Kennedy v. Porter

• Decision Date: 05 June 1888
• Parties: KENNEDY v. PORTER et al.
• Court: New York Court of Appeals Court of Appeals

109 N.Y. 526

17 N.E. 426

KENNEDY

v.PORTER et al.¹

Court of Appeals of New York.

June 5, 1888.

Appeal from general term, supreme court, First department.

Action by Harvey Kennedy against Henry H. Porter, Henry H. Porter as trustee, Charles Tracy and Daniel D. Tracy, executors of John D. Tracy, deceased, A. B. Baylis and William Baylis, executors of Abraham Baylis, deceased, and others, to compel said Porter to account in respect to certain partnership transactions. From the judgment of the general term reversing the judgment of the special term in favor of Tracy's executors, the plaintiff and the defendants Charles and Daniel Tracy, executors of John D. Tracy, appeal.

DANFORTH, J., dissenting.

Robinson & Scribner and Burton N. Harrison, (Edmund Randolph Robinson, of counsel,) for plaintiff Kennedy.

Jas. C. Carter, for Tracy's executors.

Adrian Van Sinderen, for Baylis' executors, defendants and appellants.

Delos McCurdy, Joseph H. Choate, and John C. Spooner, for Porter and others.

RUGER, C. J.

On the 6th day of June, 1878, the defendant Porter purchased of the defendant the Chicago & Northwestern Railway Company certain shares of stock in the West Wisconsin Railway Company, and took a transfer of certificates therefor from trustees, who held them for such vendors. So far as appears, he paid the full value thereof, at the time of the purchase, from his own funds, and negotiated for the purchase in his own name and for his individual benefit. This action was brought by the plaintiff against the defendant Porter and certain other defendants, in 1880, upon a written agreement of partnership, made in 1875, to obtain an accounting in respect to partnership transactions, and raises the question as to how far a member of such firm was restrained from dealings on his individual account by the terms of the partnership agreement. The property dealt in consisted of shares of the stock of the West Wisconsin Railway Company, and the issue in the case is whether the firm acquired any interest in the stock so purchased by the defendant Porter. In the course of the trial and argument, all other questions have been eliminated from the case, and the only dispute is now between the defendant Porter and his co-defendants, the executors of Tracy, and is presented by the appeal of said executors from the judgment of the general term reversing a judgment of the special term which awarded a proportionate share of such stock to Tracy's executors, and holding that the same belonged to the defendant Porter.

It is claimed by such executors that the order of reversal, not specifying that it was made upon the facts, must be assumed to have been made upon the law alone, and therefore that the findings made by the trial court are not open to review here, and must be assumed to state the facts upon which this appeal is to be determined. If this were all there is of this branch of the case, the contention would undoubtedly be correct, but it is subject to the further consideration that special findings of fact on the material questions in the case were requested to be made by the defendant Porter, which were generally refused by the trial court, and to each of which refusals the defendant Porter duly excepted. Wherever such requests were based upon uncontradicted evidence, or constituted legitimate and necessary deductions from the facts proved or found, the refusal by the trial court to make such findings was error in law, and is reviewable in this court. There is no conflicting evidence upon any material fact in the case, and the main cause of difference between the special and general terms seems to grow out of the different views entertained by those tribunals respecting the legal effect of the several transactions established by the evidence. A brief history of those transactions will bring us naturally to the special questions in the case, which require a more particular examination of the evidence upon which the findings were predicated.

Prior to January 6, 1875, the West Wisconsin Railway Company was a corporation organized under the laws of the state of Wisconsin, and owning and controlling a line of railway extending from Hudson to Elroy, in said state, and there forming a junction with a line of railway owned and operated by the Chicago & Northwestern Railway Company, and extending to Chicago. The capital stock of the road consisted of 50,000 shares, of the par value of $100 each; 10,000 shares being classed as preferred stock, and 40,000 as common stock. This stock had all been transferred by the company to one Baldwin in payment of a claim held by him under a contract with said company for building and equipping its road. The company was, at the time of the transactions hereafter referred to, subject to mortgages for about $6,000,000, and was owing, in addition thereto, a floating debt of about $1,800,000. The interest on such mortgages had become due and payable; and the holders, as well as the creditors of the floating debt, threatened legal proceedings for the collection of their claims, and the company had no funds to meet their demands. The West Wisconsin Railroad had theretofore, to some extent, been a feeder for the Chicago & North western Railroad, and was susceptible of being made more valuable in that respect, and therefore certain directors and stockholders of the latter railroad company conceived the idea of getting control of the Wisconsin Company, for the purpose, among other things, of making it subserve more largely the interest of the latter road. For the purpose of accomplishing this object, the defendants Porter, Howe, Flower, Scott, Dows, Tracy, and the plaintiff, Kennedy, all being directors in the Chicago & Northwestern Company, and one Emma A. Schley, the sister of said Flower, entered into a partnership agreement, which, so far as its material parts are concerned, was substantially as follows: (1) The persons whose names are hereunder written hereby agree to form themselves into a copartnership, to commence at the date hereof, and continue until the same shall be dissolved by the written agreement of persons representing a majority in amount of the sums hereunder subscribed. (2) The business of this copartnership shall be the purchase and sale of and general dealing in the common and preferred stocks of the West Wisconsin Railway Company, and no other. (3) the business and affairs of this copartnership shall be exclusively managed by Henry H. Porter, ‘who is hereby invested with full power and authority to act for and bind this copartnership in all matters pertaining to the copartnership business.’ (5) The said Porter is required to keep accounts of all his transactions in the business of the copartnership, and the final account in the closing of the partnership dealings is to be open to the inspection of each partner. (6) In case of the decease of any subscriber hereto, the interest of the decedent shall not cease, but the same shall continue under the direction of his legal representatives. The several parties named subscribed and paid in to said Porter, in the aggregate, the sum of $100,000 as the capital of such copartnership, of which sum Porter subscribed $35,000; Kennedy, the plaintiff, $10,000; Scott, $10,000; Howe, $5,000; Flower, $7,500; Dows, $10,000; Baylis, $5,000; Mrs. Schley, $7,500; Way, $10,000. Immediately after the execution of the agreement, the said Porter, as attorney for the copartnership, paid to said Baldwin the said sum of $100,000, and received a transfer from him of certificates therefor to the amount of 10,000 shares of preferred stock and 36,850 shares of common stock in the West Wisconsin Railway Company; the balance of said Wisconsin stock, consisting of 3,150 shares, being retained by said Baldwin for the benefit of certain members of his family, to whom he had transferred it. This constituted the only purchase of stock made by Porter under said copartnership agreement. In April, 1875, Scott, one of said partners, sold and transferred his interest therein to one P. L. Cable, and Cable thereafter, in October, 1876, sold and transferred one-half thereof to the defendant Porter. So, also, the defendant Howe, in October, 1875, sold and transferred his whole interest in said partnership to the defendant Flower, who, also in October, 1876, transferred said interest to the defendant Porter. Thus Porter became possessed, in October, 1876, of an interest equal to $45,000 in the capital of said copartnership. Prior to the 9th day of October, 1875, Porter, in furtherance of the objects of said copartnership, and with the view of enabling the West Wisconsin Railway Company to raise funds for the purpose of meeting its floating and bonded debt, and avoiding a sale of its property, and the destruction of the value of its common stock, surrendered to such company the certificate for 10,000 shares of preferred stock held by him for said firm, and the same was accepted by said company, and canceled on its books. By a resolution of the directors of said company adopted March, 1876, the president thereof was authorized to reissue preferred stock to the amount of 10,000 shares, or so much thereof as might be necessary, at a restricted rate of dividend, for the purpose of paying the unfunded and floating debt of said company; and this resolution was the only authority ever conferred by said company for the reissue of any of such preferred stock. Thereafter, and until the latter part of the year 1877, the preferred stock of said company was issued by its president, to some extent, for the purpose of paying, or postponing the period of payment of, its floating debt. On or about the 9th day of October, 1875, the copartnership, represented by Dows and Howe, effected an executory contract of sale of one-half of its whole copartnership assets to the Chicago & Northwestern Railway Company for the sum of $100,000, payable at specified periods thereafter to the said Dows. This...