Case ID: nj-eq_97/html/0361-01.html
Source: Caselaw Access Project
Author: {"author": "Per Curiam.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Thomas W. McAnarney, complainant. v. Otto A. Lembeck et al., defendants.
    [Decided January 19th, 1925.]
    On appeal from the court of chancery.
    
      Messrs. Iludspelh & Demurest, for the appellant.
    
      Messrs. Perkins & Drewen and Mr. J. Henry Harrison, for the respondents.
   Per Curiam.

The complainant, a stockholder of the New Jersey Refrigerating Company, filed a bill in the right of the corporation to compel two of its officers, Otto Lembeck and Albert J. 0. Allison, to account for and pay over moneys of the corporation, which it was alleged they had wrongfully appropriated to their own use from time to time during their respective terms of office. The two defendants filed a joint answer, .in which they admit the receipt of the moneys referred to in the bill of complaint, but deny a misappropriation of any part of it by either of them. In addition to this denial they set out in their answer numerous matters concerning earlier litigations instituted by various stockholders of the company, and in which it was involved, the purpose of which was to interfere with the rights of the defendants as stockholders. The answer further set out certain agreements entered into between the members of the corporation for the purpose of terminating these litigations. There is nothing, however, in this particular part of the answer indicating that the litigations referred to, or the agreements, with relation thereto have any bearing upon the subject-matter of the present litigation. The defendants also' annex to' their answer a counter-claim, in which they charge the complainant, McAnarney, with fraudulently using funds of the corporation for his own purposes, while a manager of one of its plants, and pray an accounting therefor.

Upon the filing of the answer a motion was made to strike out so much of it as followed a denial of a misappropriation of corporate funds by the defendant, and also to strike out the counter-claim. This motion was granted. Subsequently, receivers of the corporation having in the meantime been appointed, an application was made by the defendants that the further prosecution of the present litigation be conducted by the receivers in the place and stead of the complainant. This application was denied. The present appeal brings up the order striking out the part of the answer referred to, and the counter-claim, and also the order refusing to substitute the receivers in the place of the complainant.

Taking up first the consideration of the latter order. We have no doubt that the making or refusing of the application to substitute the receivers was a matter within the discretion of the chancellor. When the suit was begun it was properly brought by a stockholder in the right of the corporation. The facts set out in the bill justify the conclusion that an application by the stockholders to the corporation itself to institute the litigation would have been unavailing.

The subject-matter of the suit and the suit itself being within the control of the court of chancery, that tribunal was entirely justified in the exercise of its discretion in refusing to substitute the receivers in the place of the complainant unless it was made to appear that in the further prosecution of the suit the complainant would not fully and fairly represent the corporation and protect its interests.

As to the order striking out a part of the answer and the counter-claim. The facts set up in the answer which have been heretofore recited are neither material nor relevant to the case laid in the bill, i. a wrongful appropriation by the defendants of the funds of the corporation of which they. were officers; for, assuming their existence, it would not excuse tbe act of the defendants in mulcting the corporate treasury, nor would it bar the corporation of its right to compel an accounting by the defendants of the moneys wrongfully abstracted by them. This being so, the portion of the answer now being considered was clearly impertinent, and was properly struck out.

We consider that the striking out of the counter-claim was also clearly right. By force of chancery rule No. 70, a counter-claim is a substitute for a cross-bill, and only those matters which were formerly the proper subject of a cross-bill can be set up in a counter-claim. The purpose of a cross-bill is to enable a defendant to make his defense more complete and effectual than it would be if he stood on an answer alone, but the new facts which he may introduce into pending litigation by means thereof are such and such only as it is necessary for the court to have before it in deciding the questions raised in the original suit, so that the court may do full and complete justice to all of the parties in respect to the cause of action on which the complainant rests his right to relief. Testing the validity of the counter-claim by this rule, it is clear that the action of the court of chancery in striking it out was entirely proper, for, assuming the facts set up 'therein to exist, those facts have no connection with or bearing upon the cause of action against the defendants set out in the bill.

The orders appealed from will each of them be affirmed.

For affirmance — The Chiee - Justice, Trenchard, Parker, Minturn, Black, Katzenbach, Campbell, Lloyd, White, Van Buskirk, Clark, McG-lennon, JJ. 12.

For reversal—None.