Hutchinson v. Simpson , 87 N.Y.S. 369 ( 1904 )

Van Brunt, P. J.:

This action was brought by certain stockholders of the defendant company in the interest of the company to recover from the firm of Moore & Schley what is termed in the complaint “ a secret, profit ” made “at the expense of the defendant company, its stockholders and creditors.”

It seems to me that the fundamental error which underlies the whole of this complaint is the assumption that the defendant com: pany had any interest in, or acquired any rights by, the contract, Exhibit A, annexed to the complaint, and which is erroneously styled & “ stock subscription.” .

This paper was simply a' contract between the signers thereof and Moore & Schley, whereby the signers agreed to buy from Moore & Schley the number of shares set opposite their respective names, at a' price specified, of a company to be organized upon the basis therein' provided; and Moore & Schley agreed to sell • certain of said shiarés to the signer's at the price named, deliverable when and if issued.'

It seems to me reasonably clear that if the signers had failed' to receive the stock subscribed for when issued, tliey would' havó filad' no cause of action against the defendant company, their only recourse being against Moore & Schley; and if any of the signers had failed to make payments as agreed in the contract, the defendant company would have had no cause of action, Moore & Schley • being the only parties aggrieved. In other words, there was no contract between the signers of that paper and the defendant company.

There is no claim but that the company was organized us required by the contract, nor that the expectations referred to therein were not carried out to the letter. All the malt properties referred to therein were acquired by the defendant company and ample working capital was provided. Moore & Schley made no secret of their interest in the properties which were to be acquired by the company. The contract expressly declared that Moore & Schley and their associates controlled the properties which were to be acquired by the company ; and the'only inference to- be drawn from its language is that all the stock of the company, except the amount reserved in the treasury for further corporate uses, was to be issued to Moore & Schley and their associates in payment for the properties acquired and to provide working capital. AH the stock, referred to in the contract as to be issued for acquiring property and working capital, was issued to Moore & Schley as contemplated for the properties therein referred to and for working capital. I say issued to Moore & Schley, because I treat Moore & Schley and Eicks as one for the purposes Of this opinion. There is no claim but that Moore & Schley caused .every piece of property contemplated to be conveyed to the company and provided an ample working capital.

It is said that Moore & Schley did not themselves convey the properties to the company, but that they were conveyed by the respective owners. The contract states that Moore & Schley and . tlieir associates held options upon, this property. They, therefore, controlled it; and the fact that they caused the owners of the property to convey directly to the company in fulfillment of their contract with the company to convey or procure to be conveyed this property to the company in no manner affected, their relations to the transaction. The language of .the contract of Eicks with the company clearly contemplated that Moore & ScMey and Eicks were riot themselves to give the title.. Eicks contracted to , convey ,or procure to be conveyed. If one man holds a contract for the sale of real estate by another^ which he assigns to.a third party it certainly is not an unusual transaction for the seller to convey directly to the assignee of the contract. There was, therefore, nothing unusual in 'the fact that the owners of this property conveyed directly to the company. Moore & Schley, as far as the company was concerned, were the sellers’of this property as it appeared upon the face of the contract that it was contemplated that they should be; and there is no hint or allegation throughout the complaint but that the company received full value for the stock it issued. The whole foundation of the complaint resting upon the contract (Exhibit A) in which the defendant company never had any interest, no cause of action is set out.

The demurrer should be sustained.

Ingraham, J., concurred ; Hatch and Lattghlin, J.J., dissented.