Second Department, May, 1908. [Vol. 126. laration of said dividend of three per cent had thereafter no cause of action thereon for fraud against the defendants for damages arising out of said sale;" "that no recovery can be had in this action on the ground that on August 14th, 1899, the officers of the company declared a dividend of ten per cent on the capital stock of the company;" "that the fact that neither the plaintiff or her father had any knowledge of the declaration and payment of said dividend until September, 1904, precludes the jury from giving to it any consideration as a fraudulent act against the plaintiff or as an enticement for the sale of the stock." The appellants contend that the declaration of the dividend and the voting of increased salaries cannot be the basis of an action for fraud; that while that may have induced the plaintiff to sell, she was not thereby deceived; that her remedy for such misconduct, if it were misconduct, was within the corporation and by a representative action to restrain or redress the wrong; and that the refusal to charge as requested presents reversible error, for the reason that we cannot know upon what theory the jury found a verdict. The respondent contends that the unlawful intent is the essential element of conspiracy, and that, such intent being shown, it characterizes the acts as fraudulent, even though an action strictly for fraud and deceit could not be maintained. In a civil action for conspiracy the gist of the action is the damage, not the conspiracy, and the averment and proof of conspiracy is only important to join all the defendants and hold them responsible for the acts and declarations of each. (Tappan v. Powers, 2 Hall, 277; Jones v. Baker, 7 Cow. 445; Moore v. Tracy, 7 Wend. 229; Hutchins v. Hutchins, 7 Hill, 104; Buffalo Lubri cating Oil Co. v. Everest, 30 Hun, 588; Lee v. Kendall, 56 id. 610.) The damage sustained must be legal damage directly resulting from the wrong, not damages which are uncertain, contingent and remote. (Bradley v. Fuller, 118 Mass. 239.) "Where damage results from an act which if done by one alone would not afford ground of action, the like act would not be rendered actionable because done by several in pursuance of a conspiracy." (Boston v. Simmons, 150 Mass. 461.) "The principles which govern an action for fraud and deceit by means of false pretenses are the same, whether the fraud is alleged to have originated in a conspiracy, or to have been solely App. Div.] Second Department, May, 1908. committed by a defendant without aid or co-operation." (Brackett v. Griswold, 112 N. Y. 454.) We may assume that the jury found, they could not well avoid finding, that the acts of the defendants in declaring a dividend of only three per cent and increasing their salaries were wrongful and done for the purpose of inducing the plaintiff to sell them her stock for less than it was worth. Thus the ques tion comes to this: When such a conspiracy is successful, is the injured party without remedy for the wrong? I think a wrong in law and in good morals was done the plaintiff, and the maxim ubi jus ibi remedium leads me to look for the remedy. It must be granted at the outset that where directors in bad faith and for purposes of their own refuse to make proper distribution of earnings, the injury is primarily to the stockholders collectively and must be redressed through the corporation by a suit in equity to compel proper action, and that where waste is committed the direct injury is to the corporation, and if the wrongdoers are in control or the corporation refuses to sue, the remedy is by a representative action on behalf of the corporation. (Morawetz Priv. Corp. [2d ed.] §§ 276, 277; Gamble v. Q.C. W. Co., 123 N. Y. 91; Sage v. Culver, 147 id. 241; Flynn v. Brooklyn City R. R. Co., 158 id. 493; Hawes v. Oakland, 104 U. S. 450.) In such action an averment of reduction in the value of the stock is irrelevant. (Kavanaugh v. Commonwealth Trust Co., 181 N. Y. 121.) A stockholder cannot maintain a personal action for a wrong to the corporation merely because the indirect result is a diminution in the value of his shares. (Niles v. N. Y. C. & H. R. R. R. Co., 176 N. Y. 119.) Had the conspiracy in this case been unsuccessful there would have been no direct injury personal to the plaintiff, and she might have succeeded by appropriate action in restraining the payment of the increased salaries and in compelling a proper distribution of earnings; but she did not learn of the resolutions of August seventeenth and of the following January, which stamped those of July twentieth as wrongful beyond peradventure until long after she had sold her stock; in fact they were not adopted until those of July twentieth had served their purpose. Moreover, it must be confessed that the courts cannot completely protect minority stockholders from the oppressive acts of those in control. So that the wrong is proved, the remedy is adequate, but the difficulty lies in the proof. It Second Department, May, 1908. [Vol. 126. might have been difficult for the plaintiff to prove with the facts at her command, prior to the sale, that the directors acted in bad faith in declaring a dividend of only three per cent, and she may not have succeeded in restraining the payment of the increased salaries, unless the resolution was adopted by each one voting to increase his own which does not appear. If the directors act in good faith, the courts cannot interfere with their discretion respecting the management of the internal affairs of the corporation. (Gamble v. Q. C. W. Co., supra; Burden v. Burden, 159 N. Y. 287; Greeff v. Equitable Life Assur. Society, 160 id. 19, and see cases cited on p. 32.) I have referred supra to cases dealing with the remedies for injuries to the corporation or the stockholders collectively, and will briefly notice those disclosed by my research, involving sales of shares to managing directors, which may be thought somewhat analogous. In Carpenter v. Danforth (52 Barb. 581) and Board of Commissioners, etc., v. Reynolds (44 Ind. 509) it was held that sales by a stockholder to a director could not be set aside on the ground that the parties occupied the strict relation of trustee and cestui que trust, where no oppressive or fraudulent acts were shown. In Perry v. Pearson (135 Ill. 218) one director sought to set aside a sale to a codirector, and the court refused relief for the reason, among others, that the situation of the parties was equal, but the court said (p. 236): "It would certainly be most inequitable to per mit the directors of a corporation to so manage its business or to so deal with its property as to lessen the value of its stock for the purpose of purchasing such stock for themselves at a low figure." In Niles v. N. Y. C. & H. R. R. R. Co. (supra) the court, per HAIGHT, J., say: "There are wrongs which, if committed against a stockholder, entitle him to a right of action against the person committing the wrong for the damages sustained, as, for instance, where a person had been induced to purchase stock in a corporation and pay a higher price than the stock was fairly and reasonably worth, or where the owner of stock had been induced to part with it for a less sum than its true value, by reason of false and fraudulent representations of others with reference to its value. (Rothmiller v. Stein, 143 N. Y. 581; Ritchie v. McMullen, 79 Fed. Repr. 522.)" In the Rothmiller case cited, the plaintiff was App. Div.] Second Department, May, 1908. induced, by fraudulent representations as to the condition of the company, to sell his stock to a third party on a different basis than he otherwise would; the representations were not made to induce the sale, and the defendants did not profit by it, but the court held that the wrong and resulting injury were undoubted. The Ritchie case cited differs from this only in that the directors, charged with the conspiracy to so manage the affairs of the company as to force the plaintiff to sell, were pledgees of his stock, and that the purpose of the conspiracy had not been accomplished further than to diminish its value; but although the sale had not occurred, the wrongdoers were held liable to respond in damages for the diminution in the value of the stock, on the ground of a violation of duty as pledgees. All the wrongs charged were wrongs to the corporation, for which the corporation, or a stockholder in its behalf, could have sued, but the Circuit Court of Appeals held that that did not prevent the acts being wrongful to the particular stockholder, and in that connection said, per TAFT, Circuit Judge: "As the very object of the conspiracy and wrongs done was to cause Ritchie to cease to be a stockholder, it might be difficult to point out how such an indirect remedy could benefit him after the wrong had been completed and he had parted with his ownership of the stock." In that case the stockholder suffered damage in the diminution of the value of his stock; in this case damage resulted from the sale below the value of the stock. In Walsham v. Stainton (1 De G., J. & S. 678), the leading English case most nearly analogous, directors conspired to depress the value of the shares so as to purchase them for less than their value. The scheme resorted to was the withholding of funds belonging to the corporation, so as to reduce the apparent earnings and the preparation of fictitious balance sheets. The action was in equity to set aside the sale and to compel the wrongdoers to account for all dividends and bonuses paid in respect of the shares sold. The lord justices on appeal reversed the ruling of the vice-chancellor sustaining the demurrer to the bill, and held that the action was maintainable. In pronouncing judgment Lord Justice TURNER said, "it is not denied (at least the Vice-Chancellor has not denied) that there would be a remedy at law against Joseph Stainton and his estate in respect of this breach of duty." In that case as in this fraudulent acts were charged, but the withholding of funds like the ד Second Department, May, 1908. [Vol. 126. wrongful increase of salaries was a wrong to the corporation, and I fail to perceive why a remedy should be given for one wrong and denied for another, when both are intended to and actually do accomplish the same purpose. Coercion is as effective as deceit. The party deceived acts upon a misunderstanding; the party coerced acts because he has no choice. It is no answer to say that the wrong, if any, was to the corporation, and that the plaintiff voluntarily abandoned her remedy within the corporation. The wrong was aimed at and injured the plaintiff, not the corporation, and within the corporation she was practically at the mercy of the conspirators. Though she might have restrained the payment of the increased salaries, the defendants had only to tax their ingenuity to devise other means to avoid distributing earnings. The discretion of directors in that respect is so unlimited that a successful suit to compel the distribution of earnings is almost unknown. That wide discretion affords many opportunities for oppression of minority by majority stockholders which cannot successfully be met within the corporation. The injured stockholder, as in this case, may not get clear proof of the bad faith of the directors until after he is forced out. The process applied to the plaintiff in this case has become so common with the growth of corporations that a colloquial phrase to express it has become current. (See Century Dictionary, "To freeze out.") The plaintiff's withdrawal was not voluntary. She was constrained, as most of us would be, to take the best terms offered. The defendants profited and she was injured by exactly the difference between the value of the stock and what they paid her, and having accomplished their purpose they should not now be heard to say that that was the indirect result of their wrong; that their victim should have kept her stock and sought redress through the corporation, which they did not intend to and, in fact, did not harm. It may be that the particular wrong was like unto duress. So far as I can discover, that has only been held available as a defense or as a ground of rescinding contracts, or of recovering money paid, ordinarily an adequate remedy, for it restores the party injured to his original position. I have no doubt that a court of equity would have little difficulty in setting aside this sale and in compelling the defendants to account for all profits received, but that remedy would not be adequate, for it would only |