Majors v. Taussig

Mr. Justice Goddard delivered the opinion of the court. The sole question presented for our consideration is whether the facts set forth in the, petition for intervention are sufficient to entitle petitioners to intervene in the pending action for the purpose of interposing a defense, in behalf of the company, to the notes sued on. In determining this question the averments of the petition, so far as the same are well pleaded and undeuied, must be taken as true. Henry v. Travelers' Ins. Co., 16 Colo., 179. [47] The conditions essential to enable a stockholder to institute or defend an action, when the corporate entity upon which that duty devolves refuses to act, are well settled in this country by the leading case of Hawes v. Oakland, 104 U. S. 450, and in this state in the case of Miller v. Murray, 17 Colo. 408. These conditions, as concisely stated in Hawes v. Oakland are, first, some action or threatened action of the managing board of directors of- the corporation which is beyond the authority conferred by their charter or other source of organization ; or, second, such a fraudulent transaction, completed or contemplated by the acting managers, either among themselves or with some other shareholders, as will result in serious injury to the corporation or tire other shareholders; or, third, that the directors, or a majority of them, are acting for their own interests, in a manner destructive of the corporation itself or of the rights of the other shareholders; or, fourth, that the majority of shareholders are oppressively and illegally pursuing a course, in the name of the corporation, in violation of the rights of the other shareholders, which can only be restrained by the aid of a court of equity; fifth, a stockholder must make an earnest effort with the managing body of the corporation to induce remedial action on their part, and he must show a case; .if this is not done, why it could not be done, or it was not reasonably required. From this application it appears that a fraudulent transaction was not only threatened, but about to be consummated, that would result in serious injury to the corporation and also to the interests of the other shareholders. That the managing agents of the corporation, in collusion with the plaintiff in that action, had created a fictitious indebtedness against the company, aggregating upwards of $4,000; and in an action thereon, instituted at their instigation, a judgment was about to be taken by confession that would wipe out the entire assets of the company. Upon this conceded state of facts it would seem eminently just to allow stockholders to interpose to protect their rights when it reasonably appears that any effort on their part to [48] induce action on the part of the managing body would prove unavailing. It is insisted that the petition is fatally defective in failing to state the number of directors of the printing company, and thus, by direct averrnent showing that there was nota majority of the board outside of those charged with active participation in the fraudulent conduct complained of, who might be induced to take corporate action to .prevent the consummation of the fraud, and protect the rights of the stockholders. While it is true that it is not expressly alleged that the parties charged with the unlawful conduct complained ■ of constitute a majority of the board of directors, yet we think the averments in this respect, while general, are fairly susceptible of the construction that they did constitute the entire board of directors. The designation of the officers of the company is as follows: “That B. F. Zalinger is president of the board of directors thereof, that John G-. Canfield is secretary, and Eugene M. Taussig is treasurer thereof; that B. F. Zalinger, Lucy M. Zalinger and one Eugene M. Taussig, were * * * directors thereof.” If it may be plausibly contended, under a strict rule of construction, that the averment that the parties named “ were directors ” falls short of averring that they constituted the entire board of directors, yet such a contention ought not to prevail if the phrase may, by reasonable intendment, be held as expressing that meaning, and is sufficient to admit proof of the fact. At least we think this allegation should be held sufficient in this regard unless directly attacked in the court below and an opportunity given to amend. As was said in Henry v. Travelers’ Ins. Co., supra: “Mere uncertainty or ambiguity in the averments of the petition should not be held sufficient to defeat the right of intervention without giving the usual opportunity to amend.” Intervention proceedings, like other proceedings under the code, are to be liberally construed with the view to assist parties in obtaining justice. Code, sec. 443. [49] The answer of the plaintiff below, while it denies knowledge on her part of the alleged fraudulent acts, etc., does not question the sufficiency pf .the petition on this ground-; and, so far as the record discloses, this objection is raised for the •first time in argument in.this court, and no opportunity was presented to amend the petition in this respect in the court below. For this reason the defect, if it be one, should be ■ deemed to have been waived and the averment should now be held sufficient to admit proof that the parties charged with wrongdoing constituted the board of directors, and therefore, ■ that an application for redress through the board of directors would have been unavailing. And it being alleged that they ■ were the holders and owners of a majority of the stock, an .attempt to obtain redress through an action of the stockholders, even had time permitted, would have been equally .unavailing. ■ The only other objection urged against the sufficiency of .the petition is that it fails to state that the petitioners were .stockholders at the time the fraudulent notes were executed. A sufficient answer to this is found in the fact that the fraud .complained of is not yet consummated, and the attempted enforcement of the notes constitutes the injury to their rights and presents the first opportunity for the complaining stockholders to be heard. We think that the petition presents a case in which the complaining stockholders should have been allowed to intervene and defend the action in the name of the company, and the refusal to permit them so to do would result in a failure of justice. The court below erred in denying this right. The judgment is therefore, reversed, and cause remanded. Reversed.