Hayden v. Perfection Cooler Co.

Decision Date03 July 1917
Citation227 Mass. 589,116 N.E. 871
PartiesHAYDEN et al. v. PERFECTION COOLER CO. et al.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

OPINION TEXT STARTS HERE

Appeal from Superior Court, Suffolk County; Franklin G. Fessenden, Judge.

Suit by John Hayden and others against the Perfection Cooler Company and others. Demurrer to the bill was overruled, and defendants appeal. Reversed, with directions.Jas. A. Tirrell, of Boston, for complainants.

Herbert Parker, Geo. A. Parker, and Winfield C. Towne, all of Boston, for defendants.

RUGG, C. J.

This is a suit in equity by minority stockholders in the Perfection Cooler Company against that corporation and six individuals alleged to be its directors.

[1] It is a fundamental principle of equitable jurisdiction over suits by stockholders to recover against corporate officers for their wrongs committed against the corporation that they cannot be maintained by stockholders in vindication of a personal right. Such wrongs are against the corporation and have no relation to the stockholder except as he has a derivative and indirect interest. It is the corporation alone whose interests are immediately concerned, whose rights are to be vindicated and for whose exclusive benefit the damages, if any are recovered, must be paid. Therefore there must be an express allegation that the suit is brought by the plaintiffs, not for themselves alone but in behalf of all others similarly situated and interested. This principle of law in substance was declared by Chief Justice Shaw in the pioneer case of Smith v. Hard, 12 Metc. 371,46 Am. Dec. 690, with his usual conclusiveness of reasoning. That principle has been followed and amplified in numerous other decisions. Brewer v. Boston Theater Co., 104 Mass. 378;Dunphy v. Traveler Newspaper Association, 146 Mass. 495, 16 N. E. 426;Peabody v. Flint, 6 Allen, 52;Heath v. Ellis, 12 Cush. 601, 604;Converse v. United Shoe Machry. Co., 185 Mass. 422, 70 N. E. 444; s. c., 209 Mass. 539, 95 N. E. 929;Davenport v. Dows, 18 Wall. 626, 627, 21 L. Ed. 938;Continental Securities Co. v. Belmont, 206 N. Y. 7, 15,99 N. E. 138,51 L. R. A. (N. S.) 112, Ann. Cas. 1914A, 777. The plaintiffs cannot recover separate judgment for the damages sustained by them individually. They have no priority or preference over other stockholders. If the suit is sustained, the decree must be for the full amount of damages sustained by the corporation and the money must be ordered to be paid to the corporation so that it will be available for the benefit of all the creditors and all the stockholders, as if the suit had been brought by the corporation. Bartlett v. N. Y., N. H. & H. R. R., 221 Mass. 530, 531, 109 N. E. 452;Dewing v. Perdicaries, 96 U. S. 193, 198, 24 L. Ed. 654;Landis v. Sea Isle City Hotel Co., 53 N. J. Eq. 654, 33 Atl. 964;Zinn v. Baxter, 65 Ohio St. 341, 364, 62 N. E. 327;Rafferty v. Donnelly, 197 Pa. 423, 429, 47 Atl. 202;Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 635, 15 S. W. 448,24 Am. St. Rep. 625;In re Dennett, 221 Fed. 350, 136 C. C. A. 422, 426; Atwood v. Merryweather, L. R. 5 Eq. 464, 467, 468. The allegations of the bill are not sufficient in this respect. The averments as to its being brought generally in behalf of all other stockholders similarly situated who desire to join are somewhat vague and conditional. But there is no adequately specific allegation that the suit is brought for the benefit of the corporation. The prayers in this regard are indefinite.

Leave is granted to the plaintiffs to make amendments in order to overcome this difficulty. St. 1913, c. 716, § 3. We proceed to consider the case on its substantive allegations on the assumption that such amendments will be made.

The bill seeks relief against the other defendants for acts of fraudulent conversion, waste and dissipation of corporate assets and of other wrongdoing to the corporation. It is contrary to the basic principles of corporate management for minority stockholders ordinarily to interfere in corporate management by instituting litigation respecting its interest. The control of the corporation is vested in directors or other officers who occupy a trust relation to the corporation and who are presumed to be zealous for the promotion of its welfare. Commonly the stockholder must seek his remedy for illegal acts by application to the directors to protect the corporation. It is only in the exceptional instance where it is made to appear that such application would be fruitless and unavailing to protect corporate rights that the stockholder may institute an action. The present bill contains no averment of application to the board of directors and refusal by them to act. The allegation in this particular is that:

‘It is useless to request the corporation to take action because the board of directors consist of the persons herein named as respondent officers and directors, * * * and that * * * the said respondent officers and directors or some of them * * * are the ones charged herein with the guilty conduct for which this action is brought.’

This is not an allegation that a majority of the directors are faithless to their trust. In similar terms, every wrongful act charged in the bill (with two exceptions to be noted later) is alleged to have been done by ‘the officers or directors or some of them.’

[6] These averments would be fully satisfied if it should be proved at the trial that one or two out of the six directors had been faithless to their trust to the corporation and...

To continue reading

Request your trial
46 cases
  • Duane v. Merchants' Legal Stamp Co.
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • 23 Septiembre 1918
    ...Mass. 172, 96 N. E. 74;Hill v. Murphy, 212 Mass. 1, 98 N. E. 781,40 L. R. A. (N. S.) 1102, Ann. Cas. 1913C, 374;Hayden v. Perfection Cooler Co., 227 Mass. 589, 593, 116 N. E. 871;Delaware & Hudson Co. v. Albany & Susquehanna R. R., 213 U. S. 435, 29 Sup. Ct. 540, 53 L. Ed. 862. It is only b......
  • Liken v. Shaffer
    • United States
    • U.S. District Court — Northern District of Iowa
    • 26 Enero 1946
    ...where recovery is allowed, the judgment is entered in favor of the corporation. Smith v. Bramwell, supra; Hayden v. Perfection Water Cooler Co., 1917, 227 Mass. 589, 116 N.E. 871. The general rule is that no proportionate judgment can be allowed a stockholder in a derivative stockholder's s......
  • Samia v. Central Oil Co. of Worcester
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • 28 Abril 1959
    ...on the ground that the stockholders have only derivative rights against one who has wronged their corporation. Hayden v. Perfection Cooler Co. 227 Mass. 589, 591, 116 N.E. 871. Shaw v. Harding, 306 Mass. 441, 448, 28 N.E.2d 469, and cases cited. Cf. Von Arnim v. American Tube Works, 188 Mas......
  • Spiegel v. Beacon Participations, Inc.
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • 14 Junio 1937
    ...by its directors. Bartlett v. New York, New Haven & Hartford Railroad Co., 221 Mass. 530, 531, 109 N.E. 452;Hayden v. Perfection Cooler Co., 227 Mass. 589, 591, 116 N.E. 871. The circumstance is pressed that, although the trial judge described the business experience of individual defendant......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT