Vandyke v. Brown ( 1852 )

The Chancellor.

A. and B. own a manufacturing establishment, each owing half, in common. They obtain an act incorporating a company; subscribe, each, for half the stock, excepting four shares, which are put in the names of four other persons, merely for the purpose of having a sufficient number of stockholders to organize the Company in the manner directed by the act of incorporation. After the organization of the Company, by the election of Directors, A. and B. continue to conduct the business as before the act of incorporation, by and between themselves as individuals, the Company not acting by its Board. In this state of things, an account is made out by A. against the Company, and B. assents to it; there being no action of the Board assenting to it. Afterwards, C. became a bona fide assignee of the interest of B. in the Company, and asks an account of the dealings between A. and the Company. Does the assent of B., so given to the account of A. against the Company, bar the Company, or C. as a stockholder of the Company, from the time of such assent by B. to the said account of A. against the Company 1 Is it a case in which C. should be put to filing a bill to surcharge and falsify the account of A. 1

Persons obtaining, by an act of incorporation, the advantages of an incorporation, should be held, and that strictly, to conduct their business as a corporation, and in the manner required by the act of incorporation. One of the advantages of a corporation is, that the stockholders can only lose the amount invested in the corporation; their other property not being liable for the debts of the Company. But two persons doing business in. the manner above stated, under an act of incorporation, are in reality but an ordinary partnership, and should be liable to debts to the whole amount of their property, as well that invested in such business as that possessed by them disconnected with that business. The obtaining an act of incorporation by two men, to be used by them as above stated, is a fraud upon the community. And it would be encouraging such fraud to permit them to conduct their business simply as two individuals composing an ordinary partnership conduct their business. They must be held to conduct their business as a corporation, and be governed by the law of corporations.

Brown & Co. were commission merchants in Philadelphia, to whom the New England Manufacturing Co. sent goods manufactored by them, in their brown state, to be sold. Brown & Co. sent some of these goods to a printing establishment in Pennsylvania, and had them printed, and then sold them.

If Brown & Co. were not authorized to print the brown goods, I think the course to be taken, will be, that where the printing was advantageous to the Manufacturing Company, they shall have the benefit of it; that is, if by the sale of printed goods more is received than "sufficient to pay for the goods and the printing, the printing shall be deducted, and the residue go to the account of the Manufacturing Company; and if there is a loss by printing, the Manufacturing Co. be credited with the value of the goods in the brown state. No commissions on the expense of printing should be allowed.

My impression is, that Brown & Co. were not authorized to cause the goods to be printed.

The credit which Brown & Co. claim for short measure in the goods sent them must be struck out, under the testimony. There is no proper proof to contradict Benson as to measure.

The complainant’s stock was transferred to him July 7th, 1847. The last of the three drafts did not become due till October 25tb, 1847. I think the complainant entitled to an account, in order to ascertain whether D. S. Brown & Co. had funds on that day.

In December, 1845, the Manufacturing Co. owed, by Brown’s own statement, but $1,597.64; and that was paid. From that time the charges for interest amount to over $10,000. This cannot be right.

The suit in the Supreme Court is for the recovery of the amount of three drafts drawn by the New England Manufacturing Co. on D. S. Brown & Co., and accepted by D. S. Brown & Co. Prima facie the acceptance shows that the New England Manufacturing Co. had funds in the hands of Brown & Co. to the amount of the drafts. The plaintiffs in the suit in the Supreme Court allege, that the drafts were accepted by D. S. Brown & Co. for the accommodation of the New England Manufacturing Co., and were paid without funds of said Manufacturing Co. in their hands. The complainant in this suit, a stockholder of the said New England Manufacturing Co., denies this allegation. The bill and the facts admitted show, that it was impracticable for this complainant or the said New England Manufacturing Co. to make any defence in the said suit at law. And under these circumstances the complainant comes here for an account between said Brown & Co. and the said New England Manufacturing Co. I see no reason why the account should not extend subsequent to the maturity of the drafts: the whole case should be settled here.

Brown & Co. sent some of the goods, received by them in Philadelphia as commission merchants for sale, to New York and Boston, for sale, and the merchants there, to whom they Were sent, charged 5 per cent, for sale and guarantee; and Brown & Co. charge 2 1-2 for guaranteeing the goodness of the New York or Boston merchants. This cannot be allowed. If a commission merchant in Philadelphia to whom goods are sent for Sale, at 5 per cent, commission on sales and for guaranteeing Sales, receives more than he can sell in that market, he is not at liberty to send what he cannot sell in Philadelphia to New York, to a commission merchant there, and allow him the 6 per cent., for sale and guarantee, and charge the consignor 21-2 per cent, himself. If he were, he might, on goods sent to Philadelphia to-him for sale, after making his 5 per cent, on all that could be sold in Philadelphia, get 21-2 per cent, on all that could be sold in other markets, though commission merchants in those markets sell at 5 per cent, on sales and guarantee.

A manufacturing company would not send goods through Philadelphia to New York and Boston, and be thus subjected to-71-2 per cent., when they could send them direct to New York and Boston and have sales made and guaranteed for 5 per cent.

The manufacturer cannot be supposed to intend to send to one market more than can be sold there. The course would be, after stocking that market, for the manufacturer himself to send to other markets.

It was said in argument, that where the complainant goes for a general account and it turns out there has been a settled account,, vhe must amend, and surcharge and falsify. This supposes that an account is given by the defendants. How else can he amend, and surcharge and falsify 1 No account has been given here; and a settled account has not been pleaded, or properly set up by answer.

I do not think it safe to direct that rests shall be made at any certain periods. It may be that at the end of a year the balance against the manufacturing company is $10,000, and that in a month after, sales are made to $10,000.

It will be left to the Master to state the interest account as the nature of the account, the times of advances and the times of receipts from sales being regarded, requires.

Account ordered.