Huntington v. Attrill

• Decision Date: 28 January 1890
• Citation: 23 N.E. 544,118 N.Y. 365
• Parties: HUNTINGTON v. ATTRILL et al.
• Court: New York Court of Appeals Court of Appeals

118 N.Y. 365

23 N.E. 544

HUNTINGTON

v.ATTRILL et al.¹

Court of Appeals of New York, Second Division.

Jan. 28, 1890.

Appeal from supreme court, general term, second department.

Action by Collis P. Huntington against Henry Y. Attrill and William K. Soutter. Defendants appeal from judgment entered on verdict in favor of the plaintiff.

POTTER, J., dissenting.

Coles Morris,Delos McCurdy, and James C. Carter, for appellants.

W. W. MacFarland, for respondent.

BRADLEY, J.

The action was brought to recover the amount of a debt alleged to be due the plaintiff from the Rockaway Beach Improvement Company, Limited, a corporation created pursuant to the provisions of the statute providing for the organization and regulation of certain business corporations. Laws 1875, c. 611. The defendants were directors of the company; and the alleged ground of the action is that a certificate signed by them, representing that the amount of the capital stock of the corporation, amounting to $700,000, was fully paid, was false, within the meaning of the statute, which provides that ‘if any certificate or report made, or public notice given, by the officers of any such corporation, shall be false in any material representation, all the officers who shall have signed the same shall be jointly and severally liable for all the debts of the corporation contracted while they are officers thereof.’ Id. § 21. The certificate of organization was filed with the secretary of state, February 18, 1880, in which it was stated that the capital stock would be $700,000, divided into 7,000 shares, of $100 each; that the principal business office would be at Rockaway Beach, N. Y.; and that the object for which the company was to beformed and the nature of its business were the purchase of lands, and the building of an hotel thereon, together with bath-houses, piers, and a theater, and such other accessories as were usual or necessary for the completion and operation of the hotel business at a seaside watering place,-this to be done at Rockaway Beach, in Queens county, N. Y. Books were opened, pursuant to the requisite license, for subscriptions to the capital stock of the company; the full amount was subscribed; and afterwards the defendant Attrill, by deed of date April 1, 1880, conveyed to the corporation about 120 acres of land, situated at Rockaway Beach, in the town of Hempstead, county of Queens, subject to a mortgage of $72,000, the payment of which was assumed by the company. This deed was made and taken in payment of the full amount of the capital stock, no part of which was paid for in cash. The certificate, alleged by the plaintiff to have been false, was made by the defendants and other directors, June 30, and filed about July 1, 1880, in which they represented ‘that the amount of capital paid in, in full, is the sum of $700,000, being the full amount of the capital stock of the said company.’

The value of the land conveyed by Attrill to the company was the subject of conflict of evidence given in behalf of the respective parties, and the conclusion was warranted that $700,000 was largely in excess of its value. The view of the trial court was that although the value of the property may have been less than the amount of the capital stock in payment for which it was taken by the company, that fact alone did not render the certificate false, within the meaning of the statute, or charge the defendants with liability, but it was dependent upon the further fact that they knew when the certificate was made that the value of the land so taken was materially less than the amount of the capital stock, and thus was involved the question of the good faith of the defendants, so far as it had relation to their understanding or belief of the equivalency or otherwise of such value and amount. As bearing upon that subject, it appeared by evidence, in addition to the value, that in July, 1879, in contemplation of the organization of this company, and for the purposes before mentioned, the defendant purchased and took conveyance of 140 acres of land, of which that so conveyed to the company was a portion, for $80,000, of which he paid $8,000 and gave the mortgage above referred to, to secure the payment of the residue of the purchase money. It was also contemplated that this land conveyed to the company should constitute in the outset all its property and assets, and that the means to carry forward the project in view should be derived from the sale of bonds of the company secured by mortgage upon the land. It was to be the basis for the revenue to meet its financial requirements in the expensive enterprise in view. This did not necessarily furnish information that the property had less value than it was in the certificate represented to have, but the fact that the purpose was to so greatly burden it for resources would seem to have called attention to its ability in value to bear it. It evidently was known to the defendants that the value of the land, whatever it was, was speculative, in so far that it was dependent upon its successful availability for an enterprise something like that upon which the movers in it were to and did enter. It could not be said to have had either a market or intrinsic value of large amount, disconnected from a purpose to make such a use of it. It may be that expectation of success enabled the defendants to believe that it had the value which they so represented it had. It seems by what followed that such belief, if it existed, was unfounded. No later than in April, 1880, the company had incurred liabilities amounting to upwards of $400,000, which on the 1st of July following had increased to $994,000, without any means to pay them; and that in August, 1880, its property was taken into the custody of a receiver appointed by the court for that purpose. It is true that all this may have been consistent with a mere mistaken belief or error in judgment of the defendants and those associated with them, and thus they might be relieved from the imputation of knowledge that the value certified was excessive, or that they purposely misrepresented it. There were some circumstances which might be construed as tending to support that view. The property was situated on the beach, and was to be made easily accessible to the people of the cities of New York and Brooklyn by means of a then projected railroad (known as the New York, Wood-haven & RockawayBeach Railroad, which was afterwards constructed) running into it, which may have been supposed to make that location desirable as a sea-side resort. This seemed to have been one of the leading considerations which gave inception to the enterprise. This railroad project was said to be under the control of one Smith, who was actively associated with defendant Attrill in the outset, and who became the manager of the business of the company; and the fact that Attrill advanced considerable money to start in progress improvements on the property was a circumstance bearing upon the question of his faith in the movement, although he expected reimbursement from the company of his advances. And the same may be said of the expenses he incurred in putting gas-works on adjacent property, the practical availability of which is said to have been somewhat dependent upon the use to be made of gas for light upon the premises in question. His expectations, whatever they were, had importance upon the question so far only as they had a bearing upon his knowledge or belief as to the value of the property at the time of the sale of it to the company. Its then value was the measure of consideration which the company had the right to pay for it. These defendants were directors at the time of the sale and conveyance of the property to the company. They, with their associates, had the responsibility of seeing to it that the purchase price did not exceed the fair value. That was the command of the statute. Id. § 14. There are considerations of public concern which require the proper discharge of duty in that respect, so that the appearances given by reports and certificates filed pursuant to statutes, and representing the financial condition of corporations, may not delusively bring to them credit to the prejudice of those giving it.

The means of judging of the knowledge which the defendants had, and upon which they acted, and the motive by which they were influenced, must be derived from the circumstances, treating those persons as men of ordinary discernment and sagacity. The officers, assuming the responsibility and charged with the duties of the management of the business of corporations,are not supposed to shut their eyes to that which is open to observation, and legitimately subject to their inspection and control. The defendant Attrill was familiar with the property. It had no known market value. The sum which constituted the consideration of the sale to the company was in some sense arbitrary, governed, perhaps, by the amount which it was assumed the contemplated improvement would cost; and before the company was organized he, for some reason, desired to be relieved from his situation in relation to the property. He says this was because Smith, his associate in the enterprise, and who was to take half the profits of it, had become obnoxious to him. But the relation was continued, and Smith was made manager of the business of the company. The enterprise may have been treated wholly as one of speculation, resting on expectation and dependent upon its success. The amount for which the property was handed to the corporation was large in comparison with the sum for which it was purchased by the defendant, and was large in fact. The circumstances, some of which have not been specifically referred to, were such as to furnish to Attrill information that the property conveyed by him to the company was not worth an amount equal to that of the capital stock; and, having found that it was not worth that sum,...