Majors v. Taussig

20 Colo. 44 | Colo. | 1894

Lead Opinion

Mr. Justice Goddard

delivered the opinion of the court.

The sole question presented for our consideration is whether the facts set forth in the, petition for intervention are sufficient to entitle petitioners to intervene in the pending action for the purpose of interposing a defense, in behalf of the company, to the notes sued on. In determining this question the averments of the petition, so far as the same are well pleaded and undeuied, must be taken as true. Henry v. Travelers' Ins. Co., 16 Colo., 179.

The conditions essential to enable a stockholder to institute or defend an action, when the corporate entity upon which that duty devolves refuses to act, are well settled in this country by the leading case of Hawes v. Oakland, 104 U. S. 450, and in this state in the case of Miller v. Murray, 17 Colo. 408. These conditions, as concisely stated in Hawes v. Oakland are, first, some action or threatened action of the managing board of directors of- the corporation which is beyond the authority conferred by their charter or other source of organization ; or, second, such a fraudulent transaction, completed or contemplated by the acting managers, either among themselves or with some other shareholders, as will result in serious injury to the corporation or tire other shareholders; or, third, that the directors, or a majority of them, are acting for their own interests, in a manner destructive of the corporation itself or of the rights of the other shareholders; or, fourth, that the majority of shareholders are oppressively and illegally pursuing a course, in the name of the corporation, in violation of the rights of the other shareholders, which can only be restrained by the aid of a court of equity; fifth, a stockholder must make an earnest effort with the managing body of the corporation to induce remedial action on their part, and he must show a case; .if this is not done, why it could not be done, or it was not reasonably required.

From this application it appears that a fraudulent transaction was not only threatened, but about to be consummated, that would result in serious injury to the corporation and also to the interests of the other shareholders.

That the managing agents of the corporation, in collusion with the plaintiff in that action, had created a fictitious indebtedness against the company, aggregating upwards of $4,000; and in an action thereon, instituted at their instigation, a judgment was about to be taken by confession that would wipe out the entire assets of the company.

Upon this conceded state of facts it would seem eminently just to allow stockholders to interpose to protect their rights when it reasonably appears that any effort on their part to induce action on the part of the managing body would prove unavailing. It is insisted that the petition is fatally defective in failing to state the number of directors of the printing company, and thus, by direct averrnent showing that there was nota majority of the board outside of those charged with active participation in the fraudulent conduct complained of, who might be induced to take corporate action to .prevent the consummation of the fraud, and protect the rights of the stockholders.

While it is true that it is not expressly alleged that the parties charged with the unlawful conduct complained ■ of constitute a majority of the board of directors, yet we think the averments in this respect, while general, are fairly susceptible of the construction that they did constitute the entire board of directors. The designation of the officers of the company is as follows:

“That B. F. Zalinger is president of the board of directors thereof, that John G-. Canfield is secretary, and Eugene M. Taussig is treasurer thereof; that B. F. Zalinger, Lucy M. Zalinger and one Eugene M. Taussig, were * * * directors thereof.”

If it may be plausibly contended, under a strict rule of construction, that the averment that the parties named “ were directors ” falls short of averring that they constituted the entire board of directors, yet such a contention ought not to prevail if the phrase may, by reasonable intendment, be held as expressing that meaning, and is sufficient to admit proof of the fact.

At least we think this allegation should be held sufficient in this regard unless directly attacked in the court below and an opportunity given to amend. As was said in Henry v. Travelers’ Ins. Co., supra: “Mere uncertainty or ambiguity in the averments of the petition should not be held sufficient to defeat the right of intervention without giving the usual opportunity to amend.” Intervention proceedings, like other proceedings under the code, are to be liberally construed with the view to assist parties in obtaining justice. Code, sec. 443.

The answer of the plaintiff below, while it denies knowledge on her part of the alleged fraudulent acts, etc., does not question the sufficiency pf .the petition on this ground-; and, so far as the record discloses, this objection is raised for the •first time in argument in.this court, and no opportunity was presented to amend the petition in this respect in the court below. For this reason the defect, if it be one, should be ■ deemed to have been waived and the averment should now be held sufficient to admit proof that the parties charged with wrongdoing constituted the board of directors, and therefore, ■ that an application for redress through the board of directors would have been unavailing. And it being alleged that they ■ were the holders and owners of a majority of the stock, an .attempt to obtain redress through an action of the stockholders, even had time permitted, would have been equally .unavailing. ■

The only other objection urged against the sufficiency of .the petition is that it fails to state that the petitioners were .stockholders at the time the fraudulent notes were executed. A sufficient answer to this is found in the fact that the fraud .complained of is not yet consummated, and the attempted enforcement of the notes constitutes the injury to their rights and presents the first opportunity for the complaining stockholders to be heard. We think that the petition presents a case in which the complaining stockholders should have been allowed to intervene and defend the action in the name of the company, and the refusal to permit them so to do would result in a failure of justice. The court below erred in denying this right. The judgment is therefore, reversed, and cause remanded.

Reversed.

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Dissenting Opinion

Hayt, C. J.

(dissenting). The right to appear and defend-against this action being primarily in the corporation, we are to inquire whether the allegations of this petition are sufficient to justify a departure from fhe usual course by permitting the defense to be made by .certain stockholders. Before this can be permitted it should affirmatively appear that relief cannot be had either through the board of directors or through the stockholders.

Upon the allegations of this petition and answer the district court refused to allow the intervention, thereby in effect declaring that the stockholders had not shown such a right as would entitle them to defend the action. We'are not advised of the particular reasons given by the court below for its judgment. This is quite immaterial, however, as the question to be determined in this court is upon the correctness of the judgment of the court below without reference to the reasons inducing the conclusions there reached. I am of the opinion that the judgment of the court below in this case was right and that it ought to be affirmed, for the following reasons:

The petition contains no statement with regard to the number of directors composing the board. Under the statute the minimum number permitted is three and the maximum thirteen, but between these limits the corporation may designate any number, and such number shall constitute the board of directors, unless thereafter changed in some appropriate manner. The petition ought to show specifically and definitely that a majority of the board as constituted at the time of the filing of the intervention were conniving at the frauds complained of. This petition not only fails to state the number of the board of directors, but contains no allegation whatever with reference to the composition of the board of directors at the time of the institution of this suit in the district court. The allegation that certain parties, naming three persons, were directors for the past year, does not in my judgment meet either of the foregoing requisites.

To overrule the judgment of the court below denying the right to intervene, under these circumstances would, I fear, be setting a precedent that would lead to mischievous results in the future. Stockholders ought not to be allowed to interfere with the internal management of corporations upon slight or trifling causes, and before individual stockholders should be accorded a standing in court they should be required at least to show affirmatively by their pleading that otherwise there would be a failure of justice.

Again, the petition in this case is silent as to the number of shares of capital stock held by the petitioners; the time when such shares were acquired and whether acquired by purchase or by operation of law. If, as a matter of fact, these parties are the owners of the capital stock of the company and acquired such ownership after the time of the alleged fraudulent conduct complained of, they are not entitled to set up the defense outlined in their petition for and on behalf of the defendant company.

It has been suggested that the petition could be amended. A sufficient answer to this suggestion would seem to be that neither in the court below nor in this court have the petitioners intimated any*desire to amend their petition. Under the circumstances the presumption is that they have stated the case as favorably to themselves as it can be stated. The facts alleged in my judgment do not entitle the petitioners to intervene and make defense for and on behalf of the company, and the judgment of the district court should therefore be affirmed.