Stahn v. Mills

• Decision Date: 09 November 1898
• Citation: 53 S.C. 519,31 S.E. 498
• Parties: STAHN . v. CATAWBA MILLS et al.
• Court: South Carolina Supreme Court

31 S.E. 498

53 S.C. 519

STAHN .

v.CATAWBA MILLS et al.

Supreme Court of South Carolina.

Nov. 9, 1898.

Stockholder's Action—Complaint — Demurrer —Election.

1. It is not error to require defendant to elect between demurrer to complaint and answer to the merits filed at the same time.

2. A complaint of a stockholder against directors for fraudulent disposition of corporate assets, showing facts from which it can reasonably be inferred that plaintiff could not get redress within the corporation, need not show an effort to procure corporate action.

3. A joint demurrer to a complaint stating a cause of action against certain of defendants is bad.

Appeal from common pleas circuit court of Chester county; James Aldrich, Judge.

Action by E. C. Stahn against the Catawba Mills and others. Demurrer to complaint was overruled, and defendants appeal. Affirmed.

Wilson & Wilson and Henry & McLure, for appellants.

Barber & Marion, for respondent

JONES, J. This appeal comes up from an order overruling a demurrer to the complaint, with leave to answer. The complaint is by a stockholder in the Catawba Mills, a manufacturing corporation, against said corpora tion, its directors and others, seeking redress for alleged mismanagement and misappropriation of the corporate property. The grounds of demurrer may be stated to be substantially (1) that the complaint does not state facts sufficient to constitute a cause of action, in that it does not appear that the Catawba Mills, or its officers, have been requested, and have neglected or refused, to institute this suit, nor does it appear that such request, if made, would have been useless; (2) that several causes of action have been improperly united, in that plaintiff seeks judgment in favor of the Catawba Mills against the Chester Mills for goods sold and delivered, and also against the officers of the Catawba Mills who should be found responsible for said loan or credit to the defendant Chester Mills. At the same time, and indeed in the same paper containing the demurrer, defendants also answered to the merits. The circuit court, on motion duly noticed, required defendants to elect whether they would stand upon the demurrer or the answer. This ruling is the basis of one of the grounds of appeal; but appellants have not argued or pressed the point, and we need only say that it was not erroneous.

Does the complaint state facts sufficient to constitute a cause of action? Judge Aldrich, in his opinion overruling the demurrer, shows conclusively that it does, and we can add very little to what he has said. In the case of Wenzel v. Brewing Co., 48 S. C. 80. 26 S. E. 1, which followed Latimer v. Railroad Co., 39 S. C. 44, 17 S. E. 258, this court stated the principle which must govern this case in this language: "The general rule undoubtedly is that when the directors or managing board of a corporation are charged with mismanagement or misappropriation of the corporate property, the action to restrain or redress such wrong must be instituted by the corporation, since the conduct complained of is a breach of the trust relation between the directors and the corporation. But to this general rule there are well-recognized exceptions, viz. when the directors or managing board do, or threaten to do, some act ultra vires, or some act of fraud, oppression, or illegality, injurious to the corporation, or in violation of the rights of the stockholders, to prevent injustice, a stockholder is permitted to maintain an action in his own name. This is substantially the rule declared in Latimer v. Railroad Co.. 39 S. C. 44, 17 S. E. 258, following and approving the principles announced in Hawes v. Oakland, 104 U. S. 450. Further, before a stockholder can maintain a suit in these exceptional cases, he must show that he has endeavored to get redress of his grievances within the corporation, or he must show facts which would justify a court in concluding that an effort for redress within the corporation would be unavailing." It is also a well-established rule that an application for redress within the corporation and refusal need not be alleged, if it be shownthat the directors or managing board are themselves the wrongdoers in some alleged breach of trust or fraudulent misappropriation of the corporate property, and have control of a majority of the stock, so as to control corporate action. In such a case it is reasonable to infer that an effort for redress within the corporation would be unavailing. Brewer v. Boston Theatre, 104 Mass. 387; Eschweiler v. Stowell, 78 Wis. 316, 47 N. W. 361; Miner v. Ice Co. (Mich.) 53 N. W. 218, and cases cited; Wheeler v. Steel Co. (Ill. Sup.) 32 N. E. 420, and cases cited.

The complaint alleges substantially that the boards of directors of both the Catawba Mills and the Chester Mills consist of seven each, and that defendants Tompkins, Wylie, Smyly, and Miller are directors of the Catawba Mills and Chester Mills; that Tompkins, Wylie, and Miller are,...