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Hannahs v. Hammond

28 Abb. N. Cas. 317 Court N. Y. Supreme Court, Special Term, First District; English

Delivered by Beach, J.

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HANNAHS v. HAMMOND.
N. Y. Supreme Court, Special Term, First District;
June, 1892.

Headnote

1. Pleading; demurrer.] A demurrer for misjoinder of causes of action should be taken to,the entire complaint.
2. The same; muliifariousness.] The complaint in an action brought in behalf of stockholders against the corporation and its president set forth a cause of action against the president for the specific performance of a contract with the corporation to transfer to it certain patent-rights, and a cause of action for the value of stock which the president had received and had not paid for, and also several causes of action resting upon alleged breaches of trust by the president, acting as a trustee of the company.—Held, on demurrer for misjoinder, that the complaint improperly united causes of action in contract with
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causes of action in tort, not arising out of the same transaction or transactions connected with the same subject matter.[1]
3. Parties.] In an action in behalf of stockholders against the president and the corporation, to compel the former to account for breaches of trust accomplished by the official act of all the trustees,—Held, on demurrer for defect of parties, that while the trustees were severally liable, they should all be impleaded, when their joint act is questioned, because they were liable to contribution among themselves, and one judgment should bind all.
Demurrer to complaint for misjoinder of causes of action, defect of parties defendant, and insufficiency.
. The action was brought by John J. Hannahs in his own behalf, as stockholder of the Hammond Typewriter Company, and in behalf of all other stockholders similarly situated, against James B. Hammond and the Hammond Typewriter Company.
The complaint alleged that Hammond was president of the company and generally charged that he controlled and managed it in his own interest in violation of his duties as officer and trustee. The first cause of action sought the specific performance of an agreement by Hammond to transfer certain patent-rights to the company and to account for royalties wrongfully received by him from the company for the use of the patents which should have been transferred. The second cause of action alleged a fraudulent issue of stock by the trustees to Hammond for tools, etc., which belonged to him, and which were of little value. The third cause of action charged the president and trustees with having declared two unearned dividends. The fourth cause of action was to recover from Hammond unpaid subscription to stock. The fifth cause of action charged the president and trustees with negligent and extravagant management and
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with paying an exorbitant salary to Hammond. The sixth cause of action alleged collusive sales of typewriters by Hammond and the directors.
The defendants demurred : (i) On the ground that the causes of action were improperly united, in that the first and fourth causes of action were demands on contract against Hammond .individually, while the other causes of action sought to charge Hammond as one of the trustees of the Company with fraud and negligence and the violation of his official duties. (2) On the ground that there was a defect of parties defendant, in that the trustees were necessary parties to a complete determination of such of the issues sought to be raised as depended on allegations of tortious conduct. (3) To the second, third, forth, fifth and sixth causes of action, as not stating facts sufficient to constitute a cause of action.
Kernan Brothers and Quin, for plaintiff.
Newell Martin (Smith & Martin, attorneys), for defendant, The Hammond Typewriter Co.
Wm. P. Fisher, Jr. (Henry De Forest Baldwin, attorney), for defendant, James B. Hammond.

The form of the demurrer is correct. Where the ground given is, that causes of action are improperly united, the objection must necessarily be taken to the entire complaint. The ground of insufficient statement of facts to constitute a cause of action may be made applicable to any separate cause of action set forth in the pleading.

The first cause of action pleaded is one for the specific performance by defendant, Hammond, individually, of the written contract between him and the company, dated June 8, 1880, in regard to assignment by him of foreign

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patents, with a consequent accounting and repayment of royalties thereunder, alleged to have been received by said defendant. The fourth cause of action is for the value of nineteen shares of stock in the company, alleged to have been received by defendant, Hammond, under a resolution of the board of trustees, and still unpaid for. The remaining four causes of action rest upon alleged breaches of trust by defendant, Hammond, acting as a trustee of the company.

If this epitome be correct the faultiness seems apparent. That it is fatal to the complaint is well established by authority. In Keep v. Kaufman ( 56 N. Y. 332 ), the court say that causes of action in tort and in contract cannot be joined except possibly when arising out of the same transaction or transactions connected with the same subject of action. The exception is not applicable here, for neither the transaction is the same, nor is there a connection with the same subject of action, between specific performances of an agreement and the collection of the value of stock shares, and breaches of trust.

The case most akin to the one at bar is Wiles v. Suydam ( 64 N. Y. 173 ), the only difference being that the second cause of action was a penalty or forfeiture, not at all diminishing its applicability in principle. I think the demurrer well taken on the ground that causes of action are improperly united.

The second, third, fifth and sixth causes of action are based upon breaches of trust, evidenced and accomplished by the official action of trustees. As between the directors of a corporation and its stockholders the trust relation exists. While the directors are severally liable they should all be impleaded when their joint action is questioned, because liable to contribution among themselves, and one judgment should bind them all. The defendant Hammond is alone called to account; his co-officials, through whose action the alleged wrongs were and could only be perpetrated, should have been made defendants.

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For this reason there is a defect of parties (Franklin Ins. Co. v. Jenkins, 3 Wend. 130 ).

It is not difficult in cases where the use is appropriate, to state a cause of action, by either judicious or liberal employment of allegations of fraud. The second, third, fifth and sixth causes of action are therefore not amenable to the demurrer for insufficient statement of facts. The status of plaintiff to maintain these causes of action, and whether or not any damage has resulted to him, are largely, and perhaps exclusively, dependent .upon the date he became an owner of stock. This fact cannot, appear until the cause shall be tried. The questions must rest for disposition until then.

The demurrer for insufficiency must be overruled. Judgment for defendant on demurrer, with costs. Leave to amend complaint upon payment of costs.

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