146 N.Y.S. 813 | N.Y. App. Div. | 1914
Lead Opinion
Action by a stockholder of the United States Lithograph '■ Company, a Hew Jersey corporation, on behalf of himself and other stockholders similarly situated, to recover in the name of the corporation damages for the payment of unauthorized
The United States Lithograph Company was organized under the statutes of New Jersey on the 2d day of May, 1901, with an authorized capital of $3,200,000 preferred and $3,300,000 common stock, of which plaintiff is the owner of forty-nine shares of the preferred of the par value of $4,900. On April 27,1908, the corporation was duly authorized to do business in the State of New York, where it has since maintained offices, held directors’ meetings and performed all the, acts of which complaint is made.
The complaint alleges that certain dividends' were declared during the years 1909, 1910 and 1911 by the individual defendants acting as directors, and the same were paid out' of the capital stock of the corporation contrary to the laws and statutes of the State of New Jersey, and sections 28 and 70 of the Stock Corporation Law of the State of New York, and that by reason thereof the corporation has been damaged to the extent of $300,000, for which judgment is demanded in its favor against the defendants.
Section 30 of the General Corporation Law of New Jersey is set forth as it existed at the time of the incorporation of the lithograph company and as amended in 1904. This statute, as it existed at the time of the incorporation, provided: “ No corporation shall make dividends except from the surplus or net profits arising from its business * * * and in case of any violation of the provisions of this section the directors under whose administration the same may happen shall be jointly
As amended in 1904 it provides: “The directors of a corporation shall not make dividends except from its surplus or from the net profits arising from the business of such corporation. * * * in case of any wilful or negligent violation of the provisions of this section, the directors under whose administration the same may have happened * * * shall jointly and severally be liable * * * to the stockholders of such corporation, severally and respectively, to the full amount of any loss sustained by such stockholders, or in case of insolvency to the corporation or its receiver * * *.” (See N. J. Laws of 1904, chap. 143; 2 N. J. Comp. Stat. 1617, § 30.)
Section 28 of the New York Stock Corporation Law as it existed at the time the dividends were made and this action commenced, provided: “The directors of a stock corporation shall not make dividends except from the surplus profits arising from the business of such corporation * * *. In case of any violation of the provisions of this section the directors under whose administration the same may have happened * * * shall jointly and severally be liable to such corporation and to the creditors thereof * *
Section 70 provided: “Except as otherwise provided in this chapter the officers, directors and stockholders of a foreign stock corporation transacting business in this State, except moneyed and railroad corporations, shall be liable under the provisions of this chapter, in the same manner and to the same extent as the officers, directors and stockholders of a domestic corporation, for: 1. The making of unauthorized dividends * * *. Such liabilities may be enforced in the courts of this State, in the same manner as similar liabilities imposed by law upon the officers, directors and stockholders of domestic corporations.” (See Consol. Laws, chap. 59 [Laws of 1909, chap. 61], §§ 28, 70.)
In Hutchinson v. Stadler (85 App. Div. 424) action was brought by a stockholder of a New Jersey corporation on behalf of himself and other stockholders similarly situated to recover, as here, a judgment for the corporation against directors who had paid dividends out of capital stock. The statute of New Jersey then in force was the one which existed
The question presented, therefore, is whether in view of our
There is no allegation in the complaint that the plaintiff has individually been damaged and there could not well be because he does not sue in the right of any individual claim, but solely in the alleged right of the corporation itself, which right was taken from the stockholders by the amendment of 1904, nor is there any allegation that the corporation is insolvent. The learned justice sitting at Special Term was of the opinion that the action could be maintained because plaintiff was merely seeking to enforce a right created by the statutes of New Jersey by means of a remedy to enforce the same by the State of New York. This view, it seems to me, is erroneous. The right here sought to be enforced is one created, not by the statute of the State of New Jersey, but by the statute of the State of New York. The right given by the statute of New Jersey is for the benefit of the individual stockholders and the one given by the State of New York for the benefit of the corporation — different causes of action, requiring different evidence to establish, and for which different relief must be given. Reading section 28 of the Stock Corporation Law of this State in connection with section 70 thereof, it seems to me the only right intended to be given, or liability to be imposed upon the directors of a foreign stock corporation, other than a moneyed or railroad corporation, for making unauthorized dividends is the same liability or obligation as that imposed by the statute of the State from which the corporation received its charter. Force is given to this view when these two sections are read in connection with section 84 relating to the filing of reports, and sections 14 and 15 relating to combinations and mergers.
The State of New York has for many years recognized that the internal management- of a foreign corporation should be left entirely to the State of its origin. (Marshall v. Sherman, 148 N. Y. 9; Knickerbocker Trust Co. v. Iselin, 185 id. 54;
The complaint, in my opinion, does not state a cause of action, and for that reason the order appealed from should be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs, with leave to the plaintiff to amend within twenty days on payment of said costs.
Clarke and Hotchkiss, JJ., concurred; Ingraham, P. J., and Scott, J., dissented.
Dissenting Opinion
The plaintiff, suing on behalf of himself and other stockholders of the defendant, the United States Lithograph Com
The demurrer admitting the facts alleged in the complaint, the declaration of this dividend was clearly a violation of the provisions of the General Corporation Law of the State of New Jersey, and the directors of the corporation, therefore, were not authorized to declare and pay such dividend and the divi dend was, therefore, an “ unauthorized ” dividend. The liability imposed by the statute of the State of New Jersey for a violation of its statute is not attempted to be enforced in this action. The complaint does not allege damage to the plaintiff as stockholder as distinct from the corporation, nor does the complaint allege that the corporation is insolvent. Therefore, as long as the corporation had confined its operations to the State of New Jersey, its directors, for a violation of the statutes of New Jersey, could be held liable only as provided in the statutes of the State of New Jersey. The defendant corporation, however, has come into the State of New York, and as provided by law has obtained authority to do business within this State, has maintained "its offices here and has transacted its business in this State. It has, therefore, assumed the obligation to obey the laws of this State, and has subjected itself to such liability as the laws of this State impose upon foreign corporations coming into this State and transacting business here.
- To sustain this action the plaintiff must allege facts to show that under the laws of this State its directors have become responsible to the corporation to the amount of these dividends thus illegally declared in violation of the statutes of the State under which it received its right to exist and authority to do business. By section 28 of the Stock Corporation Law of New York (Consol. Laws, chap. 59; Laws of 1909, chap. 61), which re-enacted section 23 of the former Stock Corporation
When this New Jersey corporation came into this State, obtained permission to transact its business here and established its executive offices here, it acquired the rights of a domestic corporation to the protection of the laws of this State, to transact its business here, and to the substantial benefits that accrue to a domestic corporation. By its voluntary act and to secure to itself the benefits of recognition herein as a corporation duly authorized to transact its business here it necessarily accepted and subjected itself to the provisions of the laws of this State in relation to the regulation of its corporate affairs and to the obligations imposed upon such a foreign corporation by the laws of this State. It subjected itself to taxation, in accordance with the laws of this State; it subjected itself to such regulations as this State prescribed for the management and conduct of corporations acquiring authority to transact business here and to the imposition of such penalties or liabilities for a violation of the laws of this State in relation to the transaction of business as are imposed by the laws of this State. It was under no obligation to come here, to transact its business here, or to subject itself to the laws of this State. But when it voluntarily acquired the right to transact business here, it necessarily subjected itself to the regulations which this State has seen fit to impose upon corporations acquiring such privileges, and its officers, directors and stockholders, who brought this corporation here and performed on behalf of the corporation the duties of their respective offices, also subjected themselves to the provisions of law regulating their conduct as such directors and officers, assumed the obligation to the State to obey its laws in relation to the performance of their duties, and subjected themselves to the liabilities imposed for a violation of the laws of this State in the performance of their duties as officers and directors.
I assume that it could not be disputed that, if the laws of this State provided that the declaration of such unauthorized
It is to be noticed in construing the New Jersey statute that the prohibition is directed against the directors of the corporation and not against the corporation itself. The New Jersey statute provides that the directors of a corporation shall not make dividends except from the surplus or net profits arising from the conduct of the business of such corporation. By section 28 of the Stock Corporation Law of New York the prohibition is also directed against the directors of a stock corporation, and they are prohibited from making any such dividend. So, the action of these individual defendants, acting as directors of said corporation, was in violation of the laws of the State of New Jersey, wherein the corporation was incorporated, and the laws of, the State of New York, where it had been domiciled and had applied for and received permission of the authorities of New York to do business here. Thus, it seems to me, the question that is here presented is whether the State of New York has distinctly prohibited the directors of a foreign corporation from declaring a dividend in violation of the laws of the State which incorporated it, and whether the violation of such a statute exposes a director to the liability which the law of this State imposes upon the directors of a domestic corporation for a violation of its provisions, and if the laws of this
This question was examined in Hutchinson v. Stadler (85 App. Div. 424), and in that case I tried to establish that the liability of directors of a corporation neither rested upon the common-law liability of directors nor could liability of directors of corporations incorporated by another State, imposed by the laws of the State of their incorporation, be enforced in this State. But I came to the conclusion that this liability could be enforced under section 60 of the Stock Corporation Law of New Tork (Cen. Laws, chap. 36 [Laws of 1892, chap. 688], as added by Laws of 1897, chap. 384), which is now the provision of section 70 of the Stock Corporation Law of 1909. It is not necessary to repeat wh at I said in that case. The conclusion at which I then arrived has been confirmed by subsequent study as follows: *'£ Beading these two sections together, it would seem that it was the intention of the Legislature to impose upon the directors of a foreign corporation transacting business in this State a liability to the corporation for the amount of its capital divided among stockholders, when such dividend was prohibited by the State from which the corporation had received its charter.” That the State has power to impose upon foreign corporations coming into this State and its officers and directors such liability for a refusal to comply with the laws of this State is, I think, clear. (See Hovey v. De Long Hook & Eye Co., 147 App. Div. 881.)
Therefore, I think, there is a good cause of action alleged, and that the order should be affirmed, with ten dollars .costs and disbursements to the respondent.
Scott, J., concurred.
Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs, with leave to plaintiff to amend on payment of said costs.
See Gen. Laws, chap. 35 (Laws of 1893, chap. 687), §§ 15, 16, as respectively amd. by Laws of 1904, chap. 490, and Laws of 1895, chap. 672; now Consol. Laws, chap. 23 (Laws of 1909, chap. 28), §§ 15, 16.— [Rep.
Concurrence Opinion
I concur in the conclusion reached by Mr. Justice McLaughlin. Section 70 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61) is extremely vague, and to interpret its meaning is little better than guesswork. In this \ situation I prefer to construe it in line with what I think the Legislature should have done to conform our statutes to what I conceive to be the better policy, which is to leave the liability of directors and stockholders to the organic law of the corpora- . tion, but to confine the remedy to the law of the forum. Such a construction is consistent with a homogeneous system, whereas a different one opens the door to as many kinds of liability as there may be States in which the corporation becomes domiciled. I express no doubt as to the power of the Legislature to admit a foreign corporation to do business in this State on terms which affect the liability of its directors and stockholders rather than such as relate to the mere operations of the corporation itself, but an intention so to do should be plainly expressed, and I ' prefer not to construe vague expressions as producing that result,
