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FIRST DEPARTMENT, APRIL TERM, 1903.

bona fide purchasers as against stockholders suing in the right of the corporation, but it was intimated that they might not be as against creditors. In Donald v. American Smelting & Refining Co. (62 N. J. Eq. 729) the issue of an increase of corporate stock in payment for property worth less than the par value of the stock was enjoined. (See, also, Peck v. Elliott, 79 Fed. Rep. 10.) By analogy, the Donald case would seem to be an authority against the issue of stock as a bonus with the bonds, for there seems to be no reason for distinction between subsequent issue of stock for property worth less than its par value and the subsequent issue of stock with bonds for money. In Dummer v. Smedley (110 Mich. 466) it was held that stock issued to a mortgagee as a bonus for moneys advanced was valid as to prior creditors, and also as to subsequent creditors if issued in good faith and for full market value. It is clear that the issue of this stock as a bonus with the bonds would not be binding upon subsequent creditors of the company, for the stockholders cannot thus enable the company to obtain credit upon the strength of its capital stock without paying into the treasury of the corporation the par value of their stock or delivering to it property of equal value. (See v. Heppenheimer, 55 N. J. Eq. 240; Boney v. Williams, Id. 691; Edgerton v. Electric Improvement, &c., Co., 50 id. 354; Rickerson Roller-Mill Co. v. Farrell Foundry & Machine Co., 75 Fed. Rep. 554; Scovill v. Thayer, 105 U. S. 143, 153; Donald v. American Smelting & Refining Co., supra; Dickerman v. Northern Trust Co., supra.)

In Hebberd v. Southwestern Land & Cattle Co. (55 N. J. Eq. 31) it was stated that where a corporation contracted with the purchaser of its bonds to issue bonus stock "such a contract is binding upon the company and its shareholders," but that the purchaser of the stock could be compelled to pay the par value of the stock for the benefit of subsequent creditors. The effect of the decisions seems to be that neither before nor after consummation of a sale of bonds, with a delivery to the purchaser of the stock as a bonus, can the purchaser at the instance of the corporation or of a stockholder be compelled to pay into the treasury of the corporation the par value of the stock, and that an innocent bona fide holder of the stock for value and without notice probably would not be forced to conAPP. DIV.- VOL. LXXXII. 3

FIRST DEPARTMENT, APRIL TERM, 1903.

[Vol. 82. tribute further even for the benefit of creditors. Subscriptions for capital stock and the money or property paid therefor constitute a trust fund for the benefit of creditors who, in dealing with the corporation, have a right to assume that the stock has been issued for cash or for property of equivalent value, and the persons to whom the stock was originally issued may, for the benefit of subsequent creditors, be compelled to restore the difference between the par value of the stock and the amount they paid therefor. This seems clear under the New Jersey statute and decisions. Such being the case, the issue of this stock at less than par will be a fraud upon creditors. We are asked to permit this fraud to be perpetrated merely because it is not inequitable as to existing stockholders who only at the present time are complaining. We are of opinion, however, that section 48 of the New Jersey General Corporation Law, already quoted, should be given full force and effect according to its tenor. It in express terms prohibits the issue of any stock except for its par value in cash or the equivalent in property. Hence it appears to us that the issue made and the other issue contemplated is unauthorized and, therefore, illegal.

So far as the bonds have not been sold and stock issued, there appears to be no difficulty in the way of affording injunctive relief. The case is somewhat different, however, with reference to the bonds and stock already issued. As to that, two questions may arise, first, the right of the corporation, for this action is brought by a stockholder in its right, to rescind, and, second, whether the bonds and stock have reached the hands of an innocent purchaser for value who may in any event be entitled to protection to the extent of the value paid therefor. If this, instead of being an executed contract, were an executory contract between the corporation and a purchaser for the sale and purchase of these bonds with the stock as a bonus and the corporation refused to perform, we think it clear that the purchaser could not enforce performance; but, it being an executed contract, the corporation, probably, cannot rescind in any event without returning the moneys received by it, and we are not informed as to whether it is in a position to do that. Furthermore, it appears that the defendant Ernest F. Greeff, Jr., has sold the stock and bonds to the copartnership of Greeff & Co., of which he is a member, although the stock still stands in his name on the books of the company, and the other

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FIRST DEPARTMENT, APRIL TERM, 1903.

members of the firm are not parties. It may be, even if the corporation is not in a position to rescind as to the consummated transaction, that in the interests of future creditors the court should enjoin the further transfer of the stock to prevent the same reaching the hands of bona fide purchasers without notice. These questions, however, should not be decided on this appeal.

It follows that the judgment should be reversed and a new trial granted, with costs to appellant to abide the event.

VAN BRUNT, P. J., PATTERSON, MCLAUGHLIN and HATCH, JJ., concurred.

Judgment reversed, new trial ordered, costs to appellant to abide

event.

FRANK J. MARTIN, Appellant, v. THE CITY OF NEW YORK,

Respondent.

Clerk in the office of the clerk of the board of aldermen, New York city — his salary is incident to the office — if unlawfully removed he cannot recover from the city the salary of the office paid to another — he must sue the latter for money had and received.

A clerk in the office of the clerk of the board of aldermen of the city of New York, who receives an annual salary, is not a mere employee of the city of New York performing services under a contract of employment, but holds a particular office or position in the public service by appointment and his salary is an incident to the office or position.

Where such a clerk is unlawfully removed and the salary incident to the position is paid to a person appointed in his place, he is not entitled, upon securing his reinstatement, to maintain an action against the city to recover the salary paid to the new incumbent, but his remedy is to bring an action against the latter for money had and received.

APPEAL by the plaintiff, Frank J. Martin, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 23d day of December, 1902, upon the verdict of a jury rendered by direction of the court after a trial at the New York Trial Term.

A. 8. Gilbert, for the appellant.

Theodore Connoly, for the respondent.

FIRST DEPARTMENT, APRIL TERM, 1903.

[Vol. 82.

LAUGHLIN, J.: Prior to the 1st day of October, 1900, the plaintiff was a clerk in the office of the clerk of the board of aldermen of the city of New York, and held the position by due authority of law. On that day he was wrongfully removed by the city clerk; but subsequently and on the 24th day of January, 1901, he was duly reinstated pursuant to the requirements of a writ of mandamus authorized by this court. (People ex rel. Martin v. Scully, 56 App. Div. 302.) The salary of such clerkship was fixed at the rate of $1,200 per annum. Another person was appointed to fill the vacancy created by the removal of the plaintiff, and he drew the salary in full for the period from the removal until the reinstatement of the plaintiff. The plaintiff, claiming to be entitled to the salary during the time he was ousted, brings this action to recover the same.

The plaintiff was not a mere employee of the city performing services under a contract of employment like a teacher in a public school (Steinson v. Board of Education, 49 App. Div. 143; 165 N. Y. 431); but he rather held a particular office or position in the public service by appointment (Higgins v. Mayor, 131 N. Y. 128; Emmitt v. Mayor, 128 id. 117; Smith v. City of Brooklyn, 6 App. Div. 134) for which there was an annual salary, the salary being incident to the office or position, which brings the case within the rule that where a salary is paid to a de facto officer, the remedy of the de jure officer is by an action against him for money had and received; and that no recovery can be had therefor against the municipality. (Dolan v. Mayor, 68 N. Y. 274; Terhune v. Mayor, 88 id. 247; Demarest v. Mayor, 147 id. 203; Mc Veany v. Mayor, 80 id. 185.)

While some of the reasoning of the Court of Appeals in Graham v. City of New York (167 N. Y. 85), as shown by the opinion, seems to be inconsistent with the decision in Higgins v. Mayor (supra), yet in that case it does not appear that the salary had been paid to another, and we do not understand that the Court of Appeals intended thereby to overrule the Higgins case.

It follows that the judgment should be affirmed, with costs.

VAN BRUNT, P. J., PATTERSON, MCLAUGHLIN and HATCH, JJ., concurred.

Judgment affirmed, with costs.

App. Div.]

FIRST DEPARTMENT, APRIL TERM, 1903.

THEODOR G. LURMAN, Appellant, v. JAMES N. JARVIE and Others, Respondents.

Suspension from the Coffee Exchange of New York city-action to recover damages resulting therefrom-exemption from liability of the board of managers acting in a quasi judicial capacity.

The Coffee Exchange of the city of New York is a corporation composed of coffee merchants, and one of the principal objects thereof is the adjustment of controversies between its members without recourse to the courts. One Lurman, who was a member of the exchange, agreed to purchase a quantity of coffee from the firm of W. H. Crossman & Bro., the members of which were also members of the exchange. Lurman refused to accept the coffee on the ground that it was adulterated and, therefore, could not be lawfully sold as an article of commerce under the laws of the State of New York. The graders mentioned in the contract decided against this contention. Lurman refused to abide by this decision and Crossman & Bro. thereupon made complaint to the Coffee Exchange. The complaint was referred to the adjudication committee of the exchange, which refused to hear or determine the controversy as to the adulteration of the coffee, holding that the decision of the graders was conclusive. They accordingly reported to the board of managers of the exchange that it was Lurman's duty to accept the coffee. When the report of the adjudication committee was presented to the board of managers that body also refused, over the objection of Lurman, to consider the merits of the controversy, and after giving Lurman notice and an opportunity to accept the coffee, suspended him for a period of one year. Lurman then instituted a proceeding to compel his reinstatement, which resulted in a determination that he could not be lawfully suspended until his claim that the coffee was adulterated had been investigated and decided against him. After procuring his reinstatement Lurman brought an action against the board of managers of the exchange to recover as damages for his unlawful suspension compensation for the injury done to his business reputation and reimbursement for counsel fees and other incidental disbursements in securing his reinstatement and for the dues paid by him to the exchange for the year during which he was suspended.

Held, that the complaint was properly dismissed;

That the case fell fairly within the rule that, in the absence of malice, persons acting in a quasi judicial capacity are not liable for errors of judgment in erroneously determining matters within their jurisdiction affecting the personal or property rights of others.

APPEAL by the plaintiff, Theodor G. Lurman, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 7th day of