Case Name: Asphalt Construction Company, Respondent, v. De Witt C. Bouker, Jr., and Andrew A. Bouker, Appellants, Impleaded with William Kelly, Defendant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1912-05-31
Citations: 150 A.D. 691
Docket Number: 
Parties: Asphalt Construction Company, Respondent, v. De Witt C. Bouker, Jr., and Andrew A. Bouker, Appellants, Impleaded with William Kelly, Defendant.
Judges: 
Reporter: Appellate Division Reports
Volume: 150
Pages: 691–697

Head Matter:
Asphalt Construction Company, Respondent, v. De Witt C. Bouker, Jr., and Andrew A. Bouker, Appellants, Impleaded with William Kelly, Defendant.
First Department,
May 31, 1912.
Corporations — non-feasance and misfeasance of directors — suit to compel directors to account for secret profits—liability of directors as trustees.
The complaint in á suit for an accounting demanded that the defendants be required to account and “ jointly and severally to pay to the plaintiff company the aggregate amount of all profits received by them, or either of them * * and such damages as the plaintiff company may have sustained. * * ” It appeared that the defendant K. was a director and vice-president and the defendants B. were directors of the plaintiff; that K. individually secured a contract to purchase asphalt at a certain price; and subsequently entered into a contract with plaintiff for the sale of said asphalt to it at a much higher price; that this contract was authorized by the votes of the defendant K. and defendants B., who were then ignorant of K.’s individual contract; that afterwards K. assigned to the defendants B. each a one-fourth interest in the secret profits to be derived from Ms contract with the plaintiff; that when these assignments were made the defendants B. were directors of plaintiff and accepted the assignment 'with full knowledge of the fiduciary relations of said K. to plaintiff, and the nature of the contract from wMch said profits were derived.
Held, that the defendants should be required to account in equity for their official misconduct and to restore to the plaintiff the entire sum wMch they actively participated in diverting;
That they were guilty not merely of non-feasance in failing to prevent the wrong, but of misfeasance in actively participating in it;
That the defendants are to be treated as trustees with respect to the entire amount of profits diverted from the plaintiff, irrespective of the share wMch each received.
Scott and Lauq-hliit, JJ., dissented, with opinion.
Appeal by the defendants, De Witt C. Bouker, Jr., and another, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 20th day of April, 1911, overruling exceptions to the report of a referee and confirming said report, and also from a final judgment in favor of the plaintiff entered in said clerk’s office on the 24th day of July, 1911, upon said referee’s report.
L. Laflin Kellogg, for the appellants.
Edward W. Hatch, for the respondent.

Opinion:
Miller, J.:
Even if the provisions of the interlocutory judgment be ambiguous, when construed in the light of the findings and the character of the action, they justify the judgment appealed from. The complaint demanded that the defendants be required to account and " jointly and severally to pay to the plaintiff company the aggregate amount of all profits received by them, or either of them and such damages as the plaintiff company may have sustained. It is of no consequence that the complaint charged conspiracy to cheat and defraud and that there is no finding in terms of" a conspiracy. The facts as found establish a breach of fiduciary duty, participated in by all of the defendants so as to make them jointly and severally liable.
On the "19th of May, 1902, the defendant Kelly, who was the plaintiff's vice-president and general manager, entered into an agreement with the Densmore-Stabler Company of Los Angeles, Cal., whereby the latter agreed to sell and deliver to him for a period of five years not less than 100 tons and not more than 200 tons per year of liquid or flux asphalt at fourteen dollars and twenty cents per ton, and not less than 900 and not more than 1,800 tons per year of D asphalt at thirteen dollars and twenty cents per ton. On the 3d of June, 1902, pursuant to a resolution of the plaintiff's board of directors, of which the defendants constituted a majority, he entered into a contract with the plaintiff whereby he agreed to sell and deliver to it for a like period precisely the same quantities of the kinds of asphalt specified in the contract of May nineteenth at thirty-three dollars per ton. It is of no consequence that the appellants did not know of the contract of May nineteenth when they voted for the resolution authorizing the contract of June third, for on July 29, 1902, each accepted from Kelly a written assignment of one-fourth of his interest in the contract of May nineteenth, and that assignment recited the terms of that contract. Thus as early as July twenty-ninth the appellants were informed that Kelly was making a secret profit of more than 130 per cent and 150 per cent respectively on the two kinds of asphalt which he had agreed to sell to the plaintiff, and instead of taking steps to prevent the further consummation of that wrong they became active participants in it by taking to themselves an assignment of a share of the spoils. Of course, it was Kelly's duty to obtain asphalt for the plaintiff upon the most advantageous terms possible and not to make a secret profit out of the transaction. He was able to, and did, purchase the two kinds of asphalt at fourteen dollars and twenty cents and thirteen dollars and twenty cents per ton respectively. The plaintiff was entitled to the benefit of that contract. Its funds were diverted to the extent of the excess charged by Kelly, and the appellants were guilty, not merely of non-feasance in failing to prevent the wrong, but of misfeasance in actively participating in it, and it seems to me that they can be required to account in equity for their official misconduct and to restore to the corporation the entire sum which they actively participated in diverting.
We necessarily decided in affirming the interlocutory judgment that the action was properly in equity. ' The distinction between an action at law for damages and One. in equity for an accounting, and the principle, upon which the latter might be maintained, were stated by Mr. Justice Ingraham, in O'Brien v. Fitzgerald (6 App. Div. 509, 514; affd. on the opinion below, 150 N. Y. 572). In this case the appellants bore a trust relation to the specific sums of money for which they are required to account. Manifestly, an accounting was proper to determine the amount of the secret profits realized at the expense of the plaintiff, and it seems to me that the decision of the Court of Appeals in Bosworth v. Allen (168 N. Y. 157) is decisive of the proposition that in equity the defendants are "to be treated as trustees with respect to the entire amount of those profits, irrespective of the share which each received. The case against each rests, not upon the mere receipt by him of corporate funds, but upon a breach of, duty, resulting in the diversion of corporate funds to him and to Others, all of whom participated in the wrong.
The judgment should be affirmed, with costs.
Ingraham, P. J., and Clarke, J., concurred; LAUGHLiNand Scott, JJ., dissented.