107 Misc. 167 | N.Y. Sup. Ct. | 1919
The Coats Manufacturing Company was a corporation organized under the Business Corporations Law of the state of New York, and its certificate
All of the demurrers may be considered together, and discussed under íavo main headings:
First. The Aralidity of the bankruptcy proceeding, and the authority of the plaintiff as a trustee in bankruptcy; and
Second. The question as to the misjoinder of the causes of action. "
First. The contention of the defendants is that in
It is beyond question that it was the strict legal duty of the directors, who were such in June, 1914, to have then proceeded to wind up the affairs of the corporation. By the statute (Gen. Corp. Law, § 35), the then directors became trustees of the creditors and stockholders of the Coats Manufacturing Company, and had full power to settle its affairs, collect and pay 'outstanding debts, and divide among persons entitled thereto other property remaining after the payment of debts and necessary expenses. The legal title to the property and property rights of the Coats Manufacturing Company, which during the corporate existence had been vested in the corporation itself, upon the termination of the period of its corporate existence, became vested in those who were directors, in trust for the creditors and stockholders, and the stockholders thereafter were merely costuis que trust entitled to share ratably in the property after the payment of debts. Central City Savings Bank v. Walker, 66 N. Y. 424. No provision of the statute continued the corporate existence even for the winding-up proceedings. Section 221 of the General Corporation Law, which provides for the continuation of the existence of a corporation after dissolution, for the purpose of paying, satisfying and discharging its
While these particular authorities are not, in my opinion, a sufficient basis for holding the Coats Manufacturing Company a de facto corporation at the time
In Von Lengerke v. City of New York, 150 App. Div. 98, the court said: “In order to establish the existence of a de facto corporation it is necessary to sIioav not only that there is a Iuav under AAdiich the corporation might be organized, and an attempt to organize it, but that corporate powers have been thereafter exercised. (Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482; Emcry v. DePeyster, 77 App. Div. 65; Van Buren v. Reformed Church of Gansevoort, 62 Barb. 495).”
It is, doubtless, true that the dissolution of a corporation by the expiration of its corporate terms can be set up as a defense in an action brought by or against the corporation upon an obligation created during such term. Sturges v. Vanderbilt, 73 N. Y. 384. To this there is no theoretical or practical objection. But the present case presents an entirely different problem. The Business Corporations Law, under which this company Avas organized (Laws of 1892, chap. 691) proAdded that the certificate of incorporation should state the duration of the corporation, not to exceed fifty years. No public policy of the state Avas, therefore, infringed by the continuance of the
If the analogy of physical death is sought to be applied to the expiration of the term of corporate existence of an organization which the law recognizes as a person, it is easy to answer that there is no greater difficulty in considering the organization as existing after its death than before its birth. And yet it is never necessary that the initial steps .should be taken in absolute accord with the statute to hold, the organization de facto existent. Such analogies are often misleading. Physical life with birth and death is an evidence of immutable natural law. Corporate life rests upon legislative fiat, and there is no reason to apply-such a doubtful analogy to such a case as this, where the same kind of acts, in so far as the corporate character of the same is concerned; were done by men similarly, .authorized by their.. associates after,, .as before, the limit of..the term of. the - corporation’s existence.
In Miller v. Coal Co., 31 W. Va. 836, where, after the termination of the period of the defendant’s corporate existence, the directors, instead of winding up
For. these reasons;. T.anr of the opinion that the Coats Manufacturing" Company; when adjudicated a bankrupt, was a de facto corporation, and that the plaintiff, as its trustee in bankruptcy, has capacity to maintain this action especially against the defendants, each
Second. The other question raised is whether different causes of action are improperly united in the complaint. Whether the action is deemed one against trustees (Gen. Corp. Law, § 35), and those to whom property has been transferred, or is deemed one against directors under section 91-a of the General Corporation Law, the action is, in all events, one in equity for an accounting as to the business transaction of those occupying positions of trust. The nature of the action in either case is the same. If the defendants, Avho were directors at the time of the expiration of the corporate existence, are deemed to be sued as trustees OAving a duty to the creditors and stockholders under section 35 of the General Corporation Law, the other defendants are added as trustees ex maleficio, or as transferees of the trust estate to account for property over which they exercised dominion. In this vieiv of the case, all of the defendants united in an unlawful common purpose, to Avit: the carrying on of the business of the'Coats Manufacturing Company Avhen the statutes expressly provided that the business should be Avound up.- Such an action is single, and Avhat is said in Mabon v. Miller, 81 App. Div. 10, of an equ’ty action by a stockholder against the directors of a corporation is applicable: “ It is- no objection to the
complaint that the defendants may- not be all equally culpable or equally liable to respond in damages or otherwise to account for the property which has been misappropriated. The principle upon which such an action is based rests in the fact that the defendants occupy a fiduciary relation, and in the discharge of their duties represent the corporation. Their dealings
This action, in my opinion, however, is rather to be considered one against the directors of a corporation (de facto to be sure, but none the less a corporation).
If this view is correct, section 91-a of the General Corporation Law is applicable, and the action is a
“ It is then claimed in support of the second ground of demurrer, namely, for misjoinder of causes of action, that if the action be not one against the directors for an accounting in the strict sense, that each separate wrongful act constitutes a separate tort for which a separate action must be brought and no relief in any way partaking of the nature of an accounting in equity can be joined with any of the tort actions. This was clearly the law of this state prior to the enactment of the statute under which this action is brought. Gen. Corp. Law, § 91-a; Laws of 1913, chap. 633. An action for damages for the misfeasance or nonfeasance of a director or officer of a corporation was an action at law subject to the rules and restrictions .governing' such actions, and could not be joined with an action for equitable relief (Higgins v. Tefft, 4 App. Div. 62; O’Brien v. Fitzgerald, 143 N. Y. 377; Mutual Life Ins. Co. v. Gillette, 119 App. Div. 430; People v. Equitable Life Assur. Soc., 124 id. 714; Moran v. Vreeland, 81 Misc. Rep. 664). But by section 91-a, supra, a jurisdiction to entertain such an action in equity on behalf of the corporation or its representatives has been expressly conferred upon this court, with a provision for the separate. trial by jury, pursuant to section 970 of the Code óf Civil Procedure, of any issue of negligence which may arise in such an action,, if either party, should ■ apply'for it.- The effect of this statute is to. do . away -with- the distinctions recognized in the cases above cited between strict actions for an accounting of property actually received and for wrongful acts, and to authorize a single comprehensive action in equity in
I am, therefore, of the opinion that the complaint states but one cause of action.
All of the demurrers are overruled with motion costs against each defendant demurring separately, with leave to each defendant demurring, on payment of said costs, to ivithdraw the demurrer and ansAver Avithin twenty days from the date of the service of a copy of the order or judgment overruling the demurrers.
Ordered accordingly. .