Summary
Appeal from the District Court- of the- Fourth District, City and County of San Francisco.
This is an action brought by the plaintiff, Cogswell, against Alpheus Bull and others, who, at the time of the alleged illegal misappropriation of the funds of the corporation, constituted the Board of Directors of the North Beach and Mission Railroad Company, and the North Beach and Mission Railroad Company to compel defendants to account for and refund certain moneys belonging to said corporation, which they, while acting as Directors thereof, it is claimed, misappropriated and illegally used.
To the complaint filed in the case, the defendants demurred, upon the ground, among others, that the complaint did not state facts sufficient to constitute a cause of action; which demurrer was sustained by the Court on the following grounds:
First—That the action should have been instituted in the name of the North Beach and Mission Bailroad Company. ■
Second—That the plaintiff, as a stockholder, had no cause of action against the defendants, until after a demand upon and refusal by the Directors of said corporation to institute the action.
Third—That, as it appears from the complaint that no such demand was ever made, the demurrer must be sustained without leave to the plaintiff to amend. From which rulings the plaintiff appealed.
Syllabus
Corporation.—Action Against Trustees.—The general rule is, that an action against trustees of a corporation, for a misappropriation of its funds, must be brought in the name of the corporation.
Idem.—When Stockholders mat Sue. — When the corporation, on a proper demand .from a stockholder, refuses to institute action, the stockholders may sue in their own names.
Idem.—Pleading.—In an action by a stockholder in such cases, it is necessary to aver a demand and refusal, without which the action will not be sustained.
Idem..—Pleading.—In an action against the trustees of a corporation, an averment in the complaint that the Board is composed “nearly, if not entirely,” of the same persons who committed the wrong complained of, presents no issuable fact, and is, therefore, bad pleading.
Idem.—Demand and Befusal.—That a demand and refusal are necessary when the trustees who committed the wrong yet compose the whore or a majority of the Board, not decided
delivered the opinion of the Court :
The demurrer to the complaint was properly sustained. .The general rule is, that an action against trustees of a corporation for a misappropriation of its funds, must be brought in the name of the corporation. The funds which are misapplied are the property of the corporation■—-as such, and the action to recover them, must be brought in its name, unless in exceptional cases. One of the exceptions is, when a corporation, on a proper demand from a stockholder, refuses to institute the action. So long as the corporation is willing to perform its duty towards its stockholders, by instituting and conducting in good faith the necessary legal proceedings to recover moneys misapplied by the trustees, the stockholders have no cause to complain ; but if the corporation, after a proper demand, refuses to institute the action, the stockholders may sue in their own names. If it were otherwise, there would be a failure of justice, and a great many of the stockholders might go without redress. It is therefore necessary, in an action by a stockholder in such cases, to aver a demand and refusal, without which the action will not be sustained. The counsel for the plaintiff admit this to be the general rule, but claims that a demand and refusal are necessary, and would be wholly nugatory, when the trustees, who misapplied the funds, yet remain in 325 office and in control of the affairs of the corporation. It is said, that the law does not require such a mockery to be performed, as that the trustees who committed the wrong should be requested to institute an action in the name of the corporation against themselves, before a stockholder shall be allowed to sue in his own name. The reason given in the complaint in this action, as an excuse for the omission to make a proper demand of the corporation to institute the action, is, “that the Board of Directors, who now manage and control the affairs of said corporation, is nearly, if wf entirely, composed of the same men who composed the Board of Directors of said corporation during the time hereinbefore mentioned, and who have been guilty of the corrupt and fraudulent conduct hereinbefore set forth, and who are defendants herein—for which reason this plaintiff has not requested the said corporation, or its officers, to institute an action against the defendants, ” etc.
If it be conceded that a demand and refusal are necessary, when the trustees who committed the wrong yet compose the whole or a majority of the Board (on which point we express no opinion), the complaint ought to have averred that fact explicitly, so that issue could have been taken upon it. Instead of this the averment is, that the present Board is composed “nearly, if not entirely,” of the same persons who committed the wrong complained of. This is bad pleading, and lacks the precision which is requisite in an allegation of fact. The term “nearly” is purely relative, and does not define with accuracy how many of the defendants are members of the present Board of Directors, and is not equivalent to an averment, that the defendants compose even a majority of the present Board. The term “nearly, ” in the connection in which it is used in this complaint, presents no issuable fact, and there is no averment in direct terms, that the defendants compose the whole, or even a majority, of the present Board,
Judgment affirmed.
