Opinion
21837, 21838.
ARGUED NOVEMBER 13, 1962.
DECIDED DECEMBER 3, 1962. REHEARING DENIED DECEMBER 14, 1962.
Equitable petition. Dougherty Superior Court. Before Judge Crow.
J. Neely Peacock, Jr., for plaintiff in error.
Smith, Gardner, Kelley Wiggins, Asa D. Kelley, contra.
The petition in equity by minority stockholders, failing to show that relief was sought within the corporation or that this could not be done or that it would be unreasonable to require it, shows no right to equitable relief, and it was error to overrule the general demurrer thereto. The subsequent interlocutory hearing and judgment therein were nugatory.
ARGUED NOVEMBER 13, 1962 — DECIDED DECEMBER 3, 1962 — REHEARING DENIED DECEMBER 14, 1962.
This case arises from an action by minority stockholders against the corporation and named defendant officers and directors, alleging that the defendant president organized and obtained the charter for the corporation for the sole purpose of carrying on a stock selling scheme to defraud the purchasers of the common stock by using false and misleading statements to induce them to purchase the stock and it was never intended that such corporation would be a going concern for the profit of the common stockholders but to benefit the defendant president and his associate officers and directors who have colluded with him to defraud said corporation of its assets for the benefit of the officers and directors named as defendants by conveying the funds and assets of the corporation for their own use. By amendment numerous acts of waste, mismanagement and misappropriation of funds are alleged, and it is alleged that in order to protect the remaining assets and to protect the plaintiffs and other holders of the common stock the individual defendants should be restrained and enjoined from conveying any of their individual property pending the further order of the court. The prayers are for a restraining order to prevent further sale of stock, for an injunction to prevent the disposal of the property of the defendants, the appointment of a receiver to take charge and conserve the assets of the corporation, an accounting, liquidation of the corporation for the benefit of the legitimate stockholders, for a judgment in favor of the plaintiffs and other common stockholders against the defendants, for damages in the amount of $500,000 or other large sum as may be shown, and for such other and further relief as may seem just and proper. The petitioners further allege that they acted promptly upon determining the deceitful and fraudulent scheme on the part of the president and other defendants to perpetuate the stock selling scheme but no attempt was made by them to obtain redress from the hands of the officers and directors, other than to request the defendant president to take back the stock and return their money as promised, since it would have been unreasonable to require the plaintiffs to seek to have the officers and directors to bring suit against themselves for the alleged misconduct, fraud and mismanagement of the officers and directors of the corporation; that the petitioners were stockholders holding 10,000 shares of record "at all times alleged in the petition as herein amended," and the defendants had issued to the officers and directors, who allegedly controlled the corporation to further their fraudulent purposes, over 55,000 shares by payment to the corporation of their promissory notes in excess of $50,000, and they consistently failed and refused to allow the petitioners to have access to the stock register or stock transfer records or to examine other records of the company although petitioners had repeatedly demanded the right thereto.
General and special demurrers were filed and renewed after amendment of the petition. The rule nisi issued on November 18, 1961, set a hearing for December 12, 1961, to show cause why the restraining order enjoining the defendants as prayed should not be continued of full force and effect and a receiver appointed. This ex parte order is excepted to because the court refused to appoint a receiver as being contrary to law. On January 4, 1962, the interlocutory hearing was held, and the court thereafter on February 26, 1962, stated that it reserved its ruling until a transcript of the evidence could be obtained but amended its ex parte order of November 18, 1961, by allowing the corporation to transact business in its normal and usual manner, deleting therefrom its broad order preventing the defendants from conveying any of the assets of the corporation or their individual assets but continuing the injunction against further sale of the common stock of the corporation until the further order of the court. The petitioners also except to this modification of the ex parte order as being contrary to law. Thereafter, on August 4, 1962, the court overruled the demurrers, dissolved its previously granted restraining order and denied all other prayers of the petition, but granting a supersedeas in the event a bill of exceptions is presented within the time provided by law. To this order the petitioners except as being contrary to law. The defendants by cross-bill of exceptions are excepting to the overruling of the demurrers.
Compliance with the terms of Code § 22-711 (5) is an indispensable prerequisite to the maintenance of a suit in equity by minority stockholders. Peeples v. Southern Chemical Corp., 194 Ga. 388 ( 21 S.E.2d 698). This rule has been repeatedly applied and explained by this court, and there is now no excuse for a failure to conform to it. To recite numerous acts of misconduct irrespective of how evil they may be, will in no degree enable one to obtain relief in equity without having first met the requirement of the statute which is: seek relief within the corporation, or allege facts to show it could not be done, or that it would be unreasonable to require it.
The present petitioners make no claim that they sought relief within the corporation. They claim the right to maintain this suit solely because it is unreasonable to require them to do so. To make this showing they rely upon such general allegations that the president has exercised absolute control over the directors, that they are guilty of ultra vires acts, and the directors colluded and conspired with the president to convert corporate assets to their personal use; that they have been denied the right to see the records and thus learn who are stockholders. It is obvious that such allegations fail to show that a majority of the stockholders could not and would not vote if called upon to correct every evil alleged. The admission that the petitioners were unable to learn the names of stockholders is a showing that petitioners do not know that they could not get full relief at the hands of the stockholders and have made no attempt to get such relief. Indeed the petition does not allege that a majority of the directors have been guilty of any specific act of wrongdoing. It is merely alleged that the directors colluded and conspired with the president in his alleged wrongdoing. This utterly fails to show that an appeal to the directors to stop the president's misconduct could not have been made, or that it would have been unreasonable to require such an appeal to the directors. For all that appears, they would have either prevented such acts or discharged the president and thus afforded these petitioners complete relief.
Because of the failure to seek relief within the corporation, the petition alleges no grounds for equitable relief, and the court erred in overruling the general demurrers. The hearing and judgment thereafter is nugatory.
Judgment reversed on the cross-bill of exceptions; main bill dismissed. All the Justices concur.