Court Opinion

ID: 6132162
Source: CourtListenerOpinion
Date Created: 2022-02-04 21:17:13.376182+00
Date Added: 2024-06-11T08:53:42.260188
License: Public Domain

BARKER, J.:
After reading the articles of association and by-laws, together with the certificate of membership issued to John W. Eisher, the court dismissed the complaint on the ground that it did not state facts sufficient to constitute a cause of action; the averments of the complaint must, therefore, for the purposes of the present appeal, be taken as true, and no reference to the several answers is necessary or proper.
It appears from the averments that the contract between Fisher and the corporation was valid, and that the plaintiff, upon the death of her husband, became a creditor of the corporation in the sum of $2,000. The allegations as to the misbehavior of the defendants, as trustees, and the wrongful use of the moneys belonging to the corporation, and appropriating the same to their own us.e and purposes, is not very clearly and understandingly set forth, but for the purpose of *179■disposing of tbe questions presented on this appeal we shall regard tbe complaint as stating that they were gnilty of neglect of duties as trustees, and used and applied moneys belonging to tbe corporation, to tbeir own use, without any right or authority so to do. Nor the wrongs thus imputed to all the defendants, excepting McDonald, the receiver, and which are admitted, the corporation ■had a right of action and could have recovered in an action at law the moneys alleged to have been misappropriated. (Angell & Ames, on Corporations, chap. 9, §§ 13, 14; Robinson v. Smith, 3 Paige, 222; Greaves v. Gouge, 69 N. Y., 154; Brinckerhoff v. Bostwick, 88 id., 52.)
This right of action was transferred to the receiver, for it is now ■well settled that a receiver of an insolvent corporation represents not only the corporation, but also the creditors and stockholders, ■and that, in his character as trustee for the latter, he may disaffirm and maintain an action as receiver to set aside an illegal or fraudn-lent transfer of the property of the corporation, made by its agents •or officers, or to recover its funds or securities invested or misapplied. (The Attorney General v. Guardian Mutual Life Ins. Co., 77 N. Y., 275.)
The injuries sustained by a corporation by reason of the unlawful acts and frauds of its officers should be prosecuted in the name of the corporation, and the redress given is for the benefit of all the ■stockholders and members of the corporation, but if the corporation neglects and refuses to prosecute the action on the proper application of the members or stockholders, then they may maintain an action in equity in their own names against the defaulting officers or agents and recover a sum equal to the damages which they have individually sustained.
As the corporation has been dissolved and a receiver appointed, it was unnecessary for the plaintiff to allege that she had requested the officers of the corporation to prosecute the defendants, and that they had refused. The receiver was properly made a party defendant, and thus brought before the court to protect the interests of the corporation and the members of that body.
The defendants insist that as the complaint did not allege that the receiver had been requested to bring the action and had refused to •do so, and that she did not offer to prove that fact in the opening *180of her case t© the court, therefore that no cause of action was stated against them’ in the complaint, or offered to be provéd on the trial-.
This position we regard as well taken. The receiver represents the corporation, and also the creditors, and the funds and causes of action which became vested in him, on his appointment, are custodie legis, and should not be diverted and taken from his hands, or placed beyond the control of the court, whose duty it is to see that, all the funds of the corporation are justly and equitably distributed among its creditors and members. If the plaintiffs are allowed to-recover in this action, the sum so recovered would necessarily be-placed beyond the control and order of the court. We think that the complaint should have alleged that the plaintiff requested the-receiver tc prosecute the defendants, or that she had applied to the-court for leave to sue the defendants, and that the same had been granted or refused. If it had been made to appear that the receiver-was in league with the other defendants, or had been guilty, with them, in misappropriating the funds of the company, that would perhaps be received as a sufficient excuse for not applying to him to prosecute the defendants in a proper action. (Greaves v. Gouge, 69 N. Y., 154; Brinckerhoff v. Bostwick, 88 id., 52.)
The plaintiff sought to maintain her cause of action on the theory that the defendants, as trustees of the corporation and charged with the direction and management of its affairs, were trustees in the-technical sense of the term, and received the money in the latter capacity for her use, and that she had an original cause of action against them individually, on the payment of the moneys into their-hands by the assessed members for the purpose of liquidating her claim against the corporation.
The moneys, when paid in by members, belonged to the corporation and were subject to the disposal of its managing board. The misappropriation afterwards made by the defendants, as alleged, was a wrong done to the corporation and gave it a right of action. When stockholders or members of a corporation or its creditors are permitted to maintain a suit in equity against the officers and agents of a corporation, it is in the nature of equitable relief, based upon the fact that the officers of the corporation decline to pursue the remedy, and for that reason, in a proper action, with the proper *181parties before tbe court, appropriate relief is granted to tbe injured parties. (Smith v. Rathbun, 22 Hun, 150.)
Tbe judgment should be affirmed, with costs.
SMITH, P. J., Beadley and Haight, JJ., concurred.
Judgment affirmed, with costs.