Rodman, J.
The validity of an
in personam
judgment is of coui-se dependent on jurisdiction over the person of the defendant.
Pennoyer v. Neff,
95 U.S. 714, 24 L. ed. 565;
Rutherford v. Ray,
147 N.C. 253;
Doyle v. Brown,
72 N.C. 393. It follows that a judgment
in personam
can only be rendered against a foreign corporation when it has exercised its corporate functions within the State.
Lambert v. Schell,
235 N.C. 21, 69 S.E. 2d 11;
Goldey v. Morning News,
156 U.S. 518, 39 L. ed. 517.
“Whether a foreign corporation is doing 'business in North Carolina, so as to subject it to the jurisdiction of the State’s Courts, is essentially a question of due process of law under the U. S. Constitution, Amendment 14 (1), which must be decided in accord with the decisions of the U. S. Supreme Court.”
Putnam v. Publications,
245 N.C. 432, 96 S.E. 2d 445.
In
International Shoe Co. v. Washington,
326 U.S. 310, 90 L. ed. 95, 66 S. Ct. 154, 161 A.L.R. 1057, the Supreme Court decided that “due
process requires only that in order 'to subject a defendant to a judgment
in -personam,
if he be not present within the territory of the forum, he have certain minimum 'contacts with it .such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ ”
Based on the findings made by the court, it is manifest that “traditional notions of fair ¡play and substantial justice” do not immunize Department Store from service of process 'and
in personam
judgments by the courts of this State.
Shepard v. Manufacturing Co.,
249 N.C. 454;
Painter v. Finance Co.,
245 N.C. 576, 96 S.E. 2d 731;
Harrington v. Steel Products, Inc.,
244 N.C. 675, 94 S.E. 2d 803;
Lambert v. Schell, supra; Lightner v. Pilgrim Paper Corp.,
152 F Supp. 504;
Perkins v. Benguet Consol. Min. Co.,
107 N.E. 2d 203 (Ohio);
Moe v. Stearns,
288 F 992;
Johnson v. Atlantic & Pacific Fisheries Co.,
224 P 13 (Wash.);
Sterling Nov. Corp. v. Frank & Hirsch D. Co.,
86 N.E. 2d 564, 12 A.L.R. 2d 1435 (N.Y.);
Hartstein v. Seidenbach’s Inc.,
222 N.Y.S. 404;
Fleischmann Const. Co. v. Blauner's,
179 N.Y.S. 193.
Admittedly, the court had jurisdiction of the individual defendants, who 'are officers of and constitute the majority of the board of directors of Department Store.
Did the court have jurisdiction of the asserted cause of action?
Normally private corporations are created to permit the use of funds contributed by a designated minimum number of shareholders for the operation of a commercial enterprise of the kind 'specified in the -charter. The funds are provided by the (shareholder upon the assumption they will be profitably used, -and he will benefit thereby. The statutes of South Carolina recognize the motives which prompt the creation and continued operation of business corporations. Code of Laws of S. C., 12-201 and 12-651.
Stock ownership in this country has reached such proportions that many corporations list more than 50,000 shareholders, -and some have in excess of 500,000 shareholders.
Actual management of corporate affairs is entrusted by the shareholders to a board of directors. Shareholders elect as directors those in whom they have confidence because of known or reputed integrity or ability. Given, as they -are by the shareholders, the power to manage, it necessarily follows that no external -authority should interfere with the exercise of the power so entrusted when honestly exercised for the benefit of the corporation and all of its shareholders.
One of the important duties imposed on directors is the ascertainment of -a fiscal policy best adapted; to the needs of the corporation. An incident to this policy is a determination of the course to pursue
with respect to the declaration of dividends. What part of the profits should be disbursed to the shareholders and when the disbursements should be made are of utmost importance to the corporation and its shareholders. Courts will not interfere with the discretionary power vested in the directors with respect to dividends when honestly exercised; but when it is made to appear that the directors are acting in bad faith and clearly abusing their discretion for some ulterior and improper purpose, a court of equity will intervene 'and require the declaration and payment of ia dividend to prevent what is in effect a fraud on shareholders.
Gaines v. Mfg. Co.,
234 N.C. 331, 67 S.E. 2d 355;
Gaines v. Mfg. Co.,
234 N.C. 340; 67 S.E. 2d 350;
Johnson v. Brandon Corp.,
69 S.E. 2d 594 (S.C.);
Thompson v. Thompson,
51 S.E. 2d 169 (S.C.);
Kroese v. General Steel Castings Corp.,
179 F 2d 760, 15 A.L.R. 2d 1117; Fletcher, Cyc. Corporations (Perm. ed.) sec. 5325; 13 Am. Jur. 678; 18 C.J.S. 1112.
Some 'courts 'have .stated that they did not have jurisdiction of a suit against a foreign corporation which involved/ questions of management and fiscal policies.
Condon v. Mutual Reserve Assn.,
73 Am. St. Rep. 169 (Md.);
Fuller v. Ostruske,
296 P 2d 996 (Wash.);
Relief Assn. v. Equitable Assur. Soc.,
42 N.E. 2d 653 (Ohio);
Boyette v. Preston Motors Corp.,
89 So. 746 (Ala.).
It is not, we think, a question of the power to judge but the ability to secure the evidence to properly judge or power to enforce the judgment which controls. There is a distinction between the power to exercise and the wisdom of exercising jurisdiction. The distinction is, we think, aptly phrased by the Supreme Court of Illinois in
Babcock v. Farwell et al.,
91 N.E. 683, 19 Ann. Cas. 74: “The reasons which influence courts of chancery to refuse to interfere in the management of the internal affairs of a foreign corporation are, that the rights arising between a corporation and its members out of .such management depend on the laws of the State under which the corporation is organized; 'that the courts of that state afford the most appropriate forum for adjudication upon the relation between the stockholders and the .corporation, and that frequently such courts alone possess power 'adequate to the enforcement of all decrees that justice may require. It is the inability of the court to do complete justice by its decree, and not its inoompetency to decide the question involved, that determines the exercise of its power. The general 'statement that courts will not interfere with the management of the internal affairs of foreign corporations must be construed./ in connection with the facts. The rule rests more on ground's of policy and expediency than on jurisdictional grounds; more on want of power to enforce a decree than on jurisdiction to make it.!'
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Rodman, J.
The validity of an
in personam
judgment is of coui-se dependent on jurisdiction over the person of the defendant.
Pennoyer v. Neff,
95 U.S. 714, 24 L. ed. 565;
Rutherford v. Ray,
147 N.C. 253;
Doyle v. Brown,
72 N.C. 393. It follows that a judgment
in personam
can only be rendered against a foreign corporation when it has exercised its corporate functions within the State.
Lambert v. Schell,
235 N.C. 21, 69 S.E. 2d 11;
Goldey v. Morning News,
156 U.S. 518, 39 L. ed. 517.
“Whether a foreign corporation is doing 'business in North Carolina, so as to subject it to the jurisdiction of the State’s Courts, is essentially a question of due process of law under the U. S. Constitution, Amendment 14 (1), which must be decided in accord with the decisions of the U. S. Supreme Court.”
Putnam v. Publications,
245 N.C. 432, 96 S.E. 2d 445.
In
International Shoe Co. v. Washington,
326 U.S. 310, 90 L. ed. 95, 66 S. Ct. 154, 161 A.L.R. 1057, the Supreme Court decided that “due
process requires only that in order 'to subject a defendant to a judgment
in -personam,
if he be not present within the territory of the forum, he have certain minimum 'contacts with it .such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ ”
Based on the findings made by the court, it is manifest that “traditional notions of fair ¡play and substantial justice” do not immunize Department Store from service of process 'and
in personam
judgments by the courts of this State.
Shepard v. Manufacturing Co.,
249 N.C. 454;
Painter v. Finance Co.,
245 N.C. 576, 96 S.E. 2d 731;
Harrington v. Steel Products, Inc.,
244 N.C. 675, 94 S.E. 2d 803;
Lambert v. Schell, supra; Lightner v. Pilgrim Paper Corp.,
152 F Supp. 504;
Perkins v. Benguet Consol. Min. Co.,
107 N.E. 2d 203 (Ohio);
Moe v. Stearns,
288 F 992;
Johnson v. Atlantic & Pacific Fisheries Co.,
224 P 13 (Wash.);
Sterling Nov. Corp. v. Frank & Hirsch D. Co.,
86 N.E. 2d 564, 12 A.L.R. 2d 1435 (N.Y.);
Hartstein v. Seidenbach’s Inc.,
222 N.Y.S. 404;
Fleischmann Const. Co. v. Blauner's,
179 N.Y.S. 193.
Admittedly, the court had jurisdiction of the individual defendants, who 'are officers of and constitute the majority of the board of directors of Department Store.
Did the court have jurisdiction of the asserted cause of action?
Normally private corporations are created to permit the use of funds contributed by a designated minimum number of shareholders for the operation of a commercial enterprise of the kind 'specified in the -charter. The funds are provided by the (shareholder upon the assumption they will be profitably used, -and he will benefit thereby. The statutes of South Carolina recognize the motives which prompt the creation and continued operation of business corporations. Code of Laws of S. C., 12-201 and 12-651.
Stock ownership in this country has reached such proportions that many corporations list more than 50,000 shareholders, -and some have in excess of 500,000 shareholders.
Actual management of corporate affairs is entrusted by the shareholders to a board of directors. Shareholders elect as directors those in whom they have confidence because of known or reputed integrity or ability. Given, as they -are by the shareholders, the power to manage, it necessarily follows that no external -authority should interfere with the exercise of the power so entrusted when honestly exercised for the benefit of the corporation and all of its shareholders.
One of the important duties imposed on directors is the ascertainment of -a fiscal policy best adapted; to the needs of the corporation. An incident to this policy is a determination of the course to pursue
with respect to the declaration of dividends. What part of the profits should be disbursed to the shareholders and when the disbursements should be made are of utmost importance to the corporation and its shareholders. Courts will not interfere with the discretionary power vested in the directors with respect to dividends when honestly exercised; but when it is made to appear that the directors are acting in bad faith and clearly abusing their discretion for some ulterior and improper purpose, a court of equity will intervene 'and require the declaration and payment of ia dividend to prevent what is in effect a fraud on shareholders.
Gaines v. Mfg. Co.,
234 N.C. 331, 67 S.E. 2d 355;
Gaines v. Mfg. Co.,
234 N.C. 340; 67 S.E. 2d 350;
Johnson v. Brandon Corp.,
69 S.E. 2d 594 (S.C.);
Thompson v. Thompson,
51 S.E. 2d 169 (S.C.);
Kroese v. General Steel Castings Corp.,
179 F 2d 760, 15 A.L.R. 2d 1117; Fletcher, Cyc. Corporations (Perm. ed.) sec. 5325; 13 Am. Jur. 678; 18 C.J.S. 1112.
Some 'courts 'have .stated that they did not have jurisdiction of a suit against a foreign corporation which involved/ questions of management and fiscal policies.
Condon v. Mutual Reserve Assn.,
73 Am. St. Rep. 169 (Md.);
Fuller v. Ostruske,
296 P 2d 996 (Wash.);
Relief Assn. v. Equitable Assur. Soc.,
42 N.E. 2d 653 (Ohio);
Boyette v. Preston Motors Corp.,
89 So. 746 (Ala.).
It is not, we think, a question of the power to judge but the ability to secure the evidence to properly judge or power to enforce the judgment which controls. There is a distinction between the power to exercise and the wisdom of exercising jurisdiction. The distinction is, we think, aptly phrased by the Supreme Court of Illinois in
Babcock v. Farwell et al.,
91 N.E. 683, 19 Ann. Cas. 74: “The reasons which influence courts of chancery to refuse to interfere in the management of the internal affairs of a foreign corporation are, that the rights arising between a corporation and its members out of .such management depend on the laws of the State under which the corporation is organized; 'that the courts of that state afford the most appropriate forum for adjudication upon the relation between the stockholders and the .corporation, and that frequently such courts alone possess power 'adequate to the enforcement of all decrees that justice may require. It is the inability of the court to do complete justice by its decree, and not its inoompetency to decide the question involved, that determines the exercise of its power. The general 'statement that courts will not interfere with the management of the internal affairs of foreign corporations must be construed./ in connection with the facts. The rule rests more on ground's of policy and expediency than on jurisdictional grounds; more on want of power to enforce a decree than on jurisdiction to make it.!'
This is, we think, the basis on which the majority of the courts have acted in refusing to exercise jurisdiction.
Rogers v. Guaranty Trust Co.,
288 U.S. 123, 77 L. ed. 652, 89 A.L.R. 720; 23 Am. Jur. 425, 426; 20 C.J.S. 99; Fletcher, Cyc. Corporations (Perm. ed.) sec. 8427. In
Brenizer v. Royal Arcanum,
141 N.C. 409, and
Howard v. Insurance Co.,
125 N.C. 49, this Court recognized the inability of the courts -of .this State, on the facts established in those cases, to enforce -any decree which might be entered with respect to the management of the foreign corporation, andi because of -such want of authority, jurisdiction was denied.
In 1955 the Legislature -declared the policy of this State. It enacted: “No action in the -counts of this State shall be dismissed -sol-ely on the ground that it involves the internal affairs of a foreign -corporation but the coui’t m-ay in its discretion dismiss such an action if it appears that more adequate relief can he granted or that the convenience of the .parties would be better served by an -action brought in the jurisdiction of its incorporation or in the jurisdiction where the corporation has its executive or managerial headquarters or, because of the circumstances, in -some other jurisdiction.” G.S. 55-133(a).
The authors of the bill which -contained this -provision directed this comment to the Legislature: “While the doctrine of nonintervention in the internal -affairs of a foreign corporation is still frequently asserted, the courts have increasingly taken jurisdiction in cases which that doctrine would seem to deny. At this date it is -believed that a test more nearly approaching 'forum no-n-conviens’ -should govern the court's decision a-nd that a -statute making that -apparent would represent a sound innovation.”
The individual defendants demurred to -the -complaint for the same reasons -assigned by Department Store in its motion to dismiss, i.e., lack of jurisdiction over the asserted -cause o-f -action. Their demurrer wa-s: overruled.
Defendants h-ave not asserted that the facts alléged,’ if established, .aré -insufficient to justify -a proper -court o-f competent jurisdiction in awarding plaintiff appropriate relief. For that reason we have not stated the facts on which plaintiff bases hi-s right to the relief demanded. The law in South Carolina with respect to the facts to be established before a -court will interfere and direct the payment of -a cash dividend is -stated in
Thompson v. Thompson, supra,
and
Johnson v. Brandon Corp., supra.
Based on -the findings, -specifically including the finding that the question of declaring dividends h-ad heretofore been determined in Charlotte and not in South Carolina, coupled with -the fact that the
court has power to enforce such decree as it may render by orders directed to the directors who are present before it constituting the majority of the board, and /the -conclusion which .the .-court drew that the convenience of the parties wo-uld not be better -served by an action in the State of its incorporation, w-c -are -of the opinion and hence -hold that the motion to dismiss was pro-perly denied.
Affirmed.