Case Name: Henry D. Miller, Suing on Behalf of Himself and Other Stockholders, Respondent, v. Crown Perfumery Company and Others, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1908-05-22
Citations: 125 A.D. 881
Docket Number: 
Parties: Henry D. Miller, Suing on Behalf of Himself and Other Stockholders, Respondent, v. Crown Perfumery Company and Others, Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 125
Pages: 881–884

Head Matter:
Henry D. Miller, Suing on Behalf of Himself and Other Stockholders, Respondent, v. Crown Perfumery Company and Others, Appellants.
First Department,
May 22, 1908.
Corporation — restoration of profits acquired by directors — dividends — power of court.
Where persons holding two-thirds of the capital stock of a corporation combine to deprive a person holding the other third of equal participation in the profits by refusing to re-elect him a director and officer and by voting the profits to themselves as salaries, they may be compelled to restore to the corporation the moneys improperly received.
But the judgment in such action should not require the corporation to distribute surplus profits among stockholders, for as a general rule the court at the suit of a minority stockholder cannot determine whether dividends should be paid.
Appeal by the defendants, the Crown Perfumery Company and others, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Hew York on the 11th day of January, 1908, upon the decision of the court, rendered after a trial at the Hew York Special Term in a stockholder’s action brought to set aside certain resolutions of the board of directors aiid to compel the repayment to the corporation of moneys received by certain of the directors.
Eugene Frayer of counsel [Frayer, Stotesbury & Gregg, attorneys], for the appellants.
George C. Lay of counsel \Frederick W. Garvin, attorney], for the respondent.

Opinion:
Clarke, J.:
This is an appeal by the defendants from a judgment of the Special Term rescinding and annulling certain resolutions of the board of directors of the Crown Perfumery Company on the ground of illegality, • directing the defendants Batcheller and Russell to restore to the company moneys improperly received, directing a distribution of fixed and certain surplus profits, and the payment of a specific sum to the plaintiff as a dividend upon his stock.
We are satisfied in the main with the findings of fact and conclusions of law and the opinion of the learned court at Special Term (57 Misc. Rep. 383), from which it appears that the plaintiff and the two defendants Batcheller and Russell were originally incorporators of the Crown Perfumery Company, each holding one-third of the shares of the capital stock thereof, and that for a number of years each participated equally in the distribution of the profits earned by the company; that subsequently, by reason of a disagreement with the plaintiff, Batcheller and Russell sought to deprive the plaintiff of the equal participation in the profits to which his holdings of stock entitled him; that the method adopted was first a refusal to re-elect him as a director and officer of the company; that then, as directors, these two defendants voted to themselves, by way of salaries, the profits made.
For the reasons pointed out in the opinion at Special Term these several resolutions were invalid and the judgment annulling and rescinding them and directing defendants Batcheller and Russell to repay the amounts so received by them into the treasury of the company was right. But the judgment went further and provided that " The defendant- Crown Perfumery Company be and it is hereby directed to distribute within twelve days from the entry of this decree among the stockholders of the Crown Perfumery Company, according to their stock interests respectively, the sum of $8,829.31, being the amount of the surplus profits for the eighteen months ending June 30th, 1907, including interest upon the amounts received by the defendants Batcheller and Bussell and hereinbefore directed to be paid by them, and that said Crown Perfumery Company pay within twelve days from the entry of this decree, to the plaintiff as his share of the surplus profits herein directed to bo distributed the sum of $2,943.07."
"Upon the facts disclosed in this record we think the court had no power to so direct. The defendant company is <& corporation created under the laws of the State of Hew York. The plaintiff, as a stockholder, sues on behalf of himself and other stockholders. His right of action is representative. He sues on behalf of the company to compel restitution by directors Of moneys of the -company improperly voted to and received by themselves, and his standing in court depends upon the allegation and the proof of the control by said defendants of the company, and the refusal of the company, by reason of such control, to bring said action in its own behalf. It is the wrong to the company that he is seeking to redress; it is the restoration of its funds to its treasury for which he seeks the aid of the court. Under such circumstances a minority stockholder, suing the directors upon their official acts, is not entitled to direct personal relief. When the funds improperly taken from the treasury are restored thereto, they become the property of the corporation. They may be necessary for the payment of its debts. It may be advisable that they be retained in the treasury as working capital. The management of the corporate affairs is intrusted to its officers and directors. As said in Williams v. Western Union Telegraph, Co. (93 N. Y. 162, 192): " When a corporation has a surplus, whether a dividend shall be made and if made how much it shall be, and when and where it shall be payable, rests in the fair and honest discretion of the directors, uncontrollable by the courts."
The moneys here ordered to be paid back into the treasury were improperly taken therefrom by way of salaries by two of the, directors voted to themselves. When paid back, they become the property of the corporation. As a general rule whether or not a dividend should be declared and said moneys should be paid out as dividends to the stockholders is not a matter to be determined by the court.
It follows, therefore, that the judgment appealed from should be modified by striking out so much thereof as provides for a distribution of the amount directed to be paid into the treasury among the stockholders, and as so modified affirmed, without costs on this appeal.
Ingbaham, Laughlin, Houghton and Scott, JJ., concurred.
Judgment modified as directed in opinion and as modified affirmed, without costs. Settle order on notice.