Hurst v. Coe

Geben, Judge : A suggestion has been made by the appellees’counsel, that inasmuch as by the charter of the Shannondale Springs Company (Acts of Ya. of 1837-8, ch. 248, sec. 3,) it is_ provided, “ that for the purpose of managing the affairs of the said company there shall be chosen on the first Monday in August annually five directors, wbo shall be stockholders of said company and shall remain in office till the first Monday in August next- ensuing, or until their successors are appointed, and that they may choose a president and do all acts and things touching the affairs of the company not otherwise provided for; ” and that inasmuch as the capital-stock of the company was by the second section of its charter fixed at not less than $39,000.00 nor more than $100,-000.00, divided into shares of $100.00 each, it was evidently necessary and proper, that a court of equity should, as it did, take jurisdiction of the case and dispose of the property, which had belonged to the Shannondale Springs Company, ■as there was, when this suit was instituted, no legal organization of this corporation. To these suggestions it may be replied: First, that the first section of the charter of said company provided, “ that whenever the capital-stock of said company shall be concentrated by purchase or otherwise into the hands of less than five members of said company, all the corporate privileges hereby granted shall cease and determine.” The record discloses, that under this provision there has been no dissolution of such corporation, as there are now and always have been not less than five members of said company, so that it does not appear, that the stock of this company has ever been concentrated into a less number of hands, than this first section permitted. But it is argued that though there be five members of this company, one of them is an infant, and another, Sallie T. Coe, is a married woman, neither of whom, it is claimed, could be a director of the company, and the second section requires that there shall be five directors of the company to manage its affairs, and therefore, as each director is required to be a stockholder, it follows, that there can not be any longer a legal organization of the company or any legal — 164 — management of its business, and nothing can remain but for the court to declare it dissolved and sell and properly dispose of all its property.' The answer to this- suggestion is, that there is nothing in the record showing, that this corporation was dissolved, when this suit was brought. Thus in the case of Russel v. McClean, 14 Pick. 63, it was decided and properly decided, “ that a purchase by only two individuals pursuant to an agreement between them of all the shares of a manufacturing company does not dissolve the corporation, nor do these two individuals thereby become joint-tenants or tenants in common in consequence of such purchase.” The reasoning, on which this conclusion is based, is this: “ They did not by this arrangement acquire a legal title to the corporate property. They had indeed joint and equal control over it; but their acts and doings must appear through the proceedings of the corporation in due forms of law. The legal title in the corporation remains, notwithstanding the individual members change. The stock, if every individual member should, decease at the same moment, would be distributed according to the statute of distributions or according to the wills of individuals deceased. The legal representatives of the deceased members would have authority by law to manage the corporation; and no dissolution would in such case take place. It is said that the parties held for two years without doing any corporate act. If it were’ so, we cannot perceive, that they would become partners instead of corporators. If the shares of the corporation should all center in one person, and the forms of proceeding or by-laws should prescribe acts to be done by two or more, we do not perceive any difficulty in the sole owner making sale of shares so as to conform to the letter of the rule. There is, we think, no evidence of a dissolution.” So we think, when the suit before us was brought, there was no evidence of the dissolution of the corporation. The plaintiffs who owned one hundred and twenty shares each could at any time have distributed other shares or sold any number of them to half a dozen persons, who would have thus become stockholders; and out of them, there could have been elected the five directors and president, by yrhom the business of the corporation was to be conducted, — 165 — Though it may be entirely proper under the facts, which have been or may be proved in this case, for the court to order a dissolution of the corporation and a sale and distribm tion of its property, yet these results would not necessarily follow, because there were but five members of the corporation, and one of them was an infant, and another was a married woman, and several years had elapsed since there had been any meeting of the stockholders or directors. Ohap. 248 of the Acts of Ya. of 1837-8, sec. 2, on its face shows, that the Shannondale Springs Company had at one time a legal existence, the minimum shares of stock of $100.00 each being 390 shares originally owned in certain specified portions by ten several stockholders named. There is nothing in any part of this record to show, how the number of shares of this corporation owned by the stockholders diminished from 390 shares, which the a.ct of incorporation on its face shows was originally held, to 300 shares. There is no sort of indication in the record, as to how said diminution could have legally taken place; nor can the court on the present record assume, that such diminution has taken place, though it may possibly be true. But no mode, by which such elimination in the number of shares did legally arise, has been either shown or suggested. It is true, that the bill states generally, “ that there are 300 shares of stock in said corporation, that your orator, J. Garland Hurst, owns 120 shares, your orator, Eugene Baker, owns 120 shares, Mrs. Sallie Coe 30 shares, and Eliza S. Gallaher 30 shares ; ” and the answers of Sallie T. Coe and William H. Travers, adult defendants, admit this statement to be correct, except they state, that instead of 30 shares Sallie T. Coe owns only 29 shares, and that W. H. Travers owns one share, which was formerly owned by Sallie T. Coe. But the answer of the infant stockholder, Eliza S. Gallaher, does not admit the statement of the bill to be correct and calls for proof of the same. She is one of the appellants; and there was no proof of this statement of the bill in any of the depositions, nor do they show either the number of the shares of stock owned or by whom owned. Our conclusion therefore is, that, if the plaintiffs were entitled to a decree in this cause dissolving this company, — 166 — selling its property and distributing the proceeds among the shareholders, as they asked in their bill, it is not as a matter of course, as they claim, but only by virtue of sec. 57 of chap. 53 of the Code, which is as follows : “ if not less than one third in interest of the stockholders of a corporation desire- to wind up its affair, they may apply by bill in chancery to the Circuit. Court of the county, in which the principal office or place of business is situated, or, if there be no such office or place of business in this State, to the Circuit Court of the county, in which the other stockholders or any one or more of them reside or are found, or in which the property of such corporation or any part of it may be, setting forth in the bill the grounds of their application ; and the court may thereupon proceed according to the principles and usages of equity to hear the matter, and, if sufficient cause therefor be shown, to decree a dissolution of the corporation and make such orders and decrees and award such injunctions in the cause, as justice and equity may require.” It is0 suggested by the counsel for the appellees, that in this case the Circuit Court could possibly have no jurisdiction, because the bill on its face showed, that the plaintiffs were the owners of more than a majority of the stock, and therefore by the provision of section 56 of chap. 53 of the Code they might at their option in a general meeting of the stockholders have resolved to discontinue the business of the corporation and divide the property and assets of the corporation among the stockholders according to their several rights after first pi-oviding for the payment of the debts of the corporation. While the plaintiffs were at liberty to pursue this mode of dissolving the corporation, they were not bound to do so, if they thought, that their interests would be rather promoted by making under the next section an application to a court of chancery for a decree dissolving the corporation; for such an application they clearly had a right to make, “as they were more than one third in interest of the stockholders.” But they had not under the 57th section of chapter 53 of the Code an absolute right to demand a dissolution of the corporation, as they might have done, had they pro* — 167 — ceeded under the 56th section of the same chapter by calling a general meeting of the stockholders ; for the power of the court of chancery, if proceedings are instituted under , the 57th section of the same chapter, is “to make such orders and decrees, as justice may require, or to decree, if suMoient cause he shown therefor, a dissolution of the corporation.” It is claimed by the counsel for the appellants, that no depositions can be read in any such case except by leave of the court, when any stockholder is an infant or insane person and defended by a guardian ad litem, as was the case here with Eliza S. Gallaher, unless the depositions be taken in the presence of the guardian ad litem or on interrogatories agreed upon by him, neither of which, so far as the record shows, was done in the case. This, it is claimed, is expressly provided in section 4 of chapter 83 of the Oode. It seems to me, that such a law has no application to such a cause as the one before us, the object of the bill being upon the application of one third in interest of the stockholders for sufficient cause to decree the dissolution of the corporation and sale and distribution of its property under section 57 of chapter 53 of the Code, even though one' of the stockholders be an infant and represented in the cause by a guardian ad litem. If this law had any application to such a case, then other sections of chapter 83 of the Code would apply. As for instance the bill would have to be verified by affidavit according to the second section, and all the other real estate owned by the infant would have to be set out in the bill, and other provisions in said chapter concerning the sale of property of persons under disability would have to be observed. But to my mind it is obvious, that these and other provisions found in chapter 83 of the Oode were intended to be confined to causes, where the object of the bill was in reference to the leasing or sale of the lands of persons under disability or lands held for cestuis que trust, as the heading of the chapter shows, and that the mere fact, that an infant was a stockholder in a corporation, would not bring within the operation of these provisions of this chapter a bill brought to dissolve such corporation and sell its property, though property, in which an infant had some interest, might as an incident in such a suit be sold as the property — 168 — of the corporation by an order of the court. Depositions taken in such a case could be considered in the appellate court, where they had been taken, and could be read in the court below, when such-depositions could be considered in the appellate court, had they been taken in any other cause, where one of the appellants was an infant. The difficulty of considering the cause on its merits is with me based on entirely different grounds. Section 57 of chapter 53 of the Code, under which this cause was instituted, as we have seen, says : “The court shall proceed according to the principles and usages of equity to hear the matter and, if sufficient cause therefor be shown, to decree a dissolution of the corporation and make such other orders and decrees as justice and equity may require.” The main object of such suits is to have the property, in this suit principally real estate, of the corporation sold and the proceeds distributed among those entitled thereto. Is it not obvious, that, where real estate is thus to be sold, the party holding the legal title to such real estate, in this case the corporation sought to be dissolved, must necessarily be made one of the defendants, and that there can properly be no decree dissolving such corporation or selling the real estate, of which it holds the legal title, till it is before the court as one of the defendants? The mere fact, that the corporation is the holder of the legal title of the land sought to be sold and conveyed, on general principles makes it a necessary party to such a suit. If it were not a party, how could the purchaser of the land be invested by the court with the legal title ? And surely the court should not sell the land, when it has not power to invest the purchaser with the legal title, especially when there is no difficulty in obtaining such power. Then too, if one of the main objects of a chancery-bill is to obtain a decree declaring a corporation dissolved, it would seem clear, that the corporation is a necessary party to the suit. It was so decided in Michel v. Rochester, 11 Paige 118, (42 Am. Dec. 103.) The court in that case on this subject says: “The objections raised by the demurrers, that the corporation is a necessary party to a bill under the 38th section to declare the surrender of its corporate rights and privileges and obtain a decree of dissolution and to distribute its cor — 169 — porate property and effects among its stockholders seems to be well taken. ****** When the object of the bill is to devest the corporation itself of any of its property or of any of its corporate rights or privileges upon the ground that it has forfeited its charter or surrendered its franchises, the other defendants in the suit have a right to insist, that the corporation itself should be made a party to the suit that the decree may be binding on such a corporation and that other defendants may not be subject to further litigation with the corporation itself with relation to such matters.” This reasoning seems to me to be entirely sound and applicable to the cause before us. The Circuit Court ought therefore to have sustained the general demurrer to the plaintiffs’ bill interposed by William H. Travers and Sallie T. Coe and ought to' have given the plaintiffs leave to amend their bill in a reasonble time and make the Shannondale Springs Company, in the county of Jefferson a defendant instead of overruling the demurrer, as it did by the decree of June 2,1886. But the counsel for the appellees insist, that, even if it be admitted that the Shannondale Spring Company in the county of Jefferson was a necessary party defendant,.the failure to so make it, when its absence produces no prejudice to parties before the court, constitutes no fatal objection at the hearing; and Story’s Equity Pleading, sec. 74, and Whiting v. Bank, 13 Pet. 6, are relied upon as sustaining the position. In the first place I can not regard said company as a mere formal party. If it were, and the bill had not been demurred to, this Court might be indisposed, or the court below might on the hearing be indisposed, to listen .to the objection arising from its not having been made a party. Wormley v. Wormley, 8 Wheat. 451. But in the case before us the bill was not only demurred to, but the company was so obviously a necessary party, that the court below ought not to have heard the cause in its absence. In Whiting v. Bank, 13 Pet. 6, all, that was decided on the question under consideration, was, that, Breckenridge being a proper party defendant, it was irregular and erroneous to entertain and pronounce the decree for the foreclosure and sale without his having been made a party defendant. But — 170 — such a decree was made and confirmed without objection. Then a bill of review was brought by certain parties, and the court held, to use its own language on page 8 : “ As to the supposed error in not making Breckenridge a party to the original bill assuming that he was a proper party to the bill, still it is to be considered, that it was an objection, that ought properly to have been taken by the present parties at the hearing or upon the appeal (if any) before the appellate court. And upon a bill of review it can not properly be relied upon as a matter of error, unless it can be shown, that the non-joinder has operated an injury or mischief to rights of the present plaintiffs. No such mischief has been shown or is pretended. Breckenridge is not bound in the original decree, because he was no party thereto, and therefore his interests can not be prejudiced thereby. But, if they were, he and he alone has a right to complain and to seek redress from the conrt, and not the plaintiffs, who are not his representatives or interested in the vindication of his rights. Breckenridge has made no complaint and sought no redress. We think therefore, this error, if any there be, not being to the prejudice of the plaintiffs can not furnish any grounds for them to maintain the present bill; for no party to a decree can on the general principles of a court of equity claim a reversal of such decree upon a. bill of review, unless he has been aggrieved by. it, whatever may have been his right to insist on the error at the original hearing or on appeal.”- The case before us is no bill of review; and the proper inference to be drawn from Whiting v. Bank is, that in such a case as the one before us the appellants had a right to insist on the error, we have pointed out, at the hearing of the case or'on this appeal. They have in no manner waived this right; for they demurred to the bill in the court below, and it was, as we have seen, fatally defective, because the Shan-nondale Springs Company was not a party defendant, and the question raised by the bill and decree asked and obtained from the court were such, as could neither be considered nor acted upon by the court in the absence of said company, which was a necessary and proper defendant. For these reasons the Circuit Court of Jefferson county — 171 — erred in the decree rendered on June 2,1886, in overruling the demurrer of the defendant, William H. Travers, to the bill, and in the decree rendered on February 17, 1887, in deciding, that on the pleadings and depositions then in the cause the complainants were entitled to the relief asked in their bill, and in rendering the decree which it did. These decrees must therefore be set aside, reversed and annulled; and the appellants must recover of the appellees, J. Garland Hurst and Eugene Baker, their costs in this Court expended; and this Court proceeding to render such a decree, as the court below should have rendered, must sustain the demurrers of William H. Travers and Sallie T. Coe to the bill and amended bill in this cause, because the Shannondale Springs Company in the county of Jefferson was not made a party defendant to this bill and amended bill; and this cause must be remanded to the Circuit. Court of Jefferson county with instructions to give to the plaintiffs in such cause leave to amend their bill in a reasonable time, to be fixed by the court, and make the Shannondale Springs Company in the county of Jefferson defendant, and further to proceed with this cause upon the principles laid down in this opinion, and further according to the principles governing courts of equity. Eeveesed. Remanded.