Court Opinion

ID: 8186820
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:09:22.444096+00
Date Added: 2024-06-11T16:40:26.885503
License: Public Domain

WiNslow, J.
The principal contention made by the defendants in support of the demurrers is that the action is one for specific performance of an agreement to sell corporate ■stock, and that the complaint shows on its face that such performance is impossible, because all of the corporate stock •of the corporation is alleged to be held by third persons, not parties to the action, and that for this reason equity will not ■entertain jurisdiction of the action, but willleave the plaintiff to prosecute his action at law for damages. The radical difficulty with the argument is that, in our judgment, this is not an action for specific performance-of a contract to sell stock. The allegations of the complaint show that the executory ■contract to sell stock was fully performed» by the defendant corporation, at least so far as necessary to place the title of the stock in the plaintiff, upon the same day that the contract itself was made. Certificates of the stock were either *527made out or obtained by the defendant company, a note was ■executed by the plaintiff for the purchase price, and with the consent of both parties the note was placed in the hands of Mr. O. E. Johnson, and the certificates of stock were also placed in his hands as collateral security for the payment of the note. Thereafter Mr. Johnson undoubtedly held the certificates of stock in trust for Morey, and the note in trust for the corporation, until the note should be paid. Morey had title to the stock to the same extent as if the certificates had been actually delivered to him and he had then pledged them to a third person as security for the payment of his note. Both the title and the right to vote pledged stock is in the pledgor unless a complete transfer has been executed. 1 Morawetz, Priv. Corp. (2d ed.), § 483. Thus it appears that the action is not one brought by an outsider to compel the corporation to make him a stockholder, but an action brought by one who is already a stockholder to compel recognition of his rights as a stockholder, which have been fraudulently or wrongfully denied him, and for incidental relief by way of accounting to ascertain what the profits upon his stock rightfully are, and what, if anything, is still due upon his note. Actions in equity for this purpose are not infrequent. 1 Morawetz, Priv. Corp. (2d ed.), § 208; Telegraph Co. v. Davenport, 97 U. S. 369. Nor is it any answer to the proposition to say that the complaint shows that all the stock of the corporation is noAv held by third persons, i. e. the heirs of Mr. Johnson, who are not parties to this action. So far as appears by this complaint, such holders have no title to the stock of Morey, even if they in fact have possession of the certificates. Both the corporation and Mr. Johnson were fully aware of Morey’s ownership of the stock. It does not appear that Morey himself ever indorsed the certificates or made any written transfer of them. In fact, the fair conclusion from the allegations of the complaint is that the certificates never manually reached his possession. The statute *528requires the indorsement of the owner or bis legal representative, or a written transfer, in order to pass title to such certificates. Stats. 1898, sec. 1751. Hence, under the allegations of the complaint, the heirs of Mr-. Johnson cannot be considered as Iona fide holders of the certificates, nor as possessing any rights therein beyond the rights possessed by Mr. Johnson himself, because the reasonable inference from the complaint is that there has been no indorsement or transfer of the stock by Morey or his legal representative. They certainly would be proper parties to the action, and it may well be that, in order to fully determine the whole controversy, it may be necessary that they should be made parties; but there is no demurrer here based upon the ground of defect of parties, and it cannot be said that a cause of action is not stated against the defendant corporation simply because the Johnson heirs are not made parties.
These considerations effectually dispose of the claims of respondents to the effect that no equitable cause of action is stated and that there is an adequate remedy at law. It is urged, however, that the action is barred by the six-year statute of limitations. This contention is based on the ground that the complaint shows that the stock was paid for by the profits of the business as early as January 1,1892, and that this action was not commenced until after December 28, 1898; thus showing that more than six years have elapsed since the cause of action accrued. A single consideration, however, disposes of this claim. Under the allegations of the complaint, as before shown, Morey has been the owner of this stock since May 8, 1889, and Johnson simply held it as pledgee and in a certain sense as plaintiff’s trustee. It appears by the complaint that the first denial of Morey's right to the stock took place in October, 1898. Up to that time, so far as appears from the complaint, his right to the stock was not denied, and it did not' become his duty to bring an action to establish his rights so long, as *529they were either admitted or not repudiated. He was not required, under his contract, to pay for the stock at any specified time. It was to be paid for primarily out of dividends declared, not profits earned, and it appears that there have been no dividends declared, hence it is clear that there was no time prior to the denial of bis rights, in 1898, when there arose any obligation either to sue for his stock or to enforce his rights as a holder of stock. Neither .his title to the stock nor his rights as a stockholder had up to that time been denied. Wells v. Green Bay & M. C. Co. 90 Wis. 442. The same considerations dispose of the claim that the plaintiff has been guilty of laches.
It has been noted that the contract is that the stock should be paid for in dividends declared, not in profits earned, and that the complaint affirmatively shows that no dividends have been declared. From this it may perhaps be argued that the court has no power to adjudge the stoqli paid for out of earnings, however large, because only the directors of the, corporation have power to declare dividends, and they have not done so. It is undoubtedly true that the courts will not, as a general rule, interfere with the discretion of the directors of a corporation as to the declaration of a dividend; but when it appears that they are guilty of fraud or bad faith, or a wilful abuse of their discretionary powers, either in declaring or in refusing to declare a dividend, a court of equity will interfere and compel the proper action. 2 Cook, Corp. § 545; 1 Morawetz, Priv. Corp. (2d ed.), § 447. As we construe the present complaint, it is charged that the failure to declare dividends here has been in bad faith, for the purpose of defrauding the plaintiff, and we think a sufficient case is stated to call for investigation of the question by the court. Whether it may not be necessary to join the directors of the corporation as parties to the action, in order to obtain such relief, may be an important *530question, but it is one which does not arise on the record before us.
The contention on the part of the administrator of the estate of O. R. Johnson that the circuit court has no jurisdiction, because any claim against the estate should have been made in the county court, cannot be sustained. It is very evident that the county court could not afford the plaintiff any adequate remedy. The action is one rightly brought to administer equitable relief, obtainable only in a court of general jurisdiction; and the right to administer that relief is not lost because the interest or right is connected with the estate of a deceased person, which is in course of administration. Gianella v. Bigelow, 96 Wis. 185. While the allegations of the complaint are not as full as might be desired, we think it sufficiently appears from the complaint, giving it that liberal construction to which it is entitled (Stats. 1898, sec. 2668), that the estate of O. R. Johnson, deceased, is necessarily so far connected with the subject matter of the litigation that the administrator is a proper party defendant.
By the Court.— Order reversed, and action remanded with directions to overrule the demurrers.
Baedeen and Dodge, JJ., took no part.