Stone v. Kellogg , 165 Ill. 192 ( 1897 )

The question whether or not appellee is entitled to a writ ofmandamus to compel appellants, as officers of the Central Union Telephone Company, to permit him to examine the records, books and papers of the corporation, is presented by demurrer to appellants' answer to the petition. Appellee is both a stockholder and a director in the company. As a stockholder, owning more than $75,000, at its face value, of the capital stock, he had large interests to protect, and as a director he had important duties to perform. In both capacities he had the undoubted right to inform himself (and, if necessary, by examination of the records, books and papers of the company at reasonable and proper times,) as to the affairs and condition of the company, for the better protection of his own interests and the performance of his duties. The petition was amply sufficient, and unless it can be said that the answer showed sufficient reason for refusing the writ, the judgments of the courts below granting it must be affirmed.

At common law the stockholders of a corporation had the right to examine, at reasonable times, the records and books of the corporation. 1 Cook on Stock and Stockholders, sec. 511; A. F.R.R. Co. v. Rowley, 9 Fla. 508; Queen v. Maraguita MiningCo. 1 El. El. 289; King v. Taylor Co. 2 Barn. Ad. 115;In re Burton and the Saddlers' Co. 31 L.J.Q.B. 62; King v.Wilts and B. Canal Nav. Co. 3 Ad. El. 477; King v. Clear, 4 B. C. 899; Queen v. Grand Canal, 1 Irish L.R. 337; BirmBristol Co. v. White, 12 B. 282; Mutter v. Eastern and Mid.Railway Co. 38 Ch. Div. 92; 105 Pa. St. 111; 113 id. 563; Angell Ames on Corp. sec. 681; Redfield on Railways, 227; Grant on Corp. 311; 2 Phillips on Evidence, 313; Martin v. Bienville OilWorks, 28 La. Ann. 204; Foster v. White, 86 Ala. 467;Winter v. Baldwin, 89 id. 483; State v. L., S. F.R.R.Co. 29 Mo. App. 301; State v. Bergenthal, 72 Wis. 314;State v. Sportsman's Park Ass. 29 Mo. 326. But the writ ofmandamus would not issue as a matter of course, to enforce a mere naked right or to gratify mere idle curiosity, but it was necessary for the petitioner to "show some specific interest at stake rendering the inspection necessary, or some beneficial purpose for which the examination is desired." (High on Ex. Legal Rem. sec. 310; 2 Spelling on Ex. Relief, sec. 1612.) But owing to the great increase in the number of stock corporations and the volume of business transacted by them, this right of inspection of the corporate books by the individual stockholder became so important that many of the States of the Union have made specific provision by statute for its enforcement. Section 13 of chapter 32 of the Revised Statutes of this State is as follows: "It shall be the duty of the directors or trustees of every stock corporation to cause to be kept at its principal office or place of business, in this State, correct books of account of all its business, and every stockholder in such corporation shall have the right, at all reasonable times, by himself or by his attorney, to examine the records and books of account of the corporation."

In Foster v. White, 86 Ala. 467, it was held that a similar provision of the statutes of Alabama was not merely declaratory of the common law, but that "the statute was enacted in view of the restrictions and limitations placed by the common law upon the exercise of the right, and the purpose is to protect small and minority stockholders against the power of the majority, and against the mis-management and faithlessness of agents and officers, by furnishing mode and opportunity to ascertain, establish and maintain their rights and to intelligently perform their corporate duties. * * * The only express limitation is, that the right shall be exercised at reasonable and proper times. The implied limitation is, that it shall not be exercised from idle curiosity or for improper or unlawful purposes. In all other respects the statutory right is absolute. The shareholder is not required to show any reason or occasion rendering an examination opportune and proper, or a definite or legitimate purpose. The custodian of the books and papers cannot question or inquire into his motives and purposes. If he has reason to believe that they are improper or illegitimate, and refuses the inspection on this ground, he assumes the burden to prove them such. If it be said this construction of the statute places it in the power of a single shareholder to greatly injure and impede the business, the answer is, the legislature regarded his interests in the successful promotion of the objects of the corporation a sufficient protection against unnecessary or injurious interference. The statute is founded on the principle that the shareholders have a right to be fully informed as to the condition of the corporation, the manner in which its affairs are conducted, and how the capital to which they have contributed is employed and managed." See, also, Huyar v. Cragin Cattle Co.40 N.J. Eq. 392; Swift v. State, 6 Atl. Rep. (Del.) 856.

This interpretation of the statute of Alabama made by the Supreme Court of that State is, we think, a correct one, and is as liberal to the officers and agents of the corporation having the custody of its books, or to the majority of the stockholders or directors under whose orders they may act, as would be permissible to give to our own statute. Measured by the rule of law thus declared, appellants' answer was clearly insufficient. The statement therein that appellee had not been refused permission to examine any of the records and accounts which he was lawfully entitled to examine either as a stockholder or director, is a mere argumentative denial of the allegations contained in the petition and is obnoxious to the demurrer as interposed. It cannot be tolerated that a stockholder can be denied the exercise of so valuable a right given to him in express terms by the statute, by those who are the mere agents of the stock-holders, upon the plea as in effect set up in the answer in this case, that the petitioner had not been denied any information to be derived from an examination of the books and papers which he was legitimately entitled to know. As a director and stockholder he was legitimately entitled to know anything and everything of which the records, books and papers of the company would inform him, so far as anything in the answer shows to the contrary. People v. Throop, 12 Wend. 185.

There was no sufficient allegation in the answer from which it can be made to appear, upon the admission made by the demurrer, that the object and purpose of the petitioner were not legitimate or were to injure the corporation. It is no sufficient answer to such a petition to impugn the motives of the petitioner. In his petition he states: "That it has been, is now and will be his course of conduct to pursue his course with a view to secure the honest and economical administration of the affairs of this company, and that he has no other purpose in view, and has no desire to publish the result of his investigation to the courts or to the public in any way, and is willing to submit to any reasonable restrictions, consistent with the due and adequate protection of his own interests, which the court may think it has power to impose, and to give any reasonable security to abide by such restriction, reserving to himself only the right, in the event that it becomes necessary in his judgment so to do, to seek such relief as he may be advised the law affords to protect his interest in said company, which embraces a large portion of his fortune." We agree with the Appellate Court that the courts are not without power to prevent an abuse of the rights which the petitioner enjoys by virtue of his relation to the company. 4 Thompson's Com. on Law of Corp. secs. 4406-4425.

The objection that the right to examine the records and books of the company does not embrace the right to examine the contracts and other papers mentioned in the pleadings we regard as without force.

Finding no error the judgment of the Appellate Court will be affirmed.

Judgment affirmed.