The court below sustained the demurrer as to the first and second causes of action on the ground that in actions of this character the plaintiff must aver in his complaint that he was the owner of stock in the corporation at the time of the occurrences complained of, or else that the stock has since devolved upon him by operation of law. This action was brought by the plaintiff Pascual, in his own right as a stockholder of the bank, for the benefit of the bank, and all the other stockholders thereof. The plaintiff sues on behalf of the corporation, which, even though nominally a defendant, is to all intents and purposes the real plaintiff in this case. That such is the case is shown by the prayer of the complaint which is that judgment be entered in favor of the bank.
That during the years 1903, 1904, 1905, and 1907 the defendants and appellees, without the knowledge, consent, or acquiescence of the stockholders, deducted their respective compensation from the gross income instead of from the net profits of the bank, thereby defrauding the bank and its stockholders of approximately P20,000 per annum; that though due demands has been made upon them therefor, defendants refuse to refund to the bank the sums so misappropriated, or any part thereof; that defendants constitute a majority of the present board of directors of the bank, who alone can authorize an action against them in the name of the corporation, and that prior to the filing of the present suit plaintiff exhausted every remedy in the premises within this banking corporation.
Before proceeding to the determination of the real questions involved in this case it might be well to note briefly the origin and history of the right of a stockholder in a corporation to maintain a suit of this kind.
In suits of this character the corporation itself and not the plaintiff stockholder is the real party in interest. The rights of the individual stockholder are merged into that of the corporation. It is a universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of all the stockholders. Text writers illustrate this rule by the familiar example of one person or entity owning all the stock and still having no greater or essentially different title than if he owned but one single share. Since, therefore, the stockholder has no title, it is evident that what he does have, with respect to the corporation and his fellow stockholder, are certain rights sui generis. These rights are generally enumerated as being, first, to have a certificate or other evidence of his status as stockholder issued to him; second, to vote at meetings of the corporation; third, to receive his proportionate share of the profits of the corporation; and lastly, to participate proportionately in the distribution of the corporate assets upon the dissolution or winding up.
Notwithstanding this fact, however, that it was the duty and right of the corporation to bring suit remedy these wrongs, it gradually became apparent that frequently the corporation was helpless and unable to institute the suit. It was found, where the guilty parties themselves controlled the directors and also a majority of the stock, that the corporation was in their power, was unable to institute suit, and that the minority of the stockholders were being defrauded of their rights and were without remedy. The time came when the minority of the stockholders of the defrauded corporation — the corporation itself being controlled by the guilty parties — were given a standing in court for the purpose of taking up the cause of the corporation, and, in its name and stead, of bringing the guilty parties to an account.
So it is clear that the plaintiff, by reason of the fact that he is a stockholder in the bank (corporation) has a right to maintain a suit for and on behalf of the bank, but the extent of such a right must depend upon when, how, and for what purpose he acquired the shares which he now owns. In the determination of these questions we can not see how, if it be true that the bank is a quasi-public institution, it can affect in any way the final result.
Article 31 of the bank's charter provides that dividends shall be declared each semestre. The stockholders meet once a year, in February, to receive and consider the report of the bank's operations contained in the annual balance and memorial. Beyond this they have no direct voice in the affairs of the bank, but all who are then stockholders and have a right to vote must clearly have a right to vote upon all the business proceedings of the year, irrespective of the date upon which they may have become stockholders. They are entitled to all the dividends that have been earned by their stock during the year which has not been earned by their stock during the year which has not been already declared and paid, regardless of the precise period of the year in which it may have accrued. So, in the general meeting of the stockholders on February 3, 1904, the plaintiff had a right to participate.
It affirmatively appears from the complaint that the plaintiff was not a stockholder during any of the time in question in this second cause of action. Upon the question whether or not a stockholder can maintain a suit of this character upon a cause of action pertaining to the corporation when it appears that he was not a stockholder at the time of the occurrence of the acts complained of and upon which the action is based, the authorities do not agree.
It is self-evident that the plaintiff in the case at bar was not, before he acquired in September, 1903, the shares which he now owns, injured or affected in any manner by the transactions set forth in the second cause of action. His vendor could have complained of these transactions, but he did not choose to do so. The discretion whether to sue to set them aside, or to acquiesce in and agree to them, is, in our opinion, incapable of transfer. If the plaintiff himself had been injured by the acts of defendants' predecessors that is another matter. He ought to take things as he found them when he voluntarily acquired his ten shares. If he was defrauded in the purchase of these shares he should sue his vendor.
This rule, in the main, is correctly stated, but we think that the latter part of the same should be modified so as to read: "The same disability would attach to the transferee of his stock who bought with or without notice." We base our modification of this rule upon the ground that a transferee could not sue as being a bona fide purchaser in ignorance of the disability attaching to his vendor, because shares of stock, strictly speaking, are not negotiable, and the sale can not pass greater rights than those possessed by the vendor.
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