Langie v. Hebing

New York Supreme Court

Langie v. Hebing

160 N.Y.S. 621

DecidedJuly 17, 1916

StatusPublished

This text of 160 N.Y.S. 621 (Langie v. Hebing) is published on Counsel Stack Legal Research, covering New York Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Langie v. Hebing, 160 N.Y.S. 621 (N.Y. Super. Ct. 1916).

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Opinion

RODENBECK, J.

In the determination of this demurrer all the facts alleged in the complaint and such inferences as can be fairly drawn from them are admitted, but not the plaintiff’s conclusions of law. Greeff v. Equitable Life Assurance Society, 160 N. Y. 21, 29, 54 N. E. 712, 46 L. R. A. 288, 73 Am. St. Rep. 659. Whatever the demand may be in the complaint, the demurrer must be denied, if the allegations in the complaint sustain a cause of action. Clark v. Levy, 130 App. Div. 389, 391, 114 N. Y. Supp. 890. The charge is that the three defendants have conspired and are so manipulating the business of the corporation for their own interests that, unless their acts are restrained and corrected, the assets of the corporation will be diverted to the interests of the defendants and to the exclusion of all other stockholders. It is alleged that the income from the hardware business itself is not sufficient to meet the expenses of the business, including the salaries which the defendants have voted to themselves, and that the income from the real estate devised to the corporation is being used for the purpose of paying these salaries. If the alleged combination formed after the death of their father should be continued, it will result in the defendant’s receiving the benefits from the corporation to the exclusion of the other stockholders.

The purpose of their father in creating the corporation was undoubtedly to provide an income for all of his children, and not alone for [623]*623the defendants who seemed to have so manipulated the conduct of the business as to divert to their own uses the profits of the corporation. The complaint alleges that the real estate devised to the corporation is being held by it without authority. This allegation is a subject for investigation by the court, since a court of equity will restrain the operation by a corporation of any activities not within the corporate powers. Leslie v. Lorillard, 110 N. Y. 519, 531, 18 N. E. 363, 1 L. R. A. 456; Cook on Corporations, pp. 1991-2139. With respect to the payment of debts of their father out of corporate funds, a stockholder may compel the return of any money illegally paid. Corporate funds must be used for corporate purposes, and cannot be diverted for the payment of debts other than those of the corporation. This would include the payment of salaries voted by themselves to officers of the corporation as such, and any unlawful excess payments of salaries to directors or stockholders. Nor can a corporation transfer any of its stock to another without consideration. A court of equity may interfere with the acts of a corporation, where they are fraudulent, ultra vires, or due to negligence. Cook on Corporations, § 644. Directors cannot bind a corporation to acts in which they are personally interested, and such acts may be avoided by stockholders. MacNaughton v. Osgood, 41 Hun, 109; Butts v. Wood, 37 N. Y. 317.

The plaintiffs ask that the business be discontinued, but this can be accomplished only as prescribed by statute. Hitch v. Hawley, 132 N. Y. 212, 217, 30 N. E. 401. A dissolution in such a proceeding, however, may be ordered where dissensions prevent the attainment of the corporate existence. 132 N. Y. 221, 30 N. E. 401. So far as the plaintiffs seek to control the internal management of this corporation, their action must fail. Within the powers of the corporation, the acts of the stockholders and directors, done in good faith, cannot be questioned. Cook on Corporations, § 644. An act intra vires and without fraud is an act of internal management, and a minority of the stockholders are powerless to prevent, control, change, or question that act. Cook on Corporations, § 684; Burden v. Burden, 159 N. Y. 287, 307, 54 N. E. 17. In this case, however, the plaintiffs allege a fraudulent combination and ultra vires acts and waste of funds, against which, if true, they are entitled to relief. The corporation being under the control of those who are charged with having formed an unlawful combination, a demand upon the corporation to commence this action was unnecessary. Kelsey v. Sargent, 40 Hun, 150; MacNaughton v. Osgood, 41 Hun, 109.

The plaintiffs, therefore, have alleged facts sufficient to constitute a cause of action, and the demurrer is denied, with $10 costs.

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RODENBECK, J.

In the determination of this demurrer all the facts alleged in the complaint and such inferences as can be fairly drawn from them are admitted, but not the plaintiff’s conclusions of law. Greeff v. Equitable Life Assurance Society, 160 N. Y. 21, 29, 54 N. E. 712, 46 L. R. A. 288, 73 Am. St. Rep. 659. Whatever the demand may be in the complaint, the demurrer must be denied, if the allegations in the complaint sustain a cause of action. Clark v. Levy, 130 App. Div. 389, 391, 114 N. Y. Supp. 890. The charge is that the three defendants have conspired and are so manipulating the business of the corporation for their own interests that, unless their acts are restrained and corrected, the assets of the corporation will be diverted to the interests of the defendants and to the exclusion of all other stockholders. It is alleged that the income from the hardware business itself is not sufficient to meet the expenses of the business, including the salaries which the defendants have voted to themselves, and that the income from the real estate devised to the corporation is being used for the purpose of paying these salaries. If the alleged combination formed after the death of their father should be continued, it will result in the defendant’s receiving the benefits from the corporation to the exclusion of the other stockholders.

The purpose of their father in creating the corporation was undoubtedly to provide an income for all of his children, and not alone for [623]*623the defendants who seemed to have so manipulated the conduct of the business as to divert to their own uses the profits of the corporation. The complaint alleges that the real estate devised to the corporation is being held by it without authority. This allegation is a subject for investigation by the court, since a court of equity will restrain the operation by a corporation of any activities not within the corporate powers. Leslie v. Lorillard, 110 N. Y. 519, 531, 18 N. E. 363, 1 L. R. A. 456; Cook on Corporations, pp. 1991-2139. With respect to the payment of debts of their father out of corporate funds, a stockholder may compel the return of any money illegally paid. Corporate funds must be used for corporate purposes, and cannot be diverted for the payment of debts other than those of the corporation. This would include the payment of salaries voted by themselves to officers of the corporation as such, and any unlawful excess payments of salaries to directors or stockholders. Nor can a corporation transfer any of its stock to another without consideration. A court of equity may interfere with the acts of a corporation, where they are fraudulent, ultra vires, or due to negligence. Cook on Corporations, § 644. Directors cannot bind a corporation to acts in which they are personally interested, and such acts may be avoided by stockholders. MacNaughton v. Osgood, 41 Hun, 109; Butts v. Wood, 37 N. Y. 317.

The plaintiffs ask that the business be discontinued, but this can be accomplished only as prescribed by statute. Hitch v. Hawley, 132 N. Y. 212, 217, 30 N. E. 401. A dissolution in such a proceeding, however, may be ordered where dissensions prevent the attainment of the corporate existence. 132 N. Y. 221, 30 N. E. 401. So far as the plaintiffs seek to control the internal management of this corporation, their action must fail. Within the powers of the corporation, the acts of the stockholders and directors, done in good faith, cannot be questioned. Cook on Corporations, § 644. An act intra vires and without fraud is an act of internal management, and a minority of the stockholders are powerless to prevent, control, change, or question that act. Cook on Corporations, § 684; Burden v. Burden, 159 N. Y. 287, 307, 54 N. E. 17. In this case, however, the plaintiffs allege a fraudulent combination and ultra vires acts and waste of funds, against which, if true, they are entitled to relief. The corporation being under the control of those who are charged with having formed an unlawful combination, a demand upon the corporation to commence this action was unnecessary. Kelsey v. Sargent, 40 Hun, 150; MacNaughton v. Osgood, 41 Hun, 109.

The plaintiffs, therefore, have alleged facts sufficient to constitute a cause of action, and the demurrer is denied, with $10 costs.

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160 N.Y.S. 621, Counsel Stack Legal Research, https://law.counselstack.com/opinion/langie-v-hebing-nysupct-1916.

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