Torrey v. Toledo Portland Cement Co. , 1907 Mich. LEXIS 762 ( 1907 )

Grant, J.

(after stating the facts). Many of the material allegations in the bill are upon information and belief. They could not well be otherwise, because complainants have been denied all access to the books and records of the company.

The statute under which the corporation was organized (2 Comp. Laws, chap. 188) requires that 10 per cent, of the capital stock shall be paid in (§ 7038, subd. 6); that its secretary and treasurer shall reside, have their place of business and keep the books of said corporation within this State (§ 7042); that the books of said corporation shall be kept at the office of the treasurer within this State, open at all times for inspection by any stockholder (§ 7051).

The bill positively alleges that these provisions were utterly ignored by the incorporators of the defendant company; that in order to avoid the statute they appointed an assistant secretary and an assistant treasurer, imposing upon them all the duties belonging to such officers and located them in the city of Toledo.

If the allegations of the bill are sustained by proofs, defendant corporation was “conceived in sin and brought forth in iniquity ; ” the complainants, resident stockholders, were deceived and defrauded; the officersyare conniving with certain creditors to obtain the title to this property which has cost over $100,000; a fraudulent attempt was made to throw the company into bankruptcy, and the original incorporators, including defendant Watts, are responsible for the situation; the officers of the company have abandoned it, and are taking no steps to protect or save it; the value of the property is largely in excess of the amount necessary to pay the debts.

Courts of law are inadequate to protect the rights and interests of creditors and stockholders. At law the property must be sold at public sale. Equity can and should extend its strong and beneficent arm to protect the rights of all. It may be unnecessary to sell any of the property, for if it be proved that the original incorporators did not pay in 10 per cent, of the capital stock as represented in their articles of association, they can now be compelled to pay it in.

This is not a case for the application of the rule that redress must be sought through the corporation before individual stockholders can seek redress in equity. The officers of the corporation are charged with fraud from the beginning, and it would be useless to ask them to cause suits to be commenced in which they are directly interested. The case is well within the principle of Miner v. Ice Co., 93 Mich. 97 (17 L. R. A. 412); Edwards v. Investment Co., 132 Mich. 1.

We think the bill makes out a case for the cognizance of equity jurisdiction, and the decree of the court below is sustained. The case will be remanded to the court below for further proceedings in accordance with the rules and practice of the court.

McAlvay, C. J., and Carpenter, Blair, and Montgomery, JJ., concurred.