Opinion ID: 1246757
Heading Depth: 1
Heading Rank: 3

Heading: Question: Two. Do plaintiffs have standing to bring this action against Atlantic?

Text: (4a) Yes. They were the original owners of all the stock in San Ysidro Corporation, they became pledgee owners of a security interest in this stock, and under their pledge agreement the pledgor-buyers were restricted in their dealings with the corporation until payment in full was made for this stock. Facts are alleged which show fraud in the inducement, by conspirators who had no intention to perform their agreement but used this transaction as a means of carrying out their fraudulent scheme to divert the corporate assets to their own use, and who through other fraudulent acts, as part of this conspiracy, allegedly obtained the very funds with which to consummate the stock transaction. (5) Although a corporation holds all the title, legal and equitable, to the corporate property and is theoretically the only proper party to sue for wrongful dealing with that property, courts of equity recognize the truth that stockholders are ultimately the only beneficiaries, and that the final object of suits by the corporation is to maintain the interests of the stockholders. Whenever a cause of action exists primarily in behalf of the corporation against directors, officers, and others, for wrongful dealing with corporate property, so that the remedy should regularly be obtained through a suit by and in the name of the corporation, and the corporation either actually or virtually refuses to institute or prosecute such a suit, then in order to prevent a failure of justice, courts have allowed an action to be brought by a stockholder or stockholders, either individually or suing on behalf of themselves and all others similarly situated, against the wrong-doing directors, officers, and other persons; and in such case the corporation must be joined as a party or as a codefendant. (4 Pomeroy Equity Jurisdiction (5th ed.) § 1095.) (4b) San Ysidro was joined as a party defendant. (6) Where ... a corporation fails or refuses to act after proper demand, the stockholder's ultimate interest in the corporation is sufficient to justify the bringing of a `propulsive' action, designed to set in motion the judicial machinery for the redress of the wrong to the corporation. ( Klopstock v. Superior Court, 17 Cal.2d 13, 16 [108 P.2d 906, 135 A.L.R. 318]; Reed v. Norman, 152 Cal. App.2d 892 [314 P.2d 204]; 3 Witkin, Summary of Cal. Law (7th ed.) p. 2387.) (7) A pledgee of corporation stock has such an interest in the stock to entitle him to be heard in a court of equity concerning the preservation and protection of the assets and property of the corporation, his rights in this respect being essentially the same as those of an owner of stock for the loss of corporate assets; and the loss of corporate assets results in a depreciation of the value of the stock and a consequent impairment of his security. (4 Pomeroy, supra, § 1096; 14 Am.Jur.2d, Corporations, § 562.) (8) It is immaterial whether the complainant has a large or small interest when the wrongful conduct which causes a stockholder to transfer or lose title to his stock is part of a course of conduct which also injures the corporation, so that evidence proving the wrong to the corporation will either alone or with other evidence establish the stockholder's right to recover his stock; he may maintain one suit in both his derivative and individual right. (14 Am.Jur.2d, Corporations, § 567.) (4c) If plaintiffs as pledgees of all the stock cannot raise the validity of the trust deed given to Atlantic and the loss of corporate assets, who will raise it? Certainly not the defendants who perpetrated the fraud and who purportedly became legitimate stockholders and officers of the corporation only by reason of their own fraudulent conduct. Certainly not Atlantic the corporation that seeks to enforce the trust deed by foreclosure.