Opinion
(September Term, 1889.)
Injunction — Corporation — Charter — Stockholder — Domicil — Laches.
1. The plaintiff must allege facts sufficient to sustain his cause of action, before an injunction will be allowed.
2. Individual stockholders in their own name are not the proper parties to assert the rights of a corporation; action should be brought by and for the corporation itself. If its officers or other stockholders fail to do their duty in that respect, the remedy is, as a general rule, to be sought within the corporate organization.
3. Where there is cause for complaint by stockholders against others, they should first resort to the remedy prescribed in their charter; and failing in this, they will have a right to proceed against the delinquents, and, in proper cases, injunction will be granted to protect the rights of parties.
4. A good cause of complaint in such cases is fraud or serious injury done, or about to be done, by some of the stockholders or officers, for which there is no adequate remedy given under the charter.
5. It should be alleged and proved that the plaintiffs are bona fide owners of stock and have taken proper steps within the company to assert their rights; it ought also to appear that proper legal steps have been taken in the state which is the domicil of the corporation and defendant corporators, before the aid of the courts of a foreign state will be afforded.
6. When, as in this case, a variety of remedies was open to plaintiff for many years and he did not pursue any of them, he is chargeable with gross laches, and the courts will not interfere by injunction for his relief.
MOTION for injunction in an action begun in DAVIDSON, and heard at chambers by Merrimon, J., on the Fall Circuit, 1889.
(541) T. B. Eldridge for plaintiff.
M. H. Pinnix, N. B. Bond, and F. C. Robbins for defendant.
The plaintiff must allege in his complaint facts sufficient to constitute a cause of action in his favor, legal or equitable, or both legal and equitable in its nature. Otherwise the defendant may move to dismiss the action, or the court will ex mero motu dismiss it because, in such case, there is nothing alleged in the pleading that raises the jurisdiction of the court as to the subject-matter of the action and to which it can attach.
And so, also, when the plaintiff asks for relief by injunction in the course of the action as a provisional remedy therein, he must, if he has not at the time of the application filed his complaint, set forth (542) in his application — his affidavit — ordinarily, such a cause of action. The court will not — cannot — proceed in the action, unless its jurisdiction as to the parties and the subject-matter of it appears in some way allowed by law. Jurisdiction is essential, and it must appear by the record. The court must see a cause of action at least substantially alleged.
We are of opinion that the plaintiff failed to allege a cause of action in himself, and therefore the court ought not to have granted the injunction as to which the appellant complains.
Accepting the plaintiff's allegations as true, for the present purpose, he is not nor does he purport to be the owner of the lands and the judgment mentioned in the complaint in controversy. They belong to the Silver Valley Mining Company of Baltimore, of which he is a stockholder, and that company, in the absence of statutory regulation otherwise, is the proper party to assert its rights and seek redress for any invasion of the same by action. In the nature of the matter it would contravene every principle of intelligent procedure, be impractical and absurd to allow ordinarily one or more of the stockholders of a corporation to bring actions to recover property, or the value of it, that belongs to it, or to recover damages for injuries to it, or its property, or to collect debts due to it. Such actions imply corporate disorganization and the absence of corporate integrity and entity. If corporate officers or agents will not or fail to exercise their corporate powers and authority in the discharge of their duties and obligations to the stockholders of the corporations or others, the body corporate does not thereby cease to exist, nor can it be ignored as an effective instrumentality for its purposes. The law, statutory and otherwise, supplies ample means whereby to render it operative without necessarily destroying it, or an abandonment of it as a corporate being. The remedy of its stockholders and others (543) interested in it is made effective by, through, for, or against it, as the case may be or require. In cases like the present one the complaining stockholder, or stockholders, should take such action in their company as its charter and by-laws might allow, and, these not affording adequate remedy, he, or they, should bring his, or their, action against the corporation and the offending officers of it, to the end such officers should be compelled to a proper discharge of their duties, or be displaced and others put in their places. Pending such action, the court might — would in proper cases — protect the rights of the corporation, and, through it, the same of the corporators, by the appointment of receivers. And, having in view the same ends, one or more stockholders might, in possible cases, bring an action in their own names to protect the rights of the corporation, and through it their own rights in common with those of all the other stockholders. The right to bring and the occasion of bringing such actions arises only when and because the proper corporate officers will not, for some improper consideration, discharge their duties as they should do. But stockholders, as such, may not bring such actions at their pleasure and have their rights as individuals growing out of the corporation settled and administered. Such actions are allowed because of necessity and for the benefit of the corporation and its stockholders. Hence it was held in Hawes v. Oakland, 104 U.S. 450, that to entitle a shareholder in a certain waterworks company to maintain an action in his own name, it must appear, first, that something has been done or is threatened to be done by the directors which is beyond the authority conferred by the charter or law under which the company was organized; or, secondly, that such fraudulent transactions are threatened or contemplated by the directors, either among themselves or with some other party, or with shareholders, as will result in serious injury to the company or other shareholders; or, thirdly, that the directors, or (544) a majority of them, are acting in their own interest, in a manner destructive of the company or the rights of the other shareholders; or, fourthly, that the majority of the shareholders are oppressively and illegally pursuing, in the name of the company, a course of action in violation of the rights of the other shareholders, which can only be restrained by a court of equity; and, fifthly, that the complaining party must have made an earnest effort to obtain redress at the hands of the directors and shareholders of the corporation, and that the ownership of the stock by him was vested in him at the time of the transactions of which he complains, or was thereafter transferred to him by operation of law. The case just cited was afterwards cited and fully approved by the same court, in Dimpfill v. R. R., 110 U.S. 202, and it was therein further held that it must appear that the plaintiffs had exhausted all the means in their power to obtain redress of the grievances within the corporation itself. These and other similar cases, as well as the reason of the matter, show that the cause of action in favor of the complaining stockholders does not arise, and he cannot maintain an action in respect thereto unless such facts exist and appear by a proper averment. Planters' Line v. Wagner, 71 Ala. 581; Showan v. Zion, 79 Ky. 300; Taylor v. Holmes, 127 U.S. 489.
In the present case it is alleged that the plaintiff purchased certain certificates of stock of the Silver Valley Mining Company, of Baltimore, indorsed in blank, but certificates have not been issued to him. It is questionable whether he is a stockholder and entitled to act as such. It seems that, at most, he is only the equitable owner of the shares of stock. When he so purchased them does not appear. It does appear, however, that he got them long after most if not all the fraudulent transactions complained of. It should appear that he was the bona (545) fide owner of the stock; that he bought the same in good faith, and not for mere vexatious purposes.
It is not alleged, nor does it appear in any way, that the plaintiff had ever taken steps within the company last mentioned to correct the grievances of which he complained, although he had known of them for years; nor does it appear that he has ever demanded and required of its officers that they take proper action to prevent them or obtain redress on account of the same. It is alleged that certain officers of the company were the authors of and participators in the alleged frauds and mismanagement, and that they refused to take action. But this allegation is indefinite, unsatisfactory and evasive. It seems to be founded upon the allegation that the officers were the authors of and participants in the fraud, and hence would not take such proper action. This is not sufficient. It should be alleged, frankly, plainly and with particularity, that the plaintiff had demanded and required of such officers that they should correct the grievances alleged, and take steps to obtain redress, and that they thereupon refused so to do. It might have been that an earnest effort would have induced or driven such officers to a proper discharge of their duty. Such effort should have been made, and it ought to appear by proper averment that it had been.
Nor does it appear that plaintiff or any other stockholder had brought any action or taken any legal steps in the courts of the State of Maryland to obtain redress for the company, himself and the stockholders on account of the alleged wrongs. The company was in and of that State, and all the other defendants except the appellant were there. It ought to appear in such case that such legal steps had been taken. An action like the present one should be in aid of a proper one in the proper court of the State just mentioned. The plaintiff seeks unnecessarily and improperly to bring a foreign corporation into this State as (546) a defendant in this action, and have the courts here interpret its charter and by-laws and the regularity and sufficiency of its proceedings and the laws of the State of Maryland bearing on the same. Ordinarily the courts of the latter State properly have the exclusive jurisdiction of such matters and things; this should be settled by the proper courts there. There is total absence of necessity for such extraordinary procedure here, and the courts of this State will not unnecessarily entertain an action for such purpose. An action such as the present one — there being proper ground for it — should be in effect auxiliary in its nature, in aid of proper actions and proceedings, as indicated above, in the courts of Maryland. Wilkins v. Thorn, 60 Md. 258; Nail Co. v. Linden Spring Co., 142 Mass. 349; Halsey v. McLean, 12 Allen, 438; Smith v. Ins. Co., 14 Allen, 436; Kansas Cons. Co. v. R. R., 135 Mass. 34.
Accepting the case as presented, the plaintiff must have been cognizant for many years of the grievances of which he complains. A variety of remedies were open to him. It does not appear that he ever in any way took steps to arrest or seek redress on account of the same, nor is any reason or cause assigned for or explanation given of such delay. This is singular and suggestive of a want of good faith. In the meantime, rights of third persons — so far as appears, innocent persons — have supervened. The plaintiff is clearly chargeable with gross laches, and upon well settled principles of equity he cannot now be allowed to prejudice such rights.
We need not consider whether the appellant corporation was or was not duly organized, because, as we have seen, the plaintiff has failed to allege such a cause of action in favor of himself as entitles him to maintain this action.
There is error. The order appealed from must be set aside and the motion for an injunction, pending the action, denied.
Error.
Cited: Jones v. Comrs., 107 N.C. 265; Heggie v. B. L. Assn., ib., 590; Howard v. Ins. Co., 125 N.C. 54; Merrimon v. Paving Co., 142 N.C. 550, 552, 554; Mitchell v. Realty Co., 169 N.C. 518.
(547)