Babcock v. Harrsch

• Decision Date: 19 December 1923
• Docket Number: No. 14710.,14710.
• Citation: Babcock v. Harrsch, 310 Ill. 413, 141 N.E. 701 (Ill. 1923)
• Parties: BABCOCK v. HARRSCH et al.
• Court: Illinois Supreme Court

310 Ill. 413

141 N.E. 701

BABCOCK

v.HARRSCH et al.

No. 14710.

Supreme Court of Illinois.

Dec. 19, 1923.

Error to Superior Court, Cook County; Marcus Kavanagh, Judge.

Action by Charles W. Babcock against Robert E. Harrsch and another.Judgment for plaintiff, and defendants bring error.

Reversed and remanded.Edward J. Kelley, of Chicago, for plaintiffs in error.

Rathji, Lawlor & Connor, of Chicago (Edwin D. Lawlor, of Chicago, of counsel), for defendant in error.

DUNCAN, J.

This is an action in assumpsit for $2,500 by Charles W. Babcock, defendant in error, against Robert E. Harrsch and William G. Harrsch, plaintiffs in error, brought in the superior court of Cook county, to recover a penalty under section 38 of the General Corporation Act(Smith-HurdRev. St. 1923, c. 32) for the alleged refusal of plaintiffs in error to permit defendant in error, a stockholder in the Highways Motor Company, to make an inspection of the records and books of that corporation.The declaration consists of the common counts, simply, for goods, wares, and merchandise delivered, for money lent and advanced, and for money had and received to and for the use of the defendant in error, for money due for interest and forbearance, for labor, service, and material, and to balance due on account stated.The affidavit of claim sworn to is, in substance, that the demand is for 10 per cent. of the value of defendant in error's stock holdings in the Highways Motor Company, an Illinois corporation, he being the holder of 2,500 shares of the capital stock of the company, of the par value of $10 per share, and that plaintiffs in error had failed and refused to permit the defendant in error to inspect the books of the company, as provided by the statute, as a result of which defendant in error became entitled to receive from the plaintiffs in error, the sum of $2,500 in accordance with the statute, after allowing all just credits, deductions, and set-offs.The plea was the general issue, only, by both plaintiffs in error, followed by an affidavit of merits, to the effect that the plaintiffs in error, and each of them, had a good defense on the merits to the whole of the demand, followed by a denial that they, or either of them, at any time denied defendant in error access to or right to examine the records and books of account of the company, etc.A trial was had before a jury, which returned a verdict in favor of the defendant in error for $2,000.Motion for a new trial was overruled, in which was raised for the first time the constitutionality of section 38 of the General Corporation Act.A motion in arrest of judgment in the general form was made and overruled, and judgment was rendered on the verdict for said sum.This writ of error is prosecuted to review the judgment.

The Highways Motor Company was incorporated under the laws of this state, with a capital stock of $100,000.The defendant in error owned one-fourth of the capital stock of the company, or 2,500 shares, of the par value of $10 each.The remainder of the stock was owned by Robert E. Harrsch, vice president and general manager, William G. Harrsch, secretary and treasurer, and William C. Furst.Defendant in error had been president of the company, but was ousted as president, and the management of the company was undertaken by the plaintiffs in error.This action of ouster provoked a controversy between the parties, and defendant in error employed an attorney and authorized him to make an inspection of the company's books.The attorney went to the offices of the company, and requested to be allowed to examine the books of the company, and make such memoranda and copies therefrom as he desired.This request was made to the man in charge of the records, who was one of the plaintiffs in error.The plaintiffs in error both refused the attorney the right to make any memoranda or copies from the records, but he was informed that he could examine the books, provided he made no copies or memoranda.The attorney proceeded to examine the books and to make memoranda therefrom, but was forced to quit because he was making such memoranda.The foregoing facts are not disputed, and the main controversy before the jury was as to the value of defendant in error's stock.The jury found the value of defendant in error's stock to be $8 per share, and assessed the penalty aforesaid against them.

[1] The first contention of plaintiffs in error is that section 38 aforesaid is unconstitutional and void, because in conflict with section 2 of article 2 of the Constitution of Illinois, that no person shall be deprived of life, liberty, or property without due procees of law.Section 38 is in the following language:

‘Each stockholder of a corporation shall have the right, at all reasonable times, by himself or by his attorney, to examine the records and books of account.Any officer or director who denies such access shall be liable to the stockholder denied in a penalty of ten per centum of the value of stock owned by such stockholder, in addition to any other compensation of remedy afforded him by law, if any, which shall be recoverable in any court of competent jurisdiction.’

The right of a stockholder to inspect and examine the books and papers of a corporation was recognized at common law, and existed in the absence of any statutory provision on the subject.This subject of inspection of corporate books is one with which the Legislature may deal, and numerous statutes upon the subject have been enacted in the various states.While varying somewhat in phraseology, such statutes are in harmony with regard to their purpose, and are generally held either to have confirmed or to have enlarged the common-law right.Under the above section of the statute, stockholders are given the broad right to examine the books, records, and papers of a corporation at reasonable and proper times.

[2] The object of the statute is to...