O'Connor v. Knoxville Hotel Ass'n.

• Decision Date: 27 October 1894
• Citation: 28 S.W. 308,93 Tenn. 708
• Parties: O'CONNOR v. KNOXVILLE HOTEL ASS'N et al.
• Court: Tennessee Supreme Court

28 S.W. 308

93 Tenn. 708

O'CONNOR v. KNOXVILLE HOTEL ASS'N et al.

Supreme Court of Tennessee.

October 27, 1894

Appeal from chancery court, Knox county; Henry R. Gibson Chancellor.

Action by James O'Connor, on behalf of himself and all other stockholders and creditors who might desire to come in against the Knoxville Hotel Association and others, to wind up the corporate affairs of defendant, and to distribute the assets among its creditors and stockholders. A demurrer to the bill was sustained, and plaintiff appeals. Reversed.

Templeton & Cates and Walter M. Cocke, for appellant.

Lucky & Sanford, for appellees.

WILKES J.

This bill is filed by a single stockholder, on behalf of himself and all other stockholders and creditors who might desire to come in thereunder, against the Knoxville Hotel Association a corporation in Knoxville Tenn., and the directors of the same, as well as certain stockholders by name, and all others who might not choose to join as complainants. The prayer of the bill is that it be entertained as a bill to wind up a corporation the purpose of which has become incapable of accomplishment, and for such other, further, and different relief as the facts stated in the bill may warrant. The corporation, directors, and stockholders filed separate demurrers, but in effect the same. The demurrers were sustained by the chancellor, and the bill dismissed, from which complainant appealed, and he has assigned as error the action of the chancellor in sustaining the demurrers and dismissing the bill under the facts stated therein. In his argument and brief, complainant also contends that the corporation has ceased and failed to use its franchises for a number of years; that the object for which the charter was obtained was to erect, keep, and furnish a hotel, and nothing has been done in that direction, except the taking of the subscriptions and buying the property, soon after it organized, and this makes a case of nonuser in the sense of section 4168 of the Code (Mill. & V. Comp.); and under that section the complainant seeks to have the corporate property applied to the corporate debts, and any surplus divided among the stockholders. It is also argued that while complainant might have had an attachment under that section, still the provision for attachment is merely directory, and not mandatory. It is also insisted that although this statute is not referred to in the bill, and nonuser is not charged in express terms, still the facts detailed make it one of nonuser, and bring the case within the statute, and relief can be had under the general prayer for further or different relief. Dodd v. Benthal, 4 Heisk. 608; Story, Eq. Pl. § 40.

The general rule applicable to such cases is laid down in the following language by Mr. Morawetz in his work on Private Corporations: "If shareholders in a corporation disapprove of the management, or consider their speculation a bad one, their remedy is to elect new officers, or to sell their shares and withdraw. They cannot insist on having the company's business closed, and assets distributed against the will even of a single stockholder who wishes to have the business continued. It is clear, therefore, that the courts cannot interfere at their suit, and order the company to be wound up." Mor. Priv. Corp. (2 Ed.) § 283, and cases cited. While this is the general rule the same author states an exception to it as follows: "Whenever in the course of events it proves impossible to attain the real object for which a corporation was formed, or when the failure of the company has become inevitable, it is the duty of the company's agents to put an end to its operations and wind up its affairs. Under these circumstances, the majority would have no right to continue to use the common property and credit for any other purpose, because it would be impossible to use them for any purpose authorized by the charter. If the majority should attempt to continue the company's operations in violation of the charter, or should refuse a distribution of the assets, any shareholder feeling aggrieved would be entitled to the assistance of the courts and a decree should be made ordering the directors to wind up the company's business and distribute the assets among those who are equitably entitled." Id. § 284. And, again: "However, before the courts can thus interfere with the management of a corporation, and order its business to be wound up, it must be shown very plainly that the business cannot possibly be carried on any further without a departure from the company's charter; and a court of chancery cannot impair the discretionary powers conferred upon the majority by the charter, and decide on their behalf whether the continuance of the enterprise be advisable as a...