
    Williams et al. v. Colby et al.
    
    
      (Supreme Court, General Term, First Department.
    
    July 9, 1889.)
    1. Corporations—Liabilities—Assuming Indebtedness of Partnership.
    Where a corporation, organized by the members of a partnership, passes a resolution to purchase the assets of the partnership, and assume its indebtedness, it cannot, by a secret understanding between-the trustees that certain claims are not included, prevent the creditor from following the firm’s assets into the hands of the corporation.
    8. Payment—By Substitution of Securities.
    It appeared that one of the incorporators, who was known to the creditor, a woman of no business knowledge or experience, induced her to accept his individual note, and surrender the firm notes; shares of the corporation stock being deposited as collateral. She surrendered the firm notes with no intention to release the firm, and she supposed that the note and stock was collateral to the firm notes, and she afterwards demanded payment of the corporation, and was told by the trustees that she would be paid shortly. Held, that her claim against the corporation was not released.
    Appeal from an order confirming the report of a referee.
    
      “ I Find as Matters of Fact: First. That on or about the 1st day of July, 1885, Jacob Christie entered into an agreement with Minna Bresler, a true copy •of which is annexed hereto, marked ‘ Exhibit A.’ Second. That Minna Bresler loaned to Jacob Christie, (then doing business alone, under the firm name of Christie & Son,) on or about the 1st day of July, 1885, the sum of ten thousand dollars, and that on October 20,1885, she loaned to him an additional sum •of ($5,000) five thousand, and that on July 1, 1885, he delivered to her his promissory note, in the words and figures following, that is to say: ‘$10,000. Hew York-, July 1, 1885. Two years after date we promise to pay to Minna Bresler or order ten thousand dollars at the Bank of the Metropolis, for value -received. Jacob Christie-& Son.’ And that on October 20, 1885, he delivered to her his promissory note, in the words and figures following: ‘$5,000. Hew York, October 20,1885. Two years after date we promise to pay to Minna Bresler or order five thousand dollars at the Bank of the Metropolis. Value. Jacob Christie & Son.’ Third. That on March 6,1886, .Jacob Christie, Charles G. Colby, and William H. Duncan organized the firm •of Christie & Co., and that a true copy of the articles of copartnership of said firm, which were on that day duly executed and delivered by all- the members of said firm, is hereunto annexed, and marked ‘ Exhibit B.’ Fourth. That, .at or about the time of the formation of the firm of Christie & Co., Minna Bresler surrendered to Jacob Christie the said notes of Christie & Son, and received in consideration of such surrender the following receipt, signed by Jacob Christie, to-wit: ‘Hew York, April 6, 1886. Received from Minna Bresler, fifteen thousand dollars, consisting of cash seven thousand five hundred dollars, and seven thousand five hundred dollars checks, the same being loan secured by notes for $15,000. $15,000. Christie & Company.’ And that Jacob Christie at the same time delivered to her three promissory notes for five thousand dollars, each dated May 6, 1886, payable to her order at the Bank of ■the Metropolis, for value received, all signed ‘ Christie & Company: ’ one being payable two years from date, one three years from date, and one four years from date. Fifth. The said receipt and notes of the firm of Christie & Co. were made by Jacob Christie, one of the partners, for value, in pursuance to ■the copartnership contract of Christie & Co. Sixth. The said receipt and notes of the firm of Christie & Co. were signed and delivered by Jacob Christie with the knowledge and consent of Colby. Seventh. On June 10, 1886, Minna Bresler paid to Christie & Co. the sum of five tho'usand dollars, and on August 9, 1886, she paid an additional sum of five thousand dollars to said firm, and in each case she received from Jacob Christie the receipt of the firm •of Christie & Co., signed by Jacob Christie. Eighth'. That shortly prior to May 17, 1887, the name of the said firm was changed from Christie & Co. to •Colby, Duncan & Co., the rights and obligations of said firm as to third parties and the rights and obligations of the partners between themselves remaining unchanged. Ninth. On May 17, 1887, the corporation known as ‘ Colby, Duncan & Co.’ was duly organized under the laws of this state pursuant to provisions of the act entitled ‘Art act to authorize the formation of corporations for manufacturing, mechanical, and chemical purposes, passed February 17, 1848,’ and the several acts extending and amending the same. Tenth. The objects for which said corporation was formed were the manufacture and sale of pianos and. other musical instruments. Eleventh. The .amount of capital stock of said corporation was two hundred thousand dollars, divided into two thousand shares, of one hundred dollars each, and the term of the existence of said corporation was to be twenty-five years. 
      Twelfth. The board of trustees to manage its concerns was to consist of five, and the names of said trustees for the first year were Charles C. Colby, William H. Duncan, Jacob Christie, Charles C. Colby, Jr., and James H. Shaw. Thirteenth. On or about the 14th day of June, 1887, at a regular meeting of said corporation, the trustees of said corporation adopted the following resolution: ‘It -was moved, seconded, and carried that we purchase for our use the piano-forte manufacturing business of the firm of Colby, Duncan & Co., comprising lease of factory and lots adjoining at 520, 522, 524, 526, 528, and 530 West Forty-Eighth street, in the city, county, and state of New York, together with all machinery, lumber, piano cases, finished and unfinished, stock and material of whatsoever kind, belonging to the said firm of Colby, Duncan & Co., including fixtures, safes, desks, together with all notes and book-accounts, being the entire business, property, and good-will of said firm of Colby, Duncan & Co., assuming at the same time all legal responsibilities of said firm; and that we issue stock of Colby, Duncan & Co. to the amount of one hundred and twenty-five thousand dollars in payment for the same, said stock to be declared and taken as full paid-in stock, and not liable to any further calls or assessments; said stock to be issued to Jacob Christie, Charles C. Colby, and William H. Duncan, comprising the firm of Colby, Duncan & Co., in amounts to each as may be agreed upon by them; and that the president is authorized to issue one thousand two hundred and fifty shares of full-paid stock to said parties.’ Fourteenth. Shortly after the formation of the corporation, William II. Duncan, the secretary of said corporation, delivered to Minna Bresler two hundred and fifty shares of stock as collateral security for her' claim against the corporation, and also delivered to her his individual note for the sum of twenty-five thousand dollars as additional collateral security to the said stock. Said stock was issued without any resolution authorizing such issuance, and without any consideration paid therefor to said corporation. Fifteenth. At the time of receiving such stock and such note of William H. Duncan the said Minna Bresler handed to said Duncan the notes of the firm of Christie & Co. held by her, but did not authorize their cancellation or destruction. Sixteenth. It was the intention of the said Duncan, the secretary of the corporation of Colby, Duncan & Co., and the said Minna Bresler, at the time of the delivery of the said notes of Christie & Co. to Duncan, not to cancel or annul such notes. Seventeenth. Said William H. Duncan, contrary to the instructions and wishes of said Minna Bresler, delivered without qualification the said notes of Christie & Co. to Charles C. Colby, who, without authority or power so to do, tore from said notes the signature of Christie & Co. upon such notes. Eighteenth. Said Minna Bresler appeared upon the-books of the firm of Christie & Co., arid the said firm recognized her, as a creditor of said firm in the sum of twenty-five thousand dollars, and the said firm of Christie & Co. paid interest upon said debt to said Minna Bresler. Nineteenth. Said Minna Bresler appeared upon the books of the firm of Colby, Duncan & Co., and the said firm recognized her, as a creditor of said firm in the sum of twenty-five thousand dollars, and the said firm of Colby. Duncan & Co. paid interest upon said debt to said Minna Bresler. Twentieth. Said Minna Bresler appeared upon the books of the corporation of Colbyr Duncan & Co., and the said corporation recognized her, as a creditor of said corporation in the sum of twenty-five thousand dollars, and the said corporation of Colby, Duncan & Co. paid interest upon said debt to said Minna Bresler.
    
      “Conclusions of Law. First. Minna Bresler was a creditor of the firm of Christie & Co. in the sum of twenty-five thousand dollars. Second. The firm of Colby, Duncan & Co. assumed the debt of Christie & Co. to Minna Bresler, and said Minna Bresler was a creditor of the said firm of Colby, Duncan & Co. in the sum of twenty-five thousand dollars. Third. The corporation of Colby, Duncan & Co. assumed the indebtedness of the firm of Colby, Duncan & Co. to Minna Bresler, and the said Minna Bresler became a creditor of the corporation in the said sum of twenty-five thousand dollars. * * * Fifth. In all transactions between Minna Bresler, the claimant, and William H. Duncan, the said William H. Duncan was the agent and representative of the firms of Christie & Co., Colby, Duncan & Co., and the corporation of Colby, Duncan & Co. .Sixth. The acceptance by the claimant, Minna Bresler, of the personal note of William H. Duncan, and the stock of the corporation as collateral security for her claim against the said corporation, did not cancel or terminate the liability of that corporation to her. Seventh. The delivery of the notes of Christie & Co. by Duncan to Colby, and the tearing of the signature of Christie & Co. from such notes by Colby, did not end or terminate the indebtedness of Christie & Co. to said Minna Bresler. Eighth. The cancellation and termination of the indebtedness of Christie & Co. after the assumption of the debt of Christie & Co. to the claimant would not in any manner terminate or affect the liability of the corporation to said Minna Bresler for the debt thus assumed. Ninth. The claim of Minna Bresler against the corporation of Colby, Duncan & Co. and the receiver of said corporation should be allowed for the full amount of twenty-five thousand dollars, with interest thereon from August 7,1887.”
    The referee delivered the following opinion: “The only serious question in this case is whether Mrs. Bresler, the claimant, accepted the note of Duncan, one of the incorporators in the corporation known as ‘ Colby, Duncan & Co.,’ for twenty-five thousand dollars, in payment and satisfaction of her claim to that amount against the corporation. It is not necessary to trace the history of her claim in detail. It is enough to say that it was for moneys loaned by her to the amount of twenty-five thousand dollars. The indebtedness existed in her favor against the firm of Christie & Co. as it did against its successor, the copartnership firm of Colby, Duncan & Co. The books of these firms clearly recognize her as the creditor of both firms to the amount above mentioned. The interest was paid to her by the firms upon such claim. In May, 1887, the copartnership firm of Colby, Duncan & Co. became, in substance, merged into a corporation of the same name, organized under the statutes of New York. All the members of the firm of Colby, Duncan & Co. became incorporators. The assets of the firm were turned over to the corporation, and the interest of the copartners therein was paid for by stock of the corporation which was issued to them as fully paid stock. By the same resolution through which the corporation purchased the property and assets of the copartnership it assumed all the legal responsibilities of the firm. This was a legal assumption for a valuable consideration of the claimant’s demand against the copartners, through which the corporation became a debtor to her to the amount thereof. Lawrence v. Fox, 20 N. Y. 268. There is sufficient in the evidence to justify the conclusion that the corporation itself afterwards in fact recognized the claimant as a creditor. It is quite evident that at least one of the corporators, Colby, who had been a member of the late firm, desired to shift the claim from the corporation to Duncan, one of the corporators, individually, and sought through the agency of Duncan, who was known to the claimant, and who chiefly represented the copartnership in their dealings with her, and who also often represented her, to accept him as her debtor instead of the corporation. This relation occupied by Duncan naturally gave him influence with the claimant. The effort of Colby, if it is to be judged exclusively by some of the papers in evidence, would appear to have been successful. Duncan gave his individual note to Mrs. Bresler for $25,000, dated June 23, 1887, payable in five years, with interest. She delivered to him the notes signed in the name of the late copartnership firm, which Duncan handed to Mr. Colby, who in the presence of Christie and Duncan tore from them the name of the signers. In addition to this, Mrs. Bresler signed a paper, dated the 23d June, 1887, which had been dictated by Colby to Duncan, in which she acknowledged to have received 250 shares of the stock of the corporation as collateral security for the payment of Duncan’s note. These acts, unexplained, go far to show that the claimant had accepted Duncan as her debtor in the place of the corporation. But there are facts and circumstances about this matter wholly inconsistent with such conclusion. The mere fact that the notes of the firm had been handed by claimant to Duncan, to be taken to his associates, is not decisive, as she was in the habit, it seems, of intrusting the notes to him- for such purpose on former occasions, and that he carried them backward and forward. The claimant testified that she never surrendered or authorized the destruction of those notes, and that Duncan’s note was received as security only. Duncan testified that when the corporation was formed the claimant wanted her money, and that he advised his associates of that fact. But that their reply was that they would give her stock in the company as collateral, and they told him to give his note as additional collateral. Colby told him that his individual note would bind the corporation. He further testified that when he offered his note to the claimant she , said that she wanted her money. She did not want the stock or his note. But he told her that he gave his note as additional collateral security to the stock, which was offered as collateral. Duncan testifies that the claimant was sick at the time, and said that she wanted to see her attorney before she signed the paper of the 23d June; that she wanted her money out of the company, not the company’s notes; but that he told her the paper was all right, and that his note was equal to the firm’s or corporation’s note. Prom this it would seem that the elaimant.did not intend to release the firm or the corporation from her claim when she took Duncan’s note, and that she supposed that the note and stock were collateral thereto, and that Duncan himself supposed that the claimant’s demand against the corporation was not lost by her taking his note, and that in fact his note bound the corporation. That claimant did not consider that by taking Duncan’s note she had released her demand against the corporation is shown by the fact that before the failure of the corporation she called upon both Christie and Colby at the office of the corporation, and demanded her money of them. Mr. Christie has himself testified that to such demand he informed her that they were in no trouble; that they had made a large sale of pianos, and were delivering them, and it would be all right in a short time; ‘that her money was all right.’ The claimant was evidently a woman of no business knowledge, habits, or experience, and was greatly dependent upon others in whom she confided, and was a person likely to be deceived to her prejudice by any one disposed to take advantage of her ignorance and her disposition to believe those whom she blindly trusted. I think that she is entitled to her claim against the corporation to the amount of $25,000, with interest thereon from the last payment thereof made by the corporation.” Prom an order confirming his report, the receiver appeals.
    Argued before Van Brunt, P. J., and Daniels and Bartlett, JJ.
    
      Albert B. Boardman, for appellant. Hoadly, Lauterbaoh & Johnson, (F. JR. Minrath, of counsel,) for respondent.
   Van Brunt, P. J.

In March, 1886, Jacob Christie, Charles C. Colby, and William H. Duncan organized the firm of Christie & Co. This firm prior to May, 1887, had become indebted to Minna Bresler in the sum of $25,000, for which she held notes and receipts. Shortly prior to this month the name of said firm was changed to Colby, Duncan & Co., the partners remaining the same. On May 17, 1887, the corporation known as “Colby, Duncan & Co.” was duly organized under the laws of this state, and on the 14th day of June following said corporation resolved to purchase the piano-forte manufacturing business of Colby, Duncan & Co., and assume all the legal responsibilities of said firm, which purchase was carried into effect. It is conceded by the appellant that the resolution was broad enough in terms to cover the claims in question, but it is urged that the evidence showed that it was not intended to include this claim of the respondent in the assumption of liabilities, and that in making up the figures on which the amount of stock to be issued was agreed upon this claim was ignored. It might be a sufficient answer to this hold attempt to defraud the claimant out of her rights, in respect to the assets of the firm of Colby, Duncan & Co., that, ho matter what these trustees had in mind in respect to this matter, the action of the corporation, as evidenced by the resolution passed, was an assumption of all the debts of the firm whose ' assets they proposed to seize upon, which resolution could not be annulled by the secret understanding of the trustees that the resolution should not mean what it said. This corporation, composed of the same individuals as the firm, could not seize upon the assets of the firm, and withdraw them from the creditors of the firm. If they could do this as to one creditor, they could do it as to all,—a proposition too monstrous to need a moment’s discussion. The claimant, if guch had been attempted by this firm and corporation, could have followed these assets into the hands of this corporation, which was not an innocent purchaser for value, and asserted her right to their application to the payment of her debt. Indeed, this idea that the corporation liad not assumed the respondent’s debt seems to have been an after-thought, because, when application was made to the corporation for payment, no repudiation of the obligation of the corporation was ever made, but all efforts were directed to the cooling down of the respondent, in order that they might have time to get up some plan by which they might by some trick get the respondent to do something which would release the firm and corporation from the debt; and it is urged that by the proceedings which took place on the 28th of June these honorable gentlemen succeeded in inducing the respondent to accept in payment of her claim the individual note of one of the members of the firm and some stock of this insolvent corporation as security, thus relieving the other two members of the firm and all its assets from any claim she might have. The evidence shows that she gave up the notes of the firm, but there is no evidence that she intended thereby to release anybody. In fact, the evidence shows that such surrender was procured by the most deliberate fraudulent representations as to the effect of the Williams note, and shows that the respondent had no intention to release anybody or anything. Nor is there anything in the agreement signed by the respondent on that day which conflicts with this view. The respondent had the Williams note as collateral to her, debt, and he gave her as additional security some of the valuable stock of this corporation, and all that the agreement contains is an agreement to return stock when the note is paid, or a right to sell same if unpaid. There is no evidence that she intended to release anybody. On the contrary, she refused to accept stock in payment of her note. The notes not being given up with any intent to discharge the debt, it is immaterial what became of them. The debt remained, and the respondent has the right to recover upon it. It seems to ns that it would be a travesty upon justice if such a transparent scheme to defraud could, under any of the principles of law, succeed. The order appealed from should be affirmed, with $10 costs and disbursements. All concur.  