Case ID: ad_124/html/0609-01.html
Source: Caselaw Access Project
Author: {"author": "Houghton, J. :", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Hugh H. Mawhinney, Who Sues on Behalf of Himself and on Behalf of All Other Persons Who Are Depositors Under the Reorganization Agreement, etc., Respondent, v. Cornelius N. Bliss and Others, Defendants, Impleaded with The Bankers’ Trust Company of New York and Thomas W. Lamont, Appellants.
    First Department,
    March 6, 1908.
    Pleading in equity — distinction between necessary and proper parties defendant — corporation — waste by reorganization committee — proper parties defendant — joint demurrer.
    There is a well-defined distinction between necessary and proper parties defendant in suits.in equity, and where a complete determination of the controversy cannot be had without the presence of other parties, the court should direct them to he brought in pursuant to section 452 of the Code of Civil Procedure, and it is eri-or for the court to proceed to j udgment in the absence of such necessary parties although no objection has been previously taken.
    As a corollary to the rule aforesaid, where a complaint in equity discloses -that certain of the defendants are proper parties, although possibly not. necessary parties, the„proper party defendant as -distinguished from a necessary party is riot entitled ,to test the complaint by the strict rules of demurrer.
    The-rules of pleading in equity are more elastic than in actions at law, and where the plaintiff in equity knows that a third person claims an interest in the subject-matter but does not know the nature, extent or merit of the claim, these facts may he stated and the claimant made a defendant and required to disclose his alleged interest. ■
    Thus, 'where a stockholder suing members of a reorganization committee in equity for waste and misapplication of securities deposited with them, shows that a trust company, the original depositary, had received certain securities but was superseded as depositary by a new trust company, to which it delivered the securities, and alleges on information and belief that the original depositary assisted the members of the reorganization committee in misappropriating and wasting the property of the plaintiff’s corporation and' shared in the profits so made, there is sufficient to put the first depositary to an answer and explanation.
    Where such complaint alleges positively that an individual, made defendant, signed the reorganization agreement, heshould he required to answer although his name does net appear among, the parties.to the agreement, the actual signatures thereto not being printed in the case.
    Where a demurrer to a complaint is joint, if had as to one demurrant it is had as to both.
    Appeal by the defendants, The Bankers’ Trust Company (sued as The Bankers’ Trust Company of New'York) and another, from an interlocntory judgment of the Supreme Court in favor' of the plaintiff, entered in the office of the clerk of the county of New York on the 25th day of November, 1907, upon the décision of the court, rendered after a trial at the New York Special Term, overruling said defendants’ demurrer to the amended complaint upon ■ the ground that the said complaint does not state facts sufficient to constitute a cause of action against tliein and the further ground that causes of action are improperly united. ' ' "
    
      Joseph M. JIartfield, for the appellants.
    
      Boger ¿Foster, for the respondent.
   Houghton, J. :

The action is brought by the plaintiff as a stockholder against certain members of the reorganization committee under a reorganization agreement respecting the American Cotton Company and other subsidiary corporations. A demurrer to the complaint by one of the committee was considered by this court under the title of Mawhinney v. Bliss (117 App. Div. 255; affd., 189 N. Y. 501), wh.ere the general facts alleged are fully stated, rendering a further statement unnecessary.

The Bankers’ Trust,Company, one of the present appellants, was the depositary of the securities under the reorganization agre'emenfc and it demurs on the principal ground that the complaint states no cause of action against it. The complaint shows that the Bankers’ Trust Company was the original depositary and received certain • stocks and securities; hut it further alleges that it was superseded by the Metropolitan Trust Companyas depositary and that itdelivered to its successor all the certificates of stock and other corporate securities which had been deposited with it. The only other allegation of the complaint connecting the Bankers’ Trust Company ■ with the acts complained of is oh. information and belief that it assisted the individual members of the reorganization committee in misappropriating or wasting the money and property of the American Cotton Company and shared in the profits so made by them. The allegation respecting the misappropriation and wasting of the assets of the corporation by these individuals is upon information and belief with an express statement that plaintiff has no knowledge of the amount of money or what property was so mismanaged or wasted. • ...

If the allegation that the Bankers’ Trust Company had received the property and securities as depositary and had thereafter transferred all of the same to its successor stood alone, manifestly there would be no cause of action stated against it and no occasion for continuing it as a party defendant to the action would he apparent. If the Bankers’ Trust Company was alone the primary party against whom an accounting was sought, it might be well said that the allegations respecting the assisting in unlawful acts and the sharing of profits were too vague and indefinite and too much of a conclusion to be called a good statement of a cause of action.

There is, however, in equity actions a well-defined distinction between necessary parties and proper parties defendant. Section 452 of the Code of Civil Procedure provides, as construed by the ' courts, that where a complete determination of the controversy before the court in an equitable action cannot be.had without the presence of other parties, the court must direct them to be brought in. (Rosenberg v. Salomon, 144 N. Y. 92.) If it appears in the course of jsuch a trial, though no objection has previously been taken, that the presence' of other parties is a necessity for the complete determination of the controversy, it is error for the court to proceed- to judgment until such .parties are brought before it. (Steinbach v. Prudential Ins. Co., 172 N. Y. 471; Mahr v. N. U. F. Ins. Society, 127 id. 452.)

Where the action is in equity and the complaint discloses that certain of the defendants are proper parties, although possibly not necessary parties, a proper party defendant as distinguished from a necessary party defendant is not entitled to test'the complaint- by the strict' rules of demurrer. Such is the logical corollary resulting from the distinction between necessary parties and proper parties to an action.

While the rules of pleading in equity are the same in" form as those in actions at law, they are broader and more elastic by reason of the character of the relief which may be desired an'd given, and, as a general rule, all persons materially interested in the subject-matter of such a suit are proper parties to it, to the end that there may be a complete decree binding upon all. Where a plaintiff in such an action knows that a third person claims an interest in the subject-matter, bnt does not know the nature, extent or merits of the claim, these'facts may be stated and. the claimant be made a party defendant and thus required to disclose his alleged interest. (Townsend v. Bogert, 126 N. Y. 370; Sage v. Culver, 147 id. 241; Satterlee v. Kobbe, 173 id. 91; International Paper Co. v. Hudson River Co., 92 App. Div. 56.)

It may transpire upon the trial that the Bankers’ Trust Company did some act in conjunction with the members of the reorganization committee for'which it is accountable, or received some part of the profits, if any, arising from the deposit of the' securities with it, which it should pay back into the corporation. If it should be eliminated as a party defendant from the action and these facts be disclosed on the trial, it would be. necessary to bring it back in as a party defendant before final judgment could be decreed.

Wé. are of the opinion that enough is.alleged in -the complaint to show that it is a proper party defendant and to put it to its answer, and explanation. ■ With respect to the defendant Lámont, the complaint alleges as a fact that he signed the reorganization agreement which is made a part of the complaint., Turning to that agreement, his name is not found amongst the parties of the first part, consisting of, the reorganization committee, but appears only in a preliminary heading where he is described as secretary to the committee. The signatures to the agreement are not printed, but the agreement provides that the third parties to it shall consist of such as shall become parties thereto by signing the same, and it recites that the reorganization committee and the trust company and other parties have set their hands and seals thereto. The signatures to the plan of reorganization appear and Lament’s name is not amongst them, nor would it properly be there for that was only a proposed plan of reorganization issued by the committee itself. The plaintiff has alleged positively that he did sign the agreement and his attorney has taken the responsibility of verifying under oath the fact as upon his own knowledge, and we are hound to take such statement in preference to the probabilities flowing from the exhibits attached to the complaint. If he did sign the reorganization agreement and thus make himself a party thereto the other allegations of the complaint apply to him and a good cause of action is stated against him. We think enough is alleged to put him to his answer concerning the matter. The demurrer is a joint one and if bad as to one it is bad as to both.

Our conclusion is that the learned court properly overruled the demurrer and that the interlocutory judgment should be affirmed, with costs, with the usual leave to the defendants to withdraw their demurrer and plead upon payment of the costs in this court and in the court below. ' . ,

Patterson, P. J., McLaughlin, Laughlin and Scott, JJ., concurred.

Judgment affirmed, with costs, with leave to defendants to withdraw demurrer and to answer on payment of costs.