Clarence A. Blake, Appellant, v. The Buffalo Creek Railroad Company, impleaded, etc., Respondent

Clarence A. Blake, Appellant, v. The Buffalo Creek Railroad Company, impleaded, etc., Respondent. The director of a railroad corporation, in all matters pertaining to the construction of its road and the acquisition of the roadway, is bound to act as the representative and for the benefit of the company. He cannot acquire for himself property which it is his duty to acquire for the company, and which is necessary for its purposes. In respect to such dealings he stands upon the same footing as an ordinary trustee. When a trustee comes into a court of equity claiming its protection for his alleged legal title as against the cestui que trust, it is competent for the court to declare that title subject to the trust, and to restrain the trastee from asserting any further claim in violation of his trust, and, under the Code, the court had power to award this affirmative relief in the action brought by the trustee. (Argued April 17,1874; decided May 26, 1874.) Defendant built trestle work and laid tracks for its road upon certain premises owned by the city of B. C., M. and plaintiff were at the time directors of defendant. C. was employed by the company to procure rights of way for its road. C. and M. took a lease to themselves of the premises from the city. The trestle work and .tracks were built with their knowledge and consent. Defendant operated its road and used the trestle work for about two years, undisturbed. C. and M. then assigned their lease to plaintiff, who, upon the refusal of defendant to pay the rent demanded, tore up the tracks and destroyed the trestle work, and then commenced this action asking that defendant be restrained from rebuilding or entering upon the premises. The court below refused the relief sought, and directed that plaintiff surrender up the tracks, road bed, trestle work and premises, and be perpetually restrained from interfering therewith. Held, no error, and that as no claim was made in the pleadings or upon the trial, that defendant should be charged with a pro rata share of the rent payable to the city under the lease, that question could not be considered here. Appeal from judgment of the General Term of the Supreme Court in the fourth judicial department, affirming a judgment in favor of defendant entered upon the decision of the court at Special Term. This action was brought to restrain defendant from constructing or erecting upon certain premises, in the city of Buffalo, its railroad and trestle work, or from, in any manner, entering upon said premises or interfering with plaintiff’s use and enjoyment thereof. Defendant’s answer denied the principal allegations of the complaint, asserted its own right to the premises and asked for affirmative relief that plaintiff be restrained from interfering with the premises. The court found the following facts, among others : That on the 1st day of January, 1869, the city of Buffalo was the owner in fee and in possession of the premises described in the complaint. That on the 18th day of September, 1869, the defendant made and caused to be filed, a map which indicated the general line of its proposed road, and as so made and filed, it did indicate that the line of its road would pass over the said lands described in the complaint. That prior to the 3d day of April, 1871, defendant laid and constructed two single tracks over and across the lands described in the complaint, one of the same being laid upon the surface, the other being an elevated track, laid upon trestle work constructed for that purpose, some twenty feet above the natural surface or grade of the ground. That upon the 3d day of April, 1871, the common council for the said city of Buffalo adopted a resolution authorizing a lease of the premises to John A. B. Campbell and Bobert Mills, and that on the 7th day of April, 1871, in pursuance thereof, a lease was duly executed and delivered to them. That at the time of passing said resolution and the execution and delivery of said lease, defendant was in the full and complete possession and use of the part of the premises in question occupied by the said tracks and trestle work. That such possession and use continued up to the 2d day of October, 1872, when the servants and agents of the plaintiff, against the will of the said defendant, by force and violence entered upon and tore up the said tracks, and pulled down the said trestle work, and so injured and impaired the same that the said defendant could not use the same; and since that time, against the wishes and protests of the said defendant, has been in the actual possession of the said road-bed and trestle work, and has kept the said defendant out of the use and possession of the same by force. That from the organization of the defendant until this day said Campbell and Mills were and now are directors in said railroad company, and the building and construction of the said railroad tracks and trestle works upon and over the premises in question was done with their knowledge and consent, and the said Campbell was employed by said company, and among other things to procure rights of way for said company, and was paid a salary for his services. That from the organization of said railroad company, the plaintiff was one of the directors of the same, and remained such director until sometime after the 16th day of June, 1871. On the last named day the said lessees assigned to. said plaintiff the said lease, and he received such lease and assignment. That upon the 11th day of January, 1872, the said plaintiff, being then a director of said railroad company, presented to the board of directors of said company a claim, in writing, in the words and figures following: “ For nine months’ use of land occupied by trestle work of Buffalo Creek R. R. Co., crossing South Channel. « §900. “(Signed) C. A. BLAKE.” And requested the said company to pay the same. That at a meeting of said board of directors, the said claim was acted upon and was wholly rejected. That after taking an assignment of said lease; and before October 2, 1872, the plaintiff, in writing, offered his-resignation as such director, and placed the same in the hands of the president of the company, who filed- the same with the secretary of the company, and since, has not acted as a member of the board of directors of said company; but the said resignation was never laid before or accepted by said board. The court found the following conclusions of law : That the city of Buffalo having acquired the title in fee to the lands described in the complaint, in the exercise of the right of eminent domain, holds the same in trust as public property, charged with the specific public use as aforesaid; that the said lease of the said property was made, executed and delivered without lawful authority on the part of the lessors ; no legal right vested in the lessees or their assigns by virtue of the same, of, in or to the land embraced therein, and the same is invalid and void. That on the 2d day of October, 1872, and for a considerable length of time prior thereto, the defendant, the Buffalo Creek Railroad Company, was and had been in the lawful possession of its road-beds and trestle work as aforesaid, constructed and used over the lands and premises described in the complaint as against the said plaintiff. That as against the said plaintiff, the said defendant the said railroad company has the lawful right to maintain and use its said tracks, road-bed and trestle work over said lands and premises, and the destruction of the same by the plaintiff was illegal and unlawful, and the possession of the same and the keeping of the said defendant out of the use and enjoyment of the same is also illegal and unlawful. That as against the said plaintiff the said railroad company is entitled to the use and enjoyment of said tracks, road-bed and trestle work, and the premises on which the same are constructed and erected, and the plaintiff must, upon service upon him or his attorneys in this action of a copy of the judgment, or order to be entered hereon, surrender up the said tracks, road-bed, trestle work and premises to the said defendant, and be perpetually restrained and enjoined from interfering or meddling in any manner with the defendant’s use and enjoyment thereof. John E. Parsons and Franklin D. Locke for the appellant. The lease to plaintiff by the city of Buffalo is valid and vests in him the right to the possession and occupancy of the land, subject to the conditions of the lease. (Laws 1853, § 18, p. 501; Brooklyn Park Co. v. Armstrong, 45 N. Y., 234; Heywood v. Mayor, etc., of N. Y., 3 Seld., 314; Rexford v. Knight, 11 N. Y., 308.) The license to the railroad by the city to enter upon the land was revoked by the lease to plaintiff. ( 2 Seld., 568; Wash, on R. P., 399, § 9, note 5, and cases cited; 13 M. & W., 838-845.) The company has not been prejudiced by plaintiff’s taking the lease. (1 Red. Railways, § 8, p. 255, et seq., notes and cases cited.) It is of no moment how plaintiff got into possession. (Hyatt v. Wood, 4 J. R., 150; Ives v. Ives, 13 id., 235 ; Millard v. Warren, 17 Wend., 257; Scribner v. Beach, 4 Den., 448; People v. Reed, 11 Wend., 159; People v. Field, 52 Barb., 211; Livingston v. Tanner, 14 N. Y., 66; 4 Am. L. Rev., 429, 444.) John Ganson for the respondent. Plaintiff’s entry was in violation of the statutes of this State. (2 R. S., 597, § 1; 509, §§ 11,12; People v. Van Nostrand, 9 Wend., 50; People v. Carter, 29 Barb., 208.) If the lease had been valid it would have inured to defendant’s benefit, because it was procured by directors in defendant’s company and assigned by them while directors to plaintiff, who was also a director. (Butts v. Wood, 38 Barb., 181; Cumb. C. and I. Co. v. Sherman, 30 id., 553, 568, 570, 571; Butts v. Wood, 37 N. Y., 317 ; Anderson v. Lemon, 8 id., 236; Aberdeen R. W. Co. v. Blakie, 1 MacQ., 461; Michaud v. Girod, 4 How. [U. S.], 503, 554-566.) [MAJORITY — Rapallo, J.] Rapallo, J. The judge found as facts, that, from the organization of the Buffalo Creek Railroad Company, to the date of the findings, Campbell and Mills, the lessees named in the lease from the city of Buffalo, dated April 7, 1871, were directors of the company. That the building of the railroad tracks and trestle works upon and over the demised premises, was done with their knowledge and consent. That Campbell was employed by the company, and, among other things, to procure rights of way for the company, and was paid a salary for his services. That the plaintiff was, from the organization of the company, one of the directors thereof, and continued such until after the 16th of June, 1871, on which day the lease was assigned to him by Campbell and Mills. There is no exception to any of these findings of fact. The references, to evidence, claimed to be inconsistent with them, are, therefore, of no importance in this court. The duty of constructing the railroad devolved upon the directors of the corporation, and they were bound to exercise it in a proper manner. The obtaining of the right of way was an essential part of this duty, resting upon all the directors, and especially upon Campbell, to whom it seems to have been particularly delegated by his associates, and who received a salary for his services. Occupying this relation of trust toward the corporation and its stockholders, these directors were bound, in all matters pertaining to the construction of the mad and the acquisition of the roadway, to act as the representatives, and for the benefit of the company. Well settled rules forbade their acquiring, for themselves, the property, which it was their duty to acquire for the company, and which was necessary^ for its purposes. Such a dealing would be equally objectionable, as purchasing from the company land which it was their duty to sell on its behalf. In respect to this class of dealings, directors of corporations stand upon the same footing as ordinary trustees. (Aberdeen R. W. v. Blakie, 1 MacQueen, 461; Hoffman Coal Co. v. Cumberland Coal Co., 16 Maryland, 456; Cumberland Coal Co. v. Sherman, 30 Barb., 553, and cases cited.) It is a rule of equity of universal application, that no person can be permitted to purchase an interest in property, when he has a duty to perform in relation to such property which is inconsistent with the character of a purchaser. (Ringo v. Binns, 10 Peters, 269; Van Epps v. Van Epps, 9 Paige, 238; Torrey v. Bank of Orleans, id., 649; S. C., on appeal, 7 Hill, 260; Carter v. Palmer, 1 Dru. & Walsh, 722; York Buildings Co. v. MacKenzie, 8 Bro. P. C., 42; 3 Paton, 378; Gardner v. Ogden, 22 N. Y., 327, and cases cited; Anderson v. Lemon, 8 id., 236.) It would be difficult to conceive a more gross violation of the rules governing the relation of trustee and cestui que trust, than to permit the directors of a corporation formed for the purpose of constructing a railroad, whose duty it was to acquire the right of way, to expend the funds of the corporation in expensive erections upon land necessary for the roadway, but which the company had not acquired the right to use, and at the same time to purchase or hire the same land in their individual right, and avail themselves of the title thus acquired to make extortionate demands upon the company for the use of the land, and in default of submission to such demands, to destroy the erections they had themselves made as agents for, and at the expense of the company. The abuses to which the sanctioning of such transactions would lead, are too apparent to require illustration. Yet such is, in substance, the nature of the dealing in which the plaintiff in the present case has applied to the court to uphold and protect him. Assuming that no valid right of way across the strip of land designated as the “ south channel ” had been obtained from the city of Buffalo, or at least that there was no right in the company to occupy that portion of it which was covered by the trestle work, Campbell, the director and salaried agent of the company, whose special duty it was to obtain the right of way, must have known the facts, and was bound to proceed to perfect the right of the company to use the land in'question. He clearly was not in a position to deal with it for his own benefit. He took a lease from the city to himself and Mills of the whole strip of land, at a yearly rent of $150. A very small part of this strip was used by the railroad. The road crossed it in two places. Had Campbell been sole lessee hardly any one would question that he must be presumed to have been acting for the benefit of the company in taking this lease, at least to the extent of the land required for the purposes of the railroad, if not for the whole, and that he would not be permitted to hold in hostility to the company. Did the joining of Mills in the lease make any difference? I think not. In the first place, Mills was himself, a director at the time, and under the same disability as Campbell. But in addition to this he knew the special relation which Campbell bore to the company, and even if he had been a stranger to the company, would, in consequence of that notice, be subjected to all the equities of the company against Campbell. A similar point arose and was decided in the case of Hoffman Goal Co. v. Cumberland Goal Co (16 Md., 456). It does not appear in the case that either Campbell or Mills ever, under this lease, asserted any right hostile to the company, and it may legitimately be assumed that they took and held the lease for the benefit of the company. The presumption is, that they acted in accordance with their duty rather than in violation of it. In June, 1871, they assigned the lease to the plaintiff, then a director of the company. He took it with full notice of the equities of the company. Hp to this time no claim hostile to the company had been asserted under the lease; but on the 11th of January, 1872, the plaintiff demanded of the company $900 rent, for nine months’ use of the land occupied by the trestle work in crossing the strip in question, a comparatively trifling part of the land, for the whole of which the rent under the lease was $150 per annum. This demand was naturally rejected, and afterwards, on October 2, 1872, the plaintiff, with a large number of men, by force, entered upon and took possession of the premises in dispute and tore up the tracks and pulled down the trestle work, and three days afterwards commenced this action to restrain the company from re-entering and rebuilding. That the relief demanded by the plaintiff was properly denied, seems too clear for discussion. The only debatable question is whether the affirmative relief granted to the railroad company is justified by the facts. The court at Special Term held the lease from the city of Buffalo, under which the plaintiff claims, to be invalid. Whether or not the General Term concurred in this conclusion we are not informed, as no opinion was there delivered, and the grounds of the decision are not disclosed. In the view we take of the case it is not necessary to pass upon the question of the validity of the lease, for even if valid, we are of opinion that the plaintiff, by reason of the trust relation subsisting between his grantors and the company, and between him and the company, is precluded from asserting any rights under the lease, hostile to the maintenance by the company of its road over the premises in dispute. The declaration and enforcement of such a trust are peculiarly within .the province of a court of equity, and we think, that when the trustee comes into equity claiming its protection for his alleged legal title, as against the cestui gw trust, it is competent for the court to declare that title subject to the trust, and to restrain the trustee from asserting any further claim in violation of his trust. This could have been done under the former system by a cross bill, and under the Code the power to award affirmative relief to the defendant enables the court to afford a like remedy in the original action. The appellant claims that this relief should not have been granted without charging the railroad company with its rata share of the rent payable to the city. No such claim was made in the pleadings or upon the trial. The plaintiff rested upon a denial of all right in the defendant. When the claim for contribution is made by the plaintiff, it will be time to consider it; we do not think it now in the case. The judgment should be affirmed, with costs. All concur. Judgment affirmed.