
    Amos M. Buker and Others in their Own Behalf and for All Other Shareholders Having a Common Interest Herein, and who May Come in as Plaintiffs Herein, Respondents and Appellants, v. The Leighton Lea Association, Appellant and Respondent.
    
      Subscriptions to stock of an association, induced by fraud — what is a waiver of the fraud —adoption of an amendment to its constitution, when legal—restoration to membership after forjeiture of shares.
    
    Subscribers to the stock of an association whose subscriptions were induced by fraud, but who, upon discovering the fraud; elected to retain their membership and sought to have their rights as members adjusted with reference to the fraud, are not entitled after the lapse of several years to have their subscriptions canceled on account of the fraud and to recover from the association the money paid in by them.
    'Notice of a meeting for the purpose of amending the constitution of an incorporated association was sent to all the members thereof. A majority of all the members did not attend the meeting, but notwithstanding the fact that the constitution provided that it might be amended by a majority vote of all the numbers, a vote was taken on the adoption of the amended constitution; twenty-seven members voted for and five against its adoption, and the president thereupon declared the amended constitution adopted. On a motion to make the adoption unanimous, fifty members voted in favor of the motion and the five members previously mentioned voted against it. Immediately after the meeting the amended constitution was signed by a majority of the members of the association, but not by the five dissenting members.
    The five dissenting members, believing that the amended constitution Was void, requested the privilege of examining the affairs of the association and, upon the refusal of this request, they declined to make further payments on their .shares. The board of directors, acting under the amended constitution, declared their shares forfeited.
    
      Meld, that the amended constitution was legally adopted, but that under the circumstances the dissenting members should be restored to membership.
    
      Cross-appeals by the plaintiffs, Amos M. Bulter and. others, suing on behalf of themselves and all others who may join herein, and by the defendant, the Leighton Lea Association, from portions of a judgment of the Supreme Court, entered in the office of the clerk of the county of Monroe on the 13th day of March, 1901, upon the decision of the court rendered after a trial at the Monroe Special Term. ■
    
      George D. Reed, for the plaintiffs.
    
      William F. Gogswell, for-the defendant.
   Williams, J. :

The judgment should be modified so as not to adjudge the constitution as amended invalid, and as modified affirmed, with costs to the defendant.

The action was brought in equity by some of the members of the defendant association in their own behalf and for all others who might join therein. The relief aslced for was :

1. That their subscription for shares be declared void and be vacated, and the moneys paid therefor be returned, with interest."

2. That the amendments to the constitution be declared invalid, as not having been properly or legally adopted.

3. That the forfeiture of plaintiffs’ membership shares be declared to have been illegal and that the same be restored, and other relief incidental to these items specified.

This appeal was brought on for hearing upon the pleadings, decision .and judgment, without any case made, so that the evidence-given on the trial is. not before us and we must rely for the facts upon the admissions in the answer and the decision of the court.

The trial court very properly held that the plaintiffs were not entitled to the relief that their subscriptions for shares be canceled .as void and the moneys paid therefor be returned to them, with interest. As suggested by the'trial justice in his opinion, the plaintiffs could, upon the discovery of the alleged fraud, without doubt, have elected to cancel their subscriptions and withdraw from membership and could have recovered back the money they had paid in. But they elected, after discovery of the fraud, to retain their membership and to seek to obtain an adjustment of their rights as members in the association. They cannot now, after several years have elapsed, secure this relief and recover back the money paid in by them.

In order to properly consider the other two questions we need to understand the facts.

It seems that prior to March 11, 1891, one J. Z. Culver had entered into an agreement with one Mrs. Leighton for the purchase of certain lands in the town of Brighton, adjoining the city of Rochester. On that day Culver entered into an agreement with forty-nine other gentlemen wherein the purchase from Mrs. Leighton was recited, and the parties agreed to organize an association known as the Leighton Lea Association, and that the premises described in the agreement should be conveyed to the association for $120,000, of which $10,000 cash and a mortgage upon the property for $60,000 was to be given to Mrs. Leighton to pay her for the property, and a second mortgage for $50,000 upon the property was to be given to Culver as trustee for the benefit of the parties to such agreement. The association was organized on the 13th day of March, 1891, its capital stock was divided into 200 shares of $600 each, and subscription books for shares were opened and about 140 subscriptions thereto obtained. The different members of the association came to be known, the original fifty, as syndicate members, and those coming in subsequently as long share members. Mrs. Leighton conveyed the property to Culver and Culver conveyed it to the association, and the cash was paid and the two mortgages given, as provided by the agreement. It was afterwards discovered that Culver had not deeded to the association all the land which Mrs. Leighton had deeded to him and for which the association had paid her, and the long share members discovered the contents of the syndicate agreement, and that the $50,000 mortgage given to Culver in trust was really a bonus to the syndicate members. It was claimed these things constituted a fraud upon the long shareholders, and an action was brought in equity to obtain such relief as the long share members claimed they were entitled to, to wit, to set aside as fraudulent the $50,000 mortgage to Culver, as trustee, and to recover from Culver the land purchased from Mrs. Leighton and not conveyed to the association, and other relief incidental thereto. There was a settlement of this action made whereby the $50,000 mortgage was set aside,-and a part of the land withheld by Culver was conveyed to the association. The syndicate members received each one paid-up share for $612 by payment of $300, and the defendant’s constitution was to be amended by allowing such settlement, and there was to be a replotting and redrawing of lots, etc. This settlement was not agreed upon, but was opposed by some of the long share members, including plaintiffs. A meeting of the members of the association'was called about May 13, 1893, for the purpose of amending the constitution, and notices, with copies of the proposed amendment to the constitution, were sent to all the members, upwards of one hundred and' ninety in number. At the meeting a vote was taken on the adoption of the amended constitution, and twenty-seven voted for, and five (the plaintiffs in this action) against its adoption. The president declared the amended constitution adopted, and thereafter, on a motion to make the adoption unanimous, fifty voted in favor of the motion, and five (the plaintiffs) against it. There were not present at the meeting a majority of all the members of the association. The constitution provided that the same might be amended by a majority vote of all the members (Articles of association [herein designated constitution], art. 3, § 1). Immediately after the meeting the amended constitution, adopted in the manner already stated, was presented to- and the signatures thereto of a majority of all the members of the association were obtained. The whole number at that time, as shown by the books and papers of the association, was two hundred and fourteen, of whom one hundred and forty-seven signed the amended constitution, and sixty-seven (among whom were plaintiffs) did not. The settlement so made was carried'out and the business of the association has since then been carried on under such amended constitution. This action was not commenced until October 25, 1895, two and one-half years after the alleged settlement and adoption of the amended constitution.

The plaintiffs, believing the alleged amended constitution and the acts of the association thereunder were illegal and void, requested of the association and its officers the privilege of examining the books, accounts, securities and other property of the association, as-provided for in the constitution (Art. 1, § 8) and this request and permission were refused. The plaintiffs thereafter refused to make further ■ payments on their shares until they had been given an opportunity to investigate the condition of the association and examine the books, accounts and securities of the association, as provided by the constitution, and upon failure by plaintiffs to make such payments the association by its board of directors elected and, acting under the amended constitution, declared the plaintiffs’ shares forfeited for such non-payments under article 2, section 8, of the constitution.

Upon these facts the trial court held that the. forfeiture of plaintiffs’ shares was invalid, and plaintiffs should be restored to membership, with all their rights, liabilities and privileges existing under the original constitution as ofe the date of such forfeitures, and that the amendments to the constitution were not legally or properly adopted, and were invalid as to the plaintiffs.

This case was before this court on appeal from a judgment resulting from a former trial thereof, and it was then held by a divided court that the amendments to the cdnstitution should not be held invalid, and that the plaintiffs should not be restored to membership after their shares had been forfeited. Two of the justices of this court dissented in an opinion by Mr. Justice Follett, wherein it was said that the plaintiffs should be restored to membership, and, therefore, the judgment should - be reversed and a new trial granted. (Buker v. Leighton Lea Assn., 18 App. Div. 557.)

An appeal was taken to the Court of Appeals, and the judgment was there reversed upon the opinion of Mr. Justice Follett in the court below. (Buker v. Leighton Lea Assn., 164 N. Y. 557.)

On the retrial of the case, the judgment upon which we are now reviewing the trial justice followed this decision of the Court of Appeals in directing the restoration of che plaintiffs to membership, and the judgment so far we must affirm, following also the Court of Appeals.

But in this last trial the court went further and held the amended constitution was not properly or legally adopted, and tnat as to these plaintiffs it should be held invalid and of no effect, and' that the plaintiffs should be restored, not only to membership, but with all their rights, liabilities and privileges existing under the original constitution. In so holding the court disregarded the unanimous decision of this court upon the former appeal upon this subject, which was in.no way disturbed by the decision óf' the Court of Appeals.' In this, we think, the trial court erred. It should, have followed, .as we • must follow, the former decision of this court upon this question. Mr. .Justice Ward - states the'facts with reference to the settlement, and the adoption of the new constitution, and then says: “ The plaintiffs’ counsel insists, that the new constitution was not legally-adopted' and was void, and that we should so declare. A careful 'examination of this subject leads us to the conclusion that this constitution was legally adopted and is the law of the defendant and its ■shareholders.”

We need not reiterate here the. reasons for such conclusion which were fully set forth in the-opinion of Mr. Justice Ward, and which were not objected to by the two dissenting justices.

For the reasons- hereinbefore suggested we conclude that, the judgment appealed from should be modified by striking -out all of the second adjudging clause, and all of- the first, one after the words' -“restored to- membership,” find as modified affirmed, with costs’of this appeal to defendant. .

All concurred.

Judgment modified by striking out all of the second adjudging ■■clause, and all of the first clause after the words “ restored to membership,” and as thus modified affirmed, with cost of this appeal to the. defendant.- ' .  