Central Land Co. v. Sullivan

DENSON, J. In Noble v. Gadsden Land & Improvement Co., 133 Ala. 250, 31 South. 856, 91 Am. St. Rep. 27, it is held that where a private business corporation, [365] though solvent, in that it owes no debts, is a failure, and the purposes for which it was organized are impossible of attainment, and its assets are being gradually sacrificed in the payment of taxes and expenses, the minority stockholders of such corporation can maintain a bill in equity to have the corporate assets sold and the proceeds thereof distributed among the stockholders. The only difference between that case and the one in hand is that there the income of the corporation, at the time the bill was filed, was not sufficient to pay expenses, taxes, etc., and annually a portion of its land was sold on that account, and it was shown that the corporation was without credit and its assets were being sacrificed, the corporation, on account of the abandonment of it by the holders of the majority of its stock, being powerless to prevent it; Avhile here it does not appear that any of the property of the corporation has been sacrificed, or even sold, to meet expenses, but the income is alleged to be the same as the outgo. Nevertheless it does appear from the bill in this case that the property from which income is derived is gradually deteriorating in value, and that in a short Avhile the income will not be sufficient to meet the expenses. This being true, the inevitable result will be that, if the corporation continues, it will be in the same condition in this respect as was the one in the case cited. The averments of the bill are sufficient to show an abandonment of their duties by-the stockholders. No meeting has been held Avithin the past five years, and no officer or agent of the corporation resides in the state and the business for which the corporation was organized has never been attempted. Mr. Beach, in his work on Corporations, at section 788, says: “Unless it appears beyond question that the continuation of a profitable business cannot be had, the dissolution of a cor [366] poration not yet insolvent will not be decreed upon petition of a minority of its sharebilders. If, however, it is clear that the business cannot be profitably continued, the petition of a minority for a dissolution will be granted.” This quotation from Beach is cited in the case supra approvingly. It would seem that no argument is necessary, in support of the averments of the bill, to show that the business of the corporation, not only cannot be profitably continued, but, if continued, it must soon be at a loss and sacrifice. “A recognized ground of relief in equity is when the affairs of the corporation are not satisfactory and further prosecution of its business will lead to loss and insolvency.” — Treadwell v. Mfg. Co., 7 Gray (Mass.) 393, 66 Am. Dec. 490; Arents v. Blackwell's Durham Tobacco Co., (C. C.) 103 Fed. 338, 346. It is well said in the case, cited from 7 Gray (Mass.) 393: “Public policy does not require a private corporation to go on at a loss. On the contrary, it would seem very clear for the public welfare, as well as for the interest of stockholders, that they should cease to transact business as soon as, in the exercise of sound judgment, it is found that in cannot be prudently continued. If this be not »0', we do not see that any limit could be put on the business of a trading corporation short of the entire loss or destruction of its property.” It is true- that merely because a corporation, while pursuing the purpose of its organiation, is not earning dividends, is not ground upon which a minority stockholder may have its effects distributed; yet, when the corporation has not (as is here averred) attempted to carry out the purposes for which it was chartered, when it has failed of the purposes and the objects of its creation, when the shareholders have not for five years, held a meeting and have no officer or agent in the state, when the property is graudually deteriorating in value [367] and will soon be in a condition where a part of the corpus must be annually sacrificed to meet taxes, insurance, etc., the authorities fully support the proposition that a minority stockholder of such a corporation, whether it he solvent or insolvent, may maintain a bill to distribute its assets amongst those equitably entitled thereto. — Authorities supra, and also the following: Ross v. American Sanaa Co., 150 Ala. 268, 43 South. 817; Ulmer v. Maine Real Estate Co., 93 Me. 325, 45 Atl. 40. No complaint is made in the bill against the managing officers of the corporation in respect to the condition of its affairs. Indeed, the officers may have acted in the utmost good faith, and yet, notwithstanding, the condition of affairs averred could naturally have followed. Therefore a demand on the officers for a distribution is not necessary; and the board of directors would be powerless to take any action in respect to the property of the corporation such as is prayed. And if it can be said that, in a bill to distribute the property of a corporation, it is ever necessary to show a demand for action on the part of stockholders, and a refusal or failure on their part to act, we think the averments of the bill are sufficient to exempt it from the ground of demurrer raising this point. It is insisted that the bill is multifarious, in that it seeks a distribution of the assets of the estate and to have declared that two-thirds of the stock is fictitious and void. The averment that the stock is fictitious is not essential to the equity of the bill, in respect to having the property sold and the proceeds distributed; but, according to the averments of the bill, that which makes the issuance of stock fictitious affects every share of stock that was issued. In other words, the shareholders contributed $80,000 for the purchase of the only prop [368] erty that the corporation owned, and which formed its capital and was bought at this price, whereas the deed to the corporation recited $240,000 as the consideration paid, and certificates of stock were issued to each shareholder on the basis of $240,000 as the capitalization. So all the parties have a common interest touching the subject-matter of the suit, and there is nothing inconsistent in the court’s ordering the sale and distribution of the property, and at the same time determining the validity of the shares of stock, and therefore the interest each shareholder has in the proceeds of the sale of the property. The objection that the bill is multifarious is without merit. The demurrers to the bill were properly overruled, and the decree of the chancellor must be affirmed. Affirmed. Tyson, G. J., and Haralson and Simpson, JJ., concur.