Pittsburg Carbon Co. v. McMillin

• Decision Date: 31 January 1890
• Citation: 23 N.E. 530,119 N.Y. 46
• Parties: PITTSBURG CARBON CO. v. MCMILLIN.
• Court: New York Supreme Court

119 N.Y. 46

23 N.E. 530

PITTSBURG CARBON CO.

v.MCMILLIN.

Supreme Court, New York County, New York.

January, 1890.

Appeal from a judgment entered upon a decision of the General Term affirming a judgment in favor of the defendant entered upon a decision.

In March, 1887, the Pittsburg Carbon Co., and eight other carbon companies and makers, united in an agreement appointing one Hawks, the trustee, lessee and exclusive manager of all their works, and Hawks was succeeded in that position by one Dangler.

Before this combination, known as The United Carbon Companies, was formed, the Pittsburg Carbon Company had a contract to supply the Brush Electric Light Company of Buffalo with carbon. After the combination was formed, the Pittsburg Company, under the management of the trustee, continued to carry out the supply contract, and the trustee, at their request, made out bills for the supplies in terms payable to himself as trustee or agent. It afterward withdrew from the combination and sent bills for subsequent supplies in its own name.

Two of the companies in the combination thereafter brought suit in Ohio against the others, and a receiver appointed of all the property, etc., growing out of the contracts made by the companies with their manager and trustee, and of all the assets of the trusteeship.

The receiver and the Pittsburg Company each sued the Brush Company for the price of the supplies, and the Brush Company was allowed to pay the sum into court, and be discharged, leaving the receiver of the trust and the Pittsburg Company to interplead.

The defendant succeeded upon the trial, and the judgment entered was affirmed by the General Term. From the judgment of affirmance, this appeal is now taken by plaintiff.

C. S. Crosser, for the appellant.

I. The trust contract was null and void and could not in any way be ratified. Nor can it be the foundation of a valid contract. There was no contract at all; only a conspiracy for wrong doing, which is not enforceable, since the law cannot be invoked to defeat itself. This claim never in any legal sense became an asset of the trust or trustees ( Bishop on Contracts, 469, 471, 473; Thorne v. Travelers' Ins. Co., 80 Pa. St. 15; Shisler v. Vandike, 92 Pa. 447;Saratoga County Bank v. King, 44 N. Y. 87;Arnot v. Pittston Coal Co., 68 Id. 558;Stanton v. Allen, 5 Denio, 434).

II. The unlawful character of the trust agreement is stamped upon the fact of it. But the appellant is not in pari delicto; its early withdrawal broke up the trust.

III. There can be no estoppel against asserting the invalidity of the trust contract (Wheeler v. Wheeler, 5 Lans. 355; Langan v. Sankey, 55 Id. 52;Snyder v. Wyley, 33 Mich. 483;Stevens v. Wood, 127 Mass. 123; Bredin's Appeal, 92 Pa. 241).

IV. The facts do not invoke the extraordinary remedy of estoppel. The essential elements of estoppel are not found (Edmundson v. Thompson, 31 L. J. Ex. 207; Merrill v. Tobin, 30 Fed. Rep. 728, 743; Hamlin v. Sears, 82 N. Y. 333;Andrews v. Ætna Life Ins. Co., 85 Id. 334).

V. The receiver represents the trust combination with no better title to his claim than that of a voluntary assignee. His title is derived solely from the trust combination, with all previous equities and inequities attached thereto (Curtiss v. Leavitt, 15 N. Y. 9, 46, 254, 296;Cutting v. Damarel, 88 Id. 410, 418;Honegger v. Wettstein, 94 Id. 252, 260,Williams v. Babcock, 25 Barb. 100;McHarg v. Donelly, 27 Id. 100;Bell v. Shibley, 33 Id. 610; Receivers v. Paterson Gaslight Co., 3 Zab. 283, 292; Symes v. Hughes, L. R., 9 Eq. 474).

VI. The respondent's position is not strengthened by urging the claims of the creditors, and by relying on their innocence. The burden was on these creditors of ascertaining the nature of the trust (Swan v. Produce Bank, 24 Hun, 577). The respondent by his pleading has elected to stand upon the validity of the trust contract. If this contention had been sustained it would not have given these creditors, as such, any claim against the plaintiff, or lien upon the trust estate. The trust agreement did not create a co-partnership relationship. The creditors dealt directly with, and extended credit to the trustee as principals (Smith v. Anderson, L. R., 15 Chan. Div. 247; Cary v. Gregory, 38 N. Y. Super. Ct. 126; Austin v. Munroe, 47 N. Y. 360;New v. Nicholl, 73 Id. 130; Storrs v. Flint, 46 Super. Ct. 498).

VII. The appellant's right to recover this fund antedates the trust contract, and is clear of all its taint. The respondent to succeed must plant himself squarely upon the trust contract and secure the aid of the court to enforce the same. This is, beside, the purpose of equity (Keene v. Kent, 4 N. Y. St. R. 429; Steers v. Lashly, 6 Term Rep. 61; Thompson v. Thompson, 7 Vesey, 470; Morris Run Coal Co. v. Barclay Coal Co. 68 Pa. 173, 188).

Ansley Wilcox, for the respondent.

I. The appellant cannot set up the illegality of its own contract as against the receiver who represents, not only itself and the other parties to the contract, but bona fide creditors. The receiver represents primarily the creditors of an insolvent. For this reason he is allowed to disaffirm the illegal contracts of the insolvent, and recover its assets wherever its creditors might do so. This is expressly provided in chapter 314 of the Laws of 1858, and the practice is regulated by rules 78 and 79 of the General Rules of Practice (Attorney-General v. Guardian Mutual Life Ins. Co., 77 N. Y. 272;Talmage v. Pell, 7 Id. 328; Farmer's & Mechanic's Bank v. Jenks, 7 Metc. 592; Honegger v. Wettstein, 47 Super. Ct. [ J. & S.] 125; Alexander v. Rolfe, 74 Mo. 516). The plaintiff cannot take advantage of the illegality of its own acts to defeat the rights of creditors, whether in a suit brought directly by them, or by a receiver as their representative. “No man can take advantage of his own wrong” (Litchfield Bank v. Church, 29 Conn. 150). This combination bears a resemblance to a partnership. It is obvious that members of a partnership cannot set up as against a bona fide creditor the fact that the partnership was formed for an illegal purpose (Adams v. Creditors, 14 La. 461;Kinsman v. Parkhurst, 18 How. U. S. 293). A corporation cannot set up illegality in its incorporation to defeat the claim of creditors ( Morawetz on Corp. § 750 et seq.). Even in cases between the parties themselves to the illegal agreement, where new rights have sprnng up which do not involve the enforcement of the unlawful agreement itself, courts have refused to allow the parties to defeat such rights by going back to the unlawful agreement (Keene v. Kent, 7 St. Rep. 229; Brooks v. Martin, 2 Wall, 70;Marsh v. Russell, 66 N. Y. 288, 294; Cent. Trust Co. v. Ohio Cent. R. R. Co., 23 Fed. Rep. 306).

II. In general, a receiver takes merely the rights of the corporation, and on that basis only can he litigate for the benefit of stockholders or creditors. This doctrine applies solely to litigations between the receiver of a corporation and third persons, in which he attempts to assert rights growing out of equities inherent in stockholders or creditors. But here the receiver is not asserting rights against third persons on such a ground; but he is asserting against one of the very parties to the combination contract, the equitable rights of the creditors of the combination to have its assets collected and administered for their benefit, notwithstanding the unlawfulness of the combination.

ANDREWS, J.

The finding that the contract of March 1, 1887, between the plaintiff and Edward C. Hawks as trustee for the plaintiff, and other carbon companies, was made for unlawful purposes and was illegal, was not excepted to and is to be taken an incontrovertable fact on this appeal. The ground of illegality is not expressly stated, but it is clearly to be inferred from the other findings and the opinion of the trial court that the contract was held to be illegal for the reason that it was entered into in furtherance of an unlawful combination between the plaintiff and other carbon companies in restraint of trade. The scheme of the parties to the combination was to vest in a common trustee the management and control of the business of manufacturing and selling carbons for electric lighting theretofore carried on separately by the companies forming the combination. To this end the several companies were to lease to the trustee their respective factories and to operate them under the direction of the trustee, who was to designate the kind of goods to be manufactured, fix the prices at which and the persons to whom they should be sold, purchase all materials and supplies, collect the bills, and pay out of the common fund the cost of production, and divide the net proceeds and profits of the business between the several parties to the combination in...