Opinion
21150.
ARGUED FEBRUARY 14, 1961.
DECIDED MARCH 9, 1961.
Petition for injunction. DeKalb Superior Court. Before Judge Hubert.
Shoob McLain, for plaintiff in error.
Carl T. Hudgins, contra.
1. A petition which predicates the plaintiff's cause upon the allegations of breach of trust, fraud, conspiracy, and collusion on the part of the defendants, but charges such conduct in loose averments amounting to no more than conclusions of the pleader not supported by the facts set forth in the petition, states no cause of action and is subject to general demurrer.
2. The bylaws of a corporation are binding on a stockholder, especially where the stockholder has served as an officer and director of the corporation for a period of about two years.
ARGUED FEBRUARY 14, 1961 — DECIDED MARCH 9, 1961.
John H. Gwin filed his petition against Thunderbird Motor Hotels, Inc., Oliver Greely, William A. Howard, and a named attorney, praying that the election of the board of directors of the defendant corporation be set aside and that other equitable relief be granted.
The petition was in two counts. The first count in substance alleged: That the plaintiff, defendant Greely, and defendant Howard were the incorporators of Thunderbird Motor Hotels, Inc.; and that the defendant attorney, who was admitted to the bar of this State, filed the petition for incorporation and prepared the subsequent minutes and bylaws of the corporation. There are issued and outstanding four hundred fifty-two (452) shares of common voting stock of said corporation, two hundred twenty-six (226) of such shares belonging to the plaintiff, one hundred thirteen (113) shares belonging to the defendant Greely, and one hundred thirteen (113) shares belonging to the defendant Howard. Said issue constitutes the original and sole issue of stock of the corporation. The defendant attorney was employed to represent the plaintiff, defendant Greely, and defendant Howard to file the petition for said incorporation, issue said stock, prepare the minutes and bylaws, advise the incorporators, hold the elections of directors and officers of the corporation, and handle the affairs of the corporation, for which services the defendant attorney was paid. The plaintiff relied on the defendant attorney to protect the interests of all incorporators in the formation of said corporation, and to give effect to the understanding among the incorporators that the plaintiff was to have fifty percent control of the corporation, and that the defendants Greely and Howard were to have fifty percent control. On February 27, 1958, the first meeting of the incorporators was held, at which time the bylaws of the corporation were adopted and the plaintiff, defendant Greely, and defendant Howard were named directors of said corporation. The plaintiff was named president; the defendant Greely, vice-president; and the defendant Howard, secretary and treasurer. The motel owned by the corporation commenced operation known as the Thunderbird Motor Hotel, 545 S. Four Lane Highway, Marietta, Georgia.
The bylaws of the corporation as they relate to directors read as follows: "1. The business of this corporation shall be operated, managed, and controlled by a board of directors, three in number, who shall be stockholders in the corporation, except in cases hereinafter provided for. In the event a director shall die, resign, or for any reason become inaccessible, ineligible, disqualified, or be removed from office, then the remaining directors (two) may be unanimous vote name a person not a stockholder to fill such place until it can be suitably filled from among the stockholders, and until his successor shall be elected and enter upon his duties. In the event the directors fail to act, the stockholders may by majority vote of the stock entitled to vote fill said place in like manner.
"2. The first directors shall be elected immediately upon organization of the corporation, and annually thereafter, or as circumstances may require, and at any stockholders' meeting where the question may be lawfully entertained under the provisions of these bylaws. Directors who are stockholders, and not elected to serve under the provisions of paragraph 1 immediately above, are to continue in office so long as they are stockholders and under no disability of law or disability specified under these bylaws, and until their successors are elected and qualified and enter upon their duties.
"3. Directors may be removed from office at any time by a majority vote of the stockholders, when disqualified, or whenever the best interests of the corporation require it. That is, upon majority vote of the stock as herein provided, and in the manner herein provided, directors may be removed from office when disqualified, or whenever the best interests of the corporation require their removal.
"4. All the properties and assets of this corporation shall be under the control of the board of directors, and said properties and assets shall be held, managed, sold, and disposed of by them, acting for the corporation. They shall make or authorize the making of all contracts, deeds, notes, bonds, security deeds, and other instruments necessary in carrying out the purposes and objects of the corporation, and its powers. The board of directors of the corporation may exercise all such powers and corporate acts for the corporation as are not by the statute or these bylaws or the charter required to be done by the stockholders. This shall include the right to purchase, rent, and lease real estate and personal properties of all kinds on such terms as the board of directors may think best; to sell and dispose of real estate and personal properties of all kinds upon such terms as the board may think best; to construct and improve buildings; to sign any and all notes, deeds, and instruments; to borrow money and secure the same by deed, all in the name of the corporation, and in furtherance of the objects of the corporation. The directors shall employ such agents, servants, and others, as they may think best, and fix their compensation. They may fix their own compensation for services rendered to the corporation, and pay the same out of corporate funds.
"5. Two directors shall constitute a quorum for the transaction of any business upon the part of the board of directors for the corporation. A majority vote of the board of directors shall be sufficient and controlling upon any question relating to the affairs of the corporation and under the jurisdiction of the board of directors."
On or about December 1, 1959, the plaintiff was first advised by certain attorneys that, although he owned fifty percent of the capital stock, he did not have fifty percent control of the corporation. The plaintiff was also advised for the first time that, under the bylaws, the directors could be removed or replaced only by a majority vote of the stockholders; and, since the plaintiff held only fifty percent of the stock of the corporation, he could not obtain equal control of the corporation, as he had intended.
The defendant attorney, although he knew that the plaintiff was relying upon him for representation of the plaintiff's interest, including the right to an equal voice in the management and control of the affairs of the corporation, was acting solely on behalf of the interests of the defendants Greely and Howard.
The defendants entered into a conspiracy to incorporate in such a manner as to deprive the plaintiff of fifty percent control of said corporation, and to prevent the plaintiff from later obtaining equal representation on the board of directors, knowing that the plaintiff was relying on the defendant attorney to protect his interest, and intending through this device to appropriate the corporation to their own use and control.
There were superfluous averments that the plaintiff apprehended that the business of the corporation would be mismanaged, but no concrete facts were set forth that showed mismanagement or danger of mismanagement. The first count of the petition also alleged in a vague way that the plaintiff was entitled to various species of damages, the recovery of which depended upon the right of the plaintiff to prevail in the action. It is not necessary to detail the items of damages claimed, as will fully appear from the opinion in this case.
The second count was similar to the first, except that the first alleges that, at the time of the organizational meeting, the defendants were aware that the plaintiff thought he would retain fifty percent control of the corporation under the terms of the bylaws; while in the second count the petition alleges that the defendants did not know at the time the bylaws were adopted that the plaintiff would have only equal powers on the board of directors with its other two members, and when they learned that was true, they concealed the fact from the plaintiff.
The general demurrer to the petition was sustained by the trial judge. To this ruling the plaintiff excepts.
The petition avers that, at the time of the organization of Thunderbird Motor Hotels, Inc., a private corporation, the plaintiff owned fifty percent of the corporation's common voting stock; that the defendants knew that the plaintiff expected the corporation to be so organized that he would have fifty percent control of its affairs; that he relied upon the defendants to establish his right to such control; that the attorney who obtained the corporate charter and drew the bylaws was guilty of breach of trust, and the defendants Greely and Howard were guilty of fraud in not securing for him, by provisions of the bylaws, the fifty percent control of the corporation that he expected; and that the three defendants conspired to prevent his obtaining a voice in directing the business of the corporation equal to that of both of the other stockholders, Greely and Howard.
The petition relates no conversation or other communications between the plaintiff and any of the defendants or any other issuable fact which supports the general allegations that the defendants knew that the plaintiff expected or relied upon the defendants to vest in him fifty percent control of the corporation. While the petition alleges that the plaintiff relied upon the representations of the defendants, no representation is set forth literally or in substance. Not a single fact is alleged upon which the charge of breach of trust by the attorney, fraud by any defendant, or a conspiracy to defraud by the three defendants, can be based. In short, the petition is a structure of conclusions without foundation in fact.
This court has dealt with such a petition in the following pronouncements: "General allegations of a breach of trust count for nothing, even as against a general demurrer. Lathrop v. Miller, 164 Ga. 167, 170 ( 138 S.E. 50), and cit." Malone v. Armor Insulating Co., 191 Ga. 146, 150 ( 12 S.E.2d 299).
"No cause of action is stated in a petition which states mere legal conclusions of conspiracy, collusion and fraud with no facts alleged upon which to base them except general and loose allegations consisting of statements without facts upon which the conclusions are based. Green v. Spears, 181 Ga. 486 ( 182 S.E. 913); Fowler v. Southern Airlines, 192 Ga. 845 ( 16 S.E.2d 897)." Budget Charge Accounts v. Peters, 213 Ga. 17, 18 ( 96 S.E.2d 887).
2. The petition alleges that the plaintiff was not aware for about two years that the bylaws of the corporation did not provide that he have fifty percent control of the corporation's business. This allegation is in direct contradiction with the averments of the petition that the plaintiff was present when the bylaws were adopted, that he accepted both the office of president of the corporation and member of the board of directors, and served in those dual capacities for nearly two years; that he voted his stock in favor of the adoption of the bylaws and for the election of himself, Greely and Howard to the board of directors.
Where the bylaws of a corporation, regularly adopted at a meeting of the stockholders, not shown to be inconsistent with the corporation's charter or contrary to law, confer the management of the corporation's business upon a board of directors, that body is vested with the authority and charged with the responsibility of managing the corporation for the benefit of the stockholders, and becomes the governing authority of the corporation. Malone v. Armor Insulating Co., 191 Ga. 146 ( 12 S.E.2d 299). The bylaws of a corporation constitute permanent rules governing its management, and as such are binding upon the stockholders. Hornady v. Goodman, 167 Ga. 555 ( 146 S.E. 173). "The members of a corporation are as a general rule conclusively presumed to have knowledge of its bylaws and cannot escape a liability arising thereunder, or otherwise avoid their operation, on a plea of ignorance of them. This is also true of directors and other officers of the corporation." 18 C. J. S. 590, § 180. To the same effect is the pronouncement in Crittenden v. Southern Home Building c. Assn., 111 Ga. 266 ( 36 S.E. 643), that a stockholder is bound by a bylaw of the corporation whether or not he had notice of its adoption.
Further, the bylaws of a corporation are binding on the parties who enact them as contracts ( Tuttle v. Walton, 1 Ga. 43), and must be construed according to the principles of the law of contracts. 13 Am. Jur. 290, § 160. The bylaws under consideration were couched in language so plain and simple that any person of ordinary intelligence could understand their meaning and effect. The text of the bylaws reads: "5. Two directors shall constitute a quorum for the transaction of any business upon the part of the board of directors for the corporation. A majority vote of the board of directors shall be sufficient and controlling upon any question relating to the affairs of the corporation and under the jurisdiction of the board of directors." A familiar and elemental principle of law applicable to contracts and bylaws alike binds a party by the terms of a written instrument which he has executed without reading if he can read and was not prevented from reading the instrument by any artifice or device of the other contracting party or by an emergency. Eliopolo v. Eicholz, 161 Ga. 823 ( 131 S.E. 889).
There are no averments of the petition that take the case out of the operation of the rules referred to in this division of our opinion.
Judgment affirmed. All the Justices concur.