Orlando v. Reliance Homestead Ass'n.

Relator, Vincent Orlando, is the owner of thirty shares of fully paid stock in the respondent, Homestead Association, and requested the officers of the corporation to permit him to inspect its books and records, and upon their refusal brought this suit, praying for a writ of mandamus directed to said corporation to compel it to grant such permission.

An alternative writ issued commanding the corporation to comply with relator's request or show cause to the contrary.

The corporation moved to strike out certain portions of relator's petition, which motion was overruled. It also excepted to petition on the ground that it set out no right or cause of action, which exception was referred to the merits.

For cause why the preliminary writ of mandamus should not be made peremptory, the corporation answered, in substance, that relator's request to examine its books and records was not made in good faith for the honest and specific purpose of obtaining information concerning its affairs and condition or the value of relator's stock, but for the purpose of coercing it through vexatious and harassing methods into paying relator the withdrawal value of his stock in preference to other stockholders.

Upon trial of the case on its merits, there was judgment for relator, and the respondent corporation has appealed.

The right of those who hold stock in domestic or foreign corporations doing business in this state to inspect the books and records of such corporations was secured by each of the Constitutions of this state adopted since 1879. Const. 1879, art. 245; Const. 1898, art. 273; Const. 1913, art. 273; Const. 1921, art. 13, § 4.

The right has been consistently upheld by this court. Legendre Co. v. New Orleans Brewing Association, 45 La. Ann. 669, 12 So. 837, 40 Am. St. Rep. 243; State ex rel. Bourdette v. New Orleans Gaslight Co., 49 La. Ann. 1556, 22 So. 815, 816; State ex rel. Burke, Executrix, v. Citizens' Bank of Jennings, 51 La. Ann. 426, 25 So. 318; State ex rel. Carey v. Dalgarn Construction Co.,168 La. 620, 122 So. 884.

The same rule prevails under the common law.

"A stockholder has a right at common law to inspect and examine the books and records of the corporation at a proper time and place and for a proper purpose; and in many jurisdictions this right is further secured by statutory or constitutional provisions. Such statutes are salutary. They are not intended to abridge the stockholder's common-law rights, but to enlarge and extend them by removing some of the common-law limitations." 14 C.J. § 1300, p. 853.

"A stockholder in a corporation has in the very nature of things and upon principles of equity and good faith and fair dealing the right to know how the affairs of the company are conducted, and whether the capital of which he has contributed a share is being prudently and profitably employed. And in order to obtain this information he has, if not restricted by the charter or rules and by-laws of the corporation, a common law right, at proper and seasonable times, to inspect all the books and records of the corporation." 7 R.C.L. § 298, p. 332.

The right of a stockholder to inspect the books and records of the corporation in which he holds stock rests upon the fact of ownership. The books as well as the property of a corporation belong to the stockholders, and those in charge of the concern are their agents. With reference to the right of inspection, the relation of a stockholder to the corporation has been likened to that of a partner to the firm.

Shareholders in a corporation have a right to know how its affairs are being managed, and to the end that they may draw their own conclusions as to whether they are properly managed, and in order that they may know the value of their stock, and for proper guidance in their dealings with the corporation, they have a right to inspect the books.

In the case of State ex rel. Bourdette v. New Orleans Gaslight Co., supra, the court said, in substance, that the right of inspection was available only to those who had an actual interest in the corporation and who sought the information which an examination of the books might disclose, to subserve, advance, or to protect that interest, and not to the idle and impertinent. And the court went on:

"But a shareholder or other person with a laudable object to accomplish, or a real and actual interest upon which to predicate his request for information disclosed by the books, is given, by the fundamental law itself, the right to inspect them."

Under our jurisprudence and that of all the other states, so far as we can find, the rule is to permit inspection and that the right to do so should be denied only in exceptional cases.

It is true that the right to inspect is a qualified and not an absolute one. No stockholder should be permitted to inspect the books through idle curiosity or for speculative or vexatious purposes, or for purposes not germane to his interest as a stockholder. But, if the request to inspect be made in good faith and for the honest and specific purpose of gaining information concerning the management of the corporation and the condition of its affairs generally, he cannot legally be denied the right.

The respondent in this case is a building and loan association organized under Act No. 120 of 1902, as amended by Acts No. 159 and No. 292 of 1910 and Act No. 280 of 1916. Up to July, 1929, it paid to the stockholders semi-annual dividends regularly, but failed to pay any in July of that year and made it known that none would be paid in January, 1930. For this reason relator became dissatisfied and apparently suspicious, and in September, 1929, gave written notice of his intention to withdraw his shares of stock and credits, as permitted by section 7, Act No. 280 of 1916. The association notified him that his claim to be paid had been filed and bore the number 1602 1/2, which indicated that there were at least 1,602 other claims which would have to be paid before his was reached under the law and the rules of the association.

He then demanded the right to inspect the books, which demand was refused by the officers. Their refusal to permit the inspection was placed upon the ground that he had not stated the purpose for which he desired the information which an inspection of the books might disclose. His response, made by his counsel, was that he had reason to believe that the affairs of the association were being grossly mismanaged and that the officers and directors had been guilty of fraud and deceit and were intentionally concealing their illegal and fraudulent acts from the stockholders. He makes substantially the same allegations in his petition.

The right of a stockholder to inspect the books of the corporation to gain information as to the manner in which its affairs are being conducted is generally upheld.

In 14 C.J. p. 856, the rule is stated to be "that a stockholder as such has a right to inspect the books and records of the corporation where his sole object is to inform himself as to the manner in which the corporate business is being conducted." In support of this text many cases are cited.

"Also the right of inspection may be exercised, although the only object of the stockholder is to ascertain whether the affairs of the corporation have been rightly conducted by the directors and managers." 7 R.C.L., § 303, p. 327.

In the case of Guthrie et al. v. Harkness, 199 U.S. 148, 26 S. Ct. 4, 50 L.Ed. 130, 4 Ann. Cas. 433, the right of a stockholder in a national bank to inspect the books was upheld where his reasons for seeking such inspection were "that he might ascertain the value of his stock in the bank, and whether the business affairs of the same had been conducted according to law."

The corporation's defense is that relator was prompted by improper motives. Having alleged that he was, the burden was upon the corporation to sustain its allegations; there being no presumption that his motives were improper. Stone v. Kellogg, 165 Ill. 192, 46 N.E. 222, 56 Am. St. Rep. 240; Johnson v. Langdon, 135 Cal. 624, 67 P. 1050, 87 Am. St. Rep. 156; State v. Pacific Brewing Co., 21 Wn. 451, 58 P. 584, 47 L.R.A. 208; Knox v. Coburn, 117 Me. 409, 104 A. 789. Respondent failed to discharge its burden.

For the reasons assigned, the judgment appealed from is affirmed; the respondent corporation to pay all costs.

O'NIELL, C.J., and BRUNOT, J., dissent.