Nathan v. Tompkins

• Citation: 2 So. 747,82 Ala. 437
• Parties: NATHAN v. TOMPKINS AND OTHERS.
• Decision Date: 28 July 1887
• Court: Supreme Court of Alabama

2 So. 747

82 Ala. 437

NATHAN v. TOMPKINS AND OTHERS.

Supreme Court of Alabama

July 28, 1887

Appeal from chancery court, Colbert county.

Bill in equity by stockholder to prevent consolidation of corporations, and for injunction. The bill in this case was filed by Jo. H. Nathan, a stockholder in the Sheffield &amp Tuscumbia Street-Railway Company, to prevent its consolidation with the Sheffield Street-Railway Company against his objection and that of a number of other stockholders; and to enjoin H. B. Tompkins from voting 20 shares of stock, called the Scott stock; also to enjoin Tompkins, Almon, White, Woodson, Boylston, Steele, and Crowe from acting as officers and directors of the Tuscumbia &amp Sheffield Street-Railway Company. Answers having been filed the chancellor, on motion, dissolved the injunction, and from his decree this appeal is taken. The opinion states the facts.

Brickell, Semple & Gunter and J. B. Moore, for appellant.

Roquemore, White & Long, Cooper & Cooper, and Kirk & Almon, contra.

CLOPTON J.

The appeal is taken from a decree of the chancellor made in vacation, on a motion to dissolve, on bill and answer, a temporary injunction, on the ground of want of equity in the bill, and the denials of the answers. Though an injunction should not be continued, when it is apparent that the bill is wanting in equity, a motion to dissolve on this ground cannot and does not perform the office of a demurrer. The inquiry on such motion is, do the facts alleged, if sufficiently pleaded, make a case calling for equitable interposition? If so, all amendable defects will be regarded, for the purposes of the motion, as cured by amendment. East & West R. Co. v. East Tennessee, V. & G. R. Co., 75 Ala. 275.

The primary purpose of the original bill, which is brought by appellant as a stockholder in the Sheffield & Tuscumbia Street-Railway Company, is to annul, so far as accomplished, the consolidation of the company with the Sheffield Street-Railway Company, and to prevent and restrain the consummation of the consolidation. Both companies are incorporated, under the general laws of the state, for the purpose of building and operating street railways from Tuscumbia,-one to the city of Sheffield, and the other to East Sheffield, the two places adjoining each other. The Sheffield & Tuscumbia Street-Railway Company was organized January 6, 1887, by the election of seven directors, viz.: Ferdinand D. McMillan, Arthur H. Kellar, Alfred H. Moses, John T. Hull, Ed. B. Almon, W. B. Russell, and G. W. Swarty. At subsequent meetings of the directors, McMillan was elected president, Hull vice-president, Almon secretary, and complainant treasurer, and by-laws were adopted. The other company was incorporated and organized subsequently.

So far as necessary to be stated in this aspect of the bill, the allegations are that certain persons, who were stockholders in both companies, and who are largely interested in the development of East Sheffield, undertook to manipulate the consolidation of the two corporations. In order to accomplish this object, the president called a meeting of the directors of the Sheffield & Tuscumbia Street-Railway Company at the Cleveland Hotel, to be held at 10 o'clock A. M. of April 27, 1887. Two of the directors, Moses and Kellar, who were not in the combination, met at the appointed hour and place, and, after waiting an hour, no others appearing, adjourned for want of a quorum. Afterwards, at 12 o'clock, four other directors, McMillan, Hull, Almon, and Russell, met and held a meeting, at which the by-laws were amended, so as to repeal the provision that no stockholder shall be eligible as director unless he shall have held his stock continuously since the last annual election of directors, to allow any stockholder the right to vote without reference to the time he had held his stock, and to change the annual meeting of the stockholders from the third Tuesday in April, 1888, to the second Tuesday in May, 1887; and, after the amendment of the by-laws, the president called a meeting of the stockholders to be held on May 10, 1887.

The bill further alleges that a meeting of stockholders was organized, on the day appointed, in pursuance of the call of the president. At this meeting seven new directors were elected, consisting of the defendants Thompson, Woodson, Almon, White, Boylston, Crowe, and Steele. The former president, McMillan, Vice-president Hull, and Director Russell transferred their stock to Tompkins, April 27, 1887; and subsequently the new directors elected Tompkins president, Woodson treasurer, Almon secretary, and White superintendent. And, at this meeting of the stockholders, propositions for consolidation submitted by the Sheffield Street-Railway Company were adopted, and resolutions were passed that the consolidation should be carried into effect, and that the stockholders of the two corporations convene at once as stockholders of the consolidated company, to enact by-laws, elect a board of directors, and do all things necessary and proper to effectuate the scheme of consolidation. It is unnecessary to consider the illegal and ultra vires character of the attempted consolidation. This is admitted; but the equity of the bill of assailed, on the ground that it proceeds against the individual defendants, not as officers of the corporation, but as third parties usurping the right and power to manage its affairs and property; and that complainant does not bring himself within the exception by an averment that he has appealed to or requested the governing body or the shareholders to redress the grievance complained of, and failed to obtain remedial action. There can be no doubt that before a stockholder can bring suit in respect to the acts of the directors, whether intra or ultra vires, or to intra vires acts of a majority of the shareholders, or to injuries arising from the inefficiency or unfaithfulness of the managing body,-cases where the injury is to the corporation as such, and not directly to the stockholder,-he must aver and show an honest effort to obtain redress within the corporation, and to induce action on the part of the directory and of the stockholders, one or both, as may be proper, or a reasonable excuse for not doing so.

In Tuscaloosa Manuf'g Co. v. Cox, 68 Ala. 71, after stating the general rule, it is said: "We will not say there may not be cases in which the strong restraining arm of the chancery court may be invoked in the first instance. The whole governing force may become corrupt, or may enter into a combination, either ultra vires, or so destructive of the policy and property of the corporation, as to show an appeal to the directory would be fruitless, and delay extremely perilous."

But the case made by the bill does not come within either of the classes mentioned. It substantially avers that, at the meeting of the shareholders, the defendants Tompkins, Almon Boylston, and White, claiming to represent 510 shares of the capital stock, voted them unanimously in favor of the consolidation, to which the stockholders, representing and holding the other 490 shares, who were absent, were opposed. It is true the bill assails the legality of the election of the new directors, and while the amendment to the bill alleges that they claim to be directors and officers of the corporation, it also alleges that they procured themselves to be elected for the purpose of transferring the franchises, and consolidating it with the other corporation. The case made by the bill is that of a shareholder seeking preventive remedy against the wrongful and illegal acts of a majority, done in convention of stockholders, which would operate a virtual dissolution of the corporation, and the formation of a new one,-to impair the obligation of the contract of corporation. A stockholder may bring suit where the wrong complained of is unauthorized by the charter or by the general law, and is committed by a majority in excess of their powers. The courts will provide a remedy against any violation of or departure from the...