Court Opinion

ID: 5771717
Source: CourtListenerOpinion
Date Created: 2022-01-12 17:33:18.425988+00
Date Added: 2024-06-11T08:41:47.304258
License: Public Domain

Herlihy, P. J.
(concurring in part and dissenting in part). On November 9, 1966, the parties hereto executed an agreement dated October 31, 1966 wherein the plaintiff agreed to sell his interest in the land and to transfer his stock in the corporation, resign as an officer and director and execute a general release to the defendant, and upon execution of the necessary documents, the defendant agreed to pay the plaintiff $60,000. In accordance therewith, the defendant did pay the plaintiff $41,000, the balance to be paid upon delivery of certain certificates of occupancy. It is admitted in the pleadings that the said certificates were delivered on or about July 26, 1967 (approximately eight months after signing the agreement), but that the balance of $19,000 has not been paid. In addition to the above terms the agreement contained certain covenants on the part of the ‘ ‘ seller ’ ’ and then states: “ 2. The Purchaser hereby indemnifies the Seller from any and all liability in any way connected with the following: * * * d. Construction expenses incurred by the Corporation for the garden apartment complex referred to above.” The purpose of the agreement was the desire of both parties ‘ ‘ to terminate their business relationship and interest in said real property and Corporation ”.
After joinder, the defendant was permitted to serve an amended answer in which he set forth counterclaims, the theory of which was waste and mismanagement of the corporate assets by the plaintiff, based primarily upon allegations that the plaintiff awarded contracts for sums of money which were excessive and resulted in dissipation of corporate assets. The complaint is for money due under the agreement, which was signed by the defendant individually and who contends that the counterclaims are for the benefit of the corporation instituted by him in a derivative capacity. The defendant asserts this counterclaim *330under section 720 of the Business Corporation Law, which permits an officer or director of a corporation to bring an action against another officer or director for ‘ ‘ neglect of, or failure to perform or other violation of his duties in the management and disposition of corporate assets committed to his charge But this section was not intended to be interposed under the present circumstances. The plaintiff brought this action in his individual capacity, against the defendant in his individual capacity. Thus, plaintiff is no more subject to a counterclaim in a capacity different from the one in which he sued than a shareholder bringing a derivative action (Craven v. Gazza, 19 A D 2d 646, app. dsmd. 14 N Y 2d 542). Nor may defendant counterclaim in a capacity different from the one in which he was sued.
The fact that the defendant is also a director cannot overcome the obvious fact that he is the sole shareholder and, in the absence of an allegation requiring the protection of creditors, is bringing these counterclaims for his sole benefit. In truth, based upon the present pleadings, the action is actually an individual action since only the defendant will benefit from the recovery (cf. Capitol Wine & Spirit Corp. v. Pokrass, 277 App. Div. 184, affd. 302 N. Y. 734). The defendant may not protect himself from personal liability by using the corporation as a shield. This is not to say, however, in different circumstances that the corporation could not bring an action against the plaintiff for waste and mismanagement.
The contract in question between the parties was for the' express purpose of terminating their business relationship in the corporation and, in the absence of fraud, should be given such effect as between them. If the defendant had been the victim of a fraud as the result of the conduct of the plaintiff, then he would suffer a personal loss as the value of the stock he purchased would be diminished. Here, the counterclaims are not based on fraud and, accordingly, should be dismissed (cf. Cutler v. Hartford Life Ins. Co., 22 N Y 2d 245; Greenfield v. Downer, 6 A D 2d 263, revd. 6 N Y 2d 867).
I would affirm the order and judgment of Special Term.
Reynolds, Cooke and Sweeney, JJ., concur with Gbeenblott, J.; Heklihy, P. J., concurs in part and dissents in part, in an opinion.
Order modified, on the law, so as to deny the motion to dismiss the counterclaims, and, as so modified, affirmed, without costs. Judgment affirmed, without costs; proceedings to enforce such judgment stayed pending determination of the counterclaims.