Herman v. Brooklyn Savings Bank

196 A.D. 269, 187 N.Y.S. 738, 1921 N.Y. App. Div. LEXIS 5514

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: April 1, 1921
• Status: Published

Opinions

Laughlin, J.:

Most of the material facts are quite fully stated in the opinion of Mr. Justice Mebbell, but it further appears that it is provided in the certificate of incorporation of the defendant that membership therein shall be restricted to members in good standing of the Lithuanian Socialist Federation and shall cease automatically with respect to each member upon his ceasing to be such a member in good standing, and I think that it is to be inferred from the facts alleged that all of the directors of the defendant ceased to be members of the Lithuanian Socialist Federation in good standing, for it is alleged that the action taken by them and others in, among other things, joining the Communist party under the name of the Lithuanian Communist Federation, was in violation of the constitution and by-laws not only of the Lithuanian Socialist Federation but of the Socialist party of the United States of America and in violation of the certificate of incorporation of the defendant and without the consent of the association represented by the plaintiff. Therefore, I think it sufficiently appears that the defendant is now without a board of directors and that its former directors, who no longer have any authority to represent it, are threatening and intend to divert its funds from the purposes for which they were received and for which their use is authorized by the certificate of incorporation of the defendant, and that the banks in which the funds of the defendant are deposited threaten and intend to permit the withdrawal thereof and that upon such withdrawal an opportunity will be afforded for the unauthorized use thereof which will be thereupon made. Those funds to the extent of $10,000 were directly contributed by the association in behalf of which this action is brought; and the remaining funds were contributed by its members with its consent and approval for use for the purposes specifically authorized by the charter of the defendant.

It is well settled that one stock corporation may not lawfully incorporate another or control its action otherwise than by a majority stock control, where that is authorized. (Schwab v. Potter Co., 194 N. Y. 409, 415, affg. 129 App. Div. 36.) It is also well settled that where an incorporated or unincorporated fraternal order or association organizes a subordinate branch or body, whether as an incorporated or unincorporated association, there is no contractual relation between them by or under which the superior order or association may reserve to itself the right to take possession of and use as its own property of the subordinate association in the event of the lawful suspension or dissolution of the latter. (Austin v. Searing, 16 N. Y. 112; Wicks v. Monihan, 130 id. 232; Order United Am. Mech’s v. Emery, 219 Penn. St. 461; Grand Court Foresters v. Court Cavour, 82 N. J. Eq. 89; Bacon Life & Acc. Ins. [4th ed.] §§ 94, 98, 612.) In view of these authorities doubtless the association represented by the plaintiff cannot control the action of the defendant notwithstanding the fact that it was instrumental in bringing the defendant into being; and by donating or contributing the funds to the defendant, title thereto passed to the defendant. Defendant, however, may take title thereto upon condition that the funds should be used for the purposes specified in its certificate of incorporation, and on that theory on the donee’s failing and refusing to comply with the condition upon which it received the funds, it may be that the donor had a right of rescission which it had exercised and if that theory should be sustained, plaintiff would be entitled to have the funds returned. (Foreign Corporations, 12 R. C. L. § 25; Conkling v. City of Springfield, 39 Ill. 98; Hosmer v. Tiffany, 115 App. Div. 303; Mechanics’ National Bank v. Jones, 76 id. 534; affd., 175 N. Y. 518; Williamson v. Johnson, 62 Vt. 378; 20 Cyc. 1213.) But in any event, the funds were given and contributed by the association in whose behalf the action is brought and accepted by the defendant upon the trust that the same would be used only for the purposes specified in the certificate of incorporation and the association in behalf of which plaintiff as treasurer brings this action has a sufficient interest in the performance of the trust to give it a standing in a court of equity to restrict and confine the use of the funds to the purposes for which the defendant was incorporated and for which they were given and contributed to it. (Westminster Church v. Presbytery of N. Y., 211 N. Y. 214, 223; Westminster Presbyterian Ch. v. Trustees of Presbytery, 142 App. Div. 855, 865; Mormon Church v. United States, 136 U. S. 1, 50.) The suit is in equity and, therefore, the prayer for relief is not controlling. Plaintiff under the general prayer asked for any relief in equity warranted by the facts alleged and proved upon the trial. I express no opinion with respect to whether plaintiff may in any event be entitled to recover the funds or any part thereof. It is quite plain, I think, that the facts alleged sufficiently show a right to equitable relief to the extent of preventing the defendant from diverting or using the funds for purposes other than those for which they were given and contributed; but whether ultimate relief shall be a decree for the enforcement of the trust or for the payment of the money back to the donor on the theory of the rescission of a conditional gift or that the gift was upon a trust, the performance of which may not be decreed, should be left to the trial court. I am of opinion, therefore, that the order overruling the demurrer to the complaint should be affirmed, with ten dollars costs and disbursements, and that the order denying the motion for an injunction pendente lite, should be reversed and the motion granted, with ten dollars costs.

Clarke, P. J., and Greenbaum, J., concur; Dowling and Merrell, JJ., dissent.