Checotah Hardware Co. v. Hensley

Decision Date09 June 1914
Docket NumberCase Number: 32544071
PartiesCHECOTAH HARDWARE CO. et al. v. HENSLEY.
CourtOklahoma Supreme Court
Syllabus

¶0 1. CORPORATIONS--Pleading--Filing Out of Time--Discretion--Action of Stockholder--Sufficiency of Petition. The court erred in No. 3254 in overruling the demurrer to the petition. And also in No. 4071 in not permitting defendants to file answer and make defense.

2. PLEADING--Filing Out of Time--Discretion. The question of filing pleadings out of time rests largely within the discretion of the trial court, but this discretion is a sound judicial one, dependent upon all the circumstances, anti must never be used arbitrarily or capriciously.

3. CORPORATIONS--Stockholders--Right of Action. The rule is that shareholders cannot, ordinarily, sue in equity to redress wrongs done to the corporation. The ordinary remedy for such injuries is to be sought primarily through corporate action. But if the directors are guilty of a breach of trust, injurious to the corporate assets, or to the rights of the shareholders or some of them, and if the corporation refuses to institute proper proceedings to restrain or redress such injuries, one or more of the shareholders may proceed in their individual names. In such case, however, it is necessary that the petition contain averments sufficient to create an exception to the general rule, and to establish in petitioners the right to thus proceed.

Error from District Court. McIntosh County; Preslie B. Cole, Judge.

Actions by M. H. Hensley and Arthur L. Hensley, administrator, against the Checotah Hardware Company, a corporation, and others. A demurrer to the petitions was overruled and final judgment entered for plaintiffs, and defendants bring error. Cases consolidated on appeal. Reversed, with directions.

Van Court & Ruebelt, for plaintiffs in error

Lucas & Tabor, Fred P. Branson, Bailey, Wyand & Moon, and Alvin F. Molony, for defendants in error

BREWER, C.

¶1 No. 3254 involves an appeal from the order of the court overruling a demurrer. No. 4071 is an appeal from the final judgment in the same suit. A stipulation has been filed in the last case asking that it be advanced and consolidated with the first appeal. In pursuance thereof, the cases are hereby consolidated and will be considered and treated as one.

¶2 The plaintiff M. H. Hensley brought the suit against the Checotah Hardware Company, a corporation, and two individuals, alleged to be stockholders and officers of the corporation. As nearly as we can gather from the allegations of the petition and the prayer for relief, the suit has two distinct aspects. Its first branch is to have a sale of stock formerly owned by plaintiff, and sold to the individual defendants, rescinded, and set aside, and the shares of stock reissued to plaintiff, thus re-establishing his status as a stockholder. The second branch is to recover for the corporation large items of real property held by the individual defendants and alleged to have been paid for out of the funds of the corporation. Also to have the corporation declared the owner of a large block of its corporate stock held by the individual defendants, and alleged to have been bought with corporate funds. The court overruled a general and special demurrer to the petition on October 6, 1911, and the first appeal is to review that order. After the demurrer was overruled, and on the same day, the court allowed defendants 30 days to answer. Defendants immediately appealed and did not answer within the 30 days. But on December 20, 1911, defendants filed a motion to be allowed to answer, accompanied with a full verified answer, and an affidavit of counsel that the defense was meritorious, that he had interviewed the witnesses, etc., and stated further that counsel had been of the opinion that the appeal from the order disposing of the demurrer operated to suspend further proceedings in the case, thus rendering further pleadings unnecessary. The court refused to permit defendants to further plead or file their answer or make defense of any kind, adjudged them in default, and rendered a decree against the corporation and individuals on the petition, without evidence, by which the sale by plaintiff of his shares of stock was rescinded, and the shares were ordered reissued to him. The decree also ordered the appointment of a receiver to take charge of the corporate assets. It also decreed that the corporation was the owner of $ 12,000 of its capital stock standing in the name of the individual defendants. The court also decreed that 130 tracts or parcels of land of an aggregate value of $ 110,000 bought and held by the individual defendants had been paid for with corporate funds, and declared them trustees holding title thereto for the corporation, and ordered a conveyance of same. This second appeal is prosecuted to review the action of the court in refusing to let them file their answer and make a defense, and because of the rendition of the final decree as above stated.

¶3 We are of opinion that both appeals should be sustained.

¶4 1. The first appeal because the petition does not sufficiently plead a case. The relief sought for the corporation, of course, could not be demanded or sued for by plaintiff, until he had established his status as a stockholder; and then only on certain conditions, necessary to be both pleaded and proven. So unless plaintiff's petition was sufficient to show a right to rescind the sale by which he had parted with his stock a year before the suit was filed, thereby establishing his status as a stockholder, it would be unnecessary to look further into the allegations. We take it as fundamental that, to rescind a sale long since fully executed, the facts claimed to justify the right should be fully and carefully stated. In this petition it is nowhere shown how many shares of stock plaintiff had sold, nor what had been paid for them; whether it was their full value or less. The total stock of the corporation is not disclosed, nor is the par value of the shares mentioned. The offer to restore the sum received for the stock is:

"The plaintiff hereby offers to do equity and tenders to the defendant Jack Thompson the amount he has received for said stock."

¶5 No one can tell from the petition how much this was, any more than he can tell how much or what value of stock was sold.

¶6 The court in rendering a default decree in this case declared the sale of the stock rescinded, and ordered defendants to reissue plaintiff stock to the extent of one-sixth of the entire capital stock (the entire capital stock is not shown), and then adjudged that this stock be thus reissued, "upon the...

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