Murphy v. City of Greensboro

Adaiis, J. By their demurrers tbe defendants denounce in limine tbe plaintiffs’ alleged right to maintain their suit. Tbey assert tbat tbe cause of action existed primarily in tbe city and tbat tbe plaintiffs must fail because tbey neglected to apply, to tbe city council to prevent or to correct tbe evil of which tbey complain — tbat tbey should have sought relief through tbe municipality before applying therefor to a court of equity. *275 When a person becomes a stockholder in a corporation be assents to tbe execution of all tbe powers wbicb tbe law confers upon tbe corporation and agrees to abide by tbe action of tbe governing body as to all matters properly under its control. For tbis reason before bringing suit against tbe corporation to protect its rights or to redress its wrongs be must ordinarily seek remedial action through tbe directorate or tbe other controlling authorities of tbe corporation itself. Tbis principle is elementary and requires only a brief citation of authority. 2 Purdy’s Beach of Pri. Corporations, sec. 562 et seq.; Cook on Corporations, sec. 740; 14 C. J., 879; Huntington v. Palmer, 104 U. S., 482, 26 Law Ed., 833; Stewart v. Steamship Co., 187 U. S., 466, 47 Law Ed., 261; Merrimon v. Paving Co., 142 N. C., 539. As contended by tbe defendants, it is clearly set forth in tbe exhaustive opinion given in Hawes v. Oakland, 104 U. S., 450, 26 Law Ed., 827. But there Mr. Justice Miller, after discussing the general doctrine notes several exceptions in tbe following language: “We understand that doctrine to be that, to enable a stockholder in a .corporation to sustain in a court of equity in bis own name, a suit founded on a right of action existing in tbe corporation itself, and in wbicb tbe corporation itself is tbe appropriate plaintiff, there must exist as tbe foundation of tbe suit: “Some action or threatened action of tbe managing board of directors or trustees of tbe corporation, wbicb is beyond tbe authority conferred on them by their charter or other source of organization; “Or such a fraudulent transaction, completed or contemplated by tbe acting managers, in connection with some other party, or among themselves, or with other shareholders as will result in serious injury to tbe corporation, or tbe interests of tbe other shareholders; “Or where tbe board of directors, or a majority of them, are acting for their own interest, in a manner destructive of tbe corporation itself, or of tbe rights of tbe other shareholders; “Or where tbe majority of shareholders themselves are oppressively and illegally pursuing a course in tbe name of tbe corporation, which is in violation of tbe rights of tbe other shareholders, and wbicb can only be restrained by tbe aid of a court of equity. “Possibly other cases may arise in wbicb, to prevent irremediable injury, or a total failure of justice, tbe Court would be justified in exercising its powers, but tbe foregoing may be regarded as an outline of tbe principles which govern tbis class of cases.” Tbis general statement may be deemed broad enough to cover a pertinent exception noted by Cook.: “So, also, in tbe state courts there are occasions when tbe allegation that tbe stockholder- has requested tbe directors to bring suit and they have refused may be omitted, since tbe request itself is not required. Tbis occurs when tbe *276 corporate management is under tbe control of the guilty parties. No request need then be made or alleged since the guilty parties would not comply with the request; and even if they did the court would not allow them' to conduct the suit against themselves.” Cook on Corporations, sec. 741. Loomis v. Railroad, 165 Mo., 469; Oklahoma Co. v. Hastings, 194 Pac., 223; Von Arnim v. Am. Tubeworks, 188 Mass., 515; Sheeby v. Barry, 89 At. (Conn.), 259. We must not close our eyes to the fact that, as the exceptions noted in the Hawes caso are disjunctive, the complaint must be sustained if it asserts a cause of action under either head; -or to the additional fact that, as the demurrers admit relevant allegations and relevant inferences deducible therefrom, the complaint must be interpreted in the light most favorable to the plaintiffs. It therefore becomes necessary to determine whether the plaintiffs have substantially charged that the acts of the city council were ultra vires or indicative of the pursuit or the intention to pursue an illegal course of conduct in the name of the city in violation of the rights of the plaintiffs and other taxpayers. The complaint, it will be seen, does not charge the defendants with corruption or moral turpitude; and, indeed, this is not essential to the action. Jones v. North Wilkesboro, 150 N. C., 647. Constructive fraud need not originate in any actual evil design. It is sufficient in a court of equity to allege acts, omissions, or concealments which involve a breach of legal or equitable duty, trust, or confidence and tend to the injury of another or to the bringing about of an undue and un-conscientious advantage. Story’s Eq. Jurisprudence (Red. Ed., secs. 187, 258.) It is provided in C. S., 2880 that no contract for construction work shall be awarded unless proposals therefor shall have been invited by advertisement once in at least one newspaper of general circulation in the city, the publication to be at least one week before the time specified for the opening of the proj>osals. Accepting the advertisement in question as a technical compliance with the statute we must consider the allegations concerning the subsequent .conduct of the city council. It is alleged that instead of acting upon the proposals when they were opened, the council, for the' purpose of devising a scheme for accepting the bid of the Murray Company and disregarding the bid of Lassiter & Co., postponed final disposition of the matter for nearly a week, meanwhile permitting the Murray Company to put in a new and secret bid, which was neither submitted nor opened in accordance with the law; and, moreover, that the city council secretly accepted • a bid which contravened the interest of the plaintiffs and other taxpayers and wrongfully and unlawfully awarded the contract to the Mui^ay Company. These admitted allegations are sufficient *277 prima facie to prevent a dismissal of tbe action, for they assert in effect a breach of trust, the failure to perform a public duty, a concealed purpose and a devised scheme to injure Lassiter & Co., to give undue advantage to the Murray Company and to wrong the plaintiffs. In any event, the council’s good faith is directly assailed. Edwards v. Berlin, 56 Pac. (Cal.), 432; Clark v. Comrs., 11 Neb., 484; Chicago v. Mohr, 216 Ill., 320; Lumber Co. v. Mayor, 99 So. (La.), 687; 2 Dillon on Municipal Corporations, sec. 811, p. 1224. In the next place, it is alleged and admitted by the demurrers that after the bids were opened and before the contract was awarded a committee of three was appointed to determine the award under an agreement that the members of the council would let the contract as the committee should recommend. In substance this is an allegation that the eouncilmen attempted to abdicate their trust by a delegation of their authority. That they were acting in a fiduciary capacity seems not to have been controverted. “The principle is a plain one,” says Dillon, “that the public powers or trusts devolved by law or charter upon the council or governing body, to be exercised by it when and in such manner as it shall judge best, cannot be delegated to others.” Sec. 244. This principle may not prevent the delegation of duties which áre ministerial; but here the trust committed to the city council involved the exercise of functions which partake of a judicial character and may not be delegated. 2 Dillon on Mun. Corp., sec. 811. Hence, we conclude that the complaint states a cause of action and that it was not necessary for the plaintiffs first to apply to the city or its council, or before bringing suit to make a formal demand, for the relief they now seek. While it is alleged the city is a municipal corporation the charter is not made a part of the complaint; and the “speaking” element of the demurrer is not to be considered. Sandlin v. Wilmington, 185 N. C., 257. The judgment must be reversed and both the demurrers overruled. Eeversed.