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CHAPTER X.

OF SUITS BY, OR ON BEHALF OF, CORPORATION.

Section 179. Introductory.

180. Suits by the corporation.

181. Suits by receiver of corporation.

182. Minority stockholders' suits.

183. Stockholders' suits after receivership.

184. Suits by stockholders other than original subscribers.

185. Further of minority stockholders' suits.

186. The same subject.-Judicial discretion.

187. Rescission at suit of minority stockholder.

188. Minority stockholder intervening to defend suit against corporation.

189. Suits by creditors of corporation.

190. Parties defendant.

191. Actions against presonal representatives of deceased promoter. 192. Parties defendant in minority stockholders' suits.

193. Suits at law and in equity.

194. The same subject.-Rescission.

195. Joinder of actions.

196. Actions against promoters, transitory.

197. Conflict of laws.

§ 179. Introductory.

Questions as to the proper parties to maintain a suit for the redress of wrongs done to the corporation by its promoters, as to the parties to be joined as defendants, and other matters incidental to such suits, arise from time to time. It is proposed in this chapter briefly to discuss these questions.

§ 180. Suits by the corporation.

It might, at the present day, seem unnecessary to state that an

action to redress a wrong done to a corporation by its promoters, may be maintained by the corporation itself. This proposition was, however, at one time vigorously contested. It was claimed in Phosphate Sewage Co. v. Hartmont,' that the plaintiff corporation " was a fluctuating body" and that it might be that no person who was a member at the time of the transaction complained of, remained a member of the plaintiff corporation at the time of the suit. The vice chancellor held that he was bound to consider the company as a body having perpetual existence, and that he was not at liberty to go into the question of the individuals of whom it was composed.2 A similar plea was made, and likewise overruled in New Sombrero Phosphate Co. v. Erlanger.3

It is, however, held in a recent Maryland case that a suit arising out of a wrong done to the corporation by its promoters, cannot be maintained by a receiver of the corporation, unless it appears that some of those who held shares at the time of the suit, held their shares at the time of the wrong complained of. This ruling rests upon a complete misapplication of the authorities cited and may safely be disregarded."

It is now well settled that the taking, by the promoters, of a secret profit, or the unlawful sale by them of their own property to the corporation, or the commission by the promoters of any other fraud upon the corporation, is an injury to the company in its

1. L. R. 5 Ch. Div. 394, 440, 46 L. J. Ch. 661.

2. Citing Charitable Corporation v. Sutton, 2 Atk. 400; Society for Illustration of Practical Knowledge v. Abbott, 2 Beav. 559; McKay's case, L. R. 2 Ch. Div. 1; Overend & Gurney Co. v. Gibb, L. R. 5 H. L. 480; Lindsay Petroleum Company v. Hurd, L. R. 5 P. C. 221.

See also Old Dominion Copper, etc., Co. v. Lewisohn, 210 U. S. 206,

216, 28 Sup. Ct. 634, 52 L. Ed. 1025, and cases cited.

3. L. R. 5 Ch. Div. 73, 121, 122, 25 W. R. 436, affirmed, sub nom. Erlanger v. New Sombrero Phosphate Company, L. R. 3 App. Cas. 1218, 6 Eng. Rul. Cas. 777, 39 L. T. N. S. 269, 27 W. R. 65.

4. Tompkins v. Sperry, Jones & Co., 96 Md. 560, 583-584, 54 Atl. 254. 5. This question is discussed at greater length in § 184, post.

corporate capacity and gives rise to a cause of action which may be prosecuted by the corporation or its assignee."

§ 181. Suits by the receiver of the corporation.

A suit may, after the company has gone into the hands of a receiver, be prosecuted by him.8 The suit must, however, in some

6. Federal.-Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Rep. 797, 805, affirmed, 215 Fed. Rep. 296, 131 C. C. A. 596.

Alabama.-Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915 B. 173.

Arizona.-Hughes v. Cadena De Cobre Min. Co., 13 Ariz. 52, 61, 108 Pac. 231, 236.

Connecticut.-Yale Gas Stove Company v. Wilcox, 64 Conn. 101, 128-129, 29 Atl. 303, 25 L. R. A. 90, 42 Am. St. Rep. 159, 47 Am. & Eng. Corp. Cas. 647.

Massachusetts.-Old Dominion Copper, etc., Co. v. Bigelow, 203 Mass. 159, 192, 89 N. E. 193, 40 L. R. A. N. S. 314.

Missouri.-Exter v. Sawyer, 146 Mo. 302, 324, 47 S. W. 951, 956957.

New Jersey.-Arnold v. Searing, 78 N. J. Eq. 146, 161-163, 78 Atl. 762, 768-769; Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 506, 71 Atl. 153.

New York.-Colton Improvement Co. v. Richter, 26 Misc. 26, 31, 55 Supp. 486.

Oregon.-Wills v. Nehalem Coal Company, 52 Or. 70, 77-78, 86, 96 Pac. 528, 531, 534.

Pennsylvania.-Simons v. Vulcan Oil & Mining Company, 61 Pa. 202, 221, 100 Am. Dec. 628.

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Company v. Spooner, 74 Wis. 307, 321, 42 N. W. 259, 261, 17 Am. St. Rep. 149, 24 Am. & Eng. Corp. Cas. 1; Hebgen v. Koeffler, 97 Wis. 313, 320, 72 N. W. 745, 747.

See also cases cited in notes 1, 2 and 3, supra.

7. See Commonwealth S. S. Co. v. American Shipbuilding Co., 197 Fed. Rep. 780, 794; same v. same, 197 Fed. Rep. 797, affirmed, 215 Fed. Rep. 304, 131 C. C. A. 604; Bigelow v. Old Dominion Copper, etc., Co., 74 N. J. Eq. 457, 490, 71 Atl. 153.

There might be some difficulty in the way of allowing the company's assignee to maintain a suit for the rescission of its purchase, but where the corporation has been reorganized or merged with other corporations, its purchase may be rescinded at the suit of the successor company. American Shipbuilding Co. v. Commonwealth S. S. Co., 215 Fed. Rep. 304, 131 C. C. A. 604, affirming, 197 Fed. Rep. 797; same case on demurrer, 197 Fed. Rep. 780, 794.

8. Hayward v. Leeson, 176 Mass. 310, 57 N. E. 656, 49 L. R. A. 725; Tompkins v. Sperry, Jones & Co., 96 Md. 560, 583-584, 54 Atl. 254, 258-259; Arnold v. Searing, 78 N. J. Eq. 146, 161, 78 Atl. 762.

As to suits by receivers appointed in another jurisdiction, see Converse

jurisdictions, be brought by the receiver in the name of the corporation.9

§ 182. Minority stockholders' suits.

It frequently happens that a corporation continues, after its complete organization, under the control of its promoters, who naturally prevent its bringing suit against themselves. It then becomes necessary for the minority stockholders to prosecute the company's claim.10

While a lengthy discussion of the subject of minority stockholders' suits would be out of place, a brief reference to some of

v. Hamilton, 224 U. S. 243, 257, 32 Sup. Ct. 415, 56 L. Ed. 749, Am. & Eng. Ann. Cas., 1913 D. 1292, and cases cited.

9. Hayward v. Leeson, 176 Mass. 310, 324-325, 57 N. E. 656, 49 L. R. A. 725; Wilson v. Welch, 157 Mass. 77, 80, 31 N. E. 712, and cases cited. Homer v. Barr Pumping Engine Co., 180 Mass. 163, 61 N. E. 883, 91 Am. St. Rep. 269, and cases cited.

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Proceedings erroneously menced in the name of the receiver may be amended by substituting the corporation as plaintiff.

Hayward v. Leeson, 176 Mass. 310, 326, 57 N. E. 656, 49 L. R. A. 725; Wilson v. Welch, 157 Mass. 77, 81, 31 N. E. 712; Philadelphia & Reading Coal & Iron Co. v. Butler, 181 Mass. 468, 63 N. E. 949; East Tennessee Land Co. v. Leeson, 178 Mass. 206, 59 N. E. 639; Arnold v. Searing, 78 N. J. Eq. 146, 162–163, 78 Atl. 762, 769.

10. Alabama.-Moore v. Warrior Coal & Land Co., 178 Ala. 234, 59 So. 219, Am. & Eng. Ann. Cas., 1915 B. 173.

Missouri.-Exter v. Sawyer, 146

Mo. 302, 324, 47 S. W. 951, 956, 957.

New Jersey.-Arnold v. Searing, 73 N. J. Eq. 262, 269, 67 Atl. 831; same v. same, 78 N. J. Eq. 146, 161, 78 Atl. 762; Groel v. United Electric Co. of N. J., 70 N. J. Eq. 616, 623, 61 Atl. 1061.

Oregon.-Wills v. Nehalem Coal Co., 52 Or. 70, 87, 96 Pac. 528, 534. Pennsylvania.-McAleer V. McMurray, 6 Phila. 244.

Wisconsin.-Hebgen

V. Koeffler,

97 Wis. 313, 72 N. W. 745; Pietsch v. Milbrath, 123 Wis. 647, 101 N. W. 388, 102 N. W. 342, 68 L. R. A. 945, 107 Am. St. Rep. 1017; Simon v. Weaver, 143 Wis. 330, 127 N. W. 950.

United Kingdom and Colonies.— Hichens v. Congreve, 4 Russ. 562, 575. See also Burland v. Earle, 1902, App. Cas. 83, 93; Foss v. Harbottle, (1831), 2 Hare 461, 491–495.

See cases cited in succeeding notes, and see note to Yale Gas Stove Co. v. Wilcox, 25 L. R. A. 102.

The plaintiff is, if successful in his suit, entitled to reimbursement for attorneys' fees and other expenses, to be paid out of the moneys

the rules applicable thereto may not be amiss.11 A minority stockholder maintaining a suit for the benefit of the corporation, must allege and prove a request made to the board of directors that they cause the corporation to bring the suit and the refusal of the directors so to do,12 or that the directors or a majority of them

recovered for the corporation. Graham v. Machine Works, 138 Iowa 456, 114 N. W. 619, 15 L. R. A. N. S. 729; Forrester v. Boston & Montana Con. Copper, etc., Co., 29 Mont. 397, 74 Pac. 1088, 76 Pac. 211.

11. As to minority stockholders' suits in general, see note to Johns v. McLester, 97 Am. St. Rep. 27.

Whether a minority stockholders' action may be maintained by the mere equitable owner of shares not transferred to him upon the books of the company is a question of some doubt. To the effect that the suit may be maintained by the unregistered holder of shares, see Parrott v. Byers, 40 Cal. 614, 625; Bagshaw v. Eastern Union Ry., 7 Hare 114, 132, affirmed, 2 Mac. & G. 389, 19 L. J. Ch. N. S. 410, and see The Great Western Ry. Co. v. Rushout, 5 DeGex & Sm. 290. To the contrary, see Heath v. Erie Railway Company, 8 Blatch. 347, 11 Fed. Cas. 976, 999; Brown v. Duluth M. & N. Ry. Co., 53 Fed. Rep. 889, 894.

The question is left open in Moore v. Silver Valley Mining Company, 104 N. C. 534, 544, 10 S. E. 679, 682683, and in Mills v. Northern Railway of Buenos Ayres Co., L. R. 5 Ch. App. 621, 628.

12. Federal.-Krohn v. Williamson, 62 Fed. Rep. 869, 872-873, affirmed, sub nom. Williamson

V.

Krohn, 66 Fed. Rep. 655, 13 C. C. A. 668, 31 U. S. App. 325; Dimpfel v. Ohio & Miss. Ry. Co., 110 U. S. 209, 3 Sup. Ct. 573, 28 L. Ed. 121; Robinson v. West Virginia Loan Co., 90 Fed. Rep. 770; Hawes v. Oakland, 104 U. S. 450, 461, 26 L. Ed. 827; Whitney v. Fairbanks, 54 Fed. Rep. 985.

California.-Burbank v. Dennis, 101 Cal. 90, 105, 35 Pac. 444, 449. Massachusetts.-Peabody v. Flint, 88 Mass. 52, 56.

Missouri.-Exter v. Sawyer, 146 Mo. 302, 319, 47 S. W. 951, 956-957; Vogeler v. Punch, 205 Mo. 558, 103 S. W. 1001.

New Jersey.-Knoop v. Bohmrich, 49 N. J. Eq. 82, 84, 23 Atl. 118, affirmed, sub nom. Bohmrich V. Knoop, 50 N. J. Eq. 485, 27 Atl. 636.

New York.-Colton Improvement Co. v. Richter, 26 Misc. 26, 31, 55 Supp. 486; Langdon v. Fogg, 14 Abb. N. C. 435; Corning v. Barrett, 22 Misc. 241, 48 Supp. 1013; Greaves v. Gouge, 69 N. Y. 154.

Oregon.-Wills v. Nehalem, 52 Or. 70, 87, 96 Pac. 528, 534.

Wisconsin.-Franey v. Warner, 96 Wis. 222, 227, 71 N. W. 81, 82-83.

As to pleading the request and refusal, see Continental Securities Co. v. Belmont, 206 N. Y. 7, 99 N.

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