
    William Ebling and Others, Respondents, v. Francis J. Nekarda and Others, Appellants, Impleaded with John Zemek and Others, Defendants.
    First Department,
    December 15, 1911.
    Corporation — action by stockholder against directors — conspiracy to. defraud corporation — misrepresentation as to purchase price of lands — proof showing conspiracy — agreement of grantor to share profits of conspiracy — resulting trust — evidence — burden of showing non-payment.
    Action by minority stockholders brought in behalf of then- corporation against its promoters and directors who are alleged to have defrauded the corporation by causing it to purchase lands for a certain sum when in fact they paid back to the grantor a portion of the purchase price pursuant to an agreement to divide the same between them. Evidence examined, and held, that a judgment against the defendant directors should be affirmed.
    The plaintiffs, alleging an agreement by the grantor of the corporation to share with the directors the money paid back to him and alleging that he still holds a certain portion of the sum in his possession upon which is sought to be impressed a trust in favor of the corporation, are, if he denies possession of the money, under the burden of proving such possession, if the trial court has found that he did not personally conspire to defraud the corporation.
    As such action against the grantor is not upon contract, but upon a trust created by operation of law, payment is not an affirmative defense, and non-payment must be alleged and proved by the plaintiffs.
    In such action by minority stockholders brought on behalf of their corporation the decree should provide for payment to the corporation, not to the plaintiffs personally.
    Laughlin, J., dissented, in part.
    Appeal by the defendants, Francis J. Nekarda and others, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of "the county of New York on the 2c] day of July, 1910, upon the decision of the court rendered after a trial at the New York Special Term.
    
      L. B. Treadwell of counsel [Richard TV. Darling with him on the brief], for the appellant Nekarda.
    
      James M. Gorman, for the appellant Orbach.
    
      
      Clayton J. Heermance of counsel [Rosenthal & Heer manee, attorneys], for the appellant Pressberger.
    
      William, E. Cook of counsel [Joseph H. Kohan and Henry A. Petersen with him on the brief], Steiner & Petersen, attorneys for the respondents.
   Clarke, J.:

This is a derivative action brought by minority stockholders of the Home Alliance Realty Company, a domestic corporation. The defendants Nekarda, Orbach, Zemelc and Slabey were ■ incorporators and trustees. Defendant Tenner was a real estate broker, defendant Pressberger was the owner of a contract for the purchase of certain real estate situated on Long Island, which he conveyed to the Home Alliance Realty Company for the sum of $90,500. The court has found that the defendants Orbach and Nekarda, promoters and incorporators, entered into a conspiracy to defraud the corporation by representing that the purchase, price of the property was $90,509, causing the company to pay said sum therefor to Pressberger, when, as matter of fact, the real price -\yas $76,000, and that they entered into an agreement by which Pressberger was to pay back to them $14,000 of -the purchase price received from the company, which was to be divided between Orbach, Nekardn and Tenner; that said agreement was partially carried out; .that Pressberger paid to Nekarda $7,385, of which sum Nekarda paid to Orbach $3,492.50, to Tenner $200 and retained $3,69.2.50 himself.

The action is to recover for the benefit of the company from its promoters and unfaithful trustees the $14,000 which it was fraudulently caused to pay for its property above the real price, and from the defendant Pressberger the $6,615, the portion of said $14,000 alleged to still remain in his hands.

We are satisfied that the judgment appeale'd from, so far as the defendants Orbach, Nekarda and Tenner are concerned, is right, and that the evidence fully sustains the finding of the learned court at Special Term of their fraudulent conspiracy to despoil their associates and the corporation, for their own benefit.

The defendant Pressberger was not a promoter, or incorporator, or stockholder of the corporation, and had no connection therewith. He was in effect the owner of the property which was proposed to he and was ultimately purchased. His price for said property was $1,000 an acre, and he did enter into an agreement in writing with the defendant Nekarda under which he agreed to pay him $14,000. The court found that the defendant Pressherger did not knowingly or actually defraud the Home Alliance Realty Company and did not unlawfully conspire to defraud the Home Alliance Realty Company.

Pressherger claims, upon that finding, that the conclusion of law that he is liable to the said Home Alliance Realty Company in the sum of $6,615 with interest thereon from December 10, 1906, at the rate of two and one-half per cent per annum, is unwarranted. The respondents undertake to support it upon the theory that the $14,000 in excess of the real price of the property which went into his hands and which he agreed to pay to Nekarda was a trust fund which they were entitled to pursue. Pressherger claims that assuming that proposition to be correct, the burden was upon the plaintiffs' to allege and establish the fact that he had said sum in his possession.

In the 15th paragraph of the complaint it is alleged: “And said defendant Mendel Pressbei’ger still holds in his possession the sum of $6,615,” which allegation is denied in the 8th paragraph of Pressberger’s answer. The court has found that said Pressherger still has in his possession and under his control the sum of $6,615. He claims that said fin d ing is unsupported hy any evidence, and this the respondents admit, hut claim that having shown that $14,000 of the corporation’s money went into his possession, the burden was upon him and not upon plaintiffs to show that he no longer- had it. Incidentally it may be remarked that upon the trial Pressherger attempted to amend his answer by alleging payment of this amount, but that the court refused to allow such amendment, and he took his exception.

Of course, ordinarily, payment is an affirmative defense and must be alleged and proved, hut the complaint alleged affirmatively that Pressherger had in his possession this amount of money, which was met by a positive denial, and it seems to me that when the allegations of fraud and conspiracy on Pressberger’s part were disposed of by the trial court in his favor, and the basis of a recovery against him is the tracing and identifying of a trust fund in his hands, the burden was upon the plaintiffs to so trace and identify and establish the continuous possession of that fund.

In attempting to laydown the rules governing the allegation of payment, Vann, J., said, in Conkling v. Weatherwax (181 N. Y. 258, 268): “ 3. When the action is not upon contract for the payment of money, but is upon an obligation created by operation of law, or is for the enforcement of a lien where non-payment of the amount secured is part of the cause of action,. it is necessary both to allege and prove the fact of non-payment.”

In the case at bar the cause of action is not upon contract, but if it exists is upon an obligation created by operation of law. It would, therefore, seem that the plaintiffs were right when they alleged in their complaint that the money was still in the possession of the defendant, and that the burden was upon them to sustain that' allegation by proof, upon the trial, and that not having done so the judgment is based upon a finding unsupported by the evidence, and, so far as the defendant Pressberger is concerned, must be reversed and a new trial ordered, with costs to him to abide the event.

The judgment is .erroneous in form in that it provides that the defendants pay to the plaintiffs for and on behalf of said Home Alliance Realty Company the sum prescribed. Being a derivative action the judgment should provide for direct payment to the principal, the corporation, and should be modified accordingly.

The judgment as modified is affirmed as to the defendants ISTekarda, Orbach and Tenner, with costs and disbursements to the respondents, and reversed as to the defendant Pressberger, and a new trial ordered, with costs to the appellant to abide the event.

Ingraham, P. J., McLaughlin and Miller, JJ., concurred.

Laughlin, J.

(dissenting):

I vote for affirmance of the judgment.

As to the defendants Nekarda, Orbach and Tenner judgment modified as directed in opinion, with costs to respondents. As to defendant Pressberger judgment reversed and new trial ordered, with costs to appellant to abide event. Order to be settled on notice.  