113 Ala. 531 | Ala. | 1896
Otto Palm and others, minority stockholders in the appellant corporation, filed their hill, in which it is averred that appellants, Thomas M. Scruggs and S. M. Nelson, controlled a majority.of the stock of the corporation, and used their power in the selection of the board of directors, and dominated the management of the corporation for their personal advantage. The principal wrongs complained of consist in the election of incompetent and unfaithful persons as president and secretary, to-wit, Thos. M. Scruggs and S. M. Nelson, and the appropriation by the directors of exhorbitant and unreasonable amounts to their salaries, and neglect of duty on their part. The bill prays for the removal of these and other members of the board of directors, for an injunction to restrain the board from voting unreasonable salaries hereafter, for an account to ascertain how much they have received over and above what is just and reasonable, a decree for such excess, and a cancellation of the notes held by such officers against the corporation for unpaid salaries, in excess of what they should be allowed. The bill also prayed for a receiver.
It will be seen from this statement of the purposes of the bill, that the corporation is the proper complainant, and that stockholders are not allowed to apply to a court of equity for relief in such a case, except upon averment and proof that the corporation has refused, upon application, to remedy the wrong, or upon sufficient aver-ments to show that application to the board of directors or stockholders would have been in vain, or the circumstances were such as to excuse the complaining stockholders from first seeking a remedy in this way, if there can be any other in any case.
At the final hearing, the court granted relief to com."
It is reasonably clear that they dominated the stockholders’ meetings, and elected the board of directors, of which the said Scruggs and Nelson were always included as members. The by-laws authorized the directors to fix the salaries of the officers and elect them. Thomas M. Scruggs and S. M. Nelson were members of the board of directors which fixed the salaries of the president and secretary, and which elected them to these offices, and it is satisfactorily shown that both were instrumental in fixing the amount to be paid, and in electing themselves to their respective offices. The pleadings
This brings us to the consideration of a question which vitally affects complainants’ standing in a court of equity. The respondents demurred to the bill upon the ground that the bill admitted that complainants had not applied to the board of directors of to the stockholders for redress, and failed to state sufficient reasons for not doing so. The demurrer was overruled, and the same question and issue was raised by answer. After careful consideration, we are of opinion that the court erred in its rulings upon the demurrer, and in its con-
In the case of Merchants & Planters Line v. Waganer, 71 Ala. 581, we quoted approvingly from the case of Hawes v. Oakland, 104 U. S. 450, the following principles of law as applicable : “A stockholder could appeal to the courts for relief, ‘where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of ’the other shareholders.’ This is precisely what is avei’red in this case. ‘But,’ Justice Miller adds, ‘in addition to the existence of grievances which call for this kind.of relief, it is equally important that before the shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits, or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains ; and he must show a case, if this is not done,
In the case of Steiner v. Parsons, 103 Ala. 215, after citing the foregoing authorities it was held, that mere averments of conclusions, without averment of the facts which sustained the conclusions, were insufficient. The reasons for the principle are so strongly and clearly stated in the cases cited, that we consider it unnecessary to fortify them by additional argument or authority. It is a settled question in this court. The abstract abounds with averments, that the directors were dominated by the president and secretary, and that an application to the board would have been useless ; but with one exception to be noticed presently, there is not a single fact averred to show why the board of directors would not have interposed at the request of ihe complainants. The fact referred to is the statement that Thomas M. Scruggs, S. M. Nelson and Kate Gutherz had the voting power to control the meeting of the stockholders and did dominate at these meetings. We obseiwe here that this is the only material fact established by the evidence bearing upon this issue. The question then is, does the fact that these three stockholders controlled the election of the seven directors and did elect them by their votes, without more, authorize the legal presumption that the directors thus elected would refuse to discharge their duties as directors to the corporation and the stockholders, when requested by the stockholders? The case of Mack v. DeBardeleben, 90 Ala. 401, can not be regarded as an authority. In the first place, the question was not before the court. In the second place, the decision of the question was expressly pretermitted, and arguendo, it was stated that possibly “the presumption would be, that he (a director) would exercise his power in the -interest of the company to which he owed his election.” There is no ground for such a presumption in the present case. The directors were stockholders. In the absence of causes to influence them otherwise, the presumption is that they would do their duty, and this presumption is greatly strengthened when the effect of duty was to promote their personal interest.-Porter v. Pittsburg Bessemer Steel Co., 120 U. S. 670. With the exception of the stockholders who as officers received salaries, the interest of the other members of the board of directors, as well as
Reversed and remanded.