Summary
In Collier, we addressed the viability of a suit by a minority shareholder against four corporate directors to recover damages for the corporation.
Summary of this case from Fed. Deposit Ins. Corp. v. LoudermilkOpinion
14566.
JULY 8, 1943.
Complaint. Before Judge Almand. Fulton superior court. December 31, 1942.
W. L. Bryan, for plaintiff. Haas, Gardner, Lyons Hurt and Mitchell Mitchell, for defendants.
1. Misjoinder of causes of action is a matter for appropriate special demurrer. Such an objection is not reached by general demurrer.
2. A petition by a minority stockholder which seeks to set aside an executed agreement between the corporation and its debtor, under the terms of which the corporation received less than the amount of its debt in settlement thereof, and which seeks a judgment against the debtor for the difference between the face value of the debt and the amount so received, the settlement having been made by its president, who executed a cancellation of a deed given to secure said indebtedness, which cancellation was ratified at a corporate meeting, fails to set forth a cause of action against the original debtor of the corporation, the petition on its face showing a valid accord and satisfaction.
3. A petition by a minority stockholder against the stockholders who were also the directors, which alleges that they dissipated the assets of the corporation by settling a valid debt of $19,912.50 held by it against a solvent debtor able to pay, it not appearing that the debtor disputed the amount or the validity of the same, for the sum of $12,500, after the petitioner had repeatedly requested at formal meetings that the directors press the collection, that it was long overdue, and the only reply of the directors was in effect that they would rather give the evidences of indebtedness to a named person than to press the collection, the petition disclosing no reason why the directors accepted the lesser amount, or why, other than as above stated, they made this compromise settlement, shows on its face an improper diversion by the directors of funds belonging to the corporation, which was an act ultra vires, to the injury of the corporation, for which the directors were personally liable.
4. The action was not subject to dismissal on the ground that the petition did not disclose that petitioner made an earnest effort to obtain redress at the hands of the directors and stockholders, or why it could not be done, or that it was not reasonable to require it; the petitioner being one of only five stockholders of the corporation, they also comprising the board of directors, he owning one fifth and they four fifths of the stock, and the suit seeking to subject them to liability for acts ultra vires, to the injury of the corporation.
No. 14566. JULY 8, 1943.
Anjaco Inc. is a family corporation, all the stock in which is owned by Andrew J. Collier, Mrs. Annie Lou Minor, Mrs. Mary Lena Martin, Thomas J. Collier, and Meredith Collier, share and share alike. Originally this corporation held a first security deed against the real estate upon which was later constructed the Mayflower Apartments, the owner of which, subject to outstanding liens and securities, is Mayflower Apartments Inc. Owing to successive loans and liens, the payment of some and the renewal of others, Anjaco Inc. accepted a second or junior security for the $15,000 balance of purchase-money owing to it. Andrew J. Collier brought a petition against the Mayflower Apartments Inc., Anjaco Inc., H. A. Minor, his wife Mrs. Annie Lou Minor, Mrs. Mary Lena Martin, Thomas J. Collier, and Meredith Collier, praying that his petition be construed as a minority stockholder's bill brought for the purpose of recovering in behalf of Anjaco Inc. and its stockholders. The petition as amended shows as follows: Mayflower Apartments Inc. is solvent. At the time designated in his petition that corporation had $25,000 available for the payment of liens for labor and material used in the construction, of its apartment building and the debt owing to Anjaco Inc., which, because of default in payments and accrued interest, had grown to be around $20,000. This debt to Anjaco Inc. held priority over the liens of others for labor and material. Mrs. Annie Lou Minor, one of the five stockholders of Anjaco Inc., and her husband, H. A. Minor, were the owners of all the common stock of Mayflower Apartments Inc., and those who had liens for labor and material were given all the preferred stock in Mayflower Apartments Inc., in the proportion of their respective liens. Four of the stockholders of Anjaco Inc., named as defendants, were unwilling to enforce collection of the debt of $19,912 owing to that corporation; and without plaintiff's knowledge and consent Meredith Collier, the president of Anjaco Inc. made a settlement with Mayflower Apartments Inc., by accepting payment of $12,500 in full of the debt owing to Anjaco Inc.; and this was over petitioner's repeated protests and after he had informed the other stockholders and directors of Anjaco Inc. that he had obtained a commitment from certain of the preferred stockholders of Mayflower Apartments Inc. that they were ready to pay off the notes and mortgage given by Mayflower Apartments Inc. to Anjaco Inc., provided only that they should receive a proper and suitable cancellation; and the settlement made was later confirmed by a purported resolution of the directors of Anjaco Inc. The plaintiff alleges that they said they would rather give the money to Mrs. Annie Lou Minor than enforce collection of same; that the settlement of the debt owing to Anjaco Inc. at some $7500 below its face value enabled the Mayflower Apartments Inc. to apply what money it had left out of the $25,000 on hand towards the payment of liens owing to the owners of the preferred stock of Mayflower Apartments Inc., of whom Mrs. Annie Lou Minor was one, she also being one of the stockholders of Anjaco Inc., to the detriment of said family corporation. Petitioner alleges that the above transaction was a conspiracy entered into by and between the remaining stockholders of Anjaco Inc. and Mayflower Apartments Inc.
Attached as exhibits were copies of a petition by certain lienholders against Mayflower Apartments Inc. and Anjaco Inc., and its stockholders, and of petitioner's amended answer thereto. The plaintiff prayed as follows: That a judgment be entered in behalf of Anjaco Inc. against Mayflower Apartments Inc., for the amount due on the notes given by Mayflower Apartments Inc. to Anjaco Inc., crediting on said judgment the $12,500 which had been paid as above shown; or, in the alternative, that Anjaco Inc. be required to restore to Mayflower Apartments Inc. the $12,500; and that Mayflower Inc. be required to restore to Anjaco Inc. the notes; and for judgment against Mayflower Apartments Inc. for the full amount of the principal and interest on said notes. That in the event it be determined that the court is without power to grant the relief above prayed, judgment be entered in favor of Anjaco Inc. for the amount of the difference between $12,500 and the face amount of the principal and interest of the notes, against Meredith Collier, Mrs. Annie Lou Minor, Mrs. Mary Lena Martin, and Thomas J. Collier, the remaining directors of Anjaco Inc.; that in the event of any recovery of any sums of money in behalf of Anjaco Inc. as against Mayflower Apartments Inc., the same be paid into the registry of the court and distributed by appropriate order in accordance with the rights of the parties at interest.
Attorneys representing H. A. Minor and Mayflower Apartments Inc. demurred on the grounds that the petition failed to set forth sufficient facts entitling petitioner to any of the relief prayed for; and that the facts alleged were insufficient in law to show any fraud, conspiracy, or ultra vires acts on the part of said defendants. There were special demurrers on the grounds that the assailed allegations made were incompetent, irrelevant, and immaterial, and that one or more paragraphs of the petition constituted a conclusion of the pleader, there being no sufficient facts set forth upon which to base said conclusion. Attorneys representing defendants Anjaco Inc., Thomas J. Collier, Meredith Collier, Mrs. Annie Lou Minor, and Mrs. Mary Lena Martin demurred as follows: That the petition as amended sets forth no cause of action at law or in equity; that it alleges no acts or actions on the part of those defendants which would cause the cancellation referred to; that it alleges no action of those defendants which was not authorized under their powers as stockholders, directors, and officers of Anjaco Inc.; that it sets forth no act of Anjaco Inc. which it was not authorized to perform; that no facts are alleged by which a verdict based on fraud or conspiracy could be based; that no acts constituting fraud or conspiracy are alleged; that what the defendants did was not ultra vires. And demurred specially, that if the records of the former case is material at all, the complete record, including verdicts, decrees, and remittiturs are material, and that the isolated parts of the former record set forth as exhibits illustrate nothing; and that no commitment, as alleged, is set up in the petition or the amendment. The demurrers were sustained, and the plaintiff excepted.
1. The demurrers do not invoke a ruling as to whether the petition is defective on account of duplicity in that the alleged cause of action against Mayflower Apartments Inc. and H. A. Minor is distinct from the one against the other defendants. While at common law, and under the decision in Governor v. Hicks, 12 Ga. 189, misjoinder of distinct causes of action was good reason for dismissing the case on general demurrer, the later holdings are to the effect that since that decision such radical changes have been brought about by the legislature in the practice and procedure of this State that misjoinder of causes of action between separate and distinct parties would be ground only for special demurrer. Georgia Railroad Banking Co. v. Tice, 124 Ga. 459 ( 52 S.E. 916, 4 Ann. C. 200); Johns v. Nix, 196 Ga. 417 ( 26 S.E.2d 526), and cit.
2. Passing over other considerations which were raised by general demurrer, we are of the opinion that the case as to Mayflower Apartments Inc. and H. A. Minor was properly dismissed on the ground that the petition as amended fails to set forth sufficient facts entitling Collier to any of the relief sought as against these two defendants or either of them. As a minority stockholder of Anjaco Inc., he brings this suit under the Code, § 22-711. It is predicated on the theory that Anjaco Inc. has a right of action which its directors will not enforce, and therefore Collier brings the action in behalf of the corporation. His right to sue is derivative in character. The wrong, if any, was done to the corporation. Greenwood v. Greenblatt, 173 Ga. 551 ( 161 S.E. 135). If under the facts as set forth Anjaco Inc. has no case against Mayflower Inc., there is no right which the plaintiff can assert as against Mayflower. The fact that Anjaco has refused to bring suit does not create a cause of action in Collier, the minority stockholder. With respect to this controlling question, the allegations of the amended petition, when examined, show that if this were a suit solely between Anjaco Inc. and Mayflower Apartments Inc., the former could not recover.
The amended petition shows that the stockholders and directors of Anjaco, over the repeated protests of petitioner, settled for $12,500 a debt of $19,912 which Mayflower, a solvent debtor, owed to it; that the president of Anjaco, in consideration of the payment of the $12,500, executed a cancellation of the mortgage or security deed given by Mayflower to Anjaco to secure its indebtedness of $19,912, which cancellation was ratified at a corporate meeting of the stockholders of Anjaco. Here we have an executed agreement; the payment of money by the debtor to the creditor; the acceptance of the same in settlement of the debt, the cancellation of the security given therefor; and all done openly. In the Code, § 20-1204, is following language: "An agreement by a creditor to receive less than the amount of his debt can not be pleaded as an accord and satisfaction, unless it be actually executed by the payment of the money, or the giving of additional security, or the substitution of another debtor, or some other new consideration." The settlement was binding on the parties. Tarver v. Rankin, 3 Ga. 210; Brown v. Ayer, 24 Ga. 288. It was an accord and satisfaction. Tyler Cotton-Press Co. v. Chevalier, 56 Ga. 494; Pennsylvania Casualty Co. v. Thompson, 130 Ga. 766 ( 61 S.E. 829); Burgamy v. Holton, 165 Ga. 384 ( 141 S.E. 42).
The judge did not err in dismissing the case as to Mayflower Apartments Inc., and its president, H. A. Minor.
3. The case against the remaining defendants was different. They were four of the five stockholders and directors of the corporation known as Anjaco Inc., the plaintiff being the fifth one. The prayer is that if the court determine that the relief prayed for against Mayflower Apartments can not be granted, then judgment be entered in favor of Anjaco Inc., against the other defendants for the amount of the difference between the $12,500 paid by Mayflower Apartments Inc. and the face value of the notes which Mayflower executed to Anjaco.
The charter of Anjaco Inc. is not set forth, and the petition merely shows that it was granted by the superior court, all the stock in which was subscribed for and owned by the heirs at law of Mrs. Amanda H. Collier, and that the corporation is used and employed for the purpose of holding title to the properties formerly owned by Mrs. Collier, but later held by her five heirs at law, who own an equal number of shares in the corporation. Anjaco was the creditor of Mayflower, in a sum which with interest totals $19,912.50, and took from its debtor a security deed. It is alleged, that Mayflower is a solvent corporation and able to pay its said indebtedness in full; that plaintiff of a number of occasions, at regular meetings of the corporation, called attention of the directors, who were also the stockholders of the corporation, to the fact that Mayflower's notes were long since due, and that it was solvent, and requested that they be collected; that the directors refused to take action towards the collection of the notes, and stated that they would rather give the notes to Mrs. Annie Lou Minor than to press the collection. Mrs. Minor is one of the directors of Anjaco and its secretary, and is secretary and treasurer of Mayflower Apartments Inc., and is the wife of H. A. Minor, its president. The petition also contains the allegation that petitioner negotiated with certain holders of preferred stock in Mayflower, and secured from them a commitment to the effect that they were ready to pay off the aforesaid indebtedness, provided only that they should receive a proper cancellation, and petitioner so informed counsel for the other directors; that petitioners' attorney more than once wrote to their attorney, giving him a like assurance; that notwithstanding this, the other directors permitted the president of Anjaco to cancel the security deed Mayflower had given to it, upon receipt from it of $12,500, instead of the $19,912.50 which Mayflower owed, which act was formally approved by all of the directors except petitioner. The petition in effect says that this was a diversion of funds belonging to Anjaco; was an attempt to give away a perfectly valid asset of Anjaco to one of its directors, to the injury and damage of the corporation. A further allegation is that petitioner has made an earnest effort to obtain redress at the hands of the directors and stockholders in meeting assembled, and caused his attorney to make a personal demand on the attorney for the directors, all during the time when petitioner was a stockholder of the corporation.
If the petition speaks the whole truth — and this is to be presumed on demurrer, — the four defendants who were the directors of Anjaco Inc. were guilty of maladministration, to the injury of the corporation. Compare Galloway v. Mitchell County Electric Corporation, 190 Ga. 428 (5) ( 9 S.E.2d 903). Under the allegations it was an act of maladministration to accept from Mayflower, a solvent corporation, a considerably less sum than the debt. The case as it is pleaded is not one where the directors exercised their discretion in settling a doubtful claim. According to the petition, Anjaco could have obtained the entire amount due. The refusal of petitioner's repeated requests to the directors was not put upon the ground that the notes were not collectible, or that Mayflower was insolvent or of doubtful solvency, or that it would not be for the best interest of Anjaco Inc. to be passive, nor did they give any other reason why they did not proceed to collect them, except a statement that they would rather give them to Mrs. Annie Lou Minor than press the notes for collection. It does not appear that Mayflower ever disputed the amount, the justice, or the legality of the debt. In the face of an allegation that the Mayflower Inc. had on hand $25,000 available for the purpose of satisfying in full Anjaco's debt, the directors settled it for a substantially less sum; and there being nothing on the face of the petition to negative the clear implication, the reasonable deduction, and the natural inference to be drawn from such an allegation, or otherwise to explain away the above recited facts, or to extract therefrom the natural conclusion that in so acting the directors were guilty of positive maladministration, which amounted to no less than actual fraud, it must be held that the petition, so construed, alleged a cause of action against the directors who were made defendants. In so holding, we give full recognition to the doctrine that the internal management of a corporation will not be interfered with by the court, at the instance of a minority stockholder, unless the majority stockholders are acting without the charter powers, or a strong case of mismanagement or fraud is shown. Bartow Lumber Co. v. Enwright, 131 Ga. 329 ( 62 S.E. 233); Bush v. Bonner, 156 Ga. 143 ( 118 S.E. 658).
A demurrer is addressed to what is alleged. Gunby v. Turner, 194 Ga. 378 ( 21 S.E.2d 640). If the fact be that the directors did not in fact arbitrarily and wantonly give away a substantial asset of Anjaco, but on the contrary settled this indebtedness in good faith, in the exercise of their judgment and discretion and for what they believed to be for the best interest of Anjaco, all things considered, or if there be other reasons why they are not liable, which are not disclosed by the petition, these are defenses which can not be reached by demurrer, but which may be raised by plea or answer, or, as the old lawyers used to describe it, by going to the country. Whether the directors may be held liable for mere negligence or gross negligence, or what may be the standard of liability in such case, is not a question presented by this record; for the petition alleged in effect that these directors were guilty of arbitrary and wanton misuse of corporate assets, for which we are satisfied they may be held liable.
4. It is urged that the plaintiff's case, brought as a minority stockholder's suit under the Code, § 22-711, was properly dismissed, because it does not appear, as required by subsection 5 of that section, that he made an earnest effort to obtain redress at the hands of the directors and stockholders, or why it could not be done, or it was not reasonable to require it. Addressing ourselves to that part of the petition which seeks a judgment against the directors, it has already been noted that on different occasions, at the regular corporate meetings, he 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; that 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. This, however, is not a statement that he called on the directors and stockholders to have the corporation sue themselves for dissipating certain credits of Anjaco Inc., to wit, the basis of the present suit, so far as it concerns them. Do not the facts show why he should not be expected to call on them further? Would it not be unreasonable to require the plaintiff, as a condition precedent to his right to bring this suit against the directors, first to call upon the directors to sue themselves? Is it reasonable to suppose that as directors and stockholders they would have had the corporation to sue them? Is it not asking too much of frail human nature to request that such a suit be brought at their instance as directors and stockholders seeking in behalf of the corporation a judgment which would go against them individually? Is it contemplated by the language of the Code, § 22-711 (5), that a minority stockholder, when the action is to be against the directors and stockholders themselves, is first required to call on them to have the suit brought against them in the corporate name? Suppose he should make such a request of the directors, and they were to comply with it? There would be the anomaly of a suit in the name of the corporation as plaintiff, but brought by the directors against themselves. The instant suit against those who were the directors should not fail merely because the minority stockholder did not call on them to bring the suit. Such a requirement would be unreasonable, not only because of the considerations suggested above, but for the further reason that the defendants own four fifths of the stock and comprise four out of five directors. Compare Colquitt v. Howard, 11 Ga. 556(11). The case of Collins Glennville R. Co. v. Bradley, 189 Ga. 355 ( 5 S.E.2d 915), is distinguished on its facts. There the prayer that certain of the directors be required to reimburse the corporation for certain moneys illegally spent may be said to have been a mere incident in a suit by minority stockholders to place a railroad in the hands of a receiver, where it had not been shown that an earnest effort had been made to obtain redress at the hands of the directors and stockholders. It was not, as here, shown that there were no stockholders other than those who were the directors, and no reason at all appeared to excuse complainants from seeking redress at the hands of the stockholders. In Peeples v. Southern Chemical Corporation, 194 Ga. 388 ( 21 S.E.2d 698), it was pointed out that it did not appear that the directors and stockholders had any knowledge of any of the facts of which the petition complained. There is nothing in either case that conflicts with what we here decide. The court erred in sustaining the general demurrer and dismissing the action as to Thomas J. Collier, Meredith Collier, Annie Lou Minor, and Mary Lena Martin.
Judgment affirmed in part and reversed in part. All the Justices concur.