Young v. Haviland

• Decision Date: 24 May 1913
• Citation: 215 Mass. 120,102 N.E. 338
• Parties: YOUNG v. HAVILAND et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

215 Mass. 120

102 N.E. 338

YOUNG v. HAVILAND et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 24, 1913

COUNSEL

H. S Davis and F. W. Johnson, both of Boston, for appellants.

Young Hill, Ludden & Marks, of Boston, for appellee.

OPINION

SHELDON J.

The plaintiff holds some of the bonds secured by a mortgage given by the defendant corporation to the defendants Simpson and Whittemore as trustees for the bondholders. The suit is brought to enforce the alleged right of the bondholders to the money received by the corporation or its officers under certain agreements made by it first with Suessdorf and then with Nuland as lessees and intending purchasers of its mine.

It is settled that such a suit ought ordinarily to be brought by the trustees, who represent all the bondholders, for whom they are trustees. But the cestuis que trust are not without remedy if the trustees will not do their duty. They may sue in their own names or any one of them may so sue in behalf of all, if this is necessary to avoid a failure of justice. O'Beirne v. Allegheny & Kinzua R. R., 151 N.Y 372, 45 N.E. 873; Weetjen v. St. Paul & Pacific R. R., 4 Hun (N. Y.) 529, 539. Accordingly the plaintiff must show that a demand has been made upon the trustees to take action themselves, and that they have refused or neglected to do so, or else that the circumstances make it plain that such a demand would be useless. Falmouth National Bank v. Cape Cod Ship Canal Co., 166 Mass. 550, 567, 44 N.E. 617; Dillaway v. Boston Gas Light Co., 174 Mass. 80, 54 N.E. 359; General Electric Co. v. La Grande Edison Electric Co. (C. C.) 79 F. 27, and 87 F. 590, 31 C. C. A. 118; Consolidated Water Co. v. San Diego (C. C.) 89 F. 272. This corresponds to the rule that one or more stockholders may sue in their own names to enforce rights of the corporation, if and only if redress cannot be obtained through the corporation itself. Brewer v. Boston Theatre, 104 Mass. 378; Dunphy v. Traveler Newspaper Association, 146 Mass. 495, 16 N.E. 426; Doherty v. Mercantile Trust Co., 184 Mass. 590, 69 N.E. 335; Enos v. Church of St. John the Baptist, 187 Mass. 40, 72 N.E. 253; Von Arnim v. American Tube Works, 188 Mass. 515, 74 N.E. 680. No demand has been made upon these trustees.

We assume that the bill, as amended, avers circumstances enough to show that such a demand would have been unavailing. But the master has merely found that Simpson, one of the trustees, has done nothing more than to approve the contracts made by the corporation with Suessdorf and with Nuland (which does not appear to have been wrongful or even unwise action on his part), and occasionally to consult with Dunbar, the treasurer of the corporation, concerning the payment of interest on the bonds or a possible sale of the property. He had, the master found, complete confidence in Dunbar, and left the management of the property in his hands. There is also a finding that both of the trustees 'were negligent in performing their duty as trustees, in that they took no steps to enforce an accounting.' But this is not enough. If a demand had been made upon them to act, if their attention had been called to the reasons for doing so, no one can say that they would not have acted promptly and decisively. This falls far short of what has been required by our decisions already referred to. For this reason, the bill cannot be maintained against the defendants who have appealed from the decree.

Even if this objection could have been got over, it would have been difficult upon the facts found to hold the directors and treasurer of the corporation personally liable. They stood in a fiduciary relation to the corporation. But their duties and their accountability were primarily to it, and not to its bondholders or other creditors. Lyman v. Bonney, 118 Mass. 222; Frost Mfg. Co. v. Foster, 76 Iowa, 535, 41 N.W. 212; Penny v. Bryant, 70 Neb. 127, 96 N.W. 1033; Force v. Age Herald Co., 136 Ala. 271, 33 So. 866; Hart v. Hanson, 14 N.D. 571, 105 N.W. 942, 3 L. R. A. (N. S.) 438. And see Thompson on Corporations, § 1295, and Cook on Corporations, § 682. In Greenfield Savings Bank v. Abercrombie, 211 Mass. 252, 97 N.E. 897, 39 L. R. A. (N. S.) 173, Ann. Cas. 1913B, 420, it was to the corporation that the defendants were held liable. The directors did not personally receive any of the money for which they were held in the decree, nor did Dunbar the treasurer receive it otherwise than in his official capacity, in the right of the corporation and as its agent.

Moreover so far as the plaintiff's case rests upon the claim that the directors allowed Suessdorf and Nuland to strip and exhaust the mine unreasonably, the master has not found this fact. He was...