Court Opinion

ID: 6684914
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:31:58.408773+00
Date Added: 2024-06-11T16:00:56.415373
License: Public Domain

PCamiltoN, Judge,
delivered the following opinion:
1. Tbe right of a minority stockholder to protection by a court of equity has long been established. Indeed it is a necessity of tbe conditions under which corporations are managed. A majority of stockholders elects tbe directors, and frequently in private corporations constitute tbe actual board of directors. There is a general rule tbat a stockholder cannot take any steps against bis corporation until be has applied to tbe directors or *204other managing officials and has been refused redress. It is held, however, that this is not necessary where it is obvious from the facts that the redress would not be granted. Such would appear to be the case at bar upon the allegations of the bill of complaint. The question, therefore, is not as to the form but the nature of the relief sought. The theory of the bill is that the president of the corporation virtually acts for the corporation, and uses his position for his individual advantage. Of course the merits of the contention are not now before the court, but it would seem that the bill presents a cause of action in equity. The directors occupy a position of trust, and this is even more clearly true of the president. A minority stockholder has the right to come into a court of equity to redress or prevent abuse of this trust to his disadvantage. Hawes v. Oakland (Hawes v. Contra Costa Water Co.) 104 U. S. 450, 26 L. ed. 827; 4 Thomp. Corp. 2d ed. §§ 4495, 4496, 4504.
2. Whether the allegations of the bill are full enough is a different question. A general allegation of fraud, or a general allegation of the belief of the complainant that there has been fraud, is not sufficient. Tacts must be alleged which, if proved, show fraud. Complainant cannot make a general averment and call upon the court to find out the facts for him. This would be in the nature of a fishing bill. Discovery may be granted in aid of facts which are set out, but cannot be made a substitute for facts. There are certain exceptions in the case of a bill for discovery alone, but this bill is not framed in that aspect.
Of the different defects urged on argument, it may be said that some averments are merely by way of inducement, and are *205not to be considered as of tbe essence of tbe bill. Tbns tbe fact tbat tbe meeting complained of lasted “illegally less than balf an hour,” tbat tbe directors met infrequently, tbat tbe corporation office is in tbe same building with tbe partnership office, issue of stock without consideration (4 Thomp. Corp. 2d ed. §4503), are of little value by themselves, but may furnish links in the alleged chain of fraud. 4 Thomp. Corp. 2d ed. § 4512. Tbe essence of tbe bill seems to be connected with tbe profit derived by tbe firm from alleged special favors secured from tbe corporation ultra vires to tbe detriment of tbe corporation and its stock. If proved, this would present a good cause of action. Tbe statement of tbe illegal advantage obtained by tbe defendant for bis firm is, however, indefinite. There should be a statement of the dates and character of these respective contracts as nearly as tbe complainant is able to supply them. While it is not proper to insert in tbe bill facts which are merely evidentiary, it is necessary in all pleading, at common law and in equity, to state facts, and not conclusions of tbe pleader. Quarles v. Campbell, 12 Ala. 64, 66; Wilkinson v. Searcy, 76 Ala. 180. Tbe motion, therefore, must be granted so as to allow amendment in this particular.
3. Another ground set up is tbat tbe bill is defective because both tbe corporation and tbe members of tbe firm should be parties defendant. Tbe test is whether any relief is sought from these parties. Tbe money sought to be recovered would not be paid by tbe defendant to tbe complainant, but would be paid into tbe treasury of tbe company. Miles v. New York C. & H. R. R. Co. 35 Misc. 69, 11 N. Y. Supp. 211; 4 Thomp. Corp. 2d ed. § 4512. It is difficult to see bow the present *206parties can litigate without the presence also of the corporation itself.
4. In the same way the recovery, if had, would be from the firm of Sobrinos de Ezquiaga, or the individuals making up the partnership. It may well be that the complainant does not know the piembers of the firm, but if it is a partnership under the Porto Rican law there should be records accessible. If the firm has been illegally constituted, there would be other methods of procedure. It may be that difficulties may arise connected with the jurisdiction of the court over some such defendants. If there are persons unnamed who appear to be proper parties, the bill should state why they are not made such, as that they are not within the jurisdiction or cannot be made parties without ousting the jurisdiction. New Equity Rule No. 25. The equity rules provide for such contingencies if they arise, but the point need not be anticipated at present. New Equity Rules 38 and 39.
5. The point as to examination of books, being a legal remedy, is not well taken. The bill in this case does not seem to be for that purpose, and that remedy is sought only incidentally to the main result aimed at. 4 Thomp. Corp. 2d ed. § 4538. This right is, in the United States, regarded as a common-law right (4 Thomp. Corp. 2d ed. §§ 4515, 4516), although sometimes further defined by statute. Whether it is allowed at civil law has not been argued and need not be decided. It is not of the gist of the bill, and therefore cannot be considered as a remedy at law to which the complainant should be remitted.
The motion to dismiss will be granted unless the complainant amends to conform to the preceding opinion within ten days.
It is so ordered.