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Watkins v. Delahunty

Supreme Court of New York, Appellate Division

June 18, 1909


Appeal from Special Term, Kings County.

Action by Thomas C. Watkins against John Delahunty. On reargument of plaintiff's appeal from a judgment ( 108 N.Y.Supp. 619) dismissing the complaint. For former decision, see 114 N.Y.Supp. 1150.Reversed and new trial ordered.

[117 N.Y.S. 886] Robert B. Honeyman, for appellant.

Charles F. Brown (Edmund Luis Mooney, on the brief), for respondent.



This appeal presents only questions of fact. The record is voluminous; the transactions involved are complicated. The learned trial judge was in doubt, and dismissed the complaint on the ground that the plaintiff had not established his case by a fair preponderance of the evidence. I think that the documentary evidence and the conceded facts so strongly support the plaintiff's contention as to require a new trial.

A point is made that the complaint does not fairly allege the cause of action sought to be recovered upon. The point is not of present importance, however, because the court ruled upon the trial that the complaint was sufficient, refused for that reason to allow the plaintiff to amend, and admitted the evidence objected to. If necessary, the pleadings should have been amended to conform to the proof, as it is difficult to see how the defendant could well claim surprise.

On the 17th of August, 1899, the defendant, on behalf of himself, Charles D. Haines, and the plaintiff's assignor, William C. Roberts, purchased at referee's sale so much of the Lebanon Springs Railroad as was within this state, and on September 21, 1899, organized a corporation, the Chatham & Lebanon Valley Railroad, to which the title was transferred. On July 1, 1901, the defendant and Roberts, Haines having meanwhile released to them his interest, sold the road by a sale of its stock and bonds. The plaintiff's contention is that in August, 1898, said parties entered into an agreement to acquire the railroad, to rehabilitate, improve, and equip it, and ultimately to sell it and to share the resulting profits or losses. The action is for an accounting.

The defendant denies that there was ever a copartnership, but admits that what he calls a " joint venture" was formed to purchase, not the railroad, but certain tax titles, receiver's certificates, and other obligations of it, with the view of making a profit on a sale thereof. He asserts that the parties did not originally contemplate the purchase of the railroad itself, and that when it was purchased and transferred to a corporation the original contract was terminated, both by agreement of the parties and by operation of law. Thus there are two important questions of fact involved: First, What was the original agreement? And, second, Was it terminated by agreement, if not by operation of law, upon the formation of the corporation?

The railroad extends from Chatham, Columbia county, through Rensselaer county in this state, to Bennington, Vt. When the transaction [117 N.Y.S. 887] in suit arose, the part in this state was in the hands of a receiver appointed in a creditor's suit. It had been condemned by the railroad commission, only a few miles were in operation, and the part in Rensselaer county had been sold for taxes. The original agreement, if in writing (the point is in dispute), was not produced, but the correspondence between the parties and the surrounding circumstances leave no room to doubt that their purpose from the start was to acquire the road, to rehabilitate it, and to sell it. With that in view, they commenced, in August, 1898, to purchase the tax titles, receiver's certificates, and other obligations of the road; and the defendant, who is a lawyer, says that from then until the referee's sale he spent substantially all of his time straightening out the legal complications in the way of perfecting title and procuring a sale by the referee. Haines proved to be unable to contribute anything, and a further agreement in writing was made on November 18, 1898. That agreement recites that the parties have theretofore agreed to purchase certain tax titles, receiver's certificates, and other obligations then existing or which may thereafter exist against said railroad or the receivers thereof in this state and in the state of Vermont, " each of said parties to contribute equally to the funds necessary to make such purchases, and bear equally any losses that may arise in consequence thereof," and that Haines is unable to contribute his pro rata share, and then provides as follows:

" Now therefore, it is agreed between said parties, that the party of the first part" (meaning Roberts) " shall provide the money which is now necessary on the part of the party of the second part" (meaning Haines) " to contribute for his share of such funds, and that on the sale of the properties thus purchased, the losses shall be borne by and the profits divided between said parties as follows: Three-sixths thereof to the party of the first part, one-sixth thereof to the party of the second part, and two-sixths thereof to the party of the third part" (meaning the defendant)." All of the deeds and transfers of said property on said purchases shall be taken in the name of the party of the first part individually, but it is agreed that the same are held in trust, subject to the terms of this agreement. Before a division of the profits, each party shall be reimbursed the full amount which he has contributed to the enterprise."

That agreement was drawn by the defendant, and its recital of an agreement to buy tax titles, etc., is the basis of the claim that the parties originally contemplated the purchase, not of a railroad, but of its obligations. But the tax titles were more than mere obligations of the railroad. Upon acquiring them, the parties acquired the railroad itself. Indeed, the defendant himself says that the purchase of such titles prevented any one else from buying the road. Manifestly, the receiver's certificates and other obligations were to be acquired for the purpose of clearing up the title. The parties understood that the tax titles, receiver's certificates, and other obligations represented the road. The road was in such condition that it was not practical to acquire ownership of it except in the way adopted by these parties, and it seems to me that the contract of November 18th is to be construed precisely as though it had recited an agreement to purchase the road itself. If there could otherwise be any doubt on this point, the memorandum drawn and signed by the defendant on the purchase [117 N.Y.S. 888] at the referee's sale, in August, 1899, sets it at rest. That memorandum recites that the signer had purchased the road " as trustee for Messrs. Wm. C. Roberts, Charles D. Haines & myself pursuant to an understanding and a certain agreement between us heretofore made with reference to said railroad." It may be taken as conclusively established, then, notwithstanding the defendant's denial, that the original agreement contemplated the purchase of the railroad, and the trial court so found.

The defendant says that he thought the transaction had made him " rich beyond the dreams of avarice," and it is evident that in the early stages of it the parties expected to realize handsome profits. Of course they knew that that could only be done by organizing a corporation to take title, rehabilitate the road, and put it in operation, and the trial court found that that was contemplated by them. We may now re-examine the agreement of November 18th. That provides, not for the transfer of the property to a corporation and the issuance of its stock and bonds to the parties in proportion to their contributions and interests, but for the sale of the properties purchased and a sharing of profits or losses resulting therefrom. That actual, not paper, profits were contemplated, is further shown by the provision for reimbursement before any division of profits. The trial court found that the transfer of the property to the corporation in exchange for its securities was not the sale contemplated by the parties, but was made, as they understood, to comply with the railroad law of the state. The corollary to that finding is that the ultimate sale of the road, by a sale of the stock and bonds of the corporation to Dr. Webb, was such a sale as the parties contemplated, whereupon profits or losses were to be shared. The argument of the defendant, based upon the fact that the written contracts in evidence and the complaint are both silent respecting the formation of a corporation to take title and operate the road pending the sale contemplated, is met by the established fact that that was an incident, a mere detail, of the plan, the ultimate result of which was to be a sale of the property and a sharing of actual, not paper, profits or losses.

We have it then conclusively established by the evidence and found by the trial court that the original contract contemplated the purchase of the railroad itself, the formation of a corporation to take title and rehabilitate it, the ultimate sale of it, and a ...

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