Hastings v. H.M. Byllesby & Co.

• Decision Date: 12 October 1944
• Citation: 57 N.E.2d 737,293 N.Y. 413
• Parties: HASTINGS v. H. M. BYLLESBY & CO. et al.
• Court: New York Court of Appeals Court of Appeals

293 N.Y. 413

57 N.E.2d 737

HASTINGS

v.H. M. BYLLESBY & CO. et al.

Court of Appeals of New York.

Oct. 12, 1944.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Daniel O. Hastings, as special trustee of Standard Gas & Electric Company, debtor, against H. M. Byllesby & Company and others, and E. Carleton Granbery and others, for damages resulting from an alleged conspiracy. From an order of the Appellate Division of the Supreme Court, 265 App.Div. 653, 40 N.Y.S.2d 307, unanimously affirming an order of a Special Term of the Supreme Court, New York County, Carew, J., denying a motion by defendant corporate directors for a dismissal of the eighteenth cause of action set forth in the complaint on the ground that the cause of action did not accrue within the time limited by law for the commencement of an action thereon, defendant corporate directors, by permission of the Appellate Division, of the Supreme Court in the First Judicial Department, upon a certified question, appeal.

Order affirmed. Certified question answered in the affirmative. H. Preston Coursen, of New York City, for appellants.

Sidney R. Nussenfeld, Max J. Rubin, and Morris Gottlieb, all of New York City, William H. Foulk, of Wilmington, Del., and William H. Button and Francis J. Quillinan, both of New York City, for respondent.

LEHMAN, Chief Judge.

Upon a companion appeal (293 N.Y. 404, 57 N.E.2d 433) decided herewith, we have held that the sixteenth cause of action against Haystone Securities Co., contained in the complaint in the above-entitled action, is barred by the Statute of Limitations of the State of New York. Upon this appeal the question presented is whether the eighteenth cause of action against the defendants-appellants, contained in the same complaint, is also barred. A motion made by the defendants-appellants to dismiss that cause of action against them on the ground that it was barred by the Statute of Limitations was denied at Special Term and the order denying the motion was unanimously affirmed by the Appellate Division. 265 App.Div. 653, 40 N.Y.S.2d 307. Leave to appeal was granted upon the certified question: ‘Did the eighteenth cause of action set forth in the complaint herein accrue within the time limited by law for the commencement of an action thereon?’

The eighteenth cause of action alleges that the defendants named therein, including the appellants, entered into ‘a corrupt and illegal conspiracy’ to cause the dismissal of litigation which had been brought by stockholders of Standard Gas & Electric Company against that corporation, its directors and other parties to set aside certain corporate transactions and to compel an accounting of profits wrongfully obtained by some of the parties to these transactions and of losses suffered by the corporation; and that ‘in pursuance of said illegal conspiracy and for their own individual benefits and not to serve any corporate purpose of Standard, the said defendants herein caused Standard to pay to the complainants therein a large sum of money’. The purpose of the alleged conspiracy was consummated in 1930 and the courts below have held that the six-year Statute of Limitations applied to the cause of action which then accrued to the corporate debtor.

In our opinion upon the companion appeal in this case from the judgment dismissing the sixteenth cause of action against Haystone Securities Company, we held that no new cause of action to recover corporate moneys wasted by corporate officers or directors or to recover damages suffered by the corporation through their malfeasance or neglect or to recover profits wrongfully secured by them, accrues to a trustee in bankruptcy upon his appointment. The defendants-appellants named in the eighteenth cause of action were elected directors of the debtor corporation in the year 1930 and they are charged with dereliction in that year. The cause of action against them, like the cause of action against Haystone Securities Company, pleaded in the same complaint, is based upon a wrong done to the debtor corporation. It belonged to the debtor. Title to that cause of action vested in the trustee upon his appointment and no new cause of action accrued to the trustee upon which the Statute of Limitations then began to run.

The defendants-appellants submitted upon the motion to dismiss a certified copy of the minutes of the meeting of the directors of the debtor corporation, held in the State of Illinois in September, 1930, at which they voted to ratify an agreement which had been theretofore made by officers of the corporation to settle litigation brought by stockholders of the debtor corporation to redress alleged wrongs done to the corporation and voted also to ratify the use of $200,000 of corporate moneys in settlement of that litigation. They claim that otherwise they had no part in the transaction upon which the cause of action against them is based. They are now, it is said, residents of this State and they urge that the alleged cause of action arose in the State of Illinois; and under the statutes of that State was barred before September 27, 1935, when the petition in bankruptcy was filed. The question where the cause of action arose and whether the Statute of Limitations of the State of Illinois applies must await the trial of the action. It does not conclusively appear that the Illinois statute applies.

The debtor corporation could have obtained complete relief by an action at law, in which the six-year Statute of Limitations would apply. No equitable accounting was necessary. The six-year period had elapsed before December 1939 when this action was commenced. It had not elapsed in 1935 when the petition in bankruptcy was filed and approved. At that time the Bankruptcy Act, section 11, subd. d, provided that: ‘Suits shall not be brought by or against a trustee of bankrupt estate subsequent to two years after the estate has been closed.’ Act July 1, 1898, 30 U.S.Stat. 549, U.S.Code, tit. 11, s 29, subd. d, 11 U.S.C.A. s 29, sub. d. In the case of Callaghan v. Bailey, 293 N.Y. 396, 57 N.E.2d 729, decided herewith, we held that this provision of the Bankruptcy Act of 1898 was a true Statute of Limitations superseding other Statutes of Limitations and applying to all causes of action which were not barred at the time of the filing of the petition and of the appointment of trustees, whether arising at common law or created by statute enacted by the Legislature of the State or arising under the Bankruptcy Act. The Bankruptcy Act was revised by the Chandler Act in 1938 and section 11, subd. e now provides: ‘A receiver or trustee may, within two years subsequent to...