96 Ala. 329 | Ala. | 1892
The bill in this case was filed by two stockholders of the Mary Pratt Furnace Company, a corporation, in behalf of themselves, and of all other stockholders who may desire to participate in the litigation. The corporation itself and its directors are the parties defendant. The purpose of the bill is to require a distribution among the stockholders of the surplus earnings of the corporation; to this end, a discovery and an accounting by the directors as to the affairs of the corporation are prayed for. The appeal is from the decree on the demurrers of the several directors to the bill as amended.
The bill charges that the president and directors of the corporation have under their control and in their possession all the information, books of account, contracts, papers, vouchers and all other evidences necessary for showing the true state of the affairs of the corporation. The complainants aver that they are wholly ignorant of the state of the accounts showing the corporate transactions; and charge, in
Tbe fact that profits bare accrued in tbe transaction of tbe corporate business does not necessarily impose upon tbe directors tbe duty of distributing them as dividends to tbe stockholders. The directors are entrusted with tbe management of tbe property and business of tbe corporation, and in tbe exercise of their functions are vested .with a large discretion. Their relations with tbe corporation and its stockholders are of a fiduciary character. They are under tbe duty to tbe stockholders to exercise their judgment and discretion in tbe conduct of tbe business of tbe corporation. On questions of business policy and management their decisions are controlling, and their acts will not be disturbed or interfered with by tbe courts, at tbe instance of a stockholder, unless they are guilty of a willful abuse of their discretion, or act in bad faith, or in disregard of duties imposed upon them by law. They are charged with tbe duty of determining what disposition shall be made of tbe earnings or profits of tbe enterprise. There may be honest differences of opinion as to whether accrued earnings should be applied to the payment of debts, due or to fall due in the future, or in the development of the company’s business, or to a surplus fund to provide for future contingencies and to insure continued prosperity, or should be distributed among the stockholders in dividends. Profits earned by an ordinary business corporation can not be arbitrarily withheld from the stockholders. The directors would not be permitted to deprive the stockholders of the benefits of the success of the scheme for the prosecution of which they associated themselves together. Only the furtherance of some legitimate purpose of the enterprise can justify the exclusion of stockholders from the enjoyment of net profits. But so long as the directors, in the honest exercise of a reasonable discretion, devote the capital and the earnings to the carrying on of the business contemplated by the corporate association, no mere differences of opinion among the stockholders as to the wisdom of the course pursued can justify the interposition of the courts for the purpose of controlling or interfering with the management of the corporation by its constituted authorities. — Smith v. Prattville Manufacturing Co., 29 Ala. 503; Pratt v. Pratt, 33 Conn. 446; Williston v. Michigan Southern & N. I. R. Co., 13 Allen, 400; Chaffee v.
The claim of the complainants in this case to have the earnings, of the corporation distributed among the stockholders under the orders of the court is based upon the following state of facts, shown by the averments of the bill as amended: The corporation has operated its furnace, producing pig iron, since its organization in 1883, except during a considerable part of the year 1884, and a short time in the year 1889, when the furnace was rebuilt or repaired. In Í885 the earnings amounted to more than $68,000. The complainants do not know the amounts of the earnings in the years 1883, 1884, 1888, 1889 and 1890, “but believe and charge that the same were large.” The president and directors claim to have absorbed all the earnings in the payment of expenses and in making improvements, except about $43,000, which they claim to have used in the purchase of outstanding bonds of the company, and except also some moneys and values in their hands or under their control, as to which the complainants only state that “the amount and cash value thereof is largely in excess of all indebtedness of the Furnace Company, both floating and bonded.” The president and directors claim that the aggregate amount of the earnings of the 'company is about $225,000. The bill then proceeds: “Your orators charge and ever, however, that the said corporation has, in fact, earned, since its orgranization, a very much larger sum of money than the amount above stated; that, on information and belief, your orators charge that said corporation has earned about $350,000.00, or very nearly that sum. Your orators charge, upon information and belief, that the expenses and outlay incurred in improving, developing and maintaining said plant have not cost anything like the amount claimed by the president and directors of said corporation; that a large balance is now due to your complainants in the way of dividends or earnings, which should have been declared and credited to them as dividends on their shares of stock above mentioned. Your orators charge and aver that said president and directors have never made, declared or distributed any dividends to them since the organization of said corporation; that, notwithstanding said plant is a valuable one, and, as your orators are informed and believe,
An accounting is prayed for only as an incident to the main relief sought — the distribution of the earnings of the corporation under the orders of the court. The bill failing to show that the complainants are entitled to that relief, their demand for an accounting is left without support. The demurrer to that part of the bill as amended which seeks an accounting should have been sustained. On the ground already stated, the demurrer to the part of the bill as amended which prays for a discovery should also have been sustained. The appellants take nothing by their appeal. The decree must be reversed on the cross-assignment of errors by the appellees.
Reversed and remanded.