Shadoin v. Sellars
| Decision Date | 23 March 1928 |
| Citation | 223 Ky. 751,4 S.W.2d 717 |
| Parties | SHADOIN v. SELLARS et al. |
| Court | Kentucky Court of Appeals |
Appeal from Circuit Court, Henderson County.
Suit by A. B. Sellars and others, for themselves and for the use and benefit of unknown stockholders of the Sebree Oil & Gas Company, for the sale of the corporation's property and the distribution of the proceeds among the stockholders. L L. Shadoin, one of the purchasers and stockholders, filed exceptions to the report of sale, and, from the judgment confirming the sale, he appeals. Reversed and remanded.
G. L Drury, of Morganfield, for appellant.
Rayburn & Withers and C. W. Bennett, all of Dixon, for appellees.
In May 1889, incorporators prepared and filed articles of incorporation in the office of the county clerk of Webster county creating a corporation under the name of the Sebree Oil & Gas Company. Nine individuals signed the articles, all of whom are now dead except two. The life of the corporation was 25 years. An amendment was filed a few days after the original articles were recorded, but thereafter no amendment was filed and the life of the corporation was not extended. The corporation had a capital stock of $1,000,000. The object and purposes for which it was incorporated were to buy, lease, sell, develop, and test for oil, gas, and other minerals. During the life of the corporation it acquired certain leases in Webster county. These leases were to run for the period of 50 years. They were paid for in stock of the corporation. By the terms of its charter the corporation expired in May, 1914. There were no liabilities, and the number, names, and addresses of many of the stockholders are unknown. It is alleged in the petition that much of the stock was sold, but there are no records of any kind which show to whom it was sold. A number of the former stockholders are named in the petition, but it is alleged that there are many others who are wholly unknown to those instituting the suit.
Three of the stockholders instituted suit in the Henderson circuit court against one other stockholder. They alleged that the stockholders of the defunct corporation were the owners of the leases described in the petition. The purpose of the original petition was to cause the property to be sold so that the proceeds might be divided among the stockholders. Later an amended petition was filed asking for a settlement of the affairs of the corporation. The lower court granted the relief sought, directed a sale of the property and appointed a special commissioner in Webster county to make the sale. Each lease was sold separately and purchased for a small sum. The commissioner made his report to the Henderson circuit court. One of the purchasers, and one of the stockholders in the company, filed exceptions to the report of sale, which were overruled. The purchaser has appealed for the purpose of ascertaining the correctness of the proceedings below. The exceptions may be summarized under these heads:
(1) The Henderson circuit court had no jurisdiction of the subject-matter of the action because all of the leases described in the petition and ordered sold by the judgment are in Webster county, as was also, at least presumably, the home office of the corporation while it was in existence.
(2) The appellees had no right to maintain the action for the use and benefit of the unknown stockholders and that it was necessary that the unknown stockholders be brought before the court by some recognized Code procedure.
(3) The appellees had entered into collusion with the defendant and that the defendant, acting in collusion with the appellants, entered his appearance in the Henderson circuit court.
(4) Because the corporation ceased to exist in 1914 and that its title to the property gave it no right other than to explore for minerals, and for that reason when the corporation ceased to exist all its rights, title, and interest in the leases terminated.
We shall discuss these grounds of exception in reverse order. No copy of the leases or any lease is made a part of the record. We do not know the nature of the leases or the condition or terms thereof. The weight of authority is that upon the dissolution of a business corporation its property vests in the stockholders, subject to the payment of corporate liabilities. Neptune Fire Engine & Hose Co. v. Board of Education of Mason County, 166 Ky. 1, 178 S.W. 1138, Ann. Cas. 1917C, 789; Ewald Iron Co. v. Commonwealth, 140 Ky. 692, 131 S.W. 774; Young v. Fitch, 181 Ky. 29, 206 S.W. 29. Under the rule announced in these cases when the corporation ceased to exist in 1914 the property then standing in its name vested in the stockholders. If the corporation owned the leases described in the petition, the title to the lease passed to the stockholders; but, if it had lost its rights for any reason, the stockholders took no title. At a sale of these leases the purchaser took, or will take, only such right, title, or interest as the corporation had at the time it ceased to exist unless perchance the stockholders have lost some right, title, or interest after the expiration of the charter of the corporation, and in such event the purchaser took, or will take, only such interest as the stockholders had at the time of the sale.
There is nothing in this record showing any collusion between the parties to this action. The petition shows that it was filed in the Henderson circuit court as a matter of convenience, and the lone stockholder who was made a defendant entered his appearance, as his interest was a common interest with that of the stockholders instituting the suit.
It is suggested by counsel for appellant that the stockholders instituting the suit had no right to act for, and on behalf of, the unknown stockholders. The allegations of the petition bring their right to so act well within the provisions of section 25 of the Civil Code. It is further suggested that in suits relating to the title of real estate it is necessary to bring all of the parties before the court either by summons or by constructive service. Such seems to be the provision of subsection 7 of section 494 of the Civil Code of Practice. In this case it is urged that it is not only impracticable, but impossible, to bring all of the interested parties before the court, as their names and places of residence are unknown. Section 691 of the Civil Code of Practice was enacted to meet exactly such a situation. If this action should be treated as one to sell real estate belonging to joint owners only, all of the parties should be brought before the court by summons or constructive service. This, however, is not a suit solely for that purpose. The amended petition sought a settlement of the affairs of the corporation, and the sale of the property standing in the name of the corporation was necessary to the relief sought. Under the authority of Young v. Fitch, supra, the plaintiffs in the lower court had the right to act for and in behalf of the unknown stockholders under the provisions of section 25 of the Civil Code. The corporation has an existence beyond its life as provided in the charter for the sole purpose of winding up its affairs. It is true there were no directors of this corporation at the time of its termination, but, in the absence of directors, stockholders have control of the corporation until directors are elected, and while this fact may distinguish this case from Young v. Fitch, supra, we believe it is sound to hold that, where there are no directors, stockholders may institute suit to wind up the affairs of the corporation, although we find no authority on that particular point. We have reached the conclusion that the stockholders who filed the suit had the right to do so for themselves and for the use and benefit of the unknown stockholders after the filing of the amended petition.
We come now to the real difficulty in the case. Section 62 of the Civil Code of Practice...
To continue reading
Request your trial