BAGALEY v. VANDERBILT

BAGALEY v. VANDERBILT. N. Y. Superior Court, Special Term ; July, 1885. Action to dissolve syndicate.—Injunction; pendente lite, WHEN REFUSED ; CAUSE OE ACTION; PROBABLE INJURY. To justify granting an injunction as a provisional remedy, it must appear that defendant will, unless restrained, commit some act pending the action which will produce injury to the plaintiff, or threatens to do some act in violation of his rights respecting the subject, of the action and tending to render the judgment ineffectual. If this is not shown, it is not necessary, on a motion for such injunction, to determine whether there is any cause of action. A member of a syndicate brought an action against the members of the managing committee of such syndicate, as committee and personally, and against the other subscribers, alleging that the syndicate was formed to raise funds for the construction of a previously chartered railroad company, on terms including payment for construction in stock and in bonds, to a nominal amount exceeding the actual cost : that by an amendment to the constitution of the State in which the railroad was situated, which was subsequently, accepted by the railroad corporation, issues of stock and bonds in excess of value was forbidden: that after the committee had received payment from the plaintiff and others for calls made upon the subscribers, the subscribers to the original contract, excepting the plaintiff, united in modifying the contract, so as to dispense with or postpone the delivery of bonds to the subscribers, and providing for a sale of their bonds to the committee on joint account; and that plaintiff having refused to sign, and having tendered payment of the call on him, and demanded bonds which were refused, the committee proceeded to receive money on “ request ” from the other subscribers to apply it under the construction contract. The object of the action was to adjudge the construction contract to be vibra vires, the syndicate contract to be therefore incapable of performance, the subscriber relieved from his obligation as such, the syndicate dissolved, with an accounting and receivership, and an injunction against further proceedings under the syndicate agreement, &c. Held, that as it appeared that the money which plaintiff had paid had been expended under the contract by the committee, and it did not appear that his claim to a share of the bonds or any money demand he might have against the committee for acts done by them would be injured pending the action, and as it did not appear that at present any new call could be made, a temporary injunction should not be granted. The fact that, if the committee proceeded in the construction of the road, with moneys voluntarily advanced by other subscribers, the latter might have some equity in the road detrimental to the stock and bonds in the hands of the committee, was not sufficient ground for an injunction, for such equity must be inferior to that of the plaintiffs. Motion for an injunction and receiver pendente lite. Ralph Bagaley brought this action against William K. Vanderbilt, and others, personally, and as a committee for the subscribers of the South Pennsylvania Syndicate, and against the other subscribers to the syndicate, and the American Construction Co. and the South Pennsylvania Railroad Co., to procure a judgment adjudging the contract, made between the said railroad company and the said construction company, for the construction of said railroad, to be beyond the powers of said railroad company and contrary to the constitution and laws of Pennsylvania, and void ; and further adjudging the agreement of subscribers to the said syndicate, and the contract of the committee of said syndicate with said construction company, to be incapable of performance, by reason of the incapacity of said railroad company to carry out its said contract; and further adjudging the plaintiff to be relieved of his obligations as a subscriber under said syndicate agreement, by reason of the violation and alteration thereof by the said committee, and the other parties thereto, and of other matters stated; and dissolving said syndicate, or association of subscribers, and winding up its affairs; and for an accounting by the committee, a receivership of the syndicate property, and an injunction against the committee from proceeding further under said syndicate agreement, or the trusts created therein, or under their said agreement with the construction company; and for other equitable relief, including a temporary injunction and receivership during the pendency-of the action. The complaint set forth the so-called syndicate agreement to which plaintiff subscribed $1,000,000; the appointment of the committee to act for the subscribers ; the contract between the South Pennsylvania Railroad Company and the American Construction Company for the building of the road, on a basis of capitalization of $20,000,000 of first mortgage bonds and $20,000,000 of capital stock ; the contract of the construction company with the syndicate committee to build the road, and the advances made thereunder ; that the “ said advances have not been so made that there has been received by said committee for each $1,000 advanced, $1,000 in the first mortgage bonds and $1,000 in the capital stock of the” railroad company “as required by syndicate agreement, but the said committee, in violation of its said agreement, and in breach of the trust reposed in them by the said subscribers, have let said American Construction Com pany have the subscribers’ money aforesaid, without receiving any of said bonds or any of the stock of said consolidated company, knowing full well that no mortgage had been made or recorded by said company, and that no such bonds had been issued, and have accepted from said construction company its promissory notes, payable on demand, for the whole of said sum.” and that the construction company was without substantial assets and the notes worthless. The complaint set forth certain provisions of the constitution and statutes of the State of Pennsylvania, and alleged that the contract between the railroad company and the construction company was “beyond the powers of said railroad company, and is contrary to the laws of the State of Pennsylvania and void. That all the labor to be done for said railroad company, and all the money and property to be received by said railroad company, under said contract, does not and will not exceed in value or amount the sum of $15,000,-000 subscribed as aforesaid, and, all of the $40,000,000 of stock and bonds of said railroad company, in excess of said $15,000,000, therein provided for and agreed to be issued to said construction company, or its assigns, is a fictitious increase of its stock and indebtedness, within the meaning óf said constitution and statutes, and is unauthorized, illegal and void under the laws of the State of Pennsylvania. That the only subscription for said stock and bonds of said railroad company is the sum of @15,000,000 subscribed under said syndicate agreement, Exhibit ‘A and the only amounts paid in upon said subscriptions are the several sums herein stated, and the only amounts actually received by said railroad company of said sums so paid in are so much thereof as said construction company has already expended upon said railroad under said contract, Exhibid ‘ 0and said railroad company had no power to make, and has no power to perform said contract ; and its said stock and bonds, if issued thereunder, as well as the mortgage made to secure said bonds, will be invalid, worthless and illegal under the laws of the State of Pennsylvaniathat the syndicate agreement could not be performed, because the construction company was disabled from performing its contract with the committee, and that the committee were continuing to pay money to the construction company notwithstanding that they knew the facts set forth. The complaint also set forth the fact that the committee had made four calls upon subscribers of five per cent, each, which the subscribers, including the plaintiff had paid ; that the committee had made a fifth call of two per cent-., which had been paid by all the subscribers except the plaintiff; that by an agreement consented to by all the other subscribers, the terms of the syndicate agreement were altered, so that subscribers were not entitled to have bonds delivered to i hem upon payment of calls until after payment of fifty per cent, on the subscription, instead of after payment of twenty per cent, as before provided ; that plaintiff had duly tendered the amount payable under the fifth call, and demanded his bonds, which the committee refused to deliver to him ; that the money so called for by said committee was needed for the purposes of said agreement; but the said committee, by reason of their breach of trust, aforesaid, and violation of said agreement, in parting with the money of said subscribers to said construction company, without receiving said bonds, are unable to deliver such bonds to subscribers for their respective payments or on the payment of said calls above said twenty per cent.; and are not able to comply with the terms upon which such further payments were to be made to them by the said subscribers ; and the said committee, to evade the consequences of such breach of trust and disregarding the provisions of said syndicate agreement, are now raising money from said subscribers, who are willing to pay, on what is called by them a ’■'■request’'’ instead of issuing calls therefor, as required by said syndicate agreement, when money is needed. Upon the complaint and affidavits in support and amplification of its material allegations, the plaintiff moved for an injunction and receiver pendente lite. James B. Dill and Edward C. James (Dill & Chandler, attorneys), for the plaintiff and the motion. I. The original syndicate agreement constituted a simple tenancy or ownership in common between the parries, and not a partnership (Livingston v. Lynch, 4 Johns. Ch. 573, 593; Irvine v. Forbes, 11 Barb. 587; Cox v. Bodfish, 35 Me. 302, 307). The majority cannot bind the minority, except by special agreement (Livingston v. Lynch, 4 Johns. Ch. 573; Frothingham v. Barney, 6 Hun, 366; Barr v. N. Y., L. E. & W. R. R. Co., 96 N. Y. 444 ; Mann v. Butler, 2 Barb. Ch. 362 ; High on Inj. 1207). “To constitute a partnership there must be a reciprocal agreement of the parties, not only to unite their stock, but to share in the risks of profit and of loss by the disposition to be made of it. Where several parties agree to purchase personal property in the name of one of them, and to take aliquot shares o£ the purchase, without agreeing to re-sell jointly, there is no partnership” (Baldwin v. Burrows, 47 N. Y 199, 206 ; Holmes v. United Ins. Co., 2 Johns. Cas. 329, 331; Post v. Kimberly, 9 Johns. 470, 491). Section 10 of the agreement does not justify a pretense of doubt, or enable a majority to give a false construction to plain language as a pretext for altering the terms of the original agreement. The terms of the agreement cannot be altered except by the consent of all (Natusch v. Irving, Gow on Partn. App. 398; Const v. Harris, Turn. & R. 496, 524 ; Livingston v. Lynch, 4 Johns. Ch. 573 ; Abbott v. Johnson, 32 N. H. 9). The relation, therefore, of the subscribers to each other under this original syndicate agreement is that of tenants in common. The relation of the committee to the subscribers is that of trustees to, cestuis que trustent, and to third persons, that of special agents for the subscribers. II. The alteration of this agreement, giving the subscribers the right to share ratably in all benefits resulting from a sale of the bonds of the subscribers, supplies the missing factor necessary to constitute a partnership—an agreement to sell jointly and share the proceeds of the sale (Baldwin v. Burrows, 47 N. Y. 199, 206; Holmes v. United Ins. Co., 2 Johns. Cas. 329, 331; Post v. Kimberly, 9 Johns. 470, 491). If the plaintiff signed this agreement or acquiesced in it, the whole syndicate would be converted into a partnership, and subjected to the liabilities of that relation. Acquiescence in such a case would be quite as fatal to plaintiff’s prior rights as signing the new agreement (Kent v. Quicksilver Mining Co., 78 N. Y. 159 ; Const v. Harris, Turn. & R. 496, 523.) The plaintiff cannot be forced into such a relation against his will. He is entitled, in equity, either to compel the others to a specific performance of the original articles (Natusch v. Irving, above ; Livingston v. Harris, above), or he is entitled, in equity, to rescind the agreement and have the syndicate dissolved and its affairs wound up, precisely as in cases of the dissolution of partnerships or joint-stock associations ; and, as equitable aids to such relief, he is entitled to an accounting, injunction and receiver. No man who agrees to subscribe to an enterprise can be forced to go on under the alteration here attempted (Abbott v. Johnson, 32 N. H. 9, 20 ; Blarchford v. Ross, 54 Barb. 42 ; H. & W. R. R. Co. v. Croswell, 5 Hill, 383; Frothingham v. Barney, 6 Hun, 366). Equity requires the utmost good faith as among associates in respect to the common property, and will not permit an undue advantage to be taken of or by a single member (Getty v. Devlin, 54 N. Y. 403, 412 : 70 Id. 504). A contract is rescindable for non-performance as well as for fraud (Freer v. Denton, 61 N. Y. 492 ; Lawrence v. Van Deventer, 51 N. Y. 676 ; See F. N. Bangs’ Brief, 70 N. Y. foot of page 507). This modification of the original agreement by all the other members is a sufficient ground for a rescission in equity on the part of this plaintiff, and entitles him to maintain this action for such purpose, and to have an accounting of the moneys paid in, and a winding-up of the association, with an injunction against the committee, and a receiver pendiente lite (White v. Colfax, 33 Super. Ct. (J. & S.) 297 ; Shehan v. Mahar, 17 Hun, 129, 130 ; Andrews v. Betts, 8 Id. 322). The proceedings and practice in winding up a syndicate of subscribers, who are tenants in common, are so analogous to those upon the dissolution of a partnership, that an injunction and receiver follow the righ t to close the affairs of the syndicate, almost as a matter of course (White v. Colfax, above; McElvey v. Lewis, 76 N. Y. 373 ; Mann v. Butler, 2 Barb. Ch. 362). III. The misconduct on the part of the committee in advancing money to the construction company without requiring stock and bonds in return, entitles this plaintiff, as one of the cestuis que trustent, to have them removed at once, and the trust property put into the hands of a receiver pendente lite (Perry on Trusts, § 818; Hollenbeck v. Donnell, 94 N. Y. 342, 346). The rule of decision is nob whether the plaintiff will ultimately establish a breach of trust, but whether he has made a prima facie case (Evans v. Coventry, 5 De Gex. M. & G. 911, 918 ; Turner v. Crichton, 53 N. Y 641). W here there has been negligence or improper conduct on the part of a trustee, and the fund is in danger, the appointment of a receiver, upon the application of a cestui que trust, is a matter of right i Jenkins v. Jenkins, 1 Paige, 243 ; Boyd v. Murray, 3 Johns. Ch. 48 ; State of Illinois v. Delafield, 8 Paige, 527 ; aff’d in 2 Hill, 159; Turner v. Crichton, 53 N. Y. 641 ; Frothingham v. Barney, 6 Hun, 366; Deen v. Cozzens, 7 Rob. 178). Francis N. Bangs, Francis L. Stetson and John G. Johnson (Bangs & Stetson, attorneys), for the defendants, opposed. The syndicate agreement provided as follows: ‘‘First. The respective parties subscribers hereto (each being responsible for himself, and not for each other) hereby subscribe the amounts set against their names respectively, for the purposes and under the conditions hereinafter set forth, and covenant and agree each with the other and with the “ Committee ” hereinafter provided for, to pay the amount set against their names respectively, as and when called for by the said committee, not exceeding live per cent, per month, until the full amount of the respective subscriptions shall be fully paid, and negotiable receipts shall be issued to the subscribers representing their interests respectively. 11 Second. This agreement shall be binding, and this subscription closecl when there shall have been subscribed hereto to the amount of $15,000,000. “ Third. No subscriber hereto shall be in any respect responsible for the default of any other subscriber in the payment of his subscription, or any part thereof. “ Fourth. When $15,000,000 shall have been subscribed hereto, a meeting of the subscribers shall be held in the city of New Vork, upon a ten days' notice, signed by a majority in interest of the subscribers, at whiclTthere shall be chosen, by the vote of a majority in interest of the subscribers, a committee of five, who shall be authorized to act for this syndicate as herein provided. “ Fifth. The committee thus chosen shall be authorized to act for the subscribers hereto to the extent of their respective subscriptions (but the subscribers to be in no respect responsible to each other) as follows: '‘A. The committee shall be authorized to call in from the subscribers hereto the amounts of their respective subscriptions, in installments,'not exceeding five per cent, per month, and as fast as money shall be needed for the purposes of this agreement. “ B. [To pay indebtedness of company and purchase outstanding stock.] “ O. Whenever the South Pennsylvania Railroad Company shall have contracted for the- construction of its road, from the Susquehanna to the Youghiogheny rivers, both in the State of Pennsylvania, upon a basis of capitalization of $20,000,000 of the first mortgage six per cent, bonds, and $20,000,000 of capital stock, including abridge across the Susquehanna river, at Harrisburgh, “the committee ” shall be authorized to make advances of moneys to the party or parlies, or company, holding said contract of construction, to aid, by such advances, in the prosecution of the work to the extent of the moneys available therefor from the subscriptions hereto. Such advances shall be so made by “the committee ” that there shall be received for each $1',000 advanced $1,000 in the first mortgage bonds aforesaid, and $1,000 in the capital stock of said company; the remainder of the aforesaid bonds and stock (viz., $5,000,00,0 of bonds and $5,000,000 of capital stock), to be subject to the order of this syndicate, available for the completion and equipment of said road," so far as the same shall be required, and beyond sueh requirements shall be available for distribution under this agreement. And in consideration of the transfer to “ the committee ” by the present promoters of the enterprise known as the South Pennsylvania Railroad Company of the outstanding stock, and all matters and things in their hands connected with the enterprise, as in the last section provided, it is understood, and ‘the committee’ shall agree, that the said parties shall receive, in addition to their cash disbursements as aforesaid, $3,000,000 par value of the capital stock of said company. “Sixth. [Provide s for use of other charter in certain contingencies.] “ Seventh. And as fast as deemed advisable by said committee, bonds and stock shall be delivered to the subscribers hereto for their respective payments, and when twenty per cent, shall have been paid upon the subscription, then for all subsequent calls bonds shall be delivered from time t.o time as payments shall be made by the subscribers. “ Eighth. [Committee empowered to declare forfeiture of subscriber’s interest on default in payment of call.] “Ninth. [Majority of committee authorized to act for it, &c.] “ Tenth. In case of any doubt in regard to the meaning of anything herein contained, or the authority of ‘ the committee ’ here under, as to any matter or thing which shall arise, the same may be referred by the committee ’ to a majority in interest of the subscribers hereto, whose decision shall be final.” [MAJORITY — Sedgwick, Ch. J.] Sedgwick, Ch. J. The complaint asks a judgment which, among other things, shall adjudge that the said syndicate agreement and the contract of sa d committee and of said American Construction Company, are incapable of performance by reason of the incapacity of said South Pennsylvania Railroad Company to carry out its said contract, and further shall adjudge this plaintiff .to be relieved of his obligations under the said syndicate agreement by reason of the violation and alteration thereof, by the said committee and the other parties thereto, and the other matters set forth in the said complaint, and which shall dissolve the said syndicate or association of subscribers and wind up its affairs. The motion is for an injunction and a receiver. To justify the granting of the motion, it must appear that defendants will, unless restrained, commit some act during the pendency of the action which will produce injury to the plaintiff, or now threatens to do some act. in violation of the plaintiff’s rights respecting the subject of the action, and tending to render the judgment ineffectual. In a case where the plaintiff does not show that the defendants are about to do, during the pendency of the action, something which will injure the plaintiff, it is not necessary to determine whether or not there is any cause of action. In this case the plaintiff does not show that if he should hereafter obtain the judgment now asked, his interests, as he states them, will have been in the mean time changed or affected. He paid to the committee $320,000. His complaint asserts that he is not bound to pay any further sum upon a call by the committee. If his position be correct, he cannot be compelled to pay or risk any further amount of money. His only interest, then, relates to the money he has already paid. His affidavit shows that the most of it has been disbursed by the committee, and the committee have received bonds and stocks for that, while the plaintiff believes that a part remains not disbursed. The affidavit of membeis of the committee shows that all money paid in by the plaintiff to the committee upon calls, has been paid out by it to the construction company, and by that company to the railroad company, excepting what was paid to the existing shareholders and the existing creditors of the railroad company, and that the company have in its possession, certain shares and bonds, in which, under the syndicate agreement, the plaintiff has an interest. The proportion of these shares and bonds to which the plaintiff would be entitled on a view-favorable to him, is eleven one-hundred-and-fiftieths. If he had judgment now in his favor, he could have no more of this property than the part represented by such a proportion. It is suggested that he has a money demand against the committee for acts done by them. The claim cannot be injured by any act that the defend-an ts may do during the litigation. It is not charged that the defendants intend to convert or dispose of the property in which the plaintiff has an interest, as it has been described, excepting that it is argued from their conduct that it is their intention to make a call upon him, which it is the theory of the action cannot be competently made under the. syndicate agreement inasmuch as the plaintiff is not bound by that agreement, and, after making the call,,to attempt under the agreement to forfeit the plaintiff’s interest, in the property the committee now has. The affidavits present a suspicion that the committee may have this object,rather than proof that they have. Present facts tend to show that they do not purpose to make a call under existing circumstances. Their object seems to be to substitute voluntary contributions paid under what they call requests.” This, however, is not a subject of complaint in the present action—for if it were, it would assume that the agreement was in force. So long as no new call is made, it cannot be shown that the defendants now intend to attempt a forfeiture of plaintiff’s interest; and if it. be hereafter, the plaintiff can obtain the proper protection. It is manifest that if the syndicate agreement be prosecuted in the future, it will not be by aid of plaintiff’s money, but by the money of other people in which he has no legal interest. It is, however, suggested that the expenditure of the money upon the construction of the railroad may give rise to some equity, as to the road itself, in favor of the persons whose money was expended, that will be detrimental to the stock and bonds in the hands of the committee, to a part of which the plaintiff is entitled, or to their' value. This supposed equity is not definitely described. If it exist, it cannot be superior to that based upon the investment of plaintiff’s money in the construction of the railroad, and, upon the assumptions of the complaint, must be inferior to it. The only object in appointing a receiver would be to have the bonds and stock safe for the plaintiff, if he have a judgment that he is entitled to a part of them. There is no proof or likelihood that the bonds and stock will not remain untouched until judgment. For these reasons the motion should be denied with $10 costs to defendants to abide event. The plaintiff should, give security for costs in the sum of $1,500. The subsequent agreement, made by all the subscribers except the plaintiff, provided : “First. That notwithstanding anything to the contrary in said former agreement contained, no bond of the said railroad company shall be delivered by the committee to any subscriber, or the assignee of any subscriber hereto, until there shall have been paid by him, or in his behalf, to the syndicate committee so-called, as contemplated in said former agreement, a sum equal to fifty per cent, of the amount of the subscription to such former agreement, on. account of which such subscriber hereto may be entitled to receive bonds..... “ Third. And each subscriber hereto does hereby authorize and empower the said committee in his behalf to sell and deliver at a price not less than tile par value thereof, the whole or any part of the bonds receivable by such subscriber under the former agreement, provided, that this stipulation shall not be binding until this agreement shall have been executed by those owning and entitled to receive bonds to the amount of ninety per cent, of the original subscription, and, provided further, that any such sale shall be made in sucli manner and amount that the subscribers hereto shall share ratably in all benefits resulting therefrom.”