Tillis v. Brown

• Decision Date: 22 January 1908
• Citation: 154 Ala. 403,45 So. 589
• Parties: TILLIS ET AL. v. BROWN ET AL.
• Court: Alabama Supreme Court

45 So. 589

154 Ala. 403

TILLIS ET AL. v. BROWN ET AL.

Supreme Court of Alabama

January 22, 1908

Appeal from City Court of Montgomery; A. D. Sayre, Judge.

Action by J. M. Brown and others against Richard Tillis and others. From a decree overruling a demurrer to the bill and the motion to dismiss it for want of equity, defendants appeal. Affirmed.

Steiner Crum & Weil and Espey & Farmer, for appellants.

W. W Pearson and R. H. Arrington, for appellees.

DENSON J.

This bill is filed by J. M. Brown, a minority stockholder in the Coffee Cotton Mills Company, a corporation, in behalf of himself and others similarly situated, against the corporation and W. C. O'Neal and R. Tillis. The purpose of the bill is to annul a deed executed by the corporation to W. C. O'Neal and R. Tillis, and to have the property conveyed by it restored to the corporation. The complainant voluntarily amended his bill, and to it, as amended, the court sustained a demurrer. It was again amended, and as last amended several stockholders are joined as complainants. The court overruled a demurrer to the bill as last amended, and also a motion to dismiss it for the want of equity. It is from that decree this appeal is taken.

The bill shows that at a meeting of the stockholders of the corporation, in which a large majority of the stock was represented, the stockholders formally accepted a proposition made by W. C. O'Neal and R. Tillis to take over all the property of the corporation in their own names. A resolution was adopted by the stockholders, instructing the board of directors of the corporation to execute a deed conveying to W. C. O'Neal and R. Tillis title to all its property. The board of directors met immediately upon the adjournment of the stockholders' meeting and carried into effect the action taken by the stockholders by executing the deed. It is shown by the allegations of the bill that the property of the corporation was of the value of $50,000, exclusive of unpaid subscriptions, and that the consideration moving to the corporation in the proposition of O'Neal and Tillis, and upon which the deed is founded, is nominal in comparison with the value of the property conveyed. It is further shown that the corporation is solvent and a "going concern." It is admitted law that a solvent, "going" corporation cannot, against the objection of even a single stockholder, sell its entire property, and thereby denude itself of the means and power of carrying out the purposes for which it was organized; a fortiori, that it may not make a donation of its property. Elyton Land Co. v. Dowdell, 113 Ala. 177 20 So. 981, 59 Am. St. Rep. 105; Morris v. Elyton Land Co., 125 Ala. 263, 28 So. 513.

This is conceded; but the equity of the bill is assailed on the ground that the complainants do not bring themselves within the exception or category in which a stockholder can bring suit in respect to the acts of the directors and stockholders, whether intra or ultra vires. "As a general rule, courts of equity will not interfere with the internal management of corporations by means of suits brought by stockholders against directors, officers, or other stockholders." 3 Pom. Eq. Jur. (3d Ed.) § 1094. For whatever be the nature of the particular wrong, and whatever be the indirect loss occasioned to individual stockholders, no equitable suit for relief, against the wrongdoers, can be maintained by a stockholder, unless the corporation either actually or virtually refuses to prosecute. 3 Pom. Eq. Jur. § 1094, p. 2120. The reason for this doctrine, says Mr. Pomeroy, is that "the stockholder, having no estate, legal or equitable, in the corporate property, has no locus standi in the courts while the corporation, in which alone are invested the corporate property and franchises, is able and willing to sue for their protection." 3 Pom. Eq. Jur. (3d Ed.) p. 2121, § 1094. Nevertheless, "if in any such case the corporation should refuse to bring a suit, the courts have seen that the stockholders would be without any immediate and certain remedy, unless a modification of the general rule were admitted. To that end the following modification of the general rule stated * * * has been established as firmly and surely as the rule itself: Whenever a cause of action exists primarily in behalf of the corporation against directors, officers, and others for wrongful dealing with corporate property or wrongful exercise of corporate...