Howze v. Harrison

ANDERSON, J. — “Ordinarily, and it is a well-established rule, a corporation should bring its own suit against its officers for misconduct or negligence in the management of its business affairs, or for the recovery of its funds wrongfully converted or misapplied, or for its property illegally conveyed or delivered to a stranger. The rule also seems to be well established by former decisions of this court that, before the individual stockholder can bring suit in his own name for the wrongful conversion of corporate funds or misappropriation of the corporate assets by its officers, he must first make a demand upon the managing officers or governing board of the corporation to correct the wrongs complained of, by legal proceedings or otherwise, and, meeting with failure or refusal in this regard, he must next seek redress through the stockholders as a body. Such a demand or request must not be simulated, but an earnest and honest effort and endeavor on his part through such governing board to have the wrongs redressed, and this should be clearly shown by the averments of the bill and the proof to the satisfaction of the court. — Steiner v. Parsons et al., 103 Ala. 215, 13 South. 771; Manufacturing Co. v. Cox, 68 Ala. 71; Nathan v. [155] Thompkins, 82 Ala. 487; Roman v. Woolfork, 98 Ala. 219, 13 South. 212; Merchants’ & Planters’ Line v. Waganer, 71 Ala. 581; Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827. There are, however, exceptional cases where this demand on .the directors or governing board of the corporation is not required. If it is made clearly to appear that such demand would meet with refusal, or that the litigation following would necessarily be. under the control of the persons opposed to .success, or where the persons constituting the governing board, or a majority of them are themselves the wrongdoers, or under their control, and that any effort to obtain redress through the stockholders would be unavailing for want of time or other cause, in such case the authorities sustain the doctrine that the minority stockholders may maintain the suit in their own name without any previous demand or refusal on the directors or other governing officers.”— Montgomery Light Co. v. Lahey, 121 Ala. 131, 25 South. 1006; Johns v. McLester, 137 Ala. 283, 34 South. 174, 97 Am. St. Rep. 27; Steiner v. Parsons, supra, and other authorities cited above. See, also, Dodge v. Woolsey, 59 U. S. 331, 15 L. Ed. 401; Heath v. Erie Railroad Co., 8 Blatchf. 347, Fed. Cas. No. 6,306; Crumlish v. Shenandoah Valley R. Co., 28 W. Va. 633; Peabody v. Flint, 6 Allen (Mass.) 52; Brewer v. Theater Co., 104 Mass. 378. The bill avers that the offending officials are under the control of and accountable to the grand lodge, and it would primarily be the duty of the grand lodge to correct the alleged wrongs, and there is no averment that these grievances were brought to the'attention of the grand lodge or cannot be checked at the next meeting. It is true the bill avers that at the last meeting of the grand lodge it was announced that there would [156] not -be another meeting for two years; but there is nothing to show that the grand lodge cannot protect the endowment fund, or will not do so, when it meets, as there is no averment of insolvency as to the order or the offending officials, and the bill does not make out a case for the appointment of a receiver, at the instance of a single stockholder, who fails to show that the wrongs will or cannot be redressed by the grand lodge. The chancery court will not, as a rule, appoint a receiver to take charge of a corporation and wind up its affairs except in case of insolvency.- — Edison v. Edison Phonograph Co., 52 N. J. 7q. 620, 29 Atl. 195. There seems to be an exception to the rule as to insolvency, when the corporation has no properly constituted governing board, or because there are such dissensions in its governing body as to make it impossible for the corporation to carry on its business with' advantage to its stockholders; but this power must be exercised with great caution, and only for such time and such extent as may be necessary to preserve the property of the corporation and protect the rights and interests of the stockholders. — Edison Case, supra; Jasper Co. v. Wallis, 123 Ala. 656, 26 South. 569. Ordinarily the directors constitute the governing board of a corporation, and are controlled only by the stockholders; but in the case at bar, while the control of the endowment fund is given to the respondents, they are held accountable to the grand lodge for the management of said fund, and which said grand lodge is of necessity the governing and controlling body, and the only proper power to remove or control those in charge of the endowment fund and prevent a misappropriation of the funds, and there is nothing in the bill to indicate that the grand lodge will not take the proper steps to redress the alleged wrongs, or that they cannot be redressed at the next meeting of the grand lodge. [157] In the absence of insolvency, the exigencies for the appointment of a receiver should he much greater than the ones advanced in the bill, and we do not think the complainant can maintain this bill without averring that the grand lodge cannot or will not remedy the alleged wrongs. The bill merely avers that the grand lodge would not convene for two years after the last meeting, but does not show that it will not act when it does convene, or that the respondents cannot be made responsible or answerable when the grand lodges does convene, and that a receiver is necessary to preserve the property and protect the members of the endowment fund from irreparable loss. The decree of the chancery court is reversed, and one is here rendered, sustaining the demurrer to the bill for want of equity. Beversed and rendered. Dowdell, C. J., and Sayre and Evans, JJ., concur.