198 A.D. 564 | N.Y. App. Div. | 1921
Lead Opinion
The plaintiff is now, and at all times mentioned herein was, a foreign corporation organized under the laws of the State of Maine. The defendant the Klauder-Weldon Dyeing Machine Company is a domestic corporation organized under the laws of the State of New York. There is in existence another corporation of the same name viz., the KlauderWeldon Dyeing Machine Company, organized and existing under the laws of Pennsylvania; each of said corporations were and are owned and operated by practically the same persons as stockholders and directors. When referred to hereinafter they will be designated as the New York and Pennsylvania corporations respectively. At the time of the commencement of this action the other defendants, including-Charles H. Duell, since deceased, were the principal stockholders and the directors and officers of both of. said corporations. Previous to the 26th day of October, 1918, the plaintiff and defendant corporations were engaged in manufacturing and selling similar machinery and product. John H. Giles was the president of and owned nearly all of the stock of the plaintiff corporation. Giles also owned 491 shares of the defendant New York corporation stock, which previous to the 26th day of October, 1918, and on the 10th day of October, 1918, he had sold to the defendant W. Sackett Duell for $49,100, which amount was paid to Giles by giving $38,000 in cash and a note for $11,100. It is important to remember this figure because it is some indication of the value of the assets of the defendant corporation. On the 16th day of October, 1918, the New York corporation prepared and sent out the following notice: “A meeting of the stockholders of the Klauder-Weldon Dyeing Machine Company will be held at the New York office of that company, No. 19 West 44th Street, at eleven a. m. Saturday, October 26, 1918, for the purpose of voting upon a proposition to change from a New York to a Pennsylvania corporation, with the same amount of stock; the assets and liabilities to be transferred from the New York corporation to the Pennsylvania corporation upon issue of their stock for the present $200,000 of stock of this company.” John H. Giles received a copy of this notice. Said Giles signed a waiver of notice of special and any adjourned meetings of the
“ Whereas, this company carries on its business in the State of Pennsylvania, where are located its plants, and does not carry on its business in the State of New York, in which it is incorporated; and Whereas, it will be more convenient and economical to carry on its business if incorporated under the laws of the State of Pennsylvania; and Whereas, this company was once incorporated under the laws of the State of Pennsylvania and its charter is outstanding: Now, therefore, be it
“Resolved, That the New York charter be, in due course, surrendered and that this company be incorporated under the laws of the State of Pennsylvania, or assume its old Pennsylvania charter; be it further Resolved, That all of the assets of this company including moneys, accounts and bills receivable, machinery, patents, trade marks, good will and rights of every name or nature be transferred to the Pennsylvania corporation, which corporation shall assume all of the liabilities of this company; and be it further
“ Resolved, That the president and treasurer of this company be and they are hereby authorized and directed to execute all instruments necessary to vest a good and legal title in and to all of its assets in the Pennsylvania corporation; and be it further
“ Resolved, That each stockholder surrender his stock in this company for an equal amount of stock in the Pennsylvania corporation.”
On the 7th day of December, 1918, the New York corporation, without any writing or evidence of transfer, delivered to the Pennsylvania corporation all of the assets of the New York corporation. No action of the board of directors, as a board, was had. It will now be recalled that a portion of the
“ 1. Compelling the defendants to account for their official conduct, including any neglect of or failure to perform their*570 duties, in the management and disposition of the funds and property, committed to their charge.
“2. Compelling them to pay to the corporation, which they represent, or. to its creditors, any money, and the value of any property, which they have acquired to themselves, or transferred to others, or lost, or wasted, by or through any neglect of or failure to perform or by other violation of their duties.”
This section gives a cause of action when the above appears against one or more trustees, directors, managers or other officers of a corporation, and as provided in section 91 to a creditor, except when it has to be brought by the Attorney-General; it permits this plaintiff to maintain an action. While this action was pending judgment on the remaining two notes was had by plaintiff. This action is in equity and was brought for the whole amount of plaintiff’s indebtedness. The complaint is against the directors and officers and charges neglect and omission of duty, loss and waste of assets and failure to comply with the law in their capacity as directors. Charles H. Duell died during the pendency of the action, and by stipulation his executors were substituted. Directors Bell and Keator were and are non-residents and by stipulation their names were stricken from the papers. The case was tried before the court without a jury by stipulation; plaintiff had judgment against all of the defendants for the full amount claimed, amounting, with costs, to $55,766.72; all of the defendants have appealed except the New York corporation. Appellants urge that the transfer from the New York corporation was legally made in accordance with the provisions of section 16 of the Stock Corporation Law,
“ § 16. Voluntary sale of franchise and property. A stock corporation, except a railroad corporation and except as otherwise provided by law, with the consent of two-thirds of its stock, may sell and convey its property, rights, privileges and franchises, or any interest therein or any part thereof to a domestic corporation, engaged in a business of the same general character, or which might be included in the certificate of incorporation of a corporation organizing under any general*571 law of this State for a business of the same general character, and a domestic corporation the principal business of which is carried on in, and the principal tangible property of which is located within a State adjoining the State of New York, may with the consent of the holders of ninety-five per centum of its capital stock, sell and convey its property situate without the State of New York, not including its franchises, to a corporation organized under the laws of such adjoining State, and such sale and conveyance shall, in case of a sale to a domestic corporation, vest the rights, property and franchises thereby transferred, and in case of a sale to a foreign corporation the property sold, in the corporation to which they are conveyed for the term of its corporate existence, subject to the provisions and restrictions applicable to the corporation conveying them. Before such sale or conveyance shall be made such consent shall be obtained at a meeting of the stockholders called upon like notice as that required for an annual meeting.”
The defendants appealing urge that they acted as stockholders and that they cannot be held liable for any injury suffered by the plaintiff, no matter how flagrant and damaging the result. Under ordinary circumstances, where there is no intention to do other than make the transfer, force is lent to such construction by that particular portion of section 16 which provides for the acquiescence of stockholders holding ninety-five per centum o'f the stock. The intent of the action taken here must be found from the facts that appear in the record and consideration had in light of the section taken as a whole. In so considering the section with the facts of this case before us, our attention is immediately attracted by the following: “ And in case of a sale to a foreign corporation the property sold, in the corporation to which they are conveyed for the term of its corporate existence, subject to the provisions and restrictions applicable to the corporation conveying them.” The exception refers to the General Corporation Law. Section 5 of the Stock Corporation Law, which is in article 2 of the act in which said section 16 is found, provides: “ This article except sections eight, fifteen, sixteen, seventeen and eighteen thereof, shall not apply to moneyed corporations.” Section 34 of the General Corporation Law (as amd. by Laws of 1917, chap. 538) provides, so far as pertinent here: “ The
I see no escape for these defendants from the situation they, for themselves, have created.
The judgment should be affirmed, with costs.
Cochrane and H. T. Kellogg, JJ., concur; John M. Kellogg, P. J., and Van Kirk, J., dissent.
Since amd. by Laws of 1920, chap. 396.— [Rep.
Dissenting Opinion
The individual defendants have been held liable for the New York corporation’s debts, under subdivision 2 of section 90 of the General Corporation Law, on the theory that “ they have acquired to themselves, or transferred to others, or lost, or wasted, by or through any neglect of or failure to perform or by other violation of their duties,” its property, as officers of the defendant corporation. By the unanimous vote of the stockholders of the New York corporation, October 26, 1918, at a meeting duly held for that purpose, they authorized its officers, pursuant to section 16 of the Stock Corporation Law, to sell and transfer to a Pennsylvania corporation, to be formed, the assets of the New York corporation in the State of Pennsylvania, in consideration of which the transferee was to pay all the liabilities of the transferor. The same resolution
Apparently the decision was based, in great part, upon a misunderstanding of Darcy v. Brooklyn & N. Y. Ferry Co. (196 N. Y. 99). There all the tangible property of the corporation was transferred' to another corporation, the directors receiving in payment therefor the bonds of that corporation, which they divided among themselves, leaving the creditors to shift for themselves. The directors had taken the very property which the creditors were entitled to, and it needs no argument to say that they were liable to respond for the bonds they received. That case proceeds upon the theory that by the sale of all the property of the corporation they practically put the corporation out of business, not winding it up in the manner contemplated by law, and they held without consideration the property of the corporation which should go to its creditors. ' It was a clear violation of their duty to dispose of all the assets of the corporation, taking the proceeds of the sale to themselves and leaving the creditors unprotected, and the case fell squarely within the statute which is now represented by section 90 of the General Corporation Law. There was no attempt to comply with section 16 of the Stock Corporation Law, or any like provision;, it was a bold attempt to appropriate the property of the corporation to the directors to the prejudice of the creditors. Here the proceeding was strictly according to the terms of the statute, and, therefore, cannot be held unlawful, and was for the best interests of all concerned.
If we should assume, however, that the transaction did not take place pursuant to section 16 of the statute, the position of the plaintiff is not improved. Upon the facts it is plain hat the plaintiff had full knowledge, and assented ■ to the transfer, accepted the new corporation as its debtor and did 'usiness with it pursuant to its contract with the New York •°poration. The plaintiff duly assigned its patents, a part of
After the transfer the corporation carried on its business in the same manner and by the same officers as theretofore, the only change being that the corporation was doing business under a Pennsylvania charter instead of a New York charter. It, however, acquired new property and enlarged its business. It was found, however, that the war was having an unfavorable effect upon the business. The corporation could not get material for the manufacture of its machines, and sales fell off, and it sought to serve the country and make a profit by manufacturing certain things for the government. The expense of preparation for such manufacture was very great, and when the armistice came the market for the things it was manufacturing suddenly ceased, with the result that it had not the ready cash with which to pay all of its debts at once, and took proceedings which many other solvent corporations were taking at the time, and on March 14, 1918, the United States District Court appointed a receiver of its property, to conserve its property and business. The proceedings were based upon the allegation that the corporation was entirely solvent and that the proceeding was instituted to save its assets and business, and on December 15, 1919, by order of the said court, the receivership was vacated and the property restored to the corporation, and it has since been carrying on its usual business, and there is no suggestion that it is insolvent or unable to pay its debts. We have seen that the same business was carried on, and by the same officers, after the change in the corporate character- was brought about. If there had been no change in its corporate character, undoubtedly the conditions existing would have caused a temporary receivership in the Federal courts, of the New York corporation, and its property would have been preserved by the order of the court and the plaintiff would have been delayed in enforcing its claim, so that the receivership, and its incidents, were not caused by the change in the charter, but by the general business conditions of the country. This action was brought
I favor reversal and dismissal of the complaint.
Concurrence Opinion
concurs.
Judgment affirmed, with costs.