Brent v. B.E. Brister Sawmill Co.

• Decision Date: 24 February 1913
• Docket Number: 15,664
• Citation: 103 Miss. 876,60 So. 1018
• Court: Mississippi Supreme Court
• Parties: R. L. BRENT et al. v. B. E. BRISTER SAWMILL COMPANY et al

60 So. 1018

103 Miss. 876

R. L. BRENT et al. v. B. E. BRISTER SAWMILL COMPANY et al

No. 15,664

Supreme Court of Mississippi

February 24, 1913

APPEAL from the chancery court of Lincoln county, HON. G. G. LYELL Chancellor.

Suit by R. L. Brent and others, stockholders, against the B. E Brister Sawmill Company and others, officers, directors, and creditors. From a judgment sustaining a demurrer to the bill complainants appeal.

The facts are fully stated in the opinion of the court.

Reversed and remanded.

Green &amp Green, H. Cassedy and J. N. Yawn, attorneys for appellants.

Right of a stockholder to maintain a bill to dissolve the corporation and distribute the assets. On this one proposition, we call the attention of the court to Noble v. Gadsen Land & Improvement Co., 133 Ala. 250, 31 So. 586, 91 Am. St. Rep. 27, and note; also, Exchange Bank v. Barley, 39 L. R. A. (N. S.) 1032, and note.

We take the liberty of copying in full the note of Mr. Freeman on this interesting topic, which contains numerous authorities, some of which have been cited already. For brevity we do not copy in the authorities, as in fact, the reasoning is so sound, and the note so fraught with good sense that the text proves itself; illustrating the modern doctrine, Mr. Freeman says:

The general rule is often laid down that a court of equity in the absence of statutory authority has no jurisdiction to dissolve a corporation and distribute its assets among the stockholders at the suit of one or more of them. The reason given for this rule is, that since the corporation owes its life to the sovereign power, its dissolution and the termination of its existence can be worked only by the state in a proper proceeding in stituted in its behalf. There is much force to this reason in the case of quasi public corporations, and it may have had some validity as applied to all corporations at the time when valuable and exclusive franchises were granted by special legislative acts; but now, when corporations are organized under general laws, and the privilege of organization is open to all who comply with the requirements of the statute, it is entirely theoretical and without merit. Corporations established for objects quasi public, such as railway and telegraph companies, may well be within this rule; and so, also, may charitable and religious societies in the administration of whose affairs the community, or a part of the community, has an interest in their corporate duties being properly discharged. Not so, however, with corporations of a private character, established solely for trading, manufacturing, or the like. Neither the public nor the legislature has any direct interest in their business or its management. These are committed to the stockholders, who have a pecuniary interest in the conduct of their affairs. They do not, by accepting a charter, undertake to carry on the business for which they are incorporated indefinitely, and without regard to the condition of the corporate property and affairs. Public policy does not require that they continue the existence of the concern at a loss. On the contrary, it is clearly for the public welfare that the corporation should cease to exist as soon as it appears that it cannot prudently be continued.

"There is no doubt of the right of a corporation, organized solely for private emolument and owing no duty directly to the public, by a vote of a majority of the stockholders, to dispose of its property, distribute its assets among its shareholders and go out of the business, when to do so is plainly for the best interest of all. The objections of the minority will be unavailing, provided the majority acts in good faith and the business can no longer be advantageously carried on. It would be a harsh and unreasonable rule that would permit one stockholder to hold the others to their investment when just cause exists for closing the corporate business.

"Nor is this right confined to the majority. When it has become impossible to accomplish the chartered purposes of the corporation, or when its affairs have been so mismanaged that failure or ruin is inevitable, it would be a reproach on the administration of justice if a court of equity, on the application of a stockholder, or a minority of the stockholders, could not etxend relief and this without any express statutory authority. Of course, if stockholders disapprove of the company's management, which is conducted fairly and legitimately, their remedy is to elect new officer's or sell their stock and withdraw. When the question is one of mere discretion in the management of the business or of doubtful event in the undertaking in which the concern has embarked, a remedy cannot be sought in a court of equity. On the other hand, if it plainly appears that the object for which the company was formed is impossible, it becomes the duty of the company's agents to put an end to its operations and wind up its affairs; and should they, though supported by a majority of the stockholders, pursue operations which must be eventually ruinous, or should the enterprise be abandoned as impossible of realization, any shareholder would, upon plain equitable principles, be entitled to the assistance of a court of equity, and a decree should be rendered compelling the directors to wind up the company's business and distribute its assets among those entitled to them.

"This course is pursued in case of partnerships in similar situation, and 'there is nothing in the character of a trading corporation to prevent the application of this remedy.' It is, after all, as between the stockholders, nothing more than a trading copartnership. Chancellor WALWORTH says that 'joint stock corporations are mere partnerships, except in form; the directors are the trustees or managing partners, and the stockholders are the cestuis que trust, and have a joint interest in all the property and effects of the corporation,' and HINMAN, C. J., says: 'Joint stock companies in modern times are nothing but commercial partnerships, which have taken the form of corporations for the greater facility of transacting business.' Fongeray v. Cord, 50 N.J.Eq. 185, 24 A. 499. 'A case might occur,' remarks Lord CAIRNS, 'where the court would be willing to give, under the act, to a minority of shareholders the species of relief that sometimes is given in cases of ordinary partnership where it becomes impossible (I use the word impossible in the strict sense of the term) to carry on the business any longer. . . . It is not necessary now to decide it; but if it were shown to the court that the whole substratum of the partnership, the whole business which the company was incorporated to carry on has become impossible, I apprehend that the court might, either under the act of parliament, or on general principles, order the company to be wound up. But what I am prepared to hold is this, that this court, and the winding up process of the court, cannot be used as the means of evoking a judicial decision as to the probable success or nonsuccess of a company as a commercial speculation.' In re Suburban Hotel Co., L. R., 2 Ch. App. Cas. 737.

"While a court of equity may, at the suit of a stockholder, distribute the assets of a corporation among the shareholders and wind up the business, its power to extinguish the franchise or terminate the legal existence of the corporation is not so clear. Probably in most cases the rights of the complainants can be fully sub-served without going to this length; yet, if the exigencies of any case demand such measures, we incline to the view of Mr. Justice TYSON, in the principal case, that a court of equity has jurisdiction to dissolve the corporation. The objection that the corporate franchise was granted by the state is purely technical, and should be no insuperable obstable to relief if good cause is shown. Perhaps the question is of little practical importance anyhow, since when the corporation is stripped of its property and assets, its existence is virtually at an end." End of note.

In dealing with private corporations, the courts are fast departing from the idea that their affairs cannot be inquired into and justice done to the parties in interest the same as if they were partnerships. The Mississippi supreme court holds that corporations can make. general assignments for the benefit of creditors; that where public money demands, they will not be looked upon as separate entities, but the stockholders will be taken into consideration. In the national bankruptcy acts corporations were excluded from the benefit of such acts until in the past few years when congress included private corporations, except banks. There has been a departure from the old, narrow, hard, unjust lines. By making a general assignment, or disposing of all of its property, or by insolvency and the administration of its affairs for the creditors, the result has been the dissolution of the corporation for all practical purposes; and these things have been done in Mississippi, though not at the suit of a minority stockholder who was praying for the protection of his interests while he yet had interests to protect.

Brady & Dean, attorneys for appellee.

With regard to the creditors, about whom appellants agonize so frequently, and anticipating that appellants may seek to make capital of an "exploratory" question propounded orally to counsel for appellees on the hearing of another issue in this cause, in effect as follows:

"Would not a minority stockholder have the right to attack the validity of a void deed in trust, which rendered the property of the corporation liable to attachment? "

Appellees show that the attorney for the complainants wrote a personal appeal (as shown by the record) to each of the creditors of B....