152 N.Y.S. 102 | N.Y. App. Div. | 1915
In 1897 a domestic corporation called Besson & Co. was organized to deal in lumber, coal, wood and building materials. All of the capital stock, 205 shares, was issued to Smith, who gave 40 shares to Murray and 5 shares to Disosway, and there was no change in those holdings until Smith died. These three men became and remained throughout the directors. Smith became president, Murray vice-president and manager, and Disosway, secretary and treasurer. There was no change in these officers until Smith died. The corporation was in the full sense of the word a venture, because the firm of Besson & Co., its predecessor, had become insolvent and was virtually moribund in 1897, so that Smith, its creditor in a large sum, had taken over its business, assumed its liabilities and had caused the organization of the corporation. Naturally enough, these three men seemed to deal with this close corporation as if it were a copartnership. Corporation procedure, observed somewhat for some time, fell into desuetude, and so from 1903 until 1912 there is no record of any meetings of directors or of stockholders, and there is proof that there was none. However, corporation books were kept, and at the end of each year a statement of the condition of the corporation was furnished to each stockholder. The corporation was successful, for although no dividends were paid, yet at the death of Smith it had a surplus of more than $50,000 and there were no creditors.
Some of the transactions for which Smith may be held responsible are of such a character, especially as mala proMbita, that the defenses of ratification or acquiescence, or in view of the circumstances the defense of the Statute of Limitations are not available, while others of the transactions are open to the defense of ratification and acquiescence. The discussion is naturally divided by these two classes, and I shall consider first the transactions that are immune from this attack by this stockholder. The trial court made many findings, but it is unnecessary to reproduce them or to epitomize them now, inasmuch as I shall discuss the facts later on as they are supported by proof, and, therefore, justly found by the court. The qpurt found without exception that, prior to May 2, 1899, Ellen W. Besson, a connection by marriage of the said Smith, received about $6,600 moneys of the corporation, and that such moneys were loans. The loans were entered and carried on the books of the corporation, but there is no record of the manner, or of any corporate procedure, if there were any, whereby this money was lent to Mrs. Besson. The court found without exception that this money had been taken from the treasury of the corporation, and the record, though vague, indicates that
The said Disosway bought building materials from the corporation. He was a resident of Dobbs Ferry, where this corporation carried on its business. He was reputed to be a man of wealth and of property, interested in several shops and possessed of realty in the county of Westchester. He bought the materials for improvement of his property. He was treated as was any other customer, and charged with the purchases on the books in an account which had amounted to $50,000. There is no proof of any discrimination in his favor in prices, terms or credits. There is no indication that the extension of credit to him was other than a fair risk of business. At the time of Smith’s death, Disosway had reduced his debt to less than $7,000. It was not shown that this was uncollectible. Such purchases were voidable, not void. (Twin-Lick Oil Co. v. Marbury, 91 U. S. 587.) It is contended that Smith was answerable for such balance, not only on account of the relationship of Disosway with the corporation, but also because Disosway, being personally indebted to Smith, had assigned his life insurance policy of $5,000 to Smith as security, which was collected by Smith’s executors; and because, in December, 1911, Disosway and his wife conveyed certain realty to Smith’s executors on account of the said indebtedness to Smith. In the first transaction Smith himself had but taken security, and in the second transaction Smith, of course, had no part. I think that there was no breach of Smith’s fiduciary obligation as a director in that he secured security for a personal debt due from one who had an account with or was indebted to the corporation.
The question presented in this case is, not whether a stockholder had such a remedy, but whether this stockholder had it at the time he invoked it. The plaintiff, as we have seen, was a stockholder from the outset until the death of Smith, and for the same period he was vice-president, director and the manager. He devoted his entire time to the business at Dobbs Ferry. The books of the corporation were kept in its office at that place, were open to him, and were looked into frequently by him. They showed the loan to Mrs. Besson in specific terms. The plaintiff received at the close of each year statements of the corporate affairs in detail, that specified the loan, and he admits that he examined the statements and understood them, for he had been a bookkeeper. If we believe that he did not know of the loan to Mrs. Besson before or at the time it was made in 1899, that he did not learn of it from the books wherein it was entered — and our credulity is taxed when we remember his close association with this close corporation—we must believe that he knew of the loan when he received, read, examined and understood the annual statements wherein it was set forth. In any event the law will impute such knowledge to him. He knew of the increase of salaries in 1903,
The doctrine of acquiescence, as said in Lowndes v. Wicks (69 Conn. 15, 30), is “well defined as quiescence under such circumstances that assent may be reasonably inferred from it.” (2 Pom. Eq. Juris. [3d ed.] § 965 and note; Pollitz v. Wabash R. R. Co., 207 N. Y. 113, 129; Kent v. Quicksilver Mining Co., supra.) Upon the authorities cited, to which I may add Hoyt v. Latham (143 U. S. 553) and Klein v. Independent Brewing Assn. (231 Ill. 594), I think that the plaintiff must be held to acquiescence as to these said transactions. (See, too, Morawetz Corp. supra, § 262, note 2.)
But, as I have said, there are other transactions as to which this judgment should not be affirmed. Between January 1, 1907, and the time of his death, Smith withdrew moneys from the corporation which at the latter period amounted with interest to $12,614.97, and prior to Smith’s death Disosway had become indebted to the corporation for money received, which, according to the statement of January 1, 1911, amounted to $3,637.47. The court has found without exception that these moneys represent loans to these two persons. These moneys were entered and carried on the corporate books as such loans These loans were made to these
The learned counsel for the appellant calls to our attention that there is no loss to the corporation by the loans to Smith or to Ellen W. Besson, but I think that proof of loss to the corporation was not essential. The stockholder in such an action has the right to insist that the illegal act be undone. (Byrne v. Schuyler Electric Mfg. Co., 65 Conn. 336; Schwab v. Potter Co., supra.)
The judgment must be modified so that the plaintiff recover for the corporation the amounts of the loans to Smith and to Disosway, with interest, and. consequently the findings that are to the contrary are disapproved and appropriate findings will be made in their stead; and when the judgment is thus modified it will be affirmed, without costs to either party. The parties must submit proposed findings to this court within twenty days.
Burr, Thomas, Carr and Rich, JJ., concurred.
Judgment modified in accordance with opinion by Jenks, P. J., and as so modified affirmed, without costs to either party. Parties must submit proposed findings to this court within twenty days. Order to be settled before the presiding justice.
See Code Civ. Proc. § 388.— [Rep.