Brackett v. Griswold

• Decision Date: 05 March 1889
• Citation: 112 N.Y. 454,20 N.E. 376
• Parties: BRACKETT v. GRISWOLD.
• Court: New York Court of Appeals Court of Appeals

112 N.Y. 454

20 N.E. 376

BRACKETT

v.GRISWOLD.¹

Court of Appeals of New York.

March 5, 1889.

Appeal from supreme court, general term, Third department.

This action was commenced in 1873. The original defendants were six of the seven trustees of the Iron Mountains Company of Lake Champlain, a corporation incorporated on the 6th day of August, 1869, by the filing on that day of a certificate under and in pursuance of the act (chapter 40, Laws 1848) known as the ‘Manufacturing Corporations Act.’ The certificate was in due form, setting forth that the company was organized for the mining, manufacture, and sale of iron and other ores; that the business was to be carried on in the towns of Westport and Elizabethport, in the county of Essex, and in the city of New York; that the capital stock was to be $2,000,000, divided into 20,000 shares; that the company was to continue 50 years; and that the 6 defendants, together with one John A. Griswold, (who died before the commencement of the action,) should be trustees of the company for the first year. The complaint contains three causes of action. The first is founded on the alleged failure of the trustees to file a report as required by law, and to enforce in behalf of the plaintiff, a creditor of the company, the statutory liability arising from such failure, imposed by the twelfth section of the act of 1848. The second cause of action is framed under the fifteenth section, and sought to charge the defendants on the ground that the report of the company made and filed January 13, 1870, in assumed complaince with the twelfth section, was false in representing that the capital stock of $2,000,000 had been paid up in full. The third cause of action set forth a conspiracy between the defendants to form a sham corporation to defraud the public and the plaintiff, whereby the plaintiff was deceived and defrauded into giving credit to the company to his injury.

The case was first tried, by consent, before the court wihtout a jury, and judgment was rendered against the defendants on the first cause of action, for failure to file a report, but the court found in their favor on the second and third causes of action, the latter being the conspiracy count. This judgment was reversed by this court on the appeal of the defendants, (80 N. Y. 128.) The case was again tried before the same judge, who rendered judgment against defendant Chester Griswold on the second count, on the ground that the report of January 13, 1870, which he, with other trustees, had signed, was false, but finding in his favor on the first and third counts. This judgment was also reversed by this court, (89 N. Y. 122.) The action was next tried before a jury, and resulted in a disagreement. The action was then tried before a judge without a jury, who found in favor of the plaintiff on the first and second counts, but in favor of the defendant, Chester Griswold, on the third or conspiracy count. Before judgment was actually rendered the original plaintiff died, and by an order of the supreme court the action was revived and continued in the name of his administrator, the present plaintiff. Judgment was then entered for the plaintiff on the decision of the trial court, and the defendants appealed from both the judgment and order of revivor, and both were reversed in this court, on the ground that by the death of Bonnel the ground that by the death of Bonnell action based on the statutory liability abated, (103 N. Y. 425, 9 N. E. Rep. 438,) but the court granted a new trial as to the third count. The action was then tried for the fifth time before a jury on the third or conspiracy count, and resulted in a verdict for the plaintiff against the present appellant for $11,780.95, and from the judgment entered therein this appeal is taken.

The third count alleged in great detail a fraudulent combination between the original defendants and John A. Griswold to organize the Iron Mountains Company of Lake Champlain, with a nominal capital of $2,000,000, and to issue the whole stock to the Kingdom Iron Ore Company in pretended payment for about 1,300 acres of undeveloped mining land in the county of Essex, owned by the latter company, worth not to exceed the sum of $50,000, which lands they were to cause to be conveyed to the new corporation, and in which it is alleged the defendants and John A. Griswold, as stockholder in the Kingdom Iron Ore Company, were interested. It is alleged that this device of purchasing the lands by the new corporation for a sum vastly exceeding their value was resorted to, to enable the defendants to represent to the public that the whole capital stock of the new corporation had been paid in full, and that, as a part of the fraudulent scheme, persons of Known financial and business ability, engaged in the mining and manufacture of iron, were to be made trustees of the company. The complaint avers that the Iron Mountains Company of Lake Champlain was organized pursuant to this conspiracy the purchase and transfer of the lands of the Kingdom Iron Ore Company in exchange for the stock of the former company, and the selection of trustees of the new corporation; and alleges that these, and other acts of the defendants specified, in organizing and setting on foot the new corporation, were done ‘for the purpose of inducing credit to said new company, and inducing the public and individuals to loan money to and furnish materials for said new company, and to purchase its bonds, notes, and other securities or evidences of indebtedness.’ It sets forth that in further pursuance of the conspiracy the defendants falsely published, advertised, and represented ‘to the public at large, and to the plaintiff, that the capital stock of the company was $2,000,000, and that the said stock was paid up in full, and that the company was entirely solvent and responsible, and had immense resources in its mines, lands, and other property;’ and refers expressly to the annual report of the company, filed January 13, 1870, which stated that the stock had been paid up in full, which statement, it alleges, was knowingly false and untrue,

It appears from the complaint and evidence that on the 12th of March, 1870, the Iron Mountains Company issued to the Birmingham Iron Foundry, of Connecticut, its two notes, payable, respectively, at four and six months, in the aggregate for $5,511.66, in consideration of machinery theretofore sold by the foundry company to the Iron Mountains Company,-which notes the payee, before maturity, transferred to Bonnell in exchange for coal. The foundry company, when it applied to Bonnell to take the notes in exchange for coal, represented to him that they were good, but advised him to inquire of one Ellis, the treasure of the Iron Mountains Company, whose office was in the city of New York. Bonnell inquired of Ellis as to the responsibility of the company, and was informed by him that the company was good, and that the notes would be promptly paid at maturity. Upon receiving this information, he consented to take the notes in payment for coal to be delivered, and afterwards took them, but up to that time he supposed the notes were made by the Iron Mountain Company of Missouri, but, before the transaction was completed, ascertained that they were the notes of the New York corporation. The complaint alleges that the Birmingham Iron Company and the plaintiff were induced to become creditors of said company by said representations so made by said defendants and said John A. Griswold, before mentioned, which he relied upon, and also confiding in the ground reputation of said company, produced by said representations and report made to the public at large, and believing in consequence of the premises that said company was possessed of an actual paid up capital of $2,000,000, and also induced thereto by the fact that said trustees were represented as being interested in said company, and were men of large means, etc. There is no evidence of the circumstances under which the notes were taken by the Birmingham Iron Foundry, except that they were taken for machinery sold. Bonnell testified that when he took the notes he did not know who were stockholders or officers in the Iron Mountains Company, except that Ellis was treasurer, nor the amount of its capital stock, and had never seen the ‘Prospectus,’ nor any report of the company; in short, that he knew nothing whatever in respect to its property or condition, its officers or stockholders, or of any of the representations made by the defendants or the company. The complaint avers the insolvency of the company, that the notes have never been paid, and it appears from the evidence that the company was adjudicated a bankrupt in August, 1871, and that its whole property purchased of the Kingdom Company was sold in 1876, on a foreclosure of the trust mortgage, for...