Woodworth v. Old Second Nat. Bank

• Decision Date: 05 October 1908
• Citation: Woodworth v. Old Second Nat. Bank, 154 Mich. 459, 117 N. W. 893 (Mich. 1908)
• Parties: WOODWORTH v. OLD SECOND NAT. BANK et al. SAME v. MALTBY CEDAR CO. et al.
• Court: Michigan Supreme Court

154 Mich. 459

117 N.W. 893

WOODWORTH

v.OLD SECOND NAT. BANK et al.

SAME

v.MALTBY CEDAR CO. et al.

Supreme Court of Michigan.

Oct. 5, 1908.

Certiorari to Circuit Court, Saginaw County; William G. Gage, Judge.

Certiorari, on relation of Frank T. Woodworth, against the Second National Bank and others, and against the Maltby Cedar Company and others, to review an order denying relator's petition for a writ of mandamus to enforce his alleged right as a stockholder of the bank and timber company to inspect certain of their books, records, and documents. Writ allowed.

Argued before BLAIR, MONTGOMERY, OSTRANDER, HOOKER, and MOORE, JJ. Gillett & Clark and John C. Weadock, for appellant.

Stoddard & McMillan, for appellees.

BLAIR, J.

On the 4th day of August, 1905, relator commenced an action in the circuit court for the county of Bay against Joseph W. McGraw and Frank P. Chesbrough as defendants to recover damages alleged to have been suffered by reason of certain false and fraudulent representations made by the said McGraw and Chesbrough, as directors of the Old Second National Bank of Bay City, in reliance upon which false representations plaintiff was induced to purchase 150 shares of the capital stock of said bank at a price largely in excess of its true value. Except for the fact that the cases concern purchases of stock made at different times, the cause of action in said case was of precisely the same nature as in the case of Smalley v. McGraw and Chesbrough, reported in 148 Mich. 384, 111 N. W. 1093,112 N. W. 915. A reference to the latter case will supply such further information as may be necessary to an understanding of the cause of action.

Before relator's action was tried, and in consequence of the decision in Yates v. Bank, 206 U. S. 158, 27 Sup. Ct. 638, 51 L. Ed. 1002, by the federal Supreme Court, referred to in the opinion in Smalley v. McGraw on a rehearing in this court, relator discontinued his said action, and began a similar action in the federal court at Bay City, based on the federal statute. While the action was pending in the state court against respondents Chesbrough and McGraw, relator requested permission to inspect the books, papers, and documents of the bank for the principal purpose of enabling him to prepare for the trial of his case, and on February 1, 1906, he served upon the directors of the bank a written notice and demand for such examination, stating that he would renew the demand in person on February 5, 1906, at 3 o'clock in the afternoon at the banking office of the bank, and that inspection was desired to commence at that time and to continue thereafter at such hours of the day and evening as would not interfere with the proper conduct and operation of the business of the bank. At the time mentioned in the notice, relator and his attorney renewed the demand in person at the banking office of the bank, where inspection was refused, the cashier informing relator and his attorney that he was acting under the authority of a resolution of the board of directors, which resolution was as follows: ‘Resolved, that it is the sense of this board that a compliance with the demand of Mr. Woodworth above referred to [referring to said demand above mentioned] would be detrimental to the interests of the bank, and would involve a large amount of work and resulting expense, and several weeks' time, and would seriously interfere with the transaction of the regular and routine business of the bank, and jeopardize the interests of the bank and its stockholders, and should not therefore be complied with.’ The reasons stated in the written notice in the bank case as to the purpose of the examination were: ‘To ascertain the true financial condition of the bank and the true value of its assets and of its capital stock, also to ascertain the amount, nature, and date of the losses suffered by the bank through its dealings with Alvin Maltby, Alzina Maltby, Maltby Lumber Company, Maltby Cedar Company, and W. I. Brotherton & Co., for the year 1896 to the year 1906, both inclusive; * * * also to enable me to investigate the existence, location, and contents of certain documents named below, which will be essential as primary evidence of their contents in the prosecution of an action now pending in the circuit court of Bay county in which I am plaintiff and Joseph W. McGraw and Frank P. Chesbrough are defendants, in order to enable me to prove the facts charged by me against the defendants in that action,’ etc. The notice further contained, in 23 separate paragraphs, what was alleged to be ‘a specific list of certain of the books, records, and documents of which inspection is desired.’

After the refusal of the bank officers to permit an inspection, relator filed his petition in the circuit court for a writ of mandamus to require such inspection. The fourteenth and fifteenth paragraphs of the petition allege that, after the refusal of inspection, ‘your petitioner, through his attorney, then and there requested said Andrews to permit said petitioner to examine some portions of the books, papers, and documents mentioned in petitioner's written request and inquired if the refusal to permit such examination applied to all the books, papers, and documents mentioned or only to a portion of them; that thereupon the said Andrews informed your petitioner that such refusal applied to all of the documents so mentioned, and that the reason given by the bank and the board of directors thereof and by said Andrews for making such refusal was that such examination would not be for the best interests of the bank or its stockholders; that after such refusal, and on the 6th day of February, 1906, your petitioner's attorney was informed by the said Andrews that such refusal did not apply to a certain record of the stockholders of said bank purporting to show the names and residence of the said stockholders and the numbers and dates of the certificates of stock issued to them; and that thereafter, on the 6th day of February, 1906, the said Andrews permitted your petitioner's attorney to inspect such record but that he then and there refused as before to permit your petitioner or his attorney to inspect any other of the books, papers, documents, or records of the bank of which inspection was desired by your petitioner.’ These allegations of the petition were admitted by respondents to be true in their answer. Upon the hearing the circuit judge denied the writ upon the grounds, as stated in the bank case:

‘(1) It is apparent that the real purpose of the relator in applying for an inspection is to aid him in his litigation against McGraw and Chesbrough and not to enable him to ascertain the value of his stock in the bank. He would not be entitled to the writ for the mere purpose of ascertaining the value of his stock, for there is no showing of any mismanagement of the bank since he acquired his interest, nor is there any showing that he has not now all the information necessary for that purpose which could be derived from an inspection of the books and papers of the bank.

‘(2) He does not point out by his petition nor show by the evidence which of the books and papers of the bank it is necessary for him to examine to enable him to prepare for the trial of his suit.

‘(3) He seeks an examination and copies by himself and his attorney, accountant, and stenographer of all of the books and papers of the bank. The relator owns but 77 1/2 shares of 1,000 shares of this bank stock, and I am of the opinion that such an exhaustive examination of all of its books and papers as asked by his petition might result in grave consequences to the bank. If this be probable, then certainly the interests of the very large majority of the stockholders should not be jeopardized to promote the interest of relator.’ The facts in the second case submitted herewith (Woodworth v. Maltby Cedar Co.) are very similar to those in the bank case. The Maltby Cedar Company was a corporation formed in the interests of the bank. The directors of the bank, having taken over the property of the ...