Smith v. Stone

• Decision Date: 09 December 1912
• Docket Number: 694
• Citation: 128 P. 612,21 Wyo. 62
• Parties: SMITH v. STONE ET AL
• Court: Wyoming Supreme Court

128 P. 612

21 Wyo. 62

SMITH v. STONE ET AL

No. 694

Supreme Court of Wyoming

December 9, 1912

ERROR to the District Court, Uinta County; HON DAVID H. CRAIG Judge.

The material facts are stated in the opinion.

Affirmed.

T Blake Kennedy, for plaintiff in error.

Stating in a notice for an annual meeting of a corporation that it will be held not only for the election of trustees, but "for the transaction of such business as may properly come before the meeting," does not authorize the adoption of a resolution at such meeting providing for a sale of all of the corporate assets. (Ins. Co. v. Wescot, 80 Mass. 440.) To authorize the adoption of such a resolution at any corporate meeting the stockholders must be advised thereof in the notice calling the meeting. (Atlantic &c Co. v. Mason, 5 R. I. 463; Jones v. Railroad, 67 N.H. 19; 10 Cyc. 327.) It appears from the petition that notice was duly given to the corporation to institute proper proceedings to protect the rights of the stockholders with reference to the sale in controversy, and the corporation having failed to commence any proceeding the action for proper relief may be maintained by the plaintiff, who is a stockholder, in his own name. (Wickersham v Crittenden, 93 Cal. 17, 22 P. 788; Wright v. Oroville Co. , 40 Cal. 20; Brewer v. Theater, 104 Mass. 378; State v. Holmes, 60 Neb. 39; Knoop v. Bohmrich, 49 N. J. Eq. 82; Taylor v. Exporting Co., 5 Ohio 162; Gamble v. Water Co., 123 N.Y. 91; Barr v. R. R. Co., 96 N.Y. 444; Greaves v. Gouge, 69 N.Y. 154; Detroit v. Dean, 106 U.S. 537; Butts v. Wood, 37 N.Y. 317.)

A transaction in which a person acts at one and the same time for himself and in a fiduciary capacity must be closely scrutinized. This principle applies to transactions of directors of corporations. (Bank v. Iron Co., 97 Mo. 38; Pearson v. Ry. Co., 62 N.H. 537; Fitzgerald v. Constr. Co., 44 Neb. 463; Wardens &c. v. Rector, 45 Barb. 356; Ins. Co. v. Ins. Co., 14 N.Y. 85; Booth v. Robinson, 55 Md. 419; Hutchinson v. Mfg. Co., 57 F. 998; Cole v. Iron Co., 59 Hun, 217; Wilbur v. Lynde, 49 Cal. 290.) In some of these cases, and in many others, the act of controlling directors of two corporations dealing together is severely criticized. Directors of corporations are trustees for the stockholders and are held to a strict accountability. (Robinson v. Smith, 24 Am. Dec. 212; Abbott v. Rubber Co., 33 Barb. 578; Canning Co. v. Fraser, 81 Tex. 407; Butts v. Wood, 37 N.Y. 317; Flynn v. Railroad Co., 158 N.Y. 493; State ex rel. v. Holmes, 60 Neb. 39; Rabe v. Dunlap, 51 N. J. Eq. 40; Pearson v. R. Co., supra; Fogg v. Blair, 139 U.S. 118; Ryan v. R. Co., 21 Kan. 70.) A court of equity will afford relief against the misconduct, bad faith, and fraudulent actions of officers of a corporation. While the court will not presume to direct the management of a corporation, yet in the case of misconduct, bad faith, or fraud on the part of the officers, relief will be afforded to the injured party. This relief embraces injunctions, receiverships, accounting and the like, and is applicable under circumstances such as those shown in the petition in this case. See authorities supra. Delay in bringing the action is not fatal to the granting of such relief. (Fitzgerald v. Mallory, 44 Neb. 463; Montgomery v. Pickering, 116 Mass. 227; Tarlington v. Purvis, 128 Ind. 187; Foley v. Holtry, 41 Neb. 563.) Even should it appear that the plaintiff was guilty of laches, the objection could not be raised by demurrer. (Sage v. Culver, 147 N.Y. 241.)

Herbert V. Lacey and John W. Lacey, for defendants in error.

The allegation in the petition concerning the indebtedness of the corporation is a conclusive allegation that the company was financially embarrassed and that some action was necessary for the purpose of the payment of its liabilities. The petition clearly shows the nature of the objection made by some of the stockholders to the proposition for the sale of the corporate property, viz: that the proposed price was not the fair market value. There is, however, an entire absence of averment as to what the market value was, as well as anything to show the intrinsic character of the property such as might disclose the value. For all that appears in the petition the alleged value may have been speculative merely. The form of the objection to the sale indicates a knowledge on the part of the plaintiff and other objecting stockholders that it was necessary that the property of the corporation should be sold and the business of the company closed. There is no averment in the petition that the company ever in fact conveyed any of its property to the Crawford Land Company.

The meeting at which the resolution directing the sale was adopted was the annual meeting, making it unnecessary to embrace in the notice of the meeting a statement that the proposition for a sale of the corporate property would be considered, at least when all the shareholders are present at the meeting for the purpose of transacting generally the business of the company. The plaintiff was present at the meeting and cannot complain of the absence from the notice of specific reference to the sale of the property. (Handley v. Stutz, 139 U.S. 417; Weinburgh v. Advertising Co. (N. J.), 37 A. 1026; Nickum v. Burckhardt (Or.), 47 P. 788; Jones v. Turnpike Co., 7 Ind. 547; Hill v. Atlantic &c. Co. (N. C.), 55 S.E. 854.) The proposition for the sale was acted upon by the shareholders in the first instance. When shareholders of a corporation meet as such they act individually and represent nothing but their own shares; no shareholder stands in a fiduciary relation to any other at such a meeting, but votes for his own interest. (Hodge v. Steel Corp. (N. J.), 54 A. 1.) The stockholders could rightfully have ratified the sale if it had been made or directed in the first instance by the trustees, if the facts in relation to the trustees are as alleged in the petition. But the petition shows that the stockholders took the initiative and directed the trustees to make the sale. Therefore, authorities bearing upon the fiduciary relation of directors of corporations and what they may do while acting as such are not here in point. Shareholders may, in the absence of fraud or oppression, direct the sale of the entire property of the company when it is not prosperous and is indebted to the full amount of its capital stock. (Ditch Co. v. Zellerbach, 37 Cal. 543; Phillips v. Providence &c. Co. (R. I.), 43 A. 598; Price v. Holcomb (Ia.), 56 N.W. 407; Timber Co. v. Watkins, 109 F. 101.) In the cases cited and others, a court of equity refused to interfere under circumstances similar to those alleged in this petition. It fairly appears from the averments that the sale complained of was compulsory, for the purpose of paying the matured debt of the company, which equaled the amount of its capital stock. The plaintiff, when objecting to the proposition at the annual meeting, did not offer a higher price nor disclose that anyone was ready to purchase for a greater price than that fixed by the resolution. Again, at the meeting of the trustees, he merely objected on the ground that the price was too low, without offering a higher price or showing that any other person was ready to pay more. And after waiting three years he fails to show that a higher price would have been paid either by himself or any other bidder.

There is no averment that those who controlled the sale were interested in the purchasing company. The only averment in that respect is that John R. Arnold and Otto Arnold and Charles Stone were interested in that company. No other construction of the language of the petition in that particular is possible, although the sentence in which the averment appears is somewhat involved.

The plaintiff has been guilty of laches, and on this ground alone cannot maintain the action. The property has all disappeared, as alleged, and is beyond the reach of the parties to this suit. It is impossible, therefore, to set aside the conveyance and restore the property. But waiving that matter, it was the duty of the plaintiff in seeking the relief prayed for to have proceeded with diligence. (Rabe v. Dunlap (N. J. Eq.), 25 A. 959; Kinne v. Webb, 54 F. 34; McLean v. Clapp, 141 U.S. 429; Scheftel v. Hayes, 58 F. 457; Richardson v. Lowe, 149 F. 625; Romanoff L. & M. Co. v. Cameron (Ala.), 33 So. 864; Dennis v. Jones (N. J.), 14 A. 913; Kerby v. Kerby, 57 Md. 345; Gutherie v. Lyon (Tex.), 98 S.W. 432; Dickinson v. Traction Co., 114 F. 232; Kessler v. Ensley Co., 123 F. 546; Coal Co. v. L. & T. Co., 127 F. 625; Corbus v. Mining Co., 187 U.S. 455.)

In this state there is no statute similar to that in New York to the effect that an objection that an action has not been commenced in time can only be taken by answer. On the contrary, under our statute, like that of Ohio, the question of the statute of limitations may be raised by demurrer where it appears upon the face of the petition that the cause of action is barred. (Sturges v. Burton, 8 O. St. 215; Commissioners v. Andrews, 18 O. St. 49; Upton v Steele, 2 Wyo. 54; Cowhick v. Shingle, 5 Wyo. 87; Sav. Ass'n. v. Clause, 13 Wyo. 166; Bonnifield v. Price, 1 Wyo. 172.) In the absence of a statute like that in New York the question of laches in bringing an action may be raised by demurrer. (Speidel v. Henrici, 120 U.S. 377; Wilson v. Wilson (Or.), 69 P. 923; Dringer v. Jewett (N. J.), 13 A. 664; Fogg v. Price (Mass.), 14 N.E. 740; Phillips v. Piney C. & C. Co. (W. Va.), 44 S.E. 774; Taylor v. Slater (R. I.), 41 A. 1001; Leavenworth v. Douglass (Kan.), 53 P. 123; Johnson v. McKinnon (Fla.), 34 So. 272; Williams v. Soc., 1 O. St. 478; Scruggs v. Decatur M. & L. Co. (Ala.), 5 So. 440; Furlong v. Riley, 103 Ill. 628; Pearson v. David, 1 Ia. 23;...