Chadwick v. Holm

• Decision Date: 08 January 1918
• Citation: 31 Idaho 252,170 P. 87
• Parties: JAMES CHADWICK et al., Respondents, v. N. N. HOLM et al., Appellants
• Court: Idaho Supreme Court

170 P. 87

31 Idaho 252

JAMES CHADWICK et al., Respondents, v. N. N. HOLM et al., Appellants

Supreme Court of Idaho

January 8, 1918

CORPORATIONS-DIRECTORS-NEGLIGENCE.

Where with the consent of the stockholders, a corporation, through its directors, transfers all of its property to another corporation, taking as payment bonds of the latter and where such bonds are, by the directors, allotted among the stockholders in proportion to their shares of stock, and some of them are delivered but others are lost, through the negligence of the directors, before delivery a suit may be maintained by the stockholders to whom the lost bonds were allotted, against the corporation and the directors, as joint tort-feasors, for the negligence resulting in the loss.

[As to when stockholders may maintain suits against officers and agents to call them to an accounting or to set aside their acts, see note in 41 Am.Dec. 367]

APPEAL from the District Court of the Sixth Judicial District, for Bingham County. Hon. F. J. Cowen, Judge.

Action for damages. Judgment for plaintiffs. Affirmed.

Judgment affirmed and costs awarded to respondents.

Hansbrough & Gagon and Clency St. Clair, for Appellants.

Mismanagement by directors gives a right of action to the corporation, or its receiver or a stockholder for its benefit, but not to a stockholder for damages to him individually. (McMullen v Ritchie, 64 F. 253; Smith v. Hurd, 12 Met. (Mass.) 371, 46 Am. Dec. 690.)

An action by individual stockholders against directors of a corporation for various acts of negligence and malfeasance, by which the capital of the corporation was wasted and lost and the plaintiff's share rendered valueless, cannot be maintained. (Evans v. Brandon, 53 Tex. 56; Beach v. Cooper, 72 Cal. 99, 13 P. 161; Stoltz v. Scott, 23 Idaho 104, 129 P. 340; Thompson v. Stanley, 20 N.Y.S. 317.)

The only way a stockholder can bring an action at all for such wrong is for and on behalf of the corporation and for its benefit. (Cook on Corporations, 5th ed., sec. 645; Just v. Idaho Canal etc. Co., 16 Idaho 639, 133 Am. St. 140, 102 P. 381; 3 Clark & Marshall on Private Corporations, p. 2284, sec. 755 (B).

C. S. Beebe, William A. Lee and Holden & Holden, for Respondents.

The guilty directors being in control of the corporation, it was not necessary to allege a demand upon and a refusal by such directors, to prosecute this action. (Wills v. Nehalem Coal Co., 52 Ore. 70, 96 P. 528.)

"It would be mockery to require or permit a suit against them to be brought and prosecuted under their management to obtain relief sought by this bill." (Heath v. Erie Ry. Co., 8 Blatchf. 347, F. Cas. No. 6306.)

A minority stockholder of a corporation may sue to enforce a claim of the corporation against one who is president of the corporation and who is in control of the board of directors, and can thus prevent an action in the name of the corporation itself. (Gosewisch v. Doran, 161 Cal. 511, Ann. Cas. 1913D, 442, 119 P. 656.)

Directors should not be permitted to prosecute an action by themselves against themselves. (Just v. Idaho Canal & Imp. Co., 16 Idaho 639, 133 Am. St. 140, 102 P. 381.)

MORGAN, J. Rice, J., concurs. Chief Justice Budge sat at the hearing but did not participate in the decision.

OPINION

MORGAN, J.

On November 4, 1907, the directors of the Snake River Canal Company passed a resolution that a meeting of the stockholders be called and a transfer of the system of the canal company to the Snake River Valley Irrigation District be recommended, each stockholder to receive his proportion of the bonds of the district to be given in payment for the system. On November 16, 1907, the stockholders' meeting was held and the recommendation of the board of directors was adopted. On December 14, 1907, the directors again met and decided to convey the system of the canal company to the district for the sum of $ 178,750, payment to be in bonds of the district in such denominations that each stockholder of the canal company might receive his proportionate share. In July, 1908, the transfer was completed, the bonds of the district were received, and, in January, 1909, were allotted to the stockholders of the canal company, and most of them were delivered. The bonds allotted to respondents were not delivered, but were held for the reason, as it appears, that their stock was held as security by other parties. These bonds were intrusted, by the directors, to one Mickleson, secretary of the canal company, who embezzled them and converted them to his own use. It appears that Mickleson's default was not known to the directors until December, 1910. Respondents instituted this action against the canal company and its directors to recover the value of the bonds allotted, but not delivered to them, and based their claims upon the alleged negligence of the directors in permitting the bonds to be stolen.

The jury returned a verdict in favor of the several plaintiffs, amounting to $ 11,242.50, judgment was entered accordingly, and from the judgment this appeal is taken by the defendants, who were directors of the corporation.

Appellants deny the right of respondents, as stockholders, to bring this action in their name, and have cited many authorities to sustain this contention, but in each of the cases cited a stockholder sued the directors to recover for losses to the corporation occasioned by their negligence, and it was held that the loss was that of the corporation and not of the stockholder, even though his shares of stock decreased in value as a result, and hence the corporation should bring the suit.

In this action, stockholders are not seeking to recover a proportionate amount of what is due the corporation as a result of appellants' negligence, but they claim the bonds were theirs because of the allotment of the same to them by the corporation. There can be no doubt that the stockholders'...