235 A.D. 189 | N.Y. App. Div. | 1932
This action is brought by plaintiff to obtain equitable relief from the alleged illegal and fraudulent acts of the individual defendants in increasing the capital stock of the defendant Amasia Importing Corporation from $50,000 to $100,000, and that the acts of said individual defendants be declared illegal and of no effect; that the individual defendants be required to surrender to the corporation for cancellation the shares of said increased stock issued to said individual defendants or their nominees; that the defendant Amasia Importing Corporation be enjoined from in anywise dealing in or issuing any of the shares of stock of the new issue still remaining in the treasury; that there be filed with the Secretary of State and clerk of the county of New York a certificate canceling the certificate increasing the capital stock of the corporate defendant, and that all of the defendants be enjoined, during the pendency of the action, from hypothecating, transferring or otherwise dealing in the said shares of stock.
Plaintiff bases his demand for equitable relief on three causes of action set forth in the amended complaint. By the order appealed from the Special Term found that the plaintiff had failed to state facts sufficient to constitute a cause of action in any one of said causes of action.
As a first cause of action plaintiff alleges the incorporation of the defendant Amasia Importing Corporation pursuant to the laws of the State of New York, and that the plaintiff was, at all times
As a second cause of action plaintiff realleges the incorporation of the Amasia Importing Corporation and his ownership of 150
As a third cause of action plaintiff repeats the allegations contained in the first cause of action as to the incorporation of the defendant corporation and his ownership of the original shares of the defendant corporation, and that on or about June 23, 1930, the individual defendants, by the exercise of their stock control of the defendant corporation, ousted plaintiff as a director and treasurer thereof. Plaintiff alleges that the increase of the capital stock of the defendant Amasia Importing Corporation, consummated by the individual defendants as aforesaid, was wrongful and fraudulent and was an abuse of the trust and confidence reposed in them by reason of the plaintiff’s absence on corporate affairs, and that said contract and the said capital change was in no way prompted, motivated or necessitated by the business needs of said corporation, but was perpetrated for the fraudulent purpose and with the wrongful intent of depriving plaintiff of his just and proper share of the assets, surplus and control of the Amasia Importing Corporation, to the unjust and improper enrichment and benefit of the individual defendants.
For the purpose of this motion the facts alleged and set forth in the causes of action contained in the amended complaint must be deemed to be true. Assuming the facts as alleged to be true, we are of the opinion that the plaintiff set forth facts sufficient to constitute a cause of action against the defendants in each of the three causes of action alleged in the amended complaint. The first cause of action is based upon the failure of the defendants to give notice of the proposed increase of the capital stock of the corporate defendant to plaintiff herein, and of the meeting of the stockholders at which such increase was effected. The provisions of the Stock Corporation Law clearly require the giving of notice to each stockholder of a corporation of notice of a proposed increase in the capital stock of the corporation. The original shares of stock had a par value of $100 each. The increased shares were also given a par value of $100 each. Subdivision A of section 36 of the Stock Corporation Law relates to the increase or reduction of the amount of the capital stock of a corporation where all of the capital stock is divided into shares having a par value. Subdivision C of section 36 (as amd. by Laws of 1924, chap. 441) relates to the increase or reduction of the number of its shares, and provides that if the number of shares be increased, the new shares may be either with or without par value. Section 35 of the Stock Corporation Law provides for the filing with the Secretary
“ (a) That they have been authorized to execute and file such certificate by the votes, cast in person or by proxy, of the holders of record of a majority of the outstanding shares entitled to vote thereon if the change be made under subdivision (A), (C) or (I) of section thirty-six, * * *;
“ (d) That such votes were'cast at a stockholders’ meeting held on a date specified, upon notice pursuant to section forty-five of the Stock Corporation Law.” (Italics are the writer’s.)
Section 45 of the Stock Corporation Law (as amd. by Laws of 1924, chap. 441) provides as follows:
" § 45. Notice of meetings of stockholders. Whenever under the provisions of this chapter stockholders are required or authorized to take any action at a meeting, the notice of the meeting shall" be in writing and signed by the president or a vice-president or the secretary or an asistant secretary. Such notice shall state the purpose or purposes for which the meeting is called and the time when and the place within the State where it is to be held, and a copy thereof shall be served, either personally or by mail, upon each stockholder of record entitled to vote at such meeting, and to any stockholder who, by reason of any action proposed at such meeting, would be entitled to have his stock appraised if such action were taken, not less than ten nor more than forty days before the meeting. If mailed, it shall be directed to a stockholder at his address as it appears on the stock-book unless he shall have filed with the secretary of the corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. The by-laws may require that such notice be also published in one or more newspapers.”
It would seem from these statutory provisions that notice of the proposed increase was required to be served upon each stockholder. Failure to give such notice clearly invalidated the attempted increase. (Matter of Wheeler, 2 Abb. Pr. [N. S.] 361; Farmers’ & Traders Bank v. National Laundry & Linen Supply
The second cause of action clearly alleges contract obligations on the part of the defendants which, by their action, they violated to the damage of the plaintiff.
The third cause of action is based upon the alleged fraudulent acts of the defendants whereby, at the expense of the plaintiff and in violation of his rights, his interest in the defendant corporation was substantially reduced to the gain and enrichment of the individual defendants. We think, the facts set forth in the third cause of action sufficiently show a breach of fiduciary relationship on the part of the defendants to plaintiff. There is no doubt •that the action of the defendants in doubling the capital stock of the defendant corporation substantially reduced the value of the plaintiff’s share in the enterprise and correspondingly increased that of the defendants. In our opinion there was a plain breach of duty on the part of the defendants in increasing the said capital stock for their benefit and to the damage of plaintiff. (Witherbee v. Bowles, 201 N. Y. 427; Kavanaugh v. Kavanaugh Knitting Co., 226 id. 185.)
We are of the opinion that the Special Term erred in dismissing the plaintiff’s amended complaint, and that, as to each of the causes of action therein alleged, facts were set forth sufficient to constitute a cause of action.
The order appealed from should be reversed, with ten dollars costs and disbursements, and the defendants’ motion denied, with ten dollars costs.
Finch, P. J., O’Malley, Sherman and Townley, JJ., concur.
Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.