80 N.J. Eq. 417 | New York Court of Chancery | 1912
Tin's is a motion to suppress a demurrer on the ground of irregularity. The original suit Evas brought by Marcus Good-body and William U. Goodbody as stockholders of the Fisheries Company for the purpose of litigating a cause of action which they claim in their bill runs in favor of the company. The suit was brought not only on their own behalf but on behalf of all other stockholders similarly situated with them who might come .in and contribute to the expenses of the suit.
'The principal defendant, or the defendant against whom the principal proceeding is, Delaney, chose to answer the bill, and inasmuch as a replication was filed without objection to the answer, it will be assumed that he answered fully all of the allegations in accordance with the course and practice of this court. The cause was then referred to a vice-chancellor; considerable testimony has been taken before him on the part of the complainant, in fact they say that they have nearly completed their principal case. At this point fifty-two persons claiming to be stockholders of the company, and to be similarly situated as such stockholders with the complainants, applied for leave to be admitted as parties complainant to the suit. The application was made, heard and granted ex parte, and an order was made admitting them as parties complainant. Among the parties who were thus admitted were Shepard, Cauda, Goodkind and Aron.
A motion was made to discharge the order admitting these fifty-two complainants as improvidently made> on the ground that the petition and other moving papers failed to show that the}r had authorized the application therefor. This motion was denied, whereupon the defendant Delaney filed a demurrer to the bill as prosecuted by Shepard, Canda, Goodkind and Aron, ifiour of the newly-admitted defendants.
Delaney, by his answer, had prayed that he might have the benefit of the'facts set out in such answer by way of.demurrer
The decision of this motion requires some consideration of the character and scope of the original suit. As has been stated, it was brought by stockholders not only on their own behalf, but also on behalf of all other stockholders .who might be similarly situated with them, upon a cause of action running in favor of the corporation against the defendants, and therefore belongs to that class of suits which are known as representative suits. The corporation and all the stockholders who are affected b}7 the cause of action as the complainants are, are represented in the suit by the complainants. They are proceeding in behalf of the corporation only because the corporation either refuses to sue or because the directors and officers who are charged by the bill with fraud upon the company are disqualified thereby from conducting the litigation. The stockholders do not sue in their own right, but in the right of the corporation and the use of the names of stockholders as complainants is mere procedure and belongs not to the substantitive law of the ease, hut to the pursuit of the remedy in favor of the corporation. Every stockholder who stands in the same relation to the alleged fraudulent action with the complainants is entitled to aid in the prosecution of the suit if he chooses. After a suit of this character shall have been begun, no other stockholder will be permitted to prosecute a similar suit in his own name for the same cause of action, but subsequent suits will be stayed until there shall have been a decree in the prior suit; and it is quite possible that if such similar suit were brought in the same court with the prior suit a plea of former action pending would he sustained. The only recourse, fhere
It will be observed that the defendants to the bill as originally filed interposed an answer to the facts therein stated. It must be assumed that they answered those facts fully and that they waived all the less favored defences by way of plea and demurrer. It is true that they claim the same benéfit of the facts as if they had demurred, but a demurrer in the answer can only be availed of at the final hearing, and in so far. as it relies upon facts stated in the bill which have been answered, such a demurrer must be considered as overruled by the answer, and the questions of law raised by it must be determined upon the facts disclosed by the evidence adduced in support of the answer.
The principles governing the administration of the law in representative suits are well illustrated by the following cases: In Willoughby v. Chicago Junction Railways Co., 50 N. J. Eq. (5 Dick.) 655, Vice-Chancellor Green discussed the subject. There Ellerman brought a stockholders’ suit in this court to enjoin the consummation of an agreement made by his company, in which the company and the other defendants appeared and answered, and the cause was regularly heard and decided. Ellerman v. Chicago Junction Railways, 49 N. J. Eq. (4 Dick.) 217. Willoughby, another stockholder in the same company, after-wards filed a bill to prevent carrying into effect what was prac
A very well-considered case is Hearst v. Putman Mining Co., 28 Utah 184; 77 Pac. Rep. 753; 107 Am. St. Rep. 698. The opinion contains an elaboration of the doctrine that when a representative suit is prosecuted to judgment it binds all the stockholders of the corporation, as they are estopped from banging other representative suits for the same cause of action. In Burland v. Earle (1902), A. C. 83, 71 L. J. P. C. J, the Judicial Committee of the Privy Council held that the fact that
It therefore appears to make no difference whether the suit is prosecuted by one or more or by all the stockholders. There can be but one adjudication on.the rights of the corporation, j It is probably true that a stockholder can disqualify himself / from acting as a prosecutor of a representative suit, and that-if such disqualification appears upon the face of the record the question can be raised by demurrer, but if it does not appear upon the face of the record it can only be raised by answer or by a proper amendment to an answer already filed, and such I conceive to be the situation in this ease. The defendant Delaney has answered the original bill, and, under w.ell-known rules he may not likewise demur to the same bill. His answer overrules his demurrer, and he must go to final hearing on the issues made up. If the fact which disqualifies a stockholder from becoming a.prosecutor does not appear upon the face of the record it can be introduced byr way of amendment to the answer already on file.
The defendant should be permitted to have an opportunity to question the standing of complainants as stockholders, who come into the suit after the issues are made up between the original parties, and it probably would be safer to tiiake provision therefor in the order admitting them as complainants. Such provision was not made in the order in this case, but this omission ought not to stand in the way of questioning their qualifications by a proper proceeding, and such proper proceeding seems to me to be by way of amendment to the answer on file; but such, amendment must be strictly confined to questioning the qualification of the four prosecutors against whose complaint the demurrer is leveled.
Let an order he entered suppressing the demurrer for irregularity and allowing the defendants fifteen days in which to amend their answer as is above indicated.