Wagner v. Biscoe
| Decision Date | 12 June 1940 |
| Docket Number | 13317. |
| Citation | 9 S.E.2d 650,190 Ga. 474 |
| Parties | WAGNER et al. v. BISCOE. |
| Court | Georgia Supreme Court |
Syllabus by the Court.
In this suit by a minority stockholder of a nonresident corporation, in behalf of himself and other stockholders against one director and other parties, seeking damages because of alleged injuries to the corporation, and recovery of properties formerly owned by the corporation, the failure to make the corporation a party was a fatal defect. The demurrer on the ground that the corporation was not made a party should have been sustained.
P H. Biscoe, as a minority stockholder of the Loxair Corporation of Florida, brought an action against Loxair Incorporated, Hans Wagner, Emmett H. Steele, and Rudy Barthel. As amended, the petition alleged in substance the following: In March, 1939, Loxair Corporation was organized in Florida. The incorporators were Hans Wagner, H. F Hibbard, James M. Moore, and P. H. Biscoe. The entire capital stock was owned by the incorporators, as follows: Wagner and Moore, 37 1/2 shares each; Hibbard and Biscoe, 25 shares each. Wagner paid for his stock by conveying to the corporation a secret formula for making a puncture-proof mixture known as Loxair. The plaintiff paid $2,500 for his stock. The officers of the corporation were Wagner, president, Hibbard, vice-president, Moore, secretary, and Biscoe, treasurer. The charter contained a provision that in the event any of the stockholders decided to sell or dispose of his stock he should first offer it to the remaining original incorporators and afford them an opportunity to purchase it, each in the proportion which his stock bore to the total stock. After the corporation was formed the four stockholders executed an agreement whereby the secret formula was to remain undisclosed, except to Moore and Wagner, for three years. A plant was rented, machinery purchased, and a laboratory set up. The plaintiff spent his entire time demonstrating the products, and the corporation made sales of its products to various dealers and individuals in Florida, Alabama, Georgia, North Carolina, and South Carolina, and it was largely advertised in these States. The finances of the corporation became low in August, 1939, and Wagner on behalf of the corporation endeavored to interest a tire firm by the name of Steele & Bartell in their product. In September, 1939, Wagner mixed up 125 cartons of Loxair belonging to the corporation, and went to Atlanta for the purpose of selling it. He returned to Jacksonville in October, advising that the deal fell through, and that the only thing he knew to do was to attempt to get Glen Searing to finance the corporation. He represented that he had sold the 125 cartons of Loxair mixture to Settle & Bartell in Atlanta. Barthel came to Jacksonville, and he and Wagner advised the plaintiff of the desire to organize a new corporation in Georgia and to buy the plaintiff's stock. The plaintiff offered to sell his stock for cash and a position with the new corporation when organized. This offer was not accepted. Glen Searing purchased all of the stock owned by Moore and Hibbard in the Florida corporation; and on November 2, 1939, Searing and Wagner were elected directors of that corporation. In October, 1939, Loxair, Incorporated, was chartered by judgment of the superior court of Fulton County, the incorporators being Hans Wagner, Rudy Barthel, and Emmett H. Steele. Wagner conveyed the secret formula owned by the Florida corporation to the Georgia corporation, which conveyance was done in fraud and without the plaintiff's consent. He also conveyed to the Georgia corporation machinery and property belonging to the Florida corporation. The Florida corporation has ceased to do business. At the time of filing this suit, Searing, Wagner, and the plaintiff owned all of the stock of the Florida corporation. The plaintiff requested Searing to join the corporation in this suit, which request was declined with the statement that he had no interest in the Florida corporation, and that he hoped the plaintiff would win in his suit. It would be useless for plaintiff to attempt to obtain relief within the corporation; he has no adequate remedy except in equity; and this court is without jurisdiction of Loxair Corporation of Florida. The Georgia corporation is manufacturing and selling Loxair mixture, thereby infringing upon the rights of the Florida corporation and damaging it in the sum of $100,000. The prayers were for accounting, receiver, injunction, and judgment for damages.
The defendants demurred on numerous grounds, among which were, (1) because the Loxair Corporation of Florida has not been made a party, (2) that the petition alleges no cause of action, and (3) that it fails to show that any attempt has been made to obtain redress from the directors of the corporation. To a judgment overruling the demurrer the defendants excepted.
G. S. Peck, of Atlanta, for plaintiffs in error.
Edgar Watkins & Allan Watkins, of Atlanta, for defendant in error.
The first question which we must determine is whether or not the non-resident corporation is an indispensable party to this action brought by a minority stockholder. In Colquitt v Howard, 11 Ga. 556(3), this question was decided on a very similar state of facts. In holding that the corporation was an essential party, this court said: 'Persons exercising the corporate powers of a corporation may, in their character as trustees, be held liable in a Court of Chancery, for a fraudulent breach of trust; and a stockholder, in a case where the directors collude with others who have made themselves liable by negligence or fraud, and refuse to prosecute; or when they are necessarily parties defendants, may file a bill on his account and in behalf of the other stockholders; in such a case, the corporation must be made a party defendant.' In Steele Lumber Co. v. Laurens Lumber Co., 98 Ga. 329, 345, 24 S.E. 755, 761, discussing the right of a stockholder to maintain such a suit, it was said: 'He prays for no relief against that company, and the general rule of law is that, for wrongs suffered by the corporate interests, the right of action is in the corporation, and an action for such wrongs cannot be maintained by the stockholder, however injuriously it may affect him, unless he alleges such fraud upon the part of the corporation and complicity in the alleged wrongs as would seriously affect his interest; and in such a case it is indispensable that he make both the alleged wrongdoer and the corporation, through its board of directors, parti...
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