Mason v. Henry , 90 N.Y. Sup. Ct. 546 ( 1895 )

FOLLETT, J.

The defendants insist that the plaintiff had concurrent remedies at law and in equity, the legal remedy being as- effectual as the one in equity, and therefore the cause of action was-barred six years after it accrued. If the premise of this proposition is sound, the conclusion follows (Butler v. Johnson, 111 N. Y. 204, 18 N. E. 643), unless the case is within some statutory exception. This action was begun in April, 1879, the precise date not appearing. The court found that the assets were misappropriated and the acts-constituting the cause of action performed in November, 1871. Chapter 4 of the Code of Civil Procedure, entitled “Limitation of the Time-of Enforcing a Civil Remedy,” did not take effect until September 1, 1877 (Code Civ. Proc. § 3356); and by subdivision 3 of section 414-of that Code the statute of limitations therein prescribed is not applicable to causes of action existing September 1, 1877, upon which suits were begun before September 1, 1879. As before stated, this cause of action accrued before September 1, 1877, and this action was begun before September 1, 1879, and so the limitations prescribed by the old Code are applicable to this action. Viets v. Bank, 101 N. Y. 563, 5 N. E. 457; Clark v. Railway Co., 94 N. Y. 217; Goillotel v. Mayor, etc., of New York, 87 N. Y. 441. Sections 91 and 97 of the old Code provided:

“Sec. 91. Within six years: (1) An action upon a contract, obligation, or liability, express or implied, excepting those mentioned in section 90. * * * (6) An action for relief on the ground of fraud in cases which heretofore were solely cognizable by the court of chancery, the cause of action in such case not to be deemed to have accrued until the discovery of the aggrieved party of the facts constituting the fraud.’’

.“Sec. 97. An action for relief, not hereinbefore provided for, must be commenced within ten years after the cause of action shall have accrued.”

By the fifth subdivision of section 382 of the Code of Civil Procedure the provisions of subdivision 6 of section 91 of the old Code are changed. Under the present Code the judgment sought must be “other than for a sum of money,” which provision was not in the old Code.

It must be borne in mind that this is not ah action by a- shareholder, or by a creditor of the insolvent corporation, but is an action brought by its receiver.

Hun v. Cary, 59 How. 426, affirmed 82 N. Y. 65, was an action at law, brought by a receiver of an insolvent savings bank against its trustees, to recover damages for wasting its assets, in which it was distinctly held by the court of appeals that an action at law could be maintained by a receiver, or, in other words, that he had a legal remedy.

O’Brien v. Fitzgerald (Sup.) 29 N. Y. Supp. 975, reversed 143 N. Y. 377, 38 N. E. 371, was an action at law, brought by a receiver of an insolvent state bank against its directors, to recover damages for wasting its1 assets, and it was again held that an action at law could be maintained. In discussing the question it was said:

“In support of that idea the case of Brinckerhoff v. Bostwick, 105 N. Y. 567, 12 N. E. 58, is pressed upon, our attention as indicating that the present action must be regarded as of an equitable character. But there is' a wide and vital difference between the'two cases. In this the action-is by a corporation against its delinquent directors; in the other it was by a stockholder who could not' sue at law, but was compelled to go into equity to obtain his relief, and whose right of action was wholly and purely of an equitable character. It may be, nevertheless, that a corporation may sue its directors in equity to recover losses sustained, for there seem to be some cases in which the remedy has been allowed. Granting that, and granting also, what I am not now ready to admit as the law of this state, that the facts pleaded in the present case are sufficient to support the action as an equitable one, we are left by the pleader in a doubt which can only be solved by. recurring to the demand for relief.”

This is the last expression of the court of appeals on this question, and it holds that a receiver may maintain a legal action against the directors or trustees of an insolvent corporation for wasting its assets. The case at bar was decided at special term upon the supposed authority of Brinckerhoff v. Bostwick, 88 N. Y. 52; Id., 99 N. Y. 185,1 N. E. 663; Id., 105 N. Y. 567,12 N. E. 58. That was an action in equity, brought by a shareholder of an insolvent national bank (which was in the hands of a receiver appointed by the comptroller of the currency), in behalf of himself and the other shareholders, against the directors, to compel them to account for damages sustained by the bank because of their misconduct. The receiver and the corporation were joined with the directors as defendants. On the three occasions when this case was before the court of appeals it was held that a shareholder could maintain an action in equity. On the second review of this case by the court of appeals it was said:

“What limitation of time, then, was applicable to this action? We think the limitation is regulated by chapter 4 of the Code of Civil Procedure. Section 414 provides that the provisions of that chapter shall apply and con-, stitute the only rule of limitation applicable to a civil action or special proceeding, except as mentioned in that section, and this action does not come within any of the exceptions. It does not come within subdivision 3 of that section, because it was not commenced within two years after the Code took effect. We think the limitation applicable to this action is ten years, —that which is prescribed by section 388 of the Code. This is unquestionably an equitable action, and the plaintiffs stand in the place of the receiver; and, if he had prosecuted the action, he would have stood in the place of the bank, and had the same rights which it would have had if plaintiff. So this action, for the purpose of determining the limitation of time applicable to it, must be governed by the same law which would have been applicable if the action had been brought by the bank. The action is against the directors, as trustees, to call them to account for the manner in which they discharged their trust, and is one of which courts of equity always have jurisdiction. Ang. & A. Corp. §§ 312, 314; Robinson v. Smith, 3 Paige, 222; Heath v. Railroad Co., 8 Blatchf. 347, Fed. Cas. No. 6,306; Brinckerhoff v. Bostwick, 88 N. Y. 52. In the latter case, Rapallo, J„ said: ‘The liability of the directors of corporations for violations of their duty or breaches of the trust committed to them, and the jurisdiction of courts of •equity to afford redress to the corporation, and in proper cases to its shareholders, for such wrongs, exist independently of any statute.’ There is no doubt, therefore, that, as to the original plaintiff in this action, the proof of violations of duty and breaches of trust by the defendants could range through ten years prior to the commencement of the action.”

This, in effect, seems to hold that a shareholder has not concurrent remedies at law and in equity against the directors of a corporation for mismanaging their trust, hut that his remedy must he sought in a court of equity. The holding that the 10-years statute of limitation was appliable was, in effect, a holding that there is no legal remedy. Butler v. Johnson, supra.

In O’Brien v. Fitzgerald, supra, Brinckerhoff v. Bostwick is discussed, and it is there said that a shareholder cannot sue at law, but must seek his remedy in equity.

In Brinckerhoff v. Bostwick, 99 N. Y. 185, 1 N. E. 663, the judgment reported in 34 Hun, 352, was reversed, and a new trial granted. Afterwards the case was noticed by the defendant for trial at a circuit, and placed on the calendar, whereupon the plaintiff moved, at special term, that it be stricken from the calendar, and tried as .a suit in equity, which motion was granted. On an appeal from this order, it was reversed at general term. (43 Hun, 458); but, on an appeal to the court of appeals, the order of the general term was reversed, the court reiterating its former decisions that the action was an equitable one (105 N. Y. 567, 12 N. E. 58). This case is not in point, and does not sustain the judgment of the special term.

It is not alleged in the complaint that it is necessary to set aside conveyances for the purpose of reaching assets, and, indeed, the action is not for the purpose of reaching specific assets wrongfully disposed .of by the defendants, but for the recovery of damages; nor is it found by the court that the defendants’ misconduct was not discovered until within six years before the commencement of the action. We see no reason why the plaintiff’s legal remedy was not as effectual as the one in equity, and so, whether the case be regarded as a suit in equity or as an action at law, it falls within the six-years statute, and is barred unless saved by some statute. Pierson v. Morgan, 20 Abb. N. C. 428, and Pierson v. Cronk (Sup.) 13 N. Y. Supp. 845, are overruled.

It is insisted that this action is excepted from the statute of limitations by section 2, tit. 4, c. 18, pt. 1, Rev. St., which provides:

“And no statute of limitations shall he a bar to any suit at law or in ■equity; against such directors for any sums for which they are made liable by this séetion.”

Assuming that chapter 18 is applicable to these insurance corporations, this action was not brought to recover sums for which directors are made liable by section 2. The cause of action is set out in the complaint as follows:

“(16) The plaintiff further shows that, subsequent to said election of said 19th of October, 1871, the said Henry and his associates suffered and permitted the assets, property, and effects of the said widows and orphans to be wasted and misapplied, and the policy holders to be plundered, cheated, and defrauded; that the said assets were so wasted, and the said policy holders were so plundered, and that the sum of $63,000 and upward was paid to the said Sanford, Morgan, Freeman, and others out of said assets, for their services in wrecking and ruining said widows and orphans; that since the said 10th day of November, 1871, a large number of the policies of said widows and orphans have been canceled, lapsed, and surrendered, and twisted, upon which large profits were realized, and which profits the said Henry and his associates have suffered and permitted to be diverted from the said widows and orphans, and applied to the benefit of the policy holders, stockholders, and trustees, and officers of said Mutual Protection and others.”

The judgment must be reversed, and a new trial granted, with costs to the appellants to abide the event. All concur.