Curtis v. Natalie Anthracite Coal Co.

89 A.D. 61, 85 N.Y.S. 413

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: December 15, 1903
• Status: Published

Opinions

Laughlin, J.:

The decision as made is based upon a finding that the defendant assumed an indebtedness of .$17,853.02, which was due and owing from the Penn Anthracite Coal Company to the plaintiffs on the 1st day of April, 1895. The correctness of the decision in this regard is the single question presented on the appeal.

The Penn Company was organized on the 4th day of September, 1889, under the laws of Pennsylvania. It was engaged in mining and selling coal. Its collieries were at Natalie, Penn,, but it main-, tained an office for the sale of coal at 143 Liberty street, New York city. The collieries were purchased from one Packer and the title taken in the name of Nathaniel Taylor, the president of the company, who, after giving a purchase-money mortgage back, conveyed the property to the company. The plaintiffs were engaged in buying and selling coal in the New, York and adjacent markets. From the commencement of the year 1893 they were the principal purchasers of coal from the Penn Company and had built up and established an extensive trade in that coal in the city of New York and vicinity. They had purchased and sold during this period about 500,000 tons of coal at a cost of about $2,000,000. The establishment of a market for the coal was attended with difficulty on account of the fact that “ at sight ” it would not sell as the president téstified. It had been their custom wJhen the company needed credit to accept its drafts which the company had discounted, and the company paid these acceptances by subsequent deliveries of coal. The balance of account owing to the plaintiffs from the Penn Company on the 1st day of April, 1895, on account of such acceptances, over and above the coal delivered, was the amount already stated. It appears that some bonds of the Penn Company which had not been paid for and which were presumably secured by mortgage upon the property were held by Baltimore parties who had become involved in financial difficulties. These bonds were regarded by the company as a cloud upon the title to its property. The affairs of the company were carefully investigated by the principal creditors and board of directors, and, after such investigation, it was agreed between them that Taylor should confess judgment in an'action for the foreclosure of the mortgage, both individually and as president of the company, and that the property should be sold and a new company organized to take title and continue the business. Judgment by con- fession was accordingly entered on the 31st day of December, 1894. The property was purchased on the' foreclosure sale by one Lazear, trustee representing four banks (the principal creditors of the company), and one of the stockholders and bondholders. The trustee took title by two deeds, one dated-either January 7 of February 15, and the other dated February 16, 1895, respectively. About this time proceedings were instituted for the organization of a new company, which resulted in the. incorporation of the defendant, Under the laws of Pennsylvania, on the 15th day of February, 1895. The original capital stock of' the company was fifty shares, sub-' scribed for by five stockholders, each taking ten shares, and they were named as the directors. The first meeting of the stockholders and directors was held on the 4th day of March, 1895. On the same day the directors and stockholders agreed to increase the capital stock to $2,.000,000, and accepted a proposition from the trustee to convey the title which he had' acquired to the company in consideration of the issue to him of the entire capital stock and an equal amount of bonds. At. the same time the- directors executed assignments of their stock in blank, and at the next meeting on-March 12, 1894, the directors and oificers resigned successively and new directors were elected in their places. The board of-directors- was increased to seven. Taylor was elected a director and On the same day elected president of the defendant. The other' directors, with one exception, had been directors of the old com.pany. On the 1st day of April, 1895, the trustee deeded the lands' to' the new company. The stock and bonds of the new company were issued to Lazear. The facts do not clearly appear, but it is. to be inferred that he'transferred all the stock to Taylor, who was the " principal stockholder of the old company, with the exception of that necessary to be held by the other-directors, and that the bonds were-distributed to the parties interested in the mortgage which was foreclosed, instead of Lazear being required to pay his bid in cash, and to other creditors of the old company,- The Penn Company owned about $100,000 worth of personal property used in working its mines and placing the products thereof upon the market. This property was not included in the deeds, but it seems to have been assumed that the defendant was to become the owner thereof. The only explanation is that given by the president, which is, that they were conveying it to themselves, and that it was regarded by them as the same company. The 1st day of April, 1895, was fixed as the day when the new company was to take possession of the mines and other property and business, and it did take possession on that day. On the twenty-sixth day of June thereafter a resolution was adopted by the board of directors for the purchase of the personal property from the trustee, but the defendant at that time was, and had been since April first, in complete possession thereof, and it does not appear that anything further was done under that resolution. The old company continued business as usual until the 1st day of April, 1895, at which time the business was taken up and continued by the new company without a break. Taylor, the president, testified concerning the transaction: “ We •were conveying it to ourselves ; we were the same company ; there was no change in the company ; ” that the plaintiffs were the largest creditors at the time of the transfer; that it was fully understood and agreed among the directors and bondholders of the new company before he confessed judgment that the new company should assume and pay the outstanding obligations of the old company, and that all other claims against the old company, except claims “ held by the people interested in the company itself,” were subsequently paid by the new company. The practice of the old company on delivering coal to the plaintiffs on payment of their acceptances was to forward receipted bills for the coal with the bills of lading. After the 1st of April, 1895, the new company continued to ship coal to the plaintiffs, accompanying the bills of lading with receipted bills as theretofore, except that they were made out and receipted in the name of the new company. Up to this time there had been no communication between the new company and the plaintiffs concerning the reorganization or concerning the purchase and shipment of coal. The new company continued to occupy the offices of the old and continued in its employ the same sales agent • and employees generally. Taylor had had general charge' and management of the business of the old company, making his headquarters at the New York office, and he continued to exercise like functions with the new company. Upon the receipt by the plaintiffs of the first of these bills made out and receipted in the name of the new company, the plaintiff Blaisdell called upon Taylor at the defendant’s office in New York to ascertain what it meant. The testimony of Blaisdell and Taylor is in substantial accord as to what took place at that interview and is uncontradict'ed. It is to the effect that Blaisdell said to Taylor that plaintiffs had been buying coal right along and giving their acceptances to the .Penn Company and now they had received a receipted bill from the Natalie Company and asked whether there had been any change in the company,, to which Taylor replied that there had been a change, but, so far as the plaintiffs were concerned, it would not affect them, and further explained by saying, “ owing to complications connected with the early promotion of the company down in Baltimore our people after considerable deliberation have deemed it wise to foreclose and organize a new company. * * * Now, Mr. Blaisdell, there will be no change in your method of doing business with us, we will have the same sales agent, you will deal with me just the same as you have in the past, you will get your coal just the same as you have in the past; * * * all your acceptances will be filled with coal just as though there had been no change whatever. * * * Mr. Blaisdell you must know that you are j ust as important to Us as we are to you, because you have boats and we have no boats to handle the coal around the harbor. You have the trade and we have no trade and our coal is a very difficult coal to handle in New York or anywhere else; it has. excellent burning qualities, but at sight will not selland you made a market for it andjwe want you to continue to handle it because we need you; ” that to this Blaisdell replied, “ If it is all right about these acceptances, we will go on doing business as we have in the past; ” that Taylor then said, “ You need not worry one moment, you will deal with just the same people as you dealt with before, and the business will be conducted just the same as it was before;” and upon Blaisdell expressing satisfaction with this, Taylor further stated that plaintiffs were an exception to all the other people to whom the company had sold coal, in that they had never made a claim for short weight or asked a reduction on the bills. Blaisdell further testified, and this is not controverted, that he asked Taylor if it would be necessary for plaintiffs to consult a lawyer for their protection, to which the latter replied, “Not at all, * * * you are dealing with the same people; the coal will be delivered just the same as it has been before, providing that you assist us in the future, and we will wipe out this whole debt in a short time.”

The next acceptance was given by the plaintiffs to the defendant on the 19th day of June, 1895, for $5,000, which the defendants discounted and used the proceeds in their business. In the meantime the defendant had continued to ship coal to the plaintiffs, accompanying the bills of lading with receipted bills as theretofore, thereby reducing the indebtedness of the old company to the plaintiffs to the sum of $2,514.64, and neither presenting any bill showing an indebtedness on the part of the plaintiffs to it or demanding' payment for the coal. The business thereafter was continued in the same manner, the plaintiffs from time to time giving the defendant their acceptances and the defendant forwarding receipted bills for coal. It was stipulated that there was nothing in the books of the new company to show that the balance owing to the plaintiffs by the old company in April, 1895, was carried over. The minutes of the secretary contained no action of the directors respecting it and no mention of the arrangement for its payment made with the plaintiffs by the president.' It appears, however, as a credit of a balance due to the plaintiffs on the 31st day of March, 1895, on a statement of account rendered to them by the defendant about the 14th day of May, 1896. Regular monthly meetings of the board of directors were held, at which the treasurer’s report for the preceding month was read, approved and ordered filed. Most of these meetings were held in Pittsburgh, which the charter of the company fixed as its place of business. One meeting of the directors was held in the New York office on the 25th day of September, 1895. None of the treasurer’s reports were produced and nothing appears as to their contents. In March, 1897, a conversation took place at the New York office between the plaintiff Blaisdell, the president of the company and Mr. Wardrop, who was the, vice-president and a director of the defendant and chairman of the executive committee, consisting of five members. According to the testimony of Blaisdell and'Taylor, the account between the plaintiffs and defendant was examined and it was found that the amount due the .plaintiffs at that time was $4,000, and in arriving at this balance the plaintiffs were credited with the indebtedness of the old company. Taylor stated that the company was in pressing need of money to pay its operatives and he desired the plaintiffs to give further advances. Mr. Blaisdell agreed that the plaintiffs then would give their acceptance for $3,000 and a short time thereafter for $2,500. This conversation is undisputed. In the fall of 1897 the defendant went into the hands of a receiver. During the continuance of these business transactions between the plaintiffs and the defendant, it does not appear that the defendant in any manner repudiated the agreement by which the plaintiffs were induced to refrain from taking steps to collect the balance owing by the old company and to continue to handle the defendant’s coal upon the understanding that the defendant was to pay the balance owing by the old company or that the defendant in any manner repudiated the receipts accompanying the delivery of coal, or questioned the accounts that had been rendered by it to the plaintiffs. Between the 1st of April and the 6th of May, 1895, it appears that there were eight deliveries of coal made to the plaintiffs in the name of the old company of the value of $3,197.94. This coal was mined prior to the first day of April. The evidence is rather indefinite as to how it came to be shipped in the .•name of the old company; but the fair inference is that it was not only mined but shipped from the mine or arrangements made for shipping it prior to the first day of April. The sale of this coal does not. appear to have been entered on the books of the new company but it is charged to the plaintiffs on the account rendered by defendant May 14, 1896. On the 30th day of April, 1895, a time draft drawn on the plaintiffs in favor of the old company for $4,100 was accepted by them and subsequently paid. In said account of May 14, 1896, the plaintiffs are credited with the payment of this acceptance as a payment to the defendants. All of the first directors and those who constituted a majority of the board thereafter testified that there was no agreement by the board of directors, for themselves or for the defendant, to assume this indebtedness and that they did not authorize any one to assume or agree to pay the same ; but they did not deny knowledge of the facts already stated nor did they expressly deny that there was an understanding prior to the confession of judgment against the old company that these and other obligations were to be assumed and paid by the new company or that pursuant to such understanding all of such other obligations have been paid by the defendant.

The Constitution of Pennsylvania (Art. 16, § 7) provides, among other things, that “ the stock and indebtedness of corporations shall not be increased except in pursuance of general law, nor without the consent of the persons holding the larger amount in value of the stock, first obtained, at a meeting to be held, after sixty days’ notice, given in pursuance of law.” The statute of Pennsylvania under which the defendant was incorporated (see Laws of Penn, of 1871, chap. 32, §§ 3,43, as amd.) expressly requires that the purpose for and the place within which said corporation is established shall be distinctly and definitely specified in the articles of association, and such corporation shall not direct its operations or appropriate its funds for any other purpose. The certificate of incorporation of the defendant shows that it was organized for thé “ purpose of mining and selling coal and transporting the same to market.” Its by-laws provided, among other things, that “ no debt or liability beyond that incurred in the ordinary business transactions ‘of the company shall be contracted by any officer of the company without the consent of a majority of all the directors.” Concerning the powers and duties of the president, the by-laws provide that it shall be his duty “to have a general oversight over all the different departments of the company, and to be responsible for their efficient and economical management; ” that he should countersign all checks and obligations issued by the treasurer if he found them correct and proper, and should preside at the meetings of the board of directors, and should at each of such meetings present a condensed statement in writing of the operations and affairs of the company, and make such recommendations as he deems for the best interests of the company. The president of the defendant, in answer to a question as to what were his general duties as president and what general duties hie performed, testified that the corporation was not run by an executive board nor by committee, but by the officers; that he was experienced, while the others were amateurs, in the mining business, and that whenever there was anything to determine it was determined by him. He further testified that the vice-president and secretary and treasurer and all the officers of the defendant knew that the defendant was delivering coal to the plaintiffs on account of their prior acceptances for the old company, and that the board of directors knew that he had made the proposition to the plaintiffs that if they would continue business relations with the new company as with the old, the old indebtedness would be paid by the defendant.

There is no force in the contention that the contract by which this indebtedness was assumed was ultra vii-es, as prohibited by the Constitution or statutory law of Pennsylvania, already quoted, The contract was made concerning the vei’y business for which the defendant was incorporated, and with a view to furthering its interests. It was, therefore, a contract made within the scope of the business of the defendant, ás stated in the articles of incorporation. The constitutional provision prohibiting the increase of indebtedness of a corporation without the consent of the holders of a majority of the stock given pursuant to general laws to be enacted by the Legislature regulating the same, surely can have no application to an indebtedness incurred in the line of business for which the corporation has come into existence. (Manhattan Hardware Co. v. Phalen, 128 Penn. St. 110.) Moreover, even if this contract were ultra vires, the defendant, after having made and received and retained the benefits of it, cannot be heard to interpose that as a defense. (Whitney Arms Co. v. Barlow, 63 N. Y. 70 ; Woodruff v. Erie R. Co., 93 id. 609; Holm v. Claus Lipsius Brewing Co., 21 App. Div. 204; Rider Life Raft Co. v. Roach, 97 N. Y. 381; Munson v. Magee, 161 id. 182. See, also, Ellsworth v. St. L., A. & T. H. R. R. Co., 98 id. 553.) It is a fully executed contract on the part of the plaintiffs, and it can be enforced against the defendant, even though there was no authority to make it.

The board of directors left the making of contracts to the president. There can be no question but that as the managing agent of the company he had authority to make contracts for the sale of the defendant’s coal. He acted within this authority. Neither his; good faith nor that of the plaintiffs is or can be questioned on the evidence before us. He dbemed it of great importance to the defendant that the relations existing between the old company and the plaintiffs should be continued by the new company, and the soundness of his judgment in that regard is beyond question. As an inducement for the plaintiffs to continue to purchase and find a market for the defendant’s coal and to insure the continuance of the customers who were already familiar with the character of this kind of coal, he, after assuring plaintiffs that the parties in interest were the same and that they might rely upon the agreement without consulting counsel, offered to pay the indebtedness of the' old company to the plaintiffs. This was not an attempt to bind the new company without consideration to pay an indebtedness of the old, but it was a contract for the benefit of the new company no ■different than if the plaintiffs had exacted as a condition of handling the defendant’s coal that the defendant should pay them a certain sum of money. The advisability of making such payment would be ■a matter of sound business judgment. The importance to the company of having the plaintiffs handle its coal might warrant the payment of even a much larger sum. Hence the contract may be one which the president of the company, in the circumstances, was authorized to make in the first instapce, but it is not necessary to ■decide that question. Assuming that he was not authorized to make the contract, I think the evidence is overwhelming that his action in so doing has been ratified and that the company is liable thereon. The company has not only received the benefit of having the plaintiffs continue to handle its coal upon the strength of this agreement but it has received advances of money made by the plaintiffs in reliance thereon. The express testimony is that all of the officers and the board of directors had knowledge of the contract of assumption. Furthermore, they are chargeable with such knowledge based upon the course of business between the parties. When they accepted and received the benefits of a contract procured by their agent they are presumed to know the terms and conditions upon which he negotiated the same. The facts that there has been no formal action by the board of directors, that the indebtedness has not been carried forward onto the boohs of the new company and that there is nothing in the records of the new company to show the assumption, are not sufficient to relieve the defendant, a business ■corporation, from liability, when its officers and board of directors had knowledge of the facts or are chargeable with knowledge thereof, and with such knowledge retained the benefits of the contract and continued their business relations with the plaintiffs without repudiating the alleged unauthorized contract. (Hall v. Herter Bros., 90 Hun, 280; Alexander V. Brown, 9 id. 641; Davies v. Harvey Steel Co., 6 App. Div. 166 ; Cone v. Empire Plaid Mills, 12 id. 314; Quee Drug Co. v. Plaut, 55 id. 87; Mathews v. Hardt, 79 id. 570; Munson v. Magee, supra; Cunningham v. M. S. & F. C. R. R. Co., 63 Hun, 439.)

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

Patterson and Hatch, JJ., concurred; Van Brunt, P. J., and Ingraham, J., dissented.