App. Div.] FIRST DEPARTMENT, FEBRUARY TERM, 1902. proceedings as such assignee, although more than a year has elapsed since the date of said assignment. Whereupon judgment was demanded that Keim render an account of his proceedings, and that if it appeared upon the accounting that he had improvidently or without proper authority expended the funds of the trust estate so as to impair the value thereof, or that he has so managed the said estate as to diminish the amount thereof, or that he has failed to exercise due diligence in the performance of the duties of said trust, then that he be charged with the losses resulting from his wrongful acts, negligence or omissions; and that if it appear upon the accounting that Keim had not transferred and delivered to the defendant Spaulding Machine Screw Company in the manner and pursuant to the composition agreement then that he be required to turn over to the corporation for the benefit of the plaintiff and all others similarly situated, any and all moneys and other property remaining in his hands as such assignee, and that the trust reposed in the defendant Keim be terminated, and that the defendant be discharged therefrom under the rules and practice of this court. By the composition agreement, which was introduced in evidence, it was provided, among other things, that all claims against the copartnership of Spaulding & Crosby under $200 in amount should be paid in cash; that a corporation should be organized to take over the business of Spaulding & Crosby; that creditors of that firm whose indebtedness exceeded $200 should accept notes of the corporation to be formed for the amounts due them, which notes were to be indorsed by Thomas H. Spaulding; and the creditors stipulated that "we and each of us do hereby consent and agree that all the property of every kind and nature, held or acquired, or to be held or acquired by said John R. Keim, as assignee of said Thomas H. Spaulding and William H. Crosby shall be assigned or transferred to or acquired by a corporation to be formed as aforesaid, and that when said corporation is so formed it shall issue its bonds, to be secured by mortgage on all its real estate, machinery, fixtures, appliances and appurtenances in a sum or an aggregate amount equal to the notes delivered to the undersigned on account of amounts due them from said copartnership." It was also stipulated that "we will accept and receive said notes in pay FIRST DEPARTMENT, FEBRUARY TERM, 1902. [Vol. 69. ment of the sum due us and each of us, in the amounts and on the terms herein before set forth, to be secured by bonds as above stated." And also, "we do further consent and agree that on receipt of the cash provided to be paid us and said notes and bonds securing the same, in liquidation and payment of our claims, neither we, the said several and respective creditors, nor either of us, nor the said executors, administrators, partners, successors or assigns, of us, or any of us, shall or will, at any time or times hereafter, except in case of failure to pay said cash and to deliver said notes and bonds securing the same as above set forth, sue, attach, arrest, molest or trouble the said Thomas H. Spaulding or William H. Crosby as copartners, or either of them, or their goods or chattels, for any debt," etc., etc., and further, "upon the execution of this agreement and the receipt by us of the cash, notes and bonds securing the same herein provided to be received, all notes or other evidences of indebtedness shall be delivered up and restored to said Thomas H. Spaulding and William H. Crosby, their heirs, executors, administrators or assigns." On the trial of the action at the Special Term it appeared without contradiction that so far as the plaintiff and other creditors are concerned the terms of the compromise agreement had been carried out absolutely and the plaintiff had been paid. It received the promissory notes of the corporation and bonds were also given security for the notes. All of these notes but one were paid; that one was extended and two renewal notes were given for it, which had not matured at the time this action was brought. The plaintiff had consented to the transfer of all the assets of the assigned estate to the new corporation. The assignee had transferred all the property to the new corporation and nothing was left in his hands at the time the suit was brought except a sum of money necessary to pay his commissions and the costs and charges of the assigned estate. The trial judge found that under the terms of the composition agreement all moneys or property paid over or delivered to the defendant Spaulding Machine Company by the defendant Keim as such assignee were held by said company and inure to the benefit of the plaintiff and all other copartnership creditors. That finding is unsupported by anything contained in the compromise agreement. All that the plaintiff or the other creditors App. Div.] FIRST DEPARTMENT, FEBRUARY TERM, 1902. were entitled to was the security which the compromise agreement provided should be created for the protection of the notes they received. If the plaintiff had shown upon the trial that the assignee had specific property which should have been transferred to the corporation to feed the security, but which had not been so transferred, then it might have been entitled to a decree, but the assignee had transferred all that was to be covered by the mortgage. The compromise agreement expressly states that the mortgage shall be on the real property, machinery, fixtures, appurtenances and appliances. The moneys which the assignee received were not to be, and could not in their nature be, security for these creditors, and when it appeared without contradiction that the claims of the plaintiff and the other creditors had been fully satisfied and extinguished and that they had received all they were entitled to by way of security for the new notes, the plaintiff's action utterly failed and the complaint should have been dismissed. The plaintiff had no more ground for calling the defendants into this court than the merest stranger to the transactions would have had. But enlarging the scope of the inquiry and in view of the manner in which the case comes before us, it is proper to inquire whether there was any basis for making an interlocutory decree in consequence of matters contained in the answers of any of the defendants. Or, in other words, the case being before the court on all the pleadings, whether there was a basis for the court in the exercise of its general jurisdiction to settle and adjust in this action any matters in controversy between Spaulding and Crosby and the assignee, or between Spaulding and Crosby as individuals. It was provided in the compromise agreement that stock of the corporation to be formed should be issued to the amount of $300,000; that Spaulding and Crosby should be members of the board of directors of that corporation and that Spaulding should be president and Crosby vicepresident; that the stock of the corporation should be issued to the assignee or to the copartners- that is, Spaulding and Crosby, or pursuant to their orders. The defendant Spaulding in his answer denied that Crosby and he were partners on the 9th of January, 1896, when the assignment was made. He admitted the making of the composition deed or agreement, and then he alleged that prior to the 9th of January, 1896, he had been engaged in business in FIRST DEPARTMENT, FEBRUARY TERM, 1902. [Vol. 69. Buffalo under the name of Spaulding Machine Screw Company, and that the defendant Crosby had been employed by him at a salary and commission and that as between him and Crosby no partnership existed, but Crosby was simply his employee. He then avers that on the 30th of March, 1895, he and Crosby entered into a contract, pursuant to which it was agreed by and between them that on or about July 1, 1895, a corporation should be organized to acquire the property and assets formerly belonging to the business he conducted under the name of the Spaulding Machine Screw Company with a certain capital, and that he, Spaulding, in consideration of certain agreements made by Crosby, contracted to hold in trust one-fifth of the capital stock of the company so to be organized, on the express condition that said stock should not be paid over to Crosby nor should he be entitled to the same unless he should remain for the period of five years in the employ of the company in good standing. He further states in his answer that in and by the composition agreement above referred to, it was expressly provided that a corporation should be organized under the name of the Spaulding Machine Company to acquire the property formerly belonging to Spaulding, and which corporation should have a capital stock of $300,000, and that said stock should be issued to Keim as assignee or to the defendant and Crosby, or pursuant to their orders; that subsequent to the formation of the corporation the defendant and Crosby were elected directors of the corporation, and the assignee offered to deliver twenty per cent of the stock under the contract on condition that Crosby would enter into and continue in the employment of the Spaulding Machine Company for five years, as in said contract provided (that is, the alleged contract of the 30th of March, 1895); that Crosby refused to accept stock in accordance with the contract and withdrew from the employment of said Spaulding Machine Screw Company; that, as matter of fact, Crosby is not entitled to said stock or any part thereof. The assignee Keim in his answer set up, among other things, the making of the compromise agreement, and that it was expressly provided in and by that agreement that there should be stock issued, of the new corporation, to the amount of $300,000; that Spaulding and Crosby should be directors and officers of that corporation, and App. Div.] FIRST DEPARTMENT, FEBRUARY TERM, 1902. that the stock should be issued to the defendant or to the copartners, or pursuant to their orders; that pursuant to the agreement a corporation was formed and the whole stock thereof issued to him, Keim, as assignee; that all the creditors of the assignors assented to the composition agreement and surrendered their old claims against Spaulding & Crosby, accepted the notes of the corporation, and thereupon and after settlement had been agreed upon by said creditors and their several claims had been surrendered, Spaulding and Crosby were elected members of the board; that Crosby refused to carry out the terms, conditions, purport and intent of said composition agreement and withdrew and refused to be connected with the business; that Crosby and Spaulding have each demanded that defendant surrender to them a portion of the stock of the Spaulding Machine Screw Company; that Spaulding claims to be entitled to the whole and Crosby claims to be entitled to a portion, and that the defendant assignee is unable and pursuant to the terms of said composition agreement to ascertain what the interests of said respective assignors, if any, in stock will be; that it was the intent and purpose of the composition agreement that said stock should be delivered up or divided among the assignors according to their respective interests prior to any accounting on the part of the defendant; that the defendant has always been ready to render his account as assignee and to make an account as trustee, and deliver the stock so held by him to the parties entitled thereto, but he has been unable to ascertain, fix and adjust the interests and rights of Spaulding and Crosby in and to said stock. It is unnecessary to refer to the answers of the other defendants. It will be seen from an analysis of the answer of the defendant Spaulding that he has claimed, as against Crosby, the right to the whole of the stock of the new corporation upon the ground of the failure of Crosby to comply with the agreement made between Crosby and himself in March, 1895, concerning the formation of a new corporation, which corporation never was formed and could not have been formed in consequence of the insolvency of Spaulding or Spaulding & Crosby, and the transfer of all the assets and property to an assignee for the benefit of creditors. The agreement of March, 1895, was not carried into the compromise agreeAPP. DIV.-VOL. LXIX. 14 |