Court Opinion

ID: 5205978
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:02:28.830824+00
Date Added: 2024-06-11T08:27:17.339394
License: Public Domain

Ingbaham, J. (concurring):
Prior to the Revised Statutes there was considerable doubt as to the jurisdiction of the Court of Chancery to hold the directors, agents or officers of a corporation liable for a breach of their duties to the corporation at the suit of. the State. Chancellor Kent, in Attorney-General v. Utica Ins. Co. (2 Johns. Ch. 371), after an examination of the English cases, was of the opinion that the right of the State to interfere was confined to charitable corporations. The commissioners to revise the statutes reported section 33 of article 2 of title 4 of chapter 8 of part 3 of the Revised Statutes to meet this -situation, which was passed and which was subsequently re-enacted, as section 1781 of the Code of Civil Procedure, and which has remained in force as originally passed until the amendment of 1907.* In the revisers’ notes to section 33 it is .said that this section, was drawn “to supply what are conceived to be important defects in some cases and to remove doubts entertained respecting the power of the court in others. The first subdivision is intended, in connexion with § 35 [Sections 1781,- 1782 of the Code of Civil Procedure], to give the Court of Chancery in this State, the same power that is exercised by that *737court in England in cases .of charitable corporations, and in other cases; the possession of which power is doubted by Ch. Kent, in 2 J. O. R. 384,* although alleged to be a part of the general jurisdiction of the court in 2 Term Rep. 199.† The 2d, 3d, 4th, 5tli and 6th subdivisions are consequences from the first. In many of our corporations the trustees are a permanent body who supply vacancies in their own board, and a system of abuse and malversation may be perpetrated by them with impunity, without some superintending power.” (See 4 N. Y. Revisers’ Rep. 220; 3 R. S. [2d ed.] 755.) In People v. Ballard (134 N. Y. 271), Judge Yann, in an exhaustive opinion, arrived at the conclusions, first, that the action could be maintained by the Attorney-General.in the name of the People alone without a relator; second, that it was for the Attorney-General to decide whether the public interests required the action to be so brought and his determination is conclusive; that “what the public interests require is committed to the absolute discretion of the Attor- • ney-General, and that it cannot be made the subject of inquiry by the courts; ” third, that “ while a corporation may sell its property to pay debts, or to carry on its business, it cannot sell its property in order to deprive itself of existence. It cannot sell all its property to a foreign corporation organized through its procurement with a majority of non-resident trustees, for the express purpose of stepping into its shoes, taking all its assets and carrying on its business. * * * , While the stockholders who consented may be estopped by their acts, those who did not consent can take advantage of this violation of their rights, and the State of blew York can demand that those who did the wrong shall make restitution.” And the conclusion was that the fact that the trustees acted in good faith did not empower them to do an illegal act, and the fact that there may be some difficulty in the final adjustment of rights, because some stockholders consented, while others did not, constitutes no defense to the action; that the transfer was unauthorized and void as to the non-assenting stockholders and as to the State, and that the People can maintain the action in their name of sovereignty to enforce the rights of the minority stockholders. *738It will be noticed in that case that there was no intimation as to the form of the relief to be given, but the whole reasoning of the opinion would seem ■ to indicate that it was the right of the minority stockholders claiming through the corporation that was to be enforced, and that the judgment of the court would be to require the defaulting directors-or officers to pay to the corporation for the use of the minority stockholders the money or value of property to which they were entitled. The court examined with great care, into the illegal acts charged against the directors of the corporation to determine whether or not the acts "specified were illegal,, and it was only upon their determining that question in the affirmative that they held the action could be maintained at all. It was because .the complaint alleged the transfer of property, which was unauthorized and void as to the non-assenting stockholders, that the People cotild maintain the action. And in the opinion'of Judge Peckham when the case was before the first division of the Court of Appeals, which is printed in a note in People v. Ballard (supra, 272), the theory as to the cause of action that the People can enforce and the relief that is to be given in such a - case is clearly outlined. Thus, Judge Peckham says (p. 283) : “ The general rule, of course, still prevails, that a plaintiff must show some interest in the controversy which he asks the court to decide. But where a statute expressly authorizes the People by their Attorney-General to sue in certain named cases, such suit may be maintained in those cases, even though the plaintiffs fail to show such an interest, in the controversy as would enable them to maintain it were ■ it not for the . provisions of the statute.” The learned judge agreed with the dissenting opinion of Mr. Justice Daniels at the General Term (56 Hun, 130), which held that the liability of the trustees to account is limited to those stockholders who have not assented to the transfer. In such an action the People are really, for the purpose of compelling an account, the representatives of the non-assenting shareholders only. That the trustees can be compelled to pay to the corporation which they represent or its creditors any money and the value of any property which they have lost or wasted. “If there be no creditors, the account they must render is for the benefit of the shareholders who did not assent to such transfer. ' Nominally the account is to the corporation, but in reality it is as I have *739said, where there are no creditors, to the non-assenting shareholders.” The conclusion to which the learned judge arrives is based upon the fact that it is to the party injured that the defendants are to account for some act in violation of their duties, and that to maintain the action at all it is, therefore, necessary that a wrongful act which caused loss to somebody must be alleged and proved in order that the action by any of those mentioned in section 1782 of the Code of Civil Procedure can be maintained. Upon a demurrer to a complaint in such an action, therefore, the question presented is whether it appears that the defendants’ official conduct has been such that there resulted a liability to the corporation. And if facts are alleged from which this conclusion follows then, under section 1782 of the Code of Civil Procedure, an action may be brought by either the Attorney-General on behalf of the People, or a creditor, trustee, director, manager of other officer of the corporation having general superintendence of its concerns.
Fromf this section of the Code of Civil Procedure it is apparent that the action that can be brought by the Attorney-General is the same as that which can be brought by a creditor or trustee. The People are not given any other or distinct cause of action from that vested in the others named in the section. Each of the parties there named has the same right to bring the action specified in section 1781 of the Code of Civil Procedure, and while I think it is quite clear that the action is to be brought in equity (see revisers’ notes to section 33 of the Eevised Statutes), there must still be alleged the facts to show that the defendants have violated their duties and that such violation of duty has resulted in a loss of money or property to the corporation which the corporation is entitled to recover. Certainly the somewhat remarkable position taken by the Attorney-General, that all he has to allege is the conclusion that the directors have done something that he thinks is wrong, and that thereupon he is entitled to a judgment directing all those against whom he has proceeded to account for their official acts as such directors, is not sustained by any of the provisions of the statute or by any rule of law or procedure of which we have knowledge. When an action in equity is brought under these sections, there is always a question as to the form that the judgment is to take. It is quite apparent that there might be included in such an action various causes of *740action which were formerly equitable or legal, governed by different principles in'which the form of judgment would be quite distinct. Thus, where "a director had received" and misappropriated money or property belonging to the corporation he could be held as a trustee to account .to the corporation by-an equitable judgment for an accounting. ' If, however, he had united with other directors in transferring property of the corporation to a third party, without consideration and- in violation of his duty, the judgment" would be a . money judgment to recover the value of the property so illegally convéyed or misappropriated. The element that would "justify a judgment for an accounting in equity, namely, the receipt by a trustee of money of a céstui que trust, would be "absent; but the defaulting trustee would still-be-liable to the corporation for the value of the property which had been lost in consequence of his misfeasance or malfeasance. - In a judgment in such an action brought by the Attorney-General, . as in an action. brought by a creditor, trustee, director or "officer, it seems tó me that each Of these separate demands against the director would have to be set up as a separateLl and distinct Cause of action ; each cause of action . must allege the facts from which the',, liability of the director brought into-court would appear, and must demand the judgment • .to which the plaintiff is entitled. But for these sections of the Code of Civil Procedure, it" is quite apparent -that these several causes of action could not be united, for one would have been an action in'equity and another an action at law.- Section 1781" of- -the Code of Civil Procedure, as amended by chapter 157 of the Laws of 1907, however, I think now authorizes these severa'l causes of action to be united in one action to be brought in equity by the People or by 'a creditor or trustee or officer of the corporation; but each wrong for wliich a- recovery is sought is necessarily a separate cause of action ¡and each separate cause of action must, under section 484 of the- Code of Civil-Procedure, be consistent with each other and affect all the parties-to the action.;. It follows, therefore, that an Attornev Genera-l cannot,- any more than 'a creditoi, trustee or officer of a corporation, unite in one action- causes of action against different directors who are not all liable for all of the wrongful - acts alleged. Each- cause of action must be complete in itself-; must affect all the parties to the action ; must allege facts which render al-1 of the defend*741ants liable to the corporation and entitle the corporation to some relief against-all the defendants, whether legal or equitable; but these conditions being observed, I think the'-causes of action may be united. The separate specifications set out in the complaint upon which the action is based allege no cause of action against all of the defendants. Rone of the acts alleged affect all of the defendants. Most of the alleged causes of action charge the defendants who were trustees or directors solely with negligently permitting the officers to do the acts referred to, a cause of action which was not embraced in section 1781 of the Code of Civil Procedure before the- amendment óf 1907, and, therefore, it seems to me that this complaint was subject to the objections that the complaint did not state facts- sufficient to constitute a cause of action or that, if it did, causes of' action were improperly united. -
With this general statement, I concur with Mr.-Justice Laug-hlin.
Clarke, J., concurred.
Judgment reversed, with separate bills of cost's to each defendant or defendants separately appearing, and with leave to plaintiff to amend or apply for the severance. of the actions as stated in opinion. " Settle order on notice.

 See Laws of 1880, chap. 178, § 1781, as amd. by Laws of 1907, chap. 157.— [Rep.

 Attorney-General v. Utica Ins. Co. (2 Johns. Ch. 371, 384).— [Rep.

 King v. Watson (Durn. & E.).— [Rep.