Witherbee v. Bowles
| Decision Date | 07 April 1911 |
| Citation | 201 N.Y. 427,95 N.E. 27 |
| Parties | WITHERBEE et al. v. BOWLES et al. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Appeal from Supreme Court, Appellate Division, First Department.
Action by Alfred S. Witherbee and another against Thomas H. Bowles and others. From a judgment of the Appellate Division (142 App. Div. 407,126 N. Y. Supp. 954) reversing an interlocutory judgment overruling the demurrer of defendant Lawrence Dilworth to plaintiffs' complaint and sustaining the demurrer, plaintiffs appeal by permission on certified questions (127 N. Y. Supp. 1150).Order of Appellate Division reversed, and judgment of Special Term affirmed, and questions answered.
See also, 129 N. Y. Supp. 1151.
Samuel Untermyer, for appellants.
Martin Conboy, for respondent.
Plaintiffs are seeking to maintain the character and sufficiency of their complaint, which only contains one count, in the face of a demurrer which assails it on the grounds that there is a defect of parties defendant, that it does not state facts sufficient to constitute a cause of action, and that causes of action have been improperly united. The specification under this last and most important charge is that there have been joined one cause accruing to plaintiffs in their individual right and another derived from and asserted in behalf of a corporation controlled by hostile and unfaithful directors. It will promote convenience in the discussion of the entire subject to consider these grounds of demurrer in the inverse order from that stated, and the first inquiry, therefore, is, Have causes of action been improperly joined?
[1] The substance of plaintiffs' alleged grievances, without regard for the moment to the precise form of statement, may be briefly summarized. They claim that they were holders of a majority of the capital stock of the San Toy Mining Company, and had made a contract for the purchase of substantially all of the minority interest from some of the defendants; that in accordance with the plan adopted both blocks of stock were deposited with a trust company as security for the payment of the purchase price of the latter block in installments; that wrongfully and in pursuance of a conspiracy some of the defendants with the aid or acquiescence of the others procured all of this stock prematurely and without proper notice to be sold and that it was bought in in behalf of and subsequently distributed amongst the various defendants; that still later in furtherance of the plan to exclude plaintiffs from the corporation and fasten their own control thereon, even though plaintiffs should set aside said sale, the defendants, being in power, fraudulently caused the corporation to issue to one of their number in purported payment for some properties of little value a large amount of new stock sufficient to control the corporation, and that this stock was subsequently distributed amongst all of the defendants or amongst some of them with the acquiescence of the rest. The plaintiffs seek to be restored to their original position as holders of the controlling stock interest in the corporation by procuring the sale of their stock to be set aside and the issue of new stock to be delivered up and canceled.
The first group of facts involved in the alleged unlawful sale of stock owned and purchased by plaintiffs obviously constitute or belong to a cause of action in their individual right. But by way of indirect support for the demurrer, it is urged that the second group of facts involved in the alleged unlawful increase of stock make a cause of action solely in behalf of the corporation, and cannot, even if attempted, be utilized in an action in behalf of the plaintiffs individually. I do not think this is so. It is not questioned that these acts might be made the basis of an action by or in behalf of the corporation to remedy the injury inflicted upon it and through it upon all of the stockholders in common. But these same acts performed for the purpose and with the effect stated worked an injury to rights belonging to the plaintiffs individually as between them and the corporation and its other stockholders, and not common to the latter.
In Stokes v. Continental Trust Co., 186 N. Y. 285, 296,78 N. E. 1090, 1093,12 L. R. A. (N. S.) 969, simply affirming principles which had been long recognized, we referred to the rights belonging to a person by virtue of his ownership of stock in a corporation, especially mentioning the one to exercise a relative voice in the control and management of the corporation. We held that ‘the power of the individual stockholder to vote in proportion to the number of his shares is vital and cannot be cut off or curtailed by the action of all the other stockholders even with the co-operation of the directors and officers,’ and determined that the right of a holder to maintain an existing proportion and relation between his stock and the entire capital stock was a property right of which he could not be deprived on an increase of stock under ordinary circumstances. In that case we gave relief to a stockholder complaining of the method employed in increasing the capital stock of a corporation which while not claimed to be with fraudulent purpose did impair his right to take his proportion thereof. Holding this in such a case, it seems very clear that a stockholder would have a right to attack and avoid a fraudulent increase of stock made for the express purpose and with the clear result of depriving him of his relative position as a stockholder.
Therefore this preliminary argument fails, and we come to the precise question whether plaintiffs by their complaint have, as they might, molded the offensive acts involved in the increase of stock into the statement of an individual cause of action, or have, as claimed, shaped them into one in behalf of the corporation.
In determining this question, I do not deem it necessary to recapitulate or even summarize to any extent the allegations of the somewhat lengthy complaint. I think there are certain predominant features of the action and the complaint which warrant us in believing that the pleader intended to and on the whole did set out an individual cause of action and not a derivative and incongruous one in connection with an individual one.
There is only one count. The first part of it concededly states facts only...
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