Cohen v. Miller

• Decision Date: 30 June 1949
• Docket Number: No. C-70-48.,C-70-48.
• Parties: COHEN v. MILLER et al.
• Court: New Jersey Superior Court

68 A.2d 421

COHEN

v.MILLER et al.

No. C-70-48.

Superior Court of New JerseyChancery Division.

Decided June 30, 1949.

Harry G. Cohen, statutory receiver of Hal-Mar, Inc., an insolvent corporation, filed an Inc., an insolvent corporation, filed an amended complaint against morton J. Miller, Virginia E. Miller, and Anna Miller seeking discovery, an account and a judgment for any amount owing creditors of insolvent.

Anna Miller moved to dismiss on the ground that no cause of action was set forth.

The Superior Court, Chancery Division, Freund, J.S.C., denied the motion, distinguished between an usurper and an officer de facto and held that the allegations showed that defendants were intruders who used the corporation for fraudulent purposes and hence could be required to account for their acts even though they were not stockholders or corporate fiduciaries.

Feld & Breitner, Newark (Samuel B. Feld, Newark), for plaintiff.

Sidney J. Benjamin, Elizabeth, or defendants Morton J. Miller and Virginia E. Miller.

Isadore Glauberman, Jersey City, for defendant Anna Miller.

FREUND, J.S.C.

The plaintiff, statutory receiver of an insolvent corporation, Hal-Mar, Inc., filed an amended complaint containing two counts, against morton J. Miller, Virginia E. Miller, his wife, and Anna Miller, his mother, seeking discovery, an account and judgment for $10,000 or such sum as the Court may find to be due and owing creditors of said corporation. The defendant, Anna Miller, has moved to dismiss on the ground that the complaint fails to set forth a cause of action.

The complaint is prolix and is not drawn in ‘simple, concise and direct’ terms in conformity with Rule 3:8-5(a). Grobart v. Society for Establishing Useful Manufacturers, 2 N.J. 136, 65 A.2d 833, Sup.1949. However, Rule 3:8-6, evidently intended for the Court, provides ‘All pleadings shall be so construed as to do substantial justice.’ In that light, the infirmities of the complaint will be overlooked in order to ascertain whether a cause of action is set forth.

The complaint alleges that the corporation was incorporated under the laws of this state by certificate of incorporation executed on September 22, 1947 and filed with the Secretary of State on October 2, 1947. The incorporators were Sidney Benjamin, Milton Benjamin and Miriam Benjamin, each of whom subscribed to ten shares of the capital stock of no par value. The corporation had a short life, for within ten months, to wit, on July 16, 1948, the plaintiff was appointed custodial receiver and on August 2, 1948, statutory receiver. It is alleged that ‘no corporate meetings were held * * * no stock was ever issued * * * no election of any officers or directors has been held and that the minute book fails to show any such election whatsoever.’ It is averred that the defendant, Morton J. Miller, designated himself ‘manager’, and, at times, ‘secretary and treasurer’. On other occasions, his wife designated herself ‘secretary and treasurer’, and the defendant, Anna Miller, ‘president’. Virginia E. Miller and Anna Miller were self-designated directors. It is charged that the said corporation was deliberately created for the benefit of Morton J. Miller and Virginia E. Miller as a vehicle for the perpetration of fraud; that the defendants used corporate funds for their personal disbursements and diverted corporate assets to other corporations-in short, that they engaged in a course of conduct constituting an appropriation and conversion of corporate property.

The plaintiff seeks to impose liability upon the defendants upon the theory that they were stockholders, directors and officers of the insolvent corporation, that they violated their fiduciary duties and are to be held accountable therefor. The defendant, Anna Miller, urges dismissal of the complaint and judgment in her favor on the pleadings because from the allegations of the complaint itself, she was neither a subscriber to stock, a stockholder, officer or director of the corporation, and, therefore, plaintiff's suit based upon violation of duty by a fiduciary cannot be maintained. The defendant's contention in this connection is sound, and were I confined in the construction of the complaint to the theory argued by the plaintiff, I would be obliged to grant defendant's motion.

In this case, we are not concerned with consideration of the question whether the corporation is a de jure one because the certificate of incorporation was duly filed under the General Corporation Act, R.S. 14:1-1 et seq., N.J.S.A., or whether it is a de facto corporation because there has been no bona fide attempt to organize in the manner prescribed by the statute. Stout v. Zulick, 48 N.J.L. 599, 7 A. 362 (E. & A.1886). Paragon Distributing Corp. v. Paragon Laboratories, 99 N.J.Eq. 224, 129 A. 404 (Ch. 1925). Federal Advertising Corp. v. Hundermark, 109 N.J.L. 12, 160 A. 40 (SupCt.1932). Gallant v. Fashion Piece Dye Works, 116 N.J.Eq. 483, 174 A. 248 (Ch.1934). Culkin v. Hillside Restaurant, Inc., 126 N.J.Eq. 97, 8 A.2d 173 (Ch.1939). In either event the legality of the corporate existence may be inquired into and attacked only by the state. Stout v. Zulick, supra. Elizabethtown Gas-Light Co. v. Green, 46 N.J.Eq. 118, 18 A. 844 (Ch. 1889), affirmed 49 N.J.Eq. 329, 24 A. 560 (E. & A.1892).

The Corporation Act provides for the qualification and election of directors and officers, R.S.14:7-1 et seq., N.J.S.A., and for the filing of reports of election, R.S.14:6-2, N.J.S.A. The requirements relating to acts to be performed subsequent to incorporation, such as the election of directors, are often construed to be merely directory and are not made by statute conditions precedent to the legal existence of the corporation. Vanneman v. Young, 52 N.J.L. 403, 20 A. 53 (E. & A.1890).

Frawley v. Tenafly Transportation Co., 95 N.J.L. 405, 113 A. 242, 22 A.L.R. 369 (E. & A.1920). Failure to observe such statutory provisions does not, ipso facto, result in forfeiture or dissolution of the corporation. R.S.14:10-2, N.J.S.A. Hboken Bldg. Ass'n v. Martin, 13 N.J.Eq. 427 (Ch. 1861). Appleton v. American Malting Co., 65 N.J.Eq. 375, 54 A. 454 (E. & A.1903.)

It is obvious that none of the essential organizational acts required to be performed subsequent to the filing of the certificate of incorporation were performed; no first meeting of the incorporators or subscribers to stock was held, no by-laws were adopted, no stock was issued, no directors or officers were or could have been elected. The defendant, Anna Miller, not being a bona fide holder of some stock, was ineligible for election as director, R.S. 14:7-2, N.J.S.A., or president of the corporation, R.S.14:7-6, N.J.S.A. A person must not only be eligible but he must be elected and accept election as a director. Wright v. First National Bank, 52 N.J.Eq. 392, 28 A. 719 (Ch.1894), reversed sub nom. Kuser v. Wright, 52 N.J.Eq. 825, 31 A. 397 (E. & A.1894). Whittaker v. Amwell National Bank, 52 N.J.Eq. 400, 29 A. 203 (Ch.1894). DuBois v. Century Cement Products Co., 119 N.J.Eq. 472, 183 A. 188 (E. & A.1936).

Generally, the officers of a corporation are designated in the by-laws. A person cannot be an officer of a corporation if there is no such office provided for in the articles or by-laws. Fletcher, Cyc. Corp., Perm. Ed., Vol. 2, Sec. 269 and 270. Since the office of president was not created by appropriate action of the stockholders, there was no such de jure office. There can be no de facto officer where, for want of an office, there can be no de jure one. The rule is to be found in Thompson on Corporations, 3rd Ed., Vol. 2, Sec. 1211, Page 639: ‘The distinction between directors or officers de jure and such de facto must be kept in mind. In making this distinction, it will be observed that there must, in the first place, be a de jure office. There may be a de jure office and a de jure officer filling it; or there may be a de jure office, filled by a de facto officer. But there can be no de facto office filled by either a de jure or de facto officer. In other words, there must be a de jure office, whether it is filled by a de jure or a de facto officer.’ An officer de jure is one who holds an office to which he has been legally elected or appointed. An officer de facto is one who has the color of right or title to the office he exercises, one who has the apparent title of an officer de jure. Fletcher, Cyc. Corp., Sec. 373 and 374. ‘An officer de facto is one who has the reputation of...