Court Opinion

ID: 6902201
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:56:05.317218+00
Date Added: 2024-06-11T16:06:12.745448
License: Public Domain

Mr. Justice McBride
delivered the opinion of the court.
1. We are of the opinion that the court below erred in holding that the complaint failed to state a cause of suit. As a general rule, a stockholder in a corporation is not allowed to sue to prevent misappropriation of corporate securities without first requesting the board of directors, and, in case of their refusal to act, then stockholders to proceed against the wrongdoers in the name of the corporation: Hawes v. Oakland, 104 U. S. 450 (26 L. Ed. 827); Brewer v. Boston Theater, 104 Mass. 378; Foss v. Harbottle, 2 Hare, 461. But the rule above announced has its exceptions, and one of these is in that class of cases in which it appears from the complaint that an application to the board of directors or to the stockholders would be useless. Thompson, Corporations, § 4504; Cook, Corporations (6 ed.) §741; Morawetz, Corporations (2 ed.) §242.
The complaint in this case sets forth sufficiently that the directors, the trustee, and a majority of the stockholders are engaged in a conspiracy to unlawfully make away with the assets of the corporation, and such being *489the case it would be useless to apply to them to cause a suit to be brought against themselves for an accounting.
2, 3. It is also claimed by respondents that the complaint is defective because it does not show that plaintiffs were stockholders at the time the alleged wrongs were perpetrated. The complaint is not clear in this respect, though it does allege that the directors disposed of the assets with intent to defraud plaintiffs and other stockholders, thus alleging by fair implication that plaintiffs were stockholders. In the absence of a demurrer or motion to make more definite and certain, we think this was sufficient, and, if it were not, we do not think the absence of such allegation fatal to the complaint. The assets of the corporation constitute a trust fund for all the stockholders, and this is especially the case with building and loan associations in this State, where by Section 6748, L. O. L., all mortgages and other securities are required to be kept and held in trust for all the members and creditors of the corporation.
The United States courts have held that complaints in cases of this character should show that the plaintiff was a stockholder at the time the alleged wrongs were committed, but this seems to be a holding peculiar to these courts, and having for its object the prevention of collusive assignments of stock between citizens of different states made with the intent to avoid the jurisdiction of the State courts. The operation of such a rule in the United States courts is just and salutary because it still leaves the injured party to his remedy in the local courts of his own state, but to apply it generally in the state courts would work injustice and hardship, and the better opinion is against it. Cook, Corporations (6 ed.) §736; Montgomery Light Co. v. Lahey, 121 Ala. 131 (25 South. 1006); Earle v. Seattle, Co. (C. C.) 56 Fed. 909; Forrester v. B. & M. Mining Co., 21 Mont. 544 (55 Pac. 229, 353).
*4904. The complaint did not state facts sufficient to constitute a cause of suit against defendant Sheffield, and we will not interfere with the court’s exercise of its discretion in refusing to allow plaintiffs to amend. There had already been one amended complaint filed, and the plaintiffs had allowed this litigation to slumber for several years without attempting to urge it to issue or trial, and they were not in a position to demand leniency from the court. It is also urged by defendants that the complaint is defective because plaintiffs sue only in their own name and not on behalf of themselves and all others similarly situated. If such an allegation were necessary, which we do not decide, its omission in the complaint merely amounts to a defect of parties plaintiff: Hiscock v. Lacy, 9 Misc. Rep. 578 (30 N. Y. Supp. 860); Stewart v. Erie & Western Transportation Co., 17 Minn. 372 (Gil. 348). And such defect is waived by failure to raise it by demurrer or answer. Sections 68, 72, 395, L. O. L. Notwithstanding the form of the complaint, the recovery is still for the corporation or those stockholders similarly situated, and the court may, in its discretion, direct such parties to be brought in, or may, by final decree, so dispose of any proceeds of the suit as to do justice to all entitled to share in the proceeds of any fund that may be recovered in an accounting: Thompson v. Stanley (Sup.) 20 N. Y. Supp. 317.
The decree of the circuit court will therefore be reversed as to all parties except defendant Sheffield, and as to him it will be affirmed; and this cause will be remanded to the circuit court for further proceedings not inconsistent with this opinion.
Reversed and Remanded as to all respondents, except F. W. Sheffield. Affirmed as to him.
*491[117 Pac. 825.]