Brooklyn Heights Realty Co. v. Kurtz

100 N.Y.S. 723 | N.Y. App. Div. | 1906

Lead Opinion

Hooker, J.:

In this action by the plaintiff corporation against its former' directors for an .accounting for waste, I am entirely satisfied that the reasons assigned by the learned Special Term in support of the judgment in plaintiff’s fávor and the judgment itself were proper, and the latter should .be affirmed, except as to the defendant Clarence B. Knott.

The judgment provides that the complaint be dismissed without costs against him provided he cancel his contract with the plaintiff and waive all claim for unpaid salary against it; that he retain the $2,800 theretofore received by him on account of services as payment therefor ; otherwise that his contract be declared canceled and he account to the plaintiff. From the judgment which contains this provision, defendant Knott has appealed.

The corporation was formed for'the purpose of acquiring property and building and operating a hotel thereon. All of the wrongful acts complained of by the plaintiff, except the execution of the contract with Knott, were .done by the defendants as directors and' individuals, long prior to the time that Knott became a member of the board of directors. For .a period of several months before lie was elected to the directorate, lie had been consulted in respect to the many details necessary to be observed- incident to the erection of the hotel. He was a practical hotel man of much- ability and wide reputation.' Prior to May 12, 1963, á proposed contract had been drawn up'between the. corporation and Knott, in which it was contemplated that the latter should render-all necessary services in relation to the erection of the hotel and that he should be. employed as manager thereof, for a period of ten years after .it had been completed. It seemed to be contemplatedtin good faith when the contract was made that, the hotel should be completed by January 1, 1904. Knott was to. be paid $460 a month tip "to that time and' until the expiration of ten years after its opening ten per cent of the profits of. the- hotel, with a guaranty that his share of these ■profits should amount to not less than $7,500 per year. The contract was discussed at the meeting on May 12, 1903, and the officers Were directed' to execute it. This was done, and thereafter at the same meeting Knott was elected a. director. The hotel has never been completed.. At the time of the trial, on the 21st day of March, 1905, Knott had been paid the sum of $2,800 on account of the. contract. An agreement of this kind with a practical hotel man, made and executed -within eight months of the date it was expected' the hotel would be completed, ivas not unusual and certainly not a breach of the faith the directors owed the stockholders, Bona fides on the part of Knott is' strongly shown by the circumstance that during the period he was to receive pay before the building, was to be completed-, he laid out and expended in the interest of the cor- ■ poration several hundred dollars personally. Hothing in the evidence points to any wrongful intent or act on his part either in respect to the formation of the contract or in respect to the delay in completing the hotel. The objection that the plaintiff would be mulcted in the sum of $7,596 a year, the payment of salary under this contract, until the expiration of ten years after the hotel is completed, cannot as a practical proposition in this case obtain, for the reason that at the close of the evidence the defendant Knott consented to a judgment canceling his contract with the corporation and to a withdrawal of his suit for salary then pending, provided the plaintiff would allow a judgment against it for the amount of salary due Knott at that date. This offer is.reiterated on the presentation of his appeal before this court. There may, of course, be defenses to Knott’s action against the corporation ; on that subject we are not advised. But prima facie he has a property right in the benefits he may have acquired under the contract, and' we may not in this action adjudge that lie has forfeited them, in the absence of proof that he acquired them, through a breach of the trust he owed to the stockholders of the corporation.

The judgment should be reversed as to Knott and the complaint dismissed against him, with costs against the plaintiff. In other respects the judgment should be affirmed, with costs.

Hirschberg, P. J., and Woodward, J., concurred; Miller, J., dissented in separate memorandum and voted for a further modification, with whom Jenks, J., concurred.

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Dissenting Opinion

Miller, J. (dissenting):

Assuming that the judgment is in other respects supported by the findings, it is at least inconsistent in that it adjudges the issue of the so-called collateral stock illegal and void, and validates such stock in the hands of the defendant Peed, who had full knowledge of all the facts respecting its issue, is adjudged guilty of misconduct in respect thereto, and received it not from the corporation, but from the defendant Kurtz, under an agreement that said Kurtz would repurchase the same within ninety days.

Jenks, J., concurred.

Judgment as to the defendant Knott reversed and complaint dismissed as against him, with costs, and as so modified affirmed, with costs.