Eldred v. Ripley

Mr. Presiding Justice Windes delivered the opinion of the court. The judgment must be affirmed, because the declaration does not complain of Charles S. Ripley, but of one Josiah Stedman, who is not a party to the suit. The declaration - as amended commences as follows: “John E. Eldred, by Jerome Probst, his attorney, complains of Josiah Stedman of a plea of trespass on the case,” and then proceeds in regular form, setting out the allegations, the substance of which appears in the statement and is clearly subject to the cause of special demurrer assigned. We have, however, seen fit to consider the merits of the case as stated in the declaration, and are of opinion that the general demurrer was properly sustained. In one of the cases cited and relied upon by counsel for appellant, viz., Ritchie v. McMullen, 79 Fed. Rep. 522-33, the court say: “It is undoubtedly true, as the Circuit Court held, that a stockholder, merely as such, can not have an action in his own behalf against one who has injured the corporation, however much the wrongful acts may have depreciated the value of his shares. Smith v. Hurd, 12 Metc. (Mass.) 371; Allen v. Curtis, 26 Conn. 456; Wallace v. Bank, 89 Tenn. 630, 15 S. W. Rep. 448; Hersey v. Veazie, 24 Me. 1; Conway v. Halsey, 44 N. J. Law, 462; Porter v. Sabin, 149 U. S. 478, 13 Sup. Ct. Rep. 1008. But we are of opinion that this principle has no application where the wrongful acts are not only wrongs against the corporation, but are also violations by the wrong-doer of a duty arising from contract or otherwise, and owing directly by him to the stockholders.” It will be observed by an examination of this case, that a contract relation existed between the plaintiff and the defendants by reason of a pledge of stocks there in question, and the court bases its opinion largely upon the case of Smith v. Hurd, supra, in which the court held that its main reason for denying the right of action of a stockholder in such a case, was the want of privity between him and the directors. Each of the cases cited in the Federal opinion clearly sustains the general proposition that a stockholder can not have an action at law against a director of a corporation for wrongful acts which result in the depreciation of the value of his stock, and in the Massachusetts case referred to, the court gives the reason, among others, why the action should not lie, that a “judgment in favor of one stockholder would be no bar to an action by creditor, nor a judgment by both to an action by the corporation.” The court also further say: “ An injury done to the stock and capital by negligence or misfeasance, is not an injury to such separate interest, but to the whole body of the stockholders in common.” ■ In the Allen case, supra, the court, in a suit by a stockholder against the directors of a bank for their fraudulent acts by which his stock was rendered worthless, say: “ The entire duty of the directors growing out of their agency, is owed to the bank, which, under the charter, is the sole representative of the stockholders and the legal protector and defender of their property,” and held that until the directors refused to act, on request, the action could not be maintained, and after such refusal, then that equity was the forum, and that the corporation should be a party. In the Wallace case, supra, which was an equity suit against the officers and directors of a corporation for negligence and mismanagement of its affairs, whereby the stock was rendered worthless, the court say: “ The recovery must be for the benefit of the corporation, all its creditors and shareholders, innocent and guilty sharing proportionately in the benefits of the decree.” In the Porter case, supra, the Supreme Court of the United States held that such a right of action was in the corporation, and that it is only when the corporation will not bring the suit that it can be brought by one or more of the stockholders in behalf of all, and then only to enforce'the right of the corporation, which is a necessary part)*" to the suit. In the Conway case, supra, the Sew Jersey court, in an action by a stockholder against the president and directors of a national bank for mismanagement of its affairs, bv which the stock was rendered worthless, held that the action would not lie, relying upon the Smith case, supra, and say that since the decision of that case the court does not find that its doctrine has been anywhere doubted. To the same effect, in substance, are the following cases: Greaves v. Gouge, 69 N. Y. 154-7; Peabody v. Flint, 6 Allen, 52-6; Talbot v. Scripps, 31 Mich. 268; Jones v. Johnson, 10 Bush. (Ky.) 649-60. In the last case cited the court holds that the stockholder thus injured can sue only in equity, and say : “ It does not matter if the action be founded upon a tort; the shareholders not having a legal right to sue, must either come into equity or be without remedy.” In so far as the case of Gardner v. Pollard, 10 Bosw. 674-91, decided by the Superior Court of New York, relied upon by appellant, may be said to conflict with the foregoing authorities, it must be controlled by the Greaves case, supra, decided by the Court of Appeals of that State. The case of Hanley v. Balch, 94 Mich. 315, is relied upon by counsel for appellant, but an examination of the case shows that while the language of the court seems to support appellant’s contention, the case contains the element of contract the same as the Ritchie case in the Federal Court, and the court also recognizes the general rule that a stockholder’s suit must be brought in equity. The case of Cazeaux v. Mali, 25 Barb. 578, decided by the Supreme Court of Hew York, if it can be said to conflict with the rule above stated, must be controlled by the later case of Greaves, supra, decided by the Court of Appeals of that State.' The other cases cited and relied upon by appellant’s counsel are not, in our opinion, applicable. It is true that in the case of Doremus v. Hennessy, 176 Ill. 608-14, the court uses general language which would seem to justify an action at law .such as the one at bar, but this language must be considered with reference to the. case then under consideration by the court, which is totally different from the case here presented. The rule in this State is to bring such suits in equity, and it has been invariably held that the action must be brought by and in the name of the corporation, or if it refuses, on request, to bring the suit, then that the suit may be brought by a stockholder, and the corporation should be made a party. It does not seem to have been decided directly that an action at law would not lie. City of Chicago v. Cameron, 120 Ill. 447; Chicago, etc., Co. v. Yerkes, 141 Ill. 320; Hyde Pk. Gas Co. v. Kerber, 5 Ill. App. 132; Bruschke v. N. C., etc., Verein, 145 Ill. 433-45; Brown v. DeYoung, 167 Ill. 550; Farwell v. G. W. Tel. Co., 161 Ill. 522-604. We think the clear weight of authority is that the stockholder’s remedy for such an injury is in equity, and that this rule is in consonance with reason and does justice to all concerned. The second count of the declaration, besides being bad under the special demurrer as above stated, is also, in our opinion, fatally defective, in that it in substance seeks to recover damages of appellee for fraudulently and maliciously bringing a civil suit against appellant, in which the former recovered judgment, which has never been set aside. The general rule is that an action in such a case can not be maintained, and the allegations of the second count do not bring it within any exception to the rule, so far as we have been able to ascertain. Feazle v. Simpson, 1 Scam. 30; Reynolds v. De Geer, 13 Ill. App. 113, and cases cited. The judgment of the Circuit Court is affirmed.