Inglehart v. Thousand Island Hotel Co.

BARKER, J.:

The trial court, in passing upon the rights of the parties, sustained the validity of the Tilly lien, and the regularity of the sale in the foreclosure proceedings. In disposing of the questions of law we deem it necessary to examine on this appeal, we shall proceed upon the correctness of these conclusions, for the reason that, upon the facts as found, they are logicaband correct.

In view of the specific findings of fact as set forth in the decision, we shall not, in 'this case, for the purpose of upholding the legal propositions deduced therefrom, assume that the trial court found •other facts than those therein mentioned. The records and contracts given in evidence having an important bearing on the issues, .are not fully set forth in the case, and it would be highly improper for this court, in a case thus made up, to indulge in presumptions as to the existence of facts not reported in the decision or admitted by the pleadings. The defendants Kennedy, Spaulding & Co., by their purchase, acquired a perfect title to the Tilly judgment, based on a good consideration. They had a right, so long as it remained in force and unreversed, to collect the same in the mode and manner provided by the statute creating the lien. As assignees and owners they could transfer the same to any person willing to become the purchaser. At the time of the sale of the premises the title to the judgment was in them, as the contract with Charles F. Staples was wholly executory and remained unperformed at the time of the trial, and there was then found to be due and unpaid thereon the sum of $849.30. It was made a term of the contract of sale that the judgment was not to be assigned until full performance by the purchaser, and it was specifically provided, that he should have*no right under it if he failed to make the payments, and also, that a breach of any of the conditions should work a complete forfeiture of the contract.

The facts as found, do not, in my opinion, sustain the legal conclusion reached by the trial court, “that the amount unpaid on the Tilly judgment in the hands of Charles F. Staples and his assignees is the sum of $2,400, and nó more,” and cannot be enforced for a greater amount. This part of the decree is sought to be sustained, on the theory that the hotel company, the 'owner of the premises subject to the lien, by consenting to an affirmance of the judgment, secured a compromise with the holder of the same as to the amount due thereon, which in equity reduced it to the sum mentioned. It is not pretended that the company then paid anything whatever upon the judgment; it parted with nothing. At this time the judgment was in full force and effect and has never been reversed or modified. The announcement by the General Term of its decision, that the judgment was erroneous and directing that the same be set aside and a new trial granted was not in a legal sense a reversal. It needed a judgment or order, entered in the due course of procedure, to secure that result. The stipulation that a judgment of affirmance might be entered was in effect an abandonment of the appeal and nothing more, and we fully concur in the views of the trial court in this particular.

The motives and considerations which induced the officers of the company to consent to an affirmance of the judgment were not passed upon by the trial court. The circumstances attending the negotiations were such as to constitute some evidence, in support of the position which has been advanced by the respondents, that the officers of the company were in collusion with the owners of the judgment, to keep on foot an invalid and fraudulent lien upon the property of the company, to the injury of the plaintiffs as subsequent judgment creditors. But there is no finding of fact that such was the purpose of the parties in entei'inglnto the stipulation,, for an affirmance of the judgment, but on the contrary the trial court held the judgment to be legal and valid ; and .that the judgment of affirmance was agreed upon without any fraudulent intent or purpose.

It was found as a fact that the transfer of the judgment by Kennedy & Co. to Charles F. Staples was made- in the interest of and for the benefit of Orrin G. Staples, who was at that time president and one of the trustees of the company. It is claimed by the plaintiffs that as Staples was at this time trustee, in equity, as against, him, the company is entitled to all the benefits and advantages derived by the contract for the purchase and transfer of the Tilly judgment. None of the money paid to Kennedy & Co. by O. G-. Staples belonged to the hotel company, although he may have acted for himself, doing the business and taking the assignment in the name of C. F. Staples. This also must have been the conclusion of the trial court, as the decree provides that out of the moneys which majr be realized from the sale which has been ordered there shall be paid to the defendant Ella M. Staples,, the- present assignee of the contract of sale, a sum equal to that which, has been paid to Kennedy & Co. before any of the money realized on the sale is tó be paid over to the plaintiffs on their judgment. The evidence tends to prove that the sums paid to Kennedy & Co. were supplied by Charles F. Staples out of his own money, and there is no finding to the contrary.

The finding as to the part taken by Q. G.. Staples in negotiating for the purchase, and his actual interest therein,, at the most nothing more tban that be, with bis own money and for bis own personal benefit, purchased tbe Tilly judgment for a sum less tban the amount due thereon and caused tbe same to be transferred to Charles E. Staples, reserving to himself tbe power and authority of controlling and directing tbe mode and manner of its collection. Conceding such to be tbe facts tbe first question presented is, could Staples while bolding tbe office of trustee, make a valid purchase of this judgment and enforce its collection for the full amount due thereon out of the assets of the company. I am not aware of any rule of law which limits or restrains bis actions in this respect by reason of his being a trustee of tbe debtor corporation. That a trustee of a corporation organized under the general laws of this State acts in a fiduciary character, is not a subject of doubt, as he is intrusted with power and authority to be exercised in tbe interest of the stockholders and creditors of tbe company. In dealing with its property and in the management of its affairs, he is subject to the obligations and disabilities incident to that relation, and he must so act as not to permit himself or his own private interests to interfere or compete with his duty to the company. (Hoyle v. Plattsburgh and Montreal R. R. Co., 54 N. Y., 314; Cumberland Coal Co. v. Sherman, 30 Barb., 553; Twin Lick Oil Co. v. Marbury, 91 U. S., 588.)

It is not, however, deemed to be inconsistent with tbe duties which a trustee owes a company, to loan and advance to it moneys to be used in transacting its legitimate business, and to meet its financial wants and receive security therefor by mortgage or pledge of the assets of the company. By fair dealing and in the legitimate business of the company he may become one of its creditors. Transactions of this character between an officer of the company and the company itself, is of frequent occurrence and has received the approval and sanction of the courts as appropriate and not inconsistent with the duty which a trustee owes to the stockholders and creditors of the company. (Duncomb v. N. Y., H. and N. R. R. Co., 84 N. Y., 190; Twin Lick Oil Co. v. Marbury, supra.) So also a trustee or director may, with his own money, purchase for himself of a third person, a valid and subsisting outstanding debt owing by the company, and secure a perfect title thereto." Such a transaction is not even the ground for entertaining the suspicion that it is in violation of any duty wbicli be owes the corporation, and there is no presumption of law, against its fairness. If the obligation is valid the owner «may sell and transfer it to any one who is willing to become a purchaser, and he thereby secures an unquestioned title. (See the ea|es last cited; also Clark v. Flint and Pere Marquette R. Co., 5 Hun, 556.)

The other question to be considered in this connection is, will the trustee or director be permitted to enforce a collection of the debt thus acquired for its entire amount, or shall he be limited to the sum which he actually paid for the debt or obligation. I am unable to discover any good reason why he should not be permitted to enforce payment for the full-amount, nor can I find any decision limiting the trustee to the sum actually paid. In these times a large proportion of the mercantile, commercial and manufacturing business of the country is carried on by corporations, and many of them issue, in large amounts, securities in the form of negotiable instruments, payable in the future, which are purchased and held as investments by capitalists and others, and it has never been questioned but that a director in a corporation of this character might purchase the same of a third person at a discount, and collect from the company the entire sum secured thereby.

If these views are correct, then the decree is erroneous so far as it directs that the present owner of the judgment is not entitled to receive thereon any greater sum than was paid to Kennedy and Company on the sale and transfer thereof.

The trial court did not adjudge the sale which took place as invalid, and the decree is based upon the supposition that it was entirely regular. It is undoubtedly incumbent upon a director of a corporation, when seeking to enforce a collection of a judgment, owned by himself individually, by a sale of the property or assets of the company, to act with the greatest 'fairness and publicity, and to do every thing reasonably within his power to secure the highest price for the property sold, and if he is guilty of any improper action by which he secures to himself the property of the company for less than its fair market value, the sale may be set aside on the application of interested parties. JBut, as I understand the theory of the decree, the prior sale is not set aside, but another sale is ordered as a means of securing to the plaintiff, to be applied on tfyeir judgment, the value of the property over and above the sum agreed to be paid to Kennedy and Company on the transfer of the judgment to Charles F. Staples. *•

The respondents were not made parties in the foreclosure proceedings, and in disposing of the questions now presented we have not intended to express any opinion on the subject, whether the same have been properly conducted, so as to cut off the plaintiffs’ lien on the property.

As it is impossible to conform the decree to the rights of the parties, upon the facts as they now appear the judgment is reversed and a new trial ordered, with costs to abide the event.

Smith, P. J., and IIaRDIN, J., concurred.

So ordered.