Unckles v. Colgate

• Decision Date: 18 February 1896
• Citation: 148 N.Y. 529,43 N.E. 59
• Parties: UNCKLES v. COLGATE et al.
• Court: New York Court of Appeals Court of Appeals

148 N.Y. 529

43 N.E. 59

UNCKLES

v.COLGATE et al.

Court of Appeals of New York.

Feb. 18, 1896.

Appeal from supreme court, special term, First department.

Action by Thomas H. Unckles against Romulus R. Colgate and others for an accounting. A judgment dismissing the complaint was affirmed by the supreme court, general term (25 N. Y. Supp. 672), and plaintiff appeals. Affirmed.

A. B. Porter, for appellant.

Elihu Root, for respondents.

GRAY, J.

The complainant, as a holder of ‘certificates of trust’ issued by the National Lead Trust, seeks by this action to obtain a judgment which shall provide for the winding up of the affairs of the trust; for an accounting by the defendants, who were the trustees under the trust agreement; for the appointment of a receiver, and for a distribution through the receiver of all moneys and of the proceeds of property which came into the defendants' hands, and for other incidental equitable relief. The complaint was demurred to, and the question is whether, admitting all its averments to be true, a cause of action is made out which the court will recognize. The action being brought on the equity side of the court, it is, of course, essential that the plaintiff shall show facts which make out a case where the intervention of equity is both necessary and warranted; for, while a court of equity exercises a discretion regulated upon judicial grounds, it is not compelled, and it will refuse, to aid one whose appeal to it offends its conscience. The party aggrieved, and remediless at law, must come into court with clean hands. He must be innocent of any participation in a wrong as to which he seeks equitable intervention; or, if appearing to be a participant, he must be able to sustain his appeal to the court by showing that nevertheless there is a justice, or some element of public policy, in his demand, which outweighs the fact of his participation. Is that the case here? The court below has held adversely to the plaintiff, because the action was an effort to have his rights determined under the provisions of an agreement shown and alleged to be illegal. An examination of the complaint shows that in October, 1887, an agreement was entered into for the formation of a lead trust, which should combine the interests of manufacturers and dealers in lead and its products throughout the country, and which was of like nature with the agreement which was condemned in this court as unlawful, for constituting a partnership between corporations, whose stock should be deposited under it, and the surrender of the corporate management to directors selected, not, as required by the law, by the stockholders, but by the board of trustees under the agreement. People v. North River Sugar-Refining Co., 121 N. Y. 582, 24 N. E. 834. The lead trust was capitalized at $89,447,600, or the equivalent of 894,476 shares, represented by ‘certificates of trust’; and in May, 1889, the plaintiff became the holder of certificates representing, in par value, 700 shares in the trust. His interest is therefore only about one-twelfth of 1 per cent., and it does not appear that any other holder of trust certificates has joined with him, or is in sympathy with him. It is alleged that the property, assets, and interests which were held by the trustees amounted to $25,000,000. In 1891 these defendants were elected and became the trustees under the lead-trust agreement, and it is alleged that they had accumulated and held a large amount of money, which, by the end of the year 1891, amounted to over $3,000,000, and as to which they have never accounted. The plaintiff alleges that he brings this action ‘in behalf of himself as such holder of certificates, and all others in like situation’; and the reason given is that the defendants held ‘divers moneys and other property which had come into their hands under and by virtue of said agreement, and the carrying out of the scheme contemplated involved therein and thereby, and for which they have not duly accounted to the certificate holders, including this plaintiff, * * * and for which they should account in the proportion which the amounts of the certificates held by them, respectively, bear to the amount of the whole number of certificates issued.’ It also appears that in October, 1891, this plaintiff brought an action to restrain the trustees of the lead trust from disposing of the property in their hands or under their control as such trustees, in pursuance of a certain scheme or plan for the dissolution of the trust, and its merger into a new corporation, which had been adopted at a meeting of the association of certificate holders, and as to which these defendants were appointed ‘reorganizing trustees.’ The plaintiff alleged his nonassent to the scheme, and his opposition to it, as being ‘illegal, and in violation of the provisions, etc., of the trust agreement, and of his rights and privileges as a member of said association,’ and ‘that, if * * * carried out, the result will be the dissolution and destruction of said trust,’ etc. A motion in that action for a preliminary injunction was denied upon the ground that the scheme of reorganization did not appear to be unlawful in itself, and that the plaintiff was not entitled to insist that a trust agreement should be carried out or performed which was illegal. Thereupon that action was discontinued. A reorganization of the lead-trust interests, in the form of a legal corporation, was perfected; and the National Lead Company was organized, to which the trustees transferred the assets and properties, etc., in their hands in December, 1891. In July, 1892, the present action was brought.

It would seem, from a consideration of this complaint, that the plaintiff, being defeated in his prior attempt to compel the trustees specifically to perform the trust agreement, and to refrain from carrying out the reorganization plan, was now endeavoring to compel them to account for their acts while managing the affairs of the trust, and upon the theory that, the trust agreement having failed for illegality, they became custodians or trustees, at common law and in equity, of the properties coming into their hands. It is, of course, apparent that the obstacle in the way of granting to the plaintiff the equitable relief he demands is that his complaint shows that he became a participant in an enterprise or scheme which was illegal, as being contrary to the statute, and against public policy, under the decisions, and which he avers to have been ‘a monopoly, and inimical to the best interests of the public at large.’ He avers that ‘said agreement was illegal and void, and against public policy,’ but yet insists that nevertheless a court of equity should aid him in winding up the affairs of the trust, and in compelling an accounting by its trustees. It would be a somewhat unusual spectacle for a court of equity to be occupying itself with investigating the illegal transactions of parties, and with adjusting the differences between them; and a somewhat similar view was taken as recently as in the case of Leonard v. Poole, 114 N. Y. 371, 21 N. E. 707. Mr. Justice Story, in his work on Equity Jurisprudence (section 298), observed, ‘In general, * * * where parties are concerned in illegal agreements or other transactions, whether they are mala prohibita or mala in se, courts of equity, following the rule of law as to participators in a common crime, will not, at present, interpose to grant any relief.’ In a...