Virginia Tide-Water Coal Co. v. Mercantile Trust Co.

Brady, J.

The facts and circumstances detailed show an attempt at malappropriation of the bonds by Hamilton, and he was properly arrested in the full accomplishment of his purpose. The stock and bond holders of a company may doubtless justly divide its property among each other if there be no creditors and no dissenters, but there must be a meeting for that purpose. Here it is expressly alleged, and substantially admitted, that there was no such meeting. Not only that, but that the resolution of the company thereto was procured by Hamilton, under the alleged authority of which he took, as allotted to the amount of stock held by himself and wife, $165,000 of the bonds, and attempted to sell them to the defendant Dinniny, who seems to have admitted that he had notice of the equities existing between the plaintiff company and Hamilton. If, however, it be not admitted by him, and his statement that he bought them in good faith is to be considered, it must be said as clearly established that he bought the bonds knowing that Hamilton was president of the company plaintiff, and one of its directors; and, further, that they were not sold to obtain a working capital, or to pay a debt, but as the private property of Hamilton. He also knew that the stock which he bought stood in Hamilton’s name as trustee, to which must be added that he bought the bonds for a sum far below their face value, giving only $12,000 for bonds to the amount of $150,000, in addition to 3,300 shares of stock. Directors of a company have no authority to vote interest-bearing bonds to themselves as a gratuity. The act is ultra vires and void. Kelsey v. Sargent, 40 Hun, 150; McNaughton v. Osgood, 41 Hun, 109. They are regarded as trustees, and restricted, as such, to acts consistent with and protective of their rights of bond and stock holders and creditors. Stockholders may doubtless hypothecate the property of the company to pay debts, or to raise money for corporate purposes, but that is all, unless, as suggested, there are no debts, and the company is in such condition financially that it may wind up its affairs and go out of existence, and provided the stockholders and bondholders are respectively allotted their full shares. Bartlett v. Drew, 57 N. Y. 587; Hastings v. Drew, 76 N. Y. 9. There is no element of neglect existent herein which may invoke the doctrine of acquiescence in the unlawful act complained of, proclaimed in Kent v. Mining Co., 78 N. Y. 159, and other cases. There are no existent facts on which it could be predicated. Hor can the appellants derive any benefit from the fact that the board of directors owned five-sixths of the stock, and their consent was binding upon them as stockholders, as suggested in Paulding v. Steel Co., 94 N. Y. 341. That case related, however, to a mortgage given by the company, which was assailed as fraudulent, but which was held to have been lawfully executed. It is wholly unlike the case in hand, in which the defendants seek to uphold a division of the bonds of the company made gratuitously and without consideration. It thus sufficiently appears that the injunction was provident, and should be sustained. Order affirmed, with $10 costs and disbursements.

Daniels, J.

The affidavits establish the fact that the bonds were obtained and issued without authority. And while the defendant F. C. Dinniny, Jr., swears to their purchase in good faith, he does not specifically deny notice or information of the manner in which Hamilton obtained them. Such a denial was essential to the support of his title. Its absence, added to his intimacy with Hamilton, and the removal of the company’s books to his office, afforded sufficient support to the injunction to require its continuance. The injunction issued out of the court of chancery in Hew Jersey did not prevent the prosecution of this action in this state. The remedy, if even that will be sustained, will be by further proceedings in that court. The order should be affirmed.

Van Brunt, P. J., concurs.