Nat'l Tube-Works Co. v. Gilfillan

• Decision Date: 22 January 1891
• Citation: 124 N.Y. 302,26 N.E. 538
• Parties: NATIONAL TUBE-WORKS CO. v. GILFILLAN.
• Court: New York Court of Appeals Court of Appeals

124 N.Y. 302

26 N.E. 538

NATIONAL TUBE-WORKS CO.

v.GILFILLAN.

Court of Appeals of New York,

Second Division.

Jan. 22, 1891.

Appeal from a judgment of the general term of the supreme court in the first judicial department affirming a judgment for plaintiff entered on a verdict, and also affirming an order denying a motion for a new trial. Action by a judgment creditor of the Brooklyn Marine Power Company, a corporation organized under chapter 40 of the Laws of 1848, against the defendant, as a stockholder of said company, to recover a debt pursuant to section 10 of said act, upon the ground that the capital stock had not been paid, either in cash, or in property fairly worth the par value of the stock issued. While the answer put at issue all the allegations of the complaint, which was in the usual form in such actions, upon the trial there was no question as to the right of the plaintiff to maintain the action, provided there had been a violation of said section.

Charles H. Luscomb, for appellant.

Alfred Jaretzky, for respondent.

VANN, J., ( after stating the facts as above.)

The substantial issue in this action was whether the property procured in exchange for stock was purchased at an overvaluation, not through error of judgment, but in bad faith, and to evade the statute. Douglass v. Ireland, 73 N. Y. 100, 104. The trial judge instructed the jury that if they found ‘that the stock issued exceeded in amount the value of the property taken in exchange for it, and for which it was issued, and that the trustees deliberately, and with knowledge of the real value of the property, overvalued it, and paid in stock for it an amount which they knew was in excess of its actual value, they must find for the plaintiff. If the jury do not find this to be the fact, then they will find for the defendant.’ The jury found a general verdict for the plaintiff, and, as a special verdict, that the property purchased at $300,000 was really worth but $75,000. The evidence in support of the verdict is sufficient, if not overwhelming. The company was organized September 18, 1884, with a capital stock of $300,000, divided into 600 shares, of $500 each. Within less than a year thereafter, it was hopelessly insolvent, with all its property levied upon, under an execution issued on a judgment recovered by the defendant, its president, and a trustee, from the outset. None of the stock was paid for in cash, or otherwise than by the transfer of a lot of unpatented inventions by one Bliven. Two corporations had been previously organized, with the defendant as a trustee in each, to handle these inventions, one of which seems to have been merely a corporation on paper, that ‘had no existence in fact to amount to anything,’ while the other was ‘a disastrous speculation.’ The inventions were purchased by the corporation, whose transactions are directly involved in this action, substantially in the following manner, viz.: Bliven assigned them to the defendant, who, as trustee, transferred them to the company, in consideration of the entire capital stock, to be held by him in trust as follows, to-wit: 200 shares for the benefit of the company itself; 100 shares, par value $50,000, for the defendant, (in payment of a debt of $15,000 owing him by Bliven;) 10 shares, par value $5,000, for one Baxter, (in payment of an old debt of Bliven to him of $2,500;) 27 shares apparently given away to qualify persons as trustees, and to induce them to act; the remainder to Bliven, or for his benefit. According to the evidence, the jury made a liberal estimate of the real value of the inventions, when they found that they were worth $75,000. The good faith of the trustees, including the defendant, as...