78 N.Y. 159, Kent v. Quicksilver Min. Co.

Citation:78 N.Y. 159
Party Name:GEORGE L. KENT, Respondent, v. THE QUICKSILVER MINING COMPANY, DANIEL DREW et al., Appellants. THE GEORGE L. KENT, RESPONDENT v. THE QUICKSILVER MINING COMPANY, DAVID KING, JR., et al., Appellants. WILLIAM S. HOYT, Appellant, v. THE QUICKSILVER MINING COMPANY, Appellant, and GEORGE L. KENT, Respondent, et al.
Case Date:September 16, 1879
Court:New York Court of Appeals

Page 159

78 N.Y. 159

GEORGE L. KENT, Respondent,

v.

THE QUICKSILVER MINING COMPANY, DANIEL DREW et al., Appellants. THE GEORGE L. KENT, RESPONDENT

v.

THE QUICKSILVER MINING COMPANY, DAVID KING, JR., et al., Appellants. WILLIAM S. HOYT, Appellant,

v.

THE QUICKSILVER MINING COMPANY, Appellant, and GEORGE L. KENT, Respondent, et al.

New York Court of Appeal

September 16, 1879

Argued Apr. 21, 1879.

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COUNSEL

Joshua M. Van Cott, for the Quicksilver Mining Company, appellant. The contract for a preference is not such an one as equity will execute. (Story's Eq. Jur., § 769; Fry on Spec. Perf., § § 251, 252.) The contract for preference having been one in contravention of law and public policy is illegal. (Egerton v. Earl Brownlow, 4 H. of L. R., 1, 131, 155, 164, 203; Smith on Contracts, Chap. on Illegal Contracts, Metcalf on Contracts, chap. 4; Bishop on Contracts, chap. 12; Farrington v. Tennessee, 5 Otto, 679, 686, 687.) All stock created and contracts made by corporations contrary to the fundamental provisions of their charters are illegal and void. (People v. Utica Ins. Co., 15 J. R., 382, 384; City Bk. Columbus v. Bruce, 17 N.Y. 507; New H. R. Co. v. Mechanics' Bank, 13 N.Y. 599; N. H. R. Co. v. Schuyler, 34 N.Y. 30; H, and N. H. Co. v. Croswell, 5 Hill, 383, 386; Railway Co. v. Allerton, 18 Wallace, 233; In re Bangor Co., L. R. [ 20 Eq. Cas.], 59, 65; Hutton v. Scarburrough, Co., 4 De Gex, J. & S., 677; Salem Midlam Co. v. Roper, 6 Pick., 26; Knowlton v. Congress and Imp. Spring Co., 57 N.Y. 534; Riche v. Ashbury Co., L. R. [ 7 Eng. and L. App.], 653; Mutual Life Ins. Co. v. McKelway, 1 Beasley Ch. R. [ N. J.], 133; Crocker v. Whitney, 71 N.Y. 161; Ang. & A. on Corp., § 256; Johnson v. Bush, 3 Barb. Ch. R., 207; Talmage v. Pell, 3 Seld., 328; Leavitt v. Palmer, 3 Comst., 19; Huntington v. Sav. Bk., 6 Otto, 388; Barry v. Merch. Exch. Co., 1 Sandf. Ch. R., 280, 310, 311; Wordsworth Joint Stock Case, 74, citing Moss v.

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Lyers, L. J. Ch. R., 711, for 1863; In re Comstock, 3 Sawyer, 218; Lemple v. Bank Brit. Columbia, 6 Reporter, 9; Carpenter v. Black Hawk Mining Co., 65 N.Y. 43; Commonwealth v. Smith, 10 Allen, 448; Richardson v. Libby, 11 Id., 65.) The doctrine tat presumptions are to be made in favor of acts done "in apparent pursuance of a general authority" is inapplicable to this case. (Payne v. Burnham, 62 N.Y. 73; Zabriskie v. Cleveland R. Co. 13 How. [ [U. S.], 398; Lowry v. Inman, 46 N.Y. 125.) The contract being illegal, it could not be made valid by a ratification; and in this case no ratification could be presumed. (Payne v. Burnham, 62 N.Y. 79.)

William Allen Butler, for Hoyt et al., appellants. The issue of the "preferred stock" attempted by the Quicksilver Mining Company by the resolution passed at the stockholders meeting in February, 1870, was without authority and illegal. (12 Hun, 53, 59; Laws 1853, chap. 333, p. 705, § 2; Boynton v. Hatch, 47 N.Y. 225; Scheneck v. Andrews, 57 Id., 133; People v. Troy House Co., 44 Barb., 625, 634; Brick Church v. Mayor, 5 Cow., 540; McDermott v. Board of Met. Police, 25 Barb., 635; People v. Manhattan Co., 9 Wend., 351, 384; Baptist Church v. Brooklyn F. Ins. Co., 19 N.Y. 305, 306; Potter on Corp. [ 1879], § 254; People v. Coms. of Taxes, 23 N.Y. 192, 219; Livingston v. Lynch, 4 Johns. Chy., 537, 573, 594, 597, 599; Hutton v. Scarboro Cliff Co., 2 D. & Smales, 514; 13 Weekly Reporter, 631; Vermont and Canada R. R. Co. v. Vermont Cent. R. R. Co., 34 Vt., 1, 50; Bank of Attica v. Manufacturers' Bank, 20 N.Y. 301; Miller v. Cook, L. R. [ 10 Eq.], 639-646; Tyler v. Yates, L. R. [ 11 Eq.], 265; Plumbe v. Carter, note to Floyer v. Edwards, Cowp., 116; Jestons v. Brooks, Id., 793; Bowes v. Heaps, 3 V. & B., 117.) The "preferred stock" could not be upheld as issued in the exercise of the power of the corporation to borrow money. (Taft v. Hartford, Prov. and Fishkill R. R. Co., 8 R. I., b. 10; Williston v. Mich. So. and N. Ind. R. R., 13 Allen, 400; Jones v. Terre Haute and

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Alton R. R. Co., 57 N.Y. 196; Evansville R. R. Co. v. City of Evansville, 15 Md., 395, 415; McLoughlin v. Detroit R. R. Co., 8 Mich., 103; Haselhurst v. Savannah R. R. Co., 43 Geo., 53; Bates v. Androscoggin and Kennebeck R. Co., 49 Me., 491; Lockhart v. Alstyne, 31 Mich., 77-79.)The assignees of the parties who advanced the $214,565 and took the illegally issued certificates have no greater or better title than their assignors, they are simply their successors in the same interest. (Mechanics' Bank v. N.Y. and N. H. R. R. Co., 13 N.Y. 599; McCready v. Rumsey, 6 Duer, 574; Ketcham v. Bank of Commerce, 19 N.Y. 499, 511; Hughes v. Vermont Copper Mining Co., 72 Id., 207-210; 56 Id., 623.) The attempted issue of the "preferred stock" being invalid and void the common stockholders are not barred from asserting its invalidity by any supposed assent, acquiescence or lapse of time. (Livingston v. Lynch, 4 Johns. Chy., 597; Ashbury Railway Carriage Co. v. Riche, L. R. [ 7 Eng. and I. App.], 653; Houldworth v. Evans, L. R. [ 2 H. L.] 249; Lord HATHERLY, 687; Ormsbey v. Vermont Copper Mining Co., 56 N.Y. 623; Eslanger v. New Sombroro Phosphate Co., L. R. [ 3 App.], 1208; Imperial Bank Hindostan, L. R. [ 6 Eq.] 91; Salem Milldam Co. v. Roper, 6 Pick., 23.) The judgment in the first suit of Kent v. Quicksilver Mining Company is not a bar to the relief sought in this action, no question being raised as to the right of the "common stockholders." (Coke Litt., 352 a; Campbell v. Hall, 10 N.Y. 575; Scofield v. Churchill, 72 Id., 565-570; Castle v. Noyes, 14 Id., 329, 335.) The preference contract being illegal cannot be enforced at law by holders of the "preferred stock." (Knowlton v. Congress and Empire Spring Co., 5 N.Y. , 518.) As up to the commencement of this action no dividend or payment of interest on the preferred stock had been made no right has been acquired by any holder of the "preferred" certificate or any assigns of such holder to any specific part of the corporate property or earnings. (Jones v. Terre Haute and Richmond R. R. Co., 57 N.Y. 196, 206; Brown v. Collins, L. R. [ 12 Eq.], 594;

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Hyatt v. Allen, 56 N.Y. 553-557 cases; Ketcham v. Bank of Commerce, 19 Id., 499; Allen v. Dykers, 3 Hill, 593; Horton v. Morgan, 19 N.Y. 170; 46 Id., 143; In re Magdalen Steam Nav. Co., J. R., 690.)

John K. Porter, for respondent. The suit of Kent was maintainable as in the nature of a bill of peace. (Story's Eq. Jur., § 854; Prouty v. Mich. S. and N. I. R. R. Co., 1 Hun, 666; Williston v. Same, 13 Allen, 400; Bouton v. City of Brooklyn, 15 Barb., 392; Henry v. Great Northern Ry. Co., 1 De Gex & Jones, 606.) Under the provisions of its charter, the Quicksilver Mining Company was invested with a general authority to create preferred stock. (2 Redf. on Railways [3d ed.], 598; Hazelhurst v. Savannah R. R., 43 Ga., 53; Prouty v. Mich., etc., R. R. Co., 1 Hun, 663, 664; Rutland, etc., R. R. Co. v. Thrall, 35 Vt., 545, 546; Lockhardt v. Van Alstyne, 31 Mich., 81-84, 85; Bates v. Androscoggin, etc., R. R. Co., 49 Me., 491; Westchester, etc., R. R. Co. v. Jackson, 77 Penn., 321; Evansville R. R. Co. v. Evansville, 15 Md., 395; Richardson v. Vt. and Mass. R. R. Co., 44 Vt., 613; McLaughlin v. Detroit and Mich. R. R. Co., 8 Mich., 100; Brice's Ultra Vires [2d ed.], 59; Taylor v. Chichester, etc., R. R. Co., L. R. [ 2 Exch.], 384; Curtis v. Leavitt, 15 N.Y. 66, 67; In re Patent File Co., L. R. [ 6 Ch.], 88; 1 Lindley on Partnership, 4; Riche v. Ashbury Co., L. R. [ 7 Eng. & Irish App.], 653; Kent v. Quick. Mining Co., 12 Hun, 57; Warner v. Mower, 11 Vt., 392; 1 Potter's Law Corp., 436; Lindley on Partnership [3d ed.], 285; Twin Lick Oil Co. v. Marbury, 1 Otto, 589; McLaughlin v. Detroit R. Co., 8 Mich., 100, 103; St. John v. Erie R. Co., 10 Blatch., 279; Green's Brice's Ultra Vires, 147.) The general authority conferred by the charter to create preferred stock, and the regularity of this issue created a presumption of validity upon which subsequent purchasers had a right to rely, and which in the present position of parties cannot be questioned. (Chautauqua Co. Bk. v. Risley, 19 N.Y. 381; Wilmarth v. Crawford, 10 Wend., 344;

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Bk. of U.S. v. Dandridge, 12 Wheat., 70; Nelson v. Eaton, 26 N.Y. 410; All Saints' Church v. Lovett, 1 Hall, 221; Monument Nat. Bk. v. Globe Works, 101 Mass., 57; Eastern Co. R. Co. v Hawkes, 5 Ho. Lords, 373, 381, 382; Royal Brit. Bk. v. Turquand, 6 Ellis & Blackburn, 332; Com'rs of Knox Co., Ind., v. Aspinwall, 21 How. [ U. S.], 545; Miners' Ditch Co. v. Zellerback, 37 Cal., 579; Holbrook v. N. J. Zinc Co., 57 N.Y. 621, 622; Bissell v. Mich. So. and N. I. R. R. Co., 22 Id., 290; Webb v. Herne Bay Com'rs, L. R. [ 5 Q. B.], 642; F. and M. Bk. v. B. and Drovers' Bk., 16 N.Y. 137; N.Y. and N. H. R. R. Co. v. Schuyler, 34 Id., 70, 73; Zabriskie v. Cleveland, etc., R. R. Co., 23 How., 400, 401; Goulding v. Davidson, 26 N.Y. 622; Lowell v. Daniels, 2 Gray, 161; Keen v. Coleman, 30 Penn., 299; Bodine v. Killeen, 53 N.Y. 98.) The presumption of validity, arising from the general authority to create preferred stock, and the regularity of this issue, is confirmed, and the restraint upon the company, if it existed at all, has been rendered inoperative as to the existing preferred stock by the conduct of the stockholders. (12 Hun, 60; Hazlehurst v. Savannah R. R. Co., 43 Ga., 53; Bissell v. Mich. S. etc., R. R. Co., 22 N.Y. 269-276-277; Whitney Arms Co. v. Barlow, 63 Id., 68, 69; Ashbury, etc., Co. v. Riche, L. R. [ 7 Eng. & I. App.], 680; De Graff v. Amer. Linen Thread Co., 21...

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