Dill v. Johnston

• Decision Date: 11 March 1919
• Docket Number: 7884.
• Citation: 179 P. 608,72 Okla. 149,1919 OK 79
• Parties: DILL v. JOHNSTON et al.
• Court: Oklahoma Supreme Court

179 P. 608

72 Okla. 149, 1919 OK 79

DILL v. JOHNSTON et al.

No. 7884.

Supreme Court of Oklahoma

March 11, 1919

Syllabus by the Court.

A court of equity has power at a suit of the minority of the stockholders of a corporation to order a dividend of its assets, where the safety of the interest of the minority of stockholders require it.

In determining whether to exercise such a power, in a particular case, the object of the corporation, and the satisfaction of its affairs must be taken into consideration.

Where a majority of the stockholders have combined to so manage the business of the corporation as to divert all the profits of the enterprise from their legitimate destination, and to appropriate them to their own use, and have in part executed their plan, and the circumstances render any change in the personnel of the management impracticable, a proper case has arisen for the intervention of the court to make a division of the assets.

Where a corporation has ceased to do business for a period of several years and the stock of the corporation is owned exclusively by two persons and the majority stockholder has charge of all the books, property, and affairs of the corporation, and has converted all of the assets to his own private use, and the company owns no assets other than that which has been converted by the majority stockholder, and converted into cash, the minority stockholder may maintain a suit against the majority stockholder where the corporation is made a party defendant, and, when the court finds that all of the property has been disposed of by the majority stockholder the court may render judgment in favor of the minority stockholder and against the majority stockholder for his aliquot part of the funds due the corporation.

In a suit by a minority stockholder against a majority stockholder of a corporation where it appears from the finding of the court that the corporation has no property but has permitted the majority stockholder to convert the same to his own use and benefit, the court may render judgment direct in favor of the minority stockholder, and against the majority stockholder for his aliquot part without the appointment of a receiver or without rendering judgment in favor of the corporation and against the majority stockholder.

The evidence in this case has been examined and found sufficient to sustain the findings of the referee and the judgment of the court thereon.

Error from District Court, Okfuskee County; George C. Crump, Judge.

Action by Willard Johnston against W. H. Dill and the Citizens' Bank & Trust Company of Okemah. Judgment for plaintiff, and defendant Dill brings error. Affirmed.

B. B Blakeney and J. H. Maxey, both of Tulsa, for plaintiff in error.

Ames Chambers, Lowe & Richardson, and Scothorn, Rittenhouse & McRill, all of Oklahoma City, and Wells & Lee, of Prague, for defendants in error.

McNEILL J.

This is an action commenced in the district court of Okfuskee county by Willard Johnston as plaintiff, and W. H. Dill and the Citizens' Bank & Trust Company of Okemah as defendants. The substance of the amended petition was that the Citizens' Bank & Trust Company, a corporation, which was organized prior to statehood, and on or about the 12th day of February, 1908, settled and discharged all of its debts and liabilities and ceased to do business either as a banking concern or as a trust company; that, after paying and setting all of its debts and liabilities, it was the owner of a large amount of property consisting of money, negotiable instruments, real estate, and leases on real estate of the value of more than $50,000; that the defendant Dill was president of the corporation and owner of all the share of the capital stock except that owned by plaintiff, Willard Johnston; that since the 12th day of February, 1908, W. H. Dill had full and absolute charge and control of the records, books, deeds, titles, to the real estate and the property of the corporation; that he has sold, transferred, and conveyed all of the real estate and appropriated all of the money, notes, and credits to his own private use and credit; that W. H. Dill is the only officer of said corporation and in charge of the property. Demurrers were filed to the petition and overruled. Thereafter a general denial was filed by the Citizens' Bank & Trust Company and also by W. H. Dill. The cause was submitted to a referee, who made his findings of fact, and, among the findings, found in substance as follows:

(5) That Willard Johnston was the owner of $4,000 worth of stock and W. H. Dill was the owner of $8,500 worth of stock at the time of the trial, being the only stockholders of said corporation. (20) That Dill had disposed of and appropriated to his own private use all of the assets of the corporation in the sum of $25,475. That Johnston's pro rata proportion of said amount would be $8,152.

(21) That it would have been useless to have requested or demanded the officers of the corporation to maintain such suit.

(23) That the corporation ceased to do a banking business on February 12, 1908, and after January 13, 1910, had only been disposing of its assets and was not a going concern and had not been long prior to filing suit.

(24) That the corporation was the owner of no property at the time of filing suit, but that all of its assets had been disposed of by W. H. Dill and converted to his own private use.

The report of the referee was modified by the court and judgment rendered against the defendant W. H. Dill in favor of the plaintiff in the sum of $6,729, being the plaintiff's proportionate part of the property of the corporation that had been appropriated by W. H. Dill; said amount being the pro rata portion according to the amount of stock that the plaintiff's stock bears to the whole stock.

From this judgment, the defendant appealed, and his grounds for reversing the same present the following questions:

"Can a stockholder bring an action against the officers and directors of the corporation and recover in his own behalf for injuries done to the property of the corporation?"

The general rule is that he cannot, but there are exceptions to the general rule. It is plaintiff in error's or defendant's contention that the petition stated a cause of action, and the court might have rendered judgment in favor of the corporation and against W. H. Dill in a proper action, but had no right or authority to render judgment for plaintiff, which in effect divided the assets of the corporation and gave to the plaintiff his aliquot part of the same.

This question has been before this court in previous cases, but never in the exact form of the present case; but the decisions of the court are almost decisive with the case at bar.

In the case of Exchange Bank of Wewoka v. Bailey, 29 Okl. 246, 116 P. 812, 39 L. R. A. (N. S.) 1032:

"The principal contention of defendants is that a court of equity, in the absence of statutory authority, has no jurisdiction over corporations for the purpose of decreeing their dissolution and the distribution of the assets of the corporation among the stockholders at the suit of one or more of the stockholders; and that, since one of the reliefs for which plaintiff in this proceeding asks in his prayer is that the corporation be dissolved and its assets distributed among its stockholders, after paying all debts of the corporation, the trial court is without jurisdiction. This contention, in so far as it applies solely to proceedings to dissolve corporations and to wind up their affairs, finds support in section 119, Pomeroy's Eq. Jur., in the following language:

'It is well settled, with scarcely a dissenting voice, that, in the absence of express statutory authority, a court of equity has no power to dissolve a corporation, or to wind up its affairs and sequestrate its property.'

This statement from the text is supported as a general rule of law by almost all the decided cases, but the eminent author states in the same section that:

'A few exceptions have, however, been admitted to this rule; as, where the corporation had utterly failed of its purpose because of fraudulent mismanagement and misappropriation of the funds by the president and manager who owned a majority of its stock, a receiver was appointed to wind up its affairs at the suit of a minority stockholder. ***'

Some cases hold that a court of equity may dissolve a corporation, but only under extreme circumstances. It is unnecessary, however, to decide in this case under what circumstances, if any, a court of equity may decree a dissolution of a corporation and wind up its affairs, for, while this is one of the reliefs prayed for by plaintiff's petition, it is not the only relief asked, and the facts alleged clearly, we think, entitle plaintiff to other relief which a court of equity may administer; and if we assume, without deciding, that the trial court was without jurisdiction to dissolve this corporation and to wind up its affairs, there being other relief which it can afford to plaintiff upon the petition, the cause should not be dismissed."

This court, in the case of Union State Bank of Shawnee v. Mueller (not officially reported) 172 P. 650, being the leading case of this state, speaking through Justice Hardy, said:

"Where the property of a corporation is being mismanaged or is in danger of being lost to the stockholders through mismanagement, collusion, or fraud of its officers, and directors, a court of equity has the inherent power to appoint a receiver for the property of such corporation, and to require its officers to make an accounting upon petition of the minority stockholders therefor."

The Supreme Court of New Jersey, in the case of Fougeray v Cord, 50 N. J. Eq. 185, 24 A. 499, one of the...