RANGER
v;
CHAMPIONClhTON-PRESS CO.
611
RANGER v.
CHA!lIPION
Cb.et at
(Circuit Court,D. South Carolina.' November 3,1892.)
1.
A bill by a stockholder against the cortJ0rlJ,tion. its president, and .11011 the other stockholders, charged that the president was using for his own' benefit moneys- 9! th,!! corporation aptJllcable toa dividend, and refused to account therefor; that, aided by the secretary, be refused to entertain or allow ,to be voted on a motion properly. made at a regUlar stockholders' meeting calling for such an account; that in viola,tiono! the bY,lawsbedeposited the corporate moneys in his, individual namej that he wasted $3,300 of the corporate moneys.by bad management; that he loa.nllu $10,000 to a stockholder, secured bya pledge of the latter's stock; that afterwards t)le st.ock was bought by the company against complaiI\ant's protest; that' the officers declined to make a statement of the company's. affairs, or to allow complainant to examine'the books; and that the president 'was,attempting to depress the company's stock so as to compel complainant to sell out to him. Held,thatthe bill stated a case for equitable relief, and was good as against a general demurrer. 2. SAME-EQUITY RULE 94. TbebUl did not come within equity rule 94, relating to suits by stockholders, or, if its provisions could be considered as applicable, the allegations substantially complied therewith. Hawes v. Oakland, 104 U. S.45O, distinguished. 8. EQUITY PLEADING-MULTIFARIOUSNESS. . . ' . , An objection to a bill for multifariousness cannot be taken merely at the hearing, but must be specifically stated by demurrer or pleading.
CORPORATIONS-RIGHTS OF STOOKHOLDERS-MISOONDUOT Oll" ()FlI'IOIlRslEQth:TABLE . RELI1'lF. . ,. /. "
In Equity. Bill by Louis Ranger against the Champion Cotton-Press Company, B. F. McCabe, and other stockholders, for the declaration of a dividend and other relief. A motion for the appointment of a ra-. 'ceiver before the answers were due was denied. 52 Fed. Rep. 609. ,Heard on demurrer. Overruled. Mitchel), Jc SmUh,for complainant. Lord Jc Burke, J. N. Nathans, and J. P. K. Bryan, for defendants. SWONTON, District Judge. This case comes up on the bill and demurrers thereto. The bill is filed by Louis Ranger, alleging that he is a stockholder in the Champion Cotton-Press Company, a body COl'POrate. That the number of shares was 120, at $700 each. That the company purchased and owned 19 of these. That Mrs. Elizabeth Dowie, who is a defendant, owns 15 shares; Miss Margaret B. Mure, another defendant, owns 15 shares; William Mure, another defendant, 10 shares; R. D. Mure, also a defendant, 6 shares; William Fatman and B.F. McCabe, the other defendants, 20 shares and 15 shares, respectively. Thus all the stockholders are parties to the suit, and with them the corporation. The bill further alleges that, having been prevented by the failure to hold, in 1891, the meeting provided by the by-laws, and the consequent failure to make an exhibit of the affairs of the company by the officers thereof, complainant requested and demanded, at the annual meeting in 1892,a clear and full exhibit of the business and affairs of the company, and that this was peremptorily refused by the president and other officers. That he desired also to examine the books of the company so as to ascertain its condition, and that this also was peremp·
<
612
F}£DERAL
vol. 52.
torily refused him. He charges that B. F. McCabe, the president of the company, and the other officers, have managed the affairs of the company, not in its interests, but for the personal interest and benefit of B. F. McCabe, or their own. He specially charges that B. F. McCabe used the funds of the company for his own purposes and use. That he had on 4th June, 1891, and still has in his hands $25,640.95 in cash, the money of the company, and that he has used and is using this money for his own purposes,uses, and benefits, and not for those of the company. That this money should be divided as a dividend among the stockholders; and that McCabe and the other officers refuse so to divide it; and McCabe refuses to give any account of it, using the same as his own. That although the by-laws of the company require all funds of the corporation to be deposited in the name of the company, and to be checked out by the treasurer with the countersign of the president, this rule has been disregarded by McCabe, the president. All the moneys of the company are deposited in his private account, and drawn on by his own checks, and used by him as he sees fit. That at the annual meeting the complainant caused a resolution to be offered by William Fatman, his proxy, calling upon McCabe to render an account of moneys advanced by the company to him for the purpose of contracting business for the company, which necessity no longer exists; and that McCabe, as chairman, refused to allow the resolution to be put and voted on,· and that William Mure, the secretary of the meeting, !efused to, receive the resolution or to enter a vote thereon. That this action was .takenby the said defendant to eVilde and prevent any accounting by said; M9Cabe for su'Ch moneys, or repayment of the same to the company. The bill charges a loss of $3,300 to the company from the bad management of McCabe, and from the use by him orthe company's moneys for his own purposes. The bill .charges the loan of $10,000 company's money under the guise of his own to William Fatman, secured by pledge company. and subsequent purchase by the company of stock. of: purchasll was against the protest and vote of plj}inapt, and 'is .itself ,unlawful,. null, and void, beside depriving the stockholders of diyidend to th/ttextent. He charges that an examina;tion of thelJpo;ks would show ample f:unds applicable, to a dividend. of McCabe is intended so to deThe bill press the stock as to compel c:omplainant to sell out. 'to him, and that he is using his power as an otfice,r of the company to this end. The prayer is for sucb an examination; that McCabe pay back all moneys due and owing by him.to thecorppany, and in his hands by reason of 'that the company declare a dividend from all funds his official to dividends; and that the dividend due to the complainant to him; that, if it appear from an accounting that McCabe the other officers of the used the. funds and business of the company for their own purposes, they be required to make good the and the losses therefrom; and that a receivel1pe appointed, and all the assets of the company be realized and divided among the stockholders.
v.
CHAMPION COTTON-PRESS CO.
613
The defendant B. F. McCabe files a separate demurrer. So does the Champion Cotton-Press Company. Mrs. Dowie, Miss Mure. William Mure. and Robert D. Mure join in a demurrer. The demurrers each allege for cause that the com plainant has not. by his bill, made such a case as entitles him, in a court of equity, to any relief against the defendants. Let us examine the demurrer of the president, B. F. McCabe. The bill charges that he has taken possession and control of the moneys of the corporation, depositing them in bank in his own name, in defiance of the express provision of the by-laws, and drawing them out on his own check, in his own discretion, for his own purposes; that especially he has in his hands the sum of $25,660, money of the company, which he has converted to his own use, and for which he fails and refuses to account; that by this action, and the further misuse of the company's funds by lending them in his own name, the complainant has failed to receive his proper share of the funds of the company in the shape of a dividend on his stock; that all of his efforts to ascertain the truth ahout this misuse of fnnds by the president in an examination of the books, or in calling the president to account therefor,.have been baflled and defeated by the direct and active effort of the president himself, aided by the other officers, going so far as to refuse to receive and put a motion for investigation made at a stockholders' meeting; and that there is a definite purpose so to use the affairs of the company as to depress the stock so as to compel complainant to sell out at a loss.. All of thE;se charges are by this demurrer admitted by Mr. McCabe without qualifi· cation or explanation; and in this course the corporation, presumahly under his control and management, concurs. The other defendants their demurrer to such relief as is sought against them. Here we have the adrriission that a con1plaining stockholder in a trading corporaJioll has been defrauded and deprived of his share of its property applicable dividends. by the action of the president in misusing for his own purposes the moneys of the company. That every effort made by hi.tuta ascertain the facts connected with this charge have been thwarted' by and distinct refusal at the hands of the president, made'at the an annual meeting of the stockholders, to give any. information or eXe planation whatever. This admission is made. It is denied that a court of equity can give any relief. Strong, indeed, must be the formal or technical difficulties which will forbid this court from at least hearing such a complaint. At the hearing an objection was made to the bill because it was muliifarious. No demurrer or other pleading setting up this special defense had been filed. An objection of this character must be specifically taken in the pleadings. If not so taken, it is deemed to be waived. Oliver v. Piatt, 3 How. 333. Does the bill make out prima facie a case for equitable relief? There can be no doubt that on a proper showing this court will come to the aid of a minority of stockholders. Dodge v. Woolsey, 18 How. 331. The doctrine is well stated ill Waterman on Corporations, (page 578, § 319:)
to
614 ':' A. C/)l\!;t:of on of any imp r 9per 'pr9perty otber th;m for ()<;>rporate purposes, all{'natlon Qr q.isposition contrary to law, and tend and will rilsthiin the cohimissiol1 (:\facts which to 'as'weil as the improper management of tbe business oHlle corpotlltidni or a wrollgfuldiversicm,QJ! its funds; and'in suchcastls equity'may:grant at .the suitofa single stockholder." , ,
A minority maY, opjectto}he l;>uBinesspolicy pursued by themajority, as tending to'in5ure;perhaps,<;lestroy, their interests. .In such cases the cqurt will seldom or,neyel,',iriterrere. , The majprity must govern, unless there be R, palpable or an interference with vested ,Another of cases right!3 and interests of a corporation as a wholt;> are threatene<i by ;tll!l action of a third,party, an outsider, and the corporatEl authorities, 'Wrough negligence, or willfulness, will not,move in deferse. In such cases, ,following Dodge v. Woolsey, courts ofthe United States lent a ready ear to the complaint of stockholders Interfered in' behalf of the corporate rights. Bu,t this indulgence of the courts was greatly abused. Many cases werebrqught into the qnited States courts in whiqh the jurisdicby collu'sion a nonresident stockholder and tion was the corporlltion,which itself poq1d,not come into this court. This abuse was rebuked inllawes ,v. U. S. 450. The evil was cured by the o'nhe ninety-fQurthequity rule, consequent on this caRe. This rule. by ita terms, 'is. applicable to "every bill brought by one or more st6ckholPers in 'aeqrporation,againstthe corporation and other partit;>s,fouilded'on rights may properly be asserted by the corporation." 454)' s.llows that these words, "other parties," mean "an outsider." , this case, and the rule consequent upon it, do not apply to cases in which there is a real contest between tlle stockholder and hiscOl'poration. Leo v. Railway Co., 17 Fed. Rep. 278. Hawes v. OaklrJ/rid draws the distinction broadly and clearly: ' "That vast and increasing of the active business of modern call into exercise the benificent powlife which is dOQ,e by ers and flexible methods of courts of equity is neither to be wondered at nor regretted; and thIs is specially true of controversies grOWing out of the telations between the stockholder and the corporation of which he is a member. The exercise of this power :in protecting the stockholder against the frauds of the governing body of direetQrs or trustees, and in preventing their exercise in the name of the corporation of powers which are outside.of.theircharters or articles of. association, has been frequent, and is most beneficial, and is undisputed. III III '''' The case before goes beyond this." After stating that case and the principle of Dodge v. Woolsey, in both of which the action of an outsider was the gmvamen of complaint, the court add, (page 454 :) , "This is a very differellt affair from a controversy between the shareholder of a corporation and the'corporation itself, or its managing dil'ectors or trustees, or the other shareboldel's who may be violating his rights, or deSLl'oying the property in which he has an intel'est."
There
t):lree classe!3. of, ell-SeS in vrhich
may complain.
RANGER t1" 'CHAMPION; COTTON-PRESS CO.
615
The bill in this does not complain of any business polic! on the part of the corporatIOn or of the other stockholders; nor does It charge supineness or neglect or collusion with any attack on corporate rights, interests, or priviIegf!s, by an outsider. The charges that the president has converted to his o",n use moneys of the company in which, as a stockholder, complainant has an interest because they were applicable to dividends; that the president misuses his powers, and conducts the business of the corporation to his own purposes; that he controls and uses, in his own, private bal,lking account and for his own private purposes, all the funds of the company, against the express provisions of the by-laws; and that in this he is sustained by the officers of the compllny, who aided him in a peremptory refusal even to consider a motion of inquiry on this subject, made at a general meeting of stockholders. He ¢harges that his own p,ersonal infringed" and for this he seeks his remedy. As his rights are similar to those of the other stockholders, he makes them parties to his suit as pa.rties in; interest, So that they may take sides as theiY ar;e advised, and,at least, may be present at the division of the COp;l;1il)on property,an;d see that he gets his just share and no more. His prayer, is, that. the, money converted be returned, and out of it a dividend be declared, and that he get his dividend. This is a suit within the corporation, concerning no one butthe stockholciers and the company, seeking rights claimed only as a against the company and the pther stockholders. The complainant could not work out his case through the corporation. His bill discloses the fact that there are but fiva males in this company, -Messrs. McCabe, William D. Mure, Fatman, and himself; that Fatman's stock has been bought in by the company; that Mr. McCabe is president, in full control ,of the business and of the funds of the corporation; that Mr. William Mure is vice president, secretary, ,and treasurer, and that thus he and Mr. McCabe together control the business, the seal, and the moneys of the company; that these two, at an annual meeting of stockholders provided in its by-laws, peremptorily refused to entertain a resolution of inquiry, and successfully prevented even its introduction. Under these circumstances, it would be absurd to require the complainant to ask these gentlemen to institute in the name ofthe corporation a suit against Mr. McCabe, involving the grave charges of this suit. Tazewell Co. v: Farmers' L. T. 00.,12 Fed. Rep. 752; Heath v. Railway 00., 8 BIatchf. 347. I am of opinion that this court has jurisdiction over the subject-matter of this bill; that the allegations and form of the bill are sufficient to sustain this jurisdiction; that the cause is not within the mischief or the provisions of rule 94,eql1ity rules; that, if it were, the statements of the bill comply substantially 'with all the requirements of this rule. He is bona fide a stockholder. There is no suspicion of any collusion to obtain the jurisdiction of this court. He sets forth his effort to obtain relief within the corporation, and his bill is suggestive of the cause of his failure. The demurrers severally are overruled. The defendants have leave to plead or answer over, as they may be advised.
616
J'lllDll$AL REPORTER,
voL 52.
, MOULTON t1. SIDLE (ctrCUit Oourt, D.
et aZ.
Fourth. mviswn., Novem,ber 18, 1899.)
t
MORT(UGES-FORECLOSURE-NOTJCE TO OCCUPANT.
B.ev. St. Minn. 1878, c. In. tit. 1, § 5, enact8 t!).8.t, w!:l6n a mortgage is forecl08ed b1 and advertisePilIll!-t in a newspaper, .. a copy of 8uch notice 8hall be served in like manner as summons' in civil actions in the district court.. * * * 'on the person inpossessiondt the mortgaged premiseS, if the same are actually occupied." .1IeUl, that wherllthere was no aotual occupancy, within the meaning of the law, but mere act80f ownership, the statutory notice was not required. CONSTITUTES OCOUPKNCY. .
2.
The pU1'Ohaser of land, mortgaged it to s.ecurebalanoe of purchase money, upon it, and planted some fruit trees. There was no dwelling upon the land, but across the 8treet was another tract owned by her, on which there was a house inhabited by laborer8, whp,:worked at interval8 on the l!lond in que8tion. HeW, th!lot there was JlO 8uch aotua.l. occupancy thereof !loS to require notice of foreclosure , ,proceedings to be given,und'er said statute, to the "per80n in p08session. n
In l!kIuity. Bill 'by Martha A. Moulton against Henry G. Sidle and others to redeetn mortgaged' 'premises foreclosed under a power of sale ;'Bill dismissed. contained in the Seldhn Bacon, for compllliinant. J. ·W. Lo:wreilce, for defendants. NEJ;SON',District JUdge. This suit was commenced December 30, 1890, and is brought toredeell'l a tract of land mortgaged in April, 1878, by the complainant and her husband, to the defendant H. G. Sidle. It iasot up as a defense that the mortgage was foreclosed under the power ofsale therein by advertisement in 1880, and the time for redemption nas long since expired; the complainant abandoned the property ever since the foreclosureof'the mortgage, and never claimed the pusses'sion or occupationofthe until it had largely increased in value. FACTS FOUND.
The facts in this case are: On April 1, 1878, H. G. Sidle owned the land. about 9 acres, Invblved in tbis controversy, and on that day he and his wife conveyed the same'to the eomplainant for.tbe consideration of $880, and at the same time the complainant and husband gave their joint and sev.eral promisso,ry Ilotes to the said H. G. Sidle for the purchase price,-one for$440, and interest thereon at 10 per cent. per annum until paid, Inaturing six months after date thereof; and the other for the sum of $'440, and interest thereon at the rate of 10 per cent. per annum until paid, maturing one year after the date thereof. These notes were payable at the First National Hank of Minneapolis, and were secured by a mortgage upon the property, executed by the complainant and her huspand, and duly recorded. Default was made in payment of the principal and interest by theco.mpl\\inant and her husband, and no taxes were paid upon the property by them, and pursuant to the statute, under the power of sale, the proceedings to foreclose the mortgage were taken as they appear in the defendants' Exhibit No.6. and a record thereof was duly made. The ;foreclbsure proceeding was commenced September 4,1880. No notice of the,ptoceeding was served on the complainant or any person. The property mortgaged was sol,d October 23, for the SUIll of $1,170, the arnountdue
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