Although a stockholder in a corporation may bring a suit when
the corporation refuses, yet, as in such case the suit can be
maintained only on the ground that the rights of the corporation
are involved, the corporation should be made a party to the suit,
and a demurrer will lie if it is not so made.
Dows, a citizen of New York, in behalf of himself and all other
nonresident citizens of Iowa who were stockholders in the Chicago,
Rock Island & Pacific Railroad Company, filed a bill in the
court below against the City of Davenport, and its marshal, to
arrest the collection of a tax, alleged to be illegal, levied by
the said city for general revenue purposes, on the property of the
company within its limits. The bill assigned as a reason for its
being filed by Dows, a stockholder in the company, instead of by
the company itself, that the company neglected and refused to take
action on the subject. A demurrer was interposed to the bill, which
was overruled, and on the defendants' refusing to answer over, the
circuit court ordered that the collection of the tax be perpetually
enjoined. From this, its action, the defendants appealed, insisting
that the circuit court erred in overruling the demurrer, for three
reasons:
First. Because the railroad company was not made a
party to the bill.
Page 85 U. S. 627
Second. Because the complainant had a complete remedy
at law; and,
Third. Because the tax in question was a proper charge
against the property of the corporation.
MR. JUSTICE DAVIS delivered the opinion of the Court.
It is unnecessary to notice the last two reason assigned why the
demurrer should not have been overruled, as the first is well
taken. Indeed, it would be improper to pass on the merits of the
controversy until the proper parties to be affected by the decision
are before the court.
That a stockholder may bring a suit when a corporation refuses
is settled in
Dodge v. Woolsey, [
Footnote 1] but such a suit can only be maintained on
the ground that the rights of the corporation are involved. These
rights the individual shareholder is allowed to assert in behalf of
himself and associates, because the directors of the corporation
decline to take the proper steps to assert them. Manifestly the
proceedings for this purpose should be so conducted that any decree
which shall be made on the merits shall conclude the corporation.
This can only be done by making the corporation a party defendant.
The relief asked is on behalf of the corporation, not the
individual shareholder, and if it be granted, the complainant
derives only an incidental benefit from it. It would be wrong, in
case the shareholder were unsuccessful, to allow the corporation to
renew the litigation in another suit involving precisely the same
subject matter. To avoid such a result, a court of equity will not
take cognizance of a bill brought to settle a question in which the
corporation is the essential party in interest unless it is made a
party to the litigation. [
Footnote
2]
Page 85 U. S. 628
In this case, the tax sought to be avoided was assessed against
the Chicago, Rock Island & Pacific Railroad Company, and the
decree rendered discharges the company from the payment of this
tax. The corporation therefore should have been made a party to the
suit, and as it was not, the demurrer should have been
sustained.
Decree reversed and the cause remanded for further
proceedings in conformity with this opinion.
[
Footnote 1]
59 U. S. 18
How. 340.
[
Footnote 2]
Robinson v. Smith, 3 Paige 222, 233;
Cunningham v.
Pell, 5
id. 607;
Hersey v. Veazie, 24 Maine,
1;
Charleston Insurance & Trust Co. v. Sebring, 5
Richardson Equity 342;
Western Railroad Co. v. Nolan, 48
N.Y. 573;
Bagshaw v. Eastern Union Railroad Co., 7 Hare
114-131.