Case Name: Ellis v. The Prudential Savings Company et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1922-05-09
Citations: 104 Ohio St. 599
Docket Number: No. 16900
Parties: Ellis v. The Prudential Savings Company et al.
Judges: Marshall, C. J., Johnson, Hough, Wanamaker, Eobinson, Jones and Matthias, JJ., concur.
Reporter: Ohio State Reports, New Service
Volume: 104
Pages: 599–602

Head Matter:
Ellis v. The Prudential Savings Company et al.
Corporations — Illegal organization or abuse of franchise — Remedies — Quo warranto or accounting of corporate funds — Commissions for sale of stock. ■
(No. 16900
Decided May 9, 1922.)
Error to the Court of Appeals of Cuyahoga county.
This action originated in the court of common pleas of Cuyahoga county, wherein plaintiff filed his petition against the defendant The Prudential Savings Company and its eleven directors, praying for an accounting of the corporate funds coming into the hands of the directors, and against defendant Collins, as trustee, and praying also that a receiver be appointed .to hold such funds subject to the order of the court.
The Prudential Savings Company demurred to the petition for the reasons that the court had no jurisdiction of the subject of the action and the petition did not state facts sufficient to constitute a cause of action. The common pleas court sustained the demurrer to the petition. On appeal to the court of appeals that court likewise sustained the demurrer, and, the plaintiff not desiring to plead further, judgment was rendered in favor of the defendant in error The Prudential Savings Company. Thereupon error was prosecuted to this court.
In substance the petition alleged that plaintiff, Ellis, had subscribed for 20 shares of the capital stock of the defendant company, that at a meeting of the subscribers for stock the other defendants named were elected as directors thereof; that such directors, without, first adopting a constitution and by-laws, adopted a resolution electing the defendant Neil A. Collins trustee of the corporation, with power to dispose of the authorized capital stock of the corporation at $100 per share, with a membership fee of $5, $4 of which was to be used for the purpose of selling such shares and $1 held by the defendant Collins, and by him used for the general expenses of the company; that defendant Collins employed the plaintiff to sell shares of such capital stock at a commission of $4 per share, payable out of such membership fee, and gave plaintiff certain forms of stock subscription to be used in that behalf; that plaintiff, with one Miller, caused about $70,000 of stock to be sold, and the membership fee collected by them was paid to the defendant Collins; that in paying the commissions for such sales the defendant Collins was using the capital stock of the company therefor; that later learning that a constitution and by-laws had not been adopted by the company the plaintiff notified the company that he would not sell further stock for the reason that the company had not adopted a constitution and by-laws; and that thereupon Collins, acting as trustee, and also as attorney for the company, notified the plaintiff that his contract for the sale of further stock was abrogated.
The plaintiff thereupon made demand upon the officers and directors of the company “to organize the same in accordance with the laws of Ohio and to call meetings of stockholders and to have such action taken as is necessary and in accordance with the laws of Ohio,” but asserts that the officers and directors have delayed and refused to take such action and have expressed their inability to cause such action to be taken.
It is somewhat difficult to ascertain from the averments of the petition whether the alleged commissions arising from the sale of shares of stock are now in the hands of the plaintiff, or in the hands of Collins, as trustee. Nor is it entirely certain from such allegations whether the company caused any stock to be sold, the proceeds of which, other than the additional membership fee, were to be applied as payment by way of commissions for share* of stock sold. If such is true, it appears rather from suggestion than from clear allegation of the fact. The plaintiff prayed for an accounting on the part of the defendant corporation and its trustee, and that a receiver should be appointed to take charge of the funds of such corporation, which the petition alleged were in danger of being dissipated by the officers of the company.
Messrs. Smart & Ford and Mr. Smith W. Bermett, for plaintiff in error.
Mr. T. J. Moffett, for The Prudential Savings Company, defendant in error.

Opinion:
By the Court.
So far as we are able to gather from the petition, the chief complaint of the plaintiff is that this company was being organized and doing business in contravention of law. If it were illegally organized or misusing its franchises the proper action to be taken would be one in quo warranto.
Section 676, General Code, requires the inspector of building and loan associations to see that the laws relating thereto are duly executed and enforced; while Section 686, General Code, requires such inspector, if he finds that the associations, are continuing their illegal practices and noncompliance with law, to "communicate the facts to the attorney general, who shall cause proceedings to be instituted in the proper court to revoke the charter of such association."
If it be conceded that this, company was unlawfully paying commissions out of its capital for the sale of stock, clearly an action could be maintained only on behalf of all the company's stockholders, and in such event the demand should have been made upon the officers of the corporation to prosecute such an action. No such demand was made in this case. The only demand made by the plaintiff was that the corporation be organized in accordance with the laws of Ohio.
The lower courts did not err in sustaining the demurrer to plaintiff's petition, and the judgment of the court of appeals is affirmed.
Judgment affirmed.
Marshall, C. J., Johnson, Hough, Wanamaker, Eobinson, Jones and Matthias, JJ., concur.