Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/129

 PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 139. corporate rights, and an irreparable injury to the corporate interests is threatened, a shareholder, in a case where the cor- poration itself would be entitled to an injunction, may bring suit on behalf of himself and others interested who may join, to enjoin the threatened injury. 1 In such case the shareholder should set forth in his complaint or bill the efforts that he has made to induce the corporation to act in the matter, should allege its refusal or failure to sue, and should make it a party defendant in the action. § 139. The first leading case on the right of a shareholder to sue under such circumstances is Dodge v. Woolsey, 2 where the Supreme Court of the United States when a 1. . share- held that a shareholder in a bank could maintain a holder may bill to enjoin the collection of an unlawful state tax half of the on the bank, the directors having declined to sue tion° ra " under circumstances that rendered their refusal a breach of trust. 3 1 A bill may be filed by share- holders to enjoin the setting up of a claim for purchase-money against the lands of a company, the ground of the bill being that the party setting up the claim induced the complainants to buy shares by fraudulently representing that the property sold to the company was unincumbered, and that he had no interest in it, the ageuts of the com- pany joining in such misrepresenta- tions. The company should be made a party defendant, although the relief prayed is really in its favor. Jones v. Bolles, 9 Wall. 364. Share- holders were admitted to defend on behalf of the corporation in Morrill v. Little Falls M'f'g Co., 46 Minn. 260. See, Fitzwater v. Bank, 62 Kas. 163. 2 18 How. 331. The present discus- sion relates to actions by sharehold- ers against outsiders; and has but incidental reference to the right of shareholders to sue the corporation and restrain it by legal process (for which see §§553-557); or to their right to sue the officers for a breach of duties owing primarily to the cor- poration (for which see §§ 683-691). 3 " The judgment of the court in Dodge v. Woolsey authorizes the stockholder of a company to institute a suit in equity in his own name against a wrongdoer whose acts oper- ate to the prejudice of the interests of 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 a 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 shareholders the general manage- ment of the business of the company. There must be a clear default on their part, involving a breach of duty, within the rule established in equity, to authorize a stockholder to insti- 109