Court Opinion

ID: 5222841
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:37:56.041718+00
Date Added: 2024-06-11T08:27:32.677902
License: Public Domain

Ingraham,.P. J.:
I will not dissent from the disposition of this appeal recommended by Mr. Justice'Clarke on the ground that when the case was tried, the plaintiffs not being then entitled to equitable relief, the defendants were entitled to the dismissal of the complaint; although I do not think that the defendants are entitled to costs. The plaintiff corporation is a manufacturing corporation organized under the Business Corporations Law, to carry on the business of lithographing and printing, and no express authority is shown under which the directors of the corporation were authorized to become members of any other *611corporation, or in its corporate capacity to become a member of the defendant the National Association of Employing Lithographers, and the plaintiff corporation itself did not attempt to become a member of such corporation. The plaintiff Bunker, however, did become an incorporator of the defendant the National Association of Employing Litho- ■ graphers, and was one of its board of directors. He was also a stockholder of the plaintiff corporation. By thus becoming a member of the membership corporation, he undoubtedly incurred such obligations to the corporation as its charter required, and he undoubtedly acted in joining the membership corporation on behalf of the plaintiff corporation. He gave his note to the corporation for what was called the membership fee, but what was clearly intended as an obligation to insure' the compliance by each member of the membership corporation and the business corporation which he represented with the orders of its directors, and the enforcement of the note was to he a penalty for refusing such obedience. The plaintiff corporation indorsed this note, thus making the plaintiff corporation hable for the amount of the note in case the plaintiff Bunker, or the plaintiff corporation refused to obey the orders of the directors of the membership corporation. I think this action. by the directors of the plaintiff corporation was ultra vires and void, and the note imposed no liability upon the plaintiff corporation. It was not issued in the regular course of the plaintiffs’ business; it was not for the payment of any obligation of the company; and it had no relation to the business which the corporation was organized to conduct. Assuming that the officers of the plaintiff corporation and its directors concluded that the organization of this membership corporation would advance the business of the corporation, and that its adhesion to an agreement to abide by the rules or orders of the directors of the membership corporation was not illegal, I know of no authority for the directors of a business corporation to enter into an obligation to pay a large sum of money as a penalty for refusing to comply with the orders of the membership corporation in relation to the method in which it should conduct its business. The money and property used in the plaintiffs’ business was the property of the plaintiff corporation, *612held for the benefit of its creditors and stockholders. Its directors had no power to divert the company’s property from the purpose for which the corporation was organized, and I think that incurring such an obligation without at any rate the consent of the stockholders themselves was an attempt to impose a liability upon the corporation which was not within the power of the directors; and to enforce this obligation against the corporation would have been a diversion of its funds from corporate uses, which, at any rate without the direct assent of its stockholders, was illegal and void.
- Other questions are presented in this case which I do not consider it necessary to discuss, as I do not agree that the directors of a business corporation can assume obligations on ■ behalf of the company which would tend to divert the property and money of the corporation from the legitimate uses of the corporation.