Bentley v. Colgate

• Decision Date: 22 November 1932
• Citation: 163 A. 98
• Parties: BENTLEY v. COLGATE et al.
• Court: New Jersey Supreme Court

163 A. 98

BENTLEY

v. COLGATE et al.

Supreme Court of New Jersey.

Nov. 22, 1932.

Action by Peter Bentley, receiver of the Bradley Hotels System, Inc., against Russell Colgate and others, executors of the last will and testament of Austen Colgate, deceased, and others. On defendants' motion to strike out amended complaint.

Motion granted.

Herbert Clark Gilson, of Jersey City, for plaintiff.

Merritt Lane, of Newark, for defendants.

ACKERSON, C.

The original complaint in this action was stricken as defective under rule 39 of this court (155 A. 553, 9 N. J. Misc. 790), and the amended complaint is now before me upon a motion to strike it out upon several grounds, some of which will be hereinafter noticed.

The amended complaint is by the receiver of a foreign corporation against its directors to recover damages for their alleged negligence in the conduct of the corporate affairs. It alleges in substance the appointment of the plaintiff as receiver of the Bradley Hotels System, Inc., a Delaware corporation, by our Court of Chancery, and that said Bradley Hotels System, Inc., was incorporated on July 30, 1923, on which day it became the owner of an option to purchase three tracts of land in Asbury Park, Monmouth county, N. J., which option was the only asset of the said company, and, at all times mentioned in the complaint, was of the value of $100,000, and at said times the defendants constituted the board of directors of said corporation. Then follows the vital part of the complaint which is found in paragraphs 5 and 6, providing as follows:

"5. On or about September 1, 1924, there were certain persons ready, willing, and able to purchase the said option for a sum sufficient to pay all of the claims of creditors of said corporation and to reimburse all of the stockholders for money paid for capital stock of said corporation, and the defendants then and there with knowledge thereof, paid the sum of $5,000 for, and obtained a renewal of the said option to November 1, 1924.

"6. At or about the time of the said renewal of the option on September 1, 1924, the said defendants improperly allowed one of the said directors to wit, Clarence E. F. Hetrick, to speculate with the said option and to try to make a profit for himself by raising capital to build a hotel on the property mentioned in the option, and the defendants failed and neglected, to sell the said option or to take any action whatsoever in connection with the said option, from that time to the expiration thereof; and as a result of the conduct of the defendants as aforesaid, the said option lapsed and expired, and it thereby became wholly lost to the corporation, to wit, on November 1, 1924."

One of the objections to the sufficiency of the amended complaint is that it is irregular, indefinite, defective, and so framed as to embarrass or delay a fair trial; therefore, open to attack under rule 39 of this court. This is the equivalent of a special demurrer at common law.

In the first place, it is apparent that the clause in paragraph 6 reading: "Defendants improperly allowed one of the said Directors, * * * to speculate with the said option," is a bare conclusion of the pleader, and it is not supported by pleaded facts, for what follows is not tied up to the alleged speculation because of the use of the conjunctive "and." This conjunctive merely makes the following statement in paragraph 6 a second independent charge of alleged improper conduct on the part of the defendant directors. This latter charge, however, is too indefinite and uncertain to support an action for negligence.

While the directors of a corporation are required to exercise ordinary and reasonable care, such as a reasonable, prudent, careful and skillful man exercises in the conduct of his own affairs, nevertheless they are not liable for losses happening through mere mistakes of judgment, and questions of policy of management, of expediency of contract or action, of lawful appropriation of corporation funds to advance corporate interests, are left solely to the honest decisions of the directors, if their powers are without limitation. 14a C. J. 102, § 1896, and Merriman v. National Zinc Corporation, 82 N. J. Eq. 493, 89 A. 764.

With this principle as a guide, we must remember that an option to purchase real estate is not ordinarily acquired for the purpose of sale, but to hold open the opportunity of purchasing real estate for future acceptance by the one to whom the option is given. So the mere failure to sell the option would not impose liability upon the defendant directors, because presumably the option was taken to further the objects of the corporation, and it certainly was a question of corporate policy as to whether the directors should rely upon one codirector's ability to turn the option to the corporation's advantage or to dispose of it. An honest mistake of judgment in this respect, while regrettable, would not be legally censurable....