Phenix National Bank v. A. B. Cleveland Co.

Martin, J. It is quite obvious that this action was brought under sections 1781 and 1782 of the .Code of Civil Procedure, which, so far as material to the questions involved, are as follows: “Sec. 1781. An action may be maintained against one or more trustees, directors, managers, or other officers of a corporation, to procure a judgment for the following purposes, or so much thereof as the case requires: (1) Compelling the defendants to account for their official conduct in the management and disposition of the funds and property committed to their charge; (2) compelling them to pay to the corporation which they represent, or to its creditors, any money, and the value of any property, which they have acquired to themselves, or transferred to others, or lost or wasted by a violation of their duties. * * * (5) Setting aside an alienation of property made by one or more trustees, directors, managers, or other officers of a corporation, contrary to a provision of law, and for a purpose foreign to the lawful business and objects of the corporation, where the alienee knew the purpose of the alienation; (6) the restraining and preventing such alienation where it is threatened, or where there is good reason to apprehend that it will be made. Sec. 1782. An action may be brought, as prescribed in the last section, by the attorney general in behalf of the people of the state, or, except where the action is brought for the purpose specified in subdivisions three and four, by a creditor of the corporation.” 876 All the allegations of the complaint are admitted by the defendants’ demurrer, as well as what can by reasonable and fair intendment be implied therefrom, as a complaint will be deemed to allege what can by reasonable and fair intendment be implied from the allegations therein. Marie v. Garrison, 83 N. Y. 14; Lorillard v. Clyde, 86 N. Y. 384; Milliken v. W. U. Tel. Co., 110 N. Y. 403, 18 N. E. Rep. 251. The defendants’ demurrer not only admits that the mortgage or trust-deed was given, contrary to statute, and for purposes foreign to the lawful business and objects of the defendant corporation, and that this was known to the defendants who took such mortgage or trust-deed,. but it also admits that the making of the bonds, the execution of the mortgage, the commencement of the action of foreclosure, the obtaining of a judgment therein, the proposed sale of the property of the defendant corporation, and the incorporation of the Cleveland Seed Company were a part of a collusive and fraudulent pian or scheme entered into by the officers of the defendant corporation, with the other defendants, to transfer the property of the defendant corporation to the ■ Cleveland Seed Company for a merely nominal price, and to defeat the rights of the creditors of the defendant corporation. These allegations were, we think, sufficient to show that the officers of the defendant corporation had acquired to themselves, or transferred to others, property of the corporation, in violation of their duties, the value of which they should be compelled to pay to said corporation. But the appellants contend that the complaint cannot be sustained, because no alienation of the property of the defendant corporation is alleged. Their claim is that the giving of a mortgage does not constitute an alienation of property, within the meaning of the statute under which this action was brought. We do not deem it necessary to a proper determination of this case that we now decide whether the giving of a mortgage on real property amounts to an alienation of the property mortgaged within the provisions of the Code. A judgment creditor may maintain an action to compel the officers of a corporation to account for their official conduct in the disposition of the funds and property committed to their charge, and to pay the corporation or its creditors any money or property which they have acquired to themselves, or transferred to others, by a violation of their duty, as well as to set aside and prevent any alienation, or threatened or apprehended alienation, of the property of the corporation contrary to law, or for a purpose foreign to its lawful business. The complaint in this action not only shows that the defendants who were officers of the corporation, had violated their duties by the wrongful transfer of property which belonged to the defendant corporation, but also that there had been an alienation of such property by the officers, contrary to law, and for a purpose foreign to the business and objects of the corporation. It is alleged that a mortgage on all the personal property of the corporation was given by its officers, and that, after default, other of the defendants seized and took possession of it, and had sold, or were about to sell, the same. The title of a mortgagee of chattels upon default becomes absolute in law, and his right of possession perfect. The only right a mortgagor has is the right of redemption, which may be barred by a sale of the property; and the default is as perfect when there is a default in the payment of an installment as in the payment of the whole debt. Judson v. Easton, 58 N. Y. 664; Halstead v. Swartz, 1 Thomp. & C. 559. In the case at bar, the defendants had taken actual possession of the personal property of the corporation, thus having not only acquired the legal title, but the possession, and had sold, or were about to sell, the same, and apply the proceeds thereof to their own use. We think this, amounted to an alienation. If, however, the allegations of the complaint were insufficient to show that an actual alienation had been completed, they were clearly sufficient to show that an alienation was threatened, or was with good reason to be apprehended. 877 That the allegations of the complaint were sufficient to establish an alienation of the personal property of the defendant corporation, or at least a threatened or apprehended one¡ we cannot doubt. The appellants’ contention that this ground of demurrer should be upheld because the facts stated would not justify the relief demanded cannot be sustained. We think the facts alleged fully justified the demand for a portion, if not for all, the relief sought. Moreover, if the proper form of relief was not demanded, the complaint was not demurrable for that reason. Hemingway v. Poucher, 98 N. Y. 281; Hall v. Hall, 38 How. Pr. 97. We are of the opinion that the complaint stated facts sufficient to constitute a cause of action, and that the court properly overruled that ground of defendants’ demurrer. This brings us to the question whether there was a defect of parties defendant. The appellants allege “that there is a defect of parties defendant in the omission of the names of the creditors of the A. B. Cleveland Company, Limited, to whom the bonds issued by said company were delivered, as alleged in the twelfth paragraph of the complaint, and to whose use the proceeds of the property sold by the trustees have been applied, as alleged in the sixteenth paragraph of said complaint.” In the twelfth paragraph of the complaint it is alleged that a portion of the bonds wrongfully issued by the defendants was owned by certain unnamed creditors of the defendant corporation. If we assume' that the appellants’ demurrer was sufficient to present the questions sought to be raised, it leads us to inquire whether creditors holding a portion of the bonds wrongfully issued by the defendants were necessary parties to this action. That they were proper parties is not enough. Unless they were necessary parties, demurrer will not lie. Wing v. Bull, 38 Hun, 291. “The Code permits all those who have an interest in the action, or any property, the title to which may be affected, to come in, but it does not require any to be brought in except those without whose presence no effective judgment could be had. Such are the only necessary parties to an action.” 1 Bum. Pr. 105, and cases cited. “Necessary parties are those without whom no decree at all can be effectively made determining the principal issues in the case.” Pom. Rem. §329. There seems to be a well-recognized distinction between the case of an action brought in hostility to a trust to set aside the deed or other instrument by which it was created and that of an action brought in furtherance of a trust to enforce its provisions. In the former case, the suit may be maintained without the presence of the beneficiaries, since the trustees represent them all, and defend for them. In the latter, all the beneficiaries must be joined, if not as plaintiffs, then as defendants. As illustrating this doctrine see Rogers v. Rogers, 3 Paige, 379; Russell v. Lasher, 4 Barb. 232, 237; Loomis v. Cline, Id. 456; Wheeler v. Wheedon, 9 How. Pr. 293; Bartlett v. Drew, 57 N. Y. 587; Wheeler v. Millar, 90 N. Y. 361; Hatch v. Dana, 101 U. S. 205. As this action was brought in hostility to the trust created by the mortgage or trust-deed, set out in the complaint, to have the same set aside as void, it is quite manifest, we think, that the creditors holding bonds secured thereby were not necessary parties, and that the special term committed no error in refusing to sustain the appellants’ demurrer upon that ground. If correct in these conclusions, it follows that the interlocutory judgment appealed from should be affirmed. Interlocutory judgment affirmed with costs, but with leave to the appellants, on payment of the costs of the demurrer, and the costs of this appeal, to withdraw their demurrer, and answer within 20 days after a copy of the judgment of this court, affirming the judgment of the special term, shall be served upon them. All concur.