Court Opinion

ID: 9339666
Source: CourtListenerOpinion
Date Created: 2022-12-16 19:24:12.734456+00
Date Added: 2024-06-11T17:15:20.683373
License: Public Domain

The Chancellor.
This bill is filed by the complainants as three of the stockholders of the Hernando Rail Road and Banking Company, against Orne and Bybee, as a president and cashier, and against Hallet, Brown and others, as a portion of the stockholders in said company. The bill charges that the defendants, Orne and Bybee, are incompetent and unfit persons to have charge of the affairs of said company, and charges them with various acts of abuse, and delinquency in their official conduct, in misapplying the funds of the company and otherwise mismanaging its affairs. The bill prays for an injunction, which was granted, restraining the said Orne as president, and the said Bybee as cashier, from the exercise of their official functions as officers of said company. It also prays for the appointment of commissioners to take charge of the effects of the bank, of whatsoever character, and that the affairs of *173said bank “be finally settled up and' closed — that an account be taken between the stockholders, &c.”
The defendants, Bybee and Orne, have filed their answers, the latter insisting, by way of demurrer, upon the want of jurisdiction of this court over the subject matter of the bill. To these answers various exceptions are taken by the complainants. The defendants, Brown and others, have demurred to the bill, and rely upon the want of jurisdiction over the case, as also the want of proper parties. The case was submitted, by agreement, upon the bill and answers of two of the defendants,.and upon the exceptions thereto, as also upon the demurrer of the other defendants. It is unnecessary to advert to the exceptions to the answers. The precedent question of jurisdiction must first be disposed of. It will be seen that the object and purpose of the bill is to divest the corporators of all authority and control over their corporate effects; to place the management and settlement of its affairs under the jurisdiction of, this coirrt, and thus work a complete dissolution of the corporation itself. Although the bill does not ask directly for a decree dissolving the corporation, yet if the relief asked would work that effect, the court is bound to look to the consequences.
The principle is well settled that charter privileges cannot be taken away by any collateral proceeding, nor in any other mode, than by a direct proceeding through the usual forms of a scire facias, or information in the nature of a quo warranto,. regularly prosecuted in a court of law. Ang. & Ames on Corp. 510.
These modes of proceeding belong exclusively to courts of law; for, .though chancery may hold persons who sustain the relation of trustees to a corporation, accountable for abuse of their trust, yet it cannot dissolve the corporation itself, nor divest it of its corporate character and capacity. 3 John. R. 134; 5 John. C. R. 380; 2 John. C. R. 388; 17 Ves. 491; 5 Term R. 85.
It cannot be concealed that to decree the prayer of the complainants’ bill would be to decree a dissolution of the corporation, in this respect it differs materially from bills which have frequently been entertained by courts of equity, at the instance of stockholders against the directors of a corporate company, to compel them to account for the improper use of funds, or to restrain them from violating their trust. That a court of equity, as such, has *174not jurisdiction or power over corporate bodies, for the purpose of restraining their operations or winding up their concerns, is, I think, well settled by various authorities. 1 Edwards’s C. R. 84; 2 John. C. R. 371-8.
In the case of the Attorney General v. Bank of Niagara, 1 Hopkins, 354, where, pending a proceeding before the supreme court of New York for the purpose of annulling the charter of the bank, an application was made for an injunction to restrain the bank from making discounts, receiving deposits or issuing notes, the chancellor held that there was no authority to be found to warrant such an application, and that it was very clear that the court had not jurisdiction over the case. It may be remarked that the legislature of that state, shortly after this decision, conferred jurisdiction upon its courts of chancery over incorporated companies, to the extent of enjoining them and winding up their affairs in the manner pointed out by the statute. In a subsequent case, where a similar application was made, the chancellor said the application must be considered as founded altogether upon the statute above referred to, and that the general jurisdiction of a court of equity did not extend to the case. Hop. C. R. 598, Attorney General v. Bank of Chenango.
I entertain no doubt that this court has jurisdiction at the instance of stockholders to call the directors of a monied or other joint stock corporation to account for any abuse of trust or waste or misapplication of the funds of the company. But in such case the jurisdiction is over the directors personally, and not over the corporation. Robinson v. Smith, 3 Paige Ch. 222.
The directors of an aggregate corporation, who are charged with the control and direction of its affairs, become the agents and trustees of the corporation, and in their trust character may be held accountable in this court, at the instance of the stockholders, for dereliction of duty or fraudulent breach of trust. Verplanck v. Mercantile Insurance Company, 1 Edw. C. R. 84.
In such case it is the trust relation which gives jurisdiction to the court; and chancellor Kent said, to this plain and ordinary head of equity the jurisdiction of chancery over corporations ought to be confined. Attorney General v. Utica Insurance Company, 2 J. C. R. 388. But such relation does not exist between *175the stockholders and the corporation itself, nor between different sets of stockholders of the same company. The relation of trustees and cestuis que trust requires separate and distinct persons to constitute it, whereas the stockholders 'of' an incorporated company are one and the same. Their individuality is merged in the artificial person of which they are component parts. 1 Edwards’s C. R. 84.
In the case now before me the bill is filed by the complainants, as stockholders, against Orne and Bybee as president and cashier, enjoining them from the exercise of their official functions, and for an account of alleged misuse of monies, and against the other defendants as stockholders of the Hernando Rail Road and Banking Company. So far as the defendants Brown, and others are concerned, as joint stockholders with the complainants, it is obvious, from what has been already said, that there is no ground for entertaining the bill; for as between them the trust relation which gives jurisdiction does not' exist., This disposes of the case as to the defendants, who are made such upon no other ground than that of their being stockholders in said company.
The next inquiry is, can the suit be sustained by the complaim ants, as stockholders, against the defendants Orne and Bybee, for the purpose of compelling an account for monies used or misapplied by them as president and cashier of said company. I think it may be laid down as a general rule, that suits brought for the purpose of compelling the ministerial officers of a private corporation to account for breach of official duty or misapplication of corporate funds, should be brought in the name of the corporation. Such officers are directly amenable to the directors of the company, who are charged with the protection and management of its affairs, and who direct its corporate action. Robinson v. Smith, 3 Paige Ch. R. 233. This rule might be dispensed with if it were alleged and made to appear that the directory of the corporation connived at the delinquency or misconduct of its officers, or refused to bring them to account by suit. In such case, the stockholders as the real and ultimate parties'in interest would be permitted to bring suit directly in their own names. (Ib.) I think, then, that the objection for want of proper parties is well taken. So far as the case depends upon the injunction granted *176against the aforesaid officers of the company, I am unable to perceive any thing in it which warrants the jurisdiction which was assumed for that purpose.
Every corporation has within itself the power of guarding against any apprehended or threatened abuse of its ministerial officers. The right of amoving an officer of a private corporation, without any express provision for that purpose, is considered an inseparable incident of corporate powers. Ang. & Ames on Corp. 58. And such right of amotion may be exercised when gross delinquency or other misconduct of officers indicates the necessity and propriety of such action. This right of removal for breach of duty applies as well to officers whose office is of the essence of the corporation, (such as the directors of a corporate company,) as to those who are mere executive agents. But a material distinction exists between the first class of officers and those whose duties are merely ministerial, such as the cashier and other executive officers of a bank, who are usually appointed durante bene plácito, and may be removed without any other cause than that of its being the pleasure of those who appointed them. In such case it is said the right to amove is, of course, incident to the right of appointment, Ang. & Ames Corp. 247, and I take it for granted that such officers may be amoved for cause, even where the tenure of office is fixed for a definite period.
It may be said that the bill in this case does not'ask a removal of the officers; but I conceive an injunction indefinitely suspending an officer, is in its character so near akin to an absolute removal, as to defy any sound distinction between the two modes of accomplishing the same thing. The right of amoving the officers of a private corporation belongs exclusively to the corporation itself; this court has no jurisdiction or power for such purpose. In the case of the Attorney General v. the Earl of Clarendon, 17 Ves. 491, it was distinctly laid down by the master of the rolls, that chancery had no jurisdiction with regard to the amotion of corporators of any description. If this be true, it would seem to follow that this court cannot by its injunction suspend a corporator or officer from the exercise of their corporate or official privileges, and thus do indirectly that which may not be done directly. *177It may be again repeated that a court of equity has no general jurisdiction over corporations or corporators, except so’far as the transaction may assume the character of a trust, and, place the parties in the relation of trustees and cestuis que trust.
The principles of this case are new in this state, and I have regretted that I have been compelled to throw these views together somewhat hastily, rather as furnishing some of the reasons which have influenced my mind, than as a thorough and finished view of the subject.
The demurrer must be sustained, the injunction dissolved and the bill dismissed.