
    Samuel S. Phelps, respondent, vs. The Masterton, Smith & Sinclair Stone Dressing Company, impleaded &c. appellants. The Masterton, Smith & Sinclair Stone Dressing Company, defendants and appellants, vs. Zephaniah Platt, receiver of the Empire Stone Dressing Company, defendants and respondents.
    1. The assignee of the interest of a cestui que trust, under a transfer of all the property of a corporation to a trustee, in trust to sell the same and distribute the proceeds among certain cestuis que trust, including such assignor, is not precluded from recovering from such trustee or the vendee to whom he has sold the property so transferred, the share of such assignor of the proceeds of such property, because the latter has not paid a promissory note given by him to such corporation as part of the consideration for the transfer of such property.
    2. The receiver of such corporation to whom such note given by the cestui que trust on the transfer of their assets, has been passed, cannot recover upon such note, after he has sold the same at public auction to a bona fide purchaser.
    (Before Monell and Garvin, JJ.)
    Heard October 2, 1865;
    decided December 30, 1865.
    This action was brought by the plaintiff as assignee of Ulysses B. Brewster, to recover of the defendant Ward, as sole acting executor of Robert Smith, deceased, and of the defendants “ The Masterton, Smith & Sinclair Stone Dressing Company,” one eleventh of the proceeds of the sale by Smith to the latter, of the property of “ The Empire Stone Dressing. Company,” whereof Brewster (the plaintiff’s assignor) had been a stockholder, and owned one eleventh of the stock.
    In July, 1854, The Empire Stone Dressing Company transferred all its property to the testator, Robert Smith, for the nominal price of $110,000, paid by the notes of Brewster and other stockholders of such company, and on the same day Smith executed a declaration of trust, or instrument reciting the sale to him, which declared that he held the property, “ in trust to use, manage, sell and convey the same for the benefit ” of the several persons therein" named, including Ulysses Brewster, in the shares and proportions therein specified; and whereby he agreed that upon a sale of the property he would pay over to the persons named all moneys received, in the proportion specified. The share of Brewster in the property conveyed to Smith was one eleventh thereof, and the note given by him for such conveyance was for $10,000. In September following (1854) Smith sold and delivered the whole of such property to the defendants, “ The Masterton, Smith & Sinclair Stone Dressing Company,” and transferred the same by a deed of sale, for the sum of $110,000. Smith died in November, 1854, leaving a will whereby he appointed the defendant Ward executor thereof, and he was duly qualified as such. In September, 1856, Brewster assigned his claim to the plaintiff.
    The complaint alleged that on the sale to the defendants, the Masterton, Smith & Sinclair Stone Dressing Company, they agreed to pay the several persons entitled to the purchase money, (including Brewster,) as specified in the declaration of trust, and claimed to recover of the defendant Ward, as executor of Smith, and of the Masterton, Smith & Sinclair Stone Dressing Company, one eleventh of the money received on the sale by Smith to the company, being the sum of $10,000.
    The answer of the defendant Ward set out the instrument of sale by the Empire Stone Dressing Company to Smith, which recited that the consideration of $110,000 for said purchase was paid or secured to be paid by the firm of “ Master-ton, Smith & Company,” and Messrs. Bliss, Abernethy, I. A. and J. J. Phelps, Hotchkiss, Chittendon and Ulysses B. Brewster, parties thereto of the second part. The answer then alleged that it was part of the consideration of said contract, that such parties thereto of the second part should give their several promissory notes in amounts agreed on, and should receive therefor, stock of a manufacturing company which it was proposed to organize, and to which it was agreed all the assets and property conveyed to Smith in trust should be transferred. That said several parties gave their notes in proportion to their respective shares, (the note of Breioster being for $10,000,) which notes were delivered to a third person (Charles F. Sanford) to carry out the agreement. That after-wards Brewster declined to pay his note or to receive the stock of the new company, and that it was thereupon agreed, with Brewster, that his note should not be used, and that he should no longer be regarded as a party to, or interested in the property sold to Smith. The answer further alleged that subsequently, Sanford handed all the notes so given, including that of Brewster, to the receiver of the Empire Stone Dressing Company, (Lucius B. Hanks,) who afterwards transferred them to the defendant Platt, who succeeded him as receiver. That such receiver sold the note of Brewster for $1000, to one-Charles B. Loomis, for the benefit of Brewster, who was in fact the purchaser, through him.
    The answer denied any agreement on the part of the defendants, the Masterton, Smith & Sinclair Stone Dressing Company, to pay Brewster any sum of money.
    The defendants, “ The Masterton, Smith & Sinclair Stone Dressing Company,” answered separately, setting forth, substantially, the same facts as are stated iü the answer of Ward.
    The defendant Platt, (brought in as such after the suit was commenced, as a supposed necessary party,) also answered the complaint, alleging his appointment as receiver of the Empire Stone Dressing Company ' his taking possession of the Brewster note, and its sale at public auction, to Loomis, for nine hundred and ninety ($990) dollars. His answer admitted the sale to Smith, upon the trusts stated in the complaint, and the sale hy Smith to the Masterton, Smith & Sinclair Stone Dressing Company, and then submitted “ his rights and interests arising out of the facts in the complaint, and herein set forth, to the judgment of the court.”
    
    The action was tried before Mr. Justice White, without a jury, who found, among others, the following facts :
    That “ The Masterton, Smith & Sinclair Stone Dressing Company” paid to Smith the sum of one hundred thousand dollars on account of the contract price for said property sold to them by said Smith, who gave' to them the following receipt: “ Deceived from James Sinclair, treasurer of the M. S. & S. Stone Dressing Company, one hundred thousand dollars in cash, on account of the purchase money of property this day conveyed by me to said company, the balance of said purchase money, viz: the sum of $10,000, to be hereafter arranged in the obligation of said company, as may be agreed."
    That said company has not paid the said sum of $10,000.
    That the $100,000 received by Smith was distributed and paid among the several persons named in the declaration of trust by him, excepting Brewster.
    
    That no part of the $110,000, for which Smith sold the property, was paid to Brewster.
    
    That the notes of the several parties, given to Sanford, were intended as memorandum notes, to be exchanged for such other obligations as might be agreed on between the parties.
    That Brewster never assented to any proposition or arrangement to form the Masterton, Smith & Sinclair Stone Dressing Company, and to take the stock thereof to the extent of his interest in the property conveyed to Smith, and at all times refused to do so.
    That it was agreed between all the parties, except Brewster, that the Masterton, Smith & Sinclair Stone Dressing Company should be organized with a capital of $100,000, instead of $110,000 ; that the parties should subscribe for such stock in proportion to their interest in the property conveyed. to Smith ; that such company should buy the property for $110,000, and should pay in cash $100,000, and assume a liability for the remaining $10,000, to be applied in some form or other in lieu of, and to the extinction of, the note given by Brewster, and to the satisfaction of the debts of the Empire Stone Dressing Company ; that Brewster fully assented to the sale by Smith to the company on the terms specified, and thereupon insisted that he was thenceforward entirely discharged from all liability on his note.
    That the Masterton, Smith & Sinclair Stone Dressing Company has at all times refused to pay the $10,000, to Brewster or to thé Empire Stone Dressing Company, in discharge of Brewster’s note ; that Brewster has never paid his note, and has always denied its validity. That Loomis purchased the note for the benefit of Brewster, who got possession of it, and that it is not an obligation or demand outstanding against him. That beyond the $990, bid for the note, Brewster never paid any thing towards the purchase of the property of the Empire Stone Dressing Company. And that the whole sum agreed to be paid for the property was required to satisfy the debts of the Empire company.
    From these facts the learned justice deduced the following conclusions of law : That by the agreement and arrangement between the parties, the note of Brewster should have been returned to him. That the Masterton, Smith & Sinclair Stone Dressing Company were bound to pay the full sum of $110,000 as the consideration for the property conveyed by Smith, so that the same might be applied, as far as necessary, to the payment of the debts of the Empire Stone Dressing Company, in order that if any surplus was left, it might be returned to the parties of the second part to the agreement, excepting Brewster.
    
    That Brewster has no claim against any of the parties to the action, except to be reimbursed the $990, out of the $10,000 of unpaid purchase money due from the Masterton, Smith & Sinclair Stone Dressing Company. .
    That the plaintiff and the defendant Platt are respectively entitled to judgment, adjudging that “ The Masterton, Smith & Sinclair Stone Dressing Company pay the said sum of $10,000, with interest; that is to say, that, they pay to the plaintiff the sum of $990, and interest, and to the defendant Platt the residue of said $10,000, and interest.”
    That the defendant Ward was entitled to judgment dismissing the complaint against him.
    Judgment was entered in conformity with the findings.
    The defendants, the Masterton, Smith & Sinclair Stone Dressing Company, excepted to all the conclusions of law, and appealed from so much of the judgment as directed the payment of any money by them, to the general term.
    
      H. A. Gram, for the defendants the Masterton, Smith & Sinclair Stone Dressing Company, appellants.
    
      L. B. Woodruff, for the defendant Platt, respondent.
    
      W. A. Butler, for the plaintiff, Phelps, respondent.
   By the Court, Monell, J.

This case presents the unusual phase of two judgments in one action ; one in favor of the plaintiff against one of the defendants, and the other in favor of a defendant against the same co-defendant. The appeal is from both judgments.

I will first consider the appeal from the plaintiff’s judgment. On the sale by Smith, the trustee, to “ The Masterton, Smith & Sinclair Stone Dressing Company,” the latter paid to Smith one hundred thousand dollars of the purchase money, retaining in their hands ten thousand dollars, which, the justice has found, was retained to be .applied, in some form, in lieu of, and to the extinction of, Brewster’s note' and to the satisfaction of the debts of the Empire Stone Dressing Company.

The transaction, as I understand it, was this : Brewster and others, perhaps, (though it does not so appear,) shareholders in the Empire Stone Dressing Company, not only agreed to the sale to Smith, of the assets of that company, for a consideration of one hundred and ten thousand dollars, but to pay the purchase money by their notes. The sale was in effect to themselves; their several notes, amounting, in the aggregate, to such sum, being given and received in payment thereof. The notes so taken in payment of such purchase money subsequently came into the hands of the receiver of the company. Smith, the trustee, agreed, upon the sale of the property by him, to pay the proceeds to the several persons entitled, under the declaration of trust by him, in proportion to their interests. He sold the property with the written consent of all the persons interested, except Brewster, and they afterwards formed the Masterton, Smith & Sinclair Stone Dressing Company, in which" each took stock equal to the amount of his interest in the property sold and its proceeds. Brewster having refused to become interested in the new company, demanded a return of his note, which was refused. The note remained in the hands of the receiver, who made some attempts to collect it, until he sold it at public auction, in April, 1857, after this action was commenced.

Upon this state of facts, it seems to me that the rights of the several parties to this action were otherwise than as found by the learned justice who tried the cause.

Brewster’s note was given in payment for his proportionate liability for the purchase money of the property sold to Smith ; and although called a memorandum note, was founded, as it appears to me, upon a good and valid consideration. It was undoubtedly believed that all the parties would become shareholders in the new company to be formed,' and that their respective interest therein should be the same as stated in the declaration of trust, and as represented by their several promissory (memorandum) notes ; and it was also believed, that all the notes would be paid. Brewster, at no time, agreed to go into the new company, but steadily refused so to do, and demanded the surrender of his note. He consented to a sale of the property at the sum named, but he in no wise ever relinquished his claim on Smith, the trustee, to be paid his proportion of the purchase money; nor has he ever relinquished any claim he may have had, upon the purchasers from Smith.

It will not be doubted, that if Brewster had paid his note to the receiver, his right of action against the defendants, the Masterson, Smith & Sinclair Stone Dressing Company, would have been complete. The ten thousand dollars retained by that company, would then have belonged to him. In what respect is the case changed by his non-payment of his note ?

During all the time the receiver held the noté, Brewster remained liable upon it, and I have not been able to discover any reason why its payment could not have been enforced. The consideration was sufficient, being the conveyance of the property to Smith; and the Empire Stone Dressing Company had parted with value, and was, therefore, entitled to recover upon it. Hence, whether Brewster paid his note or not, his claim on Smith, as trustee, for his share of the purchase money on the sale by him, was unchanged ; neither such trustee, nor the Masterton, Smith & Sinclair Stone Dressing Company, could object to payment on any such ground.

The conclusion of the learned justice on this branch of the case was, that pursuant to the arrangement and agreement of the parties, Brewster’s note should have been returned to him. But it was not returned to him; nor can I find any evidence that the Empire Stone Dressing Company, or the receiver of that company, ever consented that it should be returned. They continued to hold it, and made an attempt to collect it; but did nothing to relieve or discharge Brewster. They could have done so, and doubtless Brewster would have been satisfied with the arrangement, and would have relinquished all claim upon Smith, or upon the Masterton, Smith & Sinclair Stone Dressing Company. But instead of returning the note, Mr. Sanford, who acted as the agent of the company, refused to return it, and insisted upon Brewster’s liability upon it.

In this situation, Brewster, with a right to ten thousand dollars in the hands of the Masterton, Smith & Sinclair Stone Dressing Company, in some form,, with his note held by the receiver, he being liable upon it, assigned his claim to the plaintiff. After which, and after the commencement of this action, the receiver sold such note at public auction.

After the learned justice had arrived at the conclusion, that Brewster’s note should have been returned to him, it was clearly inconsistent to hold, that Brewster had no claim against any of the parties, “ except so far as he might be liable or compelled to pay” something upon his note. He was liable, if at all, for the whole amount, and the receiver had no right to return it without payment, and his claim arose on the terms of the trust, not on his liability for his note.

The theory of the decision was, that Brewster, by his refusal to join the new company, had ceased to be liable upon his note, and by ceasing to be liable, lost all share of the proceeds of the sale. I think that cannot be so, and that the receiver was right in not thinking so. He attempted to collect it, and finally sold it, assuming to give a good title to the purchaser.

I have been unable also to discover the principle upon which the recovery, by the plaintiff, was confined to the amount bid for the note. The plaintiff, as Brewster’s assignee, it seems to me, was entitled to receive the whole of his interest in the property conveyed to Smith, and its proceeds, or nothing. But as the plaintiff has not appealed, he is presumed to be satisfied with his judgment, and it is unnecessary to say any thing further on that branch of the case, except that I am of opinion that the judgment in favor of the plaintiff should be affirmed.

Smith was a mere trustee, having no interest in the property. While in the execution of the trust, he could have collected from the defendents the Masterton, Smith and Sinclair Stone Dressing Company, the residue of the purchase money, and applied it in discharge of the claim of Brewster. He died without doing so. Upon his death, the trust did not devolve upon his representatives, (1 B. 8. 731, § 68,) and his executors could not be made liable for the amount remaining unpaid of the purchase money. How far Smith, in his lifetime, or his executors, since his death, might have been liable for Brewster’s portion of the one hundred thousand dollars actually received, is a question out of the case. The dismissal of the complaint as to Smith’s executor was correct.

If the views expressed with reference to the plaintiff’s judgment are correct, it follows, necessarily, that the receiver’s judgment cannot be sustained.

In support of the latter judgment it is said, that inasmuch as the unpaid purchase money was for the same property for which Brewster had given his note to Sanford, there is an equity in favor of the Empire Stone Dressing Company, the original proprietor of the property, to be indemnified for loss on the Brewster note.

If the company had continued .the holder of the Brewster note, it may be, that in some form appropriate action, they might have reached the debt due to Brewster from- the Masterton, Smith & Sinclair Stone Dressing Company, and applied it towards or in satisfaction of Brewster’s debt to them. The difficulty, however, is, that they did not continue to held the note ; they parted with the ownership and possession, at a public sale, and- thereby extinguished the whole of Brewster’s indebtedness to the company. They took the note from Brewster as payment and they must be held to be satisfied with what they got.

The equity of the Empire Stone Dressing Company must arise, if at all, from some liability or indebtedness of Brewster to them ; and not upon any right in, or claim to, the avails of the proprerty conveyed by Smith to the defendants, the Masterton, Smith & Sinclair Stone Dressing Company. Having a legal claim against Brewster, the law might subrogate them to all the rights of Brewster, although the equitable power of the court might have to be invoked to do it.

The several conveyances were absolute, and a complete title to the property passed. The Empire Stone Dressing Company retained no lien upon it, legal or equitable. They were content to receive in payment, the notes of the purchasers, and to these notes alone can they look for indemnity.

The company had the power and right to retain their demand against Brewster; but they saw fit to subject it—a chose in action—to a public sale to the highest bidder. And that was done after the plaintiff had acquired all the rights .of Brewster to the unpaid purchase money.

Having no claim against Brewster, and no claim or lien upon the property, I cannot see how there can be an equity in favor of the Empire Stone Dressing Company. Equities must have something to stand upon. They cannot be propped up or supported without a foundation. Here the only foundation has been removed, and the supposed equities must fall.

There seems to have been floating about the case, some idea that because Brewster desired to get up his note, and refused to embark in the new enterprise, and had surrendered all interest in the matter, therefore, the Empire Stone Dressing Company could step into his place and acquire all his rights. No such conclusion can be deduced from the facts of the case ; they are hostile to any such right. There is nothing in the opinion delivered in the general term of this court, when this case was up upon a former appeal, which conflicts with the views here expressed. It was conceded that while Brewster’s note was outstanding he was entitled to his share of the consideration of the new purchase, and could claim the amount from the Masterton, Smith & Sinclair Stone Dressing Company as so much property of his own in their hands for his use.”

The view I have taken of the case, renders it unnecessary for us to examine the other exceptions ; or to determine whether for other reasons the receiver's judgment can be sustained. It is enough, that in our opinion the learned justice erred in his conclusions of law, and that the judgment in favor of the receiver must, therefore, be reversed; and there must be a new trial.

The judgment in favor of the plaintiff must stand ; as to that, there cannot be a new trial.

The judgment against the defendants, the Masterton, Smith & Sinclair Stone Dressing. Company, must be reversed, and as to those defendants and their co-defendant Platt, the receiver of the Empire Stone Dressing Company, there must be a new trial, the costs of the appeal to abide the event.  