Court Opinion

ID: 5670167
Source: CourtListenerOpinion
Date Created: 2022-01-12 14:10:43.018004+00
Date Added: 2024-06-11T08:39:34.522411
License: Public Domain

Bergan, J.
The plaintiff is a close corporation all the stock of which is owned in equal shares by Isidor Rothman and William Schneider, who together organized it. For about fifteen years it has been engaged in the business of manufacture and sale of gold synthetic and semiprecious stone rings. Rothman holds the office of president; Schneider the office of secretary-treasurer. These two men and their wives are the only directors.
It is factually undisputed in the record before us, and established by affidavit, that it was the corporate custom not to hold director’s meetings during many years of the life of the corporation, and for each of the owners to act ‘ ‘ as equals and as partners ” and to accept each other’s authority. It was the practice for either officer to verify pleadings in litigation in which the corporation was involved.
On January 18,1954, the two owners of the corporate plaintiff and the plaintiff itself entered into a written agreement which recited that the stockholders and directors had voted to dissolve the corporation and provided for the distributive shares of the two owners in the assets. Among other things Schneider was to take the fixtures and sample models of rings and the leasehold in which the business was being conducted. Other assets were to be divided in a manner not here material. Schneider was to operate the business formerly conducted by plaintiff.
The defendant Sam Beckerman is the son-in-law of Rothman. For some seven years he was employed as a salesman. The complaint alleges that during a portion of his employment for plaintiff he was in secret partnership with defendant Lerner in the same business in which plaintiff has been engaged, and that Beckerman converted sample models of jewelry designed and created by plaintiff, and used them together with Lerner in their copartnership.
*156The complaint is verified by Schneider and the institution of the action by the corporation was authorized by him. The defendants thus sued contend that the action is not properly maintained because its institution has not been sanctioned by the board of directors of the plaintiff. They moved to vacate the service of the summons and complaint on them, and to strike out the appearance of the attorney who instituted the action for plaintiff on the ground he was not authorized to institute or maintain it. The court at Special Term has denied this motion. We think it should have been denied and that the motion is correctly decided.
Appellants rely on Sterling Inch. v. Ball Bearing Pen Corp. (298 N. Y. 483) in their argument for reversal. That decision is distinguishable from the case before us in two important respects. In the first place there was there no ‘ ‘ presumptive or prima facie authority ” for the president of the corporation to institute that action (p. 490). On the contrary, the president there expressly asked authority of the board to institute the action and such authority was not given, the vote being tied (pp. 488, 489).
It can scarcely be thought that the holding of Sterling Industries is to mean that every time a lawsuit is instituted or defended by any corporation under any circumstances there must be a formal vote of authorization by the directors. The directors, of course, could delegate the authority to any officer or to an attorney to institute action as need be.
The course of management of corporate affairs over long periods and the sanction by corporate directors of the actual practice followed could together spell out authority by implication. Thus, in some of the cases relied on in Sterling Industries (p. 490) there was found to have been an implied authority vested in a corporate officer to retain counsel in corporate litigation. One rested on the prima facie authority of the president (Twyeffort v. Unexcelled Mfg. Co., 263 N. Y. 6); another on the prima facie power of the president, plus the knowledge of various corporate officers, irrespective of the power of the president (Potter v. New York Infant Asylum, 44 Hun 367).
Here it is factually established in the record that the secretary-treasurer had acted for the corporation in the institution of actions and the verification of pleadings with adequate corporate sanction of the stockholders and that this course was followed for long periods. There seems thus to exist sufficient prima facie authority in the officer instituting the action to *157survive the attack by defendants who are purported wrongdoers, are not themselves officers of the corporation, and have no interest in its internal management.
Their situation, therefore, differs in this respect also from the defendants in Sterling Industries whom the court treated, not as strangers to the corporation, but as organizers of the plaintiff itself and closely related to its affairs. In view of the failure of the board to vote the president authority there to institute the action any implied authority he may have had was deemed “ terminated ” (p. 490).
The second distinguishing element of this case is that in Sterling Industries the court left open as an exception to the rule of law it stated, certain emergency situations vital and critical to the corporation in which it is to be supposed that a corporate officer might institute an action (pp. 492, 493). We think this case would fall within that exception.
It seems to us also that the fact the corporation was to be dissolved and not continue in business, that the secretary-treasurer had acquired a special future interest through contract with the corporation in the models which are the subject of the action, are considerations which would lead to affirmance. The discussion of some similar criteria of exception to the rule of Sterling Industries (p. 493) seems relevant to this case.
The order should be affirmed, with costs.