Phœnix Iron Co. v. Commonwealth ex rel. Sellers

6 A. 75, 113 Pa. 563, 1886 Pa. LEXIS 391

Opinion

Mr. Justice Clark

delivered the opinion of the Court,

This proceeding originated in an application by George H. Sellers, for a writ of alternative mandamus, against the Phoenix Iron Company, a manufacturing corporation, to compel the company to produce for inspection their books and papers, to enable him to prepare a stockholder’s bill in equitjq in respect of certain grievances, which the relator alleges he has sustained by the fraudulent mismanagement of the affairs of the company.

On the hearing of the rule to show cause, the defendants resisted the application on two grounds; first, that there was no right to relief, in this form, that the remedy was in equitj; and second, if there was such right, the relator was not entitled under the facts. Affidavits were filed, in the court below as to the facts, on part of the defendants, and upon argument, the writ was refused. The record having been removed to this court, and the refusal of the writ assigned for error, upon due consideration here, the judgment was reversed, and the alternative writ allowed: Commonwealth ex rel. Phoenix Iron Company, 9 Out., 111. The plaintiff’s case was presented in his petition; the special facts upon which the writ was allowed, were fully stated by our brother Trune:ey, who delivered the opinion of the court.

In some of the states, we believe, the practice is, when the application is by formal petition, setting forth the grounds in detail, to determine the case upon the traverse of the petition, instead of the traverse of the return to the alternative writ, (9 Ohio St., 599) but the practice in Pennsylvania, especially since our statute of 14th June, 1836, (Purd. Dig., 990) is, to hear the case upon the matters alleged in the return.

The 19th, 20th, and 21st, sections provide as follows:

19. The jurisdiction aforesaid shall be exercised in the manner, and according to the rules hitherto observed and practised in the Supreme Court of this commonwealth, except so far as the same shall be altered by this act.

^ 20. Whenever any writ of mandamus shall issue out of the Supreme Court, or out of any Court of Common Pleas, the person or persons who, by the laws of this commonwealth, ought to make a return to such (writ), shall make his or their return to the first writ of mandamus so issued.

21. It shall be lawful for the person suing or prosecuting any such writ, to demur, or to plead to, or traverse all or any of the material facts contained in such return ; and the person or persons making such return, shall reply, take issue or demur; and such other and further proceeding may be had thereon, except as hereinafter provided, as might be had if the person suing such writ had brought his action for a false return.

Upon the rule to show cause, the question was upon the sufficiency of the relator’s suggestion — his right to the relief prayed for upon the footing of the facts therein stated — and notwithstanding the latitude allowed in the argument, the opinion filed and the judgment, awarding an alternative writ, clearly show that the case was so considered, by this court.

“ Has the relator shown such facts as entitle him to an alternative mandamus,” is the inquiry of the learned judge delivering the opinion of the court, and then follows a statement of the facts relied upon, as set forth by the relator.

The proper practice in cases of mandamus is very succinctly stated in Treas. Jeff. Co. v. Shannon, 1 P. F. S., 221, as follows: “The Act of Assembly plainly points out the course to bo pursued when a proper suggestion is filed; if it contain the substance of a case for a mandamus, the course is, to issue an alternative writ commanding the defendant to perform the act required, or return his reason for not doing it. Upon this writ, the Act provides that the court shall allow the persons suing or defending such convenient time to make return, plead, reply, rejoin or demur as shall be just and reasonable.” If, after issue and trial, the return be adjudged insufficient, then a peremptory mandamus will issue to compel the performance of the duty required. The Act contemplates regular issues of fact and law, as in other cases: 8 Casey, 218; 1 Wright, 237. See also Childs v. Comm’th, 3 Brewster, 194. Or, as stated in Keasy v. Bricker, 10 P. F. S., 9. “ The ordinary practice is to direct an alternative mandamus to issue when the court is satisfied on affidavits that the writ should be issued as a matter of justice and right, to compel the performance of an act or duty, for which otherwise there would be no adequate remedy. This gives the party to whom it is directed an opportunity to do the act, or to show good reason at the return of the writ why he should not do it. He does this by making a return to the writ. It is at this point the pleadings in the cause begin. The return may traverse the facts alleged in the writ, or admitting them may avoid performance by stating sufficient facts in excuse. The relator may then demur, plead to, or traverse the facts set forth in the return. Such is the ordinary practice recognized by the Act relating to mandamus.”

The alternative writ having been issued and served, the defendants entered of record their return, and the sufficiency of that return is, by the demurrer, made the specific question for* determination now: Comm’th ex rel. Thomas v. Comm’rs of Allegheny Co., 8 Casey, 221.

In mandamus, the relator must in all cases establish a specific legal right, as well a.s the want of a specific legal remedy ; Comm’th v. Rossiter, 2 Binn., 362. When this cause was here before, we held that in the absence of any restriction in the charter, the right of a stockholder, in a trading corporation, to an inspection of the books, papers and accounts was, in certain cases, and under certain limitations, incident to the relation of a stockholder to the company. Of course a stockholder is bound by the corporate articles, where the right of inspection of the corporate books and papers is qualified by express stipulation; those who become members are subject to the qualification. But the doctrine of the law, as we then said, is that the books and papers of the corporation, though of necessity left in some one hand, are the common property of the stockholders,” and “ unless the charter provides otherwise, a shareholder has the right to inspect them and to take minutes from them for a definite and proper purpose, at reasonable times.” The facts set forth in the writ are, by the return in part denied, in part qualified, and in part admitted, but assuming the correctness of the return as far as it goes, and the facts set-forth in the petition not traversed thereby, the following facts may, we think, for the purposes of this case be deemed admitted.

The Phoenix Iron Company was incorporated 27th April, 1855, for the purpose of engaging in mining and manufacturing iron, &c., with a capital stock of $500,000, divided into 5000 shares of $100 each. The relator, on the 29th November, 1866, became the owner of 238 shares of said stock, paying therefor $38,500, and he still owns 235 of the said shares. David Reeves and Wm. H. Reeves at the time of the filing of the petition, either individually or jointly, and as trustees, were and for several jmars had been the holders of, and controlled nearly all of the remaining shares. The number of shares held in trust, was 2875; these shares were held for the children of Samuel J. Reeves, deceased, viz: Elizabeth H. Carson, Clara R. Tyson, Jennie J. Reeves, and the said David and William H. Reeves, each being entitled to one fifth of 2875 shares, or 575 shares. Since these proceedings were instituted, these trust shares have been divided, and. transferred to the several persons entitled;'David Reeves and Wm. II. Reeves, however, severalty and jointly are still the owners, of 3033 of said shares.

The board of directors consists of five persons, David Reeves, president; William H. Reeves, Carroll S. Tyson, John Griffen and George Gerry White; the last three named being each, the owner of but a singlo share of stock.

The works of the company are among the most extensive in the country, and the business during the whole period of its existence has been in a higlilv prosperous condition. The business of the company from 1870 to 1880 averaged $2,000,-000 per annum. In 1879 it amounted to $2,705,036.11, and in 1880 to $2,448,668, and the average profit upon this trade is estimated to be at least fifteen per cent. The charter of the company provides for dividends of the actual net profits to be declared, at the discretion of the directors, but no dividends have been declared for a period of nine years; the capital stock represents an investment of about six times its par value, but the real estate of the corporation is still subject to a mortgage of $1,150,000, whilst a portion lias been recently conveyed to secure an alleged indebtedness of 322,000, in which the said David and William II. Reeves are themselves interested.

The Phoenix Iron Co., prior to 1868, had been engaged not only in the business of the manufacture of iron materials for bridges, viaducts, &o., but the erection of such structures.

Tiie firm of Clarke, Reeves & Co., consisting of Thomas C. Clarke, David Reeves, Jr., John Griffen, and others, was engaged as engineers and contractors, in designing and erecting structures made partially or wholly from iron materials, such as the Plicenix Iron Co. made. In the year 1868 the Plicenix Iron Co. ceased to act as iron builders, and, excepting in one or two instances, confined its operations to the manufacture of iron building materials. In October, 1870, the Plioenix Iron Co. entered into an agreement with Clarke, Reeves & Co., by the terms of which the company agreed and became bound, permanently to withdraw from the business of construction, and to confine their operations to the manufacture of materials alone ; Clarke, Reeves & Co., .on the other hand, agreed and became bound to pursue the business of construction, to purchase at certain rates tbeir materials wholly from tlie Phoenix Iron Co., and at the completion of each contract to pay to the Plicenix Iron Co. one half of tlie net amount which the might receive by reason of the contract. This coutract, originally in parol, took effect from 22d October, 1870, but was not reduced to writing until 21st May, 1871. At the time it was originally agreed upon, no member of the firm of Clarke, Reeves & Co. had any interest in the corporation ; the shares were then held as follows: David Reeves, the elder, 2500; Samuel J. Reeves, 2262; George H. Sellers, 238, nor did the relator, who was then consulted in the matter, make any objection to it; since that time, however, he has not been at any time consulted, as to the renewal of the contracts from year to year.

David Reeves, the elder, died in March, 1871, however, and David Reeves, the younger, who was of the firm of Clarke,' Reeves & Co., became entitled as legatee to fifty shares. Until December, 1878, none of the firm of Clarke, Reeves & Co. had any of the corporate shares of the Phoenix Iron Co., excepting David Reeves, who had the fifty shares mentioned, and John Griffen, who at the request of David and Samuel J. Reeves, held one share each.

In December, 1878, Thomas J. Reeves died, and thereafter David Reeves and W. H. Reeves, his sons, held the controlling interest in the company, and it is charged' that, through then-votes and those of the other directors whom they elect, and who have but a merely nominal interest in the corporation, they have and exercise absolute control over all the affairs of the corporation, and that they unjustly and intentionally manage it in such a way as to advance their own personal interests, to the injury of the relator; that the officers and directors of the corporation have abused the discretion conferred upon them, in refusing to declare dividends of the profits as contemplated in the charter; that the profits and estate of the corporation are illegally absorbed by the individuals who control it; in part, through the instrumentality of the contract with Clarke, Reeves & Co.; in part, by voting themselves, large salaries; in part, by the conveyance to themselves, in trust, with- power of sale, of a large portion of the real estate of said corporation, to secure indebtedness in which they are themselves immediately interested; and otherwise.

At a meeting of the stockholders, Sellers asked for information as to the affairs of the company, and the directors refused either to permit the minutes to be read or the papers to be examined. His request to the president that a time and place might be named for such an examination of the books as would give him the information proper to a stockholder, was refused, and a similar demand, made of the officers and directors at the office of the corporation during business hours, was in like manner refused. The relator states that his purpose is to file a bill in equity, to obtain relief against the abuses complained of.

Under the circumstances mentioned, and for the purposes stated, we are of opinion that according to our ruling when the case was here before, the relator is clearly entitled to an examination of the books and papers of the company. Such a right is of course not to be exercised to gratify curiosity, or for speculative purposes, but in good faith and for a specific, honest purpose, and where there is a particular matter in dispute, involving and affecting seriously the rights of the relator as a stockholder.

We cannot say that the matters involved have already been adjudicated, in the decree of the Circuit Court of the United States. We cannot anticipate the bill which the relator may bring. What specific relief he may seek can now only be the subject of conjecture; it will be time enough to determine the question of res adjudieata when the case is presented. The question now is, as to the relator’s right to inspect the books; he avers that he purposes filing a bill in equity against the corporation and its officers, and that it is necessary that he see the books and papers in order that he may correctly state the facts now concealed from him. As we said in the former opinion of this Court, upon learning the facts he may abandon bis purpose for want of matter of complaint. He desires “to inspect and see whether he can raise a particular case in his favor by examining the books. He is a stockholder, to a very considerable amount, in what appears to be a prosperous and highly profitable trading corporation ; for nine years, although large profits have admittedly accrued, no dividends have been declared; the profits are in no way accounted for; be is denied all access to the books and papers for information. At a regular stockholders’ meeting the minutes, because of his presence, were suppressed, the examination of papers prevented, and the meeting adjourned whilst the relator hold the floor asking for information. A stockholder in a trading corporation must certainly have some rights which a board of directors should respect. Sellers was not bound to accept the mere statement of the board, whether under oath or otherwise, as to the contents of the books, &c. He bad a right to a reasonable personal inspection of them, and with the aid of a disinterested expert might make such extracts as were reasonably required in the preparation of the bill be purposed to bring.

The relator, we think, has a clear right under the writ and return to the relief he asks, and it is plain that he has no specific legal remedy for the enforcement of that right; and the existence of a supposed equitable remedy is not a ground for refusing the mandamus: Commonwealth ex rel. Thomas v. Commissioners of Allegheny Co., 8 Casey, 223. The requirements of the writ of course can cover only such books and papers as are actually in existence, and only such of those as may contain information upon the subjects specified.

The judgment is affirmed.