Averill v. Barber , 25 N.Y. St. Rep. 194 ( 1889 )

Bartlett, J.

The principal questions involved in this appeal are satisfactorily discussed in the elaborate opinion which was rendered in the court below. The proofs warranted the conclusion that the defendants Barber, McLain, and Langdon, as directors or trustees of the American Asphalt Pavement Company, were liable in equity to account to that corporation for the profits which they derived from the so-called De Smedt patents, which they acquired, and sought to appropriate to their own use as individuals. The right of the plaintiff, as a stockholder of the American Asphalt Pavement Company, to enforce the cause of action growing out of the appropriation of these patents, depended upon a refusal of the corporation to assert its rights, or upon circumstances showing that any attempt to get it to do so would be ineffectual. -The evidence of a serious and determined effort on the part of the ¡ilaintiff to induce the company or its officers to take appropriate action in the premises was not so clear or conclusive as could be wished; but we are in-

dined to think it was suffident to sustain the prosecution of the suit in his own name. He addressed a letter to Mr. Cyrus M. Warren, as president of the corporation, on April 2, 1883, requesting that legal proceedings should at once be taken against the defendants Barber and McLain, by reason of their misconduct and neglect of duty. To this communication he received a response from Mr. Warren, to the effect that he had resigned the presidency of the company two years before. With the exception of the assertion contained in this answer, however, there is nothing in the case to show that Mr. Warren had actually resigned, or that his resignation had been accepted. Furthermore, it appears from the evidence of the defendant Barber that there never was a meeting of the company of any kind since the meeting in April, 1881, when Mr. Warren was elected president in place of the plaintiff. The testimony of the trustees other than the defendants Barber and McLain indicates that those two gentlemen were most active in its management, and practically controlled it; and, as this suit is based upon their alleged misconduct, these circumstances put the plaintiff in a position to sue as a stockholder in his own name. Brinckerhoff v. Bostwick, 88 N. Y. 52, 60. As we have intimated, it is preferable in this class of cases for the plaintiff to make clearer proof in the first instance of bis inability to secure redress by means of corporate action; but in view of the attitude which the American Asphalt Pavement Company itself has assumed throughout the litigation, and of the fact —which is sufficiently manifest—that its attitude in this suit is friendly, instead of hostile, to the defendants Barber and McLain, we are unwilling to grant a new trial simply because the court might properly have required the plaintiff to prove more positively than he did that the corporation would not enforce the rights which he seeks to assert herein.

Upon the present appeal a separate brief has been filed in behalf of the Barber Asphalt Paving Company, one of the defendants. The complaint charges that the defendants Barber, McLain, and Langdon, having acquired the De Smedt patents in controversy, have in their own names individually, and in the name of the Barber Asphalt Paving Company, and in the names of other persons unknown, made and fulfilled contracts for the manufacture and laying of pavements in various cities of the United States. This appears to be the only allegation of fact against the Barber Asphalt Paving Company. The findings of the court are to-the effect that the Barber Asphalt Paving Company is a foreign corporation, organized under the laws of West Virginia, of which the defendant' Amizi L. Barber is the president; that the nominal title to the said De Smedt patents is in the defendant Barber, in trust for the Barber Asphalt Paving Company; and that it does not appear that the Barber Asphalt Paving Company, as a corporation, has done anything contrary to equity and good conscience, or that such company or its board of directors or trustees has ever had any direct connection whatever with the De Smedt patents, or has in any way approved, ratified, adopted, or interfered with the transactions of the defendants Barber and McLain in regard to said patents. The judgment based upon these findings directs, first, that the defendant Barber, not only individually, but as trustee for the Barber Asphalt Paving Company, assign all right, title, and interest in and to the said De Smedt patents to a special receiver, who shall hold them in trust for the American Asphalt Pavement Company; and furthermore, that the Barber Asphalt Paving Company, as well as the defendants Barber, McLain, and Langdon, account and pay over to such receiver all profits made by them or either of them, directly or indirectly, out of the said De Smedt patents. We are unable to perceive anything in the proof or findings sufficient to sustain the judgment so far as it relates to the Barber Asphalt Paving Company. It was proper to decree that the defendants Barber, McLain, and Langdon should account for and pay over all profits realized by them out of their purchase of the De Smedt patents, which'they assumed to acquire for themselves individually when they ought to have acquired them for the American Asphalt Pavement Company; but if these patents, to which they held the legal title, have been transferred to the Barber Asphalt Paving Company without notice of any equity existing in behalf of the American Asphalt Company, there is no principle of law upon which the Barber Asphalt Paving Company can be made to account for profits whicli it may have realized from the use of the patents. These views lead to the conclusion that the judgment should be reversed so far as it relates to the Barber Asphalt Paving Company. ‘

Tiie notice of appeal attempts to bring up for review a number of intermediate orders granted in the cause at various stages of its progress. Unless separately appealed from, these are only reviewable upon an appeal from a final judgment, (Code Civil Proe. § 1316,) and the decree of the court below now under consideration is an interlocutory, and not a final, judgment. The iiiterlocutory judgment should be affirmed as to all the appellants except the Barber Asphalt Paving Company, and, so far as that corporation is concerned, should be reversed, with costs. All concur.

NOTE.

Corporations—Right op Stockholder to She—Refusal op Directors. No suit for equitable relief can be maintained against directors and officers of a corporation for mismanagement and negligence by the stockholders individually, unless the corporation, either actually or virtually, refuses to bring suit. Doud v. Railway Co., (Wis.) 25 N. W. Rep. 533; Boyd v. Sims, (Tenn.) 11 S. W Rep. 948. And the request to the corporation to sue must not be a simulated, but an actual, one, Bacon v. Irvine, (Cal.) 11 Pac. Rep. 646; Dannmeyer v. Coleman, 11 Fed. Rep. 97; and an allegation that the stockholders “repeatedly protested” against the evils complained of, without even averring that such protests were made to the directors, is entirely insufficient to authorize them to sue, Boyd v. Sims, supra; and the refusal of the directors to sue must be real, and persisted in after earnest efforts to overcome it, and not the result of collusion, City of Detroit v. Dean, 1 Sup. Ct. Rep. 560; Rathbone v. Gas Co. (W. Va.) 8 S. E. Rep. 570; Alexander v. Searcy, (Ga.) Id. 630. A demand upon and refusal by the president of a railroad company, who is also the general manager, to bring suit to have certain bonds issued by him declared iiltravires, is sufficient to enable the stockholder to maintain the action in his own name. City of Chicago v. Cameron, (Ill.) 11 N. E. Rep. 899. The fact that the treasurer of a corporation, of whose misconduct a stockholder complains, owns the major portion of the stock, does not excuse the stockholder from applying to the directors to bring suit before bringing it himself, Dunphy v. Association, (Mass.) 16 N. E. Rep. 426; Allen v. Wilson, 28 Fed. Rep. 677; and, where stockholders are allowed to bring suit because of the refusal of the directors to do so, the latter must be made parties defendant, Slattery v. Transportation Co., (Mo.) 4 S. W. Rep. 79; Taylor v. Holmes, 8 Sup. Ct. Rep. 1192, affirming 14 Fed. Rep. 498; Stromeyer v. Combes, 2 N. Y. Supp. 232. Before a stockholder can maintain an action to set aside a contract entered into by the directors, he must show that he has exhausted all means within his reach to obtain redress within the corporation. Dimpfel v. Railway Co., 3 Sup. Ct. Rep. 573; McHenry v. Railroad Co., 22 Fed. Rep. 130; Foote v. Mining Co., 17 Fed. Rep. 46; Bill v. Telegraph Co., 16 Fed. Rep. 14. See, also, City of Quincy v. Steel, 7 Sup. Ct. Rep. 520. Where officers of a corporation have assets, their possession belonging to the corporation, the corporation, and not the stockholders in, is the proper party to bring an action to compel them to account, unless it is made to appear that it is necessary for the stockholders to bring the action in order to prevent a complete failure of justice. In the latter case, the corporation must be made a party defendant. Byers v. Rollins, (Colo.) 21 Pac. Rep. 894. But in an action by a stockholder against an insolvent corporation to have his share of the assets given priority over the claim of a particular creditor, whom he alleges fraudulently induced him to become a stockholder, he need not allege any effort to induce the corporation to begin the action. Poole v. Association, 30 Fed. Rep. 513.

Courts of equity have jurisdiction, at the instance of one or more stockholders, to restrain the directors from doing acts which would amount to a violation of the charter, or to prevent any misapplication of the funds which would lessen the value of the stock, Wilcox v. Bickel, (Neb.) 8 N. W. Rep. 436; Davis v. Gemmell, (Md.) 17 Atl. Rep. 259; and to compel payment of dividends |o preferred stockholders, equitably entitled to receive them, when the finances of the corporation justify it, and the directors have refused or neglected to make the payment, Hazeltine v. Railroad Co., (Me.) 10 Atl. Rep. 328. But, to enable a stockholder to recover from a corporation for depreciation in his stock by mismanagement, he must show that the injury was peculiar to himself alone, apart from other stockholders. Oliphant v. Mining Co., (Iowa,) 19 N. W. Rep. 212.