Case Name: Insurance Press, Appellant, v. Montauk Fire Detecting Wire Company and Others, Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1903-05
Citations: 83 A.D. 259
Docket Number: 
Parties: Insurance Press, Appellant, v. Montauk Fire Detecting Wire Company and Others, Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 83
Pages: 259–262

Head Matter:
Insurance Press, Appellant, v. Montauk Fire Detecting Wire Company and Others, Respondents.
Issue of stock of a West Virginia corporation in consideration of an assignment of a patent — return of a portion of the stock to he held, as treasury stock — right of a purchaser of the treasury stock to ha/oe the original issue set aside—it depends on the law of West Virginia — charge of conspiracy.
The complaint in an action alleged that the defendant, the Montauk Fire Detecting Wire Company, was a West Virginia corporation having a capital stock of $3,000,000; that the defendants Gould and Hanson were respectively the president and treasurer of the corporation and also directors thereof; that Gould and Hanson were the owners of certain patents, the value of which did not exceed §10,000; that in pursuance of a conspiracy between Gould and Hanson and the other directors, §3,000,000 in fully paid stock of the corporation was issued to Gould and §1,000,000 in fully paid stock was issued- to Hanson, the sole consideration therefor being the assignment of the patents to-the corporation; that Gould and Hanson thereupon transferred to the corporation $750,000 of stock, which was known as treasury stock; that the plaintiff purchased 400 shares of such treasury stock from the corporation, believing that the entire capital stock of the corporation was fully paid up.
The relief demanded was that the issue of all the capital stock of the corporation to Gould and Hanson be adjudged illegal and void; that the portion of the stock held by Gould and by Hanson be declared illegal and void, and that those defendants be directed to deliver the same to the defendant corporation for cancellation; that a certain amount of the treasury stock be declared illegal and void and that the corporation be directed to cancel the same.
Held, that, in the absence of an allegation in the complaint that the transaction was void under the laws of the State of West Virginia, the complaint did not state a cause of action;
That the charge of conspiracy contained in the complaint did not furnish a cause of action.
Appeal by the plaintiff, the Insurance Press, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 5th day of December, 1902, upon the decision of the court, rendered after a trial at the New York Special Term, dismissing the plaintiff’s complaint.
A. Walker Otis, for the appellant.
William M. K. Olcott, for the respondents.

Opinion:
Patterson, J.:
The plaintiff is a stockholder in the defendant corporation. It brought this action against the defendants Gould and Hanson (making the corporation a codefendant), asking this court to adjudge ithat an issue of all the capital stock of the defendant corporation to G-ould and Hanson was illegal and void; that a certain portion of the stock now held by Gould and another portion now held by Han¡son " be declared illegal and void," and that those defendants be directed to deliver the same up to the defendant corporation for cancellation, and that a certain amount of what is called treasury stock, standing on the books of the defendant corporation as such, be declared illegal and void, and that the corporation be directed to cancel the same.
This relief is asked upon allegations of the complaint, which set forth that the defendant corporation was organized under the laws of West Virginia, but has a place of business in the State of New York; that the defendant Gould is president and the defendant Hanson treasurer of that corporation; that in the year 1897 the Montauk Company was organized, and its capital stock was fixed at $3,000,000, divided into 300,000 shares of the par value of $10 each; that at the time of the organization of the company Gould .and Hanson owned patents relating to the detection of fires by means of a certain arrangement of wires, which patents did not exceed in value the sum of $10,000 ; that upon the organization of the corporation the defendants Gould and Hanson entered into a conspiracy with the directors (they being among the directors), by which such defendants should acquire the whole of the capital stock -of the company for $10;000; that in pursuance of such conspiracy the patents were assigned to the corporation, and thereupon, without any other consideration, there was issued $2,000,000 of the capital stock to Gould and $1,000,000 to Hanson, and that it was Issued as fully paid stock, and was so marked on the stock certificates, whereupon Gould immediately transferred back to the corporation $500,000 of stock issued to him, and Hanson immediately transferred back to the corporation $250,000 of the stock issued to him, such returned stock being known as treasury stock and so called on the books of the company. It is further alleged that out of that stock the company has since issued to various parties $191,920 of par value and there remains on the books of the corporation, as treasury stock, $558,080. The complaint then alleges that Gould has transferred to other parties a certain proportion of the stock that remained to him after his contribution to the treasury stock, and that Hanson has also disposed of some of his stock and that the plaintiff, believing that all the stock of the Montauk Fire Detecting Wire Company was fully paid and issued for value, purchased from the Montauk Company 400 shares of this treasury stock, paying therefor $2,000. It is then alleged that the defendant corporation is under the control of Gould and Hanson, who-hold a majority of the stock, and for that reason it is impracticable for the corporation to bring this action against them.
The answers of the various defendants deny the allegations of the. complaint, including the allegation of the value of the patents.' They admit that Gould and Hanson owned patents; they deny the allegations of conspiracy, and then set up certain matter as independent defenses. On the trial the complaint was dismissed on the pleadings, the substantial reason for that action of the court being, that the complaint did not state facts sufficient to constitute a cause of action.
We are not called upon, in disposing of this case, to determine whether a stockholder can maintain an action of this character under proper allegations in a complaint, although that question has been quite elaborately argued. We think it plain, however, that this action cannot be maintained, and that the court was right in dismissing the complaint. Whether the allegation as to the value of the patents at the time the stock was issued is sufficient or insufficient, there is nothing in this complaint to show that under the laws of the State of West Virginia the transaction between the directors and the owners of the patents was unlawful. The charge of conspiracy, in the broad and general way in which it is made in this complaint, amounts to nothing as furnishing a cause of action. The lawful or unlawful character of the transaction must depend upon the law of the State of West Virginia. What the transaction was is quite apparent. Stock was issued as full paid stock for the patents, and immediately there was returned to the corporation $750,000 in par value of such stock, which became the property of the corporation, which it might sell for the general purposes of its- business, and a part of which the complaint shows has been sold or disposed of, the plaintiff himself buying from the corporation 400 shares of it. It is not to be assumed that because such a transaction might be invalid under the statute of the State of Mew York, that it is necessarily so by the laws of the sovereignty which created the corporation.
The judgment should be affirmed, with costs.
Van Brunt, P. J., O'Brien, Ingraham and McLaughlin, JJ., concurred.
Judgment affirmed, with costs.