Niven v. Peoples

Bruce, J. (after stating the ease as above). In the complaint there seem to be set forth four or five separate causes of action. One is against the defendant H. Peoples, to compel a return to the plaintiffs or an accounting for the value of the stock alleged to have been given to him, on account of his alleged fraudulent representations. Another is against the defendants Peoples and Severtson, to account for their official conduct in the mismanagement of the funds of the Bank of New Bockford, and is brought by the plaintiffs as stockholders. Still another is against the Tallman Investment Company, asking it to account to the plaintiffs for the transfer of the stock of the Bank of New [206] Rockford, and for all other doings in connection therewith; and yet a fourth is against the defendants Peoples and Severtson, to compel them to pay to the Bank of New Rockford any money and the value of any property which they have acquired to themselves or transferred to others, or lost or wasted by reason of the violation of their duties. The plaintiffs sue both in the capacity of persons who have been defrauded of stock formerly belonging to them, and in the capacity of stockholders of a. coi’poration who have been injured by the mismanagement of that corporation. The latter cause of action is based upon § 7366 of the Revised Codes of 1905, which, in effect, provides that an action may be maintained against one or more trustees, directors, managers, or other officers of a corporation to procure a judgment, (1) compelling the defendants to account for their official conduct; (2) compelling them to pay to the corporation or to its creditors any xnoney and the value of any px*operty which they have acquired to themselves or transferred to others, or lost, or wasted by violation of their duties, or to transfer any such property held by thexn to the corporation; (3) setting aside an alienation of property xnade by one or more trustees, director's, managers, or other officers of a corporatioxx, contrary to a provisioxx of law, or for a pxxrpose fox’eign to the lawful business and objects of the corpox’ation, when the alienee knew or had notice of the purpose of the alienation. It will be noticed, however, that § 7367 provides that this action can only be brought by a stockholder upon the neglect or refusal of a trustee, director,, manager, or other officer of the corporation so to do at the request of such stockholder. It is also to be noticed that the action to set aside an alienation of property must be based upon proof that the alienee knew, or had notice, of the purpose of the alienation. It is perfectly plain to us that even if there are not any other defects in the complaint, the cause of action for the return to plaintiffs of their stock or for the value thereof cannot be joined with a cause of action brought under § 7366 of the Code by a stockholder against a director or an officer, not as a mere individxxal who has obtained the property of the individual plaintiff, unlawfully, but as an officer who has misappropriated the property of the corporation, and who has mismanaged its business. The one can, as a xnatter of course, and of right, be bx’ought by the individual stockholder in his own name. The other [207] cannot be brought in his own name without a showing that a preliminary demand has been made upon the proper officers of the corporation to bring the suit, and there has been a refusal on their part, or, at any rate, that such demand would have been futile. When he sues he sues for the corporation. We do not agree with the counsel for the respondent that legal and equitable actions are improperly joined, because we believe that all of the causes of action set forth in this complaint are equitable in their nature. We believe, however, that they are improperly joined, because they do not arise out of the same transaction or transactions, connected with the same subject of action (§ 6877, Bev. Codes 1905) ; and because they do not necessarily involve the same parties. The complaint is also open to the criticism that the causes of action are not separately stated as required by the' Code. In the action for an accounting against Peoples and Severtson, and a return to the bank of any property they may have wrongfully taken from it during their administrations, the proper party plaintiff is primarily the bank itself. Even under § 7366 no action can be maintained by an individual stockholder without allegation and proof of a demand on the bank to bring such an action, and of a refusal on its part so to do, or that such demand would have been unavailing. There is not such allegation in the complaint in the case at bar. It is true that- it is alleged that Peoples and Severtson were officers and directors of the bank, but there is no allegation as to the number of directors, or that Severtson and Peoples constituted a majority. In a directors’ meeting, men vote as individuals, and not on the basis of the stock that they own. The bank, as far as we know, might have maintained the action even without' the consent of Peoples and Severtson. It is also clear to us that no c'ause of action is stated against the; defendant Tubbs. All that is stated in regard to him is that he lives in Minneapolis and is a director. He is not a proper party plaintiff, even under §§ 7366, 6816, and 6818 of the Codes. Even if a. proper party, he should have been given an opportunity to join as plaintiff before being made a defendant, unless, indeed, some complaint is made of his actions, of which there is nothing in the pleadings. The fundamental question is, Are the plaintiffs entitled to a return of their stock ? If this is decided in the affirmative, they can, perhaps, proceed under [208] § 7366 of tbe Codes. If it is decided in the negative, they cannot so proceed, for they would not be stockholders. The issues should be separated. Whether they can ultimately proceed under § 7366 of the Codes cannot well be decided here, and must be left for future adjudication. As far as the present appeal is concerned, it is sufficient to say that the mismanagement of the affairs of the corporation is not the same transaction, nor does it grow out of the same subject of action as the alleged fraudulent obtaining and conversion of the stock of the plaintiffs by the defendant Peoples. The orders appealed from are reversed, and the cause is remanded to the District Court for further proceedings according to law.