Welch v. Importers' & Traders' Nat. Bank (In re Niagara Falls Paper Manuf'g Co.)

Citation122 N.Y. 177,25 N.E. 269
PartiesWELCH v. IMPORTERS' & TRADERS' NAT. BANK et al. In re NIAGARA FALLS PAPER MANUF'G CO.
Decision Date07 October 1890
CourtNew York Court of Appeals

OPINION TEXT STARTS HERE

Appeal from an order of the general term of the fifth judicial department, entered November 11, 1887, affirming an order of the special term, which directed the payment of $41,099.88 to the Importers' & Traders' National Bank, and $9,277.53 to Henry C. Hulbert.

December 17, 1855, the Niagara Falls Paper Manufacturing Company was organized, pursuant to chapter 40 of the Laws of 1848, and the acts amendatory thereof, with a capital stock of $85,000 divided into 170 shares, of $500 each. The articles of association filed, provided that Lauren C. Woodruff, Joshua H. Darling, and Stoughton Pettibone should be the trustees of the corporation for the first year. At the organization Pettibone subscribed for one share of stock, for which a certificate was issued, but it does not appear how many shares were subscribed for by or were issued to Darling. However, it is neither asserted nor found that he was not a shareholder. In 1857, 50 additional shares were issued, making the capital stock $110,000. Lauren C. Woodruff continued to act as trustee until May 5, 1885, when the judgment dissolving the corporation for insolvency was entered. Stoughton Pettibone continued to act as trustee until April 4, 1883, when he assigned his share to Woodruff, and resigned his office. It does not appear when Darling ceased to be a trustee or shareholder, but at some time prior to 1879, the date not appearing, Woodruff transferred one share to Lauren W. Pettibone, who then became a trustee, and continued to act as such until April 4, 1883, when he transferred his share to Woodruff, resigned his office, and on the same day was succeeded by Josephine W. Winslow, who received on that day a transfer of 20 shares from Lauren C. Woodruff, her father, and she remained a trustee until November 7, 1884, when she resigned. Neither Stoughton Pettibone, Lauren W. Pettibone, nor Josephine W. Winslow, paid anything for the shares issued to them. From 1864 to the date of the dissolution of the corporation Lauren C. Woodruff owned all the shares except those standing in the names of the Pettibones and his daughter, and from its organization until its dissolution he was a trustee and the president thereof, and controlled all of its operations. Stoughton Pettibone was its secretary, treasurer, and acting super intendent from its incorporation until April or May, 1883, when he was succeeded by Henry C. Cordley. In March, 1867, a tract of land known in this litigation as ‘No. 3’ was conveyed to this corporation, which, on the 2d day of February, 1879, it mortgaged to Lauren C. Woodruff to secure the payment of $50,000, in five annual installments, with semiannual interest, which mortgage was duly recorded February 7, 1879. The referee found that the sum to secure which this mortgage was given was justly due and owing by the mortgagor to the mortgagee, which finding has been confirmed by the special and general terms. The execution of this mortgage was not formally assented to in writing by shareholders owning two-thirds of the stock of the corporation, though the president, who (with the secretary and treasurer) executed it in behalf of the company, then owned more than three-fourths of its stock. In 1879, and for several years before, Henry C. Hulbert and Joseph H. Sutphin were partners, under the firm name of H. C. Hulbert & Co., and were engaged in business in the city of New York, and in 1879 were creditors of Woodruff, who, wishing further credit, tendered as security the mortgage above described, which was rejected because its execution had not been assented to by shareholders owning two-thirds of the stock. Such negotiations were had that Hulbert agreed to accept, as security for future credit, a new mortgage, to be duly executed. To carry out this arrangement Lauren C. Woodruff, Stoughton Pettibone, and Lauren W. Pettibone, who were then the acting trustees of the corporation, (three constituting a full board,) by a resolution unanimously adopted August 21, 1879, directed the president and treasurer to execute a new mortgage to Woodruff for $50,000, and on the same day Woodruff, Stoughton, and Pettibone, then owning all of the stock of the company, assented in writing to the execution of the mortgage. August 22, 1879, the mortgage was executed to Woodruff to secure the payment of $50,000, August 22, 1884, which, and the stockholders' assent, were concurrently filed and recorded August 25, 1879, though the mortgagee directed that the assent should first be filed. On the execution of the last mortgage the first was canceled of record and surrendered. On the 27th of the same month the last mortgage was assigned to Henry C. Hulbert ‘as collateral security for the payment to him or his assigns of all the debts and liabilities, or every name and nature, of myself and L. C. Woodruff & Co., and the Niagara Falls Paper Manufacturing Company, which he now holds, or which he may hereafter acquire by any means.’ This assignment was duly recorded November 15, 1884. At the time of the execution of the assignment Woodruff was indebted to the Importers' & Traders' National Bank in the sum of $50,000, which loan he desired should be continued, and it was then agreed between Woodruff, Hulbert, and the officers of the bank that Hulbert should hold the mortgage as security for any sum that Woodruff might then be or thereafter be indebted to the bank, after satisfying any debts owing to him by Woodruff. April 30, 1883, chapter 336 of the Laws of that year was passed, which authorized the state of New York to acquire, by condemnation, lands near Niagara falls for public purposes, pursuant to which the mortgaged premises were, on the 27th day of October, 1884, condemned, and acquired by the state, the commissioners awarding, as compensation to the persons interested therein, the sum of $137,660, which was deposited under the order of the court to await the determination of the claims of the rival creditors. January 5, 1885, one of the creditors of the corporation brought an action against it, alleging that it was insolvent, and asking that it be dissolved, and a receiver appointed, in which action a judgment was entered May 5, 1885, dissolving the corporation, and appointing Thomas V. Welch receiver thereof, who claims to be entitled to this fund as receiver, for the distribution among the creditors, the bank and Hulbert claiming to be entitled to it through the aforesaid mortgage. The referee found that at the date of the last mortgage the mortgagor owed the mortgagee $33,997.40, and that, February 1, 1886, the date of his report, interest to the amount of $13,268.13 had accumulated, and that there was then due thereon $47,265.53, of which sum he directed that there be paid to Henry C. Hulbert, as trustee for the Importers' & Traders' National Bank, $37,988, and to him individually $9,277.53. Exceptions were filed to this finding by all of the parties to this appeal. On the case coming on to be heard at special term, on the referee's report, evidence, and the exceptions, it was found and adjudged that there was due on the mortgage February 1, 1886, $50,377.41, (thus increasing the amount found by the referee $3,111.88,) of which $41,099.88 was directed to be paid to Henry C. Hulbert as trustee for said bank, and $9,277.53 to Hulbert...

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