State v. Loft, Inc.

• Decision Date: 23 June 1931
• Citation: 34 Del. 538,156 A. 170
• Court: Delaware Superior Court
• Parties: THE STATE OF DELAWARE, upon the relation of ALFRED R. MILLER, v. LOFT, INCORPORATED, a corporation of the State of Delaware

156 A. 170

34 Del. 538

THE STATE OF DELAWARE, upon the relation of ALFRED R. MILLER, v. LOFT, INCORPORATED, a corporation of the State of Delaware

Superior Court of Delaware, New Castle County

June 23, 1931

Superior Court for New Castle County. Petition for writ of mandamus, No. 296, September Term, 1930.

The petition, among other things, contained the usual allegations as to the amount of stock issued by the respondent corporation, and then outstanding; the number of such shares of stock owned by the relator and that he had requested permission to examine the books, records and correspondence of such respondent corporation, but that his request had been refused.

It further alleged "that your petitioner desires to inspect the corporate books and records of the said Loft Incorporated, for the purpose of determining the actual value of his stock therein, and for the purpose of acquainting himself with the transactions with reference to the purchase by Loft, Incorporated, of shares of stock of Happiness Candy Company, and of acquainting himself with the expenditures made by Loft, Incorporated, since May 1, 1930, and of determining what outstanding loan or loans have been made by the said corporation since May 1, 1930. That your petitioner desires to examine the said records for no ulterior or sinister motive."

The prayer of the petition was not only for the issuance of a summons, but also for the issuance of a peremptory writ of mandamus in accordance with the allegations above quoted.

The summons was issued and the respondent appeared and filed an answer. This answer, among other things, alleged that the tenth article of the Certificate of Incorporation contained the following provisions:

"Tenth The following provisions are intended for the regulation of the business and for the conduct of the affairs of the Corporation, and it is expressly provided that the same are intended to be in furtherance and not in limitation of the powers conferred by statute; * * *

"(6) The directors shall have power, from time to time, to determine whether and to what extent, and at what times and places and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to the inspection of stockholders; and no stockholder shall have any right to inspect any books or account or document of the Corporation except as conferred by the statutes of the State of Delaware, or authorized by the directors. * * *"

The answer, also, alleged that section 11 of the By-Laws provided:

"Section 11. Inspection of Books. The board of directors shall subject to the certificate of incorporation and to the law of the State of Delaware, determine the conditions and regulations under which the books and accounts of the Corporation or any of them shall be opened to the inspection of stockholders of the Corporation."

Pursuant to these provisions, it, therefore, averred that the relator had no right to inspect any of its books and records without having obtained authority to that effect from the board of directors and that no such authority had been given him.

Other averments in the answer will appear from a discussion of the facts in the opinion of the court.

Pursuant to the provisions of chapter 213 of volume 34, Laws of Delaware, the evidence was heard by the court, but a sufficient analysis of it appears in the opinion.

Richard P. Tippett (of the Maryland Bar) and Ayres J. Stockley (of Hastings, Stockley and Morris) for petitioner.

Robert H. Richards, Clarence A. Southerland, Charles C. Keedy, George N. Davis (of Wilmington), and Arthur F. Driscoll (of the New York City Bar), for respondent.

PENNEWILL, C. J., RICE and HARRINGTON, J. J., sitting.

OPINION

HARRINGTON, J.

The petition of the relator, among other things, alleged that he owned more than four hundred (400) shares of the capital stock of the respondent corporation; that he had requested permission to examine its books, records and correspondence, but that such request had been refused.

It, also, alleged that his desire to examine such books, records and correspondence was for no sinister or ulterior motive.

In this connection, the petition further alleged that the relator desired to inspect such books and records:

1. For the purpose of determining the actual value of his stock in the respondent corporation.

2. For the purpose of acquainting himself with the transactions with reference to the purchase by the respondent corporation of shares of stock of the Happiness Candy Company.

3. For the purpose of acquainting himself with the expenditures made by that corporation since May 1, 1930.

4. For the purpose of determining what outstanding loan or loans had been made by that corporation since May 1, 1930.

The respondent contends, however:

1. That the relator has no right to inspect the books and records of the Loft Company because under the provisions of section 10 of its Charter and of section 11 of its By-Laws, that right depends entirely upon whether inspection is authorized by the board of directors of the corporation; and that no such permission was given in this case.

2. That the application of the relator is not for any proper purpose due to his financial interest in the corporation, but solely because of ill feeling toward the Guth management.

3. That its stock is not only listed on the New York Stock Exchange and that information as to its market value can, therefore, be readily ascertained from that source, but that the relator has, also, been furnished from time to time with financial statements showing the condition of the corporation from which the book value of its stock is a mere matter of mathematical calculation.

4. That all of the material information that could possibly be procured from the corporate books and records, with respect to the purchase of more than 71% of the stock of the Happiness Candy Company, has either appeared in the financial statements above referred to, or in other papers already sent the relator.

5. That where a stockholder seeks to enforce his common-law right to inspect the corporate books and records he must not only plead and prove a proper purpose, but must, also, plead and prove "a reason or cause rendering an examination opportune and proper." In other words, it contends that it must appear from both pleading and proof that the stockholders' "interests or rights are likely to be seriously prejudiced and affected if the remedy (the right to inspect the corporate books) is not given" and that "it is necessary for him to have the information (sought) in order to properly protect his interests in the corporation."

At common law the writ of mandamus was not a writ of right, but would issue only when the facts, in the exercise of a sound judicial discretion, justified it. This rule has been repeatedly recognized in this State (State ex rel. Theile v. Cities Service Co., 1 W. W. Harr. [31 Del.] 514, 115 A. 773, 22 A. L. R. 8; State ex rel. Brumley v. J. & M. Paper Co., 1 Boyce 379, 77 A. 16, 30 L. R. A. [N. S.] 290; McCoy v. State, 16 Del. 543, 2 Marv. 543, 36 A. 81; State v. Penn-Beaver Oil Co., 4 W. W. Harr. [34 Del.] 81, 143 A. 257; State ex rel. Linihan v. United Brokerage Co., 6 Boyce 570, 101 A. 433), and has not been in any wise changed by chapter 213, vol. 34, Laws of Delaware.

The stockholders of a corporation are the equitable owners of its assets and in an application to inspect its books their rights and interests must be considered, but in order for the writ to issue, its purpose must be a proper one and not adverse to the interests of the corporation.

The right of the stockholder in this respect is, therefore, in no sense an absolute right, but merely a qualified right depending upon the facts of the particular case.

Where the motive or purpose of the examination is mere curiosity or where it is sought to be made for some indefinite, doubtful, uncertain, or mere vexatious purpose, or where it has no relation to the relator's interest, as a stockholder, in the corporation, it would not be a proper purpose within this rule. State ex rel. Brumley v. J. & M. Paper Co., 1 Boyce 379, 392, 77 A. 16, 30 L. R. A. (N.S.) 290. See, also, State ex rel. Cochran v. Penn-Beaver Oil Co., 4 W. W. Harr. (34 Del.) 81, 143 A. 257; State ex rel. Linihan v. United Brokerage Co., 6 Boyce 570, 101 A. 433; State ex rel. National Bank of Del. v. J. & M. Paper Co., 4 Boyce 248, 88 A. 449; State ex rel. De Julvecourt v. Pan American Co., 5 Penn. 391, 61 A. 398, 63 A. 1118; State ex rel. Theile v. Cities Service Co., 1 W. W. Harr. (31 Del.) 514, 115 A. 773, 22 A. L. R. 8.

Further than that, as a general rule and unless there is something to indicate that such information was fraudulent or unreliable, there is no reason for the issuance of the writ where the stockholder has already been given all the information as to the corporate affairs that he is reasonably and fairly entitled to receive or that he could procure from an examination of the corporate books and records. State ex rel. Cochran v. Penn-Beaver Oil Co., 4 W. W. Harr. (34 Del.) 81, 143 A. 257; In re Wygant, 101 Misc. 509, 167 N.Y.S. 369.

The respondent contends that even though the purpose of a stockholder, in desiring to examine the corporate books, is not an improper one, some particular exigency making the information sought necessary, for the protection of his interest as a stockholder, must also be both alleged and proved. In support of this contention it cites Varney v Baker, 194 Mass. 239, 241, 80 N.E. 524, 10 Ann. Cas. 989; Shea v. Parker, 234 Mass. 592, 594, 126 N.E. 47; Matter of Latimer v. Herzog Teleseme Co., 75 A.D. 522, 78 N.Y.S. 314; Mechem on Modern Law of Corporations, vol. 2, p. 894,...