RIGHTS AGAINST DIRECTORS 43. It is the nature of a corporation that the management of its affairs is in the hands of its directors. The stockholders, as we have seen, have the right to elect the directors, and to exercise certain other extraordinary powers, but the ordinary powers of managing the business of the corporation lie exclusively in the hands of the directors. 183 Until the nineteenth century, it was the law that in no case could the stockholders seek a remedy, either against the directors themselves or against third persons, for injuries caused to the corporation. It is evident that, in such a situation, the stockholders would be helpless against any breach of duty or fraud of the directors, however great an injury might thereby be committed upon the corporation or upon its stockholders. But it is now settled that the stockholders have certain remedies. Where the wrong complained against is a breach of duty or a fraud of the directors, the stockholders who are thus injured can maintain an action, on behalf of all the stockholders, against the directors, if the injury resulting from such fraud be of such a nature as to affect the stockholders suing, as distinguished from the injury to the corporation." If the injury complained of be peculiarly an injury to the corporation, then the complaining stockholders must first seek corporate action to remedy the wrong; and, only when they fail in their efforts to secure corporate action, can they maintain, in their own name, an action against the guilty parties to secure a remedy.' 185 Where the injury has been done to the corporation by strangers, persons other than the directors, it is the duty of the directors to apply to the courts of justice to remedy the wrong. If the directors neglect or refuse to seek a remedy, or be parties to the wrong perpetrated on the corporation, then the stockholders may institute legal proceedings in their own name, and on behalf of all the other stockholders, against those who are perpetrating, or about to perpetrate, the wrong against the corporation. But, in order to entitle the stockholder to such a remedy, it must be shown that the directors in refusing to seek a remedy must be guilty of a breach of official duty, and that it was not simply a mistake of judgment on their part.""" In all these cases, the stockholders seeking the remedy must not be guilty of delay in seeking their remedy, and must not have partaken in, or acquiesced in, the wrong. It is no objection to maintaining the suit that the stockholder suing purchased the stock after the injury complained of was committed. But in such a case he must not be charged with knowledge of the wrong at the time he became a purchaser.' As a general rule, the remedy to stockholders will not be denied on the proof that the one suing had an ulterior motive for so doing. In no case may a suit be maintained by a stockholder, if, for any reason, the corporation itself could not have maintained the suit.' 187 188 RIGHT OF MINORITY AGAINST MAJORITY 189 44. The general principles above laid down apply when a minority seeks a remedy for a wrong done by a majority. As a general rule, any action, not inherently void, if adopted by a majority, and if no actual fraud be shown, is binding on the minority. Where, however, the contract is absolutely void, it cannot be adopted by a majority to bind the minority stockholders. The latter may have their remedy to set such action aside and to have the injury done them by such action repaired.""" An amendment to the charter changing the scope of the undertaking cannot be accepted by a majority to bind. the minority; and a majority has no authority to dissolve the corporation, especially if it be in a prosperous condition, while all the stockholders have, as a rule, full power to 186 18 How. (U. S.) 331 (1899). 1876 Allen (Mass.) 52 (1863); 55 N. H. 218 (1875); 92 Ala. 403 (1890). 1892 Hare (Eng.) 461 (1843); L. R. 12 App. (Eng.) 589 (1887). 190 L. R. 9 Ch. App. (Eng.) 350 (1871). 188 L. R. 2 Ch App. (Eng.) 459 (1867); 4 Abb. New Cas. (N. Y.) 419 (1883). 191 dispose of all the property of the corporation, a majority has not such power, especially if the business of the corporation be in prosperous condition. Where, however, the corporation is in a failing business and owes large debts, a sale of all its property to enable it to pay its debts, or with a view to dissolve the corporation, will bind a non-consenting minority thereto.""" RIGHT TO DISSOLVE 45. It is clearly the right of stockholders, acting unanimously, to dissolve the corporation and surrender the charter to the sovereign power which granted it. This right exists neither in the directors nor in a majority of the stockholders, but must be exercised by all the stockholders." 193 Formerly, when a corporation was dissolved, the real property owned by it reverted to the grantor, and the personal property became the property of the king or state, and all its debts were extinguished. The law in modern times is otherwise. On the dissolution of a corporation, all its property is subject to the payment of its debts, and what is left must be distributed to the members of the corporation in proportion to the shares held by them respectively.14 1919 N. J. Eq. 401 (1853). 192 89 Iowa 123 (1893). 193 29 Ala. 573, 581 (1857). THE LAW OF CORPORATIONS (PART 2) MANAGEMENT OFFICERS AND AGENTS 1. General Character. - A corporation aggregate is so constituted that its transactions must be done by officers and agents; no act can be performed except through the instrumentality and agency of others.' The power to appoint these officials is inherent in the corporation and need not be conferred by the charter; it is generally conferred in the fundamental law, yet, in a large class of cases, it rests upon the implication drawn from the powers conferred.' Moreover, where the duties of officers are prescribed by the corporation itself, those duties are in the nature of agency. The powers even of the president over the business and property of the corporation are strictly the powers of an agent, delegated to him by the directors or managers of the association, and the persons in whom, as its representatives, the control of its business is vested." The officers are ministerial agents of the corporation to conduct its business for the benefit, and under the authority of, the corporation. They are, in general, those persons 116 Am. Dec. 705 (1827); Ang. & Am. Corp., Sec. 231; see The Law of Agency: 2 Porter, Corp., Sec. 127. 3 46 N. J. Law 240 (1884); see subtitle The President infra. 43 Gratt. (Va.) 215 (1846). For notice of copyright, see page immediately following the title page |