CHAPTER XII STOCKHOLDER'S RIGHTS AND DUTIES The stockholders of a corporation do not hold any fiduciary relation to each other simply by reason of the fact that they are stockholders in the same corporation. This doctrine was declared in a case where stockholders voted upon a resolution where their individual interests were adverse to the other stockholders, as the ratification of a mortgage to themselves.1 The corollary of this proposition, that is when the stockholders' interest is adverse to the corporation itself, has not been determined by our courts, but it may be said if the stockholder or stockholders do not control the corporation they may deal with it as freely as any other persons and owe it no greater duty in law. When the stockholders so dealing with the corporation are all the stockholders, they may make practically any contract with the corporation they please.2 Stockholders do not have the legal title to the property of the corporation, nor are they in any proper sense the owners of the property, but they have a direct interest in it consisting of the right to participate in its profits and the distribution of its assets upon its dissolution.3 STOCKHOLDER'S RIGHTS TO MAKE FURTHER SUBSCRIPTIONS The rights of stockholders to subscribe, ratably, for new issues of stock have not been fixed by statute in this state, nor established by any decisions. 1 Middleton v. Arastraville Min. Co., 146 Cal. 219-224, 79 Pac. 889. 2 Turner v. Markham, 155 Cal. 562, 570, 102 Pac. 272. 3 Kohl v. Lilienthal, 81 Cal. 378, 385, 6 L. R. A. 520, 20 Pac. 401, 22 Pac. 689; Richter v. Henningsan, 110 Cal. 530, 42 Pac. 1077. A case, however, involving the rights of a stockholder to take or subscribe for shares in another corporation owned by and which were about to be sold by his corporation, has come before the courts. It was said that the corporation was not bound by any rule of law to limit the sale to its own stockholders, nor to prevent a stockholder from taking more than his ratable proportion, or from subscribing for the benefit of one not a stockholder; in short, that the corporation could exercise its sole judgment in that respect without restriction.* NO MANDAMUS TO SECURE PRIVATE RIGHTS, ORDINARILY It is one of the principles of corporation law that mandamus will not issue against the corporation or its officers to enforce contract rights of a personal nature, which involve no questions of trust or official duty, and where there is any other adequate remedy. But it was held in one case in this state that mandamus will issue against a mutual water company, furnishing water to its own members only, to compel it to supply a member with the water to which he was entitled, on the ground that his crops upon lands so irrigated would speedily perish without the water, and that there was no other speedy and adequate remedy." STOCKHOLDER'S SUITS IN BEHALF OF THE CORPORATION A stockholder may bring an action, in behalf of the corporation, to recover money or property belonging to the corporation, or to prevent or set aside some fraudulent action, or indeed for any purpose beneficial to the corporation, when the directors refuse to bring such an action, or where the action would be against 4 Bacon v. Grosse, 165 Cal. 481, 487, 132 Pac. 1027. 6 Miller v. Imperial Water Co., 156 Cal. 27, 24 L. R. A. (N. S.) 372, 103 Pac. 227. the directors themselves. But the fact that the suit is brought by a stockholder does not enlarge the scope of the action, nor add any matters to be redressed, nor change the method of procedure except in form. The matters which can be covered in such a suit are only those of which the corporation itself could complain. Any wrongs done to the individual stockholder, as distinguished from the entire body of stockholders, can not be made the subject of or be included in such a suit; for such wrongs the stockholder must resort to his personal action against those who have wronged him, whether these be the directors or officers, or the corporation itself, or other stockholders. SAME DISABILITY OF CORPORATION The Whitten v. Dabney case' establishes some doctrines which are quite new and, so far as corporations are concerned, without citation of supporting authorities, goes far beyond the decision in the district court of appeal where it was first heard. On the rehearing in the supreme court, that court said while the corporation was under the control of the recreant directors it was powerless to act, and therefore in the matter complained of it was under a disability, like the disability of an infant. An inevitable deduction, although not made by the court, is that the statute of limitations would not begin to run against the corporation itself in bringing the suit until a new board of directors, free from the domination of the persons who accomplished the fraud, was elected and put in control of the corporation. 6 Turner v. Markham, 155 Cal. 562-570, 102 Pac. 272; Chetwood v. California Nat'l Bank, 113 Cal. 414, 45 Pac. 704, s. c. 113 Cal. 649, 652, 45 Pac. 854. 7 Whitten v. Dabney, 171 Cal. 154 Pac. 312. The "recreant board of directors" remained in control of the corporation until the beginning of the suit, and, for aught that appears, indefinitely thereafter. The fraud complained of was committed more than eight years before the suit was brought, and was in part discovered by a committee of certain stockholders about four years after its commission, but they brought no suit. The discovery by the plaintiffs was made shortly before they began the suit, and consisted of information imparted to them by that committee. The court said, though the stockholders represented by the committee may have been barred, that fact did not operate to bar any other stockholder who had not himself made the discovery and was not possessed of the information obtained by the committee, and that the statute did not begin to run against the plaintiffs until they had made their own discovery, which, as stated, was when the committee gave them information of the facts it had obtained. The court extends its exemplification of the declared "disability" of such a corporation by saying, the stockholder goes "into equity seeking redress for a corporation under disability to obtain relief itself, precisely as the guardian ad litem goes into court to obtain redress" for a minor or incompetent; following with a statement of the duties and rights of such a guardian, and the power of the court over him, and declaring that a stockholder bringing such a suit "is a trustee pure and simple, seeking in the name of another a recovery for wrongs that have been committed against that other." The statement of the similarity of the two classes of cases certainly is novel, and the results may be farreaching. It was further said, a settlement with some of the plaintiffs being interposed, "that composition agreement is cognizable by the trial court alone and will not be given the slightest efficacy until, after scrutiny and examination, it shall be determined by that court that the corporation's rights are fully protected." A motion was made to substitute the corporation in the place of the plaintiffs and the intervenor. A like disposition was made of this motion by saying that the court below "will grant or decline to grant it, with due regard to the rights of the corporation itself and to the indirect rights of its stockholders." No citation of authorities is made in support of the declaration that in such a case a corporation is under any "disability," and that, therefore, to a certain extent, the court has control of the case; nor that any settlement or compromise of the case made by the plaintiff is subject to the approval or disapproval of the court; nor that the corporation may be substituted as plaintiff. It is believed that none can be found. But if "equity" is to retain the broad definition given to it by courts and enlightened jurists, the soundest reasons exist for sustaining the first two, where necessary to secure justice. Cases calling for the exercise of such extraordinary powers by a court could arise only where the stockholder was not prosecuting the action vigorously or in good faith; or where by his dismissal of the case the other stockholders would be barred by the statute of limitations from bringing a new suit; or where the compromise made by the plaintiff was made with funds of the corporation, thus diminishing the funds belonging indirectly to the other stockholders; and, perhaps, other cases which may be imagined. If this decision does not declare new rules, at least it applies some old general principles for the first time to corporations; on the status of a stockholder suing in behalf of his corporation it is likely to rank with the decision in the early case of Dodge v. Woolsey. It |