100 N.Y.S. 687 | N.Y. App. Div. | 1906
The plaintiffs sue as stockholders of the Ferdinand Hirsch Company, a domestic corporation, and the relief demanded is that the defendants (appellants), its directors and officers, account to said corporation for all moneys that have been wrongfully appropriated or misapplied; that the ajipellants be enjoined from acting as direct" ors or officers of the company; that they be removed as suchsofficers and directors. The complaint contains many allegations as to the relation between the defendant Jones and the plaintiffs which are immaterial to,an action to enforce claims in favor of the corporation. Any relief that the plaintiff, or the estate of which she is an executrix and trustee, may be entitled to as against Jones, has nothing to do with the relief which can be granted in this action, which is based upon a breach of trust by the appellants as officers and directors of the corporation.
The material allegations upon which the judgment appealed
By a codicil to this will the testator authorized his executors to- continue his investments in the stock of the Ferdinand Hirsch Company as long as they in their discretion should determine it to be advisable. At the time of his death the testator was the' ■ owner of 1,882 shares of - the stock of the Ferdinand Hirsch corporation, out of 2,500 shares, the total amount of the capital - stock of the company which had' -been organized to take over a . business that had been owned by Hirsch; and he became a director and president of the corporation on its organization, and continued in absolute control of it until the time of his death. Mr. Hirsch, from the time of the organization of the company, had received a salary of $12,000 per year until a short time before his death, when the salary had been raised to $15,000 a year. The defendant Ludwig had been secretary and treasurer of the corporation, receiving a salary, and continued as such down to the trial of the action. The business of the corporation having been profitable, dividends had been paid from time to time. This business was the manufacture of cigars at Key West, and upon Hirsch’s death' it became necessary to elect a president as his successor. Jones, who had been a director of the corporation from its organization, was shortly after the death of Hirsch elected president.
Many charges are made against Jones in the complaint as to his management of the business: of the company,' but it will not be necessary to notice any of them except those that were sustained. The court found that the plaintiff, the testator’s widow, was induced
The court found, and it is conceded, that Jones was legally elected president, and that the trustees of the company fixed his salary at the amount which he has since received. It does not appear that Jones voted at the election, or for the resolution that fixed his salary. The minutes of the meeting of the directors show that Jones withdrew from the meeting when these subjects were considered, and the action of the directors was unanimous, no objection at any time being made to the election of Jones or to the amount fixed as his salary. The court then found that the business of the corporation was continued after the death of Hirsch in the same manner as it had been prior thereto; and that as a result of the action of the defendant Jones in voting himself a salary of $12,000 per year (there being no evidence that Jones voted himself such salary, the evidence being that it was voted by the board of directors), and of wastefulness and extravagance in the management of the business of the company by the said Jones, Iiopf and Ludwig, the dividends of the company as declared by the directors fell from eight per cent in 1901 to five per cent in 1904; that pursuant to the resolution passed at a meeting of the directors of the said company, held August 5, 1901, the defendant Jones received from the funds of the company between the 5th day of August, 1901, and the 4th day of January, 1905, the sum of $41,000, being the salary that he was entitled to under the resolution of the board of directors. And as a conclusion of law the court found that between the 5th day of August, 1901, and the 4th day of January, 1905, the defend
It is sought to sustain this judgment upon the ground that because Jones owned the controlling interest in the corporation as trustee he was disqualified from being elected president of the company, and, therefore, the corporation can recover back the salary it had paid to him as such .trustee. I can find no support for this contention. Whatever right the estate of which Jones is trustee has to compel him to account for the salary that he has received as president is not now before us. We are now concerned simply with the right of the corporation to recover back from Jones the salary that it has paid him as president, where there is no finding that Jones failed to perform his duties as president, or to devote his time and energy to benefit the corporation of which he was president. No- relation existed between Jones and the company which imposed upon him any obligation other than that- upon any other director who was also owner or part owner of a majority of the stock. Whatever was his duty to the estate of which he was trustee, he owed no duty to this corporation to act for it or work for it without compensation. The doubt expressed 'by Mr. Justice Williams in Elias v. Schweyer (13 App. Div. 336), that “ It is questionable, however, whether a trustee, if so elected as president, should receive any salary ; because it appears- that the discretion is vested in the trustees to sell the stock should an advantageous opportunity occur; and one who is in receipt of a large salary might be unconsciously biased in his judgment when the question was presented. between his own interest in retaining such salary and the interests of his céslu-i' que' trust, which might be promoted by a sale of the brewery,” related solely to his relation to the trust estat.e and had no
It is also claimed that , as Jones controlled a majority of the board of directors that he cannot keep a salary voted to him by the directors, as it is the same as if he had voted himself the salary. But these directors liad not been elected by Jones; they were the directors who were placed in control of the corporation by Hirsch, who, when they were elected, owned and controlled a large majority of the stock. There is no evidence that Jones procured his election by any improper means; that he voted for himself at the meeting of the board, or voted for the resolution fixing his salary.
There are many changes in the complaint which counsel for the respondents denominated as bribery and corrupt agreements between Jones and the other directors which resulted in his election, together with the allegations to which I have before referred, that Jones procured the consent of the testator’s widow and his coexecutor by means of fraudulent representation as to the condition of the company ; but these allegations are not at all sustained by the evidence, and they rest at most on mere suspicion because at the same time the salary of the secretary was increased, which the proof shows and-the court has found was in pursuance of a promise made to him by the testator that his salary should be increased to the same amount that had been received by his predecessor, and the increase that was voted was less than the amount received by such predecessor. To a much greater extent than in the case of Jones was the board of directors under the control and dominion of the testator during his •life who owned a large majority of the stock and voted for the directors and the directors in turn elected him president, and fixed his salary first at $12,000 and later at $15,000 per year. If this claim of the plaintiff is correct the corporation might be entitled to recover
In many of these trading corporations organized for the purpose-of carrying on an established business the stock' is issued to the owners, of the business transferred' to the corporation, the members of the copartnership owning the stock elect the directors and the directors elect the officers. It has never, before been suggested that siich an arrangement was a fraud that would entitle the corporation to recover back the salary paid to the officers thus elected. Applying to this ease the principle which was the foundation of the decision in Jacobson v. Brooklyn Limber Co. (184 N. Y. 152), the plaintiff’s contention is not sustained. In that case there were three directors, .and the court found that two of these directors had voted for various increases in their salary; that they credited such increase on the books of the company until the amount so credited had amounted to more than fifty per cent of the total assets of the corporation, which was in addition to the amount that had actually been paid to these officers on account of such Salary. The action was brought to recover from the individual defendants the amounts received by them for salaries as officers of the corporation and to cancel any and all resolutions on the books of the dorporation purporting to authorize the defendants to credit themselves with certain amounts for accumulated or deferred salaries, and also to redress other alleged wrongs, to the corporation. In reversing the judgment "dismissing the complaint the court did not intimate that the plaintiffs would be entitled to. recover the amount of the salary actually paid to the officers, but the decision was baséd entirely upon the statement that “ ‘ a director cannot with propriety vote in the board of directors upon a matter affecting his own private interest any mofé than a. judge can sit-in.his own case, and any resolution passed at a meeting of the directors at which a director having a personal interest in the matter voted, will be voidable at the instance of the corporation or the Shareholders, without ■ regard to its fairness, provided the vote of -such director was necessary to the result.’ ”
The minutes of the meeting of the board of directors show that at the meeting at which Jones was elected president, after a dividend
The court also awarded against the defendants .Jones, Ludwig and Iiopf judgment for $51,000 and interest for moneys paid by the corporation to Jones and the plaintiff as executor of Ferdinand Hirsch, which they applied to protecting certain stock which had lieen purchased by, and was held on margin for, Ferdinand Hirsch at the time of his death.
The money, of the company was used by the executors after the death of Ferdinand Hirsch in connection with certain stock speculations undertaken by Hirsch during his life and was evidently intended to benefit the estate. Minnie F. Hirsch, the plaintiff, was an executrix, and she was also trustee for the two infant plaintiffs. It has
The difficulty in determining the question on the present record is that the findings of the court below with respect to the $51,000 are altogether unsatisfactory. By the 53d finding it is declared that between dates stated “ the Ferdinand Hirsch Company disbursed the sum of Fifty-one thousand dollars ($51,000) in alleged loans to the executors of the Ferdinand Hirsch estate and • transactions, (which) were so used outside of arid foreign to its business concerns and corporate affairs, to wit, to protect stocks held on margin by the estate of Ferdinand.Hirsch, deceased, by and through the acts of the defendants Edward K. Jones, Rudolph Ludwig and.Frederick liopf, who knew that the company was not interested or concerned in said alleged loans and transactions, and would not be benefited thereby or receive any consideration therefor, and that said defendants knew that said moneys were to be used to protect stocks held on margin by the estate of Ferdinand Hirsch, deceased.” But by the 96th and 97th findings óf fact the court found that “after the death of Ferdinand Hirsch the plaintiff Minnie F. Hirsch and the defendant Edward K. Jones, as executors of the will of Ferdinand Hirsch, deceased, borrowed frorn the Ferdinand Hirsch Company at different times in all the sum of $51,000';” that “as collateral to loans made to them by the Ferdinand Hirsch Company, the plaintiff
By these last two findings of fact, the transaction is presented as a loan of money to the plaintiff Minnie F. Hirsch and the defendant Jones as executors, for which loan they gave collateral security and it is referred to as one directly between them and the Ferdinand Hirsch corporation, and in his opinion the learned trial justice seems to consider only the power of the corporation to make the loan. These last-mentioned tin dings of fact present the case apparently of a loan of money upon collateral security given and may be regarded as relieving the transaction of the element of positive fraud. We refrain from expressing an opinion as to the right of the plaintiff to maintain the action until the real nature of the transaction is determined by the trial court upon a finding whether there was a fraudulent diversion of the company’s money by Jones, its president, or whether it was a simple transaction of a loan of money made directly by the company with the acquiescence of all interested to the executors and without fraud.
In any aspect of the case, the evidence did not justify a judgment for this $51,000 against the defendants Ludwig and Kopf. The court found that between December 11, 1902, and July 13, 1903, the corporation disbursed $51,000 in alleged loans to the executors of tlie Ferdinand Hirsch estate, which were used outside of and foreign to its business concerns and corporate affairs, to wit, to protect stocks held on margin by the. estate of Ferdinand Hirsch, deceased, by and through the acts of the defendants Jones, Ludwig and Kopf, who knew the company was not interested or concerned in said alleged loan and transactions, and -would not be benefited thereby, or receive any consideration therefor, and that said defendants knew that said moneys were to' be used to protect stocks held on margin by the estate of Ferdinand Hirsch, deceased.
Assuming that Jones, the president of the company, would be liable to the company for the unauthorized appropriation of this money, the evidence does not sustain the finding that the payment of the money was “ by and through ” the acts of Ludwig and Kopf.
' There is a question presented as to whether the dividends on the estate stock which was retained by the corporation should be credited on this loan to the executors or on account of the amount due to the corporation by Hirsch at the time of his death. There is also a question as to whether the executors had any authority to pledge such stock and whether the corporation could refuse to pay the dividend because Hirsch was indebted to the corporation or because the executors had borrowed money from the corporation and pledged the stock for its repayment, but as there must be a new trial it is not necessary to determine these questions.
The court also awarded judgment against the defendant Ludwig for certain sums that were paid him in consequence of an increase of his salary in August, 1903, and for a Christmas present by direction of the board of directors. I do not think this provision of the judgment can be sustained. Hirsch had promised Ludwig that his salary should be increased, and subsequent to Hirsch’s death the directors fulfilled that promise. Ludwig demanded an increase of salary. He was not bound to remain in the employ of the corporation if it was refused. The evidence does not show that there was any fraud in the transactions or that the act of the directors was fraudulent. Ludwig received his salary under this authority and I do not think that the company can recover back, certainly not without evidence of fraud or that the salary as paid was in excess of that proper for the services rendered.
There are other questions presented by this' record which I do not think it necessary to discuss. There was a large amount of testimony allowed against the objection of the defendants as to the relations ■ between Jones and coexecutors, which seem to have impressed the court, but which was, I think, entirely irrelevant, and I think that justice requires that a new trial should be directed at which the evidence can be confined to the relations between the appellants and the corporation of which they were directors and
It follows that the judgment appealed from is reversed' and a new trial ordered, with costs to the appellants to abide the event.
O’Brien, P. J., Patterson, McLaughlin and Houghton, JJ., concurred.
Judgment reversed, new trial ordered, costs to appellants to abide event. Order filed.