Burden v. Burden

• Decision Date: 06 June 1899
• Citation: 54 N.E. 17,159 N.Y. 287
• Parties: BURDEN v. BURDEN et al.
• Court: New York Court of Appeals Court of Appeals

159 N.Y. 287

54 N.E. 17

BURDEN

v.BURDEN et al.

Court of Appeals of New York.

June 6, 1899.

Appeal from supreme court, appellate division, Third department.

Action by I. Townsend Burden against James A. Burden and others. From a judgment of the appellate division affirming a judgment of the special term dismissing the complaint (40 N. Y. Supp. 499), plaintiff appeals. Affirmed.

Edwin Countryman, for appellant.

Esek Cowen, for respondents.

BARTLETT, J.

It is conceded by the learned counsel for the appellant that, as the facts have been finally determined in the lower courts, the only questions discussed on this appeal are those of law arising upon the facts found at the trial. It is therefore necessary to state, as briefly as possible, the important facts contained in three volumes of the printed record and 338 separate findings, before approaching the discussion of legal questions submitted in voluminous briefs. Henry Burden, the father of three sons (William, now deceased; Townsend, the present plaintiff; and James, the present defendant), in 1864 formed a co-partnership in the iron business at the city of Troy, under the name of H. Burden & Sons. William died in 1867, and Henry, the father, in 1871, and thereafter Townsend and James continued the firm until July 1, 1881. On the 30th June, 1881, the plaintiff, the defendant, and one John L. Arts organized a corporation, under the manufacturing act of 1848, for the purpose of conducting the manufacture of iron and steel and the various articles of commerce made from iron and steel and the mining of iron ore; it being the same business previously conducted by the firm. On the same day, and as part of the transaction which resulted in the organization of the corporation, these three parties executed a contract, referred to throughout this litigation as the promoters' agreement, which reads as follows: ‘For value received, it is agreed between the undersigned, who are the sole associates of the Burden Iron Company, that the stock of said company shall be taken, owned, and held as follows, to wit: James A. Burden shall take, own, and hold one thousand shares; I. Townsend Burden shall take, own, and hold nine hundred and ninety-eight shares; and John L. Arts shall take, own, and hold two shares. The said James A. Burden agrees to and with the said I. Townsend Burden that, if he shall at any time sell or assign nine hundred and ninety-eight shares of his said stock, then and in such case he will, without any consideration for the same, transfer the other two shares of his said stock to the said I. Townsend Burden, his executors, administrators, or assigns. All the profits arising from the business of the said corporation shall be divided equally between the said James A. Burden and I. Townsend Burden. The said Arts agrees for himself, his executors and administrators, that, in case of a sale of any or all of his said stock, said James A. Burden and I. Townsend Burden shall be entitled to the same, severally, share and share alike, at and for its par value; and, in case either of them shall refuse in writing to make such purchase, then the other shall be entitled to his half, or the whole thereof, as he may elect. It is further agreed that said Arts shall not receive any dividends, income, or profit from the said corporation, or its business, but that, in place thereof, he shall have and receive a salary to be fixed by the said board of trustees of said corporation. Dated June 30, 1881. I. Townsend Burden. Jas. A. Burden. John L. Arts.’

It may be stated generally that the organization of this corporation was due to certain unfortunate and irreconcilable differences between the two brothers. The defendant James A. Burden was a practical ironmaster, while the plaintiff was familiar with that part of the business not requiring the same degree of practical knowledge and skill possessed by James. The views of the brothers were divergent upon almost every question of business policy, and the trial court finds that the controversy was so fixed in its character and so irreconcilable that the parties had ceased to hold any personal conversation with each other and discussed their grievances in written communications only. This state of affairs had existed for some time, and several months before the corporation was formed James had determined to have the partnership dissolved and the property divided, retaining counsel to institute proceedings. The trial court found that during the entire period the firm of H. Burden & Sons existed the same business was conducted and the partners successively owned the real estate and personal property which was subsequently conveyed by the partners and their wives to the corporation, and was of the value of $2,000,000. Prior to the incorporation of the business and the execution of the promoters' agreement, James rejected the proposition of the plaintiff to withdraw from the corporation any of the partnership property; also the proposition to make himself and Townsend equal holders of the capital stock in the proposed company. James insisted that the distribution of the capital stock should be such that by no combination could he be ousted from the board of trustees of the corporation, and to this Townsend finally assented. The promoters' agreement was then executed and the company organized with a capital stock of $2,000,000, divided into 2,000 shares, of which 1,000 were allotted to James, 998 to Townsend, and the remaining 2 to Arts, who was made general manager, having grown up in the business and acquired a knowledge thereof. James' position at the time the company was about to be organized was that he would wind up the partnership, break up a great and profitable business, and distribute its property, unless a corporation was formed in which he should hold a controlling interest. This position assumed by James was distinctly understood by Townsend, and in the end he yielded his assent. This fact is of paramount importance, as it furnishes an answer to many of the questions in this case, taken in connection with the situation of affairs existing at the time this action was commenced. The corporation began business July 1, 1881, and this suit was instituted December 27, 1884, 3 1/2 years after the plan was adopted which, it was hoped, would heal all differences. This plan however failed, notwithstanding the fact that the business was managed with great skill and was very profitable. The trial court has found that for 7 1/2 years after the formation of the company its business yielded an average net profit of 15 per cent. annually on its capital stock of $2,000,000, and that dividends had been paid aggregating $1,520,000, and one-half thereof paid to the plaintiff. The manner in which the old partnership and its corporation successor conducted business, the nature of the property owned by the firm and transferred to the company, and the amount of its surplus must now be stated. The original partners constituting the firm of H. Burden & Sons put into it all the property they possessed, even if not strictly necessary to the conduct of the business. At the time the firm ceased doing business and the corporation was formed its entire property was valued at not less than $2,000,000. It consisted, in addition to the business plant, of a farm, located near the works of the company in the vicinity of Troy, containing about 175 acres, 40 acres of which were known as ‘Woodside,’ being under high cultivation and on which were located two fine mansions, one occupied by Townsend and the other by James. For years this property was conducted in an expensive manner, and all bills were paid by the firm and subsequently by the corporation. In the language of the complaint, ‘fancy farming’ was carried on. Townsend managed the fruit and floral departments, building expensive conservatories, and James indulged in Jersey cattle and other phases of high-grade farming. The profits were divided equally between the brothers. On the motion for a receiver in this case, and on complaint of the plaintiff, this mode of farming was abandoned; and, when final judgment was entered, no opposition was made to a perpetual injunction forbidding the prosecution of so-called ‘fancy farming.’ The firm also owned and transferred to the corporation stock of the Port Henry Iron Ore Company, Lake Champlain & Moriah Railway Company, New Jersey Steamboat Company, and several other corporations, aggregating in value some $600,000, although standing on the books of the Burden Iron Company at $192,975. The trial court found that, in addition to paying out $1,520,000 in dividends, the company, at the time of the trial, had $500,000 to its credit in solvent banks; that its surplus, with the stocks valued as entered on the books, added to the cash, was $757,637.31, and, estimating the stocks at their actual value, the surplus would stand at $1,164,662.31. The farm is valued at $26,355, and the two mansions at not exceeding $123,000 in the aggregate. In December, 1884, while the corporation was very prosperous and paying large dividends, as already pointed out, the plaintiff began this suit. The amended complaint is lengthy, and prays for a variety of relief.

The learned counsel for the plaintiff states in his reply brief that when this action was commenced the plaintiff was led to believe, and did believe, that the corporate capital had been ‘trenched upon’ and reduced below the legal limit, but that, after the plaintiff obtained the privilege of examining the books and papers, he ascertained the actual state of affairs, and that thereupon notice was given in behalf of the plaintiff in open court, at an early stage of the trial, that he abandoned that portion of his complaint; that thereafter he gave no proofs to sustain it. This removes from the case to a great extent the charges of waste and misapplication of the funds of the corporation, which were a prominent...