Ninneman v. Fox

• Decision Date: 09 July 1906
• Parties: NINNEMAN v. FOX et al.
• Court: Washington Supreme Court

86 P. 213

43 Wash. 43

NINNEMAN v. FOX et al.

Supreme Court of Washington

July 9, 1906

Appeal from Superior Court, Spokane County; Wm. A. Huneke, Judge.

Action by William F. Ninneman against A. M. Fox and another. From a judgment dismissing the action after the sustaining of a demurrer to the complaint plaintiff appeals. Affirmed.

Charles L. Heitman, R. L. Edmiston, and William I Birdsall, for appellant.

Cullen & Dudley, for respondents.

RUDKIN J.

The legal sufficiency of the complaint is the only question presented on this appeal. The pleading itself is somewhat voluminous, but we think the following statement will sufficiently disclose the nature of the plaintiff's demand. Between the years 1901 and 1904 the Hope Lumber Company, a corporation of the state of Idaho, was engaged in the manufacture and sale of lumber, and during that period the plaintiff was its manager at a salary of $1,200 per year. The capital stock of the company was $25,000, and the plaintiff was, during the times complained of, the owner of one-fifth of the capital stock. In March, 1902, the company entered into a contract with the defendants whereby the company agreed to sell, and the defendants agreed to buy, the entire output of manufactured white and yellow pine lumber from the company's mills for the period of one year. In March, 1903, this contract was extended for an additional year, or until March, 1904. Between March, 1902, and March 1904, the defendants and their agents defrauded the Hope Lumber Company out of the sum of $11,390.25, by means of false tally lists and by deception and concealment as to the quantity and value of the lumber delivered under the above contract. The complaint avers that by reason of this fraud the business of the company diminished in value, the dividends on its stock were lessened, and the stockholders suffered injury and loss. It is further averred that the stockholders became dissatisfied with the small dividends received, and concluded that the plaintiff was not a competent person to manage the affairs of the company; that the stockholders requested and demanded that the plaintiff resign as manager, and that he assign his stock to the other stockholders, and that by reason of this request and demand the plaintiff did resign and did transfer his stock to the other stockholders. The damages claimed may be itemized as follows: (1) Loss arising from the depreciation in the value of the plaintiff's stock, $7,000; (2) one-fifth of the amount out of which the defendants defrauded the Hope Lumber Company, the same being a hidden asset of said company at the time the plaintiff transferred his stock, $2,278; (3) damages resulting from the enforced resignation of plaintiff and injury to his reputation, $15,000. A general demurrer to this complaint was sustained, and from the order of dismissal the present appeal is prosecuted.

The damages claimed by the appellant may be divided into two classes: First, damages resulting to him as a stockholder and, second, damages resulting from the loss of employment and injury to his reputation. All the authorities agree that a stockholder, as such, cannot maintain an action against a third person, either for a breach of a contract between such third person and the corporation of which he is a stockholder, or for an injury to the corporation or its property. All such wrongs must be redressed by the corporation itself and in the corporate name. The rule is thus stated in 26 Am. & Eng. Enc. of Law (2d Ed.) p. 970 'A stockholder, merely as such, cannot have an action in his own behalf against one who has injured the corporation, however much the wrongful acts have depreciated the value of his shares. Thus, he cannot sue at law to recover for goods sold by the corporation, or in equity to enforce specific performance of its contracts; nor can he maintain an action of replevin in his own name to recover corporate property. The rule applies to wrongful acts committed by directors, officers, or majority stockholders of the corporation, as well as to those committed by strangers. And the fact that the complaining stockholder has become the owner of all the capital stock, or that the corporation has done no business for a number of years, and has no property excepting the claim sued upon, does not enlarge his rights in this respect.' We have no reference now to suits brought by a stockholder where the corporate authorities refuse to act. No such case is presented here. On the contrary, it is admitted that the defendants made full reparation to the Hope Lumber Company after the appellant ceased to be a stockholder. It is manifest therefore that the appellant has no cause of action against the respondents for the loss of dividends or for damages resulting from the depreciation in the value of his stock. He had no such right of action as a stockholder, and it will not be maintained that he occupies a stronger position since he transferred his stock.

We think it is equally well settled that the other damages claimed by the appellant are too remote, and this, whether we view the acts of the defendants as a mere breach of contract or as a tort against the corporation. In Roddy v Missouri Pacific Ry. Co., 104 Mo. 234, 15 S.W. 1112, 12 L. R. A. 746, 24 Am. St. Rep. 333, the court said: 'The right of a third party to maintain...