs, their verdict should be held conclusive.

Before Freedman, P. J., and Gildersleeve, J.

Decided January, 11, 1892.

Appeal from a judgment entered in favor of the plaintiffs upon the verdict of a jury, and from an order denying the defendant’s motion for a new trial.

Lombard, Ayres & Co., a "corporation, was duly incorporated under the laws of the state of New York on the 4th day of March, 1880, for the purpose of “ distilling and refining petroleum and incidentally thereto to buy, sell, manufacture, hire, let, store and otherwise deal

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in all materials, apparatus and products necessary or useful therefor or resulting therefrom or within the scope thereof, as such business is ordinarily conducted.” The defendants, Josiah Lombard, Marshall Ayres and Henry D. Haven were officers of said company, Lombard being president, Ayres being vice-president, and Haven being secretary.

The corporation, finding it necessary for the purposes of their business to purchase and manufacture lumber in Mobile for making staves for barrels and shocks for ■cases in which to place petroleum, directed their agents, Bowring & Archibald, of New York City, to charter two steamships for the purpose of transporting such lumber from Mobile to New York City, and in pursuance of such direction the steamships Vidette and L. D. Baker were chartered by said agents for the corporation. The corporation, finding that its products which it was shipping to Mobile on said steamers were not enough to take up all of the freight room of said steamers, directed the agents to advertise to carry freight on said steamers from New York to Mobile under the name of the New York & Mobile Steamship Line, which arrangement was assented to by all of the stockholders of the company.

On the 2d day of June, 1887, the plaintiffs shipped aboard the steamship Vidette, one of the steamers of said line, a quantity of merchandise to be transported on said steamship from the city of New York to Mobile. The said steamship left New York for Mobile, but while on the voyage and on or about the 12th day of June, 1887, was lost.

The plaintiffs claimed that in the contract of shipment of said merchandise the defendants contracted to insure the same, while the defendants claimed that the said corporation contracted to insure said merchandise only upon the condition that the value of the said merchandise should be declared before shipment. The plaintiffs also claimed that the vessel was not lost by a peril of the

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sea but was unseaworthy at the time of the shipment of said goods, and that for that reason the defendants are liable.

The corporation of Lombard, Ayres & Co. had the sole charge of said line, its shipments and business, receiving all the moneys and paying all the expenses, and the defendants in this action, Lombard, Ayres & Haven, had no interest whatever in said line, or in the receipts or expenditures thereof or in any liabilities therefor, except as officers and stockholders of the corporation.

Goodrich, Deady & Goodrich, attorneys, and John A. Deady of counsel, for appellants, argued :—

I. It is proven by the plaintiffs’ own testimony that the original contract with reference to the shipment of goods was that on the shipment the plaintiff would insure the goods, and that the agents of the line would return the plaintiffs half the premium, and that afterwards that the line or corporation would insure the goods without any extra charge. That on or about the 15th of April a conversation was had between the agent of the line and the plaintiffs in which the agent of the line stated that the insurance would not be made by the line unless the value was declared before shipment, and left with the plaintiffs certain slips or tickets on which that was printed. The plaintiff stated that they had some trouble with that arrangement and that they notified the agent of the line that unless they made a change in that arrangement with reference to declaring value before shipment that they would refuse to ship by the line. The agent of the line, Mr. Middleton, positively contradicted the statements of the plaintiffs last mentioned.

II. The second contention of the plaintiffs was that the steamer was unseaworthy and was lost by reason of said unseaworthiness and not by any peril of the sea. The testimony on the part of the plaintiffs failed to sustain said contention and the jury seems to have found against

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them, on the contention, as a verdict was given for the plaintiffs for the value of the goods and ten per cent., which was the amount of loss in case of failure to insure under the contract alleged by the plaintiffs.

III. No liability Avhatever on the part of the defendants is shown. There is no pretense that the company Avas ever called upon to pay the claim nor is it pretended that the company is not responsible pecuniarily. The only theory on which the plaintiffs sought to recover of the defendants Avas that the defendants Avere the officers of the corporation, and that the corporation had exceeded its powers in chartering the said steamers and becoming common carriers, and that by reason thereof the directors of the company became personally liable. The answer to that is two-fold. 1st. The corporation did not exceed its powers. All corporations exist for certain purposes only. If their poAvers are not expressly they are impliedly restricted to such only as are necessary for the due attainment of those objects. An incidental power is one that is directly and immediately appropriate to the execution of the specific power granted. The question is whether it is ultra vires as being beyond the power of the directors to bind all the stockholders. In the case of the Eastern Railway Co. v. Hawkes, 5 House of Lords Cases, 381, the court says : The decisions do not authorize directors to bind the companies by contracts foreign to the purposes for which they were established, but they do hold companies bound by contracts duly entered into by their directors for purposes for which they have treated as Avithin the objects of their acts and which cannot be clearly shown not to fall Avithin them.” In Shrewsbury & Birmingham Ry. Co. v. Northwestern Ry. Co., 6 H. L. Cases, 113, the court says : “ You must show that the particular contract is one which the corporation had no power to enter into; it must be shown on the face of the contract to be a breach of duty, something foreign to

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the object for which the company was created. Prima facie, all its contracts are valid, and it lies on those who impeach any contract to make out that it is avoided.” 3 Mac. Q., 382-418. In the absence of proof there is no legal presumption that the law is violated. Chatauqua Bank v. Risley, 19 N. Y., 369 . Corporations are liable for contracts entered into by their directors for purposes for which they have treated as within the objects of their acts, and which cannot clearly be shown not to fall within them. Eastern R. Co. v. Hawkes, 5 House of Lords Cases, 297. In the case of Bissell v. Mich. Southern Ry. Co., 22 N. Y., 258 , the court considered exhaustively the question of idtra vires, and in its opinion (by Comstock, J.) says, at page 264: “ Like natural persons they (corporations) can overleap the legal and moral restraints imposed upon them; in other words, they -are capable of doing wrong. To say that a corporation has no right to do unauthorized acts is only to put forth a very plain truism; but to say that such bodies have no power or capacity to err is to impute to them an excellence which does not belong to any created existences with which we are acquainted. The distinction between power and right is no more to be lost sight of in respect to artificial than in respect to natural persons.” We contend that the power to charter vessels was certainly within the powers granted to the corporation by its charter, and that the taking of freight for other persons besides the corporation was for the purpose of lessening the expenses of running the steamers and thus making money for its stockholders. 2d. The plea of ultra vires by a corporation is intended as a shield and not as a sword. It is for the sole benefit of the stockholders, and no one but a stockholder could take advantage of said plea, and the stockholders can waive said plea and do waive it by a knowledge of and acquiescing in the acts which are claimed to be idtra vires. In this case every one of the stockholders knew

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of and assented to the acts, and therefore they could not take advantage of said plea nor could the company, and so the court charged the jury. If the officers or trustees of a corporation do an unauthorized act or incur indebtedness which would not create a corporate liability, the stockholders may subsequently ratify and thus validate the transaction. Martin v. N. F. P. Co., 122 N. Y., 165 ; see also: Welch v. I. & T. N. Bank, Ib., 185; Palmer v. C. H. Cemetery, Ib., 431; Duffy v. O’Donovan, 46 Ib., 223. Indeed, no action was ever commenced against the company on the claim nor has the doctrine of id ira vires ever been asserted by either the corporation, the stockholders or anybody else, except the plaintiffs. Even if the contract was ultra vires merely, there is no occasion to deny to the plaintiffs the benefit of its provisions, since the validity of it is recognized by the plaintiffs, and performance accepted by the plantiffs. Rider v. Roche, 97 N. Y., 278 ; Parrish v. Wheeler, 22 Ib., 494.

IV. Conceding for the purpose of the argument that the act could be ultra vires on the part of the corporation, how are the defendants liable ? The learned justice who tried the case seemed to place the liability of the defendants on the ground that they received the profits and paid the expenses. But all of the testimony in the case on the part of the plaintiffs as well as on the part of the defendants shows that the defendants had no interest whatever except as officers; that all of the business were paid by the corporation and all of the expenses of the profits or receipts paid to it, and we confidently assert that no act or omission on the part of the defendants has been or can be shown which raise any liability on the part in this action.

V. “ The plea of ultra vires can only be interposed by a corporation and not by an individual dealing with said corporation.” See Bissell v. M. So. Railroad Co., 22 N. Y., 258 . It is now well settled that a corporation

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cannot avail itself of the defense of ultra vires where the contract has in good faith been fully performed by the other party and the corporation had the full benefit of the performance and the contract. Woodruff v. Erie Ry. Co., 93 N. Y., 609 .

Horace H. Deming and William F. Kip, attorneys and of counsel, for respondents, argued :—

I. The condition as to declaration of value and stamping the bill of lading before sailing was no part of the plaintiffs’ contract with the steamship line. The hill of lading is silent on the subject of insurance, and therefore does not exclude evidence as to a contract between the parties in regard to insurance, a subject to which it does not refer. The rule is laid down in Blossom v. Griffin, 13 N. Y., 573 . The oral negotiations leading to the very contract which the 'parties consummated by reducing it to writing are excluded by the rule, but it does not exclude an antecedent parol agreement of a different character, and impressing a different, but not inconsistent, obligation. Field v. Munson, 47 N. Y., 241 ; Schroeder v. Frye, 114 Ib., 269. Where a special contract is made for transportation, and goods are actually shipped thereunder, the issuing of a bill of lading differing from the contract is of no effect. Nelson v. Hudson River R. R., 48 N. Y., 498 .

II. The Vidette was un seaworthy. The question of the negligence of the defendants as common carriers, and of the unseaworthiness of the Vidette, was properly left to the jury, who found that the Vidette was lost on account of her unseaworthiness, and not on any other account, and that this unseaworthiness was due to the negligence on the part of the defendants in allowing the Vidette to go to sea in the condition she was in, and incompetent to resist the ordinary attacks of wind and weather. That the jury had the right to infer unseaworthiness at the beginning of the

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voyage was apparent from the fact first brought out in the evidence of the plaintiffs that, the vessel sprang a leak by no extraordinary stress of weather or perils encountered. This question of unseaworthiness was entirely a question of fact for the jury to determine. The proofs go to sIioav, and in the jury’s mind did show, that the Vidette must have been unseaworthy, and that her loss was not due to any storm or stress of weather, hut to defects existing before sailing. The plaintiffs’ testimony raised a presumption that the vessel was unseaworthy, and the jury found that this presumption Avas not overthrown by the testimony of the Avitnesses. Walsh v. Washington Ins. Co., I. and S. Co., 32 N. Y., 436 ; Wright v. Orient Mut. Ins. Co., 6 Bos., 269. And this testimony was also sufficient, in the mind of the jury, to prove a breach of duty of the defendants and their negligence as common carriers; for that the defendants Avere common carriers is beyond, question, as the evidence ubique shows, and to this there is no contradictory evidence. In fact, the name New York and Mobile Steamship Line was given to advertise it for the business of carrying merchandise. That name Avas apparently, to the jury, simply a cover for the defendants, and marked the name of their joint venture. It is noticeable that not a single exception was taken to the charge to the jury as to the seaworthiness of the vessel, or the rule of damages in case the jury found the vessel unseasvortliy, viz., the value at Mobile, the port of delivery. The jury found this to be the insurance value, viz., $8,319.08, without interest. And, as noted, there was plenty of evidence to sustain the jury’s finding that the boat was unseaworthy.

The controversy in this case arose out of a contract made by the plaintiffs with an agent of the New York and Mobile Steamship Line for the transportation of certain goods

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by that line from New York to Mobile. Under this contract the goods were placed on board of the Vidette, one of the steamers, of said line, which started from the port of New York bound for Mobile and was lost at sea. The action was brought to recover the value of the goods. The New York and Mobile Steamship Line was a common carrier, for hire, between New York and Mobile, but was not a corporation as its name might imply.

Upon the trial the real controversy Was narrowed down to three questions, namely: (1.) Whether there was a binding contract on the part of the steamship line to insure the value of the goods without any declaration of their value before the sailing of the Vidette, and if so, whether there was a failure of the steamship line to perform it; (2.) whether the Vidette was or was not seaworthy, and (3.) whether the defendants were associated in the control and management of the steamship line as individuals or in their corporate interests and acting as officers of a corporation known as Lombard, Ayres & Co.

There was a mass of conflicting testimony on each of these questions, and each of them was submitted to the jury. Upon the whole case there was sufficient evidence to call for such a submission. It would have been error to dismiss the complaint or to direct a verdict for the defendants. The disputed questions of fact were submitted to the jury under instructions which, taken together, fully and fairly guarded every right which the defendants had, and the jury having determined the questions submitted to them in favor of the plaintiffs, their verdict, in the absence of error, should be held conclusive. An examination of the exceptions taken discloses no error which calls for reversal.

The judgment and order should be affirmed, with costs,

Gildersleeve, J., concurred.