112 Cal. 646 | Cal. | 1896
In May, 1891, the defendant railway company issued to the defendant trust company eleven hundred bonds, each for one thousand dollars, in trust, to be sold for the use of the former company, and to secure the payment of said bonds executed to the trust company a trust deed of all its property, consisting of street railroads, franchises, and all personal property pertaining thereto. The bonds bear interest at the rate of six per cent per annum, payable semi-annually, and contain a provision to the effect that, upon certain defaults in the payment of interest, the trustee may elect to declare the principal due and foreclose the trust deed. In alleged compliance with these provisions the trust company, on May 10, 1894, commenced an action in the superior court of San Francisco against the railway company to foreclose the trust deed, and for the appointment of a receiver to take possession of the property conveyed by the trust deed, and to operate the same pending the action.
On April 6, 1895, and pending the aforesaid action to foreclose the trust deed, this action was commenced by James A. Waymire and six other stockholders of the railway company, “ on behalf of themselves and all other shareholders and creditors of the railway company,” to enjoin the trust company and its beneficiaries (the bondholders) from further prosecuting said foreclosure action, on the alleged grounds that, by a conspiracy and collusion of the directors of the railway
The court sustained a general demurrer to the complaint, and thereupon dissolved the temporary injunction, and dismissed the action. The plaintiffs appeal from the order dissolving the injunction, and from the judgment, upon the judgment-roll alone.
If the demurrer was properly sustained, of course the injunction was properly dissolved; therefore, the only question for decision is: Did the court err in sustaining the demurrer?
I think the court did not err in sustaining the demurrer. The alleged fraudulent acts of the directors and others were directly injurious to the corporation, and the relief asked is for the direct benefit of the corporation. The stockholders were only indirectly injured by the wrongs complained of, and would be only incidentally benefited by the judgment asked. Therefore, as a general rule, the action should have been brought by and in the name of the corporation; but when, upon proper demand by stockholders, the corporation wrongfully refuses to institute an appropriate action, or when it appears that such demand by stockholders would have been unavailing and fruitless, an action may be instituted and prosecuted by a stockholder for the direct and immediate benefit of the corporation, and for the inci
"In this case it is alleged in the complaint that the stockholders made no demand that an action be instituted by the corporation, “ for the reasons that such demand would not be complied with, and would be fruitless, and that the plaintiffs are advised that there is doubt whether said railway company can maintain such action; that the defense herein urged will not avail to defeat said action of foreclosure, and will not be complete and effectual, because the persons claiming said bonds are not parties thereto.”
As to these allegations, it should be observed: 1. That so far as the facts alleged in the complaint entitle plaintiffs-to the relief they pray for, or to interpose any obstruction to the action to foreclose the trust deed, to that extent the facts alleged are available as a defense to the foreclosure action. It seems unaccountable that plaintiffs were advised that facts, which would entitle them to a judgment nullifying the sale and transfer of the bonds, and perpetually enjoining the further prosecution of the action to foreclose the deed of trust, could .not be made available as a defense to the foreclosure action; 2. Even if the stockholders had demanded that the corporation institute an independent suit, such demand would have been properly refused, for the reason that, being the principal defendant in the suit to foreclose the deed of trust, the corporation was not at liberty to institute an action in another court, nor in the same court, to enjoin further proceedings in the foreclosure action, but was bound to plead the facts alleged in plaintiffs’ complaint herein by answer, or, if necessary to aid the defense, by cross-complaint in the foreclosure action. (Pomeroy’s Equity Jurisprudence, secs. 1371, 1372; High on Injunctions, sec. 52; Erie Ry. Co. v. Ramsey, 45 N. Y. 637; Graham v. Boston etc. R. R. Co., 118 U. S. 161; Crowley v. Davis, 37 Cal. 268; Judson v.
I think the judgment and order appealed from should be affirmed.
Belcher, 0., and Britt, 0., concurred.
For the reasons given in the foregoing opinion the judgment and order appealed from are affirmed.
Harrison, J., Garoutte, J., Van Fleet, J.