Case ID: ny-st-rep_21/html/0439-01.html
Source: Caselaw Access Project
Author: {"author": "Per Curiam. Truax, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Richard G. Berford, App’lt, v. New York Iron Mine et al., Resp’ts.
    
      (New York Superior Court, General Term,
    
    
      Filed November, 1888.)
    
    1. Pleading—Demurrer—Effect of—Oode Civ. Pro., § 488.
    A demurrer to a complaint on the ground that the court has no jurisdiction of the subject of the action does not concede that a cause of action is set forth, especially when, by the same demurrer, the defendant demurs to the complaint on the ground that complaint does not state facts sufficient to constitute a cause of action.-
    3. Same—Test of right to demur.
    It is not enough that a complaint demurred to constitutes a cause of action against a defendant who does not demur, in order to sustain it . against a defendant who does demur. The test is, does the complaint state a cause of action against the defendant who demurs ? If it does not, the demurrer must be sustained.
    
      3. Jurisdiction—Court has no jurisdiction to interfere with internal ADMINISTRATION OF THE AFFAIRS OF FOREIGN CORPORATIONS.
    _ The courts of this state will not interfere with the internal administration of the affairs of foreign corporations. The law does not give any remedy here in such a case, and the court has no jurisdiction of the subject of the action.
    4. Corporations—Stockholder has no power over the property of CORPORATION.
    A stockholder of a corporation, simply as a stockholder, has no power over the property of a corporation, and has no power to impose a lien thereon.
    5. Same—Who has power to ask the court to order corporation to-PAY DIVIDENDS.
    _ Only a legal holder of the shares of the corporation, if any one, has the right to ask the court (upon sufficient facts being shown) to order a corporation to declare and pay such dividends as may appear upon an accounting to be proper.
    6. Same—Lien on shares—When an accounting will not be ordered.
    A court of equity will not decree' an accounting of the lien upon the shares in a corporation belonging to a third party at the request of a person who has no lien upon such shares.
    7. Same—Who cannot demand an accounting of the dividends received ON SHARES.
    A person having no lien on or assignment of the shares of a third party cannot demand that the person holding said shares by said third party, account for the profits he may have derived while holding the same.
    Appeal by plaintiff from a judgment in fayer of defendants upon demurrer to the complaint.
    
      Roger M. Sherman, for app’lt: Francis F. Smith, for resp’ts.
   Per Curiam.

Judgment affirmed, with costs, upon opinion rendered below.

The following is the opinion of the special term:

Truax, J.

The defendants, the New York Iron Mine- and the New York Mining Company, above named; separay demur to the complaint herein, on the grounds that the court has not jurisdiction of the subject of the action; and, secondly, that the complaint does not state facts sufficient to constitute a cause of action.

The plaintiff contends that, by demurring' on the ground that the court has not jurisdiction of the subject of the action, the defendants concede that the complaint does not state facts sufficient to constitute a cause of action. In this I am of opinion that he errs.

Section 488 of the Code of Civil Procedure provides that a defendant may “demur to the complaint where one or more of the following objections thereto appear upon the face thereof.”

Logically, it cannot be said that a demurrer to the complaint on the ground that the court has not jurisdiction of the subject of the action, concedes that a cause of action is set forth; especially is this so in view of the fact that by the same demurrer the defendant demurs to the complaint on the ground that it does not state facts sufficient to constitute a cause of action. Moreover, the defendants would have had the right under the Code to demur now to the complaint, on the ground that the court has not jurisdiction of the subject of the action, and at the trial to demur on the ground that the complaint does not state facts sufficient to constitute a cause of action.

The plaintiff also contends that the demurrers to the complaint should be overruled, if it appears on the face of the complaint that any cause of action is stated against any of the defendants, and then he claims that a cause of action is stated against one of the defendants, Wetfnore, who has not, as far as it yet appears, pleaded.

I am of the opinion that this is not the law, and the cases cited by the plaintiff as authorities for this proposition, do not decide the point.

The case of Wheeler v. The Connecticut Mut. Life Ins. Co., 82 N. Y., 555, is one of the cases cited by the plaintiff.

In that case the complaint contained distinct causes of action, and the demurrer was on the ground that the complaint did not state any cause of action.

The court of appeals held that one of the causes of action was well pleaded, and therefore overruled the demurrer.

It is not enough that the complaint states a cause of action against a defendant who does not demur, in order to sustain it against a defendant who does demur. The test is, does the complaint state a cause of action against the defendant who demurs ? If it does not, the demurrer must be sustained.

It appears from the face of the complaint that the defendant, The New York Iron Mine, is a corporation organized under the Laws of the state of Michigan.

It does not appear, under the laws of what state the defendant, The New York Mining Company was organized.

The plaintiff alleges in his complaint certain facts which he claims, entitle him to the relief, as against the said defendant, The New York Iron Mine. The relief that he claims against this defendant is that it be decreed to declare and pay such dividends as may appear upon an accounting to be proper.

The case of Fisher v. The Charter Oak Life Ins. Co., reported in 52 Superior Court Reports, at page 119, is a conclusive authority in favor of this demurrer. It was there held that the courts of this state will not interfere with the internal administration of the affairs of a foreign corporatian, that the law does not give any remedy here for the things- complained of, and therefore that the court has no' jurisdiction of the subject of the action.

This demurrer of the defendant, The New York Iron Mine, is sustained.

The more important question in the case however, is, does the complaint state a cause of action against any of the defendants demurring.

The complaint is quite a lengthy one, and it is difficult to distinguish the allegations of fact from the conclusions of law stated therein.

The material allegations of fact stated in the complaint, as I read it, are the following:

On the 26th day of April, the 1st and 6th days of May, 1887, respectively, at the city of Marquette, at the state of Michigan, the defendant Wetmore made* indorsed, sold and delivered for value to the First National Bank of Nequanee three certain promissory notes, by each of which the defendant The New York Iron Mine, by the said Wet-more, promised to pay sixty days after date, for value received, to said First National Bank $5,000, and that the-First National Bank thereupon paid said Wetmore the amount of the said three notes, less the legal interest thereon.

That said Wetmore induced said bank to discount said notes, by representing to the said bank that he was expressly and duly authorized by the defendant The New York Iron Mine to make said notes : that he could and did by his execution of said notes bind the defendant The New York Iron Mine, its property and assets, for the payment of the. same; and that the said bank relied upon the said representations when it discounted said notes, and paid the-proceeds thereof to the said Wetmore.

The said Wetmore was not authorized by the defendant, The New York Iron Mine to make said notes or said representations,- and he had no power (except as hereinafter set forth), to bind the defendant The New York Iron Mine, its property or assets, for the payment of said notes, all of which facts he then and there knew and concealed from the said First National Bank.

That said Wetmore obtained said money from the said .bank for the purpose of enabling him to realize certain interests in the profits of the said New York Mine, and he applied the said proceeds to his own use ; and in the books of account of the said defendant The New York Iron Mine, which were then in the possession and control of said Wetmore, as an officer and director thereof, he charged said notes as obligations against himself.

That the said bank assigned said notes to one John. Michell; that Michell died and administrators were duly-appointed on his estate.

That said administrators ■ sold, assigned, conveyed and •delivered the notes, and all the liens and privileges appertaining thereto, to this plaintiff; and that said notes were duly presented for payment, and payment was refused, and said notes were duly protested, and remain wholly unpaid.

That the New York Iron Mine was a corporation organized under the laws of the state of Michigan. That its capital stock was 20,000 shares, of which the said Wetmore then owned 5,333 shares, and the said Samuel J, Tilden owned the rest of said shares. That14,000 shares were at the time of the discounting of the notes by the said bank, then in the possession of Tilden as collateral for certain debts of Wetmoi’e under a written instrument dated May 31, 1876, and that it is claimed by Tilden and his executors that said shares became collatez-al to cez’tain other debts uzider an instrumezit dated May 31, 1877.

That Wetmore was adjudged a bankrupt, and is wholly insolvent, and a judgment and executiozi at law would be wholly ineffectual against him.

The complaint further alleges that Tilden and the New York Iron Mine have omitted to state the accounts of the coz-poration since May 31, 1877, and to make any dividends of its property or profits; and that The New York Iron Mine has ceased to do business.

That Tilden and The New York Iron Mine have procured the incorporation of a company knowzi as the New York Mining Company, and transferred to it without consideration all the property of the New York Irozi Mine except cash and negotiable and convertible assets.

That Tilden and The New York Iron Mine have procured a new lease in the name of said Tilden and The New York Mining Company of certain property theretofore held under lease by The New Yoz-k Iron Mine, and have proceeded to conduct the business of The New York Iron Mine under the name of the New York Mining Company. That Tilden and the New York Mining Company have made profits out of the property transferz-ed to it.

That The New Yoz'k Iron Mine permitted said Tilden to retain in his individual possession all the cash and negotiable and convertible assets of the New York Iron Mine, which amounts to upwards of $400,000

That the executors of said Tilden have in their possession said sum of $400,000.

That the defendant Samuel J. Tilden died on the 4th day of, August, 1886, and the defendants, Green, Bigelow and Smith, were duly appointed the executors of his last will and testament, and that they have qualified and remain, such executors.

The relief which the plaintiff asks for is for a discovery and an accounting of the assets of The New York Iron Mine in the possession of the said defendant’s executors and of said New York Mining Company for an account of the property, assets and profits of The New York Iron Mine, and of the share therein of said William L. Wet-more upon said 5,333 shares of the stock.

For an account of the liens upon said shares of said William L. Wetmore of the the New York Iron Mine.

For an account of the liens upon said share of said defendant’s executors. '

For an account of the liens upon said share of said defendant, Peter White.

That the defendant, The New York Mining Company, and said executors, defendants, may be required to pay to*. the New York Iron Mine or a receiver to be appointed for that purpose, such sum as shall be found due upon such accounting, and to transfer and deliver, accordingly, all property and assets of said New York Iron Mine in the-possession and control of them or either of them.

That upon the share of said William L. Wetmore in the-assets and profits of said New York Iron Mine, said corporation shall be decreed to declare and pay such dividends, as may appear upon such accounting to be proper.

That it be decreed what liens and obligations aforesaid are prior to the lien of the plaintiff, and that so much of such dividend as may be declared or decreed as exceeded the liens and obligations aforesaid, prior to the lien of the-plaintiff may be decreed to be paid to the plaintiff, to the-extent necessary to discharge said notes.

That it be decreed that the lien of the plaintiff upon such share of said William L. Wetmore is valid as against and prior to any lien of said Peter White created subsequently to the date of said notes, or any claim of Mathew H. Maynard as assignee in bankruptcy of said William L. Wetmore, and as against any lien of the New York Iron Mine, and of said executors, defendants, under the instrument aforesaid, dated May 31, 1877, except for cash then actually advanced and paid on the faith of the same.

That a receiver of the property and assets aforesaid be appointed, and that the defendants, during the pendency of the action and permanently, be enjoined from parting with or disposing of the property aforesaid, except in conformity with the decree of this court, and finally for other-relief.

There are other statements in the complaint which seem to me to be not statements of facts, but conclusions of law. For instance, it is alleged that the said Wetmore, as owner of 5,833 shares of the capital stock of the said Yew York Iron Mine, owned and was interested in the capital, property, profits and assets of said corporation.

That the claim and assertion made by said Tilden, and the executors of said Tilden, that said stock is held by them as collateral security, are invalid and inequitable as against this plaintiff.

That by virtue of the premises, and otherwise by operation of law and by express assignment, all the right, title and interest in and to all the property, profits and assets of the said Yew York Iron Mine of said William L. Wetmore, which he had on the dates of said notes by virtue of his ownership of said 5333 shares of stock, were pledged and appropriated for the payment, respectively, of said notes.

I do not consider this last statement as an allegation that the said Wetmore assigned his right, title and interest in any other way than in the way which the plaintiff claims was an assignment by operation of law. It is true that in a portion of the complaint, the plaintiff alleges that by means of the charge which the defendant Wetmore made against himself on the books of the defendant, The Yew York Iron Mine, and by “divers other means,” said Wetmore authorized and directed said defendant, The Yew York Iron Mine, to pay said notes out of his interest in the said Yew York Iron Mine, its property, profits and assets, and appropriated the same therefor.

Even if the said Wetmore did authorize and direct the said defendant to pay said notes, it imposed no legal obligation on the defendant to do as Wetmore had authorized and directed.

There is no allegation that The Yew York Iron Mine ever promised to do as the said Wetmore had authorized and directed it to do, nor do the facts stated amount in law to an assignment and .appropriation of any portion of the property, profits and assets of The Yew York Iron Mine to the payment of the notes above referred to, nor could the defendant Wetmore, by his mere statement to that effect, bind the property and assets of the defendant, The Yew York Iron Mine, for the payment of the said notes.

The facts alleged in this complaint would not give the plaintiff a lien on the property and assets of The Yew York Iron Mine even if the mine itself had made the notes.

A stockholder of a corporation, simply as a stockholder, has no control over the property of the corporation, nor has he the power to impose any lien thereon.

It is nowhere alleged in the complaint, that Wetmore intended, or attempted to create, a lien upon the stock of The New YorkTron Mine, owned by him, or to assign that stock as collateral security for the notes made by him.

This court has not the power, nor would it on proof of the facts alleged in the complaint, order The New York Iron Mine to declare and pay such dividends as may appear upon an accounting to be proper.

The relief can be asked for only by the legal holder of the shares of a corporation, if by anyone, and the complaint shows that the shares of the corporation are held by some one other than the plaintiff.

It is nowhere alleged that there are any earnings to ■divide.

A discovery and an account of the assets of The New York Iron Mine in the possession of the defendants, executors, and of the said New York Mining Company, and for an account of the property, assets and profits of The New' York Iron Mine, and of the shares therein of said William L. Wetmore, upon said 5,333 shares of its stock can be decreed only in favor of a shareholder.

As the plaintiff is not a shareholder he is not entitled to this relief, nor will a court of equity decree an account of the liens upon the share of said Wetmore at the request of a person who has no hen upon such share.

The facts stated in the complaint do not show that the plaintiff has such a lien on the shares of said Wetmore, nor did they operate as an equitable assignment thereof. See Williams v. Ingersoll (89 N. Y., 518). Dows v. Kidder, 84 id., 130, is not an authority for the proposition contended for by plaintiff.

As I read that case, it is an authority for the proposition only, that when A converts certain property of which B is the owner, to his, A’s, own use, delivers it to C to sell, and C sells it, B has a cause of action against C for the amount of the proceeds of the property that 0 had in his hands at the time he received notice from B that he, B, was the owner of the property.

It also follows' that if the plaintiff has no lien on or assignment of Wetmore’s shares, he, the plaintiff, cannot ask the defendants, the executors of Tilden, to account for the profits that they have derived while holding said Wetmore’s shares.

It seems to me that the action against The New York Mining Company is in the nature of an action to set aside a transfer to that company made by,The New York Iron Mine, whom the plaintiff claims is a debtor of Wetmore, who is plaintiff’s debtor, on the ground that such transfer as between The New York Iron Mine and the New York Mining Company, was made without consideration, and for the purpose of impeding, "embarrassing, hindering and delaying the owners and holders of said notes and causes of action.

The plaintiff is not a judgment-creditor of The Hew York Iron Mine, nor does he allege that the company is insolvent, and therefore he cannot set aside a transfer made by that company.

It does not appear on the face of the complaint that the defendant, The Hew York Mining Company, is a foreign corporation, and therefore the demurrer by that company that the court has not jurisdiction of the subject of the action is overruled, and for the same reason that portion of the demurrer of the defendants, Tilden’s executors, is also overruled.

The demurrer of The Hew York Iron Mine is sustained, with costs. The demurrer of The Hew York Mining Company and of the defendants, Tilden’s executors, that the complaint does not state facts sufficient to constitute a cause of action, is sustained, but without costs.

The plaintiff may amend within twenty days on payment of costs.