Opinion
12-21-1885
HUYLER and others v. CRAGIN CATTLE CO. and others.
J. B. Vredenburgh and Barker Gummere, for petitioners. S. H. Grey, for respondents
Petition for order that the books of the company be brought into this state, etc.
J. B. Vredenburgh and Barker Gummere, for petitioners.
S. H. Grey, for respondents
RUNYON, C. This is an application by petition for an order that the books of the Cragin Cattle Company, which it is alleged in the petition are kept out of this state, and in the city of Philadelphia, in Pennsylvania, be brought into this state. The company is a corporation createdunder the general law. The application is made under the fiftieth section of the act entitled "An act concerning corporations," (Revision, 186,) which provides that in all cases, where it is not otherwise provided by law, the meeting of the stockholders of all corporations of this state shall be held at the principal office or place of business of the company in this state; that the directors may hold their meetings and have an office and keep the books of the company (except the stock transfer book) outside of the state, if the by-laws so provide: provided, however, that the company shall always maintain a principal office or place of business in this state, and have an agent of the company in charge thereof, wherein shall be kept the stock transfer books of the company for the inspection of all who are authorized to see the same, and for the transfer of stock; and provided, further, that the chancellor, or the supreme court, or any justice thereof, may, upon proper cause shown, summarily order that any or all of the books of the company be forthwith brought within this state, and kept therein at such place as may be designated, for such time as such chancellor, court, or judge may deem proper, and that, upon failure of any company to comply with such order, its charter may be declared forfeited by the chancellor or the supreme court, and it shall thereupon cease to be a corporation, and all the directors and officers of the company shall be liable to be punished as for contempt of court for disobedience of such order. The amount of the capital stock of the company is $300,000, divided into 300 shares of the par value of $1,000 each. Of these shares the petitioner Mrs. Huyler owns 60; Mr. Huyler, 5; and Mr. Ridder, 2; 67 in all,—for which they paid (including premium) $85,500 in cash. The grounds of the application are that the officers of the company refuse to permit the petitioners to inspect those of the books which are out of the state. The petitioners state that the value of the capital stock has greatly declined, and that a still further depreciation is threatened; that, since the petitioners bought their stock, the company has expended large sums of money, amounting to at least $64,000, in the purchase of a certain ranch in Indian territory, and in the purchase of cattle and other property necessary to its business; and that, after it acquired that ranch, and had put its cattle upon it, the president of the company put upon it about 1,200 head of cattle, the larger part of which belonged to himself, and none of them to the company; that the facts concerning the number of cattle put there by the president cannot be ascertained, except from an inspection of the books of the company; that the petitioners have reason to believe that the books will show that more cattle have been purchased by the company than have been accounted for by the officers, except by a general statement as to the death of cattle; and that, though an inspection of the books has been duly demanded by the petitioners, it has been refused by the officers of the company. The petition states that on the sixth of October last one of the petitioners, Mr. Ridder, on behalf of all of them, called at the office of the company, in Philadelphia, and demanded of the president and treasurer permission to inspect the books at a proper time, and that those officers refused to permit such inspection of any of the books, exceptthe stock book; and that, on the tenth of November last, at a meeting of the stockholders held in Camden, in this state, at which were present the owners of 145 shares of stock other than those held by the petitioners, Mr. Ridder, speaking for himself and Mr. and Mrs. Huyler, asked permission to examine the books, stating that the president had refused to permit him to do so, and that the petitioners, having invested $85,500 in the stock of the company, were desirous of knowing something about its affairs; that Mr. Woodman, one of the stockholders, then said that he understood that Mr. Huyler had vilified the company, and the officers had determined that he should not see the books without the order of the court. The petitioner states, also, that although Mr. Huyler then denied that he had vilified the company, and challenged the production of any evidence that he had done so, an inspection of the books was denied by a formal vote. The petition alleges, also, that by the by-laws no one can dispose of his or her stock to any one not already a stockholder of the company without the consent of the board of directors. It further states that no financial report other than a mere statement of receipts and expenditures has ever been made to the stockholders, and that the petitioners believe that it is the intention of the president and his confederates to so operate the company as to compel the petitioners to sell their stock to them at a great loss.
The respondents, who are the company, and Charles I. Cragin, president, and Thomas J. Curtis, treasurer, by their answer admit that the petitioners are the owners of stock as alleged in the petition, and that the books, except the stock ledger and transfer book, have been kept in Philadelphia, in pursuance of a provision of the by-laws, although the principal office of the company is in Camden; and that they are in the possession of the officers in the former place. It admits that the capital stock—the value of it—has greatly declined, but alleges that the decline is entirely due to the losses sustained by the death of cattle from the severity of the past winter. It admits that the cattle of the president have been pastured upon the ranch, as stated in the petition, and alleges that that matter was a legitimate transaction, and that the books contain a true account of it, and that they contain a true account of the company's cattle, and the disposition thereof, and the losses sustained by the death thereof. It denies that the petitioner Ridder demanded an inspection of the books on the sixth of October last, and it was refused; but alleges that what he demanded was an opportunity to copy and transcribe the books, and that that was denied. While it states that at the meeting of the stockholders mentioned in the petition Mr. Ridder stated that the petitioners had been prevented from inspecting and making transcript from the books, it does not deny that at the meeting it was voted as stated in the petition that the petitioners should be denied an inspection of the books. It should be stated that Mr. Woodman, in his affidavit annexed to the answer, denies that he said that Mr. Huyler should not see the books without an order of the court, and he denies, also, that he said anything to that effect, and says that he heard no other stockholder say so. By the answer the respondents insist, as did their counsel uponthe argument, that the petitioners have no right to an inspection of the books except when it may be necessary in a pending suit to which they may be parties, or in reference to some pending specific dispute or question in which they may be interested. The respondents' counsel argues that the chancellor has no jurisdiction to make the order for which application is made.
The ground of the objection is that the statute which gives the chancellor or the supreme court, or any justice thereof, the power to make such order, declares that, in case of non-compliance by the company with the order, the chancellor or supreme court may declare the charter forfeited, and that, from the time of such declaration, the company shall cease to be a corporation; and it is urged that the legislature has not itself the power to declare such forfeiture of vested rights of franchise acquired under such charters as are held by the contracts between the legislature and the company; and that, if it has such power, it cannot delegate, but must exercise it itself. The company was incorporated January 27, 1883, under the act "Concerning Corporations," which provides, among other things, that the charter of every corporation which shall thereafter be granted by or created under any of the acts of the legislature shall be subject to alteration, suspension, and repeal, in the discretion of the legislature. Revision, 178, §6. That provision is applicable to any part of the charter of this company, and the company (it was incorporated after the passage of the fiftieth section of the act) took its charter subject to the provisions of that section. State v. Commissioners, 37 N. J. Law, 228. It is therefore as if there were a provision in the charter of the company that if the chancellor, or the supreme court, or any justice thereof, shall order it to bring its books into the state, and it shall fail to comply, the chancellor or the supreme court may declare its charter forfeited, and it shall thereupon cease to be a corporation. It is a very clear proposition that the legislature has the power to confer upon a court the authority to declare a charter forfeited for a specified misfeasance or malfeasance. The act gives authority to the chancellor, or supreme court, or any justice thereof, upon proper cause shown, summarily to order that the books be brought into the state. The respondent's counsel insists that the provision gives no authority to order that an inspection be permitted, and is merely intended to secure the production of the books to answer state purposes,—taxation, for example,—and was not designed to furnish any remedy for any private individual, whether stockholder or creditor. The act manifestly was intended to secure to stockholders and others interested the means of compelling a domestic corporation to bring its books into this state to answer any legitimate purpose which would be defeated by the keeping of the books out of the state, or to promote any lawful object in the pursuit of which the persons interested maybe unduly embarrassed or prejudiced by such keeping of the books out of this jurisdiction. It was intended to secure private rights, but it may serve public purposes also. The statute under consideration is a highly remedial one, and should be construed liberally. The fact that it is of a penal character will not forbid such construction.
Sickles v. Sharp, 13 Johns. 497; Cotheal v. Brouwer, 5 N.Y. 562.
The act of 1849 provided that all companies incorporated under the laws of this state whose charters did not designate their places of meeting should hold their business meetings, and the meetings of their directors, and should keep their office and books, in this state: provided, that the act should not apply to any corporations whose charters were not subject, by the terms thereof, to be altered, modified, or repealed, or to any incorporated steam-boat companies, or to any ferry company, on the waters between this state and either of the adjoining states. P. L. 1849, p. 215. The fiftieth section of the act concerning corporations is amendatory of that act, and it provided that where it is not otherwise provided by law the meetings of the stockholders of all corporations shall be held at the principal office or place of business of the company in this state; that the directors may hold their meetings, and have an office, and keep their books, (except the stock and transfer books,) outside of this state, if the by-laws of the company so provide. But the company is in such case required to maintain a principal office or place of business in this state, and have an agent in charge thereof, in which place shall be kept the stock and transfer books for the inspection of all who are authorized to see them, and for the transfer of the stock. The section then provides for ordering that the other books be brought into the state if there be occasion for such order. The object of this latter provision was to secure the production in this state, as occasion might require, of the books which that section gave the company authority to keep outside of the state; that is, to prevent injury to all persons interested from the permission given to keep the books outside of the state.
The order is to fix the place and length of time at and for which the books are to be kept here. The latter must be governed by the object for which the books are to be produced. In this case, the complaint is that persons entitled to an inspection are denied that right. The fact being established that the right is denied, the question remains whether that constitutes proper cause, within the meaning of the section, for ordering that the books be brought into this state. Stockholders are entitled to inspect the books of the company for proper purposes at proper times, (Field, Corp. § 118; Cockburn v. Union Bank, 13 La. Ann. 289; Ang. & A. Corp. § 681; People v. Throop, 12 Wend. 183; Rosenfeld v. Einstein, 46 N. J. Law, 479;) and they are entitled to such inspection, though their only object is to ascertain whether their affairs have been properly conducted by the directors or managers. Such a right is necessary to their protection. To say that they have the right, but that it can be enforced only when they have ascertained in some way without the books that their affairs have been mismanaged, or that their interests are in danger, is practically to deny the right in the majority of cases. Oftentimes frauds are discoverable only by examination of the books by an expert accountant. The books are not the private property of the directors or managers, but are the record of their transactions as trustees for the stockholders. In Union Bank v. Knapp, 3 Pick. 96, it was held that a bank is bound to produce its books for the inspection ofa depositor upon proper occasions, and that the officers of the bank having charge of them are so far the agents of both parties.
If, under the permission given by the fifteenth section, a domestic corporation should keep its books in a distant state or territory, (in this case the company might keep its books on its ranch in the Indian Territory,) and should deny its stockholders the right to inspect them there, it is a proper cause for ordering that the books be brought into this state in order that the stockholders may inspect them. In this case there has been a deliberate denial of the right of stockholders who are the owners of 67 out of the 300 shares of the stock, of the par value of $67,000, and for which they paid $85,500, to inspect the books, and the only reason given is the allegation that one of them, Mr. Huyler, who is the owner of five shares, has vilified the company and its officers. It is admitted that the capital stock has greatly depreciated within a comparatively short time. The property of the company has been used by the president for a long time for pasturing a large number of cattle, and no account of the matter is contained in the annual statement. It appears by that statement that five shares of the stock of the par value of $5,000 have been sold on credit, for which nothing has been received; and it does not appear from the statement that there is any security or obligation therefor. The petitioners' request for an opportunity to inspect the books was not unreasonable, and ought to have been granted. The refusal is, under the circumstances, proper cause for ordering that the books be brought into this state, in order that the petitioners may have an opportunity of inspecting them here. The section gives power to order that the applicants for the order be permitted to inspect the books after they shall have been brought into this state, not indeed expressly, but by implication. The books are to be brought into the state to answer a purpose, and the legislature intended to give power to effectuate that purpose. The first proviso of the section is expressly intended to secure a right of inspection of certain books which are to be kept in this state, and the other is intended to secure the same right upon occasion as to the books which the company may lawfully keep out of the state.
I will order that the books be brought to the principal office of the company in Camden within one day from the date of the order, and kept there for 10 days consecutively, and that the petitioners have an opportunity to examine them there during proper hours of each day.