PER CURIAM. Plaintiff sued for the purchase price of two lots of goods delivered to defendant. The defense consisted of the claim that these goods were part of one order, of which two other lots, not delivered, formed an intrinsic part. That was substantially the one issue litigated.

There was introduced in evidence by defendant an unsigned memorandum, as its Exhibit 1, made by plaintiffs' salesman on a piece of paper, in which all four lots were enumerated. After having retired to deliberate, the jury asked, "Is defendant's Exhibit 1 a contract in itself?" to which the court replied, "No." Later the jury asked, “We wish to know whether this order slip, marked 'Exhibit 1,' is a confirmation of an order, and is it legally binding on both parties concerned?" to which the court replied, "Yes." To such reply, plaintiffs' counsel excepted.

It is perfectly clear that Exhibit 1 was a mere private memorandum, which was, as the court had correctly charged, not a contract, and equally it was not a confirmation of an order, and was not legally binding on any one. The error related to a vital point in the controversy, and was practically determinative of the issue.

Judgment reversed, and new trial granted, with costs to appellants to abide the event.

(86 Misc. Rep. 52)

MENDETZ et al. v. S. N. WOOD & CO.

(Supreme Court, Appellate Term, First Department. June 18, 1914.) 1. SALES (§§ 62, 180*)-PARTIAL ACCEPTANCE-EFFECT.

Where several lots of clothing were sold upon a single order and on one bill, and all delivered at one time, the contract was indivisible, and the acceptance by defendant of part of the goods constituted an acceptance of the whole.

[Ed. Note.-For other cases, see Sales, Cent. Dig. §§ 171–179, 469-472; Dec. Dig. §§ 62, 180.*]

2. EVIDENCE (§ 21*)-JUDICIAL NOTICE-CUSTOM-VALIDITY-CONTRAVENTION OF RULE OF LAW.

Judicial cognizance cannot be taken of a custom of the trade that parts of a single shipment might be returned, if they did not conform to agreement, because such custom contravenes an established rule of law.

[Ed. Note.-For other cases, see Evidence, Cent. Dig. § 25; Dec. Dig. § 21.*]

Appeal from City Court of New York, Trial Term.

Action by Harry J. Mendetz and another against S. N. Wood & Co. Judgment for defendants, and plaintiffs appeal. Reversed, and new trial granted.

Argued June term, 1914, before SEABURY, BIJUR, and PAGE, JJ. Morris & Samuel Meyers, of New York City (Samuel Meyers and Henry Swartz, of New York City, of counsel), for appellants. Stephen Van Wyck, of New York City, for respondents.

BIJUR, J. Plaintiffs, upon a single order and on one bill, including all the items, sold defendants several lots of clothing. Plaintiffs de

*For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

livered them all at one time. Defendants retained the major portion, but returned one entire lot and a part of items out of every other lot, claiming that they were not as agreed.

[1] The chief point raised by plaintiffs appellants is that the contract was a whole and indivisible, and that the acceptance by defendants of part of the goods constituted an acceptance of the whole. The learned judge below, in a memorandum on the denial of the motion for a new trial, cites Ming v. Corbin, 142 N. Y. 334, 37 N. E. 105, as justifying the application of the contrary doctrine; but I find nothing. in that case to warrant that view. On the contrary, the doctrine seems to be well recognized in that case; but the conduct of the parties, and particularly their communications, are held to have indicated plainly an intention to separate the two classes of securities there sold. Furthermore, even by the original contract they were to have been delivered at entirely different times.

[2] Defendants in the case at bar sought to overcome the application of the doctrine of a single contract, by offering evidence-which was duly objected to-of a custom of the trade that parts of a single shipment might, if they did not conform to agreement, be returned. Apart from the fact that, on the record, the custom was not sufficiently proved, it was not, I think, a custom of which judicial cognizance can be. taken, because it would contravene an established rule of law. See Hopper v. Sage, 112 N. Y. 530, 20 N. E. 350, 8 Am. St. Rep. 771. Judgment reversed, and new trial granted, with costs to appellants to abide the event. All concur.

(85 Misc. Rep. 184)

WILLIAMS v. McCLAVE et al.

(Supreme Court, Special Term, New York County. April, 1914.) 1. CORPORATIONS (§ 542*)-FRAUDULENT ACTS-EXORBITANT SALARIES.

Where a corporation, organized by the heirs to take over the business of a person deceased and to assume all liabilities of such business, proposed to pay salaries which were large as compared with the earnings of the corporation and services rendered, such proposition was fraudulent as to creditors of the corporation.

[Ed. Note. For other cases, see Corporations, Cent. Dig. §§ 2154-2160; Dec. Dig. § 542.*]

2. CORPORATIONS (§ 61*)-FRAUDULENT ACTS-OVERCAPITALIZATION.

An overcapitalization of a corporation for the purpose of procuring credit is fraudulent.

[Ed. Note. For other cases, see Corporations, Cent. Dig. § 163; Dec. Dig. § 61.*]

3. CORPORATIONS (§ 547*)-BANKRUPTCY-ACCOUNTING BY OFFICERS RIGHT OF ACTION.

Where those in control of a corporation vote exorbitant salaries and overcapitalize in fraud of creditors, a court of equity may grant relief with respect to such transactions in an action by a trustee in bankruptcy of the corporation for an accounting.

[Ed. Note. For other cases, see Corporations, Cent. Dig. §§ 2178-2181; Dec. Dig. § 547.*]

*For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

Action by Alexander S. Williams as trustee in bankruptcy, etc., against Charlotte McClave and others, for an accounting. Judgment for plaintiff.

Weed, Henry & Meyers, of New York City, for plaintiff.

Wilder, Ewen & Patterson, of New York City, for defendants.

COHALAN, J. [1, 2] Plaintiff, as trustee in bankruptcy, sues the defendants, as directors, officers, and stockholders of the McClave Lumber Company, for an accounting. The corporation was organized on the 9th day of May, 1907. It took over all the assets and property of the business theretofore conducted by John McClave, deceased, and it was to assume all the liabilities of that business. The value of the business was fixed at $150,000, and stock in that amount was issued, Charlotte L. McClave receiving 1,497 out of the 1,500 shares, and her three sons receiving one share each. It was agreed that Mrs. McClave was to receive a salary as the vice president of the corporation of $12,000 per year, for which she was to render no service. S. Wood McClave and John McClave were each to receive salaries of $5,200 per year, and Charles L. McClave was to get a salary of $3,900 per annum. While the property received was valued at $150,000, as a matter of fact the tangible gross assets transferred to the corporation amounted to $42,889.50, against which there were liabilities amounting to $29,954.42; this left a surplus of only $12,937.08 to apply against. the $150,000 subscription price of the stock. The difference of $137,062.92 apparently covered the value of the good will. However, the only testimony introduced concerning such value was that it amounted to the sum of $90,000. There was testimony that a parcel of real estate was also used to account for part of this balance. This property, however, was not owned by the transferror, but it was held by the executors of the estate of John McClave individually, and subsequently the corporation paid the sum of $800 for this realty. It was entered in the books as having a value of $13,600, against which there was a mortgage for $12,800. The company on the day of its incorporation rendered a statement to the credit department of the National Wholesale Lumber Dealers' Association, in which this real estate was listed in the sum of $35,000, against which was shown the mortgage for $12,800. This is the same property for which the company one year later paid $800, and which was entered on its books as having a gross value of only $13,600. Plaintiff asserts that the agreement, pursuant to which these transactions occurred, constituted a conspiracy to incorporate the business with a fictitious amount of capital stock, so that it should have a false basis of credit; that as a result of such incorporation S. Wood, John, Charles L. and Charlotte L. McClave should vote themselves excessive and unlawful amounts of salary. The executive officers, before incorporation, received salaries amounting to $13,000 per annum. When the corporation was formed it commenced under a salary burden of $26,300 per annum, of which $12,000 was paid to Charlotte L. McClave for no services rendered. At this time there were creditors in the amount of $29,952.42, with a surplus of assets over liabilities of $12,937.08. In the first year the corpora

Sup. Ct.)

WILLIAMS V. M'CLAVE

tion made $12,128.24, but in the same period its liabilities rose to $32,497.73. In the year ending May 9, 1909, the losses amounted to $22,270.21. Of the $26,300 in salaries paid in that year only about $4,000 were actually earned, and the balance was paid out of the capital assets of the corporation. The company continued to lose business until the liabilities rose to $71,015.04. Yet large salaries were paid and Christmas gifts were voted to all the McClaves in the sum of $100 each. I am constrained to hold, in view of the evidence adduced in this case, that the proposition to pay these large salaries, irrespective of the earnings of the corporation, was fraudulent as against the corporation and its creditors, as was also the overcapitalization of the company for the purpose of procuring credit. Two cases are distinctly in point. In Hazard v. Wight, 201 N. Y. 402, 94 N. E. 855, 856, the court said:

"It is the established law of this state that the capital of a corporation is regarded as a substitute for the personal liability which subsists in private ownerships and as a fund set apart and pledged for the payment of its debts. While a corporation is continuing its business, seeking credit and incurring liabilities, or while, after it has ceased to do business, it has outstanding liabilities, its directors or stockholders cannot lawfully, and with immunity from personal liability to the corporation, reduce the capital, which is the product of its capital stock as certified in its incorporating certificate, by appropriating or squandering it or giving it away."

In Ward v. City Trust Co., 192 N. Y. 74, 84 N. E. 585, 589, the court said:

"As was well said in the dissenting opinion below, to which we are greatly indebted: 'Primarily, the capital of a corporation is held for the protection of its creditors, and is impressed with a trust in their behalf, and the directors cannot lawfully, nor can the stockholders, divert the funds of a corporation to the individual use of its members, if thereby the capital is impaired and the corporation rendered insolvent.'"

[3] A court of equity has power to inquire into transactions such as are herein presented, and to grant relief with respect to them in an action for an accounting. Bosworth v. Allen, 168 N. Y. 157, 61 N. E. 163, 55 L. R. A. 751, 85 Am. St. Rep. 667. In this case the presumption of fraud arises without the imputation of moral turpitude. There is shown herein an example of filial care and affection which may have prompted the sons of John McClave to make a certain and substantial provision for his widow and their mother. This is enough to excite sympathy for her, especially since her property has been swept away. However, the principle is that persons must be just before they are generous, and that the debts of a corporation must be paid before gifts may be made. Bull v. Bray, 89 Cal. 286, 26 Pac. 873, 13 L. R. A. 576; Bosworth v. Allen, supra. It may be that some of the salaries paid were fair and reasonable, but that is a matter for determination on the acounting. Judgment is directed for the plaintiff, and the defendants are ordered to account with reference to the assets of the corporation.

Judgment for plaintiff.

(85 Misc. Rep. 189)

PELHAM OPERATING CO. v. FORTY-SECOND ST. & MADISON AVE.

CO. et al.

(Supreme Court, Special Term, New York County. April, 1914.)

MECHANICS' LIENS (§ 254*)-ACTION TO FORECLOSE-JUDGMENT.

An owner, under an agreement reciting that on completion of certain work there would be a balance due the contractor, gave its note for $2,500 to the contractor, who indorsed it to a subcontractor, with the understanding that if the contractor did not complete the work, or if a less amount than the face of the note was due the contractor on completion of the work, the subcontractor should hold the maker of the note responsible for only so much of the work as was done. The contractor did not complete the work, and the subcontractor discounted the note at a bank without notice of the agreement. Neither the note nor the agreement was ever filed in the proper county clerk's office, as required by Lien Law (Consol. Laws, c. 33) § 15. Payment of the note was enforced by the indorsee, but before maturity of the note and prior to its payment plaintiff had filed his lien. Held, that plaintiff was entitled to a judg ment establishing his lien, and to a personal judgment against the contractor for any deficiency.

[Ed. Note. For other cases, see Mechanics' Liens, Cent. Dig. §§ 447, 448; Dec. Dig. § 254.*]

Action by the Pelham Operating Company against the Forty-Second Street & Madison Avenue Company and others to foreclose a mechanic's lien. Judgment ordered for plaintiff.

T. W. Foster, of New York City, for plaintiff.

Ferriss & Storck, of New York City, for defendants.

COHALAN, J. Action to foreclose a mechanic's lien. The defendant Forty-Second Street Company is the only defendant that has interposed a defense. There are two matters for determination: (1) Has the plaintiff performed the labor of the character and value set forth in its amended complaint? and (2) is the defendant Forty-Second Street Company entitled to credit itself as against the plaintiff with an item of $2,500 as a payment for the work actually performed? The proof satisfactorily shows that work to the value of $1,070 was performed, that the amount paid on account was the sum of $214.51, and that the balance due the plaintiff amounts to $855.64.

The facts with regard to the main proposition are these: The defendant Forty-Second Street & Madison Avenue Company, the owner of the premises, entered into an agreement with the Macolithic Concrete Company to do certain concrete work in the construction of the building. On the 3d day of April, 1913, the Pennsylvania Cement Company, the Forty-Second Street Company, and the Macolithic Company entered into an agreement, reciting an indebtedness of the Macolithic Company to the Pennsylvania Cement Company. The further terms expressed therein were that upon the completion of the work there would be a balance due the Macolithic Company from the FortySecond Street Company; that the Forty-Second Street Company should give to the Macolithic Company its note for $2,500 of that date, payable in one month; that this note was to be indorsed by the Maco*For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes