Ponca Mill Co. v. Mikesell

Irvine, C. This is an appeal from an order appointing a receiver for a corporation at the instance of a stockholder. The order also establishes and forecloses a lien to the plaintiff upon certain of the corporate property. The defendants demurred^ to the petition and the demurrer having been overruled, they refused to plead further and the order complained of was then entered. The principal ground of demurrer was that the petition did not state facts sufficient to constitute a cause of action. The petition alleges that, the Ponca Mill Company is a corporation organized under the laws of this state for the purpose of conducting a milling business, with a capital stock of $40,000, divided into eighty shares; that the plaintiff owns twenty-six shares, the defendant S. K. Bittenbender forty-one shares, and the defendant John Stough two shares; that Stough is president and Bitten-bender secretary and treasurer. There are averments that Stough was unlawfully made president for the purpose of carrying out schemes to defraud others, but such averments are not specific and may be disregarded. It is then alleged that the officers named have for years failed to make a statement of the condition of the corporation and to publish notices of indebtedness and have refused to give information which would enable others so to do; that they have seized corporate property and converted it to their own use; that they have surreptitiously let contracts to themselves and appropriated to their own use profits realized therefrom ; that Bittenbender- has borrowed money for the corporation at eight per cent interest and charged the corporation ten per cent therefor; that Bittenbender and Stough made a pretended conveyance of certain corporate property of the value of $10,-000 to one Jordan for the sum of $2,110, under a secret trust in Bittenbender’s favor, that plaintiff was compelled to resort to the courts to have such conveyance set aside, that a decree ivas rendered canceling the conveyance on [100] plaintiff’s or tbe corpoi*ation’s paying to Jordan $1,138, tbe decree providing tliat if tbe corporation should fail to mate tbe payment plaintiff might do so and would then have a lien on the property for tbe advancement; tliat tbe corporation failed to mate- tbe payment and that plaintiff, to protect tbe corporate interests, was compelled to do so; that all tbe assets, books, and accounts of the corporation are in tbe possession of Bittenbender, who refuses to permit plaintiff to inspect the same; that certain buildings, including the mill of the corporation, were destroyed by fire and that tbe officers, have failed to repair and have allowed tbe property to become dilapidated, and that certain franchises owned by tbe corporation have become endangered by such neglect and mismanagement; that Stougli and Bittenbender have executed a mortgage to Bittenbender on tbe company’s property, ostensibly to secure $3,400, and that tbe company is not in fact indebted to Bittenbender, but that tbe mortgage was executed to defraud tbe stockholders; that the business of tbe company is managed and conducted by Stougb and Bittenbender, tbe president and the secretary and treasurer. We think this petition shows sufficient ground for tbe appointment of a receiver. Counsel in tbe brief discuss smatirn tbe different charges made in tbe petition and argue that no one charge is sufficient. Possibly this may be true, but tbe petition cannot be considered so disconnectedly. Each act of fraud or mismanagement on tbe part of the officers is not alleged as a cause of action in itself, but they are all alleged to show a continuous and systematic course of mismanagement and fraudulent acts by tbe managing officers tending to tbe injury of the corporation and tbe stockholders. It is also said that tbe petition does not show tliat any effort has been •made to obtain relief through tbe corporation itself. To maintain what is called a stockholder’s bill it is generally, but not always, necessary to aver a demand upon tbe officers to act and a refusal by them to do so. Tbe [101] exception may be said to extend to those case's where it is evident from the other averments of the bill that snch a demand is impossible or would be unavailing. Thus, where it was averred that all the officers had absconded, the usual showing was held unnecessary. (Wilcox v. Bickel, 11 Neb. 154.) Where -the corporation is under the control of the wrong-doers it is not necessary to request them to sue themselves. (Fitzgerald v. Fitzgerald & Mallory Construction Co., 41 Neb. 374; Heath v. Erie R. Co., 8 Blatch. [U. S. C. C.] 348.) In this case the averments were that those who would be .defendants in a case by the corporation to restrain the threatened wrongs and to recover for those consummated, were themselves owners of a majority of the stock and were in possession of the property and in control of the corporation. Such a remedy would clearly be unavailing. Among the enumerated cases wherein receivers are by the Code of Oivil Procedure authorized are all those where receivers have heretofore been appointed by the usages of courts of equity. (Code, see. 266.) Among such cases are those where the property of a corporation is being mismanaged and is in danger of being* lost through the collusion and fraud of the officers, especially where they are using it for their individual ends to the detriment of the stockholders. (Haywood v. Lincoln Lumber Co., 64 Wis. 639.) In all such eases the courts should proceed with caution and carefully avoid having* their process made use of for the purpose merely of directing corporate action adversely to the policy of the majority stockholders and that of the regularly chosen officers. That is to say, that stockholders must not be permitted to invoke the power of the court through the appointment of a receiver simply to enforce their own ideas of the conduct of affairs against the majority or the duly constituted officers. Matters of corporate policy must be determined by the corporation itself. On the other hand, when it clearly appears that the dispute is not of that character, but arises out of an attempt of the officers or the majority stockholders [102] to abuse their power by misappropriating the corporate property, by using the corporate means for their individual profit, or by so acting as to wilfully and wrongfully jeopardize the corporate business, then the courts should not hesitate to afford relief. No one is more helpless, unless aided by the arm of the law, than the holder of a small portion of the stock of a corporation, when the large stockholders combine to advance their private interests at the expense of the corporation. Here the demurrer admits, for the purpose of the proceeding, the grossest breaches of trust and dishonesty on the part of the officers, and that a single man, one of the wrongdoers, holds such a proportion of the stock that others are helpless and cannot obtain .relief through the usual channels. Another ground of demurrer was that two causes of action are improperly joined. This is because the plaintiff alleged the proceedings to set aside the conveyance to Jordan and the lien resulting to himself, and prayed a foreclosure. The Code of Civil Procedure provides (sec. 87) that the plaintiff may unite several causes of action relating to “the same transaction or transactions connected with the same subject of action.” The vagueness of that language has caused the profession much difficulty; but the facts out of which the lien arose embrace a part of the fraudulent conduct justifying interposition through a receivership; they resulted in giving plaintiff a special interest aside from that of a stockholder, and it would certainly seem that the language quoted is broad enough to cover such a state of facts. Moreover, only one cause of action is in form stated. If two were in fact included in the averments, the remedy was by motion to strike out surplusage or to require the two causes to be separately stated. A demurrer does not reach the commingling of two causes of action in a single count, if they be, under the Code, of such character that they may be joined. The remaining ground of demurrer was a defect of [103] parties. On tbis we understand the argument to be that there were other directors than Stough and Bittenbender and that they should have been joined. It is not disclosed that there were' other directors. On the other hand it is averred that Stough and Bittenbender had entire possession and control of the corporate property and affairs. We know of no rule requiring that in such cases the officers must be made defendants. The essential party is the corporation itself. (Elwood v. First Nat. Bank, 41 Kan. 479; 5 Thompson, Corporations sec. 6874.) Affirmed.