Columbiana Common Pleas.

52

So the terms of this contract which binds the stockholders together, are to be looked for and found in the provisions of the articles of incorporation and of the general law under which they became incorporated, and are not to be sought for in their preliminary agreement, which has become merged in or superseded by the statutory contract as to all matters falling within its scope. The grant by the state of the privilege of becoming a corporation, if accepted, must be accepted as granted. And the acceptance of this privilege by those to whom it is granted by the state, is made upon an express contract with the state, and an implied contract as between themselves, that the privilege shall be held and exercised under the rules of the general law of the state which authorizes corporations and regulates and governs them.

The internal organization of corporations is provided for in the general law of the state, and this internal organization has a very important bearing on any question concerning the relation of the stockholders to each other, as well as to the corporation itself; Morawetz on Corp., section 382 (1st ed.).

The internal organization of corporations as provided by statute, is such that the corporate powers, business and property of corporations are exercised, conducted and controlled by a board of directors elected by the stockholders. Revised Stat., sec. 3248.

Subject to the restriction that they be not inconsistent with the constitution and laws of the state, the board of directors may adopt a code of by-laws for their government, and the corporation may adopt a code of regulations for its government. And the regulations which the corporation is authorized to make may be adopted or changed by a majority of the stockholders at a meeting held for that purpose, notice of which has been given in the manner described. Revised Statutes, sections 3249, 3250, 3251.

All the statutory provisions quoted, and many others not referred to, attached to this corporation when brought into existence by the action of the parties in this case, and must be regarded in determining their rights and obligations to each other when they assumed the status of stockholders.

The rules of law governing the organization are such that each person by becoming a member thereof must be held to have agreed that a majority of the members shall have power to bind him so long as they act within the scope of the powers conferred on the corporation. The voice of the majority is the voice of the corporation and of all its members. Morawetz on Corp., sec. 33 (1st ed.).

Any regulation or by-law which they have power to adopt, may be altered or repealed by a majority at a meeting duly convened.

The fact that it may have been unanimously adopted does not place it beyond the reach of a bare majority.

The majority have it in their power to repeal the by-law in question by proceeding in the regular way; but it is alleged in the petition that this has not been done, and that the by-law is still in full force and efect, and the plaintiffs in this case are asking the aid of the court to enforce the terms and provisions of this by-law, or else to require the defendant stockholders themselves to observe it.

It has already been shown that the court has no power to do this by a decree aimed directly against the corporation itself. If it can be done at all, it must be by means of a decree against the individuals who are the

52

Cronin et al v. Potters' Co-Operative Co.

members of the corporation requiring them as stockholders to do the thing desired.

Before the individuals who are the members of this corporation can be ordered to do this, it must at least appear that they are under legal obligation, as individuals, to do it.

Against them as members and agents of the corporation no case is made for the relief demanded in the petition. They are not asked to account as agents of the corporation for fraudulent management or for any breach of trust. It is not claimed that they are exceeding their corporate powers. The court is not authorized to interfere with the management of the affairs of a corporation while its regular agents are acting properly within the scope of the powers conferred on them by the corporation through its charter. Morawetz on Corp., sec. 387 (1st ed.).

The court cannot, at the suit of plaintiffs as stockholders against the defendants as stockholders, so far intermeddle with the affairs of this corporation as to require the observance of this by-law, especially as it appears on the face of the petition that a very large majority are hostile to the by-law and treat it as a dead letter; for the corporation has an internal organization of its own, through which it must be allowed to work out its own purposes without interference from the court at the suit of a dissatisfied stockholder, unless it should become necessary to take judicial action to keep it within the scope of its powers or to call to an account some officer or agent for dishonest management or breach of trust or for some other like purpose for which a stockholder under certain circumstances may be entitled to relief.

Then, if specific performance of the matter in question can be had against these defendants, the decree must be based alone on an individual legal obligation of the defendants to perform it.

For the reasons before stated no such obligations arise out of the original agreement.

Are such obligations imposed by reason of the action subsequently taken?

In adopting the by-law they were acting as stockholders at a meeting of the members of the corporation, exercising the powers conferred on them by law. It was recorded on the minute book of the corporation along with other by-laws adopted at the same time, and was signed by all the members.

It is difficult to see how this would give it, as a by-law, any greater force than it would have if it had been adopted by a majority only, and had only been attested by the officers of the meeting.

They had voluntarily become members of an association which was subject to the rule of the majority, and which might repeal any by-law it might enact, and which had an internal organization of its own, given it by law, through which the will of the majority could be manifested, and its will executed for all the purposes of the organization, and through which the whole enterprise must be worked out, and through which it may be broughtto a close at any time, or continued indefinitely.

Considered as a by-law, it can only be treated as a declaration of intention at that time to continue the enterprise for ten years only, and like any other by-law, subject at all times to change or repeal at the will of the majority properly expressed.

It derived no additional force from the previous agreement, for that was not legally operative at the time for the reasons before stated.

It was called a by-law, having been adopted by the stockholders'

Columbiana Common Pleas.

52

meeting; it was treated as such, and recorded in the minute book of the corporation. But it is not necessary to determine whether it was a valid by-law or not. The question is, did it impose on those assenting to it an obligation such that its provisions can be enforced against these defendants who refuse to observe it?

It is clear that in adopting it they were not acting and contracting with each other as individual equitable owners of the property of the corporation, nor binding themselves individually to the performance of anything.

Before the adoption of this by-law they had already become stockholders, and were acting as such in adopting it, having already paid, or incurred the obligation to pay for the stock subscribed; no new right became vested, nor any new obligation incurred by reason of this by-law.

It has none of the elements of contract, nor is there anything to operate by way of estoppel. No subsequent action was taken on the faith of this by-law. Their rights and their obligations had become fixed before its adoption.

These parties had intended originally to form a corporation for ten years only. They voluntarily did a different thing, and so were not under a legal obligation, and never had been, to adopt this by-law, or do what it provided for. They adopted it, it is alleged, to carry out their original intention, and, it would seem, under the circumstances stated, that they were under a strong moral obligation to observe the prior understanding. But there was no prior legal obligation, and a mere moral obligation, however strong, is not a sufficient consideration to support a contract. Bishop on Contracts, sec. 44; Swan's Treatise, page 517.

The conclusion now reached renders it unnecessary to consider other questions which would arise if this by-law could be considered as a contract between these parties.

The resolution remains unrepealed, but is a dead letter because the majority will not execute it.

For the matters complained of, the plaintiffs must seek relief by looking to the corporation itself, of which they are a part, and work it out by the means and through the instrumentalities provided by law, in the organization of corporations for their control and management.

The court is not authorized by any proceeding operating either directly or indirectly upon this corporation or its members, to control those rightfully in charge of it for the purpose of coercing them into a policy which they approved of ten years ago, when this resolution was adopted, but which, it seems, they do not approve of now, in the light of their experience and of subsequent events.

Adopting the language of the chancellor of New Jersey in a recent case if the stockholders in a corporation disapprove of the company's course of action while keeping within the limits of their charter, without fraud, their remedy is to elect new officers or sell their shares and withdraw.

The refusal of these defendants to observe this by-law, under the circumstances set forth, in morals, may be a breach of good faith, but it is not the breach of a legal contract.

The maxim quoted in argument, that "there is no wrong without a remedy," is almost worthless for practical purposes, for the law easily vindicates the maxim by denying that a legal wrong exists when it furnishes no remedy.

Demurrer sustained.

Hon. J. A. Ambler, for plaintiffs.

Gen. Asa W. Jones, for defendants.

61

In re Assignment of Easton and Clark.

ASSIGNMENT OF CREDITORS.

[Hamilton Probate Court, 1893.]

IN RE ASSIGNMENT OF EASTON AND CLARK.

61

Interest should be allowed a creditor whose claim has been rejected by the assignee, and subsequently allowed by the courts, from the date the dividend is declared. FERRIS, J.

The probate court passed on the question, whether or not interest should be allowed a creditor whose claim had been rejected by the trustee, but subsequently allowed in the common pleas court, and that judgment affirmed in the circuit court. Judge Ferris held that the creditor was entitled to his dividend and interest upon same from the date of the declaration of such dividend. He cited the case of Armstrong, Receiver of the Fidelity Bank, against American Exchange Bank of Chicago, 133 U. S., page 433, as authority. There being funds of the estate in the hands of the assignee, he directed that so much of the same as was necessary should be applied to the payment of the dividend and interest. This point is new in this state so far as we are aware. Judge Ferris argued that if the other creditors were paid their dividend and enjoyed its benefits, then the creditor who had been denied the use of the money rightfully belonging to him should be paid as of date when the others were paid. The only way to do this and maintain equality among the creditors was to order that interest should be paid on the dividend so withheld.

Ex-Governor Foraker represented the creditor, and Kramer & Kramer representing the trustees.-(Editorial.)

CORPORATIONS-PLEADING.

[Superior Court of Cincinnati, Special Term, January, 1893]

CINCINNATI GAS LIGHT AND COKE Co. v. Dodds.

61

Where the plaintiff, a corporation, describes itself as such in the caption of the petition, but in the body there is no averment of corporate capacity to sue, it is good as against a demurrer.

HUNT, J.

A proceeding to recover the possession of certain real estate in the city of Cincinnati, under section 5781, of the Rev. Stat., the petition simply alleges that the plaintiff has a legal estate in and is entitled to the possession of the real estate in question. There was a demurrer to the petition on the ground that there was no averment of the corporate capacity of the plaintiff to sue. The court held, that under the code in order to raise the question on demurrer the incapacity must appear on the petition. At common law, a corporation, when it sues, need not set forth its title in the declaration, but if issue be taken, it must show by evidence upon the trial that it is a body corporate, having the right to sue in the character and capacity in which it appears in court. The code does not require the title of the plaintiff to sue to be more specifically

Superior Court of Cincinnati.

61

set out than was required at common law. Demurrer, therefore, was overruled. Smith v. The Bank of Kentucky, 12 Ohio, 151; Smith v. The Weed Sewing Machine Company, 26 Ohio St., 562; Bank of Michigan v. Williams, 5 Wend., 482.

Charles B. Wilby, for demurrer.

E. A. Ferguson, contra.

68

81

93

[Hamilton Common Pleas.]

GEORGE HAFER V. C., H. & D. Ry. Co.

For opinion in this case, see 4 S. & C. P. Dec., 487.

[Hamilton Common Pleas.]

WM. GROSS V. CINCINNATI (CITY).

For opinion in this case, see 4 S. & C. P. Dec., 393.

[Lucas Common Pleas, April Term, 1892.] IN RE ESTATE OF ELIJAH G. CRANE.

For opinion in this case, see 4 S. & C. P. Dec., 398.

98

SERVICE OF SUMMONS-DIVORCE.

[Hamilton Common Pleas, 1893.]

HOLLAND V. HOLLAND.

Service made on a nonresident, under sec. 5052, Rev. Stat., by a sheriff in another state, duly authorized and deputized, is valid.

WILSON, J.

In an action for divorce, the service was made on the defendant, a non-resident of the state, by the sheriff of Dearborn county, Indiana, of a copy of the petition, said sheriff having been authorized and deputized by the sheriff of Hamilton county to make said service, by indorsement on the original summons, an affidavit for service by publication or by personal service outside the state having been filed prior to such indorsement by the sheriff of Hamilton county, Ohio. The sheriff of Dearborn county, Indiana, made a return of the manner and time of service, indorsing the same on the original summons, verifying it before a notary public of that county, and returned it to the sheriff of Hamilton county, Ohio, who indorsed on the writ that he had served the defendant in accordance with the above affidavit. The court held that this was a good service on the defendant, and the testimony showing that the plaintiff was entitled to a divorce, granted her a decree.