Noble v. Gadsden Land & Improvement Co.

TYSON, J. The bill in this cause after amendment is the complaint of three stockholders owning in the aggregate twenty-eight hundred shares of the capital stock of the respondent corporation, and prays to have the corporation dissolved and its assets, which consist of six hundred acres of land, sold and its proceeds distributed among' the stockholders, for general relief, etc. The corporation is a private trading one and has a capital of two millions, five hundred thousand dollars ($2,500,000) divided into twenty-five thousand (25,000) shares of the par value of one hundred dollars ($100) each. The purpose of its organization was the building of a town upon tire tract of land owned by it. 'To this end, this land was to be divided into lots, to be sold to those who could be induced to purchase them, and the company was to procure, if possible, the location of industrial enterprises on its lands and thus enhance its value and make salable its lots. In short, it is what is known as a “boom concern.” It was organized when the country was rife with speculation; and now that conservatism in financial matters has returned, after a severe experience during the years of financial depression, the company is left with this tract of land, and nothing more, worth probably fifteen or twenty thousand dollars. Fortunately, it has no creditors, and, therefore, no one interested in its affairs, except its stockholders, who are shown to have abandoned the enterprise, leaving it to be managed by its board of directors as best they can. For five years, its president and secretary have made diligent efforts to have the stockholders meet. Many of them are non-residents of this State, and those who are residents-, decline to attend the meetings when called, after being notified and urged to do so. There are three hundred and fortyfivé of them, and the whereabouts of one-third of the — 254 — number is unknown and unascertainable, and the remaining two-thirds have lost all concern or interest in the affairs of the company. The fixed charges which the corporation is bound to meet annually, in the way of taxes, licenses, etc., is between six and seven hundred dollars. Its income annually is only about fifty dollars. So that, each year a portion of its tract of land is sold by the State, county and city of Gadsden to pay these charges. It is 'wholly without credit and its assets are being sacrificed, the corporation, on account of the abandonment of it by the holders of the majority of its stock, being powerless ¡to prevent it. It is upon substantially the foregoing sítate of facts, which is shown both by the averments of the bill and the testimony, that the complainants seek relief. On final hearing the chancellor dismissed the bill for want of equity, holding that, in the absence of a statute, the chancery court is without jurisdiction to dissolve the corporation and to distribute its assets at the suit of a minority stockholder. Where the corporation is a going concern, it is undoubtedly true that a minority stockholder cannot maintain a bill ito have it dissolved or to have its assets distributed. In such case, the shareholders who disapprove of the company’s management or consider their speculation a bad one, the'ir remedy is to elect new officers or to sell their shares and withdraw. “They cannot insist on having the company’s business closed and the assets distributed, against the will of a single shareholder, who wishes to have the business continued.” — 1 Morawetz on Oorp. § 283. But where the corporation has been abandoned by its stockholders, as here, and is, therefore, powerless to protect its assets and to discharge its duty to the stockholders as their trustee, minority stockholders who are cestuis que trust, •if the chancery court has no jurisdiction to rescue the trust fund from the perils endangering its destruction, would be remediless. No efforts of theirs to have their trustee sell the lands and distribute its proceeds could avail them, for the obvious reason, that it. would require the consent of the holders of a majority of the stock to thus strip the corporation of its assets, which — 255 — is shown in this case cannot be obtained, not because of theiir unwillingness to give it, but on account of their lack of interest in the company. Clearly its directors cannot do so, the corporation not being insolvent. They are merely the managing agents of the business of the corporation, to promote the ends designed by its charter and do not possess such power or .authority. — Elyton Land Co. v. Dowdell, 113 Ala. 186; 3 Thompson on Corporations, § 3983; 1 Mlorarwetz on Corp. § 513; 2 Cook on Corp. (4th ed.), § 670. 'These complainants desiring, as they do, to have this trust fund protected and administered so as they may get their part of it, have in our opinion, under the facts of this case, the right to maintain this bill to have the lands sold and its proceeds distributed amlong the stockholders. On former appeal (McKleroy v. Gadsden Land & Improvement Co., 126 Ala. 193), we said: “It is held in Planters Line v. Waganer, 71 Ala. 581, that a private corporation, entered into solely for benefit of the shareholders, and 'involving no public duty, may be dissolved by the stockholders; and on the same principle, when the purpose >of such an association is a failure, we quite agree with Mr. Thompson that there should be in the chancery court an inherent power to administer the property so as to restore to the cestuis qite trust (the stockholders) their ultimate interest. — 4 Thomp. on Corp. [§§ 4443, 4538,] § 4545; Fougeray v. Cord, 50 N. J. Eq. 185; Price v. Holcomb (Iowa), 56 N. W. Rep. 407.” In 1 Moirawetz on Corp., section 284, it is said: “Whenever, in the course of events, it proves impossible to attain the real objects for which a corporation was formed, or when the failure of the company has become inevitablé, it.is the duty of the company’s agents to put an end to its operations and to wind up its affairs. Under these circumstances, the majority would have no right ito continue to use the common property and credit for any purpose, because it would be impossible to use them for any purpose authorized by the charter. If the majority should attempt to continue the company’s operations in violation of the charter, or should refuse to make a distribution of the assets, any shareholder feeling aggrieved would be en — 256 — titled to the assistance of the courts and a decree should be made ordering the directors to wind up the company’s business and distribute the assets among those who are equitably entitled.” See also section 412 of same book. 0 In 2 Beach on Oorp., section .783, the author says: “Unless it appears beyond question, that the continuation of a profitable business cannot be had, the dissolution of a corporation not yet insolvent will not be decreed upon petition of a minority of its shareholders. If, however, it is clear that the business cannot be profitably continued, the petition of a minority for a dissolution will be granted.” Spelling, in his work on Corporations, states the rule in substance to be, that the court would, in case the scheme was impossible, not allow the funds to be diverted to other purposes, but would enjoin such diversion at the suit of a stockholder and as incidental give full relief by decreeing a settlement of the corporate liability and a distribution of the remainder among the stockholders. In Price v. Holcomb, supra, the Supreme Court of Iowa, notwithstanding the provisions of a statute that “No corporation can be dissolved prior to the period fixed in the articles of incorporation, except by unanimous consent, unless a different rule has been adopted in'their articles,” held that “if a sale of the property was necessary the right to make it would not be defeated even if it had the effect of dissolving the corporation.” The case of O’Connor v. Knoxville Hotel Association (Tenn.), 28 S. W. Rep. 309, in its facts, is very similar to the one in hand. The bill was filed by a single stockholder against the corporation and other stockholders in which the facts alleged showed an abandonment of the enterprise and the original scheme to be impossible of consummation, and prayed for a distribution of the assets of the company. It was insisted there, as here, that the bill was without equity. The court after reviewing the authorities held the bill had equity and that the complainant was entitled to relief on common law grounds. — 257 — Other authorities might be quoted to sustain the right of the, complainants to the exercise of the jurisdiction of the -court to have the assets -of the respondent 'corporation -distributed. See also Arents v. Blackwell’s Durham Tobacco Co., 101 Fed. Rep. 345; Cramer v. Bird, L. R. 6 Eq. 143; Baring v. Dix, 1 Cox, 213; 1 Perry on Trusts (5th ed.), § 242, -and note a. While the authorities are not in accord -as to the right of the -courts, in a proper case, to dissolve the corporation, they are practically unanimous, so far as ou;r research has extended, in sustaining' the right of the complainants, under the facts -of this case, to have the. assets of the corporation distributed, which may be done under the -orders and directions of the court through the agents of the corporation. And while the writer is inclined ¡to- the view that the court has the jurisdiction to -dissolve the corporation, yet it is not necessary to go to that extent, as the rights of the complainants can be fully -subserved by the ’court’s administration of the trust estate through the agents of the corporation. The -other question, though not passed upon by the chancellor, but raised by demurrer, is that all the stockholders are not made parties to the bill. Of the total shares — twenty-five thousand (25,000) — of the capital stock, nine thousand eight hundred and ninety-nine (9,899) are owned and held by the parties to this cause. Of this latter number, seven thousand and ninety-nine (7,099) shares are -held and owned by (the thirteen (13) respondents to the bill. As stated above, one-third of the -stock is held by persons whose residences cannot be ascertained and who reside in all parts of this country. The respondents are, it is averred, the principal and largest -stockholders and fully and fairly represent the -adverse interest of -all the stockholders in the corporation; that all the -stockholders belong to the same -class, and their respective interests are analogous. It is also averred that it would be impossible to ever bring the cause to a final hearing, if complainants are required to make all the stockholders parties; and such a requirement would result in inconvenience, oppressive delays and a consumption of — 258 — a large part- of the assets of the company in court costs. It is clear to us that these averments bring the case under the operation of the provision of Rule 19 of Chancery Practice. — Oode, p. 1205. In Morton v. N. O. & Selma R’y. Co., 79 Ala. 610, speaking to this point, the court said: “The rule is, that when the parties to a cause are numerous, or some of them are unknown or beyond the jurisdiction of the court, so as not to be subject to its process, but they all belong to a class whose rights are analogous to those of parties actually before the court, because dependent on itlie same principles of law, the court will often proceed to adjudge the rights of the class as such, and, in the absence of all collusion, the decree will be considered binding upon the whole class who are in a like situation. * * * This rule is fully recognized by Rule No. 20 [now No. 19] of our Chancery Practice, which malíes it discretionary with the chancellor, in such case, to dispense with bringing before him all the interested parties, and provides that the court may proceed in the cause without making such persons parties, provided it has sufficient parties before it to represent all the adverse interests of the plaintiff and the defendant in the suit. Nor is it repugnant to the concluding provision found in the same rule, declaring that The decree shall be without prejudice to the rights and claims of the absent panties.’ * * * This, as we shall proceed to show, is the right to come in under the decree, and not antagonistic to what is properly settled by it.” See also Sanche v. Webb, 97 Ala. 111; Campbell v. Railroad Co., 1 Wood, 368. The decree dismissing the bill for want of equity will be reversed and the cause remanded, with directions to the lower court to enter a decree ordering a sale of the land for distribution, and for such other orders or decrees as may be necessary to an equitable and orderly administration of the trust estate. Reversed and remanded.