Bosworth v. Allen

• Decision Date: 01 October 1901
• Parties: BOSWORTH v. ALLEN et al.
• Court: New York Court of Appeals Court of Appeals

168 N.Y. 157

61 N.E. 163

BOSWORTH

v.ALLEN et al.

Court of Appeals of New York.

Oct. 1, 1901.

Appeal from supreme court, appellate division, Fourth department.

Action by John H. Bosworth, receiver of the Genesee National Savings & Loan Association, against Charles M. Allen and others. From an order of the appellate division (67 N. Y. Supp. 1133) affirming an interlocutory judgment of the special term sustaining demurrer to the complaint, plaintiff appeals. Reversed.

The substance of the complaint is as follows: In 1898 the defendants were directors, duly elected by the stockholders, of the Genesee National Savings & Loan Association, a domestic corporation, the defendants Silas N. Gallup, James Walling, Ellery G. Allen, and Eli H. Gallup being respectively the president, vice president, secretary, and treasurer, and the defendant Charles M. Allen the attorney, for said corporation, appointed by the trustees pursuant to the by-laws. About the 11th of November, 1898, without the knowledge or consent of the stockholders, and in violation of their duty to the conporation, the defendants conspired with John L. White and John W. Reynolds, whom they knew to be irresponsible and untrustworthy, to elect them and other persons to be designated by them, whom they could control, as directors of the corporation, and to thereby place its business and property under their charge, and subject to sale and disposition by them. Pursuant to said conspiracy, the defendants agreed with Reynolds and White to resign in succession their positions as directors and officers, and elect in their places the said Reynolds and White, and other persons to be designated by them, for such purpose, and to thereby place in their possession and under their management and control the property, rights, and interests of the corporation; and to render the same subject to sale and disposition by the substituted management. In consideration of this agreement and these acts to be done by the defendants, and these acts to be done by the defendants, said Reynolds and White and their associates were to pay to the defendants, upon the surrender of their capital stock to the corporation, the sum of $13,434.94, which exceeded its withdrawal value by $1,168.53. It was also part of the consideration that the corporation, by its board of directors, should hire the defendant Charles M. Allen as its counsel for the period of two years at a compensation of $200 a month, and that the defendants should be paid by Reynolds and White and the persons selected by them a bonus of about $18,000. In furtherance of such conspiracy, this agreement was carried into effect in all respects by the election of the new directors and officers, the placing of the business, property, and effects under their charge, and the making of a written contract with Charles M. Allen to employ him as counsel for the period and at the rate of compensation aforesaid. Such sums of money, to wit, $1,168.53 and about $18,000, were also paid in accordance with the agreement. All this is alleged to have been done on or about the 11th of November, 1898. It is further alleged that between the day last named and April 15, 1899, said White and Reynolds and their associates, as trustees and officers, grossly mismanged the business and property of the corporation, and wasted its assets by the payment of unnecessary and unearned salaries to themselves and others to the amount of $7,425.79, and by the payment of extravagant and unnecessary expenses in managing the business of the corporation to the amount of about $5,000. On or about the 11th of November, 1898, White, Reynolds, and their said associates, as trustees and officers of the corporation, made various wasteful and improvident contracts against the rights of the corporation and its stockholders, and without their knowledge or consent. The corporation was compelled to expend about $5,000 in annulling said contracts, recovering real estate conveyed pursuant thereto, obtaining possession of its assets and property, and ousting White, Reynolds, and their associates from their positions as officers and trustees. It was also deprived of rents, issues, and profits of said real estate and interest on money paid on said improvident contracts amounting to about $3,000. On the 15th of April, 1899, the corporation repudiated its contract with Charles M. Allen, and removed him from office as its counsel, but he claims that said contract is still binding, and that he is entitled, by virtue thereof, to receive the compensation stipulated thereby. The relief demanded is that the Allen contract be annulled; that the amount of money paid to the defendants, as alleged, be ascertained and determined, and that they be required to account for it; that the amount of damages sustained by the corporation by the wrongful acts of the defendants be fixed, and that it have judgment therefor. There was also a prayer for general relief.

The defendant Charles M. Allen demurred to the complaint upon the ground that causes of action were improperly united therein, to wit, a cause of action upon contract to recover $18,000, received by the defendants to the use of the plaintiff, united with a cause of action in tort to set aside a contract in writing fraudulently entered into with said Allen, and with a cause of action to recover moneys which were wrongfully paid to the defendants over and above the value of their stock, and with a cause of action to recover damages for a conspiracy entered into between the defendants and John L. White and others. The defendants William C. Barnard, James Walling, and Ellery G. Allen demurred upon the same ground, specifying as the subjects of misjoinder a cause of action to cancel a contract made with one of the defendants through fraud, a cause of action to recover moneys paid to the defendants over and above the withdrawal value of their shares, and a cause of action to recover damages by reason of a conspiracy between the defendants and White and others. The defendants Silas N. Gallup, Eli H. Gallup, and Charles W. Winspear, demurring upon the same ground, specified as the subjects of misjoinder a cause of action on contract to recover $18,000 paid to the defendants for their resignation as officers of the corporation and the substitution of others in their places, being for money had and received by defendants belonging to the plaintiff; a cause of action in tort to set aside the contract made with Charles M. Allen; another to recover the sum of $1,168.32 as damages sustained by the corporation through the wrongful acts and conpiracy or the defendants with Reynolds, White, and others; and, finally, one for damages sustained by the corporation through the wrongful acts and conspiracy of the defendants with Reynolds, White, and others in turning over the corporation to them, and enabling them to grossly mismanage its business and waste its effects. Upon the trial of the issues of law before the special term it was found that causes of action were improperly united, vix. one on contract to recover $18,000 received by the defendants to the use of the plaintiff, united with a cause of action in tort, to wit, one to set aside a contract with Charles M. Allen entered into through fraud; another to recover moneys paid to the defendants in excess of the value of their stock; and a third to recover damages by reason of a conspiracy between the defendants with White and others to turn over the property of the plaintiff to them, knowing them to be irresponsible and untrustworthy. An interlocutory. An interlocutory judgment was directed and entered accordingly, which, upon appeal, was affirmed by the appellate division without an opinion, two...