Opinion
19429.
ARGUED JULY 10, 1956.
DECIDED SEPTEMBER 7, 1956.
Injunction, etc. Before Judge Guess. DeKalb Superior Court. April 25, 1956.
Zachary Hunter, W. E. Zachary, John C. Hunter, for plaintiff in error.
John Wesley Weekes, Weekes Candler, contra.
It was not error to sustain the general demurrers and dismiss the petition.
ARGUED JULY 10, 1956 — DECIDED SEPTEMBER 7, 1956.
James E. Harris, as a minority stockholder, filed an action against Eagle-Bridges Company, Inc., and Bruce E. Bridges, Bruce L. Bridges, Marion E. Wilhoit, and J. Harold Camp, as directors of the corporation. Sidney M. Hopson and Lucile I. Rugeley were alleged to be directors and stockholders, and nonresidents of the State. In so far as germane to the question before this court, it was alleged: The defendant directors have failed to perform the duties of a director, and have been so negligent and careless that the funds of the corporation have been mismanaged and wasted, and the plaintiff and other stockholders similarly situated have lost large gains in dividends and returns which would have been made had the individual defendants performed the duties incumbent upon them. Bruce E. Bridges caused the entire net profit earned by the corporation in the fiscal year ending November 30, 1954, in the approximate amount of $5,000, to be credited to his personal account, being a fund to which he was in no way entitled, and which he has refused to return to the corporation. Substantial profits have been made by the corporation, but no dividends have been declared, pursuant to the design of the defendant, Bruce E. Bridges, to defraud the other stockholders. The books of the corporation are in a misrepresentative state and do not speak the truth as to the business and profits of the corporation. Unless prevented by the appointment of a receiver, the defendants will, "pursuant to said conspiracy, destroy, mutilate, or alter the books of said company and secrete its assets." On January 1, 1954, the defendant, Bruce E. Bridges, took a promissory note from the corporation, bearing interest at 8 percent per annum, which now stands on the books as a liability in excess of that which would exist had the funds been procured from an established lending institution at prevailing commercial rates. An additional note was taken by Bruce E. Bridges from the corporation on November 30, 1954, in the amount of $431.99, representing accrued interest on the prior note. The defendants other than Bruce E. Bridges were negligent in that they failed to perform their duties as directors and failed to give any attention to their duties as directors, and did not supervise the investments of the corporation. The promissory notes payable to Bruce E. Bridges, as president, at excessively high interest rates, are contrary to the best interest of the company and constitute a needless dissipation of the corporation's funds. The individual defendants wholly failed to perform their duties as directors, by reason of which the loss occurred. Before the commencement of the action the plaintiff demanded of the president, Bruce E. Bridges, that he restore the profits fraudulently misappropriated. He has refused to cancel and deliver the notes representing the earned profit of the corporation. He has unlawfully manipulated the affairs, moneys, and properties of the corporation to his own use, to the great injury of the plaintiff and other stockholders. Unless restrained, he will, in concert with the other defendants, attempt to enter into some contract for the disposition of the property, or portions thereof, of the corporation, or in some way secrete, transfer, or encumber the property. The wrongful acts and conduct of the defendant, Bruce E. Bridges, are in wanton and reckless disregard of the rights of the plaintiff and other minority stockholders.
The prayers were: for process; for an accounting to ascertain the amounts of money improperly paid to the defendants and each of them; that they be enjoined from conveying or attempting to convey assets of the corporation; that a receiver be appointed to take possession of the business; and for other relief.
The defendants filed their general and special demurrers. Their general demurrers were sustained, with the right of the plaintiff to amend within twenty days.
Within the time allowed the plaintiff amended by alleging: He is one of four stockholders of the corporation. Besides the plaintiff and Bruce E. Bridges, the other two stockholders are nonresidents of the State, who have voted their stock by proxies granted to the defendant, Bruce E. Bridges. The board of directors consists of the nonresident stockholders; the plaintiff; Bruce E. Bridges, the defendant president; Bruce L. Bridges, the son of the defendant president; and two persons employed by the defendant president, and at whose pleasure their employment is contingent. By reason of the above circumstances it was not reasonable to require the plaintiff to seek redress at the hands of the directors and stockholders in the premises. Since the suit was brought, the services of the bookkeeper and secretary, J. Harold Camp and Marion E. Wilhoit, who also were directors, have been terminated. The entire operation of the business is now being conducted by the defendant, Bruce E. Bridges.
The renewed general demurrers of the defendants were sustained, and the action was dismissed. The exception is to that judgment.
The parties will be referred to as they appeared in the trial court.
But one question is before this court for determination. Did the trial judge err in his rulings on the general demurrers, based on the requirements of Code § 22-711 (5)? The petition nowhere alleges any effort to obtain redress at the hands of the directors or stockholders, nor does it allege that redress could not have been had by action of the directors or stockholders. The plaintiff does allege that, under the circumstances set forth in the petition, it was not reasonable to require him to seek such redress, and he relies strongly upon the case of Collier v. Mayflower Apartments, 196 Ga. 419, 427 ( 26 S.E.2d 731). In the Collier case the plaintiff on different occasions, at the regular corporate meetings, called the attention of the directors and stockholders "to the fact that the notes given by Mayflower were long past due, that Mayflower was solvent, that the notes were collectible, and made request that they proceed to collect them; . . . the directors and stockholders refused to take any action towards collecting these notes, and stated that they would rather give them to Mrs. Minor than to press them for collection." It was held that the plaintiff would not be expected to call upon them further, since it would be unreasonable to require him, as a condition precedent to the right to maintain his action, to first call on the directors to sue themselves.
In the present case, the plaintiff did not bring to the attention of the directors or stockholders the alleged wrongful acts of the president, nor is it made to appear that the directors or stockholders had any knowledge of such acts. A plaintiff can not escape the duty of seeking redress by application to the directors and stockholders based upon the bare allegation that it is not reasonable to require him to do so. He can not just assume that redress at the hands of the directors and stockholders of a corporation can not be obtained.
The plaintiff having failed to allege any effort to obtain redress from the directors and stockholders, the trial judge properly sustained the general demurrers. See Alexander v. Searcy, 81 Ga. 536 ( 8 S.E. 630, 12 Am. St. R. 337); Collins Glennville R. Co. v. Bradley, 189 Ga. 355 ( 5 S.E.2d 915); Loxair Corporation v. Biscoe, 192 Ga. 357 ( 15 S.E.2d 438); Peeples v. Peeples, 193 Ga. 358 ( 18 S.E.2d 629); Peeples v. Southern Chemical Corp., 194 Ga. 388 ( 21 S.E.2d 698).
Judgment affirmed. All the Justices concur.