Case Name: Harriet A. Watkins and Henry Watkins, as Administrators, etc., of Henry Watkins, Deceased, Respondents, v. Watkins and Turner Lumber Company and Others, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1896
Citations: 11 A.D. 517
Docket Number: 
Parties: Harriet A. Watkins and Henry Watkins, as Administrators, etc., of Henry Watkins, Deceased, Respondents, v. Watkins and Turner Lumber Company and Others, Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 11
Pages: 517–521

Head Matter:
Harriet A. Watkins and Henry Watkins, as Administrators, etc., of Henry Watkins, Deceased, Respondents, v. Watkins and Turner Lumber Company and Others, Appellants.
Equity—action by a stockholder to compel delinquent-officers of a corporation to account — effect of a demand for a receiver — action for its dissolution.
Where it can fairly be gathered from all the allegations of a complaint that the officers and directors of a corporation have made use of relations of trust and confidence in order to secure or promote some selfish interest, enough is then averred to set a court of equity in motion and to require an answer from the defendants in regard to the facts.
The complaint in an action brought 'by a stockholder in a corporation alleged, in effect, that the officers of the corporation were, and for some time had been, to a large extent allowing each other to appropriate to their several uses the property of the corporation; that they had agreed upon a plan to sell the whole of the property of the corporation, at a public sale, in such a manner as would allow them to become possessed of it all in their individual rights, at a price much less than its actual value, and that such was their purpose in making the sale ; that owing to such conduct the officers had become largely indebted to the corporation; that the value of the stock had been greatly depreciated; that no dividends were paid; that the sale would cause great loss to the corporation, and that no action was being taken to collect the indebtedness of its officers, nor was interest either charged or paid thereon. It was also charged that the control of the corporation was wholly in the hands of the offending officers, and that it would be useless to apply to them, or to the corporation, to bring the action; and judgment was asked by the plaintiffs, as stockholders, that the officers who had thus misappropriated the funds of the corporation account for the gains which had thereby accrued to them, and pay over the amount thereof into the treasury of the corporation; an injunction as to the proposed sale was also demanded, but none which would suspend or interfere with the business of the corporation. There was a further request for the appointment of a receiver.
The defendants insisted that the complaint was one for the dissolution of the corporation, and that such an action could not be brought by a stockholder.
Held, that as, apart from the prayer for a receiver, the complaint alleged facts sufficient to justify the relief asked for, it stated a cause of action which could be maintained by the plaintiff, and was not demurrable because it did not in all respects demand the proper form of relief;
That it contained no averment of facts which would warrant a dissolution of the corporation under sections 1784, 1785 and 1789 of the Code of Civil Procedure.
Appeal by the defendants, Watkins and Turner Lumber Company and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of St. Lawrence on the 3d day of August, 1896, upon the decision of the court rendered after a trial at the St. Lawrence Special Term on the héaring upon the demurrers interposed hy the several defendants to the plaintiffs’ complaint.
T. F. Conway, for the appellants Benton Turner and Henry E. Barnard.
Swift & Bell, for the appellants Charles H. Turner, Annette L. Turner and Watkins and Turner Lumber Company.
A. X. Parker, J. G. McIntyre and Thomas Spratt, for the respondents.

Opinion:
Parker, P. J.:
If we are compelled to look upon this action as one to dissolve the corporation and distribute its assets, through the medium of a receiver, it may be that it would be one that could not be maintained by a stockholder, and the defendants' counsel insists that we must hold it to be such an action, because an appointment of a receiver of all the property and assets of the corporation is a part of the relief prayed for.
In the complaint before us there is no averment of facts that would warrant a dissolution of this corporation at the suit of any person (Code, § 1784, 1785, 1798), nor is anyt such relief asked for. On the contrary, it is asked that the officers pay to the corporation,. after an accounting, such amounts as shall be found due to it from them, which is quite inconsistent with a scheme to wind up its business, and distribute its assets among its stockholders. Neither does a receiver seem to be at all necessary to secure the relief which is asked, as against the defending officers. The scheme of the complaint is simply this: It charges substantially that the officers of the corporation are now, and for some years have been, allowing each other to appropriate to his own use the property of the corporation ; that each has done so to a large extent, and that now they are agreed upon a plan to sell at public sale the whole of its property, in such a manner as will allow them to become possessed of it all, in their own indwidual right, at a much less price than its actual value, and that such is their intent and purpose in making the sale ; that owing to such conduct they have become largely indebted to the corporation; that the value of the stock is thereby greatly depreciated ; that no dividends are paid, and that, if the sale is allowed to proceed, great loss and injury will accrue to the corporation; that no action is taken to collect or secure such indebtedness, nor is any interest paid or charged thereon. It is also charged in the complaint that the control of the corporation is wholly in the hands of the defending officers, and that it would be utterly unavailing to apply to the corporation, or any of its officers, to bring an action for any redress or relief against them. Upon such facts it asks that the plaintiffs, as stockholders, be granted a judgment requiring the officers, who have thus misappropriated the funds aud property of the corporation, to account for the gains which have thereby accrued to them and to pay over the amount thereof into its treasury. They also ask that they be restrained from making the sale therein complained of. It is to be noticed that no injunction is asked against the officers, which would in any manner suspend or interfere with the general and ordinary business of the corporation, or suspend from his office or restrain from the performance of his official duties, any or either of the defendants. I cannot construe such a complaint as being one to dissolve the corporation, or to suspend or remove from office any director or other officer, merely because it also asks for the appointment of a receiver. Strike out that part of the prayer, and the question remains, whether the facts averred do not warrant the rest of the relief asked. If they do, then they constitute a cause of action, and a demurrer on that ground cannot be sustained.
The prayer for the receiver in such a case does not shape or control the character of the action. It is but asking more relief than the plaintiffs are entitled to. If the proper form of relief was not demanded, the complaint is not demurrable for that reason. If the facts alleged justify a part of the relief- asked it is sufficient. (Phenix N. Bank v. A. B. Cleveland Co., 11 N. Y. Supp. 873, 877; Hemmingway v. Poucher, 98 N. Y. 281, 287.)
Construing the complaint as above stated, the case of Sage v. Culver (147 N. Y. 241) is a clear authority that it states a cause of action that can be maintained by these plaintiffs. In that case stockholders were allowed to maintain an action against the trustees and officers of a corporation, because the corporation being entirely in the control of the offending officers, relief to the stockholders could be secured in no other way; also, in that case the basis of the action and the relief asked was precisely such as appears in this complaint, to wit: That the officers were mismanaging the property
to their own personal advantage, and had thereby acquired funds and property of the corporation, for which an accounting was asked, and a payment to the corporation of the amount found due. The additional claim in this action, that the officers be restrained from making an unlawful sale of the whole assets of the corporation to themselves, does not extend beyond the principle recognized and allowed in that case, and it is not, as I have shown above, so broad as to violate any statutory prohibition.
It is also said in that case, " When it can fairly be gathered from all the allegations of a complaint that the officers and directors of a corporation have made use of relations of trust and confidence in order to secure or promote some selfish interest, enough is then averred to set a court of equity in motion, and to regtoire an answer from the defendants in regard to the facts." Clearly the facts averred in this complaint are sufficient to bring it within that rule, and I conclude that it is not demurrable on the ground that it does not state facts sufficient to constitute a cause of action in favor of these plaintiffs.
There can be no doubt but that this is a purely equitable action. (Brinckerhoff v. Bostwick, 105 N. Y. 567.) The plaintiffs make no attempt to enforce in their own favor any common-law liability against the defendants or either of them. They are proceeding in equity to secure an accounting from each of the officers for the value of any property which they have acquired to themselves or transferred to others, or lost or wasted by a violation of their duties; and they have averred sufficient facts to show that upon such an account ing some amount will be found due and owing to the corporation. They also state sufficient facts to show that a judgment restraining the contemplated sale of all its assets is necessary and proper. These are the facts upon which they rely and such is the relief asked for. There may be some averments of facts in the complaint that show an individual indebtedness from each of such officers not arising out of any official misconduct. So far as any claim based upon such facts shall appear upon the accounting to be within the scope of the relief which a court of equity may render in this action, such facts will become pertinent, otherwise they will be deemed surplusage, for they are not set up as constituting any separate and distinct cause of action. But the one cause of action is set forth, and in that cause of action all the parties are interested. It is a cause of action that will inure to the benefit of all the stockholders, and is properly brought in their interest. Hence the defendant Annette L. Turner, as a stockholder, as well as all the other stockholders, are properly made parties. Although the plaintiff Henry Watkins does not appear as a plaintiff personally, he is before the court, and has averred in the complaint that he is a stockholder, and undoubtedly would be bound as such by any judgment that shall be entered in the action. (Bingham v. Marine Nat. Bank, 18 Abb. N. C. 135 ; Litchfield v. Flint, 104 N. Y. 543.) All the stockholders, therefore, are before the court. The action is a purely equitable one, consisting of but a single cause of action; and, therefore, in my judgment, none of the grounds of demurrer to the complaint are well taken. (O'Brien v. Fitzgerald, 143 N. Y. 377; Wood v. Sidney Sash, etc., Co., 92 Hun, 22; Proctor v. Sidney Sash, etc., Co., 8 App. Div. 42.)
The judgment appealed from is affirmed, with costs, and with leave to the defendants to answer the complaint herein within twenty days after the service of a copy of the order of affirmance upon their respective attorneys and upon payment to the plaintiffs of one bill of costs.
All concurred.
The judgment appealed from affirmed, with costs, with leave to the defendants to answer the complaint herein within twenty days after the service of a copy of the order of affirmance upon their respective attorneys, and upon payment to the plaintiffs of one bill of costs.