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and 140 New York State Reporter them. Upon arriving at that port, upon authority of the master, certain outfittings and port charges, including inland freight charges upon the cargo, were incurred in behalf of the vessel through the ship brokers to whom it was consigned. Upon the vessel being loaded and ready for sailing, the items of these charges were submitted to the master, who marked them correct, and to provide for their payment he drew to his own order and indorsed in blank a draft or note for the amount, payable five days after arrival of the vessel at Antwerp, Belgium, signing it in his own name as master. In the body of this instrument it was stated that it was given for necessary disbursements owed by the vessel, and the vessel and freight were pledged for its payment. This instrument was delivered by the master to the brokers, who, through an agent, obtained the money from plaintiff to pay, and which they used for paying, the obligations which had been so incurred. Upon this draft being presented to the defendants for payment, they refused to honor it and repudiated the authority of the master to give it. Action was brought thereon against defendants in Belgium, and they successfully defended on the ground that by the German law the master of a vessel without express authority could not so bind his principal. Thereupon this action was instituted for money had and received and paid for the use and benefit of defendants, and has resulted in a judgment against them, from which they appeal.
We think this form of action lies against the defendants. Concededly the master had authority to incur obligations for the necessary port charges of the vessel and its outfitting for the voyage. This is so, not only by our law, but, as appears in the case, by the German law. The obligations which were incurred were necessary to the vessel, and it could not have sailed from the port without their being paid or assumed by some responsible person. If the master had personally incurred the obligations, and the plaintiff, at his request, had furnished the money to pay them, the liability of the defendants for reimbursement could hardly be questioned. While the master of the vessel, as agent for the defendants, could not delegate all of his authority, yet he could request, as he manifestly did, that the ship brokers bargain for the outfitting of the vessel and incur obligations in his behalf as agent therefor. The obligations incurred for the outfitting of the vessel were thus incurred by the master himself, notwithstanding the fact that he was aided in obtaining delivery by the pledging of the credit of the ship brokers, who bargained, however, in behalf of the vessel and its master, as appears from the evidence. Whatever was done, therefore, with respect to preparing the vessel for sailing was, in effect, done through the master.
If it is necessary to go further, it can well be said that the ship brokers, being consignees of the vessel, for the purpose of furnishing cargo for it, had implied authority from the defendants to do what was necessary to prepare the vessel for sailing, and hence that they were agents of the defendants in purchasing the necessary supplies for that purpose. In either aspect, therefore, the obligations that were incurred for the necessities of the vessel were incurred by the agents of defendants under express or implied authority. For the purposes of obtaining money to meet these obligations, and as an inducement for
its advancement, and knowing that the charges remained unpaid, and that his vessel could not leave port until payment had been arranged for, the master of the vessel issued his draft and delivered it to the ship brokers. The plaintiffs, believing that it was binding upon the owners of the vessel, cashed it, delivering the money to the ship brokers who satisfied the obligations.
The result of the transaction was that plaintiff furnished the money to pay defendants' debts contracted by their vessel. That plaintiff was induced so to do by a false token does not deprive it of all remedy. The defendants have had the benefit of the supplies furnished to their vessel, but have repudiated the authority of the agent to give an obligation to pay for them. They cannot retain the fruit of an unauthorized act and deny responsibility. While in form the transaction of plaintiff was the discounting of the draft, it transpired that they were mistaken in supposing that they were discounting a valid obligation. The defendants have succeeded in establishing that it was no draft at all. The plaintiff, therefore, paid its money under a mistake, and, it having gone to the benefit of defendants under color of authority, they are responsible for its return. Hathaway v. County of Delaware, 185 N. Y. 368, 78 N. E. 153, 113 Am. St. Rep. 909.
The plaintiff was not compelled to seek restitution of the money which it advanced from the ship brokers alone. It could follow it and recover it from the defendants, whose debts it paid. An action for money had and received, or paid out for the benefit of another, is founded upon equitable principles. No privity of contract between the parties is required, except that which results from circumstances showing an equitable obligation. Roberts v. Ely, 113 N. Y. 128, 20 N. E. 606.
At the time plaintiff advanced the money various obligations of the vessel, amounting to $205.43, had been paid by the ship brokers. They also had a claim for commissions and services amounting to $704.71. Payment of these two items were not necessary to permit the vessel to leave port, for the brokers had no lien upon the vessel for them. The Larch, Fed. Cas. No. 8,085; The Joseph Cunard, Fed. Cas. No. 7,535.
These items, amounting to $910.14, should be deducted from the recovery, and, as so modified, the judgment and order should be affirmed, without costs of this appeal. All concur.
(55 Mise. Rep. 337.)
WHITAKER V. KILBY et al. *
(Supreme Court, Special Term, Onondaga County. July 11, 1907.)
1. CORPORATIONS/ISSUE OF STOCK-INJUNCTION.
The directors of a corporation authorized the issue of 67 shares of Its stock to increase its capital, and the superintendent reported that he had secured no subscriptions, whereupon four of the seven directors took the stock, without knowledge of the holder of a majority of the stock previously issued, who was also a director, but who was not present at the meeting when the stock was authorized. Held, that they
would be enjoined from using such stock to his injury. * Affirmed in 106 N. Y. Supp. 1119.
and 140 New York State Reporter 2. CONTRACTS-TELEPHONE COMPANIES-VALIDITY-RESTRAINT OF TRADE.
A contract between a telephone company and another telephone company, reasonably restricting its corporate activities, but not to such an extent as unduly to interfere with the public rights, is not invalid.
[Ed. Note.—For cases in point, see Cent. Dig. vol. 11, Contracts, $$ 542-553.]
Action by James K. Whitaker against Allen E. Kilby and others. On motion for an injunction. Granted in part.
Elon R. Brown, for the motion.
John Conboy, W. A. Porter, C. E. Norris, and Edwin Nottingham, opposed.
ANDREWS, J. The Northwestern_Telephone & Telegraph Company was incorporated in the state of Delaware in the year 1900, and immediately thereafter constructed a telephone line in the village of Carthage and the surrounding country. It was what is known as an “independent company," not affiliated with the various Bell companies. It had seven directors, of whom three constituted a quorum. In the year 1899 there had been organized in the city of Watertown the Citizens' Telephone Company, also an independent company. In this company the plaintiff held a large proportion of the stock and with his friends was in control. After the Northwestern Company was organized, apparently without any written contract, the wires of these two companies were connected in such a manner that the subscribers of the one could communicate with the subscribers of the other, and some arrangement for dividing the tolls of such messages was made.
The Central New York Telegraph & Telephone Company is what is known as a "Bell corporation.". It has obtained from the American Bell Telephone Company the exclusive right to use in a large part of New York state the Bell telephone instruments and to connect with other so-called Bell telephone companies. In the year 1904, one W. K. Squires, who at that time owned a majority of the stock of the Northwestern Company, entered into negotiations with the Central Company for the sale of his stock. Thereupon the plaintiff, to prevent the injury which he feared would follow to the Citizens' Company, bought this stock himself. Mr. Squires, who was a director, resigned, and the plaintiff took his place upon the board. The other directors remained in office; and, as there has been since no annual election, they still continue, with the exception of one Flynn, who died, and whose place the directors themselves filled by the defendant Jenks. Thereafter the relations between the Northwestern and the Citizens' Companies continued as before.
A regular meeting of the board of directors was held on May 20, 1907. Kilby, Wilder, and Yousey were present. The plaintiff, who resides in the city of New York, and who had been ill prior to that time, was notified, but did not attend; nor did the seventh director, who resides in the state of Delaware and apparently has never been present at any meeting of the board. At that meeting a resolution was passed directing the president to execute a contract, which was then presented, between the Northwestern Company and the Central New York Company. Negotiations for this contract had apparently begun on or
about April 6, 1907, and various references had been made to it at subsequent meetings of the board. None of these meetings, however, had been attended by the plaintiff; and he had no knowledge or information as to such negotiations, or that such a contract was contemplated. The contract in question was immediately executed by Mr. Kilby, the president. At another meeting of the board, which was held on May 30, 1907, Messrs. Kilby, Wilder, and Yousey were again present. The authorized capital stock of the company consisted of 2,000 shares. Of this aniount only 339 shares had been issued, the plaintiff holding 201 of these. The company was in urgent need of funds, and, ostensibly to raise the sums required, a resolution was passed that 67 shares be issued and sold at par, and that the superintendent be instructed to obtain subscriptions for that amount. Later the superintendent reported that he could not obtain subscriptions; and thereupon the 67 shares were subscribed for by the defendants Kilby, Yousey, Wilder, and Jenks, and issued to them. This was done entirely without knowledge on the part of the plaintiff, or any information to him that such action was contemplated; and the result was that it gave to the defendants slightly more than 50 per cent. of the stock of the corporation, turning the plaintiff from a majority to a minority stockholder. On May 30th, also before the plaintiff had been informed of the contract made with the Central New York Company, connection between the Citizens' and the Northwestern Companies was severed and connection with the Central New York Company was made.
The plaintiff attacks both these transactions, and asks for an injunction preventing the use by the defendants of stock so issued to them, preventing them from carrying out the contract of May 20, 1907, and requiring the defendants to reconnect the wires of the Northwestern and Citizens' Companies.
So far as regards the issue of stock, the plaintiff is entitled to relief. Directors cannot, with secret knowledge of the existence of a contract which they claim to be of great value, issue treasury stock of the corporation and buy it in themselves, particularly when the transaction converts them from minority to majority stockholders. Such a transaction is in the highest degree inequitable. All stockholders should be given knowledge of contracts affecting the value of the stock, and should be allowed to subscribe for their proportional share of the new issue. It may be that the issue itself was justified by the necessities of the corporation. It may be that the money received for it has been applied for the benefit of the company; but the equities of the parties can be determined on the final judgment rendered in this action. Meanwhile the defendants should not be allowed to use the stock wrongfully acquired by them to the detriment of the plaintiff.
A much more serious question is that involving the contract with the Central Company. By this contract the Central New York Telegraph & Telephone Company grants to the Northwestern Company the right to use the Bell telephone instruments in a certain defined territory in the neighborhood of Carthage. It is to lease to the Northwestern Company Bell instruments for use in that district at a fixed rate; to turn over to it its property situated in the district, except trunk lines, for a rental; to turn over to it all its subscribers in the district; and it agrees,
and 140 New York State Reporter during the term of the contract, not to connect with any other telephone company therein. In return, the Northwestern Company agrees to turn over to the Central Company its property situated outside the district at a rental agreed upon; to substitute Bell instruments for those now used by it within three years; to turn over to the Central Company its subscribers outside of the district; to cut off all connection with lines not fully equipped with Bell instruments; to use only Bell instruments at public stations; and, finally, it agrees not to extend its system outside the district specified in the contract without the consent of the Central Company. The lines of the Northwestern and Central Companies are to be connected for the interchange of business, and a traffic agreement is made as to messages passing over the wires of both companies. The time of the agreement is fixed at thirty years.
The board of directors of a corporation represent not simply the stock which they may happen to own individually, but they represent the corporation itself. The business of the corporation is to be controlled by their judgment, and their judgment is not limited by the fact that it does not coincide with that of the majority stockholders. When they make in good faith a valid contract, the consent or the approval of the majority stockholders is not necessary. This particular contract in question, if valid, and if made in good faith, is binding upon the parties thereto, even though it may be disapproved by the plaintiff, even though it may injure his interests. The mere fact that he owns stock in the Citizens' Company, which company may be ruined by the contract in question, is no answer to this proposition. In fact, the minority stockholders in the Northwesetrn Company could rightfully object to any action on his part, even if he controlled the majority of its directors, which would tend to injure the Northwestern Company for the benefit of any private interests he might hold outside of it.
The first question to be considered, therefore, is whether this contract was entered into by the directors of the Northwestern Company in bad faith. Upon the papers before me I could not sustain such a charge. The denial to his representative, after it was executed, that any such transaction was even contemplated, and the illegal issue of stock on May 30th, apparently made for the purpose of transferring the control from one who might be expected to be unfavorable to the contract to those who favored it, while they raise some suspicions, are not sufficient. Nor is the contract itself so unreasonable and so unfavorable to the interests of the Northwestern Company as to be in itself proof of collusion or bad faith. In fact, the contract seems to be an advantageous one, and one essential to the continued prosperity of the Northwestern Company. The mere fact that the Citizens' Company have but 1.000 subscribers, of whom nearly 400 use also the Central's telephones, while the Central has nearly 3,000 subscribers in the city of Watertown, would in itself tend to show that a traffic arrangement with the latter, rather than the former, would be advisable. Taking all the facts together, the contract seems to show judgment on the part of the directors of the Northwestern Company.
But is the contract ultra vires or illegal in the sense that it is prohibited by law or by public policy? If it is, any stockholder may object. Clearly it is not by reason of the fact that the Northwestern Company