Court Opinion

ID: 5246209
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:59:32.246093+00
Date Added: 2024-06-11T08:27:52.209274
License: Public Domain

Page, J.
(dissenting):
This action was brought by a judgment creditor of the corporation defendant to compel the individual defendants, directors of the corporation, “ to account for their official conduct, including any neglect of or failure to perform their duties, in the management and disposition of the funds and property, committed to their charge ” and also to compel them to pay to the corporation or to its creditors, “ any money, and the value of any property, which they have acquired to themselves, or transferred to others, or lost, or wasted, by or through any neglect of or failure to perform or by other violation of their duties.” (Gen. Corp. Law, § 90, subds. 1, 2.)
The bringing of this action by a creditor of the corporation *602is expressly authorized by statute. (Gen. Corp. Law, § 91.) •When such an action is brought by a creditor it has been held that it is '"in the nature of a creditor’s bill, a search and trace by a diligent judgment creditor for and the enforcement of an equitable lien upon the assets of the corporation that have been distributed by the trustees in violation of law.’ ” (Shalek v. Jetter, 171 App. Div. 364.) In the instant case it appears by stipulation that, although the individual defendants and Ansaldi subscribed for $10,000 par value of the stock, the same was issued to them without their paying or giving anything therefor, thus violating section 55 of the Stock Corporation Law. It was further stipulated that they voted to pay themselves in the guise of salaries, but which it is conceded must be treated as dividends, substantially all the net cash receipts of the corporation so long as it conducted business, thus violating section 28 of the Stock Corporation Law, even if the position of Mr. Justice Laughlin is sound that the capital could be made up out of earnings, for the payment to the directors each month reduced the unpledged assets below the limit of $10,000. I do not accept his conclusion that unpaid subscriptions to stock may be paid out of surplus profits, for capital stock of a corporation does not mean its share stock but a fund required to be paid in and kept intact as a basis of the business enterprise and the chief factor in its safety. (People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 433, 439.) ''It is the established law of this State that the capital of a corporation is regarded as a substitute for the personal liability which subsists in private ownerships and as a fund set apart and pledged for the payment of its debts.” (Hazard v. Wight, 201 N. Y. 399, 402.) Until this fund was created the declaration of any dividends would be illegal and a violation of the director’s duty for which he would be personally accountable.
To say that surplus profits may be appropriated to the payment of stock subscriptions violates a fundamental distinction; profits are first to be appropriated to pay debts and thus constitute a fund in addition to capital. The payment of the subscription of the shareholder out of the profits of the corporation is an appropriation of the money of the corporation to pay the individual debt of the stockholder.
*603Furthermore it was proved without objection that before the payment of these dividends the corporation had failed to pay installments of interest due, on the chattel mortgage held by the plaintiff’s assignor, although payment thereof had been duly demanded, thus violating section 66 of the Stock Corporation Law.
Mr. Justice Latjghlin states these various violations but holds that relief cannot be given for the reasons, first, that specific remedies are provided in those sections which the plaintiff must invoke, and second, that the facts are not sufficiently alleged in the complaint.
In this, in my opinion, the theory of the action is misapprehended. An action under section 90 of the General Corporation Law is to compel the director to account for his violation of duty. Allegations of several violations do not constitute separate causes of action, but are merely additional specifications of the primary duty violated and give rise to but one cause of action. In this action relief will be given even though for some of the specific acts there exist other and different remedies, even if for some an adequate remedy at law is provided. (Moran v. Vreeland, 81 Misc. Rep. 664, 672; affd., 162 App. Div. 907, and cases cited.)
In the instant case the complaint contains a prayer for general relief, an answer was interposed,' and the facts were either stipulated or proved without objection. Therefore, although the complaint may be justly criticized, yet the facts proved are not in hostility to the cause of action alleged and all might have been properly embodied in the complaint. This case, therefore, comes within the rule declared by the Court of Appeals. “ While the complaint is not as full as it should be, still the plaintiffs were entitled to relief upon the facts alleged, and if it had been amended so as to conform to the proof, all deficiencies would have been supplied. There was a prayer for general relief and, after an answer has -been interposed, any judgment may be awarded that is warranted by the facts proved and consistent with the facts alleged, even if it does not precisely conform to the pleader’s theory of the action, provided it is not hostile thereto.” (Rogers v. N. Y. & T. L. Co., 134 N. Y. 197, 219.)
The plaintiff is the only creditor and the amount wrongfully *604taken from the corporation by these defendants is more than sufficient to pay the plaintiff’s claim; therefore, there was no necessity for an accounting or the appointment of a receiver. The judgment should be affirmed, with costs.
Clarke, P. J., concurred.
Judgment reversed, with costs, and accounting ordered before a referee as directed in opinion. Order to be settled on notice.