292 N.Y. 275 | NY | 1944
Appeal by permission of the Appellate Division, Third Department, which affirmed an order of Special Term, granting defendant's motion to dismiss the complaint on the ground that it did not state facts sufficient to constitute a cause of action. The following question has been certified: "Does the complaint state facts sufficient to constitute a cause of action?"
The complaint, originally of plaintiffs' testator, alleges three causes of action. The first cause of action alleges that on or about January 1, 1921, the 565 Fifth Avenue Corporation secured a loan from S.W. Straus Co., Inc., of $3,000,000; that the 565 Fifth Avenue Corporation executed coupon bonds as evidence of the indebtedness; that as security for the bonds the 565 Fifth Avenue Corporation mortgaged to Walter S. Klee, as trustee, a leasehold estate for a term of years commencing September 1, 1920, which leasehold was created by an indenture executed between 565 Fifth Avenue Corporation and the Fifth Avenue and 46th Street Company; that subsequently Straus National Bank and Trust Company served as trustee and thereafter defendant was substituted as trustee; that prior to January 1, 1933, plaintiff had purchased $6,000 worth of *277 bonds; that all of the bonds have matured but plaintiff has received only $720 and has been informed that no further payments will be made; that on April 17, 1938, plaintiff filed the bonds with the receiver for S.W. Straus Co., Inc., pursuant to an order of the Supreme Court, Kings County; that on November 1, 1934, a final order of dispossession was entered against 565 Fifth Avenue Corporation; that defendant did not appear or answer in the dispossess proceedings nor in any manner protect plaintiff from the consequences and financial loss of said proceedings; that by reason of that gross negligence plaintiff has suffered damages in the loss of principal and interest in the sum of $8,401.01. The second cause of action alleges that defendant was grossly negligent in failing to declare the principal of the bonds due and payable when 565 Fifth Avenue Corporation defaulted in payment of principal and interest and was grossly negligent in failing to have the property sold at auction and the proceeds distributed to the bondholders. The third cause of action alleges that the defendant was grossly negligent in failing to declare the principal of the bonds due and payable when 565 Fifth Avenue Corporation defaulted and in failing to enforce the rights of the bondholders by means of a foreclosure action.
The only issue presented is whether the complaint states a cause of action since it is not alleged that plaintiff was the owner of the bonds at the time of the commencement of the action. The Appellate Division held that the failure to allege ownership of the bonds at the time of the commencement of the action was fatal to the complaint.
That is unquestionably the rule in stockholders' derivative actions. Such an action may not be brought by one who has ceased to be a stockholder at the time of its commencement. Thus inHanna v. Lyon (
Such an action is considered that of the corporation and "no stockholder could [can] maintain an action for the loss he had [has] individually suffered in the depreciation of the value of the share stock held by him" (Kavanaugh v. Commonwealth TrustCo.,
The action here is quite different in character. The plaintiffs are suing in their own behalf for a breach of duty owed by the trustee to their testator. The action is personal and not representative. The only question is whether the right of action passed with the bonds and no longer remains with the plaintiffs. In a number of cases, this court has held the converse; that is, that where the breach was committed before the bondholder purchased the bond, he could not bring an action therefor. (Weil v. President, etc., of Manhattan Co.,
In Hendry v. Title Guarantee Trust Co. (
In Emmerich v. Central Hanover Bank Trust Co. (supra) we held that the rights of a bondholder in the case of a breach of a fiduciary duty not involving a surrender or release of the mortgaged property arise from the fiduciary relation between the trustee and the beneficiary and are purely personal to each bondholder. They exist independently of and without regard to the mortgaged property and do not pass with a transfer of the bonds.
It may be that the plaintiff's cause of action was transferred to the receiver of S.W. Straus Co., Inc., pursuant to the order of the Supreme Court. That order is not before us nor are its terms alleged in the complaint. We assume, therefore, that nothing more than the bonds was transferred. An assignment would be necessary to transfer the right of action.
The orders should be reversed, with costs to the appellants in all courts and the defendant's motion denied. The certified question should be answered in the affirmative.
LEHMAN, Ch. J., LOUGHRAN, RIPPEY, LEWIS, DESMOND and THACHER, JJ., concur.
*280Orders reversed, etc.