California Supreme Court Jan 15, 1871 No. No. 2,499Published
Before: Crockett
Synopsis
Appeal from tbe District Court of the Second District, County of Plumas.
The case is stated in the opinion.
First — The complaint of plaintiffs shows no cause of action in their faYox. It contains no allegation of demand upon the corporation, or refusal by it to institute the action in its own name; it therefore shows no equity in favor of the plaintiffs, and is fatally defective. The cause of action for injury to the corporate property, is a cause of action in favor of the corporation, and not in favor of the stockholders, and no stockholder can sue upon such cause of action unless he make it affirmatively appear that the corporation fraudulently refuses to protect its rights. (Qoggswell v. Bull, 39 Cal. 320; Gardnerw. Pollard, 10 Bos-worth, 677, 692, 693.)
That the legal title to corporate property is in the corporation, and not in the stockholders, and that redress for injuries thereto must be sought by and through its action alone, if such action is possible to be obtained, is elementary law. (Smith v. Hurd, 12 Metcalf, 383; Abbott v. Merriam, 8 Cush, 590; Hersey v. Veasie, 24 M. 9; Allen v. Curtis, 26 Conn. 457; Gorham v. Gilson, 28 Cal. 484.)
It is no answer to our position for respondents to contend that the exception to this general rule, which allows a stockholder to sue in his own name upon an allegation of demand upon and refusal by the corporation to institute the action, is itself subject to an exception where it appears that the corporation is controlled by the defendants charged with misfeasance. It is doubtful whether there be such an exception to the exception; but if there be, plain-iffs cannot claim the benefit of it, for they have not averred themselves within it, there being no allegation in the complaint as to what number of trustees the corporation defendant has under its charter, or that those made defendant constitute the whole or a majority of the Board. (Goggs-loellY. Bull, 39 Cal., 320.)
The Court cannot see from the complaint of what number the Board of Trustees of the Washington Quartz Mining-Company consists, or that defendants, Byers, Nave and Elwell, are a majority of said Board, or that thei'e may not be a perfect remedy for the injuries complained of through the action of the corporation; and beyond this utter want of equity in the plaintiffs’ bill it is unnecessary for us to go.
For aught that appears upon the face of the bill, every shareholder in the Washington Quartz Mining Company may be one of its trustees, and the plaintiffs themselves may constitute or comprise among their number an overwhelming majority of the Board, for the law. establishes no limit to the number of trustees of a mining corporation, except that it shall not be less than three. (1 Hittell’s Laws, Art. 936; Foss v. Harbottle, 2 Hare’s Ch. 498.)
Crockett, J., delivered the opinion qf the Court, Temple, J., Wallaoe, J., and Rhodes, C. J., concurring:
The plaintiffs claim that the Washington Quartz Mining Company is a corporation organized under the laws of this State for mining purposes, and is the owner of a certain [621]lode or vein of gold-bearing quartz, which is described in the complaint; that the capital stock of said corporation is divided into one hundred and eighty-one shares, of which the plaintiffs own one hundred and fifty-seven shares and the defendants twenty-four shares; that the defendants “are the duly elected Trustees of said company,” and accepted the trust and entered upon the discharge of their duties as such Trustees, and, in their capacity of Trustees, took possession of said mine; but that recently the defendants have repudiated the trust and claim to be the owners, in their own right, of said mine, and assert title thereto, adversely to said corporation, and are working said mine for their own profit and advantage, and in hostility to the rights of said company; that they have taken from said mine a large amount of gold, for which they refuse to account; that they have neglected to keep any books of account, or any record of their proceedings, and are unable to respond to any judgment at law which might be recovered against them for these injuries. The prayer is for an accounting, and for a perpetual injunction restraining the further committing of these wrongs. The answer denies the existence of the corporation, or that it owns any lode or vein of quartz, or that the defendants are, or ever were, the Trustees of such corporation, or that, as such, they took possession of the mine described in the complaint; and they aver, affirmatively, that for more than five years last past they have been and are the owners in possession of a certain mine in that vicinity, claiming and holding the same adversely to all persons whomsoever. The answer also sets up the Statute of Limitations of two years, and avers that if the corporation ever owned the mine it had abandoned it before the commencement of the action. Judgment was rendered for the plaintiffs, and the defendants have appealed.
The first point made by the defendants is that the complaint is fatally defective in a matter of substance, and does not support the judgment in this, to-wit: That it is not averred in. the complaint that the defendants constitute the whole, or even a majority of the Trustees of the corporation, and [622]
Second — The finding that there has never been an election of trustees since October, 1855, by said corporation, is inconsistent with the judgment. The law provides for an annual election of trustees by the stockholders of a mining incorporation, and the term of office for which defendants were elected trustees having expired many years before the commencement of the action, and the complaint and findings showing that plaintiffs were the owners of an overwhelming majority of shares of capital stock, we contend that upon this state of facts, plaintiffs had an adequate remedy in the election of a new Board of Trustees; and the failure to avail themselves of that remedy being their own fault and laches, they are not in a position to complain of the action of defendant. (Hittell’s Laws, Arts. 754, 756, 936, 937.)
Third — The Court erred in trying of tbe case against tbe objection of defendants without service of summons upon or appearance, of tbe corporation defendant. (1 Yan Sanvoord’s Eq. Practice, 71; Shaver v. Brainard, 29 Barb. 25.) Tbe service of summons upon tbe “Washington Gold Quartz Mining Company” was certainly no service upon, and could not bind tbe “Washington Quartz Mining Company.” (King v. Bandlett, 33 Cal. 322.)
Fourth — Tbe plaintiffs failed to establish tbe corporate existence of tbe Washington Quartz Mining Company.
Tbe certificate of incorporation offered in evidence does not state tbe name of tbe town or county in which tbe operations of tbe company were to be carried on, as required by Section 122 of tbe Corporation Law of 1850, (Stats. 1850, page 365), under which tbe attempted incorporation was made, and is for that reason fatally defective under tbe authority of Harris v. McGregor,(29 Cal 127).
Tbe corporation must claim in good faith to be a corporation and must be doing business as such corporation, in order to be entitled to tbe protection given by one statute to de facto corporations against collateral attacks. (Stat. 1862, p. 110; Oroville & Virginia Qity B. M. Go. v. Plumas Go., 37 Cal. 360.)
Tbe evidence in this case shows no corporate act of tbe “Washington Quartz Mining Co.” since 1856,
Fifth — Tbe Court erred in finding that plaintiffs own tbe stock claimed by them, and in admitting tbe paper marked exhibit “B” as proof of such ownership,
Tbe defendants were clearly entitled to judgment of non-suit and cost against all tbe plaintiffs, upon tbe ground that they utterly failed to prove themselves stockholders, or to establish in any manner their interest in tbe action. Tbe transfer of two shares from Henry Card to plaintiff Parrott does not appear to have been consummated or legalized by any record of transfer upon tbe books of tbe company, and however good it might be between themselves, could not be valid as against third parties, or place Parrott in position to bring this action. (Stats. 1850, p. 348 Sec. 12; Western v. Bear Biver and Auburn W. and M. Go., 5 Cal. 186.)
The evidence relied upon by tbe other plaintiffs to establish that they were stockholders consists of Exhibit “B” attached to the deposition of English. This document was clearly inadmissible, and could by no possibility be even, secondary evidence of the facts which it contains, in the absence of the sworn testimony of the man who executed it.
Sixth — The Court erred in finding that defendant Byers and Nave are trustees of the Washington Quartz Mining Company.
Seventh — The Court erred in finding the issue of title in the plaintiffs.
The complaint avers title, and the answer takes issue upon the averment. It devolved upon the plaintiffs, holding the affirmative to establish it by proof, and this they wholly failed to do.
It is well established law that title td mining ground cannot be proven otherwise than by evidence of a definite appropriation, either by a location in accordance with mining rules, or by establishing physical marks, showing clearly the metes and bounds of the claim, or by possession under a deed describing such bounds; and such appropriations must always, upon an issue of title to a mining claim, be proven to have been made either by the party claiming, or by some one tinder whom he holds by a valid claim of title. (Atwood v. Friooit, 17 Cal. 37; English v. Johnson, 17 Cal. 107; Hess v. Winder, 30 Cal. 349.)
First — There are many answers to appellants’ first point.
1st. The case of Ooggswell v. Bull (39 Cal. 320), was an action against persons who were acting as trustees of a corporation for a mis-appropriation of its funds. This is an action against persons who were elected trustees of a corporation, and as such received its property, but now deny the existence of the corporation, refuse to act as trustees, and have appropriated its property, to compel -them to act as such trustees, so far as tbe property which they have received and appropriated is concerned. If we apply the rule of Goggsioell v. Bull to this case, the result might bo stated thus: Before action could be maintained, a demand upon the Board of Trustees must be made. That demand could only be made upon the Board when assembled and acting as such. (Myers v. Gity of Placerville, July Term, 1870; GasJmiler v. Willis, 33 Cal. 11.)
They do not assemble and act as such board, but deny that they are the trustees.
No action can ever be maintained against the trustees of a corporation, for an appropriation of the property of the corporation and a violation of their trust, if they, after such appropriation and violation, disavow the trust and refuse to act. Or in other words the result is, that by increasing the enormity of their offence against mstice and right they escape legal responsibility.
2nd. It is averred that Byers, Nave, and Elw'ell 'are the trustees of the corporation. This, to say the least, comes very near to an averment that they are the only trustees.^1
* 3rd. The reasoning by which it is attempted to support the complaint in Goggsioell v. Bull applies with -efficient force to this case.
4th. This action was based upon, and is fully sustained by the opinion- of the Court in Neal v. Hill (16 Gal. 145.)
Second — It is said that plaintiffs have a remedy under the provisions of Arts. 754, 756, 936 and 937 of Hittell’s Digest.
1st. An answer to this is that this corporation was not formed under the Act from which those provisions are taken, and that the mode and manner of electing trustees of this corporation is provided for in Bee. 126, of chapter Y. of the Statutes of 1850.
2nd. Another answer is that the remedy would be neither speedy nor adequate.
Again: Appellants say plaintiffs might have illegally elected trustees, illegally clothed them with the powers of trustees de jxire, and then had a remedy.
That is to say that equity will not enforce the just rights of plaintiffs, because they have not violated law; 'a proposition which is certainly a novel one in the administration of equity jurisprudence.
3rd. The variance between “Washington Gold Quartz Mining Company,” and “Washington Quartz Mining Company,” was immaterial. (People v. Sierra Buttes Quartz Mining Company, 39 Cal. 511.)
4th. It is said plaintiffs failed to establish the corporate existence of the corporation defendants; but as the company was actually organized by the proper number of persons, of whom the defendants were part, and trustees chosen, among whom were defendants, it is not in the mouth of defendants to set up their own want of power.
5th. The answer to the fifth point made by appellants is, that no exceptions were taken to the admission in evidence of Exhibit “B.”
6th. The most that can be said by appellant on his sixth point is that the evidence is conflicting.
7th. Our answer to appellant’s seventh point is that the testimony shows that the corporation was in possession of and working the mines. Possession is prima facie evidence of title. (Hutchinson v. Perley, 4 Cal. 33; Keane v. Cannovan, 21 Cal. 291.)
We also show, by the undisputed admission of defendants, that they entered upon the mine and took possession under the title of and for the corporation. (Taylor-on Landlord and Tenant, 57, 58; Galletan v. Cmmingham, 8 Cowen, 372; Davoe v. Fanning, 2 Johns. Oh. 255.)
it is not alleged that the Trustees were requested to institute an action in the name of the corporation for the redress of the grievances complained of. It is claimed, on the authority of Coggswell v. Buell et al. (decided at the April Term, 1870,) that without these averments this action will not lie in the name of the stockholders. The answer to this objection is: First — That the complaint avers that the defendants are “the duly elected Trustees of said company;” which, upon every rule of grammatical construction, is precisely equivalent to an averment that they are the only Trustees. If the word “the” had been omitted from the sentence, the criticism of the complaint in this respect would have been well founded. But as it stands, the sense would have been precisely the same if the averment had been that they were “the Trustees of said company, duty elected,” which necessarily imports that they were the only Trustees. The only office of the word “the” in this con'nection is thus to qualify the meaning; for, otherwise, the sense would be the same whether this word be omitted or included. Second — The complaint avers that the defendants have repudiated the trust and converted the trust-fund to their own use, whilst the answer not only denies the trust but also the existence of the corporation itself. It is a familiar rule that where the relations between the parties are such that a demand and refusal is a condition precedent to the right of the plaintiff to .maintain the action, a denial in the answer of the relation on which the action is founded will dispense with the necessity of an averment in the complaint of a previous demand and refusal. In an action by a landlord against his tenant, or by a vendor against his vendee fox the possession, or by a cestui que trust against the Trustees to enforce the trust, if a demand and refusal were otherwise necessary, a denial in the answer that the alleged relation exists between the parties will dispense with the necessity of averring or proving a prior demand and refusal. The law does not require a useless act to be performed; and when it is plain from the answer that if a demand had been made it would have been refused, it does
[623]
not lie in the month of the defendant to object that no demand was made. In this case, a demand made upon the defendants as Trustees to institute an action against themselves, in the name of the corporation for the spoliation of the corporate property, could have subserved no useful purpose. It is obvious from the answer that such a demand would have been refused, inasmuch as the existence of the corporation itself is denied. It would have been an idle farce to have made such a demand upon these defendants, in view of the defence which is set up in the answer. But it is claimed that the proofs show that there were two other Trustees in addition to the defendant, and that three would have formed a quorum, of which two would have been a majority, and that it is not impossible, but that in this method the plaintiffs might have procured an action to be brought in the name of the corporation if they had requested it. But, if by chance such an action had been commenced under these circumstances, it would have been under the control and management of these defendants, who constituted a majority of the Trustees, and who might at anytime have caused it to be dismissed. If allowed to pro-, ceed, the rights of the stockholders would have but little protection in an action in the name of the corporation against the majority of the Trustees, who repudiate the trust, deny the existence-of the corporation, and are charged with a gross abuse of the trust property.
The next point is that the plaintiffs • might, at any time, have elected a new Board of Trustees, and in this way have caused an appropriate action to be brought in the name of the corporation. But this suggestion is entitled to no consideration, coming, as it does, from defendants who deny the existence of the corporation, and who are holding adversely to it. The question before us relates to the rights of the plaintiffs as they stood at the time of the commencement of the action; and it is no defence for the defendants that it was in the power of the plaintiffs, if they had chosen to do so, to-elect a new Board of Trustees.
[624]In tbe original complaint, tbe “Washington Gold Quartz Mining Company” was named as a party defendant, and tbe summons was issued against tbe corporation by tbat name, and was returned as served. But at the trial tbe Court permitted tbe complaint to be amended by striking out tbe word “Gold" from tbe name of tbe corporation; and, thereupon, tbe defendants objected to proceeding further in tbe trial, on tbe ground tbat service on tbe “Washington Gold Quartz Mining Company” was not service on tbe Washington Quartz Mining Company, and tbat tbe action could not proceed until tbe last named company either appeared or was brought in by proper service. But tbe Court ordered tbe trial to proceed, and tbe defendants excepted. We might presume, in support of tbe judgment, tbat tbe Court was satisfied tbat tbe interpolation of tbe word “Gold" into tbe corporate name was only a clerical error or tbe result of inadvertence, and tbat service was, in fact, duly made upon tbe proper corporation, though by a wrong name. But it is unnecessary to express a decided opinion on this point, inasmuch as tbe corporation was a necessary party in respect only to tbat branch of tbe case relating to tbe accounting; and as tbe relief granted was limited to an injunction restraining further waste or tbe assertion of a hostile title by tbe defendants, if tbe Court erred in ordering tbe trial to proceed without due service on tbe corporation, it was an error which did tbe defendants no barm. If an accounting bad been ordered, tbe corporation would have been a necessary party, inasmuch as tbe sum found to be due could be paid only to tbe corporation and not to tbe stockholders. But when tbe purpose of tbe action is only to stay waste and to preserve tbe corporate property, no useful end could be subserved by making tbe corporation a party, and tbe defendants could not have been prejudiced by a failure to do so.
Tbe defendants also assail tbe judgment on tbe ground tbat tbe certificate of incorporation is void because it fails to specify tbe town or county in which tbe principal business of tbe corporation is to be carried on. But if tbe cer[625]tificate be liable to tbis objection, tbe defendants are es-topped from urging it. They not only signed tbe certificate, but accepted tbe office of Trustees, and in tbat capacity acquired tbe possession of tbe corporate property. Es-toppels in pais would be of little value if tbe unfaithful Trustees of a corporation, wbo are fraudulently wasting tbe corporate property and appropriating it to tbeir own use could shield themselves behind a technical defect in tbe act of incorporation. On tbis point see Rockville and W. Turnpike Company v. Van Ness, (2 Cranch. C. C. R.) .
Tbe next error assigned is, tbat there was no competent evidence tbat either of tbe plaintiffs, at the time of tbe commencement of tbe action, was a stockholder of tbe corporation. It was proved tbat one Card was tbe bolder of a certificate issued to him for two shares of tbe capital stock, and tbat be assigned tbis certificate to tb.e plaintiff, Parrott, but there was no proof tbat tbe transfer bad been entered on tbe books of tbe corporation; and it is claimed that under tbe Corporation Act of 1850, Parrott could not become a stockholder until tbe transfer is entered on tbe books. The case of Weston v. Bear River & A. W. & M. Company, (5 Cal. 185), is cited in support of tbis proposition. Tbe point decided in tbat ease was, tbat a transfer of tbe certificate of stock, without an entry on tbe books, was void as against a subsequent attaching creditor of tbe assignor. In tbe case between tbe same parties (6 Cal. 425), it was held tbat tbe transfer was valid as against a subsequent as-signee, wbo took with notice of tbe prior assignment.
Tbe principle decided in these cases was affirmed in Naglee v. Pacific Wharf Company, (20 Cal. 529;) and Mead v. Elmore, decided at tbe July Term, 1868, but not reported. In tbe latter case, in commenting on those before cited, we said: “ It was held in those cases tbat transfers of stock which have not been entered on tbe books of tbe company, as provided in tbe statute, are, nevertheless, valid as against all tbe world, except subsequent purchasers in good faith without notice.”
[626]In tbe case at bar the question as to the validity of the assignment, and its effect, does not arise as between a subsequent and a prior assignee, nor as between the assignee and the corporation, but as between the assignee and unfaithful Trustees, who have no equities to be protected. It is unnecessary for us to decide what would be the effect of the assignment if the contest were between Parrott and the corporation as to the rights which he acquired by the transfer, as against the corporation. But it is clear that in requiring transfers of stock to be entered upon the books it was not the purpose of the statute to declare such transfers void at law and in equity, as against fraudulent Trustees • who axe wasting the corporate property and converting it to their own use.
I am, therefore, of opinion that the transfer to Parrott invested him with such rights as entitles him to maintain this action. This view of the case renders it unnecessary to inquire whether the proof shows the other plaintiffs to have been stockholders, as it is sufficient to maintain the action if either one of them was a stockholder
But Exhibit “ B ” certainly tended to show that the other, plaintiffs were also stockholders, and, though this document was objected to when produced by the witness, Eng-glish, and the objection noted in the deposition, I fail to discover anything in the record to show that the objection was renewed at the trial, or that the Court requested to decide or did decide upon the competency of the proof. Objections of this kind cannot be raised for the first time in this Court.
There was evidence tending to show that the defendants, Byers and Nave, were and are Trustees of the corporation, and the judgment cannot be disturbed on the ground of a failure of proof on this point.
The last error assigned is that the Court erred in finding the issues of title in favor of the plaintiffs. On this point it is sufficient to say that there was evidence tending to show a prior possession by the corporation of the mining ground in contest, and that the defendants entered [627]into tbe occupation of it as Trustees of tbe corporation. Tbis was clearly sufficient proof of title to support tbe judgment.
Judgment affirmed.
AI Brief
AI-generated · verify before citing
Holding. Stockholders may maintain an action against corporate trustees for the protection of corporate property when the trustees have repudiated the trust and denied the existence of the corporation, rendering a formal demand for the corporation to sue futile. Furthermore, trustees who have accepted their office and taken possession of corporate property are estopped from challenging the validity of the corporation's formation.
Issues
Whether stockholders must demand that trustees sue on behalf of a corporation before bringing an action against those same trustees for breach of trust.
Whether a corporation is a necessary party to an action brought by stockholders solely to restrain waste and preserve corporate property.
Whether trustees who have accepted their office are estopped from asserting defects in the corporation's certificate of incorporation.
Whether a transfer of stock not entered on corporate books is valid against unfaithful trustees.