80 N.Y.S. 979 | N.Y. App. Div. | 1903
This action was brought by the receiver of the Ongley Electric Company, a New Jersey corporation, against the defendants, its directors, for the alleged wasteful and wrongful management by them of its corporate affairs, on account of which judgment is demanded for a discovery and accounting. The complaint avers that the plaintiff is a resident of the State of New Jersey and was duly appointed receiver of the Ongley Electric Company, a corporation existing under the laws of the State of New Jersey; that
The complaint then avers with much particularity and at con-¡siderable length the acts which the said defendants, acting as officers .-and directors of the corporation, have done and omitted. In general, these acts consist in permitting the corporation to be sued upon ■fictitious debts and claims, and allowing judgments to pass against it by default and its property to be seized under execution. The complaint also avers that the directors made personal claim for ¡services rendered in and about the affairs of the company which had no existence in fact; that actions were brought thereon against the company, upon which defaults were made and judgments permitted
The complaint then demands judgment: “ 1. That said defendants and each of them may be compelled to disclose and turn over, to the plaintiff all of the books, accounts, records, contracts and other papers belonging to said Ongley Electric Company. 2. That said defendants and each of them may be compelled to account for their official conduct in the management and disposition of the property and assets of said Ongley Electric Company. 3. That said defendants and each of them may be compelled to pay to the plaintiff for the benefit of said company and its creditors and stockholders the amount of all moneys with interest, and the full value with interest of all properties, assets and effects of said company which the said defendants or any of them have acquired for themselves or any of themselves, or transferred to others or lost or wasted
The defendants demurred to the complaint, and take nearly four pages of the record in specifying the grounds. The learned counsel for the appellants has relieved us of the necessity of condensing the whole of this matter by doing it himself. He states the ground of demurrer in his brief.to be: “ 1. That the complaint does not state facts sufficient to constitute a cause of action. 2. That two or more causes of action have been improperly united therein,, to wit, a cause of action affecting all five of the defendants with a cause of action affecting only four of the defendants, and these two causes of action with a cause of action affecting only three of the defendants, and these three causes of action with a cause of action affecting only two of these defendants.”
The principle relied upon in support of the first ground of demurrer is found expressed in O’Brien v. Fitzgerald (143 N. Y. 377); Dykman v. Keeney (154 id. 483); Higgins v. Tefft (4 App. Div. 62), and other cases. . This- claim proceeds upon the theory that the complaint states a cause of action, not in equity, but •at law; that the relation between the corporation and its directors is. that of principal and agent, and not that of trustee and cestui que trust. The Court of Appeals.held, as well as this court, in the Cases above cited, that the actions therein sought to be maintained wei-e not actions in equity, .but were actions at law to recover damages for negligence, and, therefore, an equitable action could not be maintained. It would serve no useful purpose at this time to point out the distinction in detail which exists between the present action and the complaints which were the subject of examination in those cases. Such distinction, if stated, may not be so plain that he who runs may read, but the court of last resort ■ in many pages of opinion has stated it, and it may be sought for therein.’ Mr. Justice IngbahAm, in O’Brien v. Fitzgerald (6 App. Div. 509; affd. on opinion below, 150 N. Y. 572), has probably stated such distinction with as much clearness as the question itself permits, Therein he. says“ In
There seems to be a mistaken notion in some minds that the relation which exists between directors of a corporation, and the corporation is that of principal and agent. This is not true. Such relation is, and always was, as to the property of the corporation, fiduciary in character, and while not strictly that of trustee and cestui que trust, yet it partakes of such nature. The agency of the directors rests solely in their dealings with third persons, when they represent the corporation as its agents; but in dealings with the corporation, they act in a fiduciary capacity for the shareholders, as it is to their care that the shareholders, acting through the corporate entity, intrust the control of its property and the management of its business. (Duncomb v. N. Y., H. & N. R. R. Go., 84 N. Y. 190.) Therein, Finch, J., said: “ It is not intended to deny or question
It is clear from the complaint in this action that what is sought to be accomplished by it is to compel these defendants, acting as officers and directors of the corporation whom the receiver represents, to account for their wrongful acts in dissipating, misappropriating and diverting the property of the corporation. In such relation and for such acts they are subject to the same responsibilities' as attach to trustees, and may be called upon in equity to account for their acts in the disposition of the property and the discharge of their trust. Damages which arise from fraudulent acts which result in a waste or misappropriation of the property, either for their own benefit or for the benefit of others, are an incident to such accounting, and it is no objection that the complaint' in such action demands, damages resulting fi’om their official misconduct. (Bosworth v. Allen, 168 N. Y. 157.) This complaint, therefore, states a good cause of action in equity.
It is no objection to the complaint that the defendants may not be all equally culpable or equally liable to respond in damages or otherwise to account, for the property which has been misappropriated. The principle upon which such an action is based rests in the fact that the defendants occupy a fiduciary relation, and in the discharge of their duties represent the corporation. Their dealings in such relation have reference to the property and management of the same intrusted to their care.. There may be many breaches, but they are of a single duty. There may be different trustees, but they deal with the same matter. There may be different degrees of partici- . pation in. the disposition of the property, but the dealings are had with the property of the corporation, and the duty in such dealing
The averments contained in the present complaint show a state of facts from which may be found a common design and purpose upon the part of the defendants, acting in their own behalf and in .disregard of the rights of the corporation, to squander, destroy and divei’t the property of the corporation and utterly despoil it, and that they have succeeded in such purpose. Under such circumstances, where a common purpose and design are established, overt acts in furtherance of the common design, whether committed by one or all, may be given in evidence, whether they be all present or not, and this result follows, however the action may be characterized. The power of equity to lay hold of such a condition is not dependent upon nomenclature. It is sufficient for the exercise of its powers if it appear that the several acts constitute a breach of trust; that they are connected together and relate to the same matter; and whether there be one transaction or several transactions, whether the act resulting in the waste be by all the directors or only a part, the result is the same, as the action seeks to enforce the rights of the corporation to the property, and to compel the trustees to render an account of their transactions. The entire
If these views be sound, it follows that the interlocutory judgment should be affirmed, with costs, with leave to the defendants to withdraw demurrer and answer over within twenty days on payment of the costs in this court and in the court below.
YaN Brunt, P. J., Ingraham, McLaughlin and Laughlin, JJ., concurred.
Judgment affirmed, with costs, with leave to the defendants to withdraw demurrer and answer over within twenty days on payment of costs in this court and in the court below.