Case ID: ad_115/html/0380-01.html
Source: Caselaw Access Project
Author: {"author": "Clarke, J. :", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John L. Dudley, Jr., Respondent, v. Armenia Insurance Company of Pittsburgh, Pennsylvania, Appellant.
    First Department,
    November 5, 1906.
    Tort — action by former stockholder against defendant alleged to have wrecked corporation—complaint not stating cause of action — when plaintiff not entitled to attachment.
    An action based on a wrong done to a corporation as a consequence of which its stock is depreciated in value, lies in the first instance in the name of the company’and not in the name of a stockholder.
    A complaint, which in substance sets out that the .plaintiff with other stockholders pledged all his stock with the defendant to secure a note given by the corporation, and that the defendant, thus holding all the stock, wrecked the cor'poration by various means set forth, and sold the stock on the failure of .the corporation to pay the notes and which asks damages by reason of the facts ' aforesaid, does not state a cause of action. This, because the plaintiff shows himself to be no longer a stockholder, and is in the position of an outsider seeking to recover for the depreciation of stock formerly owned by him.
    In such action the plaintiff is not entitled to an attachment on the defendant’s, property, as the case is not brought within section 635 of the Code of Civil Procedure.
    ^Moreover, before an attachment can issue in an action for unliquidated damages, ' facts must be shown upon which the court can determine the amount for which the attachment should issue. When the plaintiff’s valuation of his stock shows that shares aggregating §68,000 in value were pledged to secure a note for §9,000, the estimated value is so extravagant as to destroy its probative effect.
    Appeal by the defendant, the Armenia Insurance Company of Pittsburgh, Pennsylvania, from an order of the Supreme Court, made 'at the Rew York Special Term and entered in the office of the clerk of the county of Hew York on the 3d day of July, 1906, ■denying the defendant’s motion to vacate an attachment herein upon the papers upon which it was granted.
    
      Arnold L. Devis of counsel [Robert Van Iderstine, attorney.] for the appellant.
    
      Holmes Jones, attorney for the respondent.
   Clarke, J. :

The complaint alleges that the defendant is a foreign fire insurance corporation; that .the plaintiff, on or about the 25th day 'of January, 1905, was the owner and holder of twenty-five shares of the capital stock of the corporation, the Bremer, Du Four, Pinkney & Dud-' * ley Coinpany, duly organized and existing under the laws of the State of New York, said stock being of the par value of $100 per share, and that said stock had an actual and. reasonable value of $17,000; ■ that on said day the defendant, being the owner and holder of three certain promissory notes, each dated March 5, 1904, made by Bremer, Du Four, Bing & Pinkney Company, a corporation organized under the laws of the State of New York, amounting to $9,000 in the aggregate, and being authorized as the holder thereof by the terms of the said notes, to demand or call for additional security or further collateral, did call upon the maker and certain indorsers for additional security and collateral, and the said plaintiff joined with certain of the indorsers in furnishing the collateral called for, each of said parties furnishing said defendant 25 shares of said Bremer, Du Four, Pinkney & Dudley Company stock, making in ‘all 100 shares, the whole amount of the capital stock issued by said company; that on or about the 5th day of July, 1905, the defendant, without any legal right or authority so to do, and for the purpose of injuring and destroying the value of the stock pledged with the defendant, so that when defendant would sell or cause to be sold the stock as pledged for collateral, the same would be of no considerable value and it could be acquired and purchased on said sale by or for the defendant for a nominal sum, fraudulently and falsely represented to certain officers of the Bremer, Du Four, Pinkney & Dudley Company that said defendant then owned all the stock aforesaid, asserting and representing that at that time it had duly acquired the same by proper and sufficient legal or banking methods and means, and in fraud of plaintiff’s rights as a stockholder and without the consent of said Bremer, Du Four, Pinkney & Dudley Company, seized and took possession of the office of said Bremer, Du Four, Pinkney & Dudley Company, with all the books, records and documents therein and took possession of and appropriated all bills and accounts payable arid collected the same and appropriated the same for its own use and forthwith started in to exercise through defendant’s own officers, agents and employees, the rights and functions of said company, to the exclusion of the regularly constituted officers of the said Bremer, Du Four, Pinkney & Dudley Company, and continued in the sole, absolute possession and control thereof, and caused the affairs of said company to be so conducted'and administered that all its business was destroyed, its good will ruined1 - and the stock thereof, including the stock of the plaintiff so pledged as collateral, made of no value whatsoever by.reason of said unlawful and fraudulent acts.

It further alleges that, after destroying the value of said stock, the "said defendant .pretended to sell, assign and transfer said three notes . with the collateral to the Mortgage Banking Company of Pittsburgh and that said company, after becoming the owner and holder of said notes, demanded payment thereof, of the maker, and such payment not having been made by the maker as therein .provided, caused said collateral to be sold, and said .collateral, including the 100 shares of stock of the Bremer, Du Four, Pinkney & Dudley Company, 'was sold to a party unknown to the plaintiff, for the use and benefit, of the defendant for the sum of $200 or some such nominal sum, and that by reason of the facts aforesaid the .plaintiff . has been damaged in the sum of $17,000. I

Section 635 of the Code of Civil Procedure provides that “ A . warrant of attachment against the property of one or more defendants in án action may be granted upon the application-of the plaintiff, as specified in the next section, where the action is to 'recover a sum of money only as damages for one or more of the following ■ Causes:: 1. Breach" of contract, express or implied, other than a-‘contract to marry. 2. ■ Wrongful conversion of personal property. 3. An injury to" person or property in consequence of negligence,, fraud or other wrongful act.” Section 636 provides that “ To entitle the plaintiff to such a warrant he must show by affidavit to the satisfaction of the judge granting the same as follows :1 1. That one of the causes, of action specified in the last section exists against the defendant.”

Has the plaintiff one of the causes of actions specified in section 635 (supra) against the defendant ? If he has not, the attachment was improvidently issued. The gravamen of his action is that, by the acts of defendant -set out in the complaint in taking possession of the office and business of the Bremer, Du Four, Pinkney & Dud-' - ley Company the defendant destroyed the business of said company and so destroyed the value of twenty-five shares of stock of said, company owned by the plaintiff wliicli he had deposited with the defendant as collateral security for certain notes owned by it — al though he does not allege that he was the maker or indorser of said notes, and the contrary affirmatively appears — and thus destroyed' plaintiff’s property. From these allegations it is quite apparent that this is not* an action for the conversion of the stock, because it is alleged that the plaintiff delivered said stock to the defendant as collateral security, and there is no allegation of the payment of the original notes or of a demand for the return of said shares of stock and a refusal thereof; on the contrary, the complaint alleges demand and refusal to pay the notes and subsequent sale of the collateral by the transferee of the notes, so that the complaint, if it alleges anything, alleges a cause of action for damages for the injury of property of the plaintiff by the reduction in value of this stock by reason of the alleged fraudulent or wrongful acts of the defendant. There is no allegation that he was the holder and owner of the stock at the time of the commencement of this action, but the contrary affirmatively appears.

It seems quite clear that however wrongful the acts of the defendant in taking possession of the office and business of the Bremer, Du Four, Pinkney & Dudley Company may have been, that wrong was committed against the company, and if action existed therefor it was in the name and for the benefit of the company. I do not understand that for a wrong perpetrated upon a corporation as a consequence of which the value of its stock is depreciated, an action lies in the first instance in behalf of a stockholder. (Niles v. N. Y. C. & H. R. R. R. Co., 69 App. Div. 144; affd., 176 N. Y. 119.) In cases where the wrong complained of has been that of an officer of the company, it has been frequently held that the right of action is lodged in the corporation, and that while a stockholder may in some instances sue, he can only do so after a demand and a refusal by the controlling officers of the company to sue in its own name, or by showing the existence of such a condition of affairs as establishes that such demand would be useless, and when a stockholder does thus sue, he sues for the benefit of the corporation and not directly for his own. (Greaves v. Gouge, 69 N. Y. 154; Flynn v. Brooklyn City R. R. Co., 158 id. 493.) But as the complaint nowhere alleges that plaintiff is now a stockholder, it appears to be. an action by an outsider to recover damages for acts done to a corporation by which the value ' of its stock, which he formerly owned, was injured. The moving papers do not set forth facts sufficient to constitute a cause of action.

It further appears that the action being at best for unliquidated damages, there was not sufficient evidence thereof. The papers allege that' the authorized capital stock of the corporation was $50,000, of which stock to the amount of $10,000 had-been issued, of which. the . plaintiff’s 25 shares represented the par value of $2,500. It further appears that all the capital stock issued of $10,000 par value had been deposited as collateral upon a subsequent call for additional security upon notes of a preceding company, aggregating $9,000; that is to say, if plaintiff’s claim as to value is true,. $68,000 additional to secure $9,000. The extravagance of the estimate destroys its probative effect. There are no statements of fact from which a court in the exercise of judicial discretion could determine that the" value of these 25 shares was $17,000, or any other sum; Before an attachment can issue, there must be some facts set up upon which the court can exercise its judgment as to. value and the. amount for which the attachment should issue. As said by this Court in Delafield v. Armsby Co. (62 App. Div. 262), “ It should be borne in mind * ' * * that it is only within a comparatively limited period of time that it has been possible to issue an attachment in an action to recover unliquidated damages. Hence, it is the duty of the court to give fair construction to-the provisions of the Code, which properly require, before a man’s property 'shall be taken in execution before’ judgment upon an unliquidated claim, that the papers shall contain evidence that the plaintiff has sustained the damages which he demands.”

The order appealed from should be reversed, with ten dollars costs and disbursements, and the motion to vacate the attachment granted, with ten dollars costs.

O’Brien, P. J., Ingraham, Laughlin and Scott, JJ„ concurred.

Order reversed, with ten dollars costs and disbursements, and motion to vacate attachment granted, with ten dollars costs.