Court Opinion

ID: 5202687
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:55:29.342946+00
Date Added: 2024-06-11T08:27:13.754678
License: Public Domain

Ingraham, J.
(dissenting) :
This action is brought under section 1781 of the Code of Civil Procedure, which authorizes an action by the Attorney-General on behalf of the People of the State against “ one or more trustees, directors, .managers or other officers, of a corporation to procure a judgment * * * 4. Removing a defendant from 1ns office upon proof or conviction of misconduct.” To entitle the People to maintain such an action the complaint must allege that the officer sought to be removed was guilty of “ misconduct ” as a trustee, director, manager or officer of, the.corporation, and whether or not this complaint alleges such misconduct as would justify the removal of the defendants as directors' of the corporation is presented by the demurrer. The misconduct which would justify the removal of the defendants must be some violation by the defendants of their duty to the corporation, not a failure to carry out an oral agreement between the defendants and others as to the interest that the parties to such agreement were to receive in the stock of the corporation after it was issued. It certainly was never intended that this provision authorizing an action on behalf of the People was to be used to enforce oral agreements or obligations between individuals. The complaint alleges that after this corporation was organized there was an oral agreement which is called in the complaint a “ syndicate agreement ” which was to the effect that when the stock and bonds, the consideration of the transfer of certain property to the corporation, were issued to one Flanagan, he would cause to be transferred to the defendant Lyon certain of such stock and bonds, to McLaugh*364lin certain other of the said stock and bonds, and that Flanagan would retain forhitnself certain of the stock and bonds and “would deposit with said company tlie balance of said stock and bonds to be applied to the following purposes and no other: ” One hundred and four thousand dollars of such deposited stock was to be issued to one William H.. Zeltner for certain considerations and $83,000 to the estate of one Henry. Zeltner. in full settlement of the claims of said - estate and $50,000 thereof to.one Woodward for legal'ser vices rendered to and for the benefit of said corporation; The balance óf the said stock was to be issued solely for the benefit of the corporation; that it was further provided in said, oral agreement that the balance óf the - bonds'to be issued should be sold for the purpose of raising working capital for said corporation ; that such sale should be for par, and that . thére should be given from, said deposited stock as a bonus to purchasers-of said bonds stock in said corporation at the rate oft wo to one. -. This oral agreement is alleged to have been entered into after the incorporation of the company and after the company had purchased the property from Flanagan. There is no allegation that the company was ever a-party to this agreement ;, or that,it was in any way liable for or entitled to the benefit of it-. Whatever right -the individuals had under the agreement could be enforced’ by an action between-them; but with this agreement, ,so far as-' appears, this .corporation had nothing to do. The complaint then alleges that thereafter there was issued to Flanagan certain of the stock of the said corporation of the par value of $699,000;in-part payment for the transfer of the property to the corporation, " whereupon in fulfilment of such oral agreement, said Flanagan endorsed, the said stock certificates to said Lyon, Zeltner, McLaughlin and himself, and depos- ■ i-ted the same in the office of said corporation on or about the 10th day of. August, 1904, in- order to enable said corporation to issue stock to< proper parties and in ^quantities. provided "for in; said oral agreement.” It is not alleged that any part of this stock was ever transferred to the. company, or that- the company had the right to enforce the oral agreement between the individuals, or- that it, ever ' became the owner of the stock or in. any .way entitled to it.. The misconduct -alleged is,, that after the stock dertificates had been indorsed by Flanagan to Lyon, Zeltner, McLaughlin and himself and deposited in the office of the company, the defendants, as the treas*365urer and vice-president of the company, issued new certificates of stock in place of that which had been transferred to these four persons to Zeltner, Lyon and McLaughlin without transferring any of the stock to Woodward, and without transferring any stock to the corporation to be disposed of so as to provide working capital for it. I cannot see that this was misconduct as an officer or director of the corporation. The company was bound to transfer the stock to the persons to whom it had been assigned by Flanagan, and all that these officers of the company did was to transfer the stock to the persons to whom Flanagan had assigned it. If the company was entitled to have a portion of this stock returned to its treasury by the persons to whom Flanagan had transferred it, it could enforce such right by an action in its name against the persons to wlioin the stock had been transferred by. Flanagan. The mere fact that the defendants, as officers of the company, had actually transferred the stock to.Flanagan’s assignees was not misconduct by the officers, for they were doing what they were hound to do. When the stock was issued to Flanagan for the purchase of the property, he became the owner of the stock and the corporation was bound to transfer it to such persons as Flanagan should assign it to, .and for the officers to perform this legal duty was not misconduct as officers of the company. It is alleged that the by-laws of the corporation required the stock and bonds of the corporation to be signed by the president thereof and that one of these defendants had signed the certificates as vice-president. It would seem that Flanagan was' president, Zeltner vice-president and Lyon secretary and treasurer, and for the vice-president to act in signing'certificates of stock which the corporation was bound to issue would not be misconduct. I can see no misconduct alleged against these defendants as officers or directors of the company and, therefore, nothing to justify a judgment removing them as directors.
I think, therefore, that the demurrer should be sustained. .
Patterson, P. J., concurred.
. Judgment affirmed, with costs, with leave to defendants to withdraw demurrer and to answer on payment of costs in this court and . and in the court below,