In Sage v. Culver (147 N.Y. 241) the court said: "When it appears that the trustee or officer has violated the moral obligation to refrain from placing himself in relations which ordinarily produce a conflict between self-interest and integrity, there is in equity a presumption against the transaction, which he is required to explain."Summary of this case from Schall v. Althaus
Argued October 8, 1895
Decided October 15, 1895
George W. Wingate for appellants. William C. De Witt for respondents.
While the complaint in this action is open to criticism as lacking in that clearness and fullness of statement essential to good pleading, yet we think that the decision of the General Term overruling the defendants' demurrer was correct. When a complaint is met by a demurrer on the ground of insufficiency, the question always is whether, assuming every fact alleged to be true, enough has been well stated to constitute any cause of action whatever. The complaint will be deemed to be sufficient whenever the requisite allegations can be fairly gathered from all the averments, though the statement of them may be argumentative and the pleading deficient in logical order and in technical language. The pleading will be held to state all facts that can be implied from the allegations by reasonable and fair intendment, and facts so impliedly averred are traversable in the same manner as though directly stated. ( Zabriskie v. Smith, 13 N.Y. 330; Marie v. Garrison, 83 id. 14, 23; Sanders v. Soutter, 126 id. 193.)
The complaint in this case was not, we think, so deficient in the statement of facts as to warrant the defendants in assailing it by demurrer.
The defendants own a very large majority of the stock of the railroad which is joined with them as defendant, and they are its trustees, and practically, by reason of their ownership of nearly all the stock, the sole directors and managers. The plaintiffs own a small amount of the stock and some of the bonds of the road, and to the extent of their holdings are interested in the management of the property. They bring this action as such stockholders against the defendants as directors and ask the court to adjudge that the defendants account to them or to the corporation concerning certain transactions in regard to the management of the affairs of the corporation which are stated in the complaint. It is the sufficiency of these allegations as the basis of an action that is challenged by the demurrer. The complaint contains proper allegations to warrant the plaintiffs as stockholders in bringing the action, instead of the corporation itself, and there is no difficulty on that ground, if the allegations are otherwise sufficient. Where the corporation is exclusively under the control of the trustees and officers whose acts and management are questioned a demand that the corporation bring the action would be idle and fruitless and in such cases equity permits the stockholder to bring the action in his own name. ( Brinckerhoff v. Bostwick, 88 N.Y. 52; Hawes v. Oakland, 104 U.S. 450; Leslie v. Lorillard, 110 N.Y. 519. )
There are, we think, at least two facts stated in the complaint, or which are fairly to be gathered or implied from the allegations, which are sufficient to require the defendants to answer: (1) It is alleged in substance that the defendants, as officers and trustees of the defendant railroad, took from themselves, as trustees and officers of another railroad, a lease of the latter, which they practically owned and managed, to the defendant corporation at an exorbitant rent, which arrangement has the effect to unlawfully deplete the funds and earnings of the defendant corporation and to injure the plaintiffs as stockholders therein. (2) It is also averred in substance that the defendants, as officers and trustees of the defendant railroad, have taken from its treasury large sums of money and paid the same to themselves as individuals on account of alleged loans or advances made by them to the corporation of which the plaintiffs are stockholders. That they have concealed the origin and nature of this debt from the plaintiffs, and have made false statements in regard to the same.
When a trustee or the officer or director of a corporation deals with himself as an individual, or in the character of trustee, director or officer of another corporation, with respect to the funds, securities or property of the corporation, the transaction is at least open to question by the corporation, or, in a proper case, by its stockholders, and the trustee is bound to explain the transaction and show that the same was fair and that no undue advantage has been taken by him of his position for his own advantage or the advantage of some other corporation in which he has an interest.
When it can fairly be gathered from all the allegations of a complaint that the officers and directors of a corporation have made use of relations of trust and confidence in order to secure or promote some selfish interest, enough is then averred to set a court of equity in motion and to require an answer from the defendants in regard to the facts. When it appears that the trustee or officer has violated the moral obligation to refrain from placing himself in relations which ordinarily produce a conflict between self-interest and integrity, there is in equity a presumption against the transaction, which he is required to explain. ( Cowee v. Cornell, 75 N.Y. 100; Crowe v. Ballard, 1 Vesey, 221, note 2; Gibson v. Jeyes, 6 id. 278; Michoud v. Girod, 4 How. [U.S.] 553; Butts v. Wood, 37 N.Y. 317; Ogden v. Murray, 39 id. 207; Gardner v. Ogden, 22 id. 332.)
Parties holding relations of trust and confidence towards others, such as these defendants occupy towards the plaintiffs, cannot ordinarily afford to admit, by a demurrer, charges, though quite indefinite and uncertain, that they have made profit for themselves by means of transactions such as are fairly to be gathered from the averments of the complaint.
It is also urged that since the complaint shows upon its face that the transactions stated were had many years ago, the plaintiffs are chargeable with such laches, and their cause of action, if any, is so stale that equity will decline to interfere. The answer to this point is, that if the claim or cause of action is barred by lapse of time, that defense must be presented by answer, and the mere fact that it is old is not an objection that can ordinarily be presented by demurrer. ( Zibly v. F.L. T. Co., 139 N.Y. 461.)
The order of the General Term overruling the demurrer should be affirmed, with costs, with leave to the defendants to answer within twenty days from service of the order, upon payment of costs.