Argued October 16, 1886
Decided November 23, 1886
Wm. C. Holbrook and M.D. Grover for appellant. Richard Hand, E.T. Brackett and A. Pond for respondent.
A recovery was had in this case against the defendant under section 10 of the Manufacturing Act, upon the ground that, in making the annual report required by that act, he had asserted a falsehood. The plaintiff sought to establish that the statement in the report that the whole capital of $2,000,000 had been paid in was not only untrue, but that the defendant knew it to be untrue when he signed the report, and so was guilty of actual falsehood. The defense pleaded was that the whole capital stock of the Iron Mountains Company had been issued to Remington in payment for a mining property bought by him of the Kingdom Ore Company. Since that purchase was claimed by the plaintiff to have been made for a far less amount and to have been of very much less value, the issue raised involved necessarily the corporate acts of the two companies, of which their records were the natural and proper evidence.
The defendant was shown to have been a trustee or director in both companies. In the original certificate of the Iron Mountains Company he is named as one of the trustees. That he accepted the office is fairly to be inferred from his own statement of the reason for the appointment, from the fact that he received from Remington $10,000 of the stock to enable him to act, and that at the meeting in December he was present and serving as one of the trustees. His only denial in the answer is of the allegation that he remained a trustee after August, 1870, and his sworn assertion, in the report of January, 1870, that he was such trustee justifies the inference to which we have referred. He was not named as a trustee in the certificate of the Kingdom Ore Company, but, while at first denying his official connection with that corporation, he afterward, as he says, "on reflection," admitted that he was a stockholder in it. It is not necessary to resort to or rely upon the similar admission in the answer the proper effect of which was somewhat discussed.
It seems to be the rule that the corporate books are not only evidence of the corporate acts when those need to be proved, but are to some extent evidence against the stockholders who are chargeable with a knowledge of their contents. The books to which objections were taken on behalf of the defendant were the book of certificates, the stock-ledger, and the minutes of the two companies. The stock-ledger contained the names of the stockholders, the number of shares held by each, and a record of the transfers made. While not in all respects accurately complying with the requirements of the statute, it did so substantially, and is made by the law presumptive evidence of the facts recorded. The objection of the defendant was aimed principally at the book of minutes of the Iron Mountains Company. The material contents of that were the proceedings of the initial meeting of the trustees at which the purchase of Remington was determined and the full capital stock issued to him, and the action of the meeting held December 15, 1869, at which the defendant was present. Nothing else in the minutes appears to be material. These records were admitted by the court as showing the corporate action, and without deciding that the defendant was to be charged with actual knowledge of what transpired in his absence. To this extent at least they were admissible, and the ruling was correct.
Two facts were to be established by the plaintiff: First, that $2,000,000 was not in truth paid for the mining lands; and Second, that the defendant had actual and not merely constructive knowledge of the fact. The records furnish some evidence bearing upon the first issue, and their correctness, so far as they described the action taken at the organization of the company, was explicitly proved by Burleigh, who was present and participated in the meeting; while as to the proceedings in December the defendant admits his presence and in no manner denies the correctness of the record.
There remained, therefore, in the case the question of fact whether the defendant had actual knowledge that the $2,000,000 issued to Remington was a sham price, founded upon a large false estimate of the lands. The defendant had seen the property; he had been over it with his father and others; he knew that it was undeveloped, and that the character and extent of its ores was an unsolved problem; he knew that the whole capital stock was issued to Remington as vendor of the lands; he knew that with unexplained liberality Remington had given him, without consideration, $10,000 of the stock; he must have known also that the same vendor had given back to the Iron Mountains Company a large quantity of the stock since we find him seconding his father's resolution to pledge one thousand shares with seventy bonds for a loan to the company, and to give five hundred shares to the officer who negotiated the loan as a commission, and from no other source than the free gift of Remington was it possible for him rationally to trace that ownership of the company. It is not quite easy to believe that he could have advised giving a mortgage on the property and $70,000 of the corporate bonds, and $100,000 of the stock for a loan of $35,000, if he was honestly convinced that the stock at par represented real dollars and full value. At all events what he did know tended to establish the second issue, that he was guilty of actual falsehood when in the report he signed he declared that the full capital stock had been paid in. There was, therefore, a substantial basis in the evidence for the finding of the trial court, and we are bound to accept it as correct. In this respect the case differs from Lake Superior Iron Co. v. Drexel ( 90 N.Y. 87). There, upon facts somewhat similar, the verdict of the jury established good faith and honest judgment. Here the finding of fact is exactly the reverse.
The plaintiff's proof as to the comparatively small value of the mining property was very material, and was the subject of further objection on the part of appellant. One of the witnesses was Burleigh. He was a trustee of the Iron Mountains Company. He testifies to a large and valuable experience in the development of iron mines, in the transportation of the ore, and in the difficulties and uncertainties of determining its extent and quality. Doubtless that experience and knowledge led to his selection for the office he held. At all events he was competent to testify as to the value of the property, having examined it so far as was at the time possible. When asked as to that value, he expressed the difficulty of a just answer by saying that such value was speculative, by which he plainly meant that as a mining property and for mining purposes its value in the result was uncertain. But it had a value nevertheless, and beyond that belonging to it as land and for agricultural purposes, but affected by the uncertainty both as to the quality and extent of the veins. In the end he valued the furnace at $10,000, and the mining property at $50,000 or $60,000. That estimate he expressed by saying: "I might on speculation have paid" that amount for it. This answer the defendant moved to strike out, but the request was refused, the court saying it understood him to mean that the property was not worth more than that amount. Such undoubtedly was his meaning, and he made no objection to the construction put upon it. It is said that he examined only a part of the property. That is true, but he examined it where the work was going on, and the ore was being taken out, and seems to have had all the opportunity that was really useful.
Another witness was Merrian. He had been a manufacturer of iron, and bought and sold ores for a period of twenty-seven years. He had owned mineral lands and sold them, but reserving the mines. He knew the property of the Kingdom Ore Company, and had owned land for a long time in its vicinity. He said that the lands in question in August, 1869, when there was a good deal of speculation going on, and "with the attraction he had seen, might have been sold for $40,000 or $50,000." On cross-examination he explains that he had been over a part of the lands with a mining compass with a view to discovering minerals, and found the same vein of ore cropping out that was on his own land. Of course, he answers that the value was speculative from the necessity of the situation. We do not think there was error in receiving the testimony of these witnesses. Its force was, perhaps, intensified by the fact that the mining engineers called for the defense, while speaking quite favorably of the property, do not venture to put a value upon it, and by the circumstance that the Kingdom Ore Company sold it to Remington on the 12th of August, 1869, for ten thousand shares of stock and $200,000 of bonds of the Iron Mountains Company, and that Remington in his deed to the latter company expressed the consideration at $600,000.
The judgment should be affirmed with costs.