Machen v. Machen & Mayer Electrical Mfg. Co.
| Decision Date | 02 July 1912 |
| Docket Number | 134 |
| Citation | 85 A. 100,237 Pa. 212 |
| Parties | Machen, Appellant, v. Machen & Mayer Electrical Mfg. Co |
| Court | Pennsylvania Supreme Court |
Argued May 10, 1912
Appeal, No. 134, Jan. T., 1912, by plaintiff, from judgment of C.P. No. 3, Phila. Co., Sept. T., 1911, No. 2261, refusing peremptory mandamus in case of Charles Hudson Machen v Machen & Mayer Electrical Manufacturing Company, a corporation of the State of New Jersey; Charles Horn President, General Manager, Assistant Treasurer and Director of said corporation; Walter D. Bryson, Secretary and Director; Alfred J. Brannen, Treasurer and Director, and Herman Horn, James Brannen and J. Edward Fagen, Directors. Reversed.
Mandamus to compel inspection of corporation records. Before FERGUSON, J.
The facts appear by the opinion of the Supreme Court.
Error assigned was in entering judgment in favor of defendants.
The judgment of the court below is reversed, and it is now ordered, adjudged and decreed that that court issue a peremptory writ of mandamus directed to the individual defendants served and each of them, requiring and commanding them and each of them, at such times as may be reasonable and convenient for the purpose, to give to Charles Hudson Machen, the plaintiff, with his clerk or clerks, access to all the books, documents and papers of the defendant corporation in their possession with the opportunity to make abstracts and copies therefrom. It is further ordered that the individual defendants, served in this case, pay the costs in this and the court below.
Garrett A. Brownback and Roberts, Montgomery & McKeehan, for appellant. -- The directors and administrative officers of the corporation have an absolute right to inspect the corporate books without regard to their motives: People ex rel v. Throop, 12 Wend. (N.Y.) 183; People ex rel. v. Goldstein, 37 A.D. 550 (56 N.Y.S. 306); People ex rel. v. Columbia Paper Bag Co., 103 A.D. 208 (92 N.Y.S. 1084); People ex rel. v. Central Fish Co., 117 A.D. 77 (101 N.Y.S. 1108); Lawton v. Bedell, 71 A. Repr. 490.
The stockholder's or director's suit to inspect the books and records of a foreign corporation is not within the rule as to internal affairs: Richardson v. Swift, 7 Houston (Del.) 137; State v. Farmer, 7 Ohio Cir. Ct. 429; State v. Land & Timber Co., 106 La. 621 (31 So. Repr. 172); Nettles v. McConnell, 151 Ala. 538 (43 So. Repr. 838); Sloan v. Clarkson, 105 Maryland 171 (66 A. Repr. 18); State v. Lazarus, 127 Mo.App. 401 (105 S.W. Repr. 780); Schondelmeyer v. Columbia Fireproofing Co., 219 Pa. 610; Andrews v. Mines Corp., 205 Mass. 121 (91 N.E. Repr. 122); McGrew v. Pittsburgh, Etc., v. Gold M. & M. Co., 20 Pa. (D.R.) 826.
D. J. Callaghan, for appellees. -- The court has no jurisdiction of the complaint because it was an attempt to control the internal management of a foreign corporation: McCloskey v. Snowden, 212 Pa. 249; Madden v. Electric Light Co., 181 Pa. 617; Kinney v. Mexican Plantation Co., 233 Pa. 232; American Grease Co. v. Vogellus, 9 Pa. D.R. 217; Bank of Virginia v. Adams, 1 Pars. Sel. Eq. Cases, 534.
Before FELL, C.J., MESTREZAT, POTTER, ELKIN and MOSCHZISKER, JJ.
This was a petition filed in the court below for a mandamus by one of the seven directors of a foreign corporation, doing business in this State, requiring the six other directors and the officers of the corporation to permit the petitioner to inspect the books, documents and papers of the corporation to the end that he might be able to perform his duties as a director thereof.
The petition and amended petition for the writ set forth the facts in detail, but they may be summarized as follows: The Machen and Mayer Electrical Manufacturing Company was organized in 1907 under the laws of New Jersey for the purpose of manufacturing and selling electrical specialties and supplies in the City and County of Philadelphia, Pennsylvania, and was duly registered under the laws of Pennsylvania as a foreign corporation doing business within the State. The manufacturing plant and substantially all of the property of the corporation as well as its chief place of business and its books of account, minute books, the stock books and all of its papers and documents are and always have been in the County of Philadelphia. The plaintiff and the six individual defendants are directors of the corporation, and he owns 156 of the 633 outstanding shares of its capital stock. Charles Horn is the president, general manager and assistant treasurer; Walter D. Bryson is the secretary, and Alfred Brannen is the treasurer of the company. The plaintiff, the individual defendants, except J. Edward Fagen, and all of the stockholders are and have been since the incorporation of the company citizens and residents of Pennsylvania. The individual defendants residing in Pennsylvania have the custody and possession of all the books of account, records, papers and documents of the corporation. The plaintiff is the registered agent of the corporation in Pennsylvania. There is no statute or law of New Jersey or by-law of the corporation regulating the inspection of books, documents, papers and records thereof by the directors. The by-laws provide that the business affairs of the company shall be managed and controlled by the board of directors, and that regular meetings of the board shall be held on the first Monday of each month. The only meetings of the directors held since March 13, 1911, at which there was a quorum, were the regular meetings held in the months of July and October. Defendants Herman, Horn and James Brannen hold but one share each in the stock of the company, and Bryson owns ten shares. Fagen is a resident of New Jersey and was elected a director in order to comply with the laws of that state. One share of the stock stands in his name but he is not the real owner of it, and it was transferred to him to qualify him as a director.
The business affairs of the company have not been managed by the board of directors but by the executive committee in conjunction with Charles Horn, the president. On several occasions, the plaintiff asked permission of the other directors and the officers of the company to inspect the books, documents and papers thereof in order to enable him to properly perform his duties as director. He also requested information as to the manner in which the affairs of the company had been conducted, and asked to see a financial statement of the company. All of his requests were refused. He then instituted this proceeding for a mandamus requiring the defendants, at such times as might be reasonable and convenient for the purpose, to permit him to inspect the books, documents and papers of the corporation, to the end that he might be able to perform his duties as director. An alternative writ was awarded and served on all the directors except Fagen. A motion was made to quash the writ on the ground that the court was without jurisdiction but it was overruled.
The defendants then filed a return to the alternative writ. It does not deny the facts set forth in the petition except the averment that there is no statute or law in New Jersey regulating the inspection of the books, documents and records of the company by the directors of the company. It alleges as a justification for refusing the plaintiff's request for permission to inspect the books and documents that prior to his last election as director, the plaintiff neglected his duties as president and secretary of the company, interfered with the general management of its affairs, prevented the general manager from attending to his duties, cancelled instructions given by the general manager as to selling goods, that he was promoting a competing concern, that he put in circulation a printed card stating that he had resigned from the defendant corporation, that he had not made any charges or allegations of wrong doing or irregularities on the part of the officers of the company, and that in a report from Bradstreet it was set forth that the plaintiff was president of another company. The plaintiff demurred to the return which was overruled and the court entered judgment for the defendants. From that judgment this appeal was taken.
The appellant states and discusses two propositions: (a) the sufficiency of the facts averred in the petition to warrant the court below in granting the relief prayed for, and (b) the jurisdiction of the court to grant the relief.
The appellees confine their argument to the second proposition and thereby concede that if the court had jurisdiction, the undisputed facts were sufficient to justify it in awarding a peremptory mandamus. We have stated the material facts set forth in the petition and they are not denied in the return to the alternative writ. They show that six of the seven directors of the corporation by the means disclosed in the petition have deprived the plaintiff, the other director, of access to the books, documents and papers of the corporation, and of the opportunity of exercising the legitimate functions of a director. We know of no authority and have been referred to none that sustains such conduct on the part of a majority of a board of directors of a corporation. It is the duty of directors to manage the affairs of the corporation and to keep in touch with the acts of its executive officers, and for that purpose they should secure all the information affecting the corporation obtainable from every available source. An important and essential part of this information must necessarily come from the books and documents of the corporation itself. They should disclose the true condition of the corporation, and thereby enable the directors to obtain correct information as to the management of its affairs by the...
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