Clawson v. Clayton

• Citation: 93 P. 729,33 Utah 266
• Decision Date: 16 January 1908
• Docket Number: 1869
• Court: Supreme Court of Utah
• Parties: CLAWSON v. CLAYTON et al

93 P. 729

33 Utah 266

CLAWSON v. CLAYTON et al

No. 1869

Supreme Court of Utah

January 16, 1908

APPEAL from District Court, Third District; T. D. Lewis, Judge.

Action by Spencer Clawson against I. A. Clayton and the Clayton Investment Company. From a judgment for plaintiff, defendants appeal.

AFFIRMED.

Young &amp Snow for appellants.

Young &amp Moyle for respondent.

FRICK J. McCARTY, C. J., and STRAUP, J., concur.

OPINION

FRICK, J.

The plaintiff, as a stockholder, made application to the district court for an order requiring the defendants to permit him to inspect the books of the defendant company. The plaintiff, after alleging the incorporation of the defendant company, in substance, states that he is a bona fide stockholder of record of the defendant corporation; that at various times during business hours of the corporation he had applied to the corporation and its secretary for permission to inspect the corporate books, through an accountant, in his behalf; that the defendant I. A. Clayton is the secretary and treasurer of said corporation, and as such has charge of all of its books; and that said defendants have, at all times, refused, and still refuse, to permit the plaintiffs to inspect the books of said corporation through an accountant as aforesaid. The defendants admitted the corporate existence of the defendant company; admitted that I. A. Clayton was the secretary and treasurer thereof, and that as such, at all times, had the custody and control of all the books of the corporation; and further admitted that the plaintiff is a bona fide stockholder of record of the defendant corporation. The defendants denied all the other allegations, and averred that the plaintiff at all times was acquainted with the system of bookkeeping adopted by said corporation, and that he was well qualified and competent to examine and inspect said books personally; that the defendants always were ready and willing to have the plaintiff make a personal examination and inspection of said books, but that they refused the plaintiff the right to make such examination and inspection through an agent and accountant. Upon a hearing to the court, it made findings in favor of the plaintiff, and, as a conclusion of law, found that the defendant unlawfully denied the plaintiff the right to examine and inspect the books of said corporation through an accountant, and ordered the defendants, their agents, servants or employees forthwith to permit the plaintiff, through an accountant, to examine and inspect the books of the corporation during business hours at its office and in absence of the plaintiff. From this judgment, the defendants appeal.

All the assignments of error may be determined upon the one that the court erred in making the order permitting an inspection of the books of the corporation through an accountant, where, as in this case, the right to a personal inspection by the stockholder is not denied. At common law the inspection of corporate books by the stockholder was held to be a matter of privilege, rather than a matter of right. At all events the right, if we call it such, was held to be a qualified right, and to some extent at least discretionary. In this view, it was sometimes held that the right of inspection was personal to the stockholder, and, unless he made it appear that he was physically unable or otherwise disqualified to make a proper examination of the corporate books, that such an examination by an agent or attorney would not be permitted. In some cases it was further held that the stockholder should make it appear what the purpose of the examination was, and that he had some good reason for demanding an inspection. The foregoing doctrine is invoked by the defendants as applicable to this case. Most of the states have enacted statutes upon the subject. These statutes while somewhat varied in phraseology are in harmony with regard to their purpose. Section 329, Rev. St. 1898, as contained in the chapter devoted to private corporations, reads as follows: "The books of every corporation organized under the laws of this state must be so kept as to show the original stockholders, their interests, the amount paid on their shares, and all transfers thereof; of all books of any corporation shall, at all reasonable hours, be subject to the inspection of any bona fide stockholder of record." This section is supplemented by section 4415 of the Penal Code, which, in substance, provides that every officer or agent of any corporation who has in his custody or control any books, paper, or document of such corporation, and who refuses a stockholder, upon lawful demand, during office hours, the right to inspect or take a copy of the same, or any part thereof, is guilty of a misdemeanor. It is contended by the defendants that, since a refusal of inspection involves a penal offense, the statute should receive a strict construction, and that a reasonable construction of it would limit the right of inspection to the stockholder personally, unless some good reason is shown by him why he cannot make it.

It is further contended that the stockholder should be required to give some reason why he desires an inspection of the books. We cannot assent to these contentions. As we view the matter the right to make an inspection and examination of the corporate books, at reasonable times, by a stockholder, is an absolute, and not a qualified right. The right is given by statute without a qualification, except that it be made at reasonable hours. The fact that the right is sought to be strictly enforced by a penal statute emphasizes the existence of the right, rather than qualifies it. The officers of the corporation, while directly its agents conducting its affairs, are nevertheless selected and chosen by the stockholders. The corporation is the creature of the stockholders. They are not the creatures of the corporation. The stockholder thus having a beneficial interest in the corporate property is interested in the conduct of its affairs, and he also has an interest in knowing whether or not the officers of the corporation, for whose selection he is in part, at least, responsible, are faithfully discharging their respective duties. In what way may he ascertain this fact better than by an inspection of the books and records in which all the proceedings and transactions of these officers as agents of the corporation, are recorded? Is he not entirely within his rights, as well as within the provisions of the statute, when he demands an inspection of the books and records at any reasonable...