178 A.D. 589 | N.Y. App. Div. | 1917
Lead Opinion
The plaintiff brought this action as a judgment creditor of the defendant corporation to compel the individual defendants to account to a receiver to be appointed by the court, on the theory that as officers and directors of the company they distributed to themselves and to one Ansaldi, who was its president, the sum of $32,999.99, in violation of their duty and of law, leaving the company without sufficient assets to satisfy the plaintiff’s claim.
The prayer for relief follows the provisions of "subdivision 2 of section 90 of the General Corporation Law (Consol. Laws, chap. 23; Laws of 1909, chap. 28) by demanding that the defendants account for any money and the value of any property which they have acquired to themselves or transferred to others or lost or wasted-by violation of their duties as directors; but that the money for which they are liable be paid over to the receiver for the benefit of the company and its creditors instead of directly to the company or to its creditors as provided in the statute. The complaint clearly shows that the action is based on the provisions of said section 90 of the General Corporation Law, and was brought by a creditor by virtue of section 91 thereof. The judgment recovered is for the amount of a judgment recovered by plaintiff against the corporation and with interest thereon together with costs. The recovery, however, is in favor of the plaintiff, without the appointment of a receiver, and against the individual defendants for the amount of the judgment and interest together with costs, and against the corporation for costs only. The complaint was not amended. The learned counsel for the respondent contends in his points that the action was brought under said section 90 of the General Corporation Law and that the recovery is sustainable thereunder. The provisions of that section, so far as material here, are contained in subdivision 2, which, among other things, authorizes an action against officers or directors to recover a judgment, as follows: “Compelling them 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, or lost, or wasted, by or through any neglect of or failure to perform or by other violation of their duties.”
At the time the restaurant closed there was sufficient cash on hand to pay the current obligations; and all indebtedness of the company other than its indebtedness to the plaintiff secured by the chattel mortgage, with the exception of an item of $23.87 for unclaimed wages, had then been paid. It was intended at the time to close the restaurant only for
Notwithstanding the theory of the action as shown by the complaint, the contention is now made on evidence offered by the plaintiff and received without objection that the defendants received their stock without consideration, that all disbursements made after the demand for the payment of interest on the mortgage which fell due on the 31st of December, 1913, were in violation of the provisions of section 66 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61), and that the withdrawal of money as salaries by the defendants and by Ansaldi by their authority constituted an impairment of the capital and rendered them liable jointly and severally under section 28 of the Stock Corporation Law for restoration of the entire amount drawn by them and by Ansaldi as salaries.
It is claimed in behalf of the appellants that the plaintiff was the only creditor, and the evidence shows not only that
The learned counsel for the respondent does not contend that the judgment may be sustained either on the theory
It is manifest that the judgment cannot be sustained under section .55 of the Stock Corporation Law, not only for the reason that a violation of that section was not alleged and the complaint was not amended, but for the further reason that the liability of each of the defendants on that theory would in any event be limited by section 56 of the Stock Corporation Law to the capital stock received by him. (See Ford v. Chase, 118 App. Div. 605; affd., 189 N. Y. 504; Myers v. Sturgis, 123 App. Div. 470; affd., 197 N. Y. 526; Jeffery v. Selwyn, 220 id. 77.) It is quite clear under the authorities that the stock was neither issued for cash nor for property contributed by the stockholders, for the contracts which it is claimed afforded the consideration were expressly made for and inured to the benefit of the corporation upon its formation (Avon Springs Sanitarium Co. v. Weed, 119 App. Div. 566; reversed on dissenting opinion, 189 N. Y. 557; Herbert v. Duryea, 34 App. Div. 478; affd., 164 N. Y. 595), and in so far as they provided for the rendition of services in the future by the three stockholders that element is not a consideration for which the issuance of capital stock is authorized by section 55 of the Stock Corporation Law. (Stevens v. Episcopal Church History Co., 140 App. Div. 570; Morgan v. Bon Bon Co., Inc., 165 id. 89.) But the defendants were entitled to litigate those questions and any others on which their liability to answer therefor depends and such issues were not presented for litigation by the pleadings. While, therefore, apparently the stock was issued without consideration, for the reasons assigned the judgment as entered cannot be sustained, nor can it be sustained for any amount on that theory. (See Curran v. Oppenheimer, 164 App. Div. 746.)
I am also of opinion that the judgment cannot be sustained
The recovery, therefore, if sustainable at all, must be sustained on the theory on which the action was brought, namely, that these disbursements of money made by the directors to themselves as salaries, which for that reason were voidable at the instance of the corporation, may be avoided by its creditors on the ground that the capital of the corporation was thereby impaired in violation of the provisions of section 28 of the Stock Corporation Law, which are as follows: “ The directors of a stock corporation shall not make dividends, except from the surplus profits arising from the business of such corporation, nor divide, withdraw or in any way pay to the stockholders or any of them, any part of the capital of such corporation, or reduce its capital stock, except as authorized by law. In case of any violation of the provisions of this section, the directors under whose administration the same may have happened, except those who may have caused their dissent therefrom to be entered at large upon the minutes of such directors at the time, or were not present when the same happened, shall jointly and severally be liable to such corporation and to the creditors thereof to the full amount of any loss sustained by such corporation or its
It follows, therefore, that the judgment should be reversed, with costs, and that any findings inconsistent with the views herein expressed should be reversed, and appropriate findings in accordance with these views should be made directing an accounting before a referee to be appointed by the order of this court which should be settled on notice.
■ Scott and Smith, JJ., concurred; Clarke, P. J., and Page, J., dissented.
Dissenting Opinion
(dissenting):
This action was brought by a judgment creditor of the corporation defendant to compel the individual defendants, directors of the corporation, “ to account for their official conduct, including any neglect of or failure to perform their duties, in the management and disposition of the funds and property, committed to their charge ” and also to compel them to pay to the corporation or to its creditors, “ any money, and the value of any property, which they have acquired to themselves, or transferred to others, or lost, or wasted, by or through any neglect of or failure to perform or by other violation of their duties.” (Gen. Corp. Law, § 90, subds. 1, 2.)
The bringing of this action by a creditor of the corporation
To say that surplus profits may be appropriated to the payment of stock subscriptions violates a fundamental distinction; profits are first to be appropriated to pay debts and thus constitute a fund in addition to capital. The payment of the subscription of the shareholder out of the profits of the corporation is an appropriation of the money of the corporation to pay the individual debt of the stockholder.
Mr. Justice Latjghlin states these various violations but holds that relief cannot be given for the reasons, first, that specific remedies are provided in those sections which the plaintiff must invoke, and second, that the facts are not sufficiently alleged in the complaint.
In this, in my opinion, the theory of the action is misapprehended. An action under section 90 of the General Corporation Law is to compel the director to account for his violation of duty. Allegations of several violations do not constitute separate causes of action, but are merely additional specifications of the primary duty violated and give rise to but one cause of action. In this action relief will be given even though for some of the specific acts there exist other and different remedies, even if for some an adequate remedy at law is provided. (Moran v. Vreeland, 81 Misc. Rep. 664, 672; affd., 162 App. Div. 907, and cases cited.)
In the instant case the complaint contains a prayer for general relief, an answer was interposed,' and the facts were either stipulated or proved without objection. Therefore, although the complaint may be justly criticized, yet the facts proved are not in hostility to the cause of action alleged and all might have been properly embodied in the complaint. This case, therefore, comes within the rule declared by the Court of Appeals. “ While the complaint is not as full as it should be, still the plaintiffs were entitled to relief upon the facts alleged, and if it had been amended so as to conform to the proof, all deficiencies would have been supplied. There was a prayer for general relief and, after an answer has -been interposed, any judgment may be awarded that is warranted by the facts proved and consistent with the facts alleged, even if it does not precisely conform to the pleader’s theory of the action, provided it is not hostile thereto.” (Rogers v. N. Y. & T. L. Co., 134 N. Y. 197, 219.)
The plaintiff is the only creditor and the amount wrongfully
Clarke, P. J., concurred.
Judgment reversed, with costs, and accounting ordered before a referee as directed in opinion. Order to be settled on notice.