Sheehy v. Barry

• Decision Date: 15 January 1914
• Citation: 87 Conn. 656,89 A. 259
• Court: Connecticut Supreme Court
• Parties: SHEEHY et al. v. BARRY et al.

89 A. 259

87 Conn. 656

SHEEHY et al.

v. BARRY et al.

Supreme Court of Errors of Connecticut.

Jan. 15, 1914.

Appeal from Superior Court, New Haven County; William H. Williams and William L. Bennett, Judges.

Suit by Frank Sheehy and others against John J. Barry and others. Judgment for defendants, and plaintiffs appeal. Error, and new trial ordered.

Complaint in equity for a decree dissolving the defendant corporation, and winding up its affairs, for an accounting for rents and a temporary receiver, for damages and such other relief as justice and equity may require. A demurrer to the substituted complaint was sustained, and Judgment thereafter rendered for the defendants.

Danaher & Danaher, of Meridan, for appellants. Oswin H. D. Fowler, of Wallingford, for appellees.

WHEELER, J. The demurrer admits these facts: The plaintiffs consist of a voluntary association and individual members of it and of the defendant corporation. The defendants consist of the corporation and certain suspended officers and members of it. The corporation has the title to certain land and buildings erected with the funds of the association, and taken and held for the convenience and benefit of the members of the association. The suspended officers and members have forcibly seized and taken possession of the buildings, evicted the plaintiffs and the corporation, and have since this time received and retained the rents from the buildings amounting to $1,500, and refused the plaintiffs or the corporation access to the same, and have now agreed to sell them by falsely and fraudulently usurping the title to the offices from which they were suspended. The assets of the corporation are being wasted and grossly mismanaged, and are in danger of being wholly lost. Because of the unlawful agreement of the defendants to usurp the offices, and to defraud the plaintiffs and the creditors of the corporation of any part of the assets of the corporation, the plaintiffs and the creditors of the corporation are in danger of losing all of their rights to the assets of the corporation. The plaintiffs endeavored to prevent said acts of defendants at the meetings of the members of the association and of the corporation, and, although the plaintiff members were in a large majority, the individual defendants defeated their attempt to prevent these illegal acts, and correct these conditions, and by their acts, and by ordering a constable to arrest any plaintiff attempting to speak at the meetings, the plaintiffs were compelled to leave after exhausting all of the means provided by the by-laws.

The principal grounds upon which the demurrer was sustained were: (1) That the action, if any, is in favor of the corporation alone, and cannot be maintained by the plaintiffs. (2) That the complaint does not allege that the present officers of the corporation have been asked or have refused to redress the injuries complained of, or that their appeal to the proper officers would be without avail. (3) That it is not alleged that the plaintiffs, being a majority of the stockholders, have been unable to select officers at a duly called meeting.

The case presented is one where usurpers of the offices of a corporation have appropriated some and wasted other of its assets, and now purpose selling the remainder for their own benefit, and have forcibly prevented the plaintiffs, although a majority of the stockholders, from securing control of the corporate offices, and correcting and preventing these acts of fraud and mismanagement.

If the defendant officers were de jure officers, equity would restrain their acts of waste and of self-enrichment under the general prayer for relief for "such other relief as justice and equity may require." Since the officers of a corporation are trustees, a court of general equitable jurisdiction would at the instance of any stockholder prevent a willful misappropriation of its funds and a waste of its assets, and compel the officers to account for their misconduct. Davis v. Gemmell, 70 Md. 356, 376, 17 Atl. 259; Byrne v. Schuyler El. Mfg. Co., 65 Conn. 336, 351, 352, 31 Atl. 833, 28 L. R. A. 304; Pratt v. Pratt Read Co., 33 Conn. 446, 457; Scofield v. Eighth School District, 27 Conn. 499, 504; Sears v. Hotchkiss, 25 Conn. 170, 176, 65 Am. Dec. 557; Dodge v. Woolsey, 18 How. 331, 15 L. Ed. 401; Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827.

As a general rule equity will require the minority stockholder to first request the offending officers to desist from the acts complained of before it will entertain the bill of the minority stockholder. High on Receivers (4th Ed.) § 295c; 4 Thompson on Corp. (Ed. 1895) § 4512; Sheridan Brick Works v. Marion Trust Co., 157 Ind. 292, 298, 61 N. E. 666, 87 Am. St. Rep. 207.

But when the occasion is urgent, and the officers whose willful misconduct has resulted in the continued and continuing waste and destruction of the assets of the corporation are continuing in such course, a court of equity does not compel a minority stockholder to make demand upon the guilty officers before he may bring his action when every indication points to the fact that such, a demand would prove fruitless. Hardon v. Newton, 14 Blatchf. 376, 379, Fed. Cas. No. 6,054; Davis v. Gemmell, supra; Sheridan Brick Works v. Marion Trust Co., supra.

Principles applicable to de jure officers should be equally applicable, and more readily available, against usurping officers.

It is true that a title to office may not be tried in a court of equity; but, if the title arises in an equitable case, the court will determine the question for the purpose of administering in that case its equitable jurisdiction.

So equity may restrain usurpers, and compel them...