88 N.Y.S. 302 | N.Y. App. Div. | 1904
This is a statutory action brought by a director of the Diamond Soda Water Manufacturing Company pursuant to the authority conferred by sections 1781 and 1782 of the Code of Civil Procedure to prevent waste and injury to the property of the corporation, for the cancellation of a certain mortgage and bonds and for an accounting
The principal contention on the part of the appellants is that the evidence is insufficient to warrant the relief granted. Their claim more definitely stated is "that no illegal, fraudulent or wrongful acts on the part of the officers or directors of the Diamond Company have been shown; that at most the officers and directors have only been guilty of errors of judgment uninfluenced by any dishonest motive; that their acts are as consistent with innocence as with
On the day that this mortgage was authorized the American Company was incorporated in Rhode Island for conducting a similar business to that conducted by the Diamond Company. The incorporators were Mulholland, the defendant Sloss, who was then a director and the manager of the Diamond Company, and the defendant Prindle and they became part of the board of directors. Mulholland was elected president and Sloss secretary. At meetings of the board of directors of the Diamond Company held on the twelfth and eighteenth days of March, respectively, four of its seven directors who Were the officers, having sold their stock to Mulholland, successively resigned, although their respective terms of office had not expired, and in their places the defendants Prindle, Kingsley, Barnes and Tuslca were elected. Sloss was elected president and became manager and Prindle was elected secretary and treasurer. At the same meeting of the board the defendant Sloss reported that the Diamond Company had more space in its shop than was needed for the economical management of the business and that the American Company desired to lease part of the shop and premises and to take possession at once and a resolution authorizing Sloss to .made a lease was adopted. Within a day or two thereafter the American Company established its place of busi
The appellants further contend that the complaint should be dismissed for loches in bringing the action. The basis of this claim is that plaintiff knew the facts herein stated at or shortly after the time the various acts occurred. These matters all occurred in a comparatively brief period of time. Prior to the authorization of the mortgage and bonds and to the incorporation of the American Company on the fourth day of March, nothing tangible had taken place to warrant the commencement of the action. Only a month elapsed thereafter before the action was brought. In the circumstances, it cannot be claimed that the plaintiff was not justified in waiting a reasonable time for further developments, and until something occurred directly between the companies to the prejudice of the Diamond Company. The court, therefore, would not be warranted in dismissing the complaint on the ground of loches.
The appellants also claim that the complaint should have been dismissed for want of equity. This is based upon the fact that the plaintiff and the other minority stockholders who retained their stock were offered an opportunity at the time to sell their stock upon the same basis as the majority stockholders, namely, to receive for stock for which cash had been paid to the company the amount of such cash, and for other stock a proportionate amount of stock in the new company, which offer was renewed upon the trial, together with the further offer to reimburse them the amount of any advances or disbursements made for the company, with interest. We fail to see merit in this contention as applied to the facts of the case at bar. The stockholders of the Diamond Company individually, acting in good faith for their own interests, were at liberty to sell their stock and to resign as officers and directors, but, being officers “and directors, they were not at liberty by concerted action to obtain security
Prior to the commencement of the action the defendants Rothschild, Riglander and Strauss ceased to be directors of the Diamond Company and for this reason they contended that the action given to a director by virtue of the provisions of sections 1781 and 1782 of the Code of Civil Procedure is not maintainable against directors out of office. The object of the statute was to authorize an action to prevent waste and injury to the corporate property and to recover property of the corporation wrongfully and unlawfully disposed of and damages of and an accounting by the wrongdoer. They were necessary parties because part of the relief demanded was the cancellation of the mortgage and bonds given for their benefit. But aside from this the efficiency of the statute would be seriously impaired were it held that the action could only be maintained against directors while in office.
It will be observed, however, that the court has not adjudged the invalidity of the mortgage or bonds or directed their cancellation. The court has merely decided in that regard that the security was fraudulently given with a view to enabling Mulholland to obtain the control and property of the corporation. The parties in interest all being before the court, in these circumstances it would seem that the court would have been justified in canceling the mortgage and bonds, because even though there be some actual indebtedness as a basis for their issue if the directors to whom it was contemplated that the bonds should be issued, were not entitled thereto or the issue was made for this fraudulent purpose, the mortgage and bonds could have been canceled without impairing the claim upon the actual indebtedness and an appropriate provision in the judgment would prevent its becoming a bar to the enforcement of any rights of the claimants or their assignee for moneys advanced to the company. However, as has been observed, so far as bonds have been
The defendants Kingsley, Barnes and Tuska, three of the new directors of the Diamond Company, were charged with actual fraud, and they were, therefore, justified in defending the action. They were not called as witnesses, nor was Mulholland. The inference is doubtless justified that they became directors at the instance of Mulholland; but it does not appear that they knew of any fraudulent purpose on his part, nor is it shown that they were aware that any of the officers, directors or stockholders of the Diamond Company had any objection to the arrangement subsequently made between the two companies. Kingsley has only five shares of stock. His only connection with the American Company is that he is an attorney in the office of its attorneys. Tuska, who represented one of the directors' in closing his transfer to Mulholland and Barnes, is an employee of the American Company. For aught that appears, they may -have supposed that there was a common understanding, assented to by all parties in interest, to make the contract and establish the relations that were subsequently made and established between the companies. If so, no stockholder could complain. (Skinner v. Smith, supra; People v. Ballard, supra.) The plaintiff remained a member of the board of directors, and it does not appear that he protested or voted against the subsequent proceedings or 'the taking possession of the offices and factory of the Diamond Company by the American Company, or in any manner complained to these three defendants. They are, however, proper parties to the action, and although, so far as appears, they may have acted innocently, the minority stockholders, neither having assented to the arrangement, nor having done anything to estop
The exceptions taken upon the trial, and the other points raised by the appellants have been examined, but we think they do not present reversible error, or merit special discussion.
It follows, therefore, that the interlocutory judgment should be modified by eliminating the provision awarding costs against the-defendants Kingsley, Barnes and Tuska; and as thus modified, it should be affirmed, with costs against the appellants other than Kingsley, Barnes and Tuska.
Van Brunt, P. J., O’Brien and Hatch, JJ., concurred.; Ingraham, J., concurred in result.
Judgment modified as directed in opinion, and as modified affirmed, with costs against the appellants other than Kingsley, Barnes and Tuska.