Rathbone v. Ayer , 105 N.Y.S. 1041 ( 1907 )

Kellogg, J.

(dissenting):

The defendants received stock in the corporation in exchange for . property transferred to it. This -they had ¡the right to do under section 42 of the Stock Corporation Law, as amended by chapter 688 of the Laws of 1892. The delivery of checks by the various stockholders, and. a return to them of checks for like amount, was a mere matter of form and had no meaning or effect except as it may indicate the intention of the parties. . The only ground of liability which can be urged against the defendants for their action is that the transaction was fraudulent, and that the stockholders knowingly put in the property at an'exaggerated value. The only evidence offered by the plaintiff tending to show a fraudulent overvaluation of the property was the fact that the property was put in at $500,000, and in fact cost the defendants, only $86,000. The conditions and circumstances under which the sale was made do not satisfactorily appear. The evidence showed that the property was a steel plant, out of use at the time; that it had been thoroughly examined after the defendants purchased and before its transfer to the company by competent experts, who reported that by an expenditure of about $5,000 the plant could be put into operation within thirty days so as to earn $3,000 a day. The details of the examination and many of the conclusions arrived at were shown. It also appears that before the transfer the defendants had made what they considered adequate arrangements for working capital and the conduct of the business. It is clear the defendants believed the property was worth much more than it cost them, and it is evident that it was worth much more than $86,000, considering the time, the manner and the purpose for which it was transferred to the company.

At the close of the evidence the plaintiff moved for a nonsuit. The plaintiff contended.that by the manner in which the stock was subscribed for and checks given and returned the, defendants were liable without reference to whether they acted in good faith or not with reference to the valuation of the property and that the defendants’ good faith was not in the case. The court asked the plaintiff what questions of fact he claimed there were for the jury. Counsel stated the question whether the tin-plate plant was transferred to the company asa part of the $500,000, and he did not know that that had any materiality under the evidence. The court suggested that it could make but a thousand dollars difference any way, as that seemed to be its value, and that defendants having asked for a non-suit perhaps it was better for the plaintiff to aslc the direction of a verdict arid submit it to the court. Plaintiff’s counsel said, -before passing upon the suggestion of the, court, he wanted to know definitely about the tin-plate plant. It was then agreed between counsel that the tin-plate plant was a part of the transfer and turned in at $1,000. ' Plaintiff then-asked to go to the jury upon the question whether the defendants, by means of their check, paid their subscriptions'in money.' The court declined to submit the question, holding that there was no question of' fact. on that subject. The court then reserved its decision of the motion for a nonsuit. The plaintiff said that before making any motion he desired to amend his complaint, which was allowed. Thereupon the plaintiff asked the direction of a verdict, and a written stipulation was drawn that the jury be discharged; that tlie court reserve the determination of the two motions; that counsel be heal'd upon them, and if the court determined the plaintiff’s motion should be granted that it direct.. a verdict for the .amount named in favor of plaintiff, and-if it determined the defendants’motion should be granted fhat it so order, and that- either of the two orders may. be deemed made in the presence of the jury with the "same effect as though made in their presence. This'stipulation enabled the court to dispose of the case only by granting one of those motions, -both parties claiming there was no disputed question of fact. The discussion upon the trial between the court and counsel shows that .the whole matter was left for the decision of the trial justice, and after the parties have made a stipulation discharging the jury and rendering it impossible for' the court t0‘ render any decision except, to grant a.motion for a nonsuit or to direct a verdict for the plaintiff, neither party is at liberty thereafter to claim that there was.a question Of factfoivthe jury. . The request by both parties fdr the direction of a verdict amounted to the submission of the whole case to the trial judge,, and his decision upon the facts has the same effect as if the jury had found a verdict in the plaintiff’s favor after submitting the case to ‘ them. (Adams v. Roscoe Lumber Co., 159 N. Y. 176, 180; Sigua Iron Co. v. Brown, 171 id. 488, 493.) The court did not hold, as a matter of law that the purchase price of the property was not some evidence of its-value. ‘ It clearly was some evidence of its value, although but -little is known- as to the circumstances or manner under "-which, it was sold. But the evidence is quite conclusive that the defendants believed they were making a great bargain in the purchase, and that after the examination and report by the experts they believed it had great value for use as a producing plant. It was bought by the defendants as scrap; it was sold by them as an operating plant. The trial justice well says that the disparity between $86,000, the price the defendants paid for the property, and $500,000, the price at which they put it into the company, is so great as persuasively to suggest that there was an overvaluation. There is no evidence as to what the property was worth to the company for the purposes for which it acquired it, or what the defendants believed it to be worth ; nor is there any evidence, as suggested by the trial justice, from which the court can find what amount of overvaluation there was. He properly holds that the plaintiff is not entitled to recover the profits the defendants made if they bought the property cheaply. The measure of their liability is their fraudulent overvaluation, if any.

Conceding, as we must from the evidence, that the defendants believed the property was worth much more than $86,000, and that in fact it was worth over that sum to be turned over as a producing plant to a corporation, there is no evidence from which the court can determine what the actual value of the plant was, how much it was overvalued or how much the defendants actually believed the plant was worth for the purpose for which it was turned over to the company. As the trial judge well says, those matters are left for the court to guess at. The plaintiff was required to establish his case by affirmative evidence and to show the fraudulent overvaluation as a basis for recovery. The presumption is that the officers of a corporation perform their duties to the corporation rather than violate them, and it will not be presumed that they turned the property into the corporation at a price which wronged it. We then have two sales of this property, one at $86,000, the conditions under which it was made not being shown, and one for $500,000, the circumstances of which are shown. We may, therefore, say that the last sale is some evidence of the value of the property as well as the first sale, and that the two, .under all the circumstances sliown, do not establish that the property was turned into the company at a fraudulent overvaluation. It is evident that the trial justice felt there was an overvaluation, but from the evidence he was entirely unable to determine the amount thereof, and, therefore, granted the nonsuit. The plaintiff did not, by affirmative satisfactory evidence, establish a case against the defendants, and under the motions and stipulation the trial court properly rendered judgment against hiun The judgment should, therefore, be affirmed.

■Sewell, J.-, concurred.

Judgment reversed on law and facts and new trial granted, with costs to appellant to abide event.