Knickerbocker v. Conger , 97 N.Y.S. 127 ( 1905 )

Ingraham, J.:

The complaint alleges that the Grroton Bridge.and Manufacturing Company was a domestic corporation in which the plaintiff was the holder of fifty shares of the capital stock; that the defendants’ tes'tator was president and director of the corporation •• that in or about January, 1900, the plaintiff received from the defendants’' tes^' .tator a written report, of the condition of the 'corporation at the close of business on. December 31, 1899, which showed total assets of $1,06.6,463.01, of-which $624,211.51 was the surplus and that . there was a, net profit for the year 1900 of $39,040.15 ; that prior to the delivery of the said report the defendants? testator had represented to the plaintiff that the corporation, with a number of other bridge companies, intended to consolidate and form a new company to be known as the American Bridge Company; that the iiew company was to take, over from the Groton Bridge Company and tlve other bridge companies entering into the combination certain plants and assets of the said respective companies and issue and deliver therefor certain preferred and common stock of the said American Bridge Company in payment thereof; that such stock as under said agreement of consolidation was to be issued to the stockholders of the said Groton Bridge Company in payment of so .much of the assets and property of that company as were taken over by the American Bridge Company was to be delivered to the défend'ants’’ testator ■ for the'purpose of distribution among the stockholders of the Groton Bridge Company in accordance with their respective holdings ; that defendant’s testator further represented to the plaintiff that as to such assets of the Groton.Bridge Company not taken over by ,or transferred to the American Bridge Company under said agreement of. consolidation, the stockholders, of the said Groton Bridge Company would receive their just proportion or pro rata of the proceeds thereof that inorpler to consummate and carry out the said proposed consolidation it would be "necessary for all the stockholders of the Groton Bridge: Company, including the.'plaintiff, to deposit their respective shares‘With- the defendants’ testator, in trust for the purposes aforesaid; that the plaintiff,, relying upon such representations, in or about March, 19.00, delivered to- the .defendants’ ■testator all of his holdings in the Groton Bridge Company, to wit, .50 shares of its capital stock of the par value of $10.0 each, in trust, nevertheless., to hold, the sanie- for the uses and purposes theretofore.described in the complaint; that in or about May", 1900, the said consolidation was perfected and the American Bridge Company was duly oi'ganized and took over the greater part of .the assets of the Groton Bridge Company in pursuance of said consolidation agreement, and issued therefor and in consideration thereof, for the use and benefit of the stockholders of the said Groton Bridge Company, more than 6,000 shares of its preferred stock and more than 3,000 shares of its common stock; that said stock was delivered to the defendants’ testator in trust for the use and benefit of the stockholders of the Groton Bridge Company, and that he refused to deliver the same to the' stockholders, including the plaintiff.

It is further alleged that the American Bridge Company purchased and received from the Groton Bridge Company certain uncompleted contracts for the sum of $165,631.09, and paid on account of said purchase price to the Groton Bridge Company $130,590.97; that the Groton Bridge Company, at a so-called auction sale, had and conducted without notice to this plaintiff, sold and transferred to the defendants’ testator all of its remaining assets and property of the reasonable market value of upwards of $200,000 for the sum of about $36,000; that the defendants’ testator did not deliver to the plaintiff his proportionate share of the stock of the said American Bridge Company, but only delivered to the plaintiff 150 shares of the preferred stock and 75 shares of the common stock of the said company; that defendants’ testator represented to the’ plaintiff that the said 150 shares of preferred stock and the 75 shares of the common stock was the plaintiff’s' proportionate share or pro rata of all stock issued by the American Bridge Company ■under and by virtue of the said consolidation' agreement; that this plaintiff never received any part of the remaining assets of the said Groton Bridge Company nor any part of the amount paid by the American Bridge Company for the said uncompleted contracts; that plaintiff received nothing for his holdings in the said Groton Bridge Company, except the 150 shares of preferred stock and 75 shares of common stock of the American Bridge Company; that defendants’ testator never accounted for the stock of the American Bridge Company nor for the remaining assets of the Groton Bridge Company. The total amount of the capital stock of the Groton Bridge Company is alleged to be of the face value of $120,000, and that the plaintiff is the owner of 50 shares of the face value of $5,000.

Defendants demurred to the complaint on several grounds, one of 'the grounds of demurrer being that there is a defect of- parties defendant in that the Groton Bridge Company was not made; a party to the action, and also upon the ground that the other stockholders of the Groton Bridge Company similarly situated are necessaryparties to the action. The Special Term sustained the demúrref upon these grounds. ,

The complaint alleged that the stock of the -American Bridge Company was issued as the consideration for the transfer of the assets of the Groton Bridge Company, and- defendants’ testator -is alleged to have received it in trust for the stockholders of the Groton . Bridge Company. Upon this allegation it.was the Groton Bridge Company that was entitled to the stock as between it and its stock-' holders, and in an action against the president of the Groton Bridge-: Company to compel hiip to account for the stock, that he, the presi- . dent of t.he company, received for the transfer by the company of its assets, the company "was certainly a necessary party. The company is clearly entitled to be heard before the stock issued to its president as the consideration of the transfer, of its assets should be distributed by its president among others, whether stockholders of the corporation or not. I think also that the court was right in . holding that the other-stockholders of the Groton Bridge Company were necessary parties either personally or by representation. A stockholder is entitled to sue on behalf of himself and other- stock-' "holders similarly situated, giving the other stockholders the right to come in and be made parties to the action, but in this case the plaintiff sues individually and not in a representative capacity. - It follows that the court below was clearly right in sustaining the demurrer on the grounds stated. , - , - . .

The defendants also demur upon the ground that there is no cause of-action stated orfacts alleged which constitute, a good c.atisé of action. I think it quite doubtful whether any cause of action ' in favor of" the plaintiff, suing not -in behalf of himself and other - stockholders of the corporation but as an individual, is stated. So'far". as he seeks to-recover-any of the assets of the-corporation, either the remaining assets- after- the transfer under the consolidation agreement, "or-the amount paid by-the American, Bridge Company to the Groton Bridge Company for the uncompleted contracts,, it is.quite- ' clear that the plaintiff has no cause of action. These assets belong to the corporation, and in no sense to the plaintiff as one of its stockholders until the corporation has declared a dividend, or directed the distribution of its assets among its stockholders, .which is not alleged in the complaint. No facts are alleged which justify setting aside the transfer to defendants’ testator of the remaining assets' of the corporation • on the ground of fraud, and in such an action the plaintiff would have to sue on behalf of the company, after the company had itself refused to bring an action upon a demand by the plaintiff, or facts alleged which excused such a demand. Whatever rights the plaintiff has to the undistributed assets of the corporation, whether in the hands of the defendants’ testator or the other officers, of the corporation, was against the corporation and not against the president.

As to the stock transferred to the president of the Groton Bridge .Company, the plaintiff alleges that the American Bridge Company took over the greater part of' the assets of the Groton Bridge Company in pursuance of the said consolidation agreement, and issued therefor and in consideration thereof, for the use and benefit of the stockholders of the Groton Bridge Company, more than 6,000 shares of its preferred stock and more than 3,000 shares of its common stock, and caused the same to be delivered to the defendants’ testator in trust for the use and benefit of the stockholders of the Groton Bridge Company, including this plaintiff, in proportion to their respective holdings.

Assuming -from these allegations that there can be spelled but a trust relationship between the defendant’s testator and the stockholders of the Groton Bridge Company, it is a trust to the stockholders collectively and not a trust to one stockholder individually, and in an action to enforce such a trust it must be commenced by all the stockholders and not by one stockholder individually. The case of Zebley v. Farmers’ Loan & Trust Co. (139 N. Y. 461) is not in point, as the demurrer was not upon the ground that there was a defect of parties in that the other bondholders were not before the court, and no point was taken as to the necessity of the other bondholders being parties to the action. The counsel for the plaintiff in his brief states that the allegations that the defendants’ testator purchased corporate property for a sum far below its value,. . and fhat the corporation received some $130,590 in cash', for which no account was ever rendered, may be regarded as surplusage, arid were inserted to show the utter disregard the défendants? testator had for the rights of the stockholders of the company of which, he was the. president.. Unless these allegations were to be considered • in. determining the relief that plaintiff claimed it would be difficult to see‘a reason for these insertions ; but the relief actually demanded is not only that the defendants, as; executors, should .be required to~ account for the stock of ’ the American' Bridge Company, both . common and preferred, and for its value; but also for such other moneys, and valuables and assets of the Groton Bridge Company as j came into the possession of the defendants’ testator, impressed w-ith. a trust in favor of the plaintiff.

I think that '■ before the stock received. by the president -of the Groton Bridge Company, as a consideration for the transfer of the assets of that company; can be distributed among its stockholders, the Groton Bridge Company has a right to be heard, and that all. of the stockholders, must be united in one-action, so that each would be entitled to receive his proportionate share.

It follows that- the judgment appealed from should be affirmedwith costs, with leave to the plaintiff to amend on payment of costs in this court and in the court below. ‘ ■ '

O’Brien, P. J., Patterson, Laughlin and Clarke, JJ., concurred.

Judgment affirmed, with costs, with leave to plaintiff to amend . on payment of costs in this coúrt and in the court below.