Bartow Lumber Co. v. Enwright

62 S.E. 233, 131 Ga. 329, 1908 Ga. LEXIS 79

• Court: Supreme Court of Georgia
• Decided: August 17, 1908
• Status: Published

Opinion

Holden, J.

(After stating the facts.)

It will not require any lengthy discussion of the evidence contained in the record, or the law applicable to the case, to elucidate the conclusions we have reached therein. The plaintiff introduced, on the hearing, several affidavits, the trend of which was that there were cut and piled on the premises of the defendant company from two to three million feet of lumber in logs, which were ready to be sawed and had been since the mill ceased.operations; that these logs had already greatly deteriorated in value and would continue rapidly to deteriorate, owing to the ravages of insects and the effect of the weather, and, if not promptly converted into lumber, would become a total loss. None of the testimony offered by the plaintiff gave any indication of fraudulent conduct on the part of any of the defendants in failing or refusing to operate the plant. On the other hand, the defendant introduced affidavits and documentary evidence to the effect that the majority directors were acting in the utmost good faith, in the conscientious belief that the stoppage of the plant was to the best interest of the company and its stockholders, and that it was closed down pursuant to the wishes of seven out of the eight directors of the company and the holders of nine tenths of the stock of the company. The managing director testified by affidavit that he had examined the logs on the ground, and was familiar with the necessary steps required to convert them into lumber and with the cost of so doing, and gave estimates showing that- any attempt to manufacture such logs into lumber and sell the same would result in actual loss. The position thus assumed by the majority directors and stockholders as to the wisdom of shutting down the plant was supported by the affidavits of several experienced lumber dealers.

The right to control the affairs of a corporation is vested by law in its stockholders — those whose pecuniary gain is dependent upon its successful management. The majority stockholders, or the majority of the directors, when directors are chosen to act on behalf of the stockholders, have the right to determine the business policy of the corporation, and the minority must submit to their judgment in such matters, when exercised in good faith and not involving acts ultra vires, or in breach of trust. As was said by this court in Hand v. Dexter, 41 Ga. 454, 461, “The very foundation principle of a corporation is that the majority of its stockholders have the right to manage its affairs, so long as they keep within their charter rights.” No principle of law is more firmly fixed in our jurisprudence than the one which declares that the courts will not interfere in matters involving merely the judgment of the majority in exercising control over corporate affairs. In 10 Cyc. 969, the rule is thus stated: “The true distinction is between acts in excess of the powers of the directors and in breach of their trust, and acts which are within their powers, and which merely involve an exercise of the discretion committed to them. The rule here is that in the absence of usurpation, of fraud, or of gross negligence, courts of equity will 'not interfere at the suit of á dissatisfied minority, merely to overrule and control the discretion of the directors on questions of corporate management, policy or business, but will allow the majority to rule, and will leave the dissatisfied minority to redress their grievances through ordinary corporate methods.” Based on decisions in consonance with the doctrine as above announced, the codifiers of the code of this State have embodied these rules of law in two sections of our Civil Code, as follows: §1859. “So long as the majority stockholders confine themselves within their charter powers, a court of equity will require a strong case of mismanagement, or fraud, before it will interfere in the internal management of the affairs of a corporation.” §1860. “A minority stockholder may proceed in equity in behalf of himself 'and other stockholders for fraud, or acts ultra vires, against a corporation, its officers and those participating therein, when he and they are injured thereby. But there must be shown — 1. Some action or threatened action of the directors beyond the charter powers; or, 2. Such a fraudulent transaction completed or threatened, among themselves or shareholders or others, as will result in serious injury to the company or other shareholders; or, 3. That a majority of the directors are acting in their own interest in a manner destructive of the company, or of the rights of other shareholders; or, 4. That the majority stockholders are oppressively and illegally pursuing, in the name of the corporation, a course in violation of the rights of the shareholders, which can only be restrained by a court of equity; and it must also appear — 5. That petitioner has acted promptly; that he made an earnest effort to obtain redress at the hands of the directors and stockholders, or why it could not be done, or it was not reasonable to require it. 6. The petitioner must show that he was a shareholder at the time of the transaction of which he complains, or that his shares have devolved on him since by operation of law.” See also Lamar v. Lanier House Co., 76 Ga. 640; Alexander v. Searcy, 81 Ga. 536 (8 S. E. 630); Empire Hotel Co. v. Main, 98 Ga. 176 (25 S. E. 413); Gibson v. Thornton, 107 Ga. 545 (33 S. E. 895); Reynolds v. Martin, 116 Ga. 503 (42 S. E. 796).

The plaintiff’s case rests upon the theory that the refusal of the defendants to cut the logs in question into lumber, under the circumstances, was an invasion of his rights as a minority stockholder, whereby he became entitled to the aid of a court of equity to enforce his own wishes in the premises. The theory of the defendants is that there was no ground for legal interference. Which contention is correct? The course adopted by the defendants, as shown by the evidence, was after a due investigation and consideration of the situation, and an inspection of the logs on hand and the making of estimates as to the cost of converting them into lumber and the price which could then be obtained for such lumber, had convinced them that the company -as a corporation and themselves as stockholders would sustain financial loss should they attempt for the time being to operate the plant. We do not mean to intimate that eases might not arise in which it could be made apparent to a court that to permit an entire stoppage of operation by a corporation would be so oppressive and destructive of the interests of the corporation as to justify interference on behalf of the minority stockholders opposing such action; but under the rule announced in the Civil Code, §§1959, 1960, and the decisions of this court cited supra, it would require a strong case of mismanagement, or fraud, to warrant a court in so doing. The mere fact that the court may differ with the majority of the corporation as to the wisdom of the course which their judgment directs will not justify such interference. The late Justice Blatchford, when circuit judge, announced the propositionj above stated, in Flagg v. Manhattan Railway, 10 Fed. 413, 432, in the following words: "No court will undertake to interfere with the exercise of such discretion and judgment, even though in the same facts it might have arrived, or may arrive, at a different conclusion, and even though the stockholders of the Metropolitan may have arrived at a different conclusion.” Certainly no case warranting the court in depriving the majority of the directors of the defendant company of the control of its own affairs is presented in the record before' us. On tbe contrary, the evidence clearly presents a case in which the question of advisability of operating the plant was one solely to be determined by an exercise of judgment, and the decision of this question was the rightful prerogative of the majority in control of the affairs of the corporation. We think the court committed error in granting the injunction and appointing the receiver, and in not revoking the previous orders in the case; and the judgment is

Reversed.

All Hie Justices concur.