Hinman, C. J.
The petitioners seek in this case the aid of a court of equity to compel the respondents, a joint stock Corporation, to declare and pay over to its stockholders a reasonable dividend out of its surplus earnings; and also to enjoin it from making farther expenditures in the erection of a large factory building for the purpose of enlarging its business and thereby exhausting its surplus funds, to the injury of the petitioners, who are a minority of its stockholders opposed to such enlargement. The petitioners make in their petition a very strong case for the equitable interference of the court in their behalf. And if it had been sustained by the facts found by the court, we could have no hesitation in «granting them the relief asked for. Where a corporation is about to exceed its powers by applying its property to objects beyond the authority of its charter, it is well settled that a court of equity will grant relief to a minority of its stockholders, who dissent from such use of its funds. Hartford & New Haven R. R. Co. v. Croswell, 5 Hill, 383 ; Stevens v. Rutland & Burlington R. R. Co., 29 Verm., 545 ; Sears v. Hotchkiss, 25 Conn., 171; Scofield v. Eighth School District, 27 id., 499.
Indeed this doctrine necessarily results from the principle which underlies the cases, that the corporation and its direct[456]*456ors, are trustees, and as such may be called into a court of chancery, either for an account, or to restrain them from mismanagement of the corporate property, especially for ,a fraudulent mismanagement of it, or for the purpose of compelling the corporation and its directors to declare dividends from its surplus earnings, where such dividends are needlessly and improperly withheld. Robinson v. Smith, 3 Paige, 222; Scott v. Eagle Ins. Co., 7 id., 198. Indeed joint stock companies in modern times are nothing but commercial partnerships, which have taken the form of corporations for the greater facility of transacting business, and to prevent a dissolution of the concern by those numerous events which are so liable to work a dissolution in a partnership composed of a great number of individuals ; and they must have applied to them principles making them accountable • like all trustees, or the grievance would be intolerable, since otherwise a majority of the stockholders, acting through the directors, who would thus cease to be in fact what the law considers them, the agents of the whole body of stockholders, and would become the private agents of the majority, might set the minority at defiance, and manage the affairs for their own supposed benefit and the benefit of the majority who appointed them. The true doctrine upon this subject appears to us to be very fairly and correctly stated by Chancellor Walworth, in the case of Scott v. Eagle Ins. Co., 7 Paige, 203, where he says, that “ as the directors are bound to exercise a proper discretion in making dividends of surplus profits, if they abuse that power by dividing the unearned premiums without leaving sufficient to satisfy the probable losses, they may, in case of any extraordinary loss which is sufficient to exhaust the whole capital and more, make themselves personally liable to the creditors of the company. On the other hand, s’hould they without reasonable cause refuse to divide what is actually surplus profits, the stockholders are not without remedy, if they apply to the proper tribunal before the corporation has become insolvent.” The surplus of this cor-' poration over its nominal capital which the' petitioners seek to have divided is so large, and bears so great a proportion to [457]*457the capital, that we have felt the necessity of stating our views of the principle which should govern in determining questions of this sort the more distinctly, in order to prevent the case from being used as a precedent against ordering a dividend to be made, where there is confessedly a large surplus over the capital on hand, and no reason can be given for withholding it from the stockholders except the mere will of the directors acting by the advice of a majority of the stockholders. In cases of this description the question must always be, where a surplus is asked to be divided, and the directors refuse to declare a dividend, whether there is a reasonable cause for withholding it. Now in the first place, before a dividend is ordered to be made, it should appear clearly that there is a surplus to be divided. In this case the surplus appears to be very large in reference to the nominal capital of the company; but when examined in reference to its actual capital, it is otherwise ; and we think we find a sufficient reason in this fact for not ordering a dividend. In the first organization of the corporation the sum of $175,000 was named as the nominal capital in the articles of association. But it is evident from all the facts in the case that the actual capital was much larger and consisted of all the property purchased of the individual stockholders, who had all been engaged in the business contemplated to be carried on by the company, which was of the agreed value of more than $400,000 ; the difference being made up to the stockholders by the corporation notes, which were expected to be paid, as they principally have been out of the subsequent profits of the business, and not by an immediate sale of any large portion of the assets thus purchased of its stockholders. It could not have been the intention to force the sale of this large amount of property. This could not have been done without great sacrifice, and if such had been the intention the corporation never would have purchased it. They therefore must have intended to use it as a part of their capital, or to keep it on hand as surplus until that part of it which consisted of manufactured goods could be sold, in the regular course of business, with which all the stockholders were familar. There is no evidence that they [458]*458have not converted their manufactured goods into cash as fast as it can be done in the successful prosecution of their business, and to order them to do it faster than this is simply to order them to make needless sacrifices. The reason for stating the amount of their capital at so much less than it actually was does not appear, and it is not very important that it should. It is enough to say of it, that while it is not a course to be recommended for general adoption, the finding in this case is very full to the effect that nothing improper or fraudulent was intended by it; and the success of their business fully sustains the finding, that the directors have in all their transactions exercised a sound judgment and discretion.
Again, the court finds that it was the general understanding of the stockholders that their notes against the corporation, given for the largest part of the property purchased at the time of the organization, as they should be paid, should be regarded and received by them in lieu of dividends, which implies certainly that no dividends should be declared until that large indebtedness was paid ; and this has not yet been done, by some thirty thousand dollars. But there was as much reason for declaring a dividend when- the corporation was first organized as there is now, except so far as the comparatively small sum in cash on hand is concerned.
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Hinman, C. J.
The petitioners seek in this case the aid of a court of equity to compel the respondents, a joint stock Corporation, to declare and pay over to its stockholders a reasonable dividend out of its surplus earnings; and also to enjoin it from making farther expenditures in the erection of a large factory building for the purpose of enlarging its business and thereby exhausting its surplus funds, to the injury of the petitioners, who are a minority of its stockholders opposed to such enlargement. The petitioners make in their petition a very strong case for the equitable interference of the court in their behalf. And if it had been sustained by the facts found by the court, we could have no hesitation in «granting them the relief asked for. Where a corporation is about to exceed its powers by applying its property to objects beyond the authority of its charter, it is well settled that a court of equity will grant relief to a minority of its stockholders, who dissent from such use of its funds. Hartford & New Haven R. R. Co. v. Croswell, 5 Hill, 383 ; Stevens v. Rutland & Burlington R. R. Co., 29 Verm., 545 ; Sears v. Hotchkiss, 25 Conn., 171; Scofield v. Eighth School District, 27 id., 499.
Indeed this doctrine necessarily results from the principle which underlies the cases, that the corporation and its direct[456]*456ors, are trustees, and as such may be called into a court of chancery, either for an account, or to restrain them from mismanagement of the corporate property, especially for ,a fraudulent mismanagement of it, or for the purpose of compelling the corporation and its directors to declare dividends from its surplus earnings, where such dividends are needlessly and improperly withheld. Robinson v. Smith, 3 Paige, 222; Scott v. Eagle Ins. Co., 7 id., 198. Indeed joint stock companies in modern times are nothing but commercial partnerships, which have taken the form of corporations for the greater facility of transacting business, and to prevent a dissolution of the concern by those numerous events which are so liable to work a dissolution in a partnership composed of a great number of individuals ; and they must have applied to them principles making them accountable • like all trustees, or the grievance would be intolerable, since otherwise a majority of the stockholders, acting through the directors, who would thus cease to be in fact what the law considers them, the agents of the whole body of stockholders, and would become the private agents of the majority, might set the minority at defiance, and manage the affairs for their own supposed benefit and the benefit of the majority who appointed them. The true doctrine upon this subject appears to us to be very fairly and correctly stated by Chancellor Walworth, in the case of Scott v. Eagle Ins. Co., 7 Paige, 203, where he says, that “ as the directors are bound to exercise a proper discretion in making dividends of surplus profits, if they abuse that power by dividing the unearned premiums without leaving sufficient to satisfy the probable losses, they may, in case of any extraordinary loss which is sufficient to exhaust the whole capital and more, make themselves personally liable to the creditors of the company. On the other hand, s’hould they without reasonable cause refuse to divide what is actually surplus profits, the stockholders are not without remedy, if they apply to the proper tribunal before the corporation has become insolvent.” The surplus of this cor-' poration over its nominal capital which the' petitioners seek to have divided is so large, and bears so great a proportion to [457]*457the capital, that we have felt the necessity of stating our views of the principle which should govern in determining questions of this sort the more distinctly, in order to prevent the case from being used as a precedent against ordering a dividend to be made, where there is confessedly a large surplus over the capital on hand, and no reason can be given for withholding it from the stockholders except the mere will of the directors acting by the advice of a majority of the stockholders. In cases of this description the question must always be, where a surplus is asked to be divided, and the directors refuse to declare a dividend, whether there is a reasonable cause for withholding it. Now in the first place, before a dividend is ordered to be made, it should appear clearly that there is a surplus to be divided. In this case the surplus appears to be very large in reference to the nominal capital of the company; but when examined in reference to its actual capital, it is otherwise ; and we think we find a sufficient reason in this fact for not ordering a dividend. In the first organization of the corporation the sum of $175,000 was named as the nominal capital in the articles of association. But it is evident from all the facts in the case that the actual capital was much larger and consisted of all the property purchased of the individual stockholders, who had all been engaged in the business contemplated to be carried on by the company, which was of the agreed value of more than $400,000 ; the difference being made up to the stockholders by the corporation notes, which were expected to be paid, as they principally have been out of the subsequent profits of the business, and not by an immediate sale of any large portion of the assets thus purchased of its stockholders. It could not have been the intention to force the sale of this large amount of property. This could not have been done without great sacrifice, and if such had been the intention the corporation never would have purchased it. They therefore must have intended to use it as a part of their capital, or to keep it on hand as surplus until that part of it which consisted of manufactured goods could be sold, in the regular course of business, with which all the stockholders were familar. There is no evidence that they [458]*458have not converted their manufactured goods into cash as fast as it can be done in the successful prosecution of their business, and to order them to do it faster than this is simply to order them to make needless sacrifices. The reason for stating the amount of their capital at so much less than it actually was does not appear, and it is not very important that it should. It is enough to say of it, that while it is not a course to be recommended for general adoption, the finding in this case is very full to the effect that nothing improper or fraudulent was intended by it; and the success of their business fully sustains the finding, that the directors have in all their transactions exercised a sound judgment and discretion.
Again, the court finds that it was the general understanding of the stockholders that their notes against the corporation, given for the largest part of the property purchased at the time of the organization, as they should be paid, should be regarded and received by them in lieu of dividends, which implies certainly that no dividends should be declared until that large indebtedness was paid ; and this has not yet been done, by some thirty thousand dollars. But there was as much reason for declaring a dividend when- the corporation was first organized as there is now, except so far as the comparatively small sum in cash on hand is concerned. As then the business appears to have been honestly and discreetly managed, and as it is found moreover that to conduct it successfully requires a much larger capital than $175,000, unless a considerable surplus is retained ; and as we believe it to have been the intention of the stockholders in the organization of the company to retain a surplus to at least the amount of its capital for that purpose, and as the ordering of a dividend would necessarily involve the sacrifice of a large amount of manufactured goods at a forced sale, it appears to us that it would be very inequitable and unjust to the managing majority to advise the superior court to order such a dividend to be made.
The remaining question is, whether the corporation ought to be restrained from erecting their new factory, for the man[459]*459ufacture of piano key boards. The directors at the time the corporation was organized contemplated the prosecution of this business. The articles of association state the purpose of the organization to be to manufacture, sell and deal in all kinds of ivory, shell, horn, bone, rubber, wood and other combs, and all kinds of piano and melodeon ivory, and other articles made in whole or in part of ivory, shell, horn, bone, India rubber, gutta percha, composition, wood or metal, and to purchase &c., and to do all acts connected with or incidental to the said business or the prosecution of the same. It is not very strenuously claimed but that the manufacture of piano key boards, as connected with the manufacture of all kinds of piano ivory, and especially of all other articles made in whole or in part of ivory, composition, wood or metal, comes within the contemplated purpose of the corporation, as expressed in the articles. The question therefore j in this part of the case is confined merely to whether the contemplated expenditure for this new factory is so great as un- * necessarily and unreasonably to hazard the petitioners’ stock. On a question of this sort much must necessarily be left to the discretion of the managing directors, and so long as they keep within the objects contemplated by the articles of association, and the expenditure is not unreasonable in reference to the amount of their capital, a court of equity ought very seldom to interfere with them. In the organization of these companies, parties, if they see fit to do so, can provide specifically as to the business that shall be transacted, and if they omit to do this, but on the contrary express the purposes of the organization in such general terms as to admit of a very large discretion in the management of their business, the presumption is that it was intended that the discretion of the managers in this respect should be unlimited. There is nothing in the articles here that shows any intention to limit the discretion of the managers in respect to the particular business contemplated, except it be the naming of a sum as the amount of the capital. This in most cases would and ought to be some guide in respect to the amount that it would be reasonable to expend in permanent fixed property and. ma[460]*460chinery; but this, in this case, appears to have been fixed without much reference to the amount of business to be done. We feel therefore that it is impossible for us to say that the expenditure of some $35,000 for this new factory is so clearly extravagant and disproportioned to the amount of capital stock as to justify the court in enjoining against it. We therefore advise the superior court to dismiss the petitioners’ bill.
In this opinion the other judges concurred ; except Oar-: penter, J., who having heard the case upon a motion,to dissolve the injunction in the court below, did not sit.