Court Opinion

ID: 3602754
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:48:46.944693+00
Date Added: 2024-06-11T13:58:35.719806
License: Public Domain

The facts alleged as constituting a cause of action at law in favor of the plaintiff against the defendant, adequately stated for the purposes of this discussion, are: The plaintiff, a New Jersey corporation, owned, as an asset, all the three thousand shares of the capital stock of another corporation hereinafter denominated the Brazil company, except eighteen. The defendant was a director of the plaintiff. He was not a director of or connected with the Brazil company. An agent of the Brazil company, wrongfully and without *Page 27 
the knowledge of it or the plaintiff and with the knowledge, acquiescence and approval of the defendant, abstracted from time to time, through the period of about one year, from its treasury and delivered to a third corporation, the Moju Company, moneys aggregating $185,000, no part of which has been repaid to the Brazil company. The defendant owned about one-quarter of the issued shares of the capital stock, and was the vice-president of the Moju Company. The defendant did not inform the plaintiff, which remained ignorant, while it progressed, of the misapplication of the moneys of the Brazil company. The plaintiff, had it known of the misuse, "could and would have taken such action as would have caused the funds and moneys (of the Brazil company) theretofore so misapplied to have been recovered and as would have prevented the said further misapplication of said funds and moneys to such wrongful uses." The Moju Company is insolvent. The misappropriations by the agent of the Brazil company of its moneys have lessened the value of the assets of the plaintiff, to wit, the shares of stock of the Brazil company in a sum exceeding $185,000. Judgment for the said sum of $185,000 with interest is prayed for.
Certain facts are clear. This is an action at law. The Brazil company was an independent legal being or entity, and its status was unaffected by the ownership of the plaintiff of its capital stock. (Buffalo Loan, T.  S.D. Co. v. Medina Gas  E.L. Co.,162 N.Y. 67, 76; Saranac  L.P.R.R. Co. v. Arnold, 167 N.Y. 368. ) The Brazil company owned exclusively the abstracted moneys. The plaintiff did not at law have right, title or interest in or to them, the whole title of which was in the despoiled corporation. (United States Radiator Corp. v. State of NewYork, 208 N.Y. 144.) The plaintiff, by virtue of its shares of the capital stock of the Brazil company, had merely the right to partake, proportionately, of the surplus profits or fund of the company as declared *Page 28 
or distributed by its directors. (Burrall v. Bushwick R.R.Co., 75 N.Y. 211; Plimpton v. Bigelow, 93 N.Y. 592, 599;United States Radiator Corp. v. State of New York, 208 N.Y. 144. ) The action is not derivative, that is, it is not brought in behalf of the Brazil company. The pith of the alleged cause of action is, the abstraction of the moneys and the neglect of the defendant to inform the plaintiff of it.
The injury to the assets of the plaintiff was not direct, and came from and through the injury to those of the Brazil company. Those assets were not taken or directly injured or interfered with. They, as it is alleged, were depreciated in value by the "wrongful misappropriation" of the funds of the Brazil company, no part of which the plaintiff then owned or had a right to possess or control or has now the right to recover. The Brazil company owned them and was entitled to possess and dispose of them and it alone has the right to recover them. Whenever recovery or restitution of them is made to it, the alleged injury to the plaintiff will be obliterated. The subsequent disposition of them will be wholly within the authority of the Brazil company and it may naturally and lawfully result, through the hazards of business, that the plaintiff will not receive directly or indirectly any advantage from them. If at the commencement of this action the Moju Company or Hutter, the general manager and despoiler of the Brazil company, or this defendant had paid that company the sum abstracted, the plaintiff would not have had the alleged cause of action, because the plaintiff has no right to those moneys and upon their return to their owner, the Brazil company, it is not under any damages. If the defendant should pay the sum of them or any part to this plaintiff, he, under the allegations of the complaint, which permit proof that the defendant conspired with the agent of the Brazil company, would remain liable to the Brazil company for them, because they were taken from and belong *Page 29 
to the Brazil company, but if he paid them to the Brazil company he would not thereafter be liable to the plaintiff, because it had no right to them and its damage or loss would have been wholly remedied. There was but a single loss, although that loss may indirectly and collaterally affect the creditors and stockholders of the one loser, to wit, the Brazil company. A single recovery by the Brazil company would afford complete indemnity to the plaintiff and all interested parties. Each of the Brazil company and the plaintiff has not the right to recover the one-hundred and eighty-five thousand dollars. The general rule of the law is, that an action must be brought by the person having the title to the damages which are sought to be recovered for the injury and not the person or persons who are indirectly damaged by it.
If the defendant at his first knowledge of the spoliation during its progress had informed the plaintiff of it, the plaintiff would not have had the right to any of those moneys or any damages, a fact which the complaint recognizes in the averment that if he had done so "the plaintiff could and would have taken such action as would have caused the funds and moneys (of Brazil company) theretofore so misapplied to have been recovered and as would have prevented the said further misapplication of said funds and moneys to such wrongful uses." The quoted allegation is a conclusion of law based upon the ownership by the plaintiff of nearly all of the capital stock of the Brazil company, but treating it as an allegation of fact, there remains the truth that the plaintiff has not been injured by the neglect of the defendant. The power and authority which it then had to cause the Brazil company to recover the misapplied funds, it still has. While the Moju Company is insolvent, Hutter, the agent of the Brazil company, and this defendant, presumptively, are solvent. Solvency of the individual, no refuting circumstance appearing, is presumed. *Page 30 
(First National Bank of Meadville v. Fourth National Bank,N Y City, 77 N.Y. 320; Potter v. Merchants' Bank of Albany,28 N.Y. 641.) The plaintiff in proving the alleged cause of action would prove a cause of action in favor of the Brazil company against Hutter and this defendant, as tort feasors, through which that company could recover the full amount of the funds appropriated by them with interest — a result the equivalent of that obtainable under full and immediate information of the misappropriation to the plaintiff by the defendant. The plaintiff is seeking to recover, through the alleged wrong of the defendant, a sum which it never had, and would not have had if the defendant had told it all that he knew, which is recoverable by the Brazil company, and the recovery of which by that company will make whole the value of the plaintiff's shares of its stock. The law does not permit such a result.
In Wells v. Dane (101 Me. 67) the plaintiff was a shareholder in the corporation, and brought the action against the defendants, officers of the corporation, to recover damages, alleging that the wicked and wrongful acts were with the specific intent and malicious and fraudulent design of injuring the plaintiff. The court held that the plaintiff did not have a cause of action, and for reasons which I think determine the question here in accord with complete and final justice. It said: "There may be cases of injuries to the individual rights of the shareholder where he and not the corporation must seek redress, such for instance as the levying of an unlawful tax on shares held by the individual stockholder, mutilation or destruction of his certificate, or circulating false and scandalous reports or issuing spurious certificates thus creating uncertainty as to the title or validity of existing shares. In all such cases, however, the wrongful act affects the shares directly. They are readily distinguished from the case at bar, where the plaintiff claims his shares were depreciated by wrongful acts *Page 31 
making possible the issue of six hundred shares of stock without payment therefor. Such a wrong being primarily against the corporation, the redress for it must be sought by the corporation. * * * Whatever injury befell him he suffered as a stockholder; and in a case like this, where the direct injury was to corporate rights and interests, the right to share in the compensation which the corporation may recover passes to the transferee of the plaintiff's shares. (Winsor v. Bailey,55 N.H. 218.) Neither does it matter that the misconduct is charged against the defendants as individuals and not as officers. By whomsoever the wrongful acts were committed and in whatsoever capacity the wrongful doers acted, their acts directly injured the corporate body. Redress must be sought by the party injured. The plaintiff was injured only indirectly and collaterally. When the corporation is indemnified the plaintiff ceases to be a loser. It is for this reason, viz., that the plaintiff sustained no loss in addition to the loss to the corporation, that the action cannot be maintained notwithstanding the allegation that the wrongful acts were done with the specific intent and malicious and fraudulent design of injuring the plaintiff. If the plaintiff had suffered any loss in addition to that suffered by the corporation such an allegation would be sufficient although the injury suffered was indirect and consequential. (Gregory v.Brooks, 35 Conn. 437; St. J.  L.C.R. Co. v. Hunt, 55 Vt. 570. ) In those cases a wrongful act was done to one with an unlawful intent and design to indirectly injure another, and both were injured. Here there is but one loser and one injury. When the injury is to the collective rights of the shareholders and the corporate property is made good, the plaintiff, who has suffered only in these, will be fully indemnified. There is therefore nothing for which he can maintain a separate suit. Where there is but one loss and one loser there can be but one suit, and that must be by the party who has suffered the loss." *Page 32 
(See, also, Allen v. Curtis, 26 Conn. 456; Niles v. N.Y.C. H.R.R.R. Co., 176 N.Y. 119.)
The gist of the wrong in any aspect is the abstraction of the moneys which were those of the Brazil company, and that company's ownership of the damages resulting from it. It is true that in the present case the defendant was a director of the shareholder, and it is alleged that such relation gave an additional element to his wrongdoing, making him liable to the plaintiff. But the fundamental facts exist that the direct and primary injury and single loss is to the Brazil company; that the loss to the plaintiff was simply an indirect consequence of that loss and not additional to or independent of it; that the Brazil company can recover its loss and that being done the plaintiff will be fully indemnified. The fact that the despoilers of the Brazil company were not its directors does not affect the natural results of their acts and is immaterial. (Wells v. Dane, 101 Me. 67;Converse v. United Shoe Mach. Co., 185 Mass. 422.)
The case of Ritchie v. McMullen (79 Fed. Rep. 522) does not conflict with the foregoing reasoning and conclusions. There the defendant directors of the corporation were pledgees of the plaintiff's shares of its capital stock, and combined together and wrongfully reduced the value and income of the pledged shares with the intention of defaulting the pledgor, forcing the shares to a public sale, depriving the plaintiff of the means of redeeming them or buying them in, of buying them in at less than their value, and of thus increasing their holdings and causing the plaintiff to cease to be a stockholder and lose the benefits from his development of the properties. The basis of the decision there was that the pledgees used their positions as majority directors and their votes as stockholders intentionally to depreciate the stock of their pledgor with the dishonest purposes as mentioned. Clearly, the injury to the plaintiff was direct and peculiar. The case, in this aspect, belongs to *Page 33 
the class of which is St. J.  L.C.R.R. Co. v. Hunt (55 Vt. 570) . For the reasons stated, I vote for reversal.
CHASE, MILLER and SEABURY, JJ., concur with CARDOZO, J.; COLLIN, J., reads dissenting opinion, and HISCOCK, J., concurs; WILLARD BARTLETT, Ch. J., absent.
Order affirmed.