112 N.Y.S. 57 | N.Y. App. Div. | 1908
Plaintiff, siting on behalf of himself and other stockholders of the Provident Savings Life Assurance- Society of New York, alleges in his complaint that the society is a corporation organized and existing under the laws of. the State of New York for the purpose of conducting the business of life insurance -; that under its. charter its corporate powers are vested in a board of directors of fifteen pier-sons, divided into four classes, four directors retiring each year,..with the exception only that three directors retire every fourth year; that the plaintiff is the' owner and holder of ten shares of capital stock, and is a member of its board of directors; that, the total capital stock consists of 1,250 shares of the par value of $80 each; that prior to October 7, 1907, the defendants Orlando F. Thomas and Edward R. Thomas owned and were the holders of record of a .large majority of the capital stock of said corporation, and through their representatives and parties in interest’ on its 'board of directors ' were in complete control of its affairs; that on October 5, 1907, the said • Thomases entered into a contract in writing with the defendant Coyle wherein, among other things, they agreed to sell to him 1,056 shares of the capital stock of said corporation in consideration of the payment to them by said- Coyle.of $100,000 in cash, and the delivery to them by said Coyle of an aggregate of $1,000,000 of his promissory notes payable, at - different times, and it was provided that said Thomases should retain said -1,056 shares as collateral, for the payment of said promissory notes, with the exception of eight shares thereof, which should be transferred into the name of said Coyle or his nominees for the purpose of qualifying them to act as directors of said corporation. Said contract contained the following provision : “Ninth. On the signing and delivery of this agreement, the parties of the first part (the said Thomases) shall
Upon this complaint and voluminous affidavits an. order was entered restraining the defendants Coyle, Grady, McSorley, Brumm, Moore, Wurtz, Sulger and Vrooman, and each of them, pending the trial of this action, from allowing or permitting any person to do any act or thing, or to assume to act as director off the society in the place of or as the successor of William T. Gilbert, and enjoining each of said individual defendants and the defendant society, and each and every of its directors and officers, pending the trial of this action, from refusing to permit and allow the defendant Gilbert to act in every way as, and to exercise all the rights and privileges of a director of the said society. From said order the society and the defendants Coyle, Grady, Brumm, Moore, Wurtz, Sulger and McSorley appeal.
Section 603 of the Code of Civil Procedure provides that “ Where it appears from the complaint that the plaintiff demands, and is entitled to, a judgment against the defendant restraining the commission. or continuance of an act, the commission or continuance of which during the pendency of the action would produce injury to the plaintiff, an injunction order may be granted to restrain it. The case provided for in this section is described in this act as a case where the right to an injunction depends upon the nature of the action.”
Section 604 provides that “ In either of the following cases, an injunction order may also be granted in an action: 1. Where it appears, by affidavit, that the defendant, during the pendency of the action, is doing, or procuring, or suffering to be done, or threatens, or is about to do, or to procure, or suffer to be done, an act in vio
It is under one or the other of these two provisions of the Code alone that the order appealed from can be justified. It is for that reason that it has been deemed necessary to make so voluminous a résumé of the complaint herein, in order to determine whether the plaintiff has brought himself within the prescribed conditions.
It is apparent from the papers in' the case that there exists a desperate fight for the control of this insurance company, made possible by the-fact that it is a domestic' stock corporation.; that its directors are elected by the stockholders, and that their terms of office expire at different periods.' When Mi-. Coyle entered into his contract for the purchase of sufficient shares of stock to control the corporation under the obligation upon his part to pay $100,000 in cash and $1,000,000 on notes secured by the shares of stock' as collateral, he received eight shares for the purpose- of qualifying eight directors who would constitute a majority of the board. Having defaulted upon his obligations to pay,- the holders of those shares, as collateral to his obligations, have caused the same to be sold, and the present holders of such shares .would control the corporation and could elect directors representing them Were it not for the fact that only three regular vacancies fell in at the time of the annual meeting. If Hr. Coyle could succeed in holding eight directorships which did not expire at said meeting, he would still ■ remain, at least for a year, in control of the corporation, although owning and controlling only eight shares out of a total capital stock of 1,250 shares. Thus, by reason of the peculiar' situation, -the interests of the policyholders represented by $80,000,000 of outstanding insurance would be in the hands of a majority of the board of directors, none of whom were policyholders and who represent but eight shares of stock as against 1,242 opposed to their management.
Realizing the possible results, of such a situation, not only to the owners of the .vast majority of the stock of the corporation but to the holders of policies of insurance- therein, appreciating that this struggle is one for the financial control of the corporation as a business proposition, regardless of its character as an insurance company,
The order appealed from grants the relief demanded by the complaint, and not only enjoins the majority of the board but the defendant company and each and every of its directors and officers, from refusing to permit and allow the defendant Gilbert from acting as a director. In other words, stripping the complaint of its verbiage and its charges of conspiracy, a court of equity is .asked to determine the title to office of a director of a corporation.
Irrespective of the merits of the controversy, and regardless of the possible consequences, we must determine first whether the court has- jurisdiction. If it has not, we have no business to consider the merits and may not be swayed by the consequences, It may be noted further, that this is not an action brought by either of the claimants to the office in dispute, but is brought by a stockholder for the purpose of determining such rival claim. For such an action no precedent is cited, either at law or in equity.
In People v. Albany & Susquehanna R. R. Co. (57 N. Y. 161) the court said: “ Elections to office, whether public or corporate, were never in England nor in this State, up to the date of the Code, matters of equitable consideration. They depended only on legal inquiries and legal principles and no instance can be found in which title to office has been dealt with by the courts on any other basis A few cases in which this rule has been recognized rather than expressly decided may be referred to : Tappan v. Gray (9 Paige, 507; affd., 7 Hill, 259); Mickles v. Rochester City Bank (11 Paige, 124); People v. Utica Ins. Co.
In People ex rel. Corscadden v. Howe (177 N. Y. 499) Cullen, J., said “ Having determined that the attempted removal of Mr. Corseadden from his office of superintendent of the penitentiary was illegal, the only question which remains to be decided in the injunction action is whether such an action can be maintained. Wej áre of opinion that it cannot. _ As early as the case of Tappan v. Gray (9 Paige, 507) it was held by the chancellor that the Court of Chancery had no jurisdiction to enjoin at the suit of the incumbent of an office the intrusion of a hostile claimant illegally appointed to the office. -This decision was unanimously affirmed by the Court of Errors (7 Hill, 259). * * * The doctrine declared in Tappcm v. Gray has been -almost invariably, followed in this State, thpre being only one reported case to the' contrary. * f * The exception referred to is Palmer v. Foley (45 How. Pr. 110).* * * ■ We are not impressed with the theory on which the Superior Court upheld the action. * * * Reis v. Rohde (34 Hun, 161) was an action between'a church and certain persons claiming to be trustees whom it was sought to enjoin from acting as such! The jurisdiction of the court to- grant the injunction seems to have. been upheld on the theory that the church itself had recognized the plaintiffs as trustees, and not the defendants. Indeed the principle that a court of equity will not entertain jurisdiction, over contests.to public office has been'so fully recognized in this State that there seems to be no direct authority in this court on the question, though several instructive cases may be found. [Citing People v. Albany & Susquehanna R. R. Co., supra, and other cases:] * * ' * If ever pub■lic convenience would have authorized the intervention of equity in a controversy beyond its cognizance, that controversy was the one-passed on by this court in People v. Albany & Susquehanna Railroad Company, where ‘a war' of injunctions’ had caused in a part
In Washington Lighting Co. v. Dimmick (41 App. Div. 596) the action was to enjoin defendants from representing themselves to be officers of the company or interfering with its business or property. The defendants concededly Had been the-president and treasurer of the company. The controversy was whether they were still such. The court at Special Term held that section 1948 of the Code of Civil Procedure provides the form of remedy appropriate to such a case as this where the corporation is a domestic one, and said, quoting from Ciancimino v. Man (1 Misc. Rep. 122): “ A court of equity has no inherent power to try the disputed title to corporate office and to enjoin one in possession from the exercise of its functions at the suit of a rival claimant.’ ‘ Such may be done and judgment of ouster rendered only in an action in the nature of a quo warranto instituted by the Attorney-General on behalf of and in the name of the people. While this action purports in its title to be brought by the corporation, it is in reality a contest between rival claimants for its control, and is consequently the kind of action that it was there said could not be maintained.” This court then said: “We think the court below was.right in denying this motion upon the ground stated in the opinion of the learned judge who heard the application.”
The learned counsel for the respondent admits the general rule that a court of equity will not take jurisdiction of a cáse for the sole purpose of determining title to office, but claims the benefit of another rule, which is, that where a court of equity has jurisdiction of a case upon some recognized equitable ground, then,-as incidental to said jurisdiction, it will not hesitate to determine the question as to who is the rightful owner of title to the office in question, either for the purpose" of interlocutory or final relief.
If it be conceded that such rule has the support of authority, the complete answer is that in the case at bar there is no opportunity for its application. The complaint in this action, brought by a-stockholder, sets forth no facts stating a cause of action cognizable in a court of equity. Mo thing is sought to be determined but the title to the office of one director.. The order enjoins a person, a de facto director, under color of an election, from acting as such,
I do not think that the plaintiff is entitled to bring the action at bar, nor do I think that the action is cognizable in equity. ■ It is not an action in quo warranto, nor is it a summary proceeding to determine the election of directors, and, therefore, the order appealed from, not being authorized by ei.ther section 603 or section' 604 of the Code of Civil Procedure, heretofore cited, must be reversed, with ten dollars costs and disbursements, and the application denied, with ten" dollars costs and disbursements, z
Ingraham, MoLahghlin, Houghton and Scott, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and application denied, with ten dollars costs.
Altorney-General v. Utica Ins, Go.— [Rep,