109 N.Y.S. 453 | N.Y. App. Div. | 1908
Lead Opinion
This action is brought by the Attorney-General in the name of the People, pursuant to the provisions of sections 1781 and 1782 of the Code of Civil Procedure, against former and present directors
The action, .although A&byJaxQUght and prosecuted in the name of the jPeople, is in the-right of the society; and for its benefit. (Brinckerhoff v. Bostwick, 105 N. Y. 567; People v. Ballard, 134 id. 269.) These provisions of the Code, did not create, give rise to or confer upon the. parties enumerated in section 1782 aiiyjnew-causg of action, excepting with respect to the removal or suspension of directors ; and with that exception, by the provisions of those sections, the Legislature, in-the interest and for the protection.of creditors,includ-' ing policyholders and stockholders, merely’authorized' the enforcement, "by the officials and individuals designated in section 1782, of causes of action, which have accrued to the corporation and might be enforced by it or-its receiver, or by a stockholder in behalf of himself and all other stockholders in the' right of the corporation. (People v. Ballard, supra; People v. Lowe, 117 N. Y. 175.)
.There are thirty-two separate demurrers to the complaint. The demurrers interposed/by all appellants excepting Mills present a ground in common, viz., that causes, of action have been improperly united'i-n that a caiise of action against the demurring defendant has been united with a caiise -of action against another- or' other -defendants in. which Tie'is ' not interested. The appellant Mills demurs upon the grounds that facts sufficient to constitute ¿..cause of action against him are not*stated,, and that the plaintiff h¿s -not legal capacity to •sue. - Other grounds of demurrer are stated by many of the appellants; but the appeals may, .1 think, all be decided ripon the grounds to which reference has been.-made. Before discussing the questions -of law involved .in a decision of the •appeals it will be profitable to consider the plans devised, by '.author- ■ ity- for- the -management óf ■ the affairs of this society arid the-mate
There are forty-nine individual defendants, twenty-four of whom had resigned on or prior to the 5th day of August,'1905, when the action was commenced. Their terms of service commenced on divers dates from September 14, 1859, to December 7, 1904, and twelve of them were not directors prior to the 31st day of October, 1900.
After setting forth formal matters, the charter and by-laws of the society, and the period during which each defendant was a director, and which of them were members of the finance and executive committees and the pleader’s claim as to the duty of the directors, it is alleged in paragraph 4th of the complaint that “ the individual defendants herein, disregarding their said duty to said defendant society and in violation thereof, for a number of years preceding the commencement of this action, have negligently, improperly and
In the 13th paragraph it is alleged that in the year 1902 the society owned the controlling interest in the Western ¡National Bank in which' ten defendants, whose.names are specified, were stockholders and directors; that such ten directors, with two other defendants specified, ‘ and others of the individual defendants,” brought about a merger between said bank and the ¡National Bank of the United States of ¡New York on a basis which resulted in a. large gain to the individual defendants who were interested in the bank, at the expense of the society, and that this resulted in a loss and wmste of property of the society. There is no allegation that the defendants who profited by the transaction acted for the society or what any defendant did or refrained from doing with respect to consummating the merger, nor is it shown what the value of the stock which the society received was worth, and, therefore, the facts showing loss or damage are not properly pleaded.
In the 14th paragraph the defendants are charged in the same general language as that already quoted from the lltli with having during the six years preceding the commencement of the action negligently caused or suffered specified large amounts, of money, in excess of the value of- the services rendered to be paid for -salaries, and it is further charged generally, without any periodbeing-specified, that the individual defendants as directors, officers and 'members of the committees of .the society likewise caused or suffered the
It is manifest.that it was intended to embrace in the complaint many separate causes of action, some of an equitable and others of a legal nature; but it is sufficient to sustain all of the demurrers, excepting that of the defendant Mills, if it contain two or more — whether at law or in- equity is immaterial — in one or more of which some of the parties defendant are not interested. If the pleader has attempted to set forth two or more causes of action, that is sufficient for a decision of the question now under consideration, even though they be not well ¡Headed and one or both fail to state facts sufficient to constitute'a cause of action. (O’Connor v. Virginia, Passenger & Power Co., 184 N. Y. 46; Higgins v. Crichton, 2 Civ. Proc. Pep. [Browne] 317; 11 Daly, 114; 98 N. Y. 626.) Yo act of which complaint is made is charged to have been done or suffered or permitted to be done as the result of any scheme, common plan, concerted action or conspiracy or agreement on the part of any two or more of the defendants; nor are there any allegations connecting the acts' of one set of directors with those of their predecessors or successors in office. It is, therefore, quite plain that the twelve- directors elected after the alleged misconduct with respect to the renewal of the léase to the Mercantile Safe Deposit Company, are in ho manner responsible for the loss or waste of property, if any resulted therefrom. Our rules of pleading are preseribed by the Code of Civil Procedure, and no distinction is
In an action against trustees for an accounting, all are necessary parties where a right of contribution exists. (Sherman v. Paris, 53 N. Y. 483.) But if the causes of action are at law, theré could be no right to contribution; and even if they be in equity, and some be innocent of wrongdoing and yet liable to account with others guilty of wrongdoing, there could be no contribution as between those who neither participated in the same acts nor served, at the same time. Doubtless, as was held in Young v. Equitable Life Assurance Society (112 App. Div. 760), if all the defendants participated in the same acts, or if, by reason of concerted action or conspiracy, they were all chargeable with all the acts, they might be joined at least so far as the question now under consideration is concerned, which it is to be borne in mind is that the causes of action must affect all of the parties, and not whether they might otherwise be united. The rule is, I think,, well settled by decisions in analogous cases that whether the action be at law or in equity, the causes of action must affect all of the defendants, although it is not essential in equity that they shall all be affected alike; and those affected by all of the causes of action, as well as those affected only by one or more, may properly demur upon'this ground. (O'Connor v. Virginia Passenger & Power Co., supra; Nash v. Hall Signal Co., 90 Hun, 354; Nichols v. Drew, 94 N. Y. 22; Stanton v. Missouri Pac. Ry. Co., 15 N. Y. Civ. Proc. Rep. 296; Sayles v. White, 18 App. Div. 590; Higgins v. Crichton, supra; Arkenburgh v. Wiggins, 13 App. Div. 96; affd., 162. N. Y. 596; Bonnell v. Griswold, 68 id. 294; Case v. N. Y. Mut. S. & L. Assn., supra. See, also, Emerson v. Gaither, 103 Md. 564; 64 Atl. Rep. 26.) There is no propriety in requiring one defendant to join issue.
r The only remaining question necessary to be decided upon the appeal is as to whether the complaint states facts sufficient to constitute a cause of action against the appellant Hills. It appears from the schedules annexed to the complaint that lie was neither an officer of the society nor a member of the finance committee, nor of the executive committee. His liability, therefore, must be predicated upon his acts or omissions as a director merely. .It is not alleged that lie received any property of the society for which lie failed to account-, or that he voted in favor of any unlawful disposition of the. property or fraudulently connived thereat or was guilty of any breach of trust. He is not one of. the defendants named .in the complaint - as having profited directly of indirectly by fany of
The general allegations of negligence are all in the alternative and to the effect that something was done or_ Omitted. While this may be good pleading, it cannot be maintained that the affirmative act is charged, and on demurrer, as this relates to a matter of substance, and not form, the defendant is entitled to have the pleading construed as charging merely an omission of. duty. (Clark v. Dillon, 97 N. Y. 370; Abb. Tr. Br. Pl. [2d ed.] 87.) But whether it be a charge of omission or commission, the facts are not alleged, and a mere charge of negligence, whether of omission or commission, is charging a legal conclusion which is not admitted by the demurrer. (Knowles v. City of New York, 176 N. Y. 430; Talcott v. City of Buffalo, 125 id. 280; Thomas v. N. Y. & G. L. R. Co., 139 id. 163, 182; O’Brien v. Fitzgerald, 6 App. Div. 509, 513; Franklin Fire Ins. Co. v. Jenkins, supra; Van Schaick v. Winne, 16 Barb. 89; Kranz v. Lewis, supra.)
The complaint appears to have been framed upon the theory that it was intended by the Legislature to require directors, when sued under these sections of the Code, to account, as in the cases of trustees of express trusts, and that it is unnecessary to specify anything more than the fact that the defendant was a director.
Manifestly this was not the intention of the' Legislature. While it doubtless contemplated that directors who had gone out of office could be called to account as well as directors in office (see Miller v. Quincy, 179 N. Y. 294), it was never intended that it should be presumed that there was something for which a director must account. It was, I think, incumbent upon the plaintiff to allege in this case, as in any other case, in accordance with the requirements of section 481 of the Code of Civil Procedure, the facts constituting the negligence or misconduct, acts of misfeasance or malfeasance, for which it is- sought to hold the directors. Surely it was not intended to give the plaintiff any greater right in this regard, in an action brought pursuant to the provisions of sections 1781 and 1782 of the Code
Ordinarily, where a demurrer is well .taken on one ground the decision is placed on that, and the court refrains from expressing an opinion as to whether other grounds presented are tenable, because discussion thereof might be regarded as obiter, and the other questions may be obviated by the new pleading or severance of the action. (Case v. N. Y. Mut. S. & L. Assn., supra.) In the case at bar, however, other questions presented by the demurrers likely to arise under the new pleading or the pleadings served on severing the action, have been discussed with ability by the learned counsel and exhaustively presented by the briefs, and we de'em it proper to express briefly our views thereon.
First. A corporation may have a cause of action in eguity for an accounting against one or more directors for an accounting with respect to property of the corporation that has actually come into his or their hands, or for a fraudulent breach of trust with respect to the management of the corporation or its property, and for the recovery of the value of property lost and incidental damages. (Butts v. Wood, 38 Barb. 181; Bosworth v. Allen, 168 N. Y. 157; Mabon v. Miller, 81 App. Div. 10; Jacobus v. Diamond Soda Water Mfg. Co., 94 id. 366; Miller v. Quincy, 179 N. Y. 294; Porter v. International Bridge Co., 163 id. 79; Mason v. Henry, 83 Hun, 546; 152 N. Y. 529; Mutual Life Ins. Co. v. McCurdy, No. 2, 118 App. Div. 822; Gildersleeve v. Lester, 68 Hun, 532; Bowers v. Male, 111 App. Div. 209; 186 N. Y. 28; McClure v. Law, 161 id. 78; Jacobson v. Brooklyn Lumber Co., 184 id. 152.) It may also have one or more causes of action at law against one or. more directors for damages sustained by the corporation in consequence of his .or their .wrongful or negligent official acts falling within the terms misfeasance or nonfeasance. (O'Brien v. Fitzgerald, 6 App. Div. 509; affd., 150 N. Y. 572; Higgins v. Tefft, 4 App. Div. 63; Dykman v. Keeney, 154 N. Y. 483; Mutual Life
, Second. If the corporation failed to enforce the causes of action, a stockholder, on account of his personal interest as equitable owner of an undivided share in the assets (Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493, 504), is permitted in equity, although he has no standing at law, to bring an action in the right of the corporation for the benefit of all stockholders, as well ás himself, to enforce the ■ causes of action, whether of a legal or of an equitable nature; and . in such case's the decisions of the courts thus far, with one exception; seem to have gone upon the theory that because he is obliged to sue in equity, causes of action both at law and in equity may be ' joined, but that the defendants will be entitled to have issues settled and a trial before a jury as to the charges which would otherwise be of a legal nature; and yet the Statute of Limitations applicable to equitable' actions has in such cases been applied to facts held in ; other cases to constitute a cause of. .action at law, although I do not find, that it has been expressly held that the Statute of Limitations can be affected by the personnel of' the plaintiff, excepting that the decision in Higgins v. Gedney (30 App. Div. 481) is: to' that effect, and. there is an .intimation in Mason v. Henry (83 Hun, 546) to like effect, which, however, on appeal was not adopted. (Brinckerhoff v. Bostwick, 88 N. Y. 52; 99 id. 185; 105 id. 567; Gray v. Fuller, 17 App. Div. 29; Mason v. Henry, supra; Greaves v. Gouge, 69 N. Y. 154; Kavanaugh v. Commonwealth Trust Co., 181 id. 121; Flynn v. Brooklyn City R. R. Co., 158 id. 493; Sage v. Culver, 147 id.. 241; McCrea v. McClenahan, 114 App. Div. 70. See O'Brien v. Fitzgerald, supra.)
Third. The nature of the relief demanded is such that an .action brought by the Attorney-General in the name of the People pursuant to sections 1781 and 1782 of the Code of Civil Procedure, for the. removal or suspension of a director, must, I think,, be brought in equity, and doubtless, it maybe joined with a cause of action
Fourth. The opinion of the Legislature that prior to the amendment of section 1781 by chapter 157 of the Laws of 1907, the provisions of that section did not embrace a cause of action for damages caused by the mere neglect of directors to properly perform their duties, is quite significant as to the understanding of the law. The enactment of the amendment, expressly including causes of action for “ any neglect of or failure to perform their duties,” was, of course, entirely unnecessary, if such' causes of action were theretofore embraced in the section. 1 agree with the Legislature and with the Executive that they were not. Section -.1781, prior to its being amended by chapter 157 of the Laws of 1907, which had not gone into effect when the action ivas commenced, authorized the Attorney-General, in behalf of the People, or a creditor, trustee, director, manager or other officer of the corporation having a general superintendence of its concerns, to bring an action against “ one or more trustees, directors, managers or other officers of a corporation to procure a judgment” compelling them, among other things': (1) “To account for their official conduct in the management and disposition of the funds and property committed to their charge,” and (2) “ 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, of lost, or wasted, by a violation of their duties.” (See Laws of 1880, chap. 178.) These provisions are a substantial re-enactment of sections 33 and 35 of title 4 of chapter 8 of part 3 of the Eevised Statutes. (People v. Lowe, supra; People v. Ballard, supra.) The literal construction of these provisions confines their application to causes of action for an accounting in a court of equity. By the 1st subdivision they might be required “ to account ” with respect to their management and disposition of funds and property; and by the 2d- subdivision they might be compelled “ to pay ” certain money and the value of oertavn property. In neither section is there any. appropriate language to include causes of action for damages resulting from their neglect of their duties. Courts of equity, both in England and America, always had jurisdiction to call trustees to account for property, but they never assumed to exercise jurisdiction to assess against them and compel
It follows that the interlocutory judgment must be reversed, with separate bills of costs to each defendant or defendants separately appearing, and with leave to plaintiff to amend or apply for a severance of the actions.
Patteeson, P. J., and Scott, J., concurred.
Concurrence Opinion
Prior to the Revised Statutes there was considerable doubt as to the jurisdiction of the Court of Chancery to hold the directors, agents or officers of a corporation liable for a breach of their duties to the corporation at the suit of. the State. Chancellor Kent, in Attorney-General v. Utica Ins. Co. (2 Johns. Ch. 371), after an examination of the English cases, was of the opinion that the right of the State to interfere was confined to charitable corporations. The commissioners to revise the statutes reported section 33 of article 2 of title 4 of chapter 8 of part 3 of the Revised Statutes to meet this -situation, which was passed and which was subsequently re-enacted, as section 1781 of the Code of Civil Procedure, and which has remained in force as originally passed until the amendment of 1907.
Fromf this section of the Code of Civil Procedure it is apparent that the action that can be brought by the Attorney-General is the same as that which can be brought by a creditor or trustee. The People are not given any other or distinct cause of action from that vested in the others named in the section. Each of the parties there named has the same right to bring the action specified in section 1781 of the Code of Civil Procedure, and while I think it is quite clear that the action is to be brought in equity (see revisers’ notes to section 33 of the Eevised Statutes), there must still be alleged the facts to show that the defendants have violated their duties and that such violation of duty has resulted in a loss of money or property to the corporation which the corporation is entitled to recover. Certainly the somewhat remarkable position taken by the Attorney-General, that all he has to allege is the conclusion that the directors have done something that he thinks is wrong, and that thereupon he is entitled to a judgment directing all those against whom he has proceeded to account for their official acts as such directors, is not sustained by any of the provisions of the statute or by any rule of law or procedure of which we have knowledge. When an action in equity is brought under these sections, there is always a question as to the form that the judgment is to take. It is quite apparent that there might be included in such an action various causes of
With this general statement, I concur with Mr.-Justice Laug-hlin.
Clarke, J., concurred.
Judgment reversed, with separate bills of cost's to each defendant or defendants separately appearing, and with leave to plaintiff to amend or apply for the severance. of the actions as stated in opinion. " Settle order on notice.
See Laws of 1880, chap. 178, § 1781, as amd. by Laws of 1907, chap. 157.— [Rep.
Attorney-General v. Utica Ins. Co. (2 Johns. Ch. 371, 384).— [Rep.
King v. Watson (Durn. & E.).— [Rep.