Hyperlawhypertext legal database McClure v. Wilson 13 A.D. 274

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McClure v. Wilson

13 A.D. 274 Court N.Y. App. Div. English

Delivered by Rumsey, J.:

Contents

Majority

p. 274
David McClure, as Receiver of The Life Union, Respondent, v. John W. Wilson, Appellant.

Headnote

Misjoinder of causes of action — one on contract for money had, and received, the other ; in tort arising out of a breach of duty — causes of action arising out of the same transaction must be consistent.
A complaint by the receiver of a corporation alleged,
As a first cause of action, that the defendant, as a director, in company with a majority of the directors, for a valuable consideration, agreed to' and did turn over the control of the corporation to Louis P. Levy and demanded of the defendant the share of the money payment which he had received from the transaction.
The second cause of action was substantially the same as the first, except that it. did not allege that the defendant had personally received any part of the consideration. It alleged, however, that the agreement was fraudulent and void and in violation of the defendant’s duties as a director, and'- that the entire consideration was the property of the corporation and its creditors, which the defendant and' his associates had wrongfully converted, and damages were claimed to the extent of the misappropriation.
The third cause of action was substantially like the second, hut further alleged that, by the misconduct of Levy, the corporation became insolvent; that the fund held by it for death claims was wasted, and that these claims became due, had not been paid, and that the corporation and its creditors had been damaged • to the extent of their amount..
A demurrer was interposed to the complaint, upon the ground that causes of action upon contract were joined with a causa of action for tort.
Held, that the demurrer was proper;
That the first two causes of action were for money had and received, the receiver suing in affirmance of the contract made by the defendant and his associates with Levy, while the third cause of action was for a tort based upon an alleged
p. 275
fraudulent and void transaction,.in violation o£ the defendant’s duty as a director, by which the corporation was damaged, and that there was, consequently, a misjoinder of causes of action;
That the complaint was not saved from the objection of misjoinder by the provisions of subdivision 9 of section 484 of. the Code of Civil Procedure, allowing the joinder of claims arising out of the same transaction, for the reason that the causes of action in question were entirely inconsistent, and, therefore, conflicted with the further provision of subdivision 9, declaring that “it must appear, upon the face of the complaint, that all the causes of action, so united, belong to one of the foregoing subdivisions of this section,” and “ that they are consistent with each other.”
Appeal by tbe defendant, John W. Wilson, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 23d day of December, 1896, upon the decision of the court rendered after a trial at the New York Special Term overruling his demurrer to the plaintiff’s complaint.
Henry D. Hotchkiss, for the appellant.
Herbert B. Turner, for the respondent.

The complaint contains three causes of action. The first alleges that the Life Union was a domestic corporation, of which, on the 29th of November, 1893, the plaintiff was appointed receiver, and that he qualified. The complaint further alleges that from the 16th of June, 1891, to the 20th of May, 1892, the defendant was one of the directors of the corporation, and that as such he, and a majority of the other directors, agreed, in consideration of the payment to them by one Louis P. Levy of the sum of $15,000, that a certain number of the directors of the corporation would resign as such, and allow Levy and such persons as he might designate to be elected directors, and that the defendant and his associates would turn over the assets and control of the corporation to Levy and the. persons designated by him as directors. The complaint then goes on to allege that this transaction was carried out; that the directors resigned, pursuant to the agreement, and Levy was elected president, and his associates were elected directors, and the management of the corporation was transferred to them, and that the defendant

p. 276
and his associates received from Levy the sum .of $15,000, of which $2,000 was paid to- the defendant and applied by him to his own use. The complaint then alleges that at the time of receiving this sum of $2,000 the defendant knew that the money so paid to him was a part of the said sum of $15,000, and that the same was the property of, and belonged to, the said Life Union, and that the Life Union was not indebted to the defendant and not under any obligation to pay him any stim whatever. The first cause of action concludes with the allegation that the defendant, received said sum of money for- the use and benefit of the Life Union, and,, therefore, should account to the plaintiff for the said sum of $2,000.

The second cause of action contains substantially the same allegations as the first, except that it does not allege that the defendant received to his personal use any part of the $15,000, and the subsequent allegations in that count. It contains, however, an allegation that the agreement between Levy and his associates, and the defendant and his associates, was fraudulent and void and in violation of the duties which, as directors, they owed to the said corporation that, in consideration' of the unlawful- transfer to said Levy, this-defendant and his associates received the sum of $15,000, which they wrongfully and unlawfully applied to their own use. The second'cause of action then continues, that the said sum of $15,000 was the property of the Life Union and its creditors, and its unlawful appropriation by the defendant has damaged the said Life Union in the sum of $15,000.

For the third cause of action the complaint sets out the transaction substantially as set out in the second cause of action, and goes-on with allegations to the effect that, by reason of the mismanagement and misconduct of Levy, the corporation became insolvent- and the funds held 'by it for the payment of death claims, were wasted, and that the death claims, amounting to $77,861, became-due and have not been paid, and alleges that the said Life Union and its creditors sustained damage to the amount of $77,861.

The demurrer is upon the ground that causes of action upon contract are joined with. causes of action for tort. The demurrer was-overruled at Special Term. It was claimed by the plaintiff that the-order was correct for the reason that the demurrer was not good in form, because it does not state that there is a misjoinder of causes-

p. 277
of action. But it is not necessary in all cases that the demurrer should be taken in the precise words of the Code. It is only required that the ground of demurrer should be so plainly stated that it may be clearly understood. This, we think, the demurrer does. It should specify the causes of action which are improperly united, where such misjoinder is the ground of the demurrer. It is sufficient simply to state, as is done here, that one cause of action, naming it, is united with another cause of action, naming it, which the Code does not permit to be joined, and it is not even necessary to negative that part of section 484, which prescribes that certain causes of action, arising out of the same transaction, may be joined. The question then is properly raised, and it remains to. be seen whether the objection is well taken.

The first cause of action is brought clearly to recover money received by the defendant, but which belonged to the Life Union. It is apparent from the allegations that the money sought to be recovered was a portion of the money paid by Levy to the defendant and his associates for the consideration of the transfer of the control of the corporation. It is not alleged, nor is it to be inferred from the allegations in the complaint, that the money was. paid out of the treasury of the corporation, because the allegation is that the money was to be paid by Levy as a consideration for getting control of the corporation. It is true that the statement of the cause of action contains an allegation that the money was the property of the Life Unions but that is plainly a statement of the legal conclusion which the pleader supposed to arise from the allegations of the facts under which the money was paid and the purposes for which it was received.

The first cause of action proceeds upon the theory that there was a bargain between Levy and the defendant with others, which was cairied into effect-by the payment of money, and that that money belonged, when paid, to the corporation, and the plaintiff, as receiver., seeks to recover it back. -It is a cause of action for money had and received. The theory of it is that the bargain, if not a valid one, is affirmed by the receiver, and he seeks to recover that which was paid •to the defendant as a consideration for the transfer of the control of the corporation, and which he insists should have been paid by the defendant to the corporation. The cause of action stands upon the contract

p. 278
which the law implies on the part of one who has received money, which lie should pay over.to another, to make such payment. It is a cause of action upon contract and nothing else. (National Trust Co. v. Gleason, 77 N. Y. 400 , 403.) The same thing is true of the second cause of action.

It is just as clear that the third cause of action proceeds upon, an entirely different theory. It sets up that the agreement was fraudulent and void, and made in violation of the duty which the directors owed to the corporation, but does not-seek to recover anything upon the basis of the existence of the contract. The foundation of this cause of action is that the transaction was fraudulent and void, and in violation of the defendant’s duty, and that, as the result of it, the corporation was so badly managed, that it was'deprived of a considerable amount of its assets. The relief demanded is that the plaintiff may recover the amount of the assets of which the corporation was deprived as the result of this illegal act. This cause of action is plainly for a tort. So it here appears that the first and second causes of action upon a contract are joined With a.third cause-of action for a tort. This cannot be done. (Keep v. Kauf man, 56 N. Y. 332 .)

But it is said that these three causes of action arise out of the same transaction, and for that reason they may be joined under subdivision 9 of section 484 of the Code of Civil Procedure. It is not necessary to consider whether this claim is well founded or not. By the subsequent portions of the section just cited, no causes of action can be united Unless they belong to one of the foregoing subdivisions and are consistent with each other. These two causes of action are entirely inconsistent. The first and second are based upon the theory that the contract is valid between the parties and has been adopted by the corporation, and, becanse of that, the money belongs to the corporation and should have been paid over to it. The third proceeds upon the theory that the contract is invalid and illegal and no rights were acquired under it, and repudiates it and seeks to recover damages for what was done .by virtue of it. For these reasons the misjoinder is not saved by the 9th provision of section 484 of the Code, and the demurrer is well taken.

The judgment overruling the demurrer must be reversed, with costs, and'judgment ordered for the defendant upon the .demurrer,

p. 279
with costs, with leave to the plaintiff to amend the complaint within twenty days, upon payment of the costs of the demurrer and of this appeal.

Van Brunt, P. J., Barrett, Williams and Patterson, JJ., concurred.

Judgment reversed, with costs, and judgment ordered for defendant on the demurrer, with costs, with leave to plaintiff to amend complaint within twenty days, on payment of the costs of the demurrer and of this appeal.

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