Opinion
March 4, 1993
Appeal from the Supreme Court, New York County (Elliott Wilk, J.).
Defendant and third-party plaintiff, Leder, and third-party defendant, Frank C. Bateman, borrowed $50,000 from Citibank N.A. and in return executed a demand note in favor of the bank. Thereafter, Bateman and Leder delivered the entire $50,000 to the plaintiff corporation, Executive Leasing Company, Inc. Further, Leder and Bateman, each delivered an additional $10,000 to Executive Leasing Company, Inc. The funds provided to Executive Leasing were used to purchase furniture and office equipment. Some of the furniture was leased to Leder for his personal use and the majority of the furniture and equipment was leased to Powercard Corporation, an entity which was 60% owned by Leder and 5% owned by Bateman. Both Leder and Powercard failed to meet their obligations under the leases, and defaulted. All of the furniture and equipment leased to Powercard was repossessed by Bateman ostensibly on behalf of Executive Leasing. In October 1985, Citibank sued Leder only to recover on the demand note and obtained a judgment against him in the amount of $48,797.08. Apparently Leder subsequently satisfied that judgment. However, Bateman asserts that he previously paid approximately $10,000 of the total amount due Citibank.
Bateman commenced the main action underlying this appeal, against Leder on behalf of Executive Leasing. The complaint sought to recover damages based upon Leder's breach of the lease Leder executed in connection with the furniture obtained for his personal use. Leder answered, interposed counterclaims against Executive Leasing and commenced a third-party action against Bateman asserting claims for, inter alia, contribution and unjust enrichment to recover a portion of the amounts Leder paid on the Citibank judgment.
It has consistently been held that the statutory rule, that the business of a corporation shall be managed by its board of directors (Business Corporation Law § 701), shall not be circumvented (Sterling Indus. v. Ball Bearing Pen Corp., 298 N.Y. 483; see, Matter of Paloma Frocks [Shamokin Sportswear Corp.], 3 N.Y.2d 572, 575; Kent Co. v. Wolf, 143 A.D.2d 813, 814). Further, it has been held also that "'[w]here there has been no direct prohibition by the board * * * the president has presumptive authority, in the discharge of his duties, to defend and prosecute suits in the name of the corporation'" (Matter of Paloma Frocks [Shamokin Sportswear Corp.], supra, at 575-576, quoting Rothman Schneider v. Beckerman, 2 N.Y.2d 493, 497). However, where there are only two stockholders each with a 50% share, an action cannot be maintained in the name of the corporation by one stockholder against another with an equal interest and degree of control over corporate affairs; the proper remedy is a stockholder's derivative action (Abelow v. Grossman, 91 A.D.2d 553, 554; Tidy-House Paper Corp. v. Adlman, 4 A.D.2d 619).
It is not disputed that Bateman and Leder were intended to have equal interest in and control over Executive Leasing Company, notwithstanding the fact that no stock had been issued and no formal corporate activities had taken place. Given these circumstances, the action commenced by Bateman on behalf of the corporation against Leder must be dismissed. Therefore, upon plaintiff's appeal of the IAS Court's denial of its motion for summary judgment, we search the record, and dismiss the complaint (Merritt Hill Vineyards v. Windy Hgts. Vineyard, 61 N.Y.2d 106, 110). We specifically do not, on this record, reach the issue of whether Bateman can initiate a stockholder's derivative action, given the circumstances.
While it is clear from the record that Bateman was obligated to Citibank by virtue of the original demand note executed in return for the loan from Citibank, it cannot be said on this record that Bateman's liability to Leder, for contribution, is clear as a matter of law.
Concur — Sullivan, J.P., Milonas, Wallach, Ross and Asch, JJ.