83 N.Y.S. 509 | N.Y. App. Div. | 1903
There are two causes of action set up in the complaint, the first to require the defendant Stadler, a director of the defendant corporation, to account for and pay to the defendant corporation certain dividends amounting to $1,855,350, made and paid out of the capital stock of the said company, and the second to require the defendant Stadler to account for and pay to the said corporation $650,000 damages sustained by the defendant corporation by certain alleged illegal, negligent, fraudulent and careless management of the property and affairs of the defendant corporation by its directors. The defendant Stadler answered, and the case was brought on for trial at the Special Term. After counsel for the plaintiffs had opened the case the defendant moved to dismiss the complaint with respect to each of the causes of action stated, on the ground that the facts stated were not sufficient to constitute a cause of action, and also upon the ground that the facts stated in the complaint, as limited by the opening, did not justify a judgment against the defendant. This motion was granted and the complaint dismissed.
An examination of the opening of counsel for the plaintiffs fails to show that there was any statement which at all limited the allegations of the complaint. In the case of Hoffman House v. Foote (172 N. Y. 348) it was held that a judgment dismissing a complaint upon the pleadings and opening cannot be sustained without adopting one of three positions incumbent upon the defendant to clearly .establish: First, that the complaint does not state a cause of action; second, that a cause of action well stated is conclusively defeated by something interposed by way of defense and clearly admitted as a fact, or, third, that the counsel for the plaintiff in his opening address by some admission or statement of facts so completely ruined his case that the court was justified in granting a nonsuit; that the practice of disposing of cases upon the opening of the counsel cannot be resorted to unless the counsel stating the case deliberately and intentionally states or admits some fact that, in any view of the case, is fatal to the maintenance of the action.
We are first brought to a consideration of the complaint as if the question were presented upon a demurrer to each of the causes of action on the ground that the complaint failed to state a cause of action. The plaintiffs sue on their own behalf and on behalf of all
In. considering this cause of action, it must be apparent, I think, that the sole question presented is whether the courts of this State will enforce such a liability against the directors of a corporation. organized under the laws of a foreign State where the corporation itself does business in this State and the alleged illegal acts were-performed here and the illegal dividends declared and paid here. In discussing this question we must keep clearly in mind that the-action is brought upon a cause of action vested in the corporation and to enforce a claim of the corporation against one of its directors. There is no allegation that would give to the plaintiffs a cause of action against the directors, it not being alleged that the acts complained of have caused any injury to the plaintiffs,' or depreciated, the value of the stock held by them, nor do the plaintiffs ask for any judgment in their favor. The court is asked to enforce a demand, in favor of the defendant corporation, by requiring the defendantStadler to account to and pay to the defendant' corporation the= amount of these dividends declared in violation of the laws of the-State of New Jersey, under which the corporation was incorporated.
Upon these allegations of the complaint, would the individual defendant be liable to the corporation if it were the plaintiff seeking to enforce in the courts of this State the liability imposed upon the -directors by the provisions of the law of the State of New Jersey or by the laws of this State ? I do not understand that, where-a corporation is under the control of directors who are liable to it-for the payment of a sum of money, and a stockholder requests-the corporation or its directors to institute an action to enforce that liability, which request is refused, the court should ref use. to enforce:
The provision of the General Corporation Law of the State of New Jersey set forth in the complaint is alleged to be a part of the law under which the defendant corporation was incorporated. It first prohibits a corporation from making a dividend, except from the surplus or net profits arising from its business, and further prohibits the corporation from dividing, withdrawing or in any way paying to the stockholders, or any of them, any part of its capital stock, except in accordance with the provisions of the act. It then provides that the directors, under whose administration the same may happen, shall be jointly and severally liable to the corporation to the full amount of the dividends made or capital stock so divided, withdrawn, paid out or reduced.
There are two aspects in which it is claimed that this action can
In the absence of a statutory prohibition, I know of no principle that would make the director of a corporation liable to the corporation for a distribution as dividends to the' stockholders of the capital of the corporation, so long as the payment of such dividends does
Take the case of a corporation whose directors have distributed a portion of its property among its stockholders as dividends upon their stock; and subsequently, upon the corporation being dissolved, there being still sufficient to provide for the indebtedness, the receiver seeks to enforce against the directors this liability to recover from them the amount of the dividend paid from the capital of the corporation. There the stockholders have already received a portion of the capital of the corporation to which they were entitled. The principles of equity would not require that the directors should repay to the receiver the sum of money that had been already paid by the corporation to its stockholders, so that the stockholders will receive, in addition to what they were entitled to as the property of the corporation, this additional sum which the directors have been compelled to pay and to which they were neither legally nor equitably entitled. I do not see, therefore, how this liability of the directors to repay to a corporation an 'amount of its capital stock that the corporation has already paid in dividends to its stockholders can be said to rest upon principles of common law. A receiver representing creditors of a corporation, whose directors have taken
Nor is this obligation of the directors contractual in its nature. There is no contract between the corporation and its directors that they will not divide any of the corporate property among the stockholders. In considering a similar provision in the Revised Statutes of this State, it was held by the Court of Appeals in Williams v. Western Union Tel. Co. (93 N. Y. 162) that these provisions were intended to prevent- the division, distribution, withdrawal- and reduction of the property of the corporation below the sum limited in its charter or articles of association for its capital, but not to prevent its increase above that sum. “ The purpose was to prevent the depletion of the property of the corporation, thereby endangering its solvency; *■ *" * and in case the directors violated any of the provisions of the section, they were made individually liable to the corporation and to its creditors, in the. event of its dissolution, to the full amount of the capital stock of the company so divided, Withdrawn or reduced. All. these provisions show that it was the purpose of the Legislature, by means of them, to create a property capital for the corporation, and then to keep that intact so as to ' secure the solvency of the corporation and its responsibility to its creditors.”
The liability of the defendant thus neither resting upon the common-law liability of a director, nor being in its nature contractual, it falls within the class of liabilities imposed by the statute of another State that cannot be enforced in this State. In Marshall v. Sher-. man (supra) it was said : “ The question is thus presented whether a right of action unknown to the common law and existing only by force of the statutes of another State, can be enforced in the courts of this State, or outside of' the local jurisdiction where the corporation is domiciled. The defendant’s relation to the corporation is governed by the laws of the State of its creation, and the general
The second question presented is whether this liability can be' enforced under the provisions of section 60 of the Stock Corporation Law (Laws of 1892, chap. 688, added by Laws of 1897, chap. 384). It is there 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.” When this act was passed and these dividends were declared, section 23 of the Stock Corporation Law provided: “ The directors of a stock corporation shall not make dividends, except from the surplus profits arising from the business of such corporation ; nor divide, withdraw or in any way pay to the stockholders, or any of them, any part of the capital of such corporation, or reduce its capital stock, except as authorized by law. In case of any violation of the provisions of this section, the directors under whose administration the same may have happened, except those who may have caused their dissent therefrom to be entered at large upon the minutes of such directors at the time, or were not present when the same happened, shall jointly and severally be liable to such corpora
The provisions of section 60 of the Stock Corporation Law undoubtedly gave to a foreign corporation transacting business in this State the power to enforce against its directors a liability for making unauthorized dividends to the same extent as the directors, of a domestic corporation would be liable. The New Jersey statute expressly prohibited the directors of the defendant corporation from making any dividends except from the surplus or net profits arising from its business, and prohibited the corporation from dividing, withdrawing or in any way paying to the stockholders, or any of them, any part of its capital stock, or reducing its capital stock, except in accordance with the provisions of the act. If this defendant were a domestic ' corporation, these dividends (admitting the allegations of the complaint) would be unauthorized by the law of this State, and they are prohibited by the law of the State from which the. corporation has received its charter. It is, therefore, clearly, an unauthorized dividend, or a dividend not authorized by the law binding upon the defendant corporation, and which it was expressly prohibited from making. , Section 60 of the Stock Oorpor ration Law could only apply to a foreign corporation where a dividend was made in violation of the law which controlled the Corporation. There is no provision in the law of this State which affects or could affect the right of a foreign corporation to declare dividends. The payment of a dividend out of the capital stock by a domestic corporation is prohibited, and such a dividend would be an unauthorized dividend in the casé of a domestic corporation; and the evident intent of section 60 was to allow a foreign corporation transacting business in this State power to recover from its directors the amount of an unauthorized dividend in the same manner as a domestic corporation could recover the amount of an unauthorized dividend from its directors. The directors are to be liable “ in the same manner and to the same extent as the * * * directors * * * of a domestic corporation, * * * (and) such liabilities may be enforced in the courts of this State in the same manner as. similar liabilities imposed by law upon the * * * directors * * * of domestic corporations.” By section 23 of the Stock ■Corporation Law the liability imposed upon directors of a domes
Section 23 of the Stock Corporation Law was amended by chapter 354 of the Laws of 1901, but it is not necessary to consider the effect of that act, for by section 5 it is provided that the act shall not affect any action or proceeding pending in any court at the time it takes effect; and this action was commenced in Hay, 1900, before the amending act was passed. As we have reached this conclusion as to the first cause of action, it is not necessary to' consider the second cause of action.
It follows that the judgment appealed from must be reversed and a new trial ordered, with costs to the appellant to abide the event.
McLaughlin, J., concurred ; Hatch and Laughlin, JJ., concurred on last ground; Patterson, J., concurred in result.
I agree with Mr. Justice Ingraham that this action is maintainable and in the reasons which he assigns therefor on the last ground, as stated in his opinion. I think also that the courts of this State will enforce the liability created by the New Jersey statute for a violation of its terms. This is the sole question presented by the •demurrer relating to the cause of action predicated upon the statute, and the answer thereto is dependent upon the fact as to ."whether the liability sought to be enforced has for its foundation
The courts of this'State have held that liability of a similar character imposed upon directors by our own statutes is remedial and is not in the nature of a penalty. (Dykman v. Keeney, 10. App. Div. 610; S. C., 16 id. 131; affd. on opinion below, 160 N. Y. 677.) As the statute in question imposed a liability for a breach of duty upon the part of the directors which amounted to a waste at Common law and was in violation of the duty which it owed to its stockholders and creditors, and the enactment itself is in harmony with the provisions of the statutory law of this State upon this subject, it would seem as if principles of comity authorized an action within this State to'redress the wrong, especially as it appears that the wrongful act was committed within the State, and the corporation has an office and carries on business herein. Marshall v. Sherman (148 N. Y. 9) does not conflict with this view. It is easily distinguishable, as shown by Vann, J., in Howarth v. Angle (supra),
The judgment should, therefore, be reversed and a new trial granted, with costs to the appellant to abide the event.
Laughlin, J., concurred.
Judgment reversed, new trial ordered, costs to appellant to abide event.