D'Ambra v. Rhinelander

• Decision Date: 21 November 1922
• Citation: 137 N.E. 333,234 N.Y. 289
• Parties: D'AMBRA v. RHINELANDER.
• Court: New York Court of Appeals Court of Appeals

234 N.Y. 289

137 N.E. 333

D'AMBRA

v.RHINELANDER.

Court of Appeals of New York.

Nov. 21, 1922.

Action by Pasqual ‘D'Ambra against Philip Rhinelander. From a judgment of the Appellate Division (202 App. Div. 727,193 N. Y. Supp. 929), unanimously affirming a judgment of the Trial Term, entered on the verdict of a jury for plaintiff, defendant by permission appeals.

Reversed, and a new trial granted.

Appeal from Supreme Court, Appellate Division, Second Department.

Frank C. Laughlin, Spotswood D. Bowers, and Stewart W. Bowers, all of New York City, for appellant.

Robert H. Ernest, of New York City, for respondent.

CARDOZO, J.

In 1910 the D'Ambra Construction Company was building apartment houses on 199th street and also on Hull avenue in the city of New York. The plaintiff, who was substantially the sole stockholder, was an experienced builder, and had charge of the work. He sought and obtained a building loan contract from the estate of Cornelia B. Kip, represented by its executor, the defendant, Philip Rhinelander. Ninety-four thousand dollars was to be loaned, $40,000 on one parcel and $54,000 on the other. The mortgages were prepared by one Hartcorn, a lawyer. Hartcorn's firm, the defendant, and the Kip estate had offices in common.

In August, 1911, mechanics' liens for about $22,000 were filed against the mortgaged parcels. Damage by fire to one of the buildings increased the builder's complications. The plaintiff was advised by Hartcorn to convey the property to holding corporations organized to receive the title. The defendant, it was said, would advance, not only the moneys called for by the contract, but also whatever other moneys were necessary for the removal of the liens. The plaintiff would continue to manage and supervise the construction, and would be the agent to collect the rents. Compensation would be made to him in one or other of two ways. Either he would receive an assignment of the entire capital stock of the holding corporations, subject only to a mortgage to secure the loans or advances of the defendant and the Kip estate, or else he would be paid in cash as follows: $25,000, with interest from October 9, 1911, the value of his own investment in the land; 15 per cent. of the cost of construction for services as supervising builder; and 5 per cent. of the cost for services as manager after the buildings were completed.

The making of some such arrangement by Hartcorn is hardly, if at all, disputed. The litigation turns upon the issue whether he made it in his own behalf or in behalf of the defendant, and, if in behalf of the defendant, with the latter's knowledge and consent. The plaintiff says that the defendant was present at the most important interviews, approved of every promise that was made, and took title in the name of corporations, but in truth as beneficial owner. The defendant denies that he ever heard of the arrangement, or of anything like it, until some time in 1919, when the action was begun. The theory of the defense is that the promises, if made, were those of Hartcorn personally; that Hartcorn, and not the defendant, was the owner of the shares in substance as well as in name; that Hartcorn was to receive the profits of the enterprise, if successful; and that the defendant had no interest, except as mortgagee.

Holding corporations, the Aloha Realty Company and the Narcorth Realty Company, were organized in September, 1911. The entire stock of both corporations was issued in Hartcorn's name, with the exception of qualifying shares, which were issued to employees in his office. The property on 199th street was transferred to one corporation, and the property on Hull avenue to the other. With the aid of the defendant's advances, made from the Kip moneys, and of the plaintiff's supervision, the work was carried to a close. Another parcel, situated on Villa avenue, was afterwards acquired by the Aloha Realty Company, and the plaintiff again supervised the construction upon the promise of a like reward. The Hull avenue houses were sold in April, 1912. The Aloha Realty Company still holds the title to the others. In March, 1919, upon the defendant's disclaimer of liability,this action was begun. It is brought upon the theory that the defendant became personally responsible for the payment to the plaintiff of the promised compensation. There was a verdict for $77,064, which, on appeal to the Appellate Division, was unanimously affirmed.

We state the controversy in barest outline. The outline is enough to reveal the ownership of the beneficial interest in the holding corporations as a fact of capital importance to the seeker after truth. The contract had in view an option, which would be exercised one way or the other, as there might seem to be a small chance or a large one of profit to the owner. If the chance was small, the shares would be assigned to the plaintiff, subject to a mortgage for the loan. If the chance was large, the shares would be retained as a profitable investment, and the plaintiff would be paid in cash. In any estimate of probabilities, the jury would be likely to conclude that the man who was to profit was the man who was to pay. Upon the crux of the case, the defendant's participation in the contract, there was oath against oath. Hartcorn, if the real owner, was probably speaking for himself; if the owner in name only, he was probably speaking for another. The touchstone that would bring out the truth was the ownership of the...