Court Opinion

ID: 5244665
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:55:44.525945+00
Date Added: 2024-06-11T08:27:51.009764
License: Public Domain

Scott, J. (dissenting):
I am unable to concur in the reversal of the order appealed from. The purpose of the present action is to restrain the prosecution of certain actions at law against the present plaintiff, until the equitable defenses which plaintiff asserts against the claims embraced or to be embraced in the legal actions can be passed upon by a court of equity which alone has power to grant relief. That the court acting as a court of equity *586has power to grant an injunction under such circumstances, and in a proper case, is well settled and cannot be questioned, proper security having been given as has been done here. It has been urged that the plaintiff can present its equitable defenses in the action at law, as well as it can present them in a separate action in equity, but that is manifestly inaccurate as a practical matter. The difficulties in the way of presenting such defenses in an action at law have been very recently pointed out by this court in Deiches v. Western Development Co., No. 2 (157 App. Div. 676), a case much resembling those it is now sought to restrain. In that case we expressly pointed out that the defendant’s appropriate course was to apply to equity in a separate suit precisely as the plaintiff has done here. I can see no reason why we should now condemn a practice which we so recently commended. It clearly appears from the moving papers that plaintiff has already been sued in more than one action upon promissory notes, and that unless this injunction be upheld it will shortly be sued upon others and upon contracts not evidenced by notes, to all of which actions it has the same defense, if it has any defense at all, and that defense one which can only be made effective in equity in an action to which all the parties concerned are parties. The true test is not whether the plaintiff has a defense to the actions on the notes, but whether it can adequately avail itself of any defense it may have upon the law side of the court. (Bomeisler v. Forster, N. Y. 229; Lown v. Spoon, 158 App. Div. 900; McHenry v. Hazard, 45 N. Y. 580; Pfohl v. Simpson, 14: id. 142.)
It is not an appropriate occasion on a motion of this character to undertake to pass upon the merits of the controversy further than to inquire whether the plaintiff has exhibited a defense worthy of serious consideration upon a deliberate trial. The foundation upon which all of the claims against the plaintiff rest consists of agreements said to have been made with one Bassick by one Moxham, some time president of the plaintiff, assuming to act in its behalf. By these agreements the plaintiff was made to undertake to pay to Bassick enormous commissions and profits upon contracts for war munitions to be manufactured by plaintiff for the French government. The
*587affidavits leave it in much doubt whether Bassick’s services in this regard were either necessary or potent; but assuming that they were both, it is shown without the slightest attempt at contradiction that the commissions and profits thus agreed to be paid him, which ran up into millions of dollars, were many times in excess of the commissions and profits customarily paid to brokers and middlemen for obtaining for manufacturers similar contracts. The plaintiff does not in terms charge Bassick and Moxham with fraud, but the apparently extreme unreasonableness of the agreed compensation in itself suggests the existence of bad faith which, in a legal sense, is fraud.
It is claimed that the contracts were authorized by plaintiff’s board of directors, and attention is called to a resolution of the board adopted on February 25, 1915, apparently, although not specifically, affirming an agreement to pay Bassick commissions on certain contracts theretofore obtained, but it did not by any means cover all that Bassick claims, nor any of the contracts thereafter made, the commissions. and profits on which constitute a large part of the aggregate claims against plaintiff.
In my opinion, however, the fact that the board of directors had approved the contracts with Bassick, if in fact they had approved them, would not necessarily prevent a judicial scrutiny of the contracts at the suit of the company in behalf of the stockholders, for the directors are but the trustees for the stockholders and if they deal dishonestly or with undue extravagance with the property of their cestui que trust it is within the power and "is the duty of the court of equity to grant relief. If the commissions agreed to be paid Bassick were so extravagantly and unusually large as they appear to be it may easily be found upon a trial that both Bassick and the directors were chargeable with notice and knowledge that the funds of the company were being misappropriated. (First Nat. Bank v. Nat. Broadway Bank, 156 N. Y. 459, 467.) “Where directors of a corporation, abusing their trust and acting illegally or in excess of their authority, adopt resolutions disposing of the property of the corporation, and enter into contracts or make conveyances thereunder, with the effect that *588the corporation is deprived of its property without any adequate consideration, to the injury of the stockholders, a bill in equity will lie at the suit of the corporation to annul the resolutions in question and to rescind or set aside the contracts or conveyances made under their authority.” (Black Rescission of Contracts, § 356.)
In my view the plaintiff has shown enough upon the uncontradicted facts to justify an appeal to equity, and since the defendants are amply protected by the undertakings given on the issue of the injunction I think it should be continued pendente lite.
Clarke, P. J., concurred.
Order reversed, with ten dollars costs and disbursements, motion denied and temporary injunction vacated, with ten dollars costs.