Pollitz v. Gould

• Decision Date: 25 April 1911
• Citation: 202 N.Y. 11,94 N.E. 1088
• Parties: POLLITZ v. GOULD et al.
• Court: New York Court of Appeals Court of Appeals

202 N.Y. 11

94 N.E. 1088

POLLITZ

v.GOULD et al.

Court of Appeals of New York.

April 25, 1911.

Appeal from Supreme Court, Appellate Division, First Department.

Action by James Pollitz against George J. Gould and others. From a judgment of the Appellate Division (127 N. Y. Supp. 1140), affirming an order denying a motion made on the pleadings to dismiss the complaint, defendants George J. Gould and others appeal by permission on certified questions. Affirmed, and questions answered.

F. C. Nicodemus, Jr., for appellants.

J. Aspinwall Hodge, for respondent.

HISCOCK, J.

This action was brought by plaintiff as a stockholder in the Wabash Railroad Company in behalf of said company, for the benefit of himself and all other stockholders, to set aside as fraudulent a transfer and exchange of several millions of dollars par value of its stock for an equivalent amount of the capital stock of the Wabash Pittsburg Terminal Railway Company. It is unnecessary to go into the details of the transaction which is being attacked by the plaintiff through and in behalf of the company, for the sole question presented for our consideration may be discussed without doing this. This question is whether a stockholder may bring an action of this character for the purpose of avoiding an improper transaction consummated at the expense of the corporation before he acquired his stock, and as presented here the question is unembarrassed by any incidental considerations, such as that the prior holder of the stock consented to the transaction, or that plaintiff's subsequent acquisition of the stock was accompanied by any circumstances which render it inequitable for him to seek relief .

While somewhat strangely this question does not appear to have been decided by this court, it has been passed on by the lower courts of this state, and by those of many other states, and by the Supreme Court of the United States. It has also been somewhat considered by the courts of England. Conflicting conclusions have been reached by these decisions. Without reviewing the English authorities, which so far as cited do not seem to be very decisive, reference may be made to the decisions in this country.

The question was presented in Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827, and it was there held that a stockholder might not bring an action in behalf of the corporation to avoid a fraudulent transaction consummated before he acquired his stock. While the question was directly passed on, it is fair to state that it was not considered at any great length, and that the court seems to have been more concerned with establishing this rule as one of practice than of substantive law. The decision resulted in the adoption of a rule of practice requiring the plaintiff in such an action to show, before bringing suit, that he owned the stock on which it was brought at the time the transaction complained of occurred, and, whether it be regarded as establishing a principle of law or a rule of practice, this authority has been subsequently followed in the United States courts. In addition, this requirement of the plaintiff in such a stockholder's action has been approved in the following cases: Alexander v. Searcy, 81 Ga. 536, 8 S. E. 630,12 Am. St. Rep. 337;Boldenweck v. Bullis, 40 Colo. 253, 90 Pac. 634;Rankin v. S. W. B. & I. Co., 12 N. M. 54, 73 Pac., 614;Moore v. Silver Valley Co., 104 N. C. 534, 10 S. E. 679;Clark v. American Coal Co., 86 Iowa, 436, 53 N. W. 291,17 L. R. A. 557;Home Fire Ins Co. v. Barber, 67 Neb. 644, 93 N. W. 102460 L. R. A. 927, 108 Am. St. Rep. 716.

The contrary doctrine that a stockholder acquiring his stock subsequent to the occurrence complained of may maintain this character of an action has been affirmed in the following cases outside of this state: Winsor v. Bailey, 55 N. H. 218;City of Chicago v. Cameron, 22 Ill. App. 104, affirmed 120 Ill. 447, 11 N. E. 899;Montgomery Light Co. v. Lakey, 121 Ala. 131, 25 South . 1006;Forrester v. B. & M., etc., Co., 21 Mont. 544, 565, 55 Pac. 229, 353;Just v. Idaho, etc., Co., 16 Idaho, 639, 102 Pac. 381,133 Am. St. Rep. 140;Rafferty v. Donnelly, 197 Pa. 423, 47 Atl. 202;Appleton v. Am. Malting Co., 65 N. J. Eq. 375, 54 Atl. 454. It has also been approved in this state, directly or indirectly, in the following cases: Ramsey v. Gould, 57 Barb. 398;Young v. Drake, 3 Hun. 61; Ervin v. Oregon Ry. & N. Co., 35 Hun, 544; Frothingham v. Broadway & Seventh Ave. R. R. Co., 9 N. Y. Civ. Proc. R. 304; Sayles v. Central Nat. Bank, 18 Misc. Rep. 155,41 N. Y. Supp. 1063;O'Connor v. Virginia P. & P. Co., 46 Misc. Rep. 530, 535,92 N. Y. Supp. 525.

Assuming this question to be an open one in this court, we have no hesitation in approving the rule, which has heretofore prevailed in this state, that in the absence of special circumstances this character of action may be maintained by a stockholder acquiring his stock subsequent to the transaction which is challenged, rather than the contrary one prevailing elsewhere. We do this, not only because a long and uniform line of decisions by our own courts ought to have weight, but because the rule established by these decisions seems to be the sounder one.

A stockholder has an indivisible interest in the property and assets of a corporation, subject to the discharge of its obligations. This indivisible interest, generally speaking, is represented by certificates of stock, and is transferred by their transfer. The general character of these certificates, and the effect of their transfer in passing the interest of the holder, is too well established and understood to require any discussion. As an original proposition it would seem to be clear that a right of...