Kessler & Co. v. Ensley Co.

Citations

• 129 F. 397
• 1904 U.S. App. LEXIS 4755

Syllabus

<p>1. Corporations — Suit by Stockholders — Right to Maintain.</p> <p>While the mere refusal of the governing body of a corporation to bring suit to redress a fraud committed against it is not a ratification of such fraud, and does not in itself constitute a fraud against the corporation, yet where the refusal is from proper motives, and in the interest of the corporation, it is neither illegal nor immoral, it being the duty of such body in general to act for the pecuniary interest of the corporation; and where its action has been fairly approved by a disinterested majority of the stockholders it is binding on the minority, who cannot, in such case, maintain in their own name, on behalf of the corporation, the suit which the majority have determined to be against its interest as to a purely intra vires matter.</p> <p>2. Same — Fraudulent Contracts — Power op Ratipication.</p> <p>A contract or transaction by which officers have obtained property of a corporation by actual fraud, may nevertheless be ratified by the directors and a disinterested majority of the stockholders where they act fairly, in good faith, and with knowledge of the facts, and for what they believe to be the best interest of the corporation.</p> <p>8. Same — Refusal op Directors to Sue — Breach op Trust.</p> <p>It is the duty of the directors of a corporation, when requested by stockholders to bring suit to set aside a transaction by which property was obtained from the corporation by fraud, to consider the question carefully, and determine it solely on its merits, with reference alone to the best interests of the corporation; and a court will not refuse to entertain a suit by stockholders on behalf of the corporation to redress the fraud, where it appears from the allegations of the bill that the. action of the directors in refusing to bring the suit was prejudicial to the corporate interests, that they acted negligently, or without proper deliberation, upon a mistaken view of the law with respect