Second Department, March, 1906.

[Vol. 111. within the range of the principle, or who take instruments, securities or moneys with notice that they have been obtained by a person filling a position of a fiduciary character from a person towards whom he stands in such relation," applies under the facts of this case, and that, therefore, the burden to show that the price was adequate so as not to "point directly to wrongdoing" (2 Big. Fraud, 505; see, also, 500 et seq.), was on the purchasers, yet I still think that the appellants must fail. The court finds that the estate in 1889, exclusive of the stock, was valued at $16,224.72; that the value of the stock at that time did not exceed $16,000, and that the value of the four and four-ninths shares which were sold by the guardian did not exceed $1,776. It finds that the sons paid for the stock to the guardian $888.88, and also executed such releases of their respective one-ninth shares of the estate, to which they were entitled under the will, so that the one-ninth share of the said infants became one-sixth. The guardian was paid in addition to the one-ninth share to which her wards were entitled under the will $901.38, representing the amount of the sons' relinquishment, so that the guardian received for the four and four-ninths shares of the stock, in all $1,790.26, or $400 a share the full value, as found by the court. The shares were of the capital stock of the William Cabble Manufacturing Company, a domestic corporation organized in 1870, for a term of twenty-five years, capitalized at $30,000 in 300 shares of a par value of $100 each. It was a small, close family corporation, in that the stock was owned exclusively by the Cabble family. It owned no trade mark, copyrights or patents. It was a going concern engaged in manufacturing as a competitor in the open markets. The testator was an officer of the company engaged in its business, and his sons had been from boyhood and were then engaged in its business as workingmen. The only witness who gave evidence as to the value of the stock was Joseph C. Cabble, called . by the plaintiffs. He had been connected with the company for thirty years, and a stockholder therein since 1879. He appears as indifferent between the parties. He gave a detailed description of the company, its history and its business as a going concern. He testified that there had been but one sale of the stock at public auction, at a price unknown to him, and one private sale twenty years before the time he testified, at $150 a share. On cross

App. Div.]

Second Department, March, 1903.

examination he put the value of the stock at the time of the sale now attacked at $400 per share, and he reiterated his valuation on the redirect examination upon his original statement inade on cross-examination. His testimony is criticized upon two grounds: First, in that the inventory of the corporation shows a valuation of $248,095, from which it is argued that if there were distribution on that basis each share would be worth $800. I think that we cannot conclude that the inventory of the property of a going concern, made by the officers thereof, is a safe indication of the price that would be realized from a present sale thereof and a distribution thereunder. What property may, in the opinion of its owners, be worth, regarded as in use by a going concern, for inventory purposes, and what it would fetch if the concern were wound up upon sale in open market, may naturally present a great variance. It does not appear that the inventory was on the basis of a sale or a distribution, but simply as a matter of book values to the corporation. The precise question was pressed upon the witness as follows: "Q. But based upon what you have just said, is what your conclusion would have been, to divide the inventory by the number of shares you had, would give the value of the stock at $800 a share? A. Under the circumstances, my knowledge of what that consisted, I say no." Second. The dividends paid. They were certainly large, but then it must be remembered that they were not the result of any patent, but purely of the chances of competition in the open market. The price paid, $400, was par plus $300 for each share. This enhanced price was natuThere is a marked difference

rally due to the large dividends. between a great corporation, with years of corporate life before it, in the control of a patent or in possession of a practical monopoly, and a small business conducted by a family in the form of a corporation, dependent upon the individual efforts of a few persons and engaged in open competition, with but six years of corporate life before it. With reference to the contention of the appellants that the value of the stock was $800, as demonstrated by the inventory and dividends, I may cite the language of the court in People ex rel. Knickerbocker Fire Ins. Co. v. Coleman (107 N. Y. 541, 543, 544): "One mode of arriving at the actual value of the capital stock of a corporation is to take what is sometimes called the book value, which

Second Department, March, 1906.

1

[Vol. 111. is reached by estimating all the assets as they appear upon the corporate books, and deducting all the liabilities and other matters required to be deducted by law, and taking the balance as the measure of value for assessment. This seems to be a proper method for arriving at the value of the capital stock in the case of a corporation which is about to discontinue business, wind up its affairs and distribute its assets among its shareholders. But it cannot always, or usually, be a fair or correct method of assessment in the case of a going corporation whose assets are to remain at the risk of its business." The appraisal of Surrogate SILKMAN in Matter of Brandreth (28 Misc. Rep. 468; affd., 169 N. Y. 437) may also be noted.

There is a further consideration, which certainly is of some moral weight. The testator knew the business thoroughly; he had grown up in it and with it daily, and was one of its chief officers. His will, executed in 1883, divided his estate-stock and other property equally among his children. There was not a great variance between its earnings in 1883 and 1889. He died suddenly in 1889, leaving an unexecuted will. By that will he shifted his scheme of distribution. He did not thereby expressly discriminate as to one child against another, but he gave his shares of stock to his sons exclusively and the rest of his estate to his daughters exclusively. What was done by subsequent agreement among the legatees was to carry out the scheme of the second but unexecuted will. If the original scheme was equality, there is no indication that for any predilection or prejudice the testator intended to disturb that scheme by his later will. It cannot be said that under the scheme of the second will practical inequality was necessary from the character of his investment in the stock, for the reason that the testator once bequeathed the stock and the other property to all the children, share and share alike. Is it not then a fair argument that he thought that the division made, i. e., stock to the sons and the other property to the daughters, was practical equality, and that if on the one hand the stock, so long as his sons remained in the business and its affairs went well, might perhaps be more profitable, still its value was more uncertain and more dependent upon the success of the venture than that of the assets of the other part of his estate? He naturally regarded nine children and the children

App. Div.]

Second Department, March, 1906.

of his dead son. His estate outside of the stock was something over $16,000. If the stock, in the opinion of the testator, was worth $800 (as the appellants contend), then by the scheme of his unexecuted will he would have in effect left to his three sons $32,000 and but one-half of that sum to his six other children, or have disturbed essentially his original scheme of equality by leaving to each daughter but one-fourth of the amount left to each son. On the other hand, while so marked a difference disturbed any scheme of practical equality, the difference if the stock had been worth $400 would have been no more than might have represented the variance between the value of such corporate stock and that of the other property which consisted of cash or its certain representative. The comparison is between $16,000 in stock and $17,689 or $16,624 net in cash. My comments may be somewhat fanciful or far fetched, but the disposition of the testator thus analyzed seems to throw some light upon the value of the stock in his judgment. Again, it does not appear that there has ever been any repentance of the bargain by any one save these plaintiffs. The only evidence on this subject is that of the testator's daughter, Mrs. Johnson, called by the plaintiffs, who testified: "I stood by the bargain and have not repudiated it in any way or tried to."

In any event I think that upon the direct testimony in the case the finding of the court as to the value of the stock is not "against the weight of evidence, or that the proofs so clearly preponderated in favor of a contrary result that it can be said with a reasonable degree of certainty that the trial court erred in its conclusions.' (Lowery v. Erskine, 113 N. Y. 52, 55; Foster v. Bookwalter, 152 id. 166.) It appears, then, that as there was no inadequacy of price therefor this appeal cannot succeed. The language of the Court of Appeals in Geyer v. Snyder (140 N. Y. 394, 400) is applicable: “The plaintiff, in the brief of counsel submitted, seems to assume that upon the bare proof of a transaction with the executors by virtue of which, for an apparently good consideration, her interest in the estate was released or transferred to them, fraud will be presumed, and that the burden is at once cast upon them to show that no undue advantage was taken of her. This position is not supported by any principle of law or rule of equity which we have been able to find. If the beneficiary is competent to contract, the

Second Department, March, 1906.

[Vol. 111. trustee may deal with him without necessarily incurring the sus picion of bad faith. But if he buys an interest in the trust property or secures from the beneficiary a release to himself, and it is shown that the price was inadequate, or that he has made a profit out of the transaction, the law presumes fraud or concealment, or undue influence or some conduct inconsistent with loyalty to his trust, and places upon him the burden of proving that he disclosed to the beneficiary every circumstance relating to the condition of the property which he ought to know in order to form a correct judgment of its value, and that he exerted no undue influence to obtain the assent of the beneficiary to the bargain. It is here that the fatal weakness of plaintiff's case is to be found. She gave no proof of inadequacy of price or tending to show that the executors had made a large profit out of the property purchased. Had she shown that they obtained property of the estate worth $280,000 for $120,000, as she now alleges, or that for $5,000 she released an interest in the estate which was of the value of $10,000, that fact alone would have given rise to a very strong presumption that she had been defrauded by the executors, from the consequences of which they could not escape, except by the most satisfactory proof that no material information was withheld and that the sale was her own free, intelligent and deliberate act."

The only question of law that deserves consideration arises upon the rulings of the court in exclusion of the testimony of a corporation attorney, a broker, and a man engaged in like business, called as experts to answer as to the value of the stock upon hypothetical questions solely. These questions embraced the founding of the business, incorporation, capitalization, kind of business, dividends paid, book inventories and financial condition. This action is based upon the proposition that the price paid for the stock was inadequate. And the question was, what was the actual value of the stock at the time of the sale? There was no market value. In People ex rel. Knickerbocker Fire Ins. Co. v. Coleman (supra) the court, per EARL, J., indicates the data for actual value: "They may take into account the business of the corporation, its property, the value of its actual assets, the amount and nature of its present and contingent liabilities, the amount of its dividends and the market value of its shares of stock in the hands of individuals. They may resort to any