Case ID: ohio-st_62/html/0189-01.html
Source: Caselaw Access Project
Author: {"author": "Spear, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Cincinnati Volksblatt Company v. Hoffmeister.
    
      Injunction the proper remedy to enforce stockholder’s right — To inspect books of corporation ■ — Section 3254 Rev. Stat. —■Motive of demand for inspection not material■ — Inspection may be by agent and includes right to take copies of records.
    
    
      1. Injunction is the proper form of remedy to enforce the right of a stockholder in a private corporation, given by section 3234, Revised Statutes, to inspect the books and records of the corporation.
    2. The right to inspect does not depend upon the motive or purpose of the stockholder in demanding such inspection, and a petition which shows that the plaintiff is a stockholder; that he has requested the defendant to allow him to inspect the books and records of the corporation, and fix a reasonable time for the same, which request has been refused, states a cause-of action.
    3. As incident to such right is the right to have such inspection by a proper agent, and to take copies from such books and records.
    (Decided March 6, 1900.)
    Error to the Superior Court of Cincinnati.
    The defendant in error, Albert F. Hoffmeister, commenced liis action against the Cincinnati Volksblatt Company, in the superior court of Cincinnati by tbe filing of a petition in which it is alleged that:
    “The defendant is a corporation organized under the laws of the state of Ohio. The plaintiff is a stockholder in said corporation and is the owner and holder of five (5) shares of its capital stock, of the face value of five hundred ($500) dollars each. The plaintiff has requested the defendant to allow him to inspect the books and records of said corporation, and to fix a reasonable time for said inspection. Defendant has refused such request, and refuses to allow the plaintiff to inspect its books and records at any time.
    “Wherefore the plaintiff prays that the defendant • be enjoined from refusing to allow him to inspect its books and records, and prays the court for such other and further relief, as he may be entitled to at law or in equity.”
    A demurrer to the petition being overruled the defendant company answered, admitting its corporate existence and that plaintiff is the owner of the number of shares of stock alleged in the petition, and denying other allegations. Also averring that the plaintiff’s action was not brought in good faith, but to compel defendant to purchase the stock held by him under a threat to apply for the appointment of a receiver for the company. Also that plaintiff is interested in a rival company, a competitor of defendant, and the application is made in bad faith for the purpose of injuring defendant, and to compel it to purchase the stock. Also that plaintiff is not, under the allegations of the petition, entitled to any relief, and that the court has no jurisdiction of the action.
    A reply took issue with the new matter alleged.
    Upon trial the court found the issues for the plaintiff; that he is entitled to inspect any of the books and records of defendant at any reasonable time, and that he may make such inspection by himself, or by agent, bookkeeper or accountant, and may take copies of any of said books and records, and judgment was entered enjoining defendant from preventing an inspection of any of the books and records of defendant, at any reasonable time, and the taking of copies thereof by the plaintiff himself, or by his agent, bookkeeper or accountant. This judgment was affirmed by the general term of the superior court, and the company brings error.
    
      Charles W. Baker, for plaintiff in error.
    The plaintiff below has mistaken his remedy. It is not by injunction, mandatory or otherwise. Such injunctions are rarely granted, and courts hesitate to employ them. High on Injunctions, section 2.
    If the plaintiff has any remedy at all, it is by mandamus under sec. 6741, Rev. Stat. It was claimed by counsel below that in Ohio, the writ of mandamus was a high prerogative writ, to be employed only in cases where it was sought to direct public officials. State v. Carpenter, 51 Ohio St., 83; Freon v. Carriage Co., 42 Ohio St., 30; State ex rel. v. Farmer, 7 C. C., 429.
    Counsel below claimed that in Ohio and England the writ of mandamus still preserves its high prerogative features exclusively, and can be used only to redress public grievances. And he cites a number of English cases.
    In the case at bar, plaintiff below has procured an injunction that for all time permits plaintiff to walk into the business house of the Volksblatt Company, examine any books and papers and records he may choose, from the subscription lists to the advertising bills, take copies of them and walk out, and he may repeat that performance under the order in this case, and protected by it every day in the week for the balance of his natural life.
    A perpetual decree of - injunction could not be drawn, mandatory or otherwise, that would not in its practical effect, work just that result. Why, the court might as well turn over the property of the Volksblatt Company and its good-will and its business management to Mr. Hoffmeister for the balance of its days.
    Counsel for plaintiff cited below, as the latest adjudication of this court, claiming it as a decisive authority in his favor, Fraternal Mystic Circle v. Fritter, 61 Ohio St., 628.
    If in this case ^Fritter had sought to be reinstated into membership by mandatory injunction, the remedy invoked in the case at bar, we respectfully submit this court would have denied him the right to such a remedy, precisely for the same reasons this court denied him relief by mandamus. Spelling on Private Corporations, secs. 656, 657; High on Extraordinary Legal Remedies, secs. 5-24; Thompson on Corporations, vol. 4, sec. 4431; Kinkead on Code Pleading, vol. 2, sec. 790.
    Again, this court has held in all three of the Ohio cases before cited, that writs of mandamus — and surely writs of mandatory injunction would have been equally impossible — ; could not be invoked as remedies, because for refusal to transfer stock, and to re-induct to membership, ample redress could be found in actions at law for damages.
    If so, then why is not Mr. Hoffmeister also remitted to his action at law, for damages? The inspection of certain books is no more enjoined by section 3254, than is the keeping of stock books and the transfer of stock, and the issuance of new certificates. If the failure to do these remits the party injured to his action for damages, then why will not the party refused the inspection merely of such books be likewise remitted to his action for damages?
    It is no answer to say that he will not be so remitted because he can show no damages. It would be damnum absque injuria. Stettuer v. N. Y. Co., 42 N. J. Eq., 46; Kinkead on Code Pleading, vol. I., section 682.
    
      We submit that no stockholder is entitled to any such sweeping and omnibus order as is to be found in this final decree, and certainly not on the plaintiff’s petition. Pratt v. Cutlery Co., 35 Conn., 36; Grant on Corporations, sec. 311; Foster v. White, 86 Ala., 467; American Asylum v. Phoenix Bank, 4 Conn., 172; Lyon v. Screw Co., 16 R. I., 472; People v. Railway, 11 Hun. 1, affirmed, 70 N. Y., 220; Putnam v. Valentine, 5 Ohio, 187; Van Wert v. Webster, 31 Ohio St., 420; Spangler v. Cleveland, 43 Ohio St., 526.
    We submit that section 3254 of the statute should be construed strictly. That this does not mean that the mailing lists, the advertising lists, the subscription list of a newspaper that happens to be conducted by a corporation, shall be liable to be copied by any stockholder whenever he chooses.
    Records, such as stock and transfer books, we agree under the statute a stockholder at reasonable times has the right to inspect. But we deny as an abstract right in a stockholder, the privilege of entering the business premises of a corporation and there make copies of any lists or books or accounts that he sees fit. People v. Mail Co., 34 How. Prac. (N. Y.), 193.
    
      Alfred B. Benedict and Jerome D. Creed, for defendant in error.
    Mandamus in Ohio has preserved its original high, prerogative character, issuing only to redress public injuries, and never to redress private grievances. State v. Carpenter, 51 Ohio St., S3; Freeon v. Carriage Co., 42 Ohio St., 30, construing sections 6741 and 6744, R. S., which control the matter here. Section 6741 provides when the writ may issue, and section 6744 provides when it shall not issue.
    The highest courts of England have reached the same conclusion. Holland, v. Dickson, L. R. 37, Ch. D., 669; Mutter v. Railway Co., L. R. 38, CL. D. 92; Prender v. Lushington, 6 Ch. D. 70 (1877) ; Huyler v. Cattle Co., 40 N. J. Eq., 392 (1885).
    A similar decision was made by the .same court in Mitchell v. Rubber Co., 24 Atl., Rep. 407 (1892).
    Thompson on Corporations, VoL 4, Sec. 4432, is especially referred to as being particularly clear and strong on this point. Sec. 1412, of Pomeroy’s Eq.
    The second ground of demurrer raised the question whether it was necessary for the petitioner to allege and prove some special reason or purpose for desiring an inspection.
    At common law a stockholder had a right to inspect, but some courts held that he must allege some reason for wanting an inspection, while other courts held that the right was absolute, just as the right of a partner is absolute to have access to the books of his partnership. Cook, Sec. 512, 4th Ed., VoL 2.
    All the authorities cited by my adversary are cases arising at common law and not under any statute.
    Where a statute confers a right to inspect, the right is absolute. All that the stockholder needs to do is to bring himself within the language of the statute.
    It is settled on both sides of the Atlantic that a stockholder, under a statute conferring a right of inspection, not only does not need to allege any reason for wanting to inspect, but that it is immaterial even if the admitted purpose is an evil one.
    It is submitted that the language of Sec. 3254 is plain and unmistakable, and that it must be enforced by the court. We are now considering not the rights of shareholders belonging to them apart from statute, but are considering a statutory right. The cases are uniform to the effect that where a shareholder is enforcing a statutory right it is only necessary for him to allege and prove that he is a shareholder, that he has demanded the right at reasonable times, and that he has been refused inspection.
    All property is rights. Blackstone, Vo). I, p, 138.
    
      Property, then, is a right; and a shareholder’s property right in a corporation is his bundle of rights, including the right to respect its books. It cannot be successfully denied that the sum total of the shareholder’s rights make up his stock, his property in the corporation.
    Having affirmed that these right's are property rights, the English cases proceed upon the well established rule that one may assert his property rights regardless of motive. Letts v. Kessler, 51 Ohio St., 73; Morris v. Tuthill, 72 N. Y., 575; Davis v. Flagg, 35 N. J. Eq., 491; McDonald v. Smalley, 1 Pet., 620; Thompson on Code, Vol. 4„ Sec. 4412; Cook on Stockholders .and Corporations, Sec. 514, Yol. 1 of the 4th Ed.
    The right is absolute. State v. Railway Co., 29 Mo. App., 301; State v. Club, 29 Mo. App., 326: Mitchell v. Rubber Co., 24 Atl. Rep., 407; Mattin v. Johnston, 25 Abbott’s New Cases, 350; Foster v. White, 6 South. Rep., 88.
    Finally, owing to the evils of secrecy in management, and without discarding the doctrine that a corporation is an ideal person, a principle useful for some purposes, but recognizing that after all a corporation is really only its members viewed collectively. State v. Standard Oil Co., 49 Ohio St., 137; People v. Refining Company, 121 N. Y., 582; Morowitz, Sec. 1, many courts Avent the Avhole length of holding that the books of the corporation should be open to the stockholders at all times, without their assigning any special reason for Avanting an inspection. Cook, Sec. 512.
    For a clear statement of some of the evils of secrecy of management, Avhicli the legislatures are intending to provide against, Note 1, Sec. 511, Cook on Stock and Stockholders, 3rd ed.; Kelsey v. Fermentation Co.. 3rd N. Y. Supp., 723.
    The company next says: “We did not deny Mr. Hoffrneister the right to inspect the books, we only refused to let them be inspected by an agent of Mr. Hoffmeister’s.” And the claim is made that in law the right to inspect is personal to the stockholder.
    It can be observed of this position that it is inconsistent with the other position that the refusal was because Mr. Hoffmeister was acting from a bad motive. In one breath the company say they object to Mr. Hoffmeister examining the books because he is acting in bad faith, and in the next breath, that they do not oebjct to his examining the books himself, but that they do object to his examining them by his agent.
    But the right to an inspection is not personal; it may be exercised by an agent, attorney or accountant. The provision of section 3254, being enacted to remedy the evils growing out of secrecy of management by those who, for the time being, are in power, is a remedial provision to be liberally construed to accomplish the purpose of the legislature. All the authorities are to the effect that the right is not personal merely. Thompson on Corporations, Yol. 4, Sec. 4426; Phoenix Iron Co. v. Commonwealth, 113 Pa. St.. 563; State v. Oil Wks. Co., 28 La. Ann., 204.
   Spear, J.

It is argued, in- support of the petition in error, that the plaintiff has mistaken his remedy; that if he has any it is by mandamus, and not by injunction, and that the superior court is without jurisdiction, that court having no jurisdiction in mandamus. Also that sufficient facts are neither stated in the petition nor proven to entitle the plaintiff to any injunction whatever, and that, under any possible showing, he was not entitled to the sweeping order that the court made.

The proper form of action. As to mandamus our statute, section 6741, Revised Statutes, provides : “Mandamus is a writ issued in the name of the state, to an inferior tribunal, a corporation, board, or person, commanding the performance of an act which the law specifically enjoins as a duty resulting from an office, trust or station.” And by section 6744, it “must not be issued in a case where there is a plain and adequate remedy in the ordinary course of the law.” In some jurisdictions the remedy of mandamus is given to right wrongs similar to the one here complained of. We are not, however, concerned with the law of other states, but with that of our own, and it seems hardly necessary to take space to demonstrate that in Ohio mandamus is not, but that injunction is, the proper remedy in a case of this nature. The complaint of plaintiff is that he is unlawfully prevented from the enjoyment of a right which is incident to his ownership of stock, and his remedy is that the corporation be compelled to desist from such deprivation. This does not call for the performance of an act which the law specifically enjoins. It is, on the other hand, an act which may be compelled by injunction in the common and ordinary exercise of that power. There is, therefore, a plain and adequate remedy open to him in the ordinary course of the law, for, within the meaning of this statute, an equity proceeding is a proceeding of that character. There is, in the opinion of the writer, another and perhaps better, reason than the foregoing for the conclusion announced (The Fraternal Mystic Circle v. The State,61 Ohio St., 628), but the one given is deemed sufficient for the purposes of this case. Freon v. Carriage Co., 42 Ohio St., 30; State ex rel. v. Carpenter, 51 Ohio St., 83.

It being determined that the action was properly brought, and that the court had jurisdiction, is the petition sufficient, or must the plaintiff, before he can have standing in court, set out what his reasons for desiring the inspection asked are, and show that he is actuated by proper motives and in the pursuit of justifiable ends? Such is the contention of plaintiff in error. The statute is, section 3254: “And the books and records of such corporation shall' at all reasonable times be open to the inspection of every stockholder.” But it is insisted that this provision is not intended to enlarge the right, but is a mere affirmation of the common law rule, and that that rule embodies many conditions, among them that the stockholder must allege and prove that he is acting in good faith. Without stopping to discuss the extent of, and the limitations upon, the rule as established by the common law, (for the holdings are at variance upon it), we inquire what reason there is for saying that the intent of the legislature was to merely affirm the common law rule? If that had been all, why take the trouble t© legislate on the subject at all? Is it not more reasonable to conclude that the object was to get rid of all uncertainty and of various conditions, whatever they were, and establish the right by a rule, clear, direct, simple, and practically without qualification? The language is plain. The right given is clear. One condition, and one only, is attached, viz.: that the right can be exercised only at reasonable times. Ordinarily the motive, or purpose, of the party who is in the exercise of, or is about to exercise, a clear legal right, is Unimportant. Letts v. Kessler, 54 Ohio St., 73, and authorities cited; McDonald v. Smalley, 1 Pet., 620. A like rule prevails as to one’s pursuit of an equitable remedy. Morris v. Tuthill, 72 N. Y., 575; Davis v. Flagg, 35 N. J. Eq., 491; Thompson on Corp., sec. 4412, and authorities cited. No reason is apparent why the rule should not apply to the case at bar. We are of the opinion that where a suitor demands the enforcement of a clear right given him by law, whether the remedy be legal or equitable, his motive for such action is not a proper subject for judicial investigation. The petition stated a cause of action and if supported by the evidence warranted the granting of equitable relief.

Was the order of the trial court too broad? The finding by the court of all the issues for the plaintiff settles the questions of fact for this court, but it is not improper to add that there was an entire failure to show, on the part of defendant, that the plaintiff was acting from the improper motives charged in the answer, and that the evidence, all of which we have read and considered, fully justifies the finding in favor of the plaintiff. So that, even had the petition been obnoxious to a demurrer in failing to allege a proper purpose for the suit, the defendant, having obtained a full hearing on the charges stated in the answer, would have no ground of complaint on account of the action of the court on the demurrer.

The contention is that whatever right of examination the statute gives is a personal right, and must be exercised by the stockholder in person. Since when, we would inquire, has it been the law that one who has given him a clear right as to property may not exercise it by any proper agent? The proposition has the quality of novelty, but it is not sound. It must be apparent, on reflection, that if so circumscribed a limit were placed on the right, its exercise in many instances would be futile. Foster v. White, 86 Ala., 467; Mitchell v. Rubber Co. (N. J.), 37 Corp. Cases, 42, and notes, and same case in 24 Ap. Rep., 407; State ex rel. v. Bienville Oil Works, 28 La. Ann., 204.

Nor is the right limited to one inspection. It is an incident to ownership of stock, and may be exercised at any reasonable time so long as the relation of stockholder subsists. The right to take copies from the records follows as an incident to the right to inspect. It rests, as does the entire right to examination rest, upon the broad ground that the business of the corporation is not the business of the officers exclusively, but is the business of the stockholders. Phoenix Iron Co. v. Commonwealth, 113 Pa. St., 563; Mutter v. Ry. Co., L. R. 38 Chy. Div., 92.

We refrain from extended discussion of the questions involved, because they are fully and ably discussed, and the authorities cited at large, in the briefs of the respective counsel which precede, and to which attention is here directed.

We would add, however, that the rights of the plaintiff in this case are based upon a recognition of his standing as an integral part of the corporation. The idea that the corporation is an entity distinct from the corporators who compose it, has been aptly characterized as “a nebulous fiction of thought.” ' Much learning has been indulged in and much space occupied by text-writers and others in an effort to differentiate the essential character of a corporation from that of its stockholders, and great ingenuity has been displayed in the argument, but it has been in the main a fruitless metaphysical discussion. For the purpose of. description and in defining corporate rights and obligations, and characterizing corporate action, the fiction that the corporation is an artificial person or entity, apart from its members, may be convenient and possibly useful, but in the opinion of the writer the argument favoring the essential separate entity of the corporation fails, and it is believed that the effort has resulted in misleading conceptions and in much confusion of thought upon the subject. When all has been said it remains that a corporation is not in reality a person or a thing distinct from its constituent parts, and the constituent parts are the stockholders, as much so in essence and in reality as the several partners are the constituent parts of the partnership. Stripped of misleading verbiage, the corporation is a device created by law whereby an aggregation of persons who may avail themselves of its privileges by organization, are permitted to use their property in a way different from that which is permitted to others who do not so organize, and with certain special advantages, among which are a measure as to personal liability for debts, and the power to perpetuate the organization, denied by the law to all others. With this conception of a corporation, it would seem to follow as matter of course, that the property of a corporation, although subject under some conditions to rights of creditors, is, in the last analysis, that of the stockholders, and that Avhen one seeks an inspection of its books, records, or property, he is in reality but seeking an inspection of his OAvn, and that this should be accorded fully, freely, and at all times when such inspection avüI not unreasonably inconvenience others who have like interest in and rights to the property, and that the attempt to unreasonably hamper such inspection, by officers, managers, or others, is an unjust exercise of power and one which courts should not sanction.

Nor can the officers of the corporation, or the other stockholders, justly complain. They have chosen this method of investing their means and conducting the business for personal profit, a method which, as we have seen, is especially favored by the law, and they should expect to endure such inconveniences, and such chances of exposure of management, as the method entails. In other words, it is not unreasonable that they should be required to take the bitter with the sweet.

No error is found in the judgments of the courts beloAV, and they will be

Affirmed.