Walsh v. State

• Decision Date: 01 February 1917
• Docket Number: 1 Div. 960
• Citation: 74 So. 45,199 Ala. 123
• Parties: WALSH et al. v. STATE ex rel. COOK et al.
• Court: Alabama Supreme Court

74 So. 45

199 Ala. 123

WALSH et al. v. STATE ex rel. COOK et al.

1 Div. 960

Supreme Court of Alabama

February 1, 1917

Appeal from Law and Equity Court, Mobile County; Saffold Berney Judge.

Mandamus by the State, on the relation of Thomas L. Cook and others against J.M. Walsh and others, as directors of the Mobile Towing & Wrecking Company. From an order granting the writ the respondents appeal. Affirmed.

Gregory L. Smith & Son, of Mobile, for appellants.

Stevens, McCorvey & McLeod, of Mobile, for appellees.

THOMAS J.

This is an appeal from an order granting the writ of mandamus commanding the directors of the Mobile Towing & Wrecking Company to take the necessary steps to hold an annual meeting of the stockholders of said company. The order was made on submission upon the petition for the writ, with the answers of the defendants thereto, and the admission that witnesses present would testify to the truth of the allegations of defendants Pope, Walsh and Dorgan.

The question presented by this appeal is: When the by-laws of the corporation provide that the directors shall be elected at an annual meeting of stockholders to be held on a designated date, and that the officers and directors then and thus elected shall hold office for one year and until their successors are elected, can an election for officers and directors be validly held on another date, where the annual election was not called or held by reason of the failure of the directors or other officials whose duty it was to issue the call therefor?

The Mobile Towing & Wrecking Company, of which petitioners and respondents were the respective stockholders and directors, was organized under and subject to the provisions of article 1, c. 69, of the Code of 1907, p. 397 et seq. The several statutory provisions pertinent to this inquiry are to the effect that:

"Every corporation organized under article one of this chapter must have at least three directors, who shall be owners of stock of the corporation, and who shall be elected annually, and hold office for one year and until their successors are elected." Code, § 3463; Rush v. Aunspaugh, 179 Ala. 542, 60 So. 802; Nathan v. Tompkins, 82 Ala. 437, 2 So. 747.

And that:

The "failure to elect directors shall not work a dissolution of the corporation, but the existing board of directors shall continue to manage the affairs of the corporation until their successors are elected." Code, § 3464; Curry v. Woodward, 53 Ala. 371, 375.

By section 3478 of the Code it is provided in part as follows:

"Meetings of the stockholders of a corporation shall be held annually, of which meetings, as well as special meetings, notice shall be given as the by-laws prescribe," etc.

And section 3481 of the Code authorizes a corporation--

"to make and alter at pleasure all needful by-laws, rules, and regulations for the transaction of its business, and the control of its property and affairs," etc.

When said several sections are construed together, it is clear that it was the legislative intent to prevent a dissolution of the corporation by a failure to elect new directors at the annual stockholders' meeting; that it was in the contemplation of the statute that there should be an election of officers and directors annually; and that when the election was not held as required by the statute and the by-laws, the successors in office of such officers and directors should be elected within a reasonable time thereafter by the stockholders.

It has long been declared law that it is the duty of the "society's committee" to warn of the annual meetings of the society for the election of officers; and that if this duty be neglected a writ of mandamus, "directed either to the society's committee, or to the society itself, would enforce the annual election of the necessary officers." Rex v. Cambridge, 4 Burr. 2008, 2011; Rex v. Tregory, 8 Mod. 113; Congregational Society v. Sperry, 10 Conn. 200, 208: Stabler et al. v. El Dora Oil Co. et al., 27 Cal.App. 516, 519, 150 P. 643; People ex rel. Hart v. Blackhurst (Sup.) 11 N.Y.Supp. 670; Thompson on Corp. § 810; 9 Mod.Amer.Law, 216; 2 Kent's Com. 295; 26 Cyc. 352; 1 Thompson on Corp. (2d Ed.) 807, 810; 2 Cook on Corp. (6th Ed.) 603.

The right to hold annual elections for directors of a corporation and to vote at such elections is a right that is inherent in the ownership of stock in the corporation; and a stockholder who appears by the books of the corporation to be such cannot be deprived of this right upon the allegation that he proposes to use his legal rights for purposes which other stockholders may think not to the best interests, or even to the detriment, of the corporation. Camden & Atlantic Ry. Co. v. Elkins, 37 N.J.Eq. 273; Prender v. Lushington, L.R. (6 Ch.Div.) 70; Hurlbut v. Marshall, 62 Wis. 590, 22 N.W. 852; Wright v. Commonwealth, 109 Pa. 560, 1 A. 794; Commonwealth v. Gill, 3 Whart. (Pa.) 228, 247; 2 Cook on Corp. p. 1365, § 603.

A director cannot be suspended or removed from office until the end of his term, at least without cause. If unlawfully removed from office, he is entitled to be reinstated in an appropriate action to test the title to the office of director. Moses v. Tompkins, 84 Ala. 613, 616, 4 So. 763; Crow v. Florence I. & C. Co., 143 Ala. 541, 39 So. 401; Med. & Surg. Soc. v. Weatherly, 75 Ala. 248; s.c., 76 Ala. 567; People ex rel. Manice v. Pewell, 201 N.Y. 194, 94 N.E. 634.

Where the charter of a corporation provides that annual meetings of stockholders shall be held for the election of officers and directors, the directors cannot by a change in by-laws so change the time of holding the annual election as to have the effect of continuing themselves in office, against the will of the majority of stockholders. 1 Thompson on Corp. § 812; Mottu v. Primrose, 23 Md. 482; West Side Hospital v. Steele, 124 Ill.App. 534; Elkins v. Cam. & A. R.R. Co., 36 N.J.Eq. 467, 470; 10 Cyc. 319.

In State v. Wright, 10 Nev. 167, 175, the Chief Justice said:

"The fact that the day provided for in the by-laws for the calling such an election has passed, does not justify the trustees in refusing to call the meeting. When the day has passed it is the duty of the trustees to call the meeting within a reasonable time--certainly to call it whenever demanded by any stockholder. When called it is just as much an annual meeting as if called upon the day specified in [and by the] by-law." Flagg v. Lady Bryan Co. 4 Nev. 406; Stabler v. El Dora Oil Co. et al., supra; State v. Bonnell, 35 Ohio St. 10; 2 Cook on Corp. § 604; 1 Thompson on Corp. § 812.

In Sylvania & G.R. Co. v. Hoge, 129 Ga. 734, 740, 59 S.E. 806, 809, it is said:

"For some reason, presumably because they were not informed that it was in their power to legally elect a board of directors, no action was taken at the January meeting. The term of the old board of directors expired at this time, and it was the duty of the stockholders to have elected their successors. As no election was held, any stockholder could by mandamus compel the calling of a meeting for the purpose of complying with the statutory duty."

The rule is thus stated in Stabler v. El Dora Oil Co., supra:

"That the stockholders my avail themselves of the remedy by mandamus to compel a recalcitrant board of directors to call an annual meeting for the election of directors admits of no controversy. Mr. Thompson in his work on Corporations, § 810, says: 'Officers have been known to attempt to defeat the will of stockholders by purposely failing to give notice of either regular or special meetings. But where the officers whose duty it is to issue the call or give notice of a stockholders' meeting either fail or refuse to do so, the stockholders are not without remedy. Whatever may be the rule with reference to the liability of officers under such circumstances, it is now the well-settled rule that stockholders may by mandamus compel the officers to issue the call or give the proper notice for meetings.' "

In People ex rel. Young v. Trustees of the Town of Fairbury, 51 Ill. 152, it is said:

"The old board are still in office, and may exercise all the powers and should perform all the duties properly belonging to them in their official capacity; and one of those powers and duties is to give notice for the election of their successors. This notice need not, necessarily, be given within the year for which they were elected; 'the sounder and better doctrine' is, as laid down by Chancellor Kent, 'that where the members of a corporation are directed to be annually elected, the words are only directory, and do not take away the power incident to the corporation to elect afterwards, when the annual day has, by some means, free from design or fraud, been passed by.' 2 Kent's Com. 295."

The hardship of any other rule is stated in People ex rel. Miller v. Cummings, 72 N.Y. 436, as follows:

"If trustees could keep themselves in office by not having an annual election, the stockholders would be powerless, and they might perpetuate themselves in power as long as they chose. Such a course would also be in direct opposition to the mandatory provision requiring that trustees to be annually elected shall manage the affairs of the company. The enactment *** prevents any such arbitrary use of power and protects stockholders of corporations from the misconduct of their officers in this respect. *** To hold that an election of officers of a corporation must utterly fail because those in power, by accident or design, omit to do their duty, and by neglecting to give the proper notice or by failing to make proper by-laws for that purpose, would be in contravention of the manifest intention of the law and sanction a construction entirely unwarranted." Appellants insist that where

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