Case ID: ad_151/html/0663-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Francis P. McManus and Others, Respondents, v. Howard M. Durant and Others, Defendants, Impleaded with Union Bag and Paper Company, Appellant.
    First Department,
    June 28, 1912.
    Pleading — suit for an accounting — complaint—parties defendant — demurrer.
    Where in a suit to compel individual defendants to account to the plaintiffs for secret profits on the sale of the capital stock of a corporation in which the plaintiffs and one of the individual defendants were stockholders, no misconduct on the part of the purchaser of the stock is alleged other than a general statement that it “is chargeable with knowledge of and responsibility for ” the particular misrepresentations practiced upon the plaintiffs, but the facts upon which this conclusion is based are not stated, and it is not alleged that the purchaser received any of the profits for which the plaintiffs demand an accounting, a demurrer to the complaint by the purchaser should be sustained on the ground that there was no authority for making it a party defendant.
    
      Appeal by the defendant, the Union Bag and Paper Company, from an interlocutory judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Hew York on the 3d day of June, 1911, upon the decision of the court, rendered after a trial at the Hew York Special Term, Overruling the said defendant’s demurrer to the complaint.
    
      Graham Sumner, for the appellant.
    
      Louis S. Ehrich, Jr., for the respondents.
   Laughlin, J.:

The action is brought to compel the individual defendants to account to the plaintiffs for secret profits on the sale of the capital stock of the St. Gabriel Lumber Company, Limited, a Canadian corporation, to the appellant. It is alleged that the plaintiffs were minority stockholders of the company and that the defendant Durant owned the majority of the capital stock and acted in a fiduciary capacity to the other stockholders in negotiating a sale of the capital stock to the appellant, and by false representations induced the plaintiffs to deliver their stock and certain powers of attorney to the firm of W. C. Sheldon & Co., composed of the other individual defendants, one of whom, acting under a power of attorney from the plaintiffs, colluded and conspired with the defendant Durant to induce the plaintiffs to consent to a transfer of their stock, and that the individual defendants received promissory notes of the appellant to the extent of $61,000 as part of the purchase price of said stock and concealed that part of the purchase pi'ice from the plaintiffs and retained and appropriated it to their own use. It is further alleged, generally, that the defendants claim that they have surrendered the notes in exchange for bonds of the appellant and have sold and disposed of the bonds, and that, if so, this was done for the purpose of hindering and preventing the plaintiffs from obtaining their proportion of the securities, and that if the bonds havé been sold or transferred as claimed the sale or transfer was not in good faith, and was merely colorable, and they are still subject to the claims of the plaintiffs. The relief demanded is an accounting for the secret profits, and that it be decreed that plaintiffs have an interest in the notes and in the proceeds thereof, and in any securities received in exchange therefor, and that the defendants, other than the appellant, be enjoined from collecting or transferring or exchanging the notes or bonds or other securities, and that the defendants account for the profits realized by them upon the sale of the plaintiffs’ stock, and that the appellant be enjoined and restrained from paying the notes, bonds or any substituted securities which it may have issued therefor, and that a receiver be appointed to collect and hold the notes, bonds and other securities, and for other and further relief. No misconduct on the part of the appellant is alleged other than a general charge that it “is chargeable with knowledge of and responsibility for ” the particular misrepresentations practiced upon the plaintiffs; but the facts upon which the conclusion that the appellant is so chargeable and responsible is based are not stated. It is not alleged that the appellant received any of the profits for which the plaintiffs demand an accounting.

The only theory upon which the learned counsel for the respondents attempts to sustain the interlocutory' judgment is that it may develop upon' the trial that the relief to which the plaintiffs may become entitled will require some action on the part of the appellant for the full and complete protection of the rights of the plaintiffs in the premises. There is no authority for making a party defendant, even in equity, upon such a theory. The plaintiffs must show facts which warrant them in joining as a defendant one who demurs to their complaint or moves for judgment on the pleadings. In the case at bar no facts are shown tending to justify joining the appellant, and, therefore, the demurrer was well taken.

It follows that the interlocutory judgment should be reversed, with costs, and the demurrer sustained, with costs, but with leave to the plaintiffs to amend upon payment of the costs of the appeal and of the demurrer.

Ingraham, P. J., Clarke, Miller and Dowling, JJ., concurred.

Judgment reversed, with costs, and demurrer sustained, with costs, with leave to plaintiffs to amend on payment of costs.