Robinson v. Smith

3 Paige Ch. 222 | New York Court of Chancery | 1831

The Chancellor.

Before I proceed to examine the merits of this case, it may be proper to refer to the causes assigned as special grounds of demurrer. And first, it is said there are other stockholders who ought to be made parties. Where it is not apparent from the. bill itself that necessary parties are omitted, it can be taken advantage of only by plea or answer; showing who are the necessary parties, and making the objection of a want of parties in a plain and explicit manner. (2 Paige’s Rep. 280. 1 Monro’s Kent. Rep. 107. 1 A. K. Marsh. Rep. 112. 1 Hogan’s Rep. 70.) The defendants can demur only when it is apparent from the bill itself that there are other persons who ought to have been made parties. And the demurrer should show who are the proper parties. It is true the capital stock of the corporation is, by the charter, to consist of 4000 shares; and the complainants own but 160, But it also appears from the act of incorporation, that the defendants who were directors must also have been stockholders. And from aught that appears to the contrary, they may now be the owners of all the residue of the stock subscribed.

The objection for multifariousness cannot be sustained. All of the complainants are cestui que trusts, having similar interesls, in every respect, and arising out of the same trust. They are seeking precisely the same redress against their trustees, and for the same acts; by which they allege they have received a similar and common injury. There is, therefore, no good reason for requiring them to file separate and distinct bills. It is a favorite object of this court to prevent a multiplicity of suits. And where several persons have a common interest, arising out of the same transaction, although their interest is not joint, even the defendant may sometimes insist that they shall all be made parties, that he may be only subjected to the trouble and expense of one litigation. Upon the principle of the decision of this court, in Brinckerhoff v. Brown, (6 John. Ch. Rep. 139,) the complainants were authorized, if not required, to join in this suit.

The objection that a discovery may subject the company to' a forfeiture of its charter, is not sufficient to support this general demurrer to the whole bill, both as to the discovery and relief, even if it would have authorized a demurrer to the discovery of particular facts. Under the provisions of the revised statutes, the defendants may be compelled to make a discovery, in certain cases, although it may subject the corporation to a forfeiture of its corporate rights., (2 R. 8. 465, § 52.)

If the allegations in this bill are true, there is no doubt that the directors of this company were "guilty of a most palpable violation of their duty, by engaging in this gambling speculation in stocks, which was wholly unauthorized by their charter ; and which the bill alleges was carried on to subserve their own individual interests and purposes. I have no hesitation in declaring it as the law of this state, that the directors of a monied or other joint stock corporation, who wilfully abuse their trust, or misapply the funds of the company, by which a loss is sustained, are personally liable as trustees to make good i that loss. And they are equally liable, if they suffer the corporate fmids or property to be lost or wasted by gross negligence and inattention to the duties of their trust. Indepen- . dent of the provisions of the revised statutes,’ which were passed after the filing of this bill, this court had jurisdiction, so far as the individual rights of the- corporators were concerned, to-call the directors to account; and to compel them to make satisfaction for any loss arising from a fraudulent breach of trust* or the wilful neglect of a known duty. To this extent Chancellor Kent, in the case of The Attorney-General v. The Utica Ins. Co. (2 John. Ch. Rep. 389,) admitted the court had jurisdiction ; although he doubted the general powers of this court over the corporation itself to prevent an abuse of its corporate privileges. Until very recently, but few incorporated companies, in which individuals had any direct pecuniary interest, existed in England, except corporations for charitable purposes. And this court would very reluctantly interfere with the concerns of mere municipal corporations, where a sufficient remedy is afforded, by mandamus or quo warranta, or by an indictment against the officers of the corporation, for any abuse of their powers by which the public has sustained an injury. But since the introduction of joint stock corporations, which are mere partnerships, except in form, the principles which were formerly applied to charitable corporations in England, may be very appropriately extended to such companies here. The directors are the trustees or managing partners, and the stockholders are the cestui que trusts, and have a joint interest in all the property and effects of the corporation. (See Wood’s Inst. B. 1, ch. 8, p. 110. 11 Coke’s Rep. 98, b.) And no inj ury the stockholders may sustain by a fraudulent breach of trust, can, upon the general principles of equity, be suffered to pass without a remedy. In the language of Lord Hardwicke, in a similar case, “ I will never determine that a court of equity cannot lay hold of every such breach of trust. I will never determine that frauds of this kind are out of the reach of courts of law or equity; for an intolerable grievance would follow from such a détermination.” (2 Atk. Rep. 406.) The demurrers on the record are therefore not well taken, and should be overruled.

The defendants have, however, assigned as causes of demurrer, ore tenns, that it is not alleged in the bill that the corporation, by its officers, refused to sue, or that the defendants are the present directors, having the control of the corporation ; and that therefore the suit should have been in the name of the corporation. That even if a sufficient excuse is shown, by the bill, for bringing the suit in the name of the stockholders, the corporation should be before the court as a party defendant. I think at least one of these objections is well taken; and that the corporation should be before the court, either as complainant or as a defendant

Generally, where there has been a waste or misapplication of the corporate funds, by the officers or agents of the company, a suit to compel them to account for such waste or misapplication, should be in the name of the corporation. But as this court never permits a wrong to go unredressed merely for the sake of form, if it appeared that the directors of the corporation refused to prosecute by collusion with those who had made themselves answerable by their negligence or fraud, or if the corporation was still under the control of those who must be made the defendants in the suit, the stockholders, who are the real parties in interest, would be permitted to file a bill in their own names, making, the corporation a party defendant. And if the stockholders were so numerous as to render it impossible, or very inconvenient to bring them all before the court, a part might file a bill, in behalf of themselves and all others standing in the same situation. (Hichens v. Congreve, 4 Russ. R. 562.) Although the revised statutes have provided for eases of this kind in future, this bill cannot be sustained, unless it is made to conform to the law as it existed at the time the suit was commenced.

The demurrer ore tenus is therefore allowed, upon payment by the defendants of the costs of the demurrer on the record. (Attorney-General v. Brown, 1 Swanst. Rep. 288. Durdant v. Redmond, 1 Vern. 78.)^(a) But the complainants are to be at liberty to amend, as they may be advised.

(a) A demurrer ore terns appears to be in tire nature of a new demurrer to the same part of the bill which was before demurred to. And it is allowed in this form, upon the argument of the demurrer on record, to prevent injustice ; as the defendant cannot again be allowed to demur to the same matter in any other way. (See 11 Ves. Rep. 70.)