
    John M. Van Heusen, Plaintiff, v. The Van Heusen Charles Company, George W. Pierce, Individually, and as Executor and Trustee under the Last Will and Testament of Theodore V. Van Heusen, Deceased, Charles M. Van Heusen, Alpha T. Van Heusen, Richard Fletcher Van Heusen and Charles E. Flint, Defendants.
    (Supreme Court, Albany Trial Term Without a Jury,
    November 1911.)
    Bankruptcy — What passes to the assignee and the nature of his title — Contingent estates.
    Gifts — In general — Particular instances — Reserving ownership.
    Trusts — Execution and administration of trust — Dealings with estate in general — Personal interest in transactions.
    An estate in remainder, derived by will, contingent upon a remainderman surviving the life tenant, will not pass to the trustee in bankruptcy of the remainderman; but the remainderman, after his adjudication in bankruptcy, may maintain an action to protect his estate from the fraud of the testamentary trustee acting under a power of sale, contained in the will.
    Where the holder of shares of the capital stock of a corporation executes transfers thereof to his wife and delivers the certificates with the transfers to her, though no consideration passes therefor, these acts constitute a valid, executed gift of the shares; and title passes to the wife, though the stock is not transferred to her upon the books of the company and the husband continues to act as one of the directors.
    The husband-is not thereafter so interested in the corporation as to make a transfer by him, acting as testamentary trustee, of lands of his testator to the corporation, upon an adequate consideration, void, in the absence of actual fraud or injury to the estate.
    Action to set aside a contract for the sale of real property on the ground of fraud.
    Ainsworth & Sullivan, for plaintiff-
    Hun & Parker, for defendants.
   Rudd, J.

This action is brought to set aside a contract of sale covering certain real estate in Albany, made by defendant George W. Pierce, as trustee for .Arabella M. Van Heusen under the will of Theodore V. Van Heusen, deceased, with the defendant The Van Heusen Charles Company, on the ground that Pierce, as trustee, had done an illegal act in agreeing to sell the property, which he held in trust, to a corporation in which he was a stockholder and of which he was a director and treasurer.

The property in question is a five-story building, used for business purposes, occupied by The Van Heusen Charles Company, and was occupied by Van Heusen & Charles, the predecessors of that company, for many years.

Theodore V. Van Heusen, one of the copartners in the firm of Van Heusen & Charles, died in 1893, leaving a widow and several children and owning, at the time of his death, an undivided one-half interest in the real estate above mentioned. By his will he disposed of two-thirds of his estate practically by dividing the same among his children' then living. One-third of the estate he directed to be set aipa,rt for the benefit of his widow, Arabella M. Van Heusen, the income of which was to go to her during her life. She is still living. The will provided that this one-third which had been set apart was to go to his children who might be living at the time of the death of his widow, the life tenant. In the event that any of his children should die 'before the death of his widow, dying without issue, then the share of such child in the one-third interest was to be divided among the surviving children. If any child died leaving issue, however, the share of such child was to go to his child or children.

William Manning Van Heusen, one of the children, died leaving no child. There are four children at this time living, and two grandchildren, namely: the plaintiff, John M. Van Heusen, the defendants Charles M. Van Heusen, Richard Fletcher Van Heusen, and Alpha T. Van Heusen, and also Victor Lamb and Theodore Lamb, grandchildren.

The defendant Charles E. Flint has acquired the undivided one-fifth interest of the grandchildren.

The plaintiff has a one-fifth interest in the undivided one-half of the property, which interest is contingent upon his surviving his mother.

The defendant Pierce qualified as executor of the will of Theodore V. Van Heusen, his accounts as such executor were judicially passed, and he alone qualified as trustee named in . the will and, at the time in question, was acting as such trustee.

The contract of sale to the Van Heusen Charles Company was made in -June, 1906. Daniel D. T. Charles, a member of the old copartnership of Van Heusen & Charles, died seized of an undivided one-half of the real estate in question. Frank T. Charles, as executor under the will of Daniel D. T. Charles, his father, made a contract with the Van Heusen Charles Company, in June, 1906, agreeing to conyey an undivided one-half interest belonging to the Charles estate to the A^an Heusen Charles Company for the same consideration and under the same terms and conditions as were provided in the contract made by Mr. Pierce, as trustee under the will of Theodore V. Van Heusen, with The Van Heusen Charles Company, in substance.

’• These two agreements or contracts of sale, one by the legal representative of the Charles estate and the other by the legal representative of the Van Heusen estate, provided for a sale and conveyance of the whole property to The Van Heusen Charles Company, for the consideration or purchase' price of $75,000, each estate to receive $37,500. The other conditions of the sale with reference to the time and manner of payment of this sum are immaterial to the question here under consideration.

When this contract óf sale was entered into, the capital stock of The Van Heusen Charles Company consisted of one thousand shares, of which Charles M. Van Heusen, the president of the company, owned a majority; defendant Alpha T. Van Heusen sixty-six shares, defendant Charles E. Flint seventy-two shares, and the estate of D. T. Charles ten shares.

Upon the stock ledger of the company at the time of the making of the contract in question, in a list of the stockholders of the company, appeared G, W, Pierce, 139 shares.” The holdings of defendant Pierce. in The Van Heusen Charles Company were evidenced by three stock' certificates, two for fifty shares each, and one for thirty-nine shares. .These three 'certificates were indorsed for transfer on the 12th day of September, 1904, to Isabella L. Pierce, the wife of George W. Pierce, and the three certificates were handed by Pierce to his wife. After the 12th day of September, 1904, up to and at the time of the making of the contract of June, 1906, no other certificates were issued to or held by defendant George W. Pierce.

The certificates covering the 139 shares, indorsed for assignment and transfer by defendant Pierce to his wife, were never transferred of record upon the books of the company.

After the alleged transfer and delivery of the 139 shares by Pierce to his wife, the defendant Pierce continued to act as director of the company and was, at the time of making the contract, its treasurer.

From the time of the organization of The Van Heusen Charles Company, it had occupied the property under leases, one from the estate of Charles, the other from, the Van Heusen estate.

In April, 1907, the plaintiff filed a petition in bankruptcy. He had previously assigned his interest in the estate, that means his interest in the undivided one-half of the real estate, to G. Herbert Cone, an attorney of Albany.

The plaintiff was discharged in bankruptcy; and, subsequently, G. Herbert Cone reassigned to the plaintiff whatever interest he had in the property.

The defendants plead and contend that the acts of the plaintiff, in conveying what interest he had in the property prior to being adjudged a bankrupt and taking a reconveyance of the same subsequently to his discharge from bankruptcy, were’ in fraud of bankruptcy; and the defendants contend that the trustee in bankruptcy became vested with the title to this interest, and that, therefore, the plaintiff here is not the real party in interest.

The complaint alleges that the sale or agreement to sell entered into by the defendant Pierce, as. trustee, was made with a 'design to greatly benefit the said Pierce, who was gt such time and still is an officer of and one of the principal stockholders and managers of The Van Heusen Charles Company; that it was not for the best interests of the estate of which he was trustee; that it was greatly detrimental to the interests of the plaintiff and his surviving brothers, excepting Charles M. Van Heusen; that it was also detrimental to the interests of the said Charles E. Flint; that it was in fraud of the rights of the plaintiff, and all other persons mentioned, excepting Charles M. Van Heusen; that it was made at an utterly inadequate price, and with the intent to defraud the plaintiff out of his just rights and interests in the property.

Upon the trial the plaintiff did not attempt to show that the sale' was for an inadequate price; the evidence did not show that it was detrimental to the interests of the other defendants, save Charles M. Van Heusen; Alpha T. Van Heusen, defendant, brother of the plaintiff, approved of the sale, by the evidence which he gave upon the trial, as also did the defendant Charles E. Flint; the defendant Eichard Fletcher Van Heusen not answering pr appearing.

The plaintiff is the real party in interest. His interest in his father’s estate was contingent, and would not pass to the trustee in bankruptcy. The contingency is that only those members of the class shall enjoy the remainder in possession who are alive at the death of the life tenant.”

The defenses set up under this phase of the case in any ' event would, it seems, only be available to a creditor.

The conveyance made by plaintiff of his interest in the estate to Mr. Cone was evidently for services rendered by Cone, somewhat indefinite in their nature, the value of which was not clearly 'brought out; but, however that may be, thisoonvey.ance seemed to be good and, whether it conveyed to Cone an interest or not, whatever he had or thought he had, he reconveyed the same to the plaintiff, putting him back in the position in which he was before he made the assignment to Cone, investing him with whatever contingent interest he had in the estate, concerning which, as above indicated,' no question can now be raised by these defendants.

The question, therefore, comes clearly and sharply as to the validity of the contract of sale, because of the relation which Pierce, the trustee, at the time of making the contract oí sale, hore to The Yan Heusen Charles Company by reason of the fact that he at least had been a stockholder, and that at the time of the making of the contract of sale his name appeared upon the stock ledger as the holder of 139 shares of the company’s capital stock.

The allegation of fraud is not sustained. The evidence does not show that Pierce was greatly benefited by the sale, or benefited at all. There is no proof that it was not for the best interests of the estate. . In fact the evidence is that the sale was for an adequate price; and, the price being adequate, a sale was to the advantage of the estate, rather than an ownership of an undivided half interest in real estate.

The provision of the statute requiring that a director must be a stockholder does not mean that a person who is voted for as a director, who is published to the world as a director, who acts as such, taking a part in the management of the corporation, is, in fact, a stockholder, when no stock has ever, as a matter of fact, been issued to him.

It means that a person to properly qualify for directorship must, under the law, be a holder of capital stock, his acts as such director only, when not a stockholder, may be void and of no legal effect, and other penalties may follow; but it cannot be said, in the face of the fact that he has no stock — that no stock has ever been issued to him — that, because he acts as a director, he is a stockholder.

That is not exactly the question here, for stock had been issued to the defendant "Pierce. It is admitted that he was a stockholder, at least up to September, 1904. It then appears, as above stated, that he executed an assignment or transfer of the stock in his name to his wife, and that he deliver to her the scrip.

It is contended that the evidence does not show that any consideration passed for this conveyance of stock. So far as the parties to this issue are concerned, that question cannot be raised. He had a right to give that stock to his wife. If he did give it to her, she became the owner of it and was, under the evidence, possessed of the certificates of such ownership. The ownership could be complete in the wife without a transfer of the certificates upon the books of the company.

The explanation by defendant Pierce of the fact that he acted, subsequently to the 12th day of September, 1904, when the stock was transferred by himself to his wife, as the director of the company is that the matter had entirely escaped his memory, that is, the transfer of the stock. He testifies that he was under an impression that he was still a stockholder and that, when he learned of the fact or recollected that his stock had been at a previous date transferred to Mrs. Pierce, he then qualified himself to become a director or stockholder in the company by the purchase from his wife of five shares of her stock.

It is apparent that, if there had been no transfer by defendant Pierce of the 139 shares of stock to his wife and he had been without any question a holder of those shares, he would have made the contract as trustee, with The Van Heusen Charles Company, just as he did make it. In other words, it is apparent from the evidence that Pierce was acting, so far as The' Van. Heusen Charles Company was concerned, in good faith.

The representative of the Charles estate, which owned an undivided one-half of the property, was insistent jipon a sale of that undivided one-half. The executor of the estate, Frank T. Charles, called upon defendant Pierce for the purpose of inducing The Van Heusen Charles Company to make the contract.

The consideration of the transfer of the Charles undivided one-half interest was $37,500. Frank T. Charles, as executor, made a contract to that effect. At the time he made the contract he was a holder of ten shares of the capital stock of The Van Heusen Charles Company.

The premises had been occupied by The Van. Heusen Charles interests as a place of business for over.fifty years. It is fair to assume that the property was quite as valuable to that concern as to any possible purchaser. The representative of the- Charles estate and Mr. Pierce, as trustee of the Van Heusen estate, agreed as to the value of the property at $75,000.

The testimony taken over the objection of the plaintiff as to the value of neighboring business property shows that $75,000 was a fair and adequate consideration for the sale of the property.

Defendant Pierce, it must be remembered, was not as tru&tee dealing with himself individually. He did not accomplish a sale of the property to himself, directly or indirectly.

He was, at the worst, assuming the ownership of the 139 shares of stock being in him, dealing as trustee with a corporation in which he was a stockholder and of which he was a director.

It seems, however, that the fact was that he was not, at the time of the execution of the contract of sale, a stockholder. He had assigned and delivered the certificates of stock. He testifies that the assignment and delivery of tihe certificates was not by him made in contemplation of death; although he was at the time ill, that the transfer was made, in fact, so that it would not be necessary for his wife to probate his will in order to pass the title of the stock in the event of his death then or at any other time.

A stockholder has no title or interest in the tangible property of the corporation. The holding or ownership of shares gives the owner a right to his proportion of the profit while a corporation is a going concern, and entitles him to his distributive part in case of a distribution of the assets upon dissolution. The legal title of the property is in the corporation, not in the stockholder; and a stockholder is not an agent of the corporation. A stockholder has a right to deal with a corporation in the same manner as a stranger has, provided the transaction is free from fraud; and, in so doing, he acquires the same rights, he incurs the same liabilities, as a stranger, where the transaction is proper, fair and in good faith. He is not a- trustee of the corporation, and rests under no obligation to serve the corporation. He may lease or sell property to the corporation, or purchase or take a lease from the corporation.

When, therefore, Mr. Pierce, as trustee, was contracting to sell property, which he held as such, to the corporation, in which even assuming his ownership of a minority interest, he was not dealing with himself, directly'or indirectly.

■ The courts are jealous tif the interests and the rights of those for whom the trustee acts; and, in many cases where-the good faith of the trustee has been apparent, that would not excuse or justify a transaction by the - trustee with himself, directly or indirectly, and such transactions have been found to be in violation of the law.

It is the duty of the court to scrutinize these transactions with the greatest care, to the end not only that the plaintiff’s rights may be protected and secured, but also that injustice may not be done to the defendant corporation and the parties interested therein, by such a strict adjudication of these questions along technical lines, based upon the assumption that under no circumstances and upon no theory can it be possible for a man situated -as Mr. Pierce found himself to be, to do that ’which everybody concerned considered to be for the best interests of all concerned, and of the estate of which he was trustee, save only the plaintiff here, whose testimony upon the trial indicated an unfriendly spirit and attitude toward one of the- defendants in the case.

The Charles estate owned one-half of this property, which one-half was admittedly of the value of $37,500.

Frank T. Charles, the executor, owned ten .shares of the capital stock of the corporation worth $1,000; he wanted to effect a sale of the Charles interest to the company and did make a contract of sale on the basis of the value above stated. Can it be said that he was induced thus to dispose of the property owned by the estate of his father because he had $1,000 invested in the company to which the sale was made ?

The sons of Theodore V. Van Heusen, defendants here, who testified upon the trial, approve of the sale, of the manner in which it was made, and of the consideration agreed to be paid.

If the sale had been to Pierce individually, then whatever his motive or.consideration realized, the court must say that his act was void.

The trustee Pierce has not violated any law, nor done any wrong. He has not wasted the estate of which he was trustee; neither has he given to the company with which he has been connected anything at the expense of the Van Heusen estate; and the interests of this plaintiff have not been rendered less valuable, nor jeopardized.

Judgment should be entered dismissing the complaint.

Complaint dismissed.  