Case Name: George H. Gillette, Appellant, Respondent, v. Horatio T. Noyes and Others, Respondents, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1904-03
Citations: 92 A.D. 313
Docket Number: 
Parties: George H. Gillette, Appellant, Respondent, v. Horatio T. Noyes and Others, Respondents, Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 92
Pages: 313–318

Head Matter:
George H. Gillette, Appellant, Respondent, v. Horatio T. Noyes and Others, Respondents, Appellants.
Injunction sought by a majority stockholder, restraining the directors of a corporation, minority stockholders, from holding a special meeting or disposing of its assets— the complaint and moving affidavits verified on information and belief, not stating the sources thereof, are insufficient.
The plaintiff in an action .will not be granted a temporary injunction where the allegations of the complaint and the statements contained in the moving affidavit are made either upon the plaintiff’s understanding or upon his information or belief, and neither the basis of his understanding nor the sources of his information nor the grounds of his belief are stated.
The defect is not cured by a joint affidavit of other persons, which, when applied to the allegations of the complaint and to the plaintiff’s affidavit, merely operates as an averment that it is true that the plaintiff’s understanding, information and belief are as alleged and stated.
When, in an action brought by a person owning a majority of the stock of a corporation against the corporation and certain individuals, who, although minority stockholders, constitute a majority of the board of directors of the corporation, a temporary injunction should not be granted restraining the individual defendants from holding a special meeting of the board of directors, and from disposing of any of the assets of the corporation until the final determination of the action, considered.
Cross-appeals by the plaintiff, George H. Gillette, and by the defendants, Horatio T. Hoyes and others, from portions of an order of the Supreme Court, made at the Hew York Special Term and entered in the office of the clerk of the county of Hew York on the 15th day of December, 1903, as resettled by an order entered in said clerk’s office on the 21st day of December, 1903, granting a temporary injunction.
The relief demanded in the complaint is an injunction restraining the defendants individually and as officers and directors of the defendant corporation “ and any and all other person and persons” from holding a special meeting of the board of directors of the defendant company on the 30th day of November, 1903, and from disbursing any of the assets of the company, including its capital stock, “and from holding any meeting or meetings whatsoever pursuant to any alleged authority claimed to be .vested in them or either of them; or in any manner interfering with the assets, capital or treasury stocks, patents, franchises or other property of the defendant corporation,” or interfering with the company- or the rights of the plaintiff and other stockholders therein “Until the final judgment and decree in this action, and for such ether and further relief in the premises as may be just and equitable, besides the costs and disbursements of this action.” The plaintiff alleges that the defendant company was incorporated undér the Jaws of of the State of Maine; that he owns or controls the majority of the capital stock issued and outstanding; that the individual defendants are directors of the company and constitute a majority of the board; that the individual defendants received their stock upon the understanding that they would promote the interests of the company and procure for it sufficient money to bring about the success of the patents which it owns, but that instead of doing so they “ have repeatedly taken such steps and measures as wrould bring upon the said corporation financial disaster; ” that at a conference of the board of ■directors it' was agreed that the number of directors should be increased from five to seven, arid that from among the stockholders of the company two new directors should be elected who would “ insure the procurement of capital very necessary to the welfare ” of the company; that, acting upon this understanding, the plaintiff on- the 25th day of November, 1903, caused notice of a special meeting of the stockholders for that purpose to be mailed to each stockholder; that it Was understood and agreed “ that the corporation would continue as it was, without hindrance or molestation from any of the directors or stockholders ” until such special meeting, but, notwithstanding such understanding, and in violation of the by-laws, the individual defendants, “ with the avowed purpose of transferring and illegally disposing of the treasury stock, assets, franchises and .patents” of the company, have called a special meeting of the board of directors for the 30th day of Hovember, 1903, and if the meeting be held “ this plaintiff is informed and verily believes that the patents, assets, franchises, property rights and treasury stock of the said corporation will be disposed of, and said defendants threaten to and are about to dispose of the same, without any consideration, to the detriment and injury of the defendant corporation and the irreparable loss to. the stockholders thereof; ” that the plaintiff is the president, and the- by-laws provide that special meetings of the board of directors shall be called by the president; that “ this action is brought for the purpose of restraining the holding of said special meeting, and to prohibit the fraudulent transfer of the company’s stock or assets, in the belief that if the stock of the said defendant corporation is so disposed of the said stockholders will have no adequate remedy at law * * * as these defendants, as this plaintiff is informed and believes, would be unable to respond to a judgment for damages.” The order, among other things, enjoins the company, its officers, directors and stockholders “ from.disposing of the assets or property” of the company, including its capital stock, and from holding any meetings whatsoever, and “ from in any manner interfering with the assets, capital or treasury stock, patents, franchises or other property ” of the company, and “ from in any way interfering with ” the company or the rights of the plaintiff and other stockholders therein.
The plaintiff appeals from so much of the order as enjoins a meeting of the stockholders ; and the defendants appeal from the rest of the order. The affidavit of theplaintiff states that the purpose for which the company was organized was to further a patent invented by him for a cap on bottles, and that in his opinion the invention is of great value; that the individual defendants induced him to turn over to them certain capital stock upon representations that they would interest capitalists in the company, which they have not done ; that it was recognized by all that the company was in need of capital, and with that end in view it was agreed that the board of directors should be increased from five to seven substantially as stated in the complaint; that it was his understanding — but-he does not say from what he derived the understanding — that the company would not be interfered with until-the special meeting of the stockholders for the purpose of increasing the directors, “ but I am now informed that in utter disregard of said understanding and with the deliberate purpose of injuring the company and disposing of its treasury stock, assets, patents and property holdings,” the individual defendants as stockholders and directors have, called a special meeting of the board, as stated in the complaint, “ at Avhich they intend to dispose of the said treasury stock and the assets of the said corporation before the special meeting of the stockholders can be had.” The plaintiff also presented a joint affidavit made by three individuals to the effect that the matters alleged in the complaint and in. his affidavit are true, and that they have had numerous interviews and conferences with tivo of the individual defendants, “ and from what they told us we believe and know that they intend to transfer, without any consideration, the treasury stock of the said corporation, as Avell as to injure the said company at the special meeting of the directors they have illegally called.” An affidavit made by each individual defendant was presented in opposition to the motion- showing that the special meeting- of the board of directors was called for the sole purpose of considering the advisability of retaining in the employ of the company a brother of the plaintiff whose term of service expired on the day for which the meeting was called; that at the time .for which the meeting was called a conference was held without a formal meeting of the board, and a satisfactory arrangement Avas made with reference to continuing the services of the plaintiff’s brother, which rendered it unnecessary to hold the meeting, although no injunction had been served and the individual defendants had no knowledge that it had been obtained; that the entire capital stock of the company was issued to the plaintiff in consideration of a transfer of certain letters patent upon the understanding, however, that he Avás to turn over to the corporation capital stock of the par value of $200,000, Avhich was to be sold by the corporation to provide funds for the purpose of promoting the patent, and that he was also to turn over capital stock of the par value of $200,000 to the defendant Noyes and alike amount to the defendant Horace O. Stripe, and retain capital stock of the par value of $400,000 for himself; that this agree rnent for the distribution of stock was consummated; that the company’s only means of raising funds at present is by a sale of this treasury stock; that part of the treasury stock has been sold from time to time, but that the company is now in pressing need of funds for the purpose of completing and perfecting a machine for the purpose of demonstrating the practicability of the patent to enable them to make contracts with brewers for the use of the machine ; that it is the custom of brewers to make their con-' tracts on or about the first of January. Each of the individual defendants denies any intention to sell any property of the corporation other than its treasury stock, which they deem it necessary to sell as heretofore for the purpose aforesaid.
John P. Everett, for the plaintiff.
Daniel P. Hays, for the defendants.

Opinion:
Laughlin, J.:
As is shown by the statement of facts, the plaintiff makes no demand for any permanent relief which a court of equity may decree, and, therefore, there is no authority for granting a temporary injunction in this case where the right thereto depends upon the nature of the action. (Code Civ. Proc. § 603.) The allegations of the complaint and the statements contained in his affidavit so far as they set forth facts charging any improper management on the part of the directors are either made upon his understanding or upon information or belief, and neither the basis of his understanding nor the sources of his information nor the grounds of his belief are stated. This defect is not cured by the joint affidavit which, when applied to the allegations of the complaint and to the plaintiff's affidavit, merely is to the effect, so far as these matters are concerned, that it is true that plaintiff's understanding, information and belief are as alleged and stated. The in junction order has had the effect of completely tying the hands of the board of directors, and it appears, as might be expected, that the business of the company is at a standstill in consequence thereof. The provision of the order enjoining special and annual meetings of the stockholders, of which the plaintiff complains, is drastic; but it was evidently imposed as a condition of awarding that part of the injunction which the plaintiff desired. It'is evident that there is a serious disagreement between the plaintiff, who owns or controls a majority of the outstanding stock, and the individual defendants who, although minority stockholders, constitute a majority of the board of directors. It is manifest that the plaintiff's object in bringing the action was not to obtain a permanent injunction, but to temporarily enjoin the board of directors from selling sufficient treasury stock to render him - a minority holder of the outstanding stock and prevent his controlling the next election of directors. This would be accomplished by the temporary injunction order restraining further sales of stock Until after the special meeting of the stockholders to increase the number of directors at which,'by reason of his controlling interest in the outstanding stock, he could secure the election of tWo individual directors friendly to his interests.
We are of opinion that the plaintiff was not entitled to the temporary injunction order, and that the order, in so far as it is appealed from by the plaintiff, should be reversed, and, in so far as it is appealed from by the defendants, should be reversed, thus vacating the entire order, without costs of the appeal to either party, and that the motion should be denied, with ten dollars costs.
Van Brunt, P. J., Patterson, Ingraham and Hatoh, JJ., concurred.
Order, so far as appealed from by plaintiff, reversed, and so far as appealed from by defendant, reversed, without costs of appeal to-either party, and motion denied, with ten dollars' costs.