Memphis City v. Dean/Opinion of the Court

The judgment of the court in the case of Dodge v. Woolsey, authorizes the stockholder of a company to institute a suit in equity in his own name against a wrong-doer, whose acts operate to the prejudice of the interests of the stockholders, such as diminishing their dividends and lessening the value of their stock, in a case where application has first been made to the directors of the company to institute the suit in its own name, and they have refused. This refusal of the board of directors is essential in order to give to the stockholder any standing in court, as the charter confers upon the directors representing the body of stockholders, the general management of the business of the company. There must be a clear default, therefore, on their part, involving a breach of duty, within the rule established in equity, to authorize a stockholder to institute the suit in his own behalf, or for himself and other stockholders who may choose to join. The plea in abatement in the record is founded upon this view of the law. It not only denies the refusal, but avers the institution of a suit in a court of competent jurisdiction, and in which the ground of complaint is substantially the same as set forth in the complainant's bill. This is a plea to the person of the complainant. Pleas to the person, says Mr. Daniel, like pleas to the jurisdiction, do not necessarily dispute the validity of the rights, which are made the subject of the suit, but object to the plaintiff's ability to sue, or the defendant's liability to be sued respecting them. And Judge Story observes, 'They object to the plaintiff that he is by law disabled to sue in a court of justice, or that he cannot institute a suit alone, or that he is not the person he pretends to be, or that he does not sustain the character he assumes.' These are properly pleas in abatement, or at least in the nature of abatement.

It is insisted, however, on the part of the learned counsel for the appellee, that the suit in the State court did not cover all the grievances set forth in his bill, as the directors were required to proceed against the city of Memphis, which was not a party defendant in that suit, but is in the present one. The charge in his bill is, that the city authorities passed an ordinance authorizing the mayor to hold an election to test the sense of the voters of the city as to the propriety of subscribing $250,000 to the stock of the Memphis Gayoso Company, and he apprehends that the influence of the corporate authorities will be exercised on the voters favorable to the company, and will proceed to subscribe to its stock; and further, that the city had entered into a contract with complainant's company to furnish the lamps of the city with gas for twenty years, and that this action of the city is in violation of that contract; and the bill prays that the city may be enjoined from holding the election or subscribing to the stock. This is the branch of the case relied on to show that the suit in the State court was not a compliance with, or a fulfilment of, the request of the complainant to the directors of the Memphis Gaslight Company to institute legal proceedings.

But, admitting all this to be true, it furnishes no valid ground for making the Memphis Gayoso Gas Company a party, and agitating over again the same question which was pending in the State court, namely, whether or not the Memphis Gaslight Company had an exclusive right to furnish the city of Memphis with gas. There is no necessary connection between that suit, or the subject-matter involved in it, and the one against the city. The former turns upon a construction of the charter of the Memphis Gaslight Company. The latter, upon a written contract between this company and the city. The question here has no connection with that of the exclusive privileges of the company under the charter. If any suit was desired, or advisable, against the city, it should have been a separate one, founded on the contract.

Besides, the suit against the city was premature. Until the question was decided whether or not the Memphis Gayoso Gas Company was valid, and had a right to establish itself in the city of Memphis, the suit against the city was founded on a hypothetical case. If held by the State court, on the final hearing, that the Memphis Gas Company had the exclusive right, the existence of the other company must cease, and the suit against the city would be superfluous.

The suit is premature, also, for the reason it is founded on a contingency, that a majority of the voters of the city will vote in favor of a city subscription to the stock. The bill seeks to enjoin the city from holding the election, for fear a majority may favor subscription; and then, that the city will subscribe. The complainant should have waited till after the result of the election, and, if it had been against making any subscription, no suit would have been required; if in favor, it would have been time enough to have filed the bill.

But, over and beyond all these objections, we are satisfied that there is nothing in the provisions of the contract that can be made available to estop the city from subscribing to the stock. It secures to the complainant's company the exclusive privilege of supplying the public lamps in the streets of the city with gas for twenty years, at one-half the price which is charged to private persons. This is the essence of the contract. There are other details to enable the company to fulfil its portion of the stipulations, such as the privilege of laying down their pipes in the streets, and of exercising all the rights under the charter within the limits of the city, without any other tax or charge than upon the estimated value of their house and lot, and one hundred dollars per annum. The city agrees to take fifty public lamps to begin with, to be extended thereafter according to the public wants. All the obligations, whatever they may be, to be found in the contract on the part of the city are binding upon it, and if broken, the courts will afford the proper remedy. The establishment of another company therein will not change its nature or obligation, much less abrogate it. To this extent the city is bound, but no further. There is neither an express or implied obligation not to take stock in any other company.

The idea that the subscription to the stock of the new company would aid or encourage its establishment in the city, and hence would operate as a violation of the contract, finds no support in that instrument.

The result of our opinion is, that the only question that it was competent for the complainant, as a stockholder of the Memphis Gaslight Company, to compel the directors to present to a court of justice, was that involving its exclusive right, under the charter, to furnish the city of Memphis with gas; and as that had been presented to a court of competent jurisdiction, in a suit then pending, he is disabled, according to the settled rule on this subject, from instituting a suit in his own name in another court.

DECREE BELOW REVERSED, remitted to the court below, with directions to dismiss the bill.