Mitchell v. Rubber Reclaiming Co.

• Decision Date: 04 June 1893
• Citation: 24 A. 407
• Parties: MITCHELL v. RUBBER RECLAIMING CO.
• Court: New Jersey Court of Chancery

24 A. 407

MITCHELL

v. RUBBER RECLAIMING CO.

Court of Chancery of New Jersey.

June 4, 1893.

Petition by N. Chapman Mitchell against the Rubber Reclaiming Company, of which petitioner is a stockholder, to compel it to produce and keep its books in the state to enable him to make an examination of them. Petition granted.

William S. Gummere and Henry W. Jessup, for petitioner.

Bacot & Record, for defendant.

BIRD, V. C. The petition in this case shows that the defendant corporation was duly organized and commenced business in the month of June, 1891, with the capital stock of $200,000, of which #100,000 was paid in, $37,700 of which was owned by the petitioner; that the petitioner was president and director as well as stockholder; that on account of ill health he was advised to visit the southern part of the country, and accordingly was absent in the month of December last; that on the 19th day of December the directors ordered a dividend of 10 per cent. to the stockholders, and on the same day passed a resolution to increase the paid-up capital stock to an amount equal to the said dividend, of which the petitioner had no information until after the event; that upon being informed thereof he took measures to determine the legality of the issue of such stock; that afterwards, the stock having been issued, it was recalled by the directors and canceled, and after the cancellation of such stock a like amount was issued without any other meeting or resolution of the board of directors; that petitioner accepted the amount of such dividend, and that after accepting the same he "became aware that the company had not only been compelled to borrow money in order to transact its current business, but it was generally understood by his fellow directors that the dividend, as aforesaid, had been declared for the purpose of furnishing the stockholders of the company with the means of purchasing the stock admitted to be issued as aforesaid, whereupon your petitioner, to avoid the liability imposed by law on the directors consenting to an improper payment of dividends, repeatedly demanded an examination of the books of the company in order to ascertain whether or not said dividend had been properly declared;" that he instructed his attorney in New York to ask for permission to examine the books at such time and place as would least interfere with the business of the corporation and at his own expense; that said attorney made such request of the treasurer, who had charge of the books at his principal office; that the said request was absolutely denied; that by reason thereof he has since been and is wholly uninformed as to the condition of the company; that, the capital stock having been withdrawn, the stock thereafter issued was illegal, because there was no other meeting of the directors or the stockholders which authorized the issue of the said stock that was so issued subsequent to the withdrawal of that which was issued, recalled, and canceled; and that all of the books of the said company are kept without this state; and that petitioner, because of his ill heath, is unable to make a personal examination of the said books. The prayer of the petition is that the books of the said company may be produced and kept at the principal office of the said company, in this state, for such period of time as shall enable the petitioner to make a proper examination of them.

I think it will be perceived that the principal ground upon which the petition rests is not an ordinary one, and the right of the petitioner to inspect the books should not be denied except upon very strong grounds. The asking is not for the purpose of discovering whether the company is prosperous or otherwise; nor whether the business is managed in the most skillful and intelligent manner or not; nor whether it might not be more economically conducted; nor is there anything in the petition or proofs in the case, as offered upon either side, which would justify the court in saying that the petitioner is prompted by an idle curiosity, or that he is seeking simply to promote some selfish...