(178 N.Y.S.)

LEVINE v. ISLER et al.

(Supreme Court, Appellate Term, First Department. July 17, 1919.)

1. SALES 272-IMPLIED WARRANTY THAT STRAW HAT BODIES WERE MER

CHANTABLE.

Straw hat bodies, purchased by hat manufacturer from dealers in straw goods, were impliedly warranted to be merchantable, under Personal Property Law, § 96.

2. SALES 285(2)-NOTICE TO SELLER OF BREACH OF WARRANTY.

Where it was customary in the millinery trade for manufacturers to buy merchandise from six months to a year ahead for the summer trade, and meanwhile store it, hat manufacturer, who, having bought straw hat bodies in November, notified seller of breach of warranty upon discovery of breach during following April by dyers, to whose warehouse sellers had sent goods, gave notice within a reasonable time after he knew or ought to have known thereof, within Personal Property Law, § 130. Mullan, J., dissenting.

Appeal from Municipal Court, Borough of Manhattan, Seventh District.

Action by Nat Levine against Paul A. Isler and another. Judgment dismissing complaint, and plaintiff appeals. Reversed, and judgment directed for plaintiff.

Argued June term, 1919, before GUY, BIJUR, and MULLAN, JJ. Kleiner & Kleiner, of New York City (Lewis Nadel and Joseph Kleiner, both of New York City, of counsel), for appellant.

Samuel Sturtz, of New York City, for respondents.

GUY, J. In this action for damages for breach of warranty, the trial judge dismissed the complaint upon the merits. The material facts are uncontradicted. In or about November, 1916, the plaintiff, a manufacturer of ladies' hats, purchased from defendants, importers of and dealers in straw goods, 1,000 dozen of "Wenchow bodies," which are described as coarse straw hats in the raw product converted into a conelike form. Defendants' salesman solicited an order from plaintiff in the prior September, and as a result the plaintiff about the beginning of October visited defendants' store and examined 4 sacks. or bales there, part of a consignment of 20 sacks, each containing 50 dozen Wenchow bodies. Plaintiff was satisfied with his examination of the 4 bales, and, on being informed by defendants' authorized representative "that the rest of the bodies run the same," he purchased the 20 sacks; the 4 sacks examined being sent to plaintiff's place of business and the remaining 16 sacks, which were at the public stores or bonded warehouse, being thereafter delivered by the defendants at the warehouse of the dyers in Brooklyn, and all of the bodies were paid. for at the agreed price. The uncontradicted evidence shows that the straws purchased were for midsummer hats, and that it is customary in the millinery trade for manufacturers to buy merchandise from 6 months to a year ahead for the summer trade and meanwhile store it. On or about April 5, 1917, the plaintiff was notified by the dyers

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that they discovered upon opening a sack in one of the bales to prepare the same for dyeing, that the bodies were so brittle they would break in the hand and could not be used, which report was verified by plaintiff upon a subsequent examination of the contents of that particular bale; the explanation given being that some preservative had been used to the detriment of the material. Plaintiff thereupon reported the matter to defendants, and demanded another bale, or that defendants return the money paid for the goods, which request was refused. Plaintiff's evidence further tended to show that no injury or damage occurred to the straw while in the custody of the dyers at their warehouse.

[1] A cause of action was clearly established by plaintiff, which was not negatived by any evidence given by defendants. There was not only an implied warranty that the goods were merchantable (Personal Property Law [Consol. Laws, c. 41] § 96), but an express warranty that the quality corresponded with the bodies contained in the 4 sacks examined by plaintiff; and as under section 130 of the statute acceptance of the goods did not discharge the seller from liability in damages, or other legal remedy of the plaintiff for the breach, the only question for determination was whether the plaintiff, within a reasonable time after he knew or ought to have known of the breach, gave notice thereof to defendants.

[2] Upon the facts proven it is clear that the examination was made within reasonable time. As the contents of the sacks contained in the bale in question were worthless, plaintiff was entitled to recover as his damages the amount he paid for that bale, which was $237.50.

It follows that the judgment appealed from must be reversed, with $30 costs, and judgment directed for plaintiff for the sum of $237.50, with appropriate costs in the court below.

'BIJUR, J., concurs.

MULLAN, J., dissents.

(108 Misc. Rep. 20)

LUKACH v. BLAIR et al.

(Supreme Court, Special Term, New York County. July, 1919.)

1. CORPORATIONS 320(1)-STOCKHOLDER'S ACTION AGAINST DIRECTORS FOR MALFEASANCE DERIVATIVE AND NOT INDIVIDUAL ACTION.

Where the alleged wrongful acts of defendant directors, so far as they injure the corporation, are such as would give it a cause of action, a stockholder seeking to enforce its right of action must rely on a derivative, as distinguished from an individual and direct, action, and that wrongs are alleged to have been the result of a conspiracy, does not change their essential character or the character of the action.

2. CORPORATIONS 310(1)-DIRECTORS NOT PARTIES TO ITS CONTRACT NOT LIABLE TO STOCKHOLDERS FOR ITS BREACH.

Directors of corporation, not parties to the contract, are not liable to a stockholder for having caused the corporation to breach its contract with another corporation, as such an extension of the doctrine of interFor other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes.

(178 N.Y.S.)

fering with a contract right would tend to leave directors open to tort claims whenever the corporation had failed to perform its contracts. 3. CORPORATIONS 306-DIRECTORS NOT PERSONALLY LIABLE FOR ITS BREACH OF CONTRACT.

Where the promisee in a corporation's contract can enforce full satisfaction of a judgment obtained in an action against the corporation for the breach of the contract, the directors, if liable at all for causing breach of contract, would not be personally liable.

4. CORPORATIONS 310(1)-WHERE TWO CORPORATIONS NOT GUILTY OF TORT IN BREACH of Contract, DIRECTORS NOT LIABLE AS JOINT TORT-FEASORS. Where a stockholder alleged no cause of action in tort against either of two corporations, the directors thereof could not be held liable on the theory that they were joint tort-feasors with either of their corporation principals in a breach by one corporation of its contract with the

other.

5. CORPORATIONS 189(11), 580-COMPLAINT OF STOCKHOLDER AGAINST TWO CORPORATIONS FOR BREACH OF CONTRACT INSUFFICIENT TO SHOW BREACH.

Complaint in stockholder's action against two corporations, alleging that plaintiff and another were to be appointed sole representatives of the new or succeeding corporation, without directly alleging that it had adopted contract of the old corporation, and alleging old corporation's delivery of stock in new corporation to plaintiff, as required by agreement, stated no cause of action against either corporation.

6. PLEADING ~8(1), 11—COMPLAINT MUST ALLEGE ULTIMATE FACTS.

A complaint should be made up of allegations of ultimate facts, omitting conclusions of law and mere evidentiary facts.

7. PLEADING

310-INSTRUMENTS ARE NOT PART OF COMPLAINT WHEN NOT

ATTACHED TO IT.

Written instruments referred to in the complaint are not made part of it by the statement that they are incorporated in it, when in fact no copy thereof is attached.

Action by Joseph Harry Lukach against Thomas S. Blair, Jr., and others. On motion by all defendants except Mundy for judgment on the pleadings, consisting of complaint and answer thereto by all the defendants except Mundy. Motion granted in favor of each moving party, with leave to plaintiff to plead over.

Thomas S. Ormiston, of New York City, for plaintiff.

Gardenhire & Schlesinger, of New York City (S. M. Gardenhire and Louis B. Davidson, both of New York City, of counsel), for defendants. Blair, Reigart, Beach, Blair Engineering Co., and Blair Furnace Co.

GAVEGAN, J. [1] 1. It is evident from the complaint that the pleader desired to state a direct, individual cause of action in favor of the plaintiff; but it is also evident that, in so far as plaintiff sues as a stockholder, the acts complained of would give rise to a derivative action. The alleged wrongful acts of the individual defendants, so far as they injured the furnace company, were such as would give the furnace company a cause of action. In seeking to enforce that right of action, plaintiff must rely on a derivative as distinguished from an individual or direct right of action. That the wrongs are alleged to have been the result of a conspiracy does not change their essential character or the character of the action which the law af

For other cases see same topic & KEY-NUMEER in all Key-Numbered Digests & Indexes

fords as a remedy. Such allegations could be inserted in nearly every complaint against directors, based on corporate acts, which acts in the usual course are planned and agreed upon between the directors. By adopting the expedient of alleging that the corporate acts performed by the directors were performed pursuant to a conspiracy, plaintiff cannot overturn the established principles of law relating to derivative actions. Brock v. Poor, 216 N. Y. 387, 111

N. E. 229.

2. The complaint is insufficient to state such an action as a creditor may maintain under sections 90 and 91 of the General Corporation Law, being Consol. Law, c. 23 (Steele v. Isman, 164 App. Div. 146, 149 N. Y. Supp. 488), or an action like Shalek v. Jetter Brewing Co., 155 N. Y. Supp. 972; for it fails to show either that plaintiff is a judgment creditor or that it would be impracticable to obtain a judgment against the furnace company or against the engineering

company.

[2, 3] 3. Plaintiff's brief indicates that he seeks to recover the damages resulting from a breach of contract.

(a) No action on contract can be maintained against the defendant directors who were not parties to the contract.

(b) It seems plaintiff, vaguely and indefinitely, relies on an alleged tort akin to the tort of interfering with a contract right. The limits within which that doctrine will be confined have not been worked out. See 18 Harv. Law Rev. 423; Elliott, Cont. c. 56. The briefs do not refer to any case in which an attempt was made to hold the members of a directorate liable on that theory for having caused their corporation to breach its contract. Such an extension of the doctrine would tend to leave the directors open to tort claims whenever the corporation had failed to perform a contract. In the exercise of their discretion, and in acting on their judgment for the benefit of their corporation, the directors should be free from possible liability of that kind. Moreover, it would not seem feasible to draw a line between directors' acts which are dictated by no other motive than the performance of their duties as directors and their acts which, though they may be performed in transacting the business of the corporation, are actuated by ulterior motives-such as the motive to bring about a breach of a corporate contract.

But even were directors to be held liable for so conducting their corporation as to cause it to fail to perform its contract, it is probable that they would not be held personally liable where the promisee could enforce full satisfaction of a judgment obtained in an action against the corporation for breach of contract. In that situation there would be no occasion for introducing a new form of remedy. Accordingly, if the principle applied in Lumley v. Gye, 2 El. & Bl. 216, and in Rice v. Manley, 66 N. Y. 82, 23 Am. Rep. 30, should be extended to hold directors for bringing about the nonperformance of corporate contracts, it is likely to be limited to cases where a judgment against the corporation would be worthless. In this case there are no allegations tending to show that the engineering company is not responsible. As to the furnace company, the com

(178 N.Y.S.)

plaint alleges it has not received the assets which should have been turned over to it, and that its cash assets were converted. It cannot be said, however, that the complaint alleges the furnace company to be without assets, or even insolvent. Indeed, it is indicated that it received some assets.

[4] (c) No cause of action in tort against either corporation is alleged, so that the directors cannot be held on the theory that they are liable as joint tort-feasors with either of their corporation principals. Plaintiff contends he has alleged that the furnace company caused the engineering company to breach the contract made with Grenfell and plaintiff, that thus he has set forth the commission by the furnace company of a tort, and that therefore the defendant directors are liable as joint tort-feasors. But the complaint, so far as it attempts to set forth acts of a tortious character, relates to the acts of the individual defendants. The complaint does not indicate that the pleader intended to set forth facts showing that the furnace company was guilty of the tort of interfering with the contract obligations which it is claimed the engineering company owed to plaintiff. (d) There is nothing in this complaint to show that the corporate form was used as a mere cloak; for plaintiff relies on alleged abuse of corporate action.

[5] 4. No violation of plaintiff's rights is set forth, unless it be a violation of his rights as a stockholder or his rights as a creditor, or of his rights based, directly or indirectly, on the contract referred to in the complaint. It is apparent that no cause of action against the defendant directors has been stated. Does the complaint state a cause of action against either of the corporate defendants? It has been shown above that no cause of action in tort against either corporation has been set forth. The failure of the plaintiff to make the contract of June, 1912, a part of the complaint and his failure to clearly differentiate between the undertakings which were to be performed by the engineering company and those which were to be performed by the new company, the furnace company, gives rise to difficulty in considering whether a cause of action for breach of contract against either corporation has been stated. Evidently, it was the pleader's idea to set forth that the parties to the contract contemplated that it would be adopted by the furnace company, and that the furnace company would undertake to carry out some of the provisions affecting plaintiff and Grenfell. That is made very clear from subdivisions 4 and 5 of paragraph II of the complaint. Subdivision 4 provides that plaintiff and Grenfell were to be appointed the sole representatives of the new company in Europe. They could be so appointed only by the new company. Subdivision 5 provides that they were to receive as commissions a percentage of the first $200,000 received by the new company on account of the sale of preferred stock or the sale of foreign patents. The fair inference from the complaint is that the undertakings in said subdivision 5 were to be undertakings of the new company, as distinguished from undertakings of the engineering company.

In so far as plaintiff seeks to declare for the failure of the new