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Manufacturers' Commercial Co. v. Heckscher

Supreme Court of New York, Appellate Division

May 12, 1911

MANUFACTURERS' COMMERCIAL COMPANY, Suing in Its Own Behalf and in Behalf of All Other Creditors of NEWFOUNDLAND SYNDICATE Who Shall Make Themselves Parties to This Action and Contribute to the Expense Thereof, Respondent,
AUGUST HECKSCHER and Others, Appellants.

Page 602

APPEAL by the defendants, August Heckscher and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 30th day of December, 1910, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the defendants' demurrers to the complaint.


Francis D. Pollak, for the appellants.

Justus P. Sheffield, for the appellant Heckscher.

Elbridge L. Adams [Nelson S. Spencer with him on the brief], for the respondent.


The facts upon which plaintiff claims to be entitled to judgment, as set forth in the complaint, are as follows: The Newfoundland Syndicate was organized on November 16, 1904, under the laws of the State of New Jersey, for the purpose of purchasing and operating mines and like enterprises. Its capital stock was originally $300,000, which was increased to $2,000,000 in July, 1905. Thereafter, in November, 1905, it was still further increased to $3,000,000, the par value of each share being $100. This increase was the result of a scheme and conspiracy to evade and defeat the laws of the State of New Jersey, and to defraud the creditors, present and prospective, of the corporation, by causing the additional $1,000,000 of stock to be issued to the firm of J. M. Ceballos & Co. at the price of $50, instead of at par, in violation of sections 48 and 49 of the 'Act Concerning Corporations' of New Jersey, regulating the issue of corporate stock for property; the participants in such scheme being the directors of the corporation (including defendants Heckscher and Fiske, the latter a member of J. M. Ceballos & Co.) and George D. Mumford. This scheme was effectuated as planned by issuing $1,000,000 capital stock, the total amount of the increase, to Mumford in ostensible payment for mining lands or rights which he claimed to own in his own right, and which had cost and were worth not more than $10,000. Mumford then returned all the stock to the corporation to be sold by it as treasury stock, for the

Page 603

purpose of providing working capital, and J. M. Ceballos & Co. then bought it for $500,000, of which amount they and Heckscher each contributed one-half, the stock being divided between them in the same proportion.

The transaction was then completed by the corporation paying back to Mumford the $10,000 which he had paid for the mining land. This entire operation is claimed to have been 'actually and wilfully fraudulent and void, both under the statutes of New Jersey and those of New York, and according to the principles of the common law; that there was no honest exercise of the judgment of the directors of said corporation as to the value of the property, so as aforesaid purchased by the corporation from the said George D. Mumford, nor any honest appraisal thereof, but that the whole scheme and transaction was a wicked and fraudulent plan conceived and carried out by and with the consent, knowledge and acquiescence of the said August Heckscher and the said J. M. Ceballos & Company for the purpose of enabling the said August Heckscher and the said J. M. Ceballos & Company to acquire $1,000,000 of the stock of the said Newfoundland Syndicate for fifty per cent of its par value, in contravention of the laws of the State of New Jersey, and in fraud of the creditors of the said corporation.'

On January 25, 1908, a petition in involuntary bankruptcy was filed against the Newfoundland Syndicate in the District Court of the United States for the District of New Jersey and receivers thereof were on that day duly appointed, and on January 28, 1908, ancillary receivers were appointed in the District Court for the Southern District of New York. The syndicate was thereafter judicially declared to be bankrupt and a trustee therefor was duly elected and is still in charge of its assets. Its debts are about $1,800,000, and its assets will only suffice to pay the expenses of administration. Plaintiff is a bondholder to the amount of $113,000, and also holds notes indorsed by the corporation to the amount of $100,000, bearing date June 1, 1907; it has not proved its claim in the bankruptcy proceedings and its time to do so has expired. The syndicate has exercised none of the functions of a corporation since January 25, 1908, at which time all its officers resigned,

Page 604

and on January 4, 1910, the Governor of the State of New Jersey declared its charter void for non-payment of taxes for the preceding two years. Plaintiff has been unable to reduce its claims to judgment for these reasons, as well as because there was no one within this State upon whom process could be served. The firm of J. M. Ceballos & Co. has made an assignment for the benefit of its creditors to the defendant William V. Rowe. The action is brought 'on behalf of itself and of all other creditors of the Newfoundland Syndicate similarly situated with the plaintiff, who may come in and make themselves parties to this action and contribute to the expense thereof.' The relief sought is 'that the defendants, other than Newfoundland Syndicate [which is not a party defendant] may be ordered, adjudged and decreed to pay the plaintiff, and such other creditors as may come in and make themselves parties hereto, the amount still unpaid on the stock so, as aforesaid, issued to them, or to either of them, or to the said J. M. Ceballos & Company, or to George D. Mumford, to the amount of $1,000,000 par value, until the claim of the plaintiff, and of such other creditors as may come in, with interest thereon, shall be paid in full, or until the full amount of $500,000, remaining due upon said stock shall have been paid by said defendants, or $250,000 by the defendant August Heckscher, and $250,000 by the other defendants; and in case the assigned estate of J. M. Ceballos & Company is unable to pay the full amount due from it, that such fact shall be taken into account in determining the assessment upon the said Heckscher; and for such other and further relief, together with the costs and disbursements of this action, as to the court may seem just and equitable.' To this complaint the defendants have demurred on the following grounds: (1) That it appears upon ...

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