Trimble v. American Sugar Refining Co.

48 A. 912, 61 N.J. Eq. 340, 16 Dickinson 340, 1901 N.J. Ch. LEXIS 87

• Court: New Jersey Court of Chancery
• Decided: April 11, 1901
• Status: Published

Opinion

Pitney, Y. C.

The cause of action attempted to be shown in the complainant’s bill may be divided as follows: First, that the acts of the defendant in going into the coffee trade are ultra vires, in that they are not warranted by the objects of the corporation as set forth in the articles of association or certificate of incorporation; second, that the defendant has a large surplus in funds not necessary for use in its legitimate business, which it ought to divide and refuses to divide; third, that it has concealed its time situation from its stockholders, and fourth, that it is carrying on the sugar trade and coffee trade in competition with a corporation known as Arbuekle Brothers, for the purpose of driving that corporation to unite and consolidate with the complainant; and that such action is contrary to public policy, and may result in the destruction of the defendant’s corporate rights.

It is to be observed that the complainant is the holder of one seven-hundred and fortieth part of the capital stock of the company, a trifle less than one-seventh of one per cent, of the whole issue; and it does not appear that any other stockholder is dissatisfied with the conduct of the business of the company in respect to the matters complained of by the bill.

Admitting that the holder of so small a part of the stock is entitled to be heard in this court for the correction of any real grievance he may suffer by the misconduct of the majority, yet I think it is the duty of the court to require that he should show a clear case by distinct affirmative allegations, even if they should necessarily include some of a negative character. In short, he must anticipate and exclude all reasonably probable conditions which may bar his relief.

With this preliminary observation, I further remark that the bill does not state at what time complainant acquired the one hundred shares of stock which he holds, and it is common knowledge that the stock of this company, and many others of the same class, is daily dealt in on the Exchange. For aught that appears, he may have acquired it a very short time before the filing of the bill, from a holder who had acquiesced in everything that the company had done up to that time and in the policy the carrying out of which the complainant seeks to enjoin. That such acquiescence would bar the original holders of the shares now held by the complainant, if he knew of it, is perfectly well settled. It is necessary, on this point, only to refer to the case of Rabe & Cross v. Dunlap, 6 Dick. Ch. Rep. 40. And it seems to me that where a person holding so small a fraction of the capital stock as the complainant represents here asks to interfere with a particular phase of the management of the corporation, which is presumably satisfactory to all the other stockholders, he ought to show affirmatively that neither he nor his predecessor in title has acquiesced in the policy of which he now complains, for I think he would he hound by the acquiescence of his predecessor in title.

But taking up the matters complained of—first, with regard to the action (dealing in coffee) complained of being ultra vires. The only allegation in the hill is in these words: “That the objects for which the company was formed were the buying, refining and selling of sugar.” Whether those be the sole objects of the corporation depends entirely upon the language of the articles of association, and it is for the court to determine, from reading those articles, what, upon a fair construction of . the language, are the legitimate objects of the company. It seems to me that a mere allegation of that sort is insufficient, for the reason that the language is not exclusive. The allegation may be entirely true, and yet there may be other objects which the company may properly pursue without being charged with going beyond the power given to it by the articles of association. In other words, the allegation is not exclusive of the J company having the power to engage in other cognate pursuits. It is a matter of common knowledge that the articles of association, or, as they be otherwise called, the certificate of incorporation, oftentimes do contain provisions conferring the right to engage in pursuits other than those which may be deemed the principal object of the company. The allegation, at least, amounts to no more than an allegation in general-terms of the construction put by complainant on the defendant’s articles of association, without setting them out in full.

Another allegation, necessarily admitted by the demurrer, is that the business of the company is extremely profitable; that it has been earning and paying twelve per cent, dividend for its common stock; that it owns a great many sugar refineries, and the capital stock of other sugar refineries; and it alleges that the defendant has never made any financial exhibition of its property and assets to its stockholders.

All hut one of the other allegations of the bill are based upon information and belief, and the defendant argues that an admission of the complainant’s information and belief on that subject is not an admission of the fact so stated. In this I think it is substantially sustained by authority. I refer to Story Eq. Pl. §§ 241, 256, and cases cited in a note to section 241; Egremont v. Cowell, 5 Beav. 620 (at ¶. 623); S. C., (reported sub nom., Vickers v. Cowell), 7 Jur. 51. There the allegation was that the “defendant Greenwood alleged, and the plaintiff believed, the fact to be true.” Of this, Lord Langdale remarked: “It is not a sufficient allegation to say that one defendant alleges, and the plaintiff believes, his statement to be true. The defendant may allege that which is quite false, and the plaintiff may believe it to be true, but this is not- an allegation of the fact.”

Among the American cases cited in a note to section 241 of Story Eq. Pl. are Cameron v. Abbott, 30 Ala. 416; Lucas v. Oliver, 34 Ala. 626; and see Uxbridge v. Staveland, 1 Ves. Sr. 56, cited in note to section 256.

But waiving that defect, let us consider their effect. The first of these allegations on information and belief is that the company has on hand a large accumulation of profits, amounting to many millions of dollars, which,' it is alleged, should be immediately divided among the stockholders; that the existence and amount of this surplus is concealed from the stockholders; and upon this allegation discovery of the financial condition of the company and the amount of its surplus is asked. There is no allegation that complainant has asked for, and been refused, the information he asks by his bill to be discovered, or that he has been refused inspection of the books of the company. .

Here, again, it is to be observed that the bill is silent as to any provision in the articles of association or by-laws on this subject. It is common knowledge that it might be injurious to the interests of the company if every stockholder, however small, had the privilege of unlimited inquiry at all times into the details of a business such as that carried on by the defendant; and that such companies frequently provide, by their articles of association, for protection against such inspection. The danger is that rival traders may use the privilege of a stockholder to pry into and learn the secrets of the company’s business.

These considerations lead to the conclusion that the bill shows no reason for the interference of this court in the respect now under consideration; and further, that the complainant’s remedy is by mandamus in a court of law to compel defendant to permit an inspection of the books by the complainant, aided, if necessary, by a petition, under the statute, to this court or any other court, to compel defendant to bring the books into this state for inspection. Stettauer v. Scranton Co., 15 Stew. Eq. 46; Rosenfeld v. Einstein, 17 Vr. 479; Huylar v. Cragin Cattle Co., 13 Stew. Eq. 392; S. C., 15 Stew. Eq. 139. These cases tend to show that the utmost relief to which complainant is entitled is access to the books of the company for purposes of inspection.

Further, if the complainant may ask for and obtain an elaborate statement of the affairs of the defendant, every other stockholder may do so, and the result would be exceedingly burdensome to the company and tend to display to the public the condition of its affairs to an extent that would be prejudicial to its interests.

The next matter for consideration is the right of the complainant to a dividend. The statute on that subject is section 47 of the act of 1896 (p. 89S), which provides as follows:

“The directors of every corporation created under this act shall, in January in each year, unless some specific day or days for that purpose be fixed in its charter or by-laws, and in that case then on the days so fixed, after reserving over and above its capital stock paid in, as a working capital for said corporation, such sum, if any, as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on demand; provided, that the corporation may in its certificate of incorporation or in its by-laws give the directors power to fix the amount to be reserved as a working capital.”

There is uo allegation in the bill that the defendant corporation has not declared regular dividends, but the contrary appears; nor is there any allegation that the accumulated profits now on hand, as alleged in the bill, are greater than what is reserved and fixed by the stockholders as a working capital. The presumption must be that the action of the company in that respect is satisfactory to the majority of the stockholders, and the mere fact, if it be true, that it has a large amount of surplus, is not sufficient, of itself, to give a single stockholder a right to come into court and compel a dividend of that surplus. The cases relied on tty the complainant are clearly distinguishable. Fougeray v. Laurel Springs Land Co., 5 Dick. Ch. Rep. 185; S. C. on appeal, 5 Dick. Ch. Rep. 756, was a case of three stockholders in a real estate speculation, each holding an equal amount of stock; two fraudulently combined against the third to prevent him from getting any share of the profits, and the court made a decree that there should be a dividend. That case has no application here.

There remains to be dealt with the allegation that the defendant is selling sugar below market rates, and therefore, in a mercantile sense, below cost and at a loss, for the purpose of breaking down a rival concern, Arbuckle Brothers, and compelling the latter to combine with defendant in unlawful restraint of trade; and the particular prayer is that it may be restrained from selling sugar at a loss.

Now it is to be observed that the purpose of defendant’s organization is to make money; that, by the allegation of the bill, it has been well managed for that purpose. There can be no presumption that, in the judgment of its directors, the course complained of is not calculated, in the end, to make money. The fair inference is that Arbuckle Brothers must have commenced the mercantile fight by underselling the defendant, and then that the defendant retaliated. This is, by common knowledge, the natural and usual result. And it may be here observed that one cannot but suspect, at least, that the bill is promoted by Arbuckle Brothers. How far this destructive competition may be properly carried on without injury to the corporate interests is a concrete question to be decided by the parties in interest in each particular case.

It is supposed that such competition inures to the benefit of the public. Be that as it may, no case has been cited in support of the proposition that a court of chancery ought to restrain such competition in a case like this, unless it appears that the directors are not acting in good faith for the best interests of the corporation, or, possibly, that they are plainly mistaken in their judgment—so plainly as to render the mistake palpable to the court. The allegations of the bill do not show any such lack of good faith or clear mistake of judgment.

But, says the complainant, the result of a consolidation of the two companies will be an illegal combination in restraint of trade. On this topic I refer to what was said by me, and which, presumably, had the approval of the court of errors and appeals, in the case of Meredith v. Zinc Company, 10 Dick. Ch. Rep. 211 (at p. 221, bottom, and p. 222). The defendant is engaged in a business that does not include the exercise of any public franchise, and it may do what any individual may do. Such was declared to be the law in the case of Attorney-General v. American Tobacco Co., 10 Dick. Ch. Rep. 352 (at pp. 363, 364.).

Neither of the companies mentioned here has any monopoly of either sugar or coffee. The world’s product of each is immense. Any person can go into the market and buy either of them in unlimited quantities. Either of the companies mentioned in the complainant’s bill may stop manufacturing at any time they choose, and the public-has no right to complain. Either of them may sell their goods at such price as they choose to put on them, and the public has no right to complain. There can be, in my judgment, no foundation, either in morals or law, for interfering with the liberty of the citizen who owns a factory' to operate it or not as he may choose, and to sell his goods or not as he may choose, at such price as he may choose. In other words, as I remarked in Meredith v. Zinc Company: “By the law of the land” the defendant and Arbuckle Brothers “have the right to exercise their own judgment as to when, if ever, and how they will spend their money in preparing their property for market and rendering it fit for use by mankind. I am unable to find any foundation, either in law or in morals, for the notion that the public has the right to have these private owners of this sort of property continue to do business in competition with each other. No doubt the public has resonable ground to entertain the hope and expectation that its individual members will generally, in their several struggles to acquire" the means of comfortable existence, compete with each other. But such expectation is based entirely upon the exercise of the free will and choice of the individual, and not upon any legal or moral duty to compete, and can never, from the nature of things, become a matter of right on the part of the public against the individual.” In short, I can see no more reason in law and morals why these two corporations may not consolidate and combine than that two individuals competing for the market may not consolidate their business and form a partnership. This disposes of all the matters set up in the bill and insisted upon at the argument, and I find in them no ground for equitable relief, and will advise an order that the demurrer be sustained 'and the bill be dismissed, upon the usual terms.