Dunphy v. Travelers' Newspaper Ass'n

• Citation: 16 N.E. 426,146 Mass. 495
• Parties: DUNPHY v. TRAVELERS' NEWSPAPER ASS'N.
• Decision Date: 06 April 1888
• Court: United States State Supreme Judicial Court of Massachusetts

146 Mass. 495

16 N.E. 426

DUNPHY v. TRAVELERS' NEWSPAPER ASS'N.

Supreme Judicial Court of Massachusetts, Suffolk.

April 6, 1888

April 6, 1888

COUNSEL

W.G Russell, and Geo. Putnam, for defendants.

The bill is bad for multifariousness. A creditors' bill against an executor and trustee for an account, and to set aside a sale made to a purchaser, who was made a party, was held bad for multifariousness. Salvidge v. Hyde Jac. 151. To a similar point is Pearse v. Hewitt, 7 Sim. 471. See Winsor v. Bailey, 55 N.H. 218; Price v. Coleman, 21 F. 357; Pope v Leonard, 115 Mass. 286. See, also, Sanborn v. Dwinell, 135 Mass. 236. The bill (except so far as it prays that dividends be decreed) is brought by a stockholder to redress wrongs alleged to have been done, and to be contemplated against the corporation; yet it alleges no such effort to move the corporation to seek the redress of these wrongs as is necessary to support such a bill. The court will not presume that the directors would have refused to prevent or redress a fraud, merely because Worthington, "by reason of his ownership or control, has chosen such persons to be the directors of the corporation as he has seen fit." Allen v. Wilson, 28 F. 677; Brewer v. Theatre, 104 Mass. 378, 387-389, 396; Hawes v. Oakland, 104 U.S. 450, 457, 460-462; Detroit v. Dean, 106 U.S. 537, 541, 542, 1 S.Ct. 560. As to the alleged improper investments, there is no averment either that they were fraudulently made, or that the plaintiff objected to them, or that he was ignorant of them. There is no presumption, either that he objected or was ignorant; on the contrary, upon the principle that all averments are to be construed against the pleader, the presumption is the other way. This presumption becomes conclusive when it is observed they all appear on the books of the corporation; that during most of the period in question, viz., from 1871 to 1879, plaintiff was a director, and from 1879 to 1884 he was treasurer, and therefore had the means of knowing, and must be taken to have known, of all these transactions, (all of which involved payments of money, which must have passed through the treasurer's hands,) and failed either to object or complain. Such knowledge and failure amount to acquiescence in the transactions complained of, and deprive him of all claim to equitable relief. Dimpfell v. Railroad Co., 110 U.S. 209, 210, 3 S.Ct. 573; Allen v. Wilson, 28 F. 677. See Burt v. Association, 4 De Gex & J. 158. Compare, also, the case of Ffooks v. Railroad Co., 1 Smale & G. 142. And his knowledge, even if he had objected, would preclude him from obtaining equitable relief at this late day, by reason of laches. Peabody v. Flint, 6 Allen, 52, Bank v. Railroad Co., 125 Mass. 490, 494. Nor could relief be granted on account of bad investments, even at the instance of a shareholder unaffected with laches, in the absence of any averment of fraud or bad faith, or of any facts from which fraud or bad faith must be inferred. The averment as to the discount of notes payable to the order of R. Worthington & Co., and as to political and charitable subscriptions, is too vague and general to be the basis of equitable relief. Brewer v. Theatre, 104 Mass. 389. As to all these alleged improper investments, we confidently submit that the court cannot say, upon any averments in the bill, that they may not be transactions which the corporation and directors might wisely and honestly condone and ratify, however improper they may have originally been, rather than make them a subject of a suit against the officers of the company who entered into them. Hawes v. Oakland, 104 U.S. 450, 462; Macdougall v. Gardiner, 1 Ch.Div. 13, 22, 25. The court cannot say, as a matter of law, that the salaried officer of a corporation must account to the corporation for all salaries received by him from others. Possibly, a case might be stated in which such an equity would arise, but no such case is stated in the plaintiff's bill. The rights of Morse and Spaulding, who are alleged to have received dividends on their shares, cannot be ascertained or administered in the present suit--First, because they are not parties to it; and, second, because, if they were parties to it, the various stockholders who have benefited by the transaction complained of would have to be parties defendant. Weed v. Railroad Co., 31 Minn. 154, 16 N.W. 851. Assuming the averment to be true, we submit that Worthington has only insisted upon his lawful right to collect the rent reserved by the lease, and that no ground is stated upon which a court of equity will enjoin his doing so. It is not averred that Worthington could have obtained from Mr. Brooke's devisees a continuance of the abatement. If, as is probable, they were trustees, they could not have continued it without risk to themselves. Upon the averments in the bill they might even have recovered the abatement of previous years. Bowditch v. Chickering, 139 Mass, 283. For anything that appears in the bill, the transaction by which Worthington substituted himself as landlord may have been beneficial to the corporation. It is enough, however, for the present case, to point out that no ground whatever is urged for the interference, by a court of equity, with Worthington's exercise of his legal rights as landlord. He has neither made a contract for his own benefit with the corporation, nor has he failed to procure for it any advantage in his power. It cannot be contended that, having brought the real estate at a valuation based upon the rent reserved in the lease, he is bound to abate that rent. The bill is not properly framed for the relief desired. No case is made out by the bill for a decree that dividends be paid. It may be conceded that the court will order a corporation to pay dividends where there is an express contract by the corporation to do so when it is able, even though the directors refuse on the ground that the earnings of the corporation do not warrant it. See Barnard v. Railroad Co., 7 Allen, 512. In the absence of such a contract by the corporation, it is difficult to see how the court can interfere with the discretion of the directors as to the division of profits upon any ground short of fraudulent and corrupt purpose. Barry v. Exchange Co., 1 Sandf.Ch. 280, 304. There are some dicta of text writers and judges which may be construed to mean that the court would interfere, and compel the division of profits upon a mere allegation of facts showing an unreasonable refusal to divide. Scott v. Fire Co., 7 Paige, 198. Similar dicta, equally uncalled for by the facts, may be found in Pratt v. Pratt, 33 Conn. 446, and Beers v. Spring Co., 42 Conn. 17, and they have been made the basis of similar statements by text writers. Tayl.Corp. § 563; 1 Mor.Priv.Corp. §§ 276, 447. On the other hand, see Smith v. Manufacturing Co., 29 Ala. 503; State v. Bank, 6 La. 745, 763. Upon the averments in this bill, the court cannot say that the judgment of the directors has not been sound, as well as honest; nor are the directors made parties, so that any decree commanding them to declare dividends can be made. Karnes v. Railroad, 4 Abb.Pr. (N.S.) 107. The court will not interfere with the discretion of the directors in the management of the corporation, without giving them an opportunity to be personally heard; especially in a case where personal fraud, or connivance in fraud, by the directors individually, must be the basis of the decree.

John Lowell and E.M. Johnson, for plaintiff.

The officers of a corporation are trustees for the corporation and the stockholders. Peabody v. Flint, 6 Allen, 56; Corporation v. Sutton, 2 Atk. 400. Trustees owe a duty to their cestui que trust. They must afford them accurate information of the trust fund, and its disposition,--all the information of which they are or ought to be in possession. Walker v. Symonds, 3 Swanst. 1, 81; White v. Lincoln, 8 Ves. 363; Gray v Haig, 20 Beav. 219; Springett v. Dashwood, 2 Giff. 526. An officer of a corporation cannot obtain an advantage to himself at the expense of the stockholders; he cannot, by his dealings, seek his own profit. Jackson v. Ludeling, 21 Wall. 616; Koehler v. Iron Co., 2 Black, 715; Brewer v. Theatre, 104 Mass. 378; Corbett v. Woodward, 5 Sawy. 403. The complainant has a right to know what gain or benefit Worthington has personally derived from his improper use of the funds of the corporation; the right, also, to an order that such gain shall be shared among all the stockholders of the corporation. Under the circumstances, it was and is the duty of the managers to declare and pay regular dividends. "The agents of a corporation, and even the majority of the stockholders, cannot arbitrarily withhold profits earned by the company, or apply them to any use which is not authorized by the company's charter." 1 Mor.Priv.Corp. § 447. It being the duty of the corporation to apply the profits to the payment of dividends, a court of equity will compel its performance. Scott v. Fire Co., 7 Paige, 198-203; Pratt v. Pratt, 33 Conn. 446; Beers v. Spring Co., 42 Conn. 17; Boardman v. Railroad Co., 84 N.Y. 157. See 1 Mor.Priv.Corp. § 276. The fact that large sums of money have been, from time to time, improperly invested in various ways,--such as Richmond Paper Co., $10,000; Massachusetts Central Railroad, $2,400; and other large sums,--shows that Worthington did not consider the amounts so invested as necessary to be retained for the business needs of the corporation, and there can be no doubt that such sums should have properly been divided among the stockholders. As to the illegality of such investments, see Colman v. Railroad Co., 10 Beav. 1; Salomons v. Laing, 12 Beav. 339; Clearwater v. Meredith, 1 Wall. 25; Davis v. Railroad Co., 131 Mass. 258; Pearce v....