App. Div.]

FIRST DEPARTMENT, APRIL TERM, 1903.

unable to show any other facts than those stated in his complaint, the exhibit annexed and in the opening- the material parts of which are set forth in the statement of facts- malice not having been alleged, should not be inferred if the facts are open to an inference of good faith, and we think they are.

One of the principal objects of the Coffee Exchange was to provide for the speedy and inexpensive determination by arbitration of controversies between its members for the purpose of saving the delay and expense incident to an appeal to judicial tribunals. The plaintiff's fellow-members of the exchange on this arbitration erred in their view of his rights, as did likewise the respondents as members of the board of managers. Of course the respondents acted with full knowledge of the plaintiff's claims as to his rights; but it is manifest that they believed that it was his duty to accept the decision of the arbitrators and that the proper discipline of the members of the exchange required that he should be suspended for failing to do so. It does not appear that they proceeded in disregard of any by-laws of the exchange. It is conceded that they had power to suspend members for cause, and that if they had heard the plaintiff and then suspended him no action would lie. The appellant's contention apparently is that the respondents acted without jurisdiction. It appears that the suspension of the plaintiff arose incidentally out of the arbitration proceeding concerning the grading of the coffee and the enforcement of the contract as between the members. It is not denied that these proceedings originated in accordance with the by-laws of the exchange and that the plaintiff had full knowledge and such notices as were required and provided for by the by-laws or rules of the exchange. He actually received two days' notice of the hearing which resulted in his suspension. The fair inference is, although the fact is not specifically alleged or stated, that the method of enforcing the arbitration is by the suspension or expulsion of the member, and that this action may be taken by the board of managers upon the report of the adjudicators when there is no denial of the fact that the member refuses to be bound by their determination. Manifestly, the contingency which arose in this case was not foreseen, and apparently no provision had been made for permitting the member to show by formal testimony that the condition of the coffee was such that it could not

FIRST DEPARTMENT, APRIL TERM, 1903,

[Vol. 82. be lawfully dealt in under the laws of this State. The court in the mandamus proceeding decided, regardless of any by-law of the corporation, that the plaintiff before being suspended was not only entitled to be heard, but to show in defense of his action the illegal character of the coffee which it was proposed to require him to accept, and that he could not be suspended for refusing to accept adulterated coffee. (Matter of Lurman, 90 Hun, 303; affd., 149 N. Y. 588.) At first view, the conduct of the respondents would seem to have been arbitrary, but it is not improbable that they regarded the action of the appellant in refusing to abide by the decision of the adjudicators as tending towards insubordination and calling for discipline. They may very well have supposed that the effect of their charter and their by-laws was that their members submitted absolutely and finally to the decision of their fellow-members of the exchange upon questions concerning their contracts and dealings with one another; and doubtless that had been the history of the exchange, for we know of no instance where such a question has been previously presented to the courts for review. If the respondents proceeded wholly without jurisdiction it may be that they would be liable for any legal damages sustained by the plaintiff in his property rights as the direct result of their illegal acts, upon the principle that subordinate officers even though acting in a quasi judicial capacity are bound to see that they act within their authority, and good faith does not protect them in assuming jurisdiction which they have not. (New York Milk Products Co. v. Damon, 57 App. Div. 261; affd., 172 N. Y. 661; City of New York v. McLean, 170 id. 374; Miller v. City of Amsterdam, 149 id. 288; Mygatt v. Washburn, 15 id. 316; Matter of Leggat, 162 id. 437.) But it appears that they had jurisdiction to hear the charges against the appellant and he had notice of the hearing. Having jurisdiction and it being their duty to act they failed, through ignorance of their duties, to fully exercise it and in effect refused to hear and consider evidence which if heard and considered would upon the law have precluded the action taken by them. And it being the duty of respondents to act, this brings the case fairly within the rule that those acting in a quasi judicial capacity are not liable for errors of judgment in erroneous decisions in determinations affecting the personal or property rights of others in the absence of malice.

App. Div.]

FIRST DEPARTMENT, APRIL TERM, 1903.

(Harman v. Tappenden, 1 East, 555; Barhyte v. Shepherd, 35 N. Y. 238; Jenkins v. Waldron, 11 Johns. 114; Porter v. Haight, 45 Cal. 631; Downer v. Lent, 6 id. 94; Ackerley v. Parkinson, 3 Maule & S. 411; Jones v. Brown, 54 Iowa, 74; Handshaw v. Arthur, 9 App. Div. 175; affd., 161 N. Y. 664.)

As shown in the statement of facts, the plaintiff's main purpose in bringing the action is to recover damages for injury to his business reputation, and his counsel likens the action to one for slander or libel. These actions, however, are based upon malice which sometimes has to be affirmatively shown, and in other instances it is presumed from the nature of the wrongful act. The same is true of actions for malicious prosecution and false arrest and imprisonment. We know of no class of actions where damages to one's character or reputation are recoverable in the absence of malice, express or implied. But however the rule may be in other cases, we see no propriety in permitting a recovery for damages to the plaintiff's business reputation on the facts of this case, there being no malice alleged or facts stated from which it should fairly be implied. (Harman v. Tappenden, 1 East, 555.)

The plaintiff also alleges as an item of damage counsel fees and other incidental disbursements incurred in instituting the mandamus proceeding to procure reinstatement. We do not understand that this claim embraces the costs and disbursements allowed and taxed in the mandamus proceedings which have been awarded against the exchange itself and were undoubtedly paid. Where the gravamen of an action is malice, as, for example, malicious prosecution or false arrest or imprisonment, the counsel fees necessarily incurred by the plaintiff in the former action are recoverable. (8 Am. & Eng. Ency. of Law [2d ed.], 675; Sheldon v. Carpenter, 4 N. Y. 579; Williams v. Garrett, 12 How. Pr. 456.) In an action upon an undertaking for an injunction or attachment where the recovery of such damages is fairly contemplated by the statute and contract, in actions for breach of covenants of warranty and indemnity and in contempt proceedings, counsel fees are also recoverable. (Andrews v. Glenville Woolen Co., 50 N. Y. 285; Rose v. Post, 56 id. 603; Tyng v. American Surety Co., 69 App. Div. 137; Crounse v. Syracuse, C. & N. Y. R. R. Co., 32 Hun, 497; Dubois v. Hermance, 56 N. Y. 673; Jewelers' Agency v. Rothschild, 6 App. Div.

FIRST DEPARTMENT, APRIL TERM, 1903.

[Vol. 82. 499; Sedg. Dam. [8th. ed.] § 237; 8 Am. & Eng. Ency. of Law [2d ed.], 673, 675, 677.) The rule is well settled in this State, however, that disbursements for counsel fees are not ordinarily recoverable as damages for a breach of contract, or even of a statutory duty or in common-law action for tort in the absence of malice. (Bishop v. Hendrick, 82 Hun, 323; affd. on opinion below, 146 N. Y. 398; Clason v. Nassau Ferry Co., 20 Misc. Rep. 315; affd., 27 App. Div. 621; Hicks v. Foster, 13 Barb. 663; Lincoln v. Saratoga & Schenectady R. R. Co., 23 Wend. 425; Mattlage v. N. Y. El. R. Co., 17 N. Y. Supp. 536.) We think it clear, therefore, that counsel fees and other incidental disbursements in the action, not taxed as costs or disbursements, are not recoverable.

The only other loss alleged to have been sustained by the plaintiff is the payment of his annual dues for the year during which he was suspended, and this is not specifically alleged as an item of damages. The payment of these dues was not caused by the suspension. They were the ordinary dues levied upon each member presumably pursuant to the by-laws of the exchange. Consequently this item would not be recoverable as damages, at least unless it were shown that damages were suffered on account of the appellant being deprived of the privileges of membership, and such damages were so speculative as to be incapable of ascertainment with sufficient definiteness and certainty to be specially pleaded, proved and recovered. It is not so alleged in the complaint.

We, therefore, find no aspect of the case which would justify a recovery. It follows that the judgment should be affirmed, with

costs.

O'BRIEN, MCLAUGHLIN and HATCH, JJ., concurred; VAN BRUNT, P. J., concurred in result.

Judgment affirmed, with costs.

App. Div.]

FIRST DEPARTMENT, APRIL TERM, 1903.

GEORGE EDWIN JOSEPH, as Trustee in Bankruptcy of MUTUAL MERCANTILE AGENCY, Respondent, v. NORMAN C. RAFF, Appellant.

Bankrupt corporation — action by the trustee to set aside an agreement consummated five months before the filing of the petition in bankruptcy — agreement by which a corporation, in order to induce its president to resign, purchased the stock held by the president and paid money to him— estoppel of the corporation.

When a corporation becomes insolvent or it becomes apparent to the directors thereof that it will be unable to continue business, so that suspension is imminent or inevitable, the corporate assets become a trust fund for equal distribution among the creditors, and the directors must hold the assets for that purpose, and have no right to appropriate the same in payment of their individual claims.

A corporation which expected to receive its principal revenue from a book in course of publication found itself unable to pay its current obligations in cash as they became due. It was then decided to elect as president of the corporation a person who had agreed that he and his friends would subscribe for capital stock to the extent of $300,000. In order to permit this plan to be perfected, the board of directors of the corporation entered into an agreement with the then president thereof which provided that, in consideration of the tender by the latter of his resignation as president and director, the corporation would purchase his stock for a certain sum in cash; that it would also give him notes for the amount of the salary due to him and other notes for a certain amount as liquidated damages for the termination of his contract of employment. The agreement was made in entire good faith and in the honest belief that the corporation was solvent and would be able to continue business. Five months after the consummation of the agreement a petition in bankruptcy was filed by the corporation and a trustee of its property was appointed, who brought an action to set aside the agreement.

Held, that the agreement was valid;

That under the circumstances the corporation might purchase its own stock with the purpose of immediately reissuing it;

That, even were the purchase illegal, the corporation would be estopped to repudiate it when it was not able to restore the vendor to the position he was in before the sale.

APPEAL by the defendant, Norman C. Raff, from a 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 26th day of December, 1902, upon the decision of the court, rendered after a trial at the New York Special Term, setting aside as void and fraudulent certain transfers and payments made to the defendant.