Case Name: ASPHALT CONST. CO. V. BOUKER et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1912-05-31
Citations: 135 N.Y.S. 714
Docket Number: 
Parties: ASPHALT CONST. CO. V. BOUKER et al.
Judges: 
Reporter: West's New York Supplement
Volume: 135
Pages: 714–718

Head Matter:
ASPHALT CONST. CO. V. BOUKER et al.
(Supreme Court, Appellate Division, First Department.
May 31, 1912.)
1. Corporations (§ 314*)—Officers—Misfeasance—Corporate Mismanage-
ment.
K., who was vice president and general manager of plaintiff asphalt company, knowing that plaintiff desired to purchase á quantity -of asphalt, himself contracted with a California corporation to purchase the same on his own account, and a few days thereafter contracted to furnish the same to plaintiff at a secret profit pursuant to a resolution of plaintiff’s board of directors, of which K. and his codefendants constituted a majority, and K. thereafter assigned a one-fourth interest in his contract to each of the three other defendants. MelS to constitute misfeasance rendering each of the parties liable to account to the corporation for the entire sum which they diverted from the corporation.
[Ed. Note.—For other cases, see Corporations, Cent. Dig. §§ 1393-1398,
• 1400; Dec". Dig. § 314.*] -
2. Corporations (§ 319*)—Directors—Misconduct—Accounting—Equity.
Where directors of a corporation by certain contracts sold to it a quantity of asphalt at a secret profit to themselves, they bore a trust relation to the specific sums of money received by them as such profit, and were therefore properly required to account therefor in equity.
[Ed. Note.—For other cases, see Corporations, Cent. Dig. §§ 1415-1425; Dec. Dig. § 319.*]
Scott and Laughlin, JJ., dissenting in part.
♦For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes
Appeal' from Judgment on Report of Referee.
Action by the Asphalt Construction Company against De .Witt C. Boulcer, Jr., and another, impleaded. From an order overruling exceptions to and confirming the report of a referee and from a final judgment entered thereon in favor of plaintiff, defendants appeal. Affirmed.
See, also, 137 App. Div. 918, 122 N. Y. Supp. 1121.
Argued before INGRAHAM, P. J., and LAUGHLIN, CLARKE, SCOTT, and MILLER, JJ.
L. Laflin Kellogg, of Ne.w York City, for appellants.
Edward W. Hatch, of New York City, for respondent.

Opinion:
MILLER, J.
Even if the provisions of the interlocutory judgment he 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 29th 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 $14.20 per ton, and not less than 900 and' not more than c 1,800 tons per year of D. asphalt at $13.20 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 19th at $33 per ton. It is of no consequence that the appellants did not know of the contract of May. 19th, when they voted for the resolution authorizing the contract of June 3d, for on July 29, 1902, each accepted from Kelly a written assignment óf one-fourth of his interest in the contract of May 19th, and that assignment recited the terms of that contract. Thus, as early as July 29th, the appellants were informed that Kelly was making a secret profit of more than 130 per •cent, and 150 per cent, respectively, on the t-wo 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, if 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 $14.20 and $13.20 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 nonfeasance 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. Fitzpatrick, 6 App. Div. 509-514, 39 N. Y. Supp. 707, affirmed on the opinion below, 150 N. Y. 572, 44 N. E. 1126. 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, 61 N. E. 163, 55 L. R. A. 751, 85 Am. St. Rep. 667, 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., concur.