Shawhan v. Zinn

JUDGE PRYOR delivered the opinion of the court. An action was pending in the Kenton chancery court between the Covington and Lexington Railroad Company ■as plaintiffs and Bowler’s heirs and others, defendants, involving the right of Bowler’s heirs to hold the road as purchasers ■at a decretal sale, subjecting the road to the payment of a ■large sum of money secured by mortgage, and sold at the instance of the mortgagees under a petition in equity filed in the Fayette circuit court. The right of the parties was finally determined on an appeal to this court, in an opinion holding that the purchase inured to the benefit of the Cov■ington and Lexington Railroad Company, and a mandate ■issued directing certain proceedings to be had in the court ¡below. After this opinion was delivered, on a petition for . a rehearing filed, in which it appeared that the heirs of Bowder were not all before the Gourt, the mandate or opinion [303] ■was modified, and the heirs of Bowler are permitted to make «defense, and if no proper defense was interposed, the judgment directed to be entered as required by the original ■opinion. The parties who purchased under the sale of the 'Fayette court had organized a new corporation known as the ¡Kentucky Central Railroad Company. After the return of the cause from this court, the president, directors, and company of the Covington and Lexington Railroad Company (the old corporation) entered into a ■compromise with the new corporation, or the purchasers -of the road, by which, the action for its recovery by the old ■corporation was dismissed and the stock transferred by the ■agreement to the new corporation, thereby leaving the purchasers at the decretal sale the owners of the road. Whether the president and directors, or a majority of them, were authorized to make the agreement at a meeting of the •stockholders ’does not appear, and whether such power could have been conferred is not material to inquire; it is evident, however, that where the franchise has already been sold, the power of the president and directors to compromise with the purchasers in a controversy involving the validity of the sale would not be controlled by the well established rule that the directors of a corporation have no power to destroy its corporate existence. The appellant in the present case alleges that he is a stockholder, and that the board, or a majority of them, combining with the defendants in the original action for the purpose of defrauding the stockholders, entered into the compromise by which the action for the recovery of the road was dismissed, and all its rights and franchises transferred to the new corporation, thereby destroying not only the existence of the old corporation, but rendering the stock of the appellant valueless. He [304] asks that the action dismissed by the directors be reinstated on the docket, and that he be permitted to prosecute the action, and that the compromise agreement be disregarded. It is plain that the president and directors of the old company, having the right to institute the action, had the power to dismiss it, and certainly one out of many stockholders, suing not in the name of or for the corporation, will not be permitted to prosecute the action in his own name against the will and consent of the directors. A stockholder may sue for the corporation or his associate stockholders where the rights of the corporation are involved, and the directors decline to sue or refuse to permit the stockholder to prosecute the action in the name of the corporation. Such facts must be alleged, and the corporation must be a party plaintiff or defendant; and this is indispensable, because, as said in the case of Davenport v. Davis, 18 Wallace, “the relief is asked in behalf of the corporation and not the individual share-holder.” There is no allegation that the directors decline to reinstate the case on the docket, or that any demand was ever made of them or either of them by the stockholder bringing this action, or any parties in interest to continue its prosecution, nor is the corporation, the Covington and Lexington Railroad Company, a party to the action, and its prosecution, therefore, by the stockholder, would be no bar to a subsequent action by the corporation. This is not merely a defect of parties (the failure to bring the corporation before the court) to be taken advantage of by special demurrer, but the omission to make the corporation either a plaintiff or defendant leaves the stockholder without a cause of action; in other words, the party entitled to the relief is not before the court. The stock of the stockholder in the old corporation, or his rights under it, cannot [305] be affected if the directors had no power to make the compromise; but that is a different question from the relief sought here, namely, that the stockholder may institute and. prosecute the action in his own name. We have the stockholder asserting this right, and the president, and directors', in court asking its dismissal, and the court very properly sustained the demurrer. “It is submitted that such a suit would be defective, and that in every case where the question, whether of iHtra vires or of fraud, is one which concerns the corporation itself, the corporation must- be a party either as plaintiff or defendant. A decision in the absence of the corporation would be a decision affecting the rights and liabilities of an individual not before and not heard by the court.” (Green’s Brice’s Ultra Vires, page 571.) If this stockholder can institute an action in his own name and •for his own benefit, every other stockholder may bring a like action, and therefore the necessity of having the party entitled to the relief before the court, and if no such party appears, a demurrer should be sustained. It was not necessary or proper for the court below to dismiss the action without prejudice, as it cannot affect the rights of any of the parties, nor was it proper for the court to require the appellant to bring the corporation before the court. This was the appellant’s duty, as in the absence of the corporation no relief could have been granted. Many other questions have been raised on the appeal as to the sufficiency of the petition. These questions • have not been considered. For the reasons already indicated, the demurrer was properly sustained.