Wolf v. Underwood

• Decision Date: 03 May 1892
• Citation: 11 So. 344,96 Ala. 329
• Parties: WOLF ET AL. v. UNDERWOOD ET AL.
• Court: Alabama Supreme Court

11 So. 344

96 Ala. 329

WOLF ET AL. v. UNDERWOOD ET AL.

Supreme Court of Alabama

May 3, 1892

Cross appeals from city court of Birmingham; H. A. SHARPE, Judge.

Bill by J. B. Wolf and another against W. T. Underwood and others for a discovery and an accounting. Both parties appeal from the decree. Reversed.

The appellants assigned as error (1) the decree of the court sustaining the demurrer to complainants' amended bill (2) the court erred in sustaining the demurrer to that part of the bill which sought a distribution of the dividends. The cross assignments of error by the appellees were (1) that the court erred in that part of the decree overruling the defendants' demurrer to the portion of the bill, as amended, which seeks an accounting; (2) the court erred in that part of its decree which overruled the defendants' demurrer to the part of the bill, as amended, which seeks a discovery from the defendants; (3) the court erred in holding that the bill as amended shows a case for accounting; (4) in holding that the bill as amended shows grounds for a discovery.

Lane & White, for appellants.

E K. Campbell, for appellees.

WALKER J.

The bill in this case was filed by two stockholders of the Mary Pratt Furnace Company, a corporation, in behalf of themselves and of all other stockholders who may desire to participate in the litigation. The corporation itself and its directors are the parties defendant. The purpose of the bill is to require a distribution among the stockholders of the surplus earnings of the corporation. To this end, a discovery and an accounting by the directors as to the affairs of the corporation are prayed for. The appeal is from the decree on the demurrers of the several directors to the bill as amended.

The bill charges that the president and directors of the corporation have under their control and in their possession all the information, books of account, contracts, papers vouchers, and all other evidences necessary for showing the true state of the affairs of the corporation. The complainants aver that they are wholly ignorant of the state of the accounts showing the corporate transactions; and charge, in general terms, that discovery from the defendants, showing the state of the accounts as to all their transactions and doings as directors, "is material and necessary for the complainants to understand and know the exact condition of said account or accounts, and the exact status of the said directors with said corporation and with these complainants as stockholders thereof." There are charges as to the failure and refusal of the directors to make certain statements to the complainants as to purchases, sales, expenses, profits, improvements, etc.; and the interrogating part of the bill, based upon these charges, covers every phase and detail of the corporate business from the beginning, the last of the 19 interrogatories concluding with this comprehensive demand: "And said defendants be required to make, state, and submit a full and complete account of all the acts and doings of said corporation of every kind and description from its organization up to the present time, stating the amount of money received from all sources, and the amount expended for all purposes, stating how and on what account it was received, and for and on what account it has been expended, if expended." Yet the bill does not show that the facts as to which a discovery is sought cannot be proved without the answers of the defendants. The matters inquired about are such as should be disclosed by the books and papers of the corporation. The bill does not charge that such books and papers do not fully and truly show the transactions of the company and the condition of its affairs; nor is it averred that the complainants have been or are denied access to them, or an opportunity to inspect and examine them, at reasonable and proper times. There is no averment tending to show the inadequacy of the legal remedy by mandamus to enforce this right of the stockholders. Foster v. White, 86 Ala. 467, 6 South. Rep. 88. Discovery is sought in aid of the relief prayed. "Where a bill is filed, not for discovery alone, but also for relief, and seeks to withdraw from the jurisdiction of any law court a matter of strictly legal cognizance, it must be shown that the discovery sought is indispensable to the ends of justice; or, in other words, that the facts as to which the discovery is sought cannot be otherwise proved than by the defendant's answer." Shackelford v. Bankhead, 72 Ala. 476; Insurance Co. v. Webb, 54 Ala. 689; Horton v. Moseley, 17 Ala. 794. The bill fails to show any ground of equitable interposition to compel a discovery in aid of the relief sought, as it may be presumed, in the absence of a showing to the contrary, that the matters as to which a discovery is asked could be ascertained by an inspection and examination of the books, papers, and records of the defendant corporation, and the right to such inspection and examination could be enforced by proceedings at law. Foster v. White, supra. So far as the bill depends upon the demand for a discovery, it is without equity.

The fact that profits have accrued in the transaction of the corporate business does not necessarily impose upon the directors the duty of distributing them as dividends to the stockholders. The directors are intrusted with the management of the property and business of the corporation, and in the exercise of their functions are vested with a large discretion.

Their relations with the corporation and its stockholders are of a fiduciary character. They are under the duty to the stockholders to exercise their judgment and discretion in the conduct of the business of the corporation. On questions of business policy and management their decisions are controlling, and their acts will not be disturbed or interfered with by the courts at the instance of a stockholder unless they are guilty of a willful abuse of their discretion, or act in bad faith, or in disregard of duties imposed upon them by law. They are charged with the duty of determining what disposition shall be made of...