Moses v. Tompkins

• Decision Date: 26 July 1888
• Citation: 84 Ala. 613,4 So. 763
• Parties: MOSES ET AL. v. TOMPKINS. SAME v. WOODSON ET AL.
• Court: Alabama Supreme Court

4 So. 763

84 Ala. 613

MOSES ET AL. v. TOMPKINS.

SAME v. WOODSON ET AL.

Supreme Court of Alabama

July 26, 1888

Appeals from chancery court, Colbert county; THOMAS COBBS Chancellor.

Bills in equity, filed by H. B. Tompkins and by C. D. Woodson and others, against A. H. Moses and others, to enjoin defendants as directors of the Sheffield & Tuscumbia Street-Railway Company, from selling the stock held by the plaintiffs, to pay assessments and calls thereon, and from making further calls thereon, and from further construction of a certain extension of their road. Defendants appeal from judgments overruling their motions to dissolve.

R C. Brickell and Roulhac & Nathan, for appellants.

Roquemore, White & Long and Kirk & Almon, for appellees.

CLOPTON J.

The appeal in each of the above-stated cases is taken from a decree of the chancellor, overruling a motion to dissolve a temporary injunction; the motion being rested on want of equity in the bill, and on the denials of the answer. The appeals were submitted, and will be considered together, involving mainly questions in common. The bills are filed by appellees, as shareholders of the Sheffield & Tuscumbia Street Railway Company, and seek to enjoin appellants, who claim to be directors of the corporation, from selling the stock of complainants for the payment of assessments and calls thereon; from making other calls; and from constructing, with material belonging to the corporation, a line or branch of the railway from the Memphis & Charleston Railroad to the main line of the company. When the motion to dissolve an injunction is founded on the ground that the bill is wanting in equity, the substance, the facts stated, and not the manner in which they are alleged, must be considered,-all amended defects should be regarded as amended; and, when the motion is based on the denials of the answer, the allegations of the bill will be taken as true, unless contradictory of each other, or positively denied,-matter in avoidance cannot be considered. Though generally, when the answer fully and unequivocally denies the material allegations of the bill, the injunction will be dissolved, the rule is not inflexible. The injunction will not be dissolved if any circumstances are apparent which called for a departure from the general rule. We eliminate from consideration all matters not proper to be considered under these rules. It is insisted that there is no independent equity in the bill, separated from the question of the legality of the election of the defendants. As a general rule, courts of equity will not take jurisdiction for the mere purpose of inquiring into the legality of the election of officers of a private corporation, nor of amoving from office an officer in actual possession. In such case, a complaining shareholder must resort to the remedies at law,-an action of quo warranto, or the special proceedings provided by statute. But when an independent and special ground of equitable interposition, on which the court may take rightful jurisdiction, exists and is shown, it will inquire into the legality of the election, coming in question collaterally and incidentally. Nathan v. Tompkins, 82 Ala. 437, 2 South. Rep. 747. The bills, as we interpret them, do not solely and primarily invoke the jurisdiction of the court to inquire into the legality of the election of the directors, nor to vacate their offices. The first special equity is to prevent the sale of the stock of the complainants for the payment of an assessment and call made and ordered by the defendants in the capacity of directors, who, it is alleged, were not legally elected or appointed; to prevent a threatened injury to a primary right, which, if consummated, will subject complainants to a multiplicity of suits, and to litigate their title to the stock under the disadvantages of embarrassment and complication by the claims of third persons who may become purchasers thereof. The special equity is that persons, assuming to act as directors without legal authority, are proceeding, colore officii, to do acts which will, primarily and directly, destroy or impair the proprietary rights of complainants as stockholders. In order that an assessment and call for the payment of subscriptions to the capital stock of a corporation may be legal and enforceable, it must, ordinarily, be made by the corporate authorities, in whom the power is vested by the charter or by-laws, or by the general laws. In Mining Co. v. McLister, 1 App. Cas. 39, a bill was filed to declare invalid a forfeiture of stock for the non-payment of calls, made by directors alleged to have been illegally elected. The question of the validity of the forfeiture ultimately depended on the validity of the election of the persons who, assuming to be directors, declared complainant's shares forfeited for non-payment of a call made by them. The bill was sustained, the declaration of the forfeiture declared invalid, and it was held that there must be properly appointed directors to make a call and to declare a forfeiture of shares for non-payment. It has also been held in other cases that the illegality of the election of the persons who, as directors, make a call, may be set up in resistance to a suit for its recovery. Insurance Co. v. Westcott, 14 Gray, 440. To prevent irreparable mischief, multiplicity of suits, the destruction and impairment of the primary rights of the stockholders equity will interfere, at the instance of a stockholder, and restrain the sale of his stock for the payment of a call made by illegally elected or appointed directors. The validity of the election of defendants, as directors, arises collaterally and incidentally, and the duty to inquire into and decide the question is necessarily involved.

The company was incorporated in January, 1887, under the general laws; and at the first meeting of the stockholders seven directors, being the number provided for by the by-laws, were elected, consisting of McMillan, Hull, Swartz, Russell, Almon, and the defendants A. H. Moses and A. H. Kellar. By the by-laws and the statutes their terms of office continued until the annual meeting of the stockholders in April, 1888, and until their successors were elected and qualified. Code 1876, § 1923. The by-laws further provide: "No person shall be elected, and if elected, shall serve, as a director, who does not own in his own name and right at least ten shares of stock in the company, and who shall have held said stock continuously since, at least, the preceding annual election of directors." McMillan, Hull, Swartz, and Russell sold their stock, and Almon sold all of his except four shares; thereby disqualifying themselves for serving as directors. In consequence thereof, Moses and Kellar, remaining directors, elected in May, 1887, their co-defendants, Nathan, Samuel Kellar, M. L. Moses, and A. J. Moses, to fill the vacancies. We shall not inquire whether such self-disqualification, and the failure to act as directors thereafter, were tantamount to a formal resignation, and operated to create a vacancy. Were such result conceded, the question still remains, did the two remaining directors have authority to fill the vacancy? By the by-laws, a majority of the board of directors constitute a quorum for the transaction of business; and, by statute, "where the corporate powers are directed to be exercised by any particular body or number of persons, a majority of such body or persons form a board for the exercise of such powers." Code 1876, § 2024. And, in special reference to the incorporation of "street-railroad companies," the statute, after providing for the election of directors at the first meeting of the incorporators, expressly provides: "A majority of such directors shall form a board, and be competent to fill vacancies in their board, make by-laws, and transact all business of the corporation." Id. § 1924. It is manifest, from the provisions of the by-laws and the statutes, that no number of directors less than a majority, acting as a board, is empowered to transact the business of the corporation, or to fill vacancies in the board.

The next question is, does the ratification of their election by the stockholders, at the meeting in August, 1887, legalize and validate their appointment? It is unnecessary to inquire whether or not the meeting was called by proper authority and in a legal manner, or whether or not the requisite majority of stock was represented. In either event, the result is the same. It was a special, as distinguished from an...