Tevis v. Hammersmith

• Decision Date: 28 January 1903
• Docket Number: 4,243
• Citation: 66 N.E. 79,31 Ind.App. 281
• Parties: TEVIS v. HAMMERSMITH ET AL
• Court: Indiana Appellate Court

66 N.E. 79

31 Ind.App. 281

TEVIS v. HAMMERSMITH ET AL

No. 4,243

Court of Appeals of Indiana

January 28, 1903

Rehearing denied April 1, 1903, Reported at: 31 Ind.App. 281 at 290.

Appeal to Supreme Court dismissed June 5, 1903.

From Clark Circuit Court; J. K. Marsh, Judge.

Suit by John Tevis against Louis Hammersmith and others. From a judgment for defendant on demurrer to complaint, plaintiff appeals.

Reversed.

Helm Bruce & Helm, C. D. Kelso, J. V. Kelso, C. L. Jewett and H. E. Jewett, for appellant.

Clarence Dallam, Jacob Herter, G. H. Hester and G. H. Voigt, for appellees.

OPINION

ROBY, C. J.

The record shows an amended complaint, to which demurrers for want of facts were sustained. The plaintiff refused to plead further, and appeals from a judgment against him, assigning error upon such action of the court. The suit was instituted by appellant as a stockholder of the Home Crystal Water Company, for the benefit of the corporation, against the president and the other appellees.

It may be stated generally that foundation for such suits is furnished by the existence of either of the following enumerated conditions: (1) Some action, or threatened action, by the board of directors or trustees, beyond their power; (2) a fraudulent transaction, completed or contemplated by the acting managers, in connection with some other party or among themselves, causing injury to the corporation or stockholders; (3) action by the board of directors, or a majority of them in their own interest, and in a manner destructive of the corporation, or the rights of the other stockholders; (4) where a majority of the stockholders are illegally and oppressively pursuing a course in the name of the corporation, which is in violation of the right of the other stockholders, and can only be restrained by a court of equity. Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827; Dodge v. Woolsey, 18 HOW 331, 15 L.Ed. 401; Board, etc., v. Lafayette, etc., R. Co., 50 Ind. 85, 100; Carter v. Ford Plate Glass Co., 85 Ind. 180; Wayne Pike Co. v. Hammons, 129 Ind. 368, 27 N.E. 487; Cook, Corp. (5th ed.), § 645; Clark & Marshall, Priv. Corp., § 536.

The complaining party must have had no share in the acts, nor have ratified them. He must bring his suit seasonably. He must show to the court that he has exhausted all the means within his reach to obtain redress within the corporation. He must make a good-faith and reasonable effort to induce the corporation to bring the suit itself. Hawes v. Oakland, supra; Taylor v. Holmes, 127 U.S. 489, 8 S.Ct. 1192, 32 L.Ed. 179; Cook, Corp. (5th ed.), § 740; Clark & Marshall, Priv. Corp., § 543.

It is ordinarily necessary to show a demand upon the board of directors to bring suit, and a refusal upon their part; but the law does not require idle ceremonies, and when it is made to appear that a demand would have been unavailing,--as when the corporation is under the control of the wrongdoers, "in the hands of its enemies,"--such facts are sufficient. Wayne Pike Co. v. Hammons, supra; Rogers v. Lafayette, etc., Works, 52 Ind. 296; Board, etc., v. Lafayette, etc., R. Co., supra; Carter v. Ford Plate Glass Co., supra; Thompson, Corporations, § 4500; Cook, Corporations, § 741; Knoop v. Bohmrich, 49 N.J. Eq. 82, 23 A. 118. The demand upon the board and its refusal to act are stated by an approved author "material and issuable, if controverted they must be proved. If proof of them fails the whole foundation of the plaintiff's action is gone." Pomeroy, Eq. Jurisp., § 1095.

The exception contended for by appellant is stated as follows: "This condition of fact, however, is not indispensable. The action may be maintainable without showing any notice, request, or demand to the managing body, or any actual refusal by them to prosecute; in other words, the refusal may be virtual." After stating the exception created when the corporation is shown to be in the hands of the wrongdoers, so that a refusal may be implied with reasonable certainty, the section quoted concludes as follows: "In like manner when the plaintiff's pleading discloses any other condition of fact which renders it reasonably certain that a suit by the corporation would be impossible and that a demand therefor would be nugatory the action may be maintained without averring a demand or any similar proceeding on the part of the stockholder plaintiff." Pomeroy, Eq. Jurisp., § 1095. This statement of the basis upon which a formal demand may be omitted is logical, and accords with equitable and correct principles. It is fairly deducible from the authorities, and is therefore adopted as expressive of the law.

The amended complaint under consideration is not carefully constructed. A large portion of it is devoted to the enumeration of matters occurring after the institution of the action, which, if relevant, should have been brought into the record by supplemental complaint, and not by amendment. Barker v. Prizer, 150 Ind. 4, 48 N.E. 4. Eliminating surplusage, its material facts are: That the Home Crystal Water Company is an Indiana corporation; that plaintiff was the owner of a large majority of the capital stock thereof before the transfer of property referred to, and at the time of the institution of the suit; that the corporate purpose was to construct a system of water-works in New Albany, and supply water to the citizens of said city; that the corporation secured a contract with the said city, empowering it to construct and maintain such system, a time limit for the construction thereof being contained therein; that, failing to comply with its undertaking, said corporation had abandoned its purpose and forfeited its right under such contract; that prior to such forfeiture it had purchased a large amount of iron pipe. Before the delivery thereof the price of iron pipe advanced, largely increasing the value of the pipe. After such rise in value the defendant Arlund, who was then president of said company, "did, for the purpose of making a personal profit to himself, at the cost of said Home Crystal Water Company, and without the authority or consent of the board of directors of said corporation, agree with the said codefendants, Gheens, Bush, and Parker, to sell and transfer the said pipe to them at a price far below the market price of said pipe at the time of said contract with his said codefendants. The purpose of said arrangement and transfer was to transfer the benefit of the contract which the said company had therefore made for such pipe, and thus enable Gheens, Bush, and Parker to get the advantage of the rise in the price of iron pipe, for which transfer a bonus or money consideration was to be paid by the said Gheens, Bush, and Parker to the said Arlund." Notice to the purchasers of the facts connected with the transaction is averred. It is further averred that upon the delivery, in New Albany, of said pipe, by the manufacturer, it was stored, warehouse receipts issued therefor to P. Arlund & Co., and thereafter from time to time said Gheens, Bush, and Parker, with the connivance and assistance and consent of said Peter Arlund, sold and delivered to the purchasers divers amounts of said pipe, from which sales they realized a sufficient amount of money to repay them the greater part of, and, as the plaintiff believes, the entire purchase price which they had paid for all said pipe to the manufacturer thereof under the contract which said water company had with said manufacturer; thus satisfying him in full, and leaving a large amount of pipe on hand in New Albany, representing the profit on said transaction. That after the failure of the enterprise of the water company and its forfeiture of its rights under the contract with the city, and long before the institution of this action, the water company ceased to maintain any office or place of business, and the directors thereof abandoned their offices as directors, and ceased entirely to hold directors' meetings, and had held no such meetings for many months prior to the institution of this action. That plaintiff knew that the corporation had purchased said pipe, and that portions of it were being sold, but that he did not know who claimed to be the owner of that part remaining in the possession of the...