Phoenix Iron Co. v. Commonwealth ex rel. Sellers

• Decision Date: 04 October 1886
• Docket Number: 81
• Citation: 6 A. 75,113 Pa. 563
• Parties: Phoenix Iron Co. v. Commonwealth ex rel. Sellers
• Court: Pennsylvania Supreme Court

6 A. 75

113 Pa. 563

Phoenix Iron Co. v. Commonwealth ex rel. Sellers

No. 81

Supreme Court of Pennsylvania

October 4, 1886

Argued April 6, 1886

ERROR to the Court of Common Pleas No. 2, of Philadelphia county Of January Term 1886, No. 81.

On January 27th, 1883, George H. Sellers, a stockholder in the Phoenix Iron Company, which is a manufacturing corporation having no franchise but that of corporate existence, applied for a writ of alternative mandamus to compel the production for inspection of books and papers, to enable him to prepare a stockholders' bill in equity in respect of certain alleged grievances.

In answer to a rule to show cause, the defendants resisted the prayer of the petition on two grounds:

1. Because there was no right to this relief at law, but that the remedy was in equity.

2. Because if there was such right to relief at law, there were circumstances in this case, in view of which the relator was not entitled to the relief sought, which circumstances were fully stated in the affidavits filed March 7th, 1883, of David Reeves, the president of the Phoenix Iron Company, and of the other defendants.

On March 21st, 1883, judgment was given for the defendants and the writ of mandamus was refused. The relator thereupon took a writ of error to the Supreme Court to July Term, 1883, No 105, upon which the judgment of the Court below was reversed. A remittitur was taken and filed April 3d, 1884. This case is reported 9 Outerbridge, 111, where the facts set forth in the petition are given.

Upon filing the remittitur a writ of alternative mandamus issued reciting the complaint in the petition contained, commanding as follows:

We, therefore, being willing that due and speedy justice should be done in this behalf, do command you, the said the Phoenix Iron Company, David Reeves, William H. Reeves, Carroll S. Tyson, John Griffen, George Gerry White, secretary and director, and James O. Pease, treasurer, firmly enjoining that forthwith you give to the said George H. Sellers, with his clerk or clerks, access to all of the books and papers of the said the Phoenix Iron Company, as he may require, in order to ascertain

1. What salaries are now and have been, during the last ten years, paid to the officers.

2. What compensation has been paid to its officers, as trustees of its real estate, and in other ways, if any, beyond their salaries.

3. What items constitute the indebtedness alleged to be due to the estate of the late David Reeves.

4. What sums have been divided between the Phoenix Iron Company, and Clark, Reeves & Co., under their contract.

5. What profits have been realized from the joint operations under these contracts.

6. What dispositions have been made of the entire receipts of the corporation.

7. What authority there was for the conveyance of the real estate of the company, made February 1st, 1875.

And that all and singular the matters for the speedy performance of the foregoing, according to the exigencies of the law, you shall do and execute immediately, or in default thereof that you make known to us, in our said Court of Common Pleas, No. 2, for the city and county of Philadelphia, before the judges thereof, June 9th, A.D. 1884, why you have not done the same.

On the return day, June 9th, 1884, the defendants made known why they did not give the relator, with his clerk or clerks, access to the books and papers of the Phoenix Iron Company, as he required. Their return was, inter alia, as follows:

1. The respondents insist that the right of such inspection or access wherever and to whatever extent it exists is personal, and cannot be exercised by agents of the relator.

2. That some time before the application for the rule to show cause why this mandamus should not issue, the relator filed a bill in equity in the Court of Common Pleas of the city and county of Philadelphia, No. 2, in which the said Phoenix Iron Company and David Reeves and others, president and directors of said company, were made defendants, seeking discovery and relief, and that said bill included all matters in respect of which he alleges he now intends to file a bill, for the preparation of which he seeks to obtain information by the inspection of the books and papers mentioned in this writ, saving and excepting those which show the debt due to David Reeves, deceased, by the Phoenix Iron Company, or relate to that debt.

This bill was removed to the Circuit Court of the United States for the Eastern District of Pennsylvania, under the provisions of the Act of Congress.

To this bill the Phoenix Iron Company demurred, and after hearing counsel it was adjudged by the Court in which the cause was then pending, that the complainant, the present relator, was not entitled to the relief prayed, saving as to so much of the bill as prayed relief and discovery in aid of the relief on the ground of fraud. That the fraud alleged by the bill consisted in and arose out of the fact that the officers and directors of the corporation, and persons having the control of the corporation, were parties to a contract between the corporation and the firm of Clarke, Reeves & Co. -- which is the same contract as is averred in the said writ to have been made between the same parties in 1870 -- and were the same persons who, having the control of the corporation by virtue of holding a majority of the shares, determined the amount of salaries they themselves should receive. And the said bill, saving the relief and discovery founded on said fraud, was dismissed. And the respondents aver that the said decree, dismissing so much of the bill, remains in full force unreversed and not appealed from. And the respondents further return, that after the making of the said decree the Phoenix Iron Company, a defendant in the said cause, filed an answer as to so much of the bill as had not been dismissed as aforesaid. That in and by said answer they answered the averments in the bill so far as it was retained and not dismissed, and set forth the facts relative to the making of the contract between the corporation and the firm, alleged to be fraudulent as to stockholders. And they also answered the averments of the bill relative to the ownership of shares and control of the corporation, by all persons who were partners in the firm of Clarke, Reeves & Co., and their interest and ownership in that firm, and as to the salaries received by the owners of shares, and as to all dealings by them with the corporation, and as to the receipts of money by them from the corporation, and all other matters averred in the bill which the defendants were by the decree required to answer.

And that after the filing of the answer of the corporation respondent in this cause, and the pleas of the other defendants in that cause, the complainant in that cause elected to dismiss his bill, and the same was dismissed without prejudice.

3. And the respondents further return that by the said decree of the said Court it was finally adjudged that the complainant in virtue of his right as a stockholder was not entitled to an account of the assets, liabilities, receipts, or disbursements of the Phoenix Iron Company, to ascertain what were the actual profits of the company.

4. These respondents further return that by the said proceedings the relator had, before the filing of the petition in this case, filed a bill and obtained a decree compelling discovery of all dealings between the corporation and its officers, and the firm of Clarke, Reeves & Co., in which any officers or partners being stockholders of the corporation were interested, and that he had obtained a decree giving him a right to the same information as he now seeks to obtain by this writ, for the purpose of filing a bill for the same relief as he then sought.

5. And they further return that by the charter the management of the affairs of the Phoenix Iron Company and the discretion as to making dividends of profits, are committed to the board of directors, and that no right is by the charter or by-laws conferred on any stockholder to inspect the books or papers of the corporation, and by the by-laws of the company it is provided that the books of the company shall be open to the inspection of the president and any member of the board of directors. And it is provided by said by-laws that at the annual meeting of the stockholders the treasurer shall present a complete statement of his accounts for the year ending on the last day of March. And there is no other right given by the charter or by-laws to any stockholder to inspect the books or inquire into the affairs or management of the corporation.

The relator, June 11th, 1885, demurred to this return, and after argument on the demurrer, the Court, October 17th, 1885, gave judgment for the relator. To the judgment of the Court for the relator on the demurrer, this writ of error was taken.

The judgment is affirmed.

R. C. McMurtrie and Wayne MacVeagh, for plaintiff in error. -- The real questions are: 1. Must a ground be stated for a right of inspection? 2. Are the averments of these grounds traversable? 3. If denied, does the same right exist as when they are admitted?

Where there are firms with common partners they deal with each other as strangers, and it is a fortiori that corporations may deal with their members: Bolton v. Puller, 1 Bos. & Pul., 539; Lindley, 939; Gordon v. Preston, 1 Watts, 388. The right to affirm or disaffirm contracts made with directors is in the body of stockholders who are not parties: Foss v. Harbottle, 2 Hare, 494, 497, 499; Lindley, 939.

"No one but the corporation can litigate the questions proposed to be litigated by the relator; and his right to compel them or to use their name to do this, depends on whether the...