Nechis v. Gramatan Gardens, Inc.

• Decision Date: 03 August 1962
• Citation: 35 Misc.2d 949,231 N.Y.S.2d 383
• Parties: Sylvia NECHIS, Plaintiff, v. GRAMATAN GARDENS, INC., Myra Abelman, Arthur F. Abelman and Cecilia D. Dickoff, Defendants.
• Court: New York Supreme Court

Page 383

231 N.Y.S.2d 383

35 Misc.2d 949

Sylvia NECHIS, Plaintiff, v. GRAMATAN GARDENS, INC., Myra Abelman, Arthur F. Abelman and Cecilia D. Dickoff, Defendants.

Supreme Court, Westchester County.

Aug. 3, 1962.

Herbert W. Aronson, Mt. Vernon, for plaintiff.

Arthur F. Abelman, New York City, for defendants Gramatan Gardens, Myra Abelman & Arthur F. Abelman.

FRANK S. McCULLOUGH, Justice.

This is a motion for summary judgment brought by the defendants in a stockholders derivative suit.

The complaint states two causes of action against the defendants. The first cause of action alleges waste of corporate assets by payment of excessive salary to the defendant Myra Abelman and excessive legal fees to defendant Arthur F. Abelman. The second cause of action asks the court to declare a dividend. The prayer for relief set forth in the complaint seeks an accounting for the moneys received and disbursed by the defendants as officers and directors of the corporate defendant, determination of damages sustained by reason thereof, judgment in favor of the corporate defendant against the individual defendants for damages sustained, and a direction that dividends be declared out of the corporate surplus.

As Judge Edgcomb pointed out in Winter v. Anderson, 242 App .Div. 430, at page 431, 275 N.Y.S. 373, at page 375:

'Before discussing the facts, it may be well to briefly refer to the duty which the individual defendants owed to their corporation. The rule is well settled that the officers and directors of a corporation occupy positions of trust in relation to their company and to its stockholders and in all their dealings are bound to act with fidelity and in the utmost good faith; they are required to guard and care for the property of the corporation, and to manage its affairs with the same degree of loyalty and devotion that men of average prudence apply to their own personal affairs; they must subordinate their individual and private interests to their duty to the corporation whenever the two conflict. For the violation of such duty, resulting in loss and waste of the corporate assets, they may be made to account in equity to the corporation or to its representatives. * * *

'A corporate officer or director is not permitted to derive any personal profit or advantage by reason of his position, which is not enjoyed in common by all the stockholders. * * *

'Plaintiff insists that these familiar rules, which are based on morality and sound public policy, were violated by the defendants in seven separate transactions, resulting in a loss to the corporation of $66,545,105.19.

'Throughout this discussion it must constantly be borne in mind that this rule of liability is limited to the fraudulent, dishonest or collusive acts of the officers or directors, which result in loss to the corporation, and cannot be invoked for a mere error of judgment, or lack of...