186 A.D. 675 | N.Y. App. Div. | 1919
Lead Opinion
This case presents a somewhat troublesome question. The action is a representative one brought by stockholders in behalf of the Doe Run Lead Company to compel the defendants to account for certain shares of St. Joseph Lead Company stock and the profits derived therefrom by way of stock and cash dividends and the proceeds of any such shares and the accretions thereto which may have been sold. The substance of the allegations is that the officers and directors of the Doe Run Lead Company sold 18,679 shares of the capital stock of the St. Joseph Lead Company which were equitably owned by the Doe Run Lead Company to themselves and others including the defendant, appellant, Smith; and that they paid the Doe Run Lead Company less than the reasonable or market value of the stock. Smith was not a director of the Doe Run Lead Company, but it is alleged that he actively conspired with the directors to defraud the Doe Run Lead Company of the profits of said sale and that the acts in consummation of the fraud were participated in by Smith who thereby acquired a part of the profits that equitably belonged to the Doe Run Lead Company. The sufficiency of the complaint has been sustained by the Court of Appeals. (219 N. Y. 359.) The sales complained of occurred in 1902
The cause, of action vested in the Doe Run Lead Company when it was instituted, and the proceeds belonged to it. By virtue of the dissolution the cause of action vested in the trustees. It is contended that after dissolution the action could not be prosecuted by the plaintiffs as stockholders and representatives of a defunct corporation, but could only be prosecuted by the trustees, and that there is no authority for making the trustees parties defendant when to do so amounts in effect to allowing the plaintiff to prosecute in behalf of the trustees a cause of action vested in the trustees.
The appellant’s learned counsel cites many cases dealing with the right to sue after dissolution upon a cause of action existing against a corporation prior to dissolution, but such cases do not seem to me to touch this case, which is not directed against a corporation but is brought in its favor.
Neither does the case of Seagrist v. Reid (171 App. Div. 755) support the respondents. That case dealt with the appointment of mere chancery receivers, in whom the title to the corporation’s property did not vest. But for the peculiar facts of the present case, hereinafter summarized, the Seagrist case would tend to support the appellant.
It is necessary, however, to consider the decision of this court in Howe v. N. Y., N. H. & H. R. R. Co. (142 App. Div. 451). The plaintiff was a stockholder in a railroad which we will call the Air Line. The defendant, a Connecticut corporation, leased of the Air Line its railroad and equipment, depreciated the value of the property, acquired a majority of the stock of the Air Line, elected its entire board of directors and caused a sale of all its property to be made to itself at an inadequate price, in fraud of the rights of the stockholders of the Air Line, and then caused the Air Line to be merged into the
It cannot be said in any true sense that the cause of action to recover for the corporation its property abates upon the death or dissolution of the corporation. It simply devolves upon and becomes vested in its trustees in dissolution. After all, the stockholders of a corporation are pro tanto the equitable owners of the property of the corporation. It is for them and the creditors that the right to maintain these representative actions has been created. Going so far as to hold that a stockholder in a holding company may in some circumstances maintain a representative action for the benefit of the subsidiary company, and thus indirectly for the adyan
The form of action being an invention of equity, the role of the stockholder being merely that of an instigator of the action, and the recovery inuring ultimately to the benefit of stockholders and creditors, it seems to me that, where the action has been properly set in motion not only in behalf of a then existing subsidiary corporation, but indirectly for the benefit of the holding company, which has not been dissolved, the mere appointment of statutory trustees in dissolution should not be held to be a sufficient ground for abating the action, or even halting it until the problematic action is taken by the trustees of either instituting a new action or petitioning to be substituted as plaintiffs to continue the pending action in their name — particularly in such a case as this where (1) the trustees are the same persons who were directors at the time of dissolution, the corporation having up to that time refused to institute an action; (2) where the Statute of Limitations may have intervened as a defense to any such new action; (3) where the trustees may have made no objection to being made parties to the action;
I am, therefore, of the opinion that the order should be affirmed, with ten dollars costs and disbursements.
Clarke, P. J., Dowling and Smith, JJ., concurred.
Opinion on Motion to Strike
The defendant Smith was the only .one to appear and oppose the motion although all the defendants and one of the statutory trustees of the Doe Run Lead Company were served with notice thereof. I cannot see how the defendant Smith is aggrieved by the bringing in of these statutory trustees as parties defendant. (See Holmes v. Camp, 219 N. Y. 359, 373.) The questions discussed by my brother Shearn might have been raised by the statutory trustees, if they had been so advised, but until the questions are raised in a manner properly to bring them before the court, I do not think they should be considered. In an equity action the plaintiff is generally allowed to bring in as many defendants as he deems necessary to full and adequate relief, and where a party defendant has died, or a corporation defendant has been dissolved, pending the suit, it is proper for the court by a supplemental summons and complaint to bring in the personal representatives, receivers, trustees or whatever person represents, or is vested with the property, of such defendant. When these representatives have been served, they can then, if they are so advised, by proper pleading, assert whatever claims or defenses they may have.
For these reasons I concur in the result only of Mr. Justice Shearn’s opinion.
Order affirmed, with ten dollars costs and disbursements.