Malcom v. Stondall Land & Inv. Co.

• Citation: 129 Mont. 142,284 P.2d 258
• Decision Date: 31 May 1955
• Docket Number: No. 9283,9283
• Parties: Willard MALCOM and Evelyn Malcom, husband and wife, Plaintiffs and Appellants, v. STONDALL LAND AND INVESTMENT COMPANY, a corporation, Defendants, and Alice M. Stondall, Helen B. Stondall and Mrs. Robert J. Hogan, Intervenors and Respondents.
• Court: United States State Supreme Court of Montana

Page 258

284 P.2d 258

129 Mont. 142

Willard MALCOM and Evelyn Malcom, husband and wife Plaintiffs and Appellants, v. STONDALL LAND AND INVESTMENT COMPANY, a corporation, Defendants, and Alice M. Stondall, Helen B. Stondall and Mrs. Robert J Hogan, Intervenors and Respondents.

No. 9283.

Supreme Court of Montana.

May 31, 1955.

Leavitt & Lucas, Miles City, Hansen, Jones & Culver, Baker, Al Hansen, Baker, argued orally, for appellants.

O'Neil & Cavanaugh, Desmond J. O'Neil, Glendive, Thomas J. Cavanaugh, Glendive, argued orally, for respondents.

DAVIS, Justice.

Appeal from an order of the district court for Fallon County, which set aside a judgment by default and permitted an answer upon the merits.

The pertinent facts are few. The plaintiffs (appellants here) commenced an action under R.C.M.1947, § 93-6203 et seq., to quiet their title to certain described lands against Stondall Land and Investment Company, a corporation of the State of Minnesota, joining also as defendants all persons 'unknown claiming or who might claim any right, title, estate or interest' adverse to the plaintiff's ownership, etc.

Personal service of summons was had pursuant to R.C.M.1947, § 93-3008 et seq., as amended, upon the named corporate defendant, which had previously qualified to do business in Montana. Service by publication upon all defendants as required by statute then followed. It nowhere appears that the corporation itself did not receive the copies of the summons and complaint which the record shows were mailed it.

On December 14, 1951, a judgment by default was entered, quieting the plaintiffs' title and adjudging particularly that they were the 'owners absolute and in fee simple of all of the minerals in and under the premises' described.

The integrity and regularity of these proceedings are not challenged.

But subsequently the respondents appeared and moved under R.C.M.1947, § 93-3905, to set aside this judgment because of their excusable neglect, etc. In support of their motion as amended there were filed two amended affidavits, the one by their attorney, the other by a third person, one Sessions, who 'was interested in purchasing an oil and gas lease on certain properties in Fallon County, Montana,' as he describes himself. This motion and these affidavits recited that they were the sole heirs at law of one Albert M. Stondall, the president and sole stockholder at the time of his death of Stondall Land and Investment Company, and had accordingly succeeded to all his interests in said corporation, that they did not have actual notice of the action in time to make a defense, but had acted promptly thereafter to set aside the default decree rendered against the corporation, and that they had a prima facie defense, etc. No affidavit or other evidence given by the respondents personally appears in the record.

With their motion the respondents tendered for filing a proposed amended answer and cross complaint made 'for themselves and as the sole stockholders of said Company', in which they alleged inter alia,

'* * * that the said Stondall Land and Investment Company ever since the 3rd day of November, A.D. 1919, has been and now is vested with the absolute title to all of the coal, iron, oil and natural gas and asphalt in and under the lands described herein * * *'

Thereon they prayed a decree, adjudging that these mineral interests are 'owned absolutely by the defendant, Stondall Land and Investment Company', and that the title of that defendant thereto accordingly be quieted.

This motion the lower court granted, thereby vacating the judgment or decree of December 14, 1951, against the corporation.

From that order the plaintiffs have taken this appeal.

Of the several questions raised or suggested and argued by counsel we find one which in our view is decisive of this controversy. It is therefore unnecessary for us to discuss any other.

That question is: May the respondents who variously describe themselves as (1) the sole stockholders, and (2) the heirs at law and successors to the interests of the sole stockholder of the defendant corporation appear in their own names and upon their own motion vacate the judgment against their corporation, thereafter answer to the merits in their own names but for the corporation, and thereupon in their own names prosecute the corporation's cause of action to quiet its title to the minerals in issue?

Upon the showing made we conclude they may not.

The short answer to the question put is that as a general rule stockholders may not sue upon a cause of action belonging to their corporation whether in their own names or in the name of the corporation itself. Nor generally may they defend for it an action brought against the corporation as defendant.

The point has not been heretofore presented to this court by the sole or majority stockholders of a corporation.

But this court has repeatedly reached this conclusion where a minority stockholder has sought to sue for the corporation. Noble v. Farmers Union Trading Co., 123 Mont. 518, 216 P.2d 925; Cobb v. Lee, 80 Mont. 328, 260 P. 722; Allen v. Montana Refining Co., 71 Mont. 105, 121, 122, 123, 227 P. 582; Deschamps v. Loiselle, 50 Mont. 565, 573, 148 P. 335; Brandt v. McIntosh, 47 Mont. 70, 73, 74, 130 P. 413. See also 18 C.J.S., Corporations, § 559, pp. 1272 et seq., § 560, p. 1276; 14 C.J., Corporations, § 1444, pp. 924 et seq., § 1447, pp. 929 et seq.; 13 Am.Jur., Corporations, §§ 461, 462, pp. 504 et seq. The exceptions to this rule are as well defined as the rule itself. They are noted in the citations above, particularly in Noble v. Farmers Union Trading Co., supra, 123 Mont. at page 529 et seq., 216 P.2d 925. But none of these exceptions fits the respondents' case, primarily because they are not minority stockholders. Taken at their word they are either the sole or majority stockholders of Stondall Land and Investment Company, or what is the same thing the heirs at law and successors to the interests of the sole or majority stockholder of that corporation. In either case they control the corporation.

And for this reason no decision which we have found in this or any other court of last resort where the common law obtains permits them to sue or defend for the corporation. The corporation itself must in such circumstances appear and plead; or there may be neither suit nor defense for it.

The underlying reason is, of course, that because the majority stockholders control the corporate machinery, they necessarily control the corporation and through its officers and directors the defense and the prosecution of any litigation involving the corporation. The sole or majority stockholders then have no need to resort to the indirection of a stockholders' suit by grace of a court of equity to protect the corporate interests. Equity will deny them any such relief, if asked, because their remedy within the corporation is adequate.

To turn specifically to the case in hand, we take judicial notice from the statutes of the State of Minnesota, R.C.M.1947, § 93-501-2, where this corporation is domiciled, (1) that as stockholders the respondents may elect a board of directors who will be entirely responsive to their wishes in any corporate matter, (2) that if they choose, they may elect themselves directors and so manage their corporation in person, 2 Minn.Stat.1949, Chap. 301, § 301.28, M.S.A., (3) that they may remove the entire board of directors, or any individual director by a majority vote with or without cause, 2 Minn.Stat.1949, Chap. 301, § 301.29, M.S.A., (4) that by their own board of directors so chosen they may dictate the choice of the corporate officers, 2 Minn.Stat.1949, Chap. 301, § 301.30, M.S.A., and (5) that they may thus effectively chart the course of this litigation by the corporation itself through the corporate officers and in the corporate name as the real party in interest and as R.C.M.1947, § 93-2801, requires.

It follows that the respondents have no standing in a Montana court to sue for the corporation upon its cause of action pleaded in the proposed cross complaint at bar, or to defend for the corporation against the plaintiffs' suit as is the proposed answer. Brandt v. McIntosh, supra, 47 Mont. at page 73, 130 P. 413; Cobb v. Lee, supra, 80 Mont. at page 337 260 P. 722; Noble v. Farmers Union Trading Co., supra, 123 Mont. at page 534, 535, 216 P.2d 925; Allen v. Montana Refining Co., supra, 71 Mont. at page 122, 227 P. 582.

Stated otherwise, the respondents may not assert in this suit the corporation's cause of action or defense, because unlike the minority stockholder who sued and was sustained in Sullivan v. Mountain, 117 Mont. 224, 160 P.2d 477, they cannot truthfully allege that the corporate officers and directors, whom they elect, control and may summarily remove, would not sue and defend in the name of the corporation and for it, if the respondents demanded that they do so. It is equally certain that they did not, because they could not, allege that such a demand made was refused.

Fundamentally they cannot make the required showing, because as the sole stockholders of the defendant corporation they dictate corporate action, which wholly distinguishes their case from that of the minority stockholder in Sullivan v. Mountain, supra. There equity did for him what he could not do for himself. Here equity will not do for the respondents what they clearly can do for themselves.

And if they may neither sue nor defend here for Stondall Land and Investment Company, it follows that they may not move to vacate this judgment against it, even though they had sought to do so in the corporation's name. Hamill v. Great Northern Copper Co., 52 S.D. 271, 217 N.W. 195, decided under a statute substantially identical with section 93-3905, supra.

To sustain this conclusion further we need not resort to the opinions of other courts written in like cases. The decisions of this court suffice, for they...