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§ 414. Of laches as a bar to the shareholder's remedy. The stockholder's right to impeach the ultra vires, illegal, or fraudulent acts of the corporation, or its directors, officers and agents, may be barred by delaying to institute proceedings promptly after notice thereof. His consent may be inferred from acquiescence after full knowledge of the transaction 2 The shareholder has no right to lie idly by until new equities arise, and speculate on the success or non-success of the investment or ransaction of which he complains, and see others, in good faith and without fraud, by a vast expenditure of money, make that valuable which was before valueless, and then come and ask the aid of the chancellor to enable him to appropriate to himself such benefits and advantages. But mere silence on the part of some of the stockholders, while the transactions are sought to be impeached by others, does not imply acquiescence therein by the former.* The weight which is due to lapse of time, in a great measure depends upon the extent of the interests involved, and the circumstances of each particular case. So short a delay as eight months has been held, under certain circumstances, to bar the shareholder's remedy. In another case eighteen months was deemed an unreasonable delay." In a recent case in Massachusetts it was held that a stockholder cannot bring suit for improper investments of corporate funds made three years before, if he knew of them at the time and did not object. In other cases his remedy has been lost by a delay of two, three and a half,1o four," six,12 seven,13 twelve," and twenty years.15 But a delay of fifty-four days, together with a failure to vote against the act com

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plained of, has been held no bar to the shareholder's action.16

1 Metropolitan Elevated R'y Co. v. Manhattan Elevated R'y Co. 11 Daly, 373; S. C. 14 Abb. N. Cas. 103; Zabriskie v. Hackensack etc. R. R. Co. 18 N. J. Eq. 173; Ashhurst's Appeal, 60 Pa. St. 290; McLoughlin v. Detroit etc. R'y Co. 8 Mich. 100; Speackman v. Evans, Law R. 3 H. L. 171; Downes v. Ship, Law R. 3 H. L. 313; Gray v. Chaplin, 2 Russ. 136. Cf. Harwood v. Railroad Co 17 Wall. 78; Badger v. Badger, 2 Wall. 87; Boardman v. Lake Shore etc. R'y Co. 81 N. Y. 157; Rochdale Canal Co. v. King, 2 Sim. N. S. 89; Zabriskie v. Cleveland etc. R. R. Co. 23 How. 381; Hervay V. Illinois etc. Ry Co. 28 Fed. Rep. 169; Thompson v. Lambert, 44 Iowa, 239; Vigers v. Pike, 8 Clark & F. 562, 650.

2 Evans v. Smallcombe, Law R. 3 H. L. 249, affirming Law R. 3 Eq. 769.

3 Kitchen v. St. Louis etc. R'y Co. 69 Mo. 224.

4 Metropolitan Elevated R'y Co. v. Manhattan Elevated R'y Co. 11 Daly, 373; S. C. 14 Abb. N. Cas. 103.

5 Great Western R'y Co. v. Oxford etc. R'y Co. 3 De Gex, M. & G. 341: Houldsworth v. Evans, Law R. 3 H. L. 263.

6 Great Western R'y Co. v. Oxford etc. R'y Co. 3 De Gex, M. & G. 341. See also Boston etc. R. R. v. New York etc. R. R. Co. 13 R. I. 260; Aurora etc. Soc. v. Paddock, 80 Ill. 263; Stewart v. Erie etc. Transportation Co. 17 Minn. 372.

7 Graham v. Birkenhead etc. Co. 2 Macn. & G. 146.

8 Dunphy v. Travelers' Newspaper Assoc. (1883) 146 Mass. 495.

9 Graham v. Boston etc. R. R. Co. 118 U. S. 161; Pneumatic Gas Co. v. Berry, 113 U. S. 322; Kitchen v. St. Louis etc. R'y Co. 69 Mo. 124; International etc. R. R. Co. v. Bremond, 53 Tex. 96; Royal Bank v. Grand Junction R. R. Co. 125 Mass. 490; In re Pinto etc. Co. 8 Ch. Div. 273; In re Magdalena etc. Co. 5 Jur. N. S. 975.

10 Peabody v. Flint, 88 Mass. 54.

11 Shelden etc. v. Eickemeyer etc. Co. 90 N. Y. 607.

12 Gregory v. Patchett, 33 Beav. 595.

13 Boston etc. R. R. Co. v. New York etc. R. R. Co. 13 R. I. 260; Ashhurst's Appeal, 60 Pa. St. 290.

14 Brotherhood's Case, 31 Beav. 365.

15 Gifford v. New Jersey R. R. 10 Co. N. J. Eq. 171.

16 Mills v. Central R. R. Co. 41 N. J. Eq. 6.

§ 415.

Whether the shareholders may institute and defend actions for and against the corporation. Ordinarily the shareholders cannot institute nor defend actions for or against the corporation, in the absence of fraud or collusion on the part of the corporate management with the adverse party, nor object to a compromise of an action

against the company agreed to by the directors,' nor appeal from a judgment rendered against it. There may be claims against directors, against officers, against debtors; there may be a variety of things which a company may be well entitled to complain of, but which as a matter of good sense it does not think right to make the subject of litigation; and it is the company as a company which has to determine whether it will make anything that is a wrong to the company, a subject-matter of litigation, or whether it will take steps itself to prevent the wrong from being done. Even where all the stock is owned by one person, the property of a corpo ation does not belong to him individually; and it can be sued for and recovered only in the name of the company. It would seem that where a single shareholder brings an action in the name of the company, the court may direct a meeting of the company, and if a majority disapprove of the action, the name of the company will be stricken out as plaintiff Leave, however, may be given to amend and to add the company as defendant.7 Actions against directors to compel them to the performance of their duties must be instituted ordinarily in the name of the compa‹y.§

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1 Graham v. Boston etc. R. R. Co. 118 U. S. 161, affirming S. C. 14 Fed. Rep. 753; Oglesby v. Attrill, 105 U. S. 695; Forbes v. Whitlock, 3 Edw. Ch. 446; Farnum v. Ballard etc. Shop, 12 Cush. 597; Lane v. Weymouth School District, 10 Met. 462; Caine v. Brigham, 39 Me. 35; Dale v. Grant, 31 Law J. 112.

2 Donohue v. Mariposa etc. Co. 66 Cal. 317; Shawhan v. Zinn, 79 Ky. 300.

3 Silk Manufacturing Co. v. Campbell, 27 N. J. 539.

4 MacDougall v. Gardiner, 1 Ch. Div. 13.

5 Button v. Hoffman, 61 Wis. 20; S. C. 50 Am. Rep. 131.

6 MacDougall_v. Gardiner, 1 Ch. 13; Exeter etc. R'y Co. v. Buller, 5 Rob. C. 211; East Pant Du Lead Mining Co. v. Merryweather, 13 Week. R. 216; 2 Hem. & M. 254. See, too, Cape Breton v. Fenn, 17 Ch. Div. 198.

7 Silber Light Co. v. Silber, 12 Ch. Div. 717; Browne & Theobald's Railway Law, 104.

8 Hersey v. Veazie, 24 Me. 9: 41 Am. Dec. 364; Smith v. Hurd, 12 Met. 371; 46 Am. Dec. 630; Taylor on Corporations (2d ed. 1889), § 615.

416. The same subject, continued-When that right arises.-When, however, the refusal of the corporate management to institute or defend legal proceedings with respect to the corporate interests, partakes more of a disregard of duty than of an error of judgment, where it is a non-performance of a manifest official obligation, amounting to what the law considers a breach of trust, although it may not involve an intentional moral delinquency, the stockholders have the right to interfere,' as for example, to defend the company against an illegal tax; to enforce the payment of subscriptions to the capital stock; to remove a cloud from the title of the company's property.*

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1 Dodge v. Woolsey, 18 How. 331; Sheridan v. Sheridan Electric Light Co. 38 Hun, 396.

2 Dodge v. Woolsey, 18 How. 331.

3 Wallworth v. Holt, 4 Mylne & C. 613.

4 Baldwin v. Canfield, 26 Minn. 43, 56.

§ 417. Refusal of directors to act, a prerequisite to the shareholder's right herein. —Ordinarily, a stockholder seeking to sue or defend for the company, must, in order to act in his own name, show that he has endeavored in vain to secure action on the part of the directors.' This rule applies even where all the capital stock is held by the complaining shareholder.2 But it does not apply to a case where the wrong-doers are the managers and majority of the stockholders of the corporation. An application by a stockholder to them, would be an

application to bring suit against themselves in the name of the corporation; and so absurd a requirement cannot be imposed upon a stockholder, as a condition for affording relief for a clear wrong.3 Accordingly, when the managers and majority of the stockholders of a corporation divert its assets and property from their legitimate purposes, to the use and benefit of one of such majority, a minority of stockholders may bring suit without applying to have suit brought in the name of the corporation. Thus, a suit to enjoin a corporation from entering into an unlawful consolidation, under the sanction of the directors and a majority of the shareholders, but without any notice to, and to the injury of the minority, may be maintained by a dissenting shareholder, and it is not necessary for him to allege that he has fruitlessly appealed to the governing body, or to the shareholders, to prevent such illegal action.5 So also it has been hell, that suit for the rescission of an illegal contract may be brought by a stockholder of an insolvent corporation, without a previous demand upon the corporation to sue, if the corporation appears unable to act by reason of its directors being under the control of the persons with whom the contract was made.“ In a recent case it was held, that a stockholder, complaining of misconduct of the treasurer of a corporation, is not excused from applying to the directors to bring suit, before bringing it himself, by the fact that the treasurer owns the majority of the stock, though that fact does excuse him from applying to a stockholders' meeting."

1 Taylor v. Holmes, 127 U. S. 489, 492; Rothwell v. Robinson (Minn. 1888), 4 R'y & Corp. Law J. 213; City of Chicago v. Cameron, 120 Ill. 447. See also Fisher v. Andrews, 37 Hun. 176, where it was held, that a member