In re Steinway

Patterson, J.: The relator applied for a mandamus to compel the officers and directors of a corporation in which he is a shareholder to permit him to examine and inspect certain books and papers of that corpo [71] ration other than the transfer books. The application was denied at Special Term, no ground of the denial being mentioned in the order, but it appearing otherwise that the learned judge was satisfied that the relator had no absolute legal right to the writ, and concluded that the examination was desired solely for annoying and oppressive purposes. There is much in the papers submitted in answer to the application condemnatory of the relator’s past conduct in connection with vexatious law suits and proceedings against the corporation and its directors, but, nevertheless, certain matters are set out in his petition which would justify an allowance of the inspection of the books of the corporation if the court has the power to grant it. The relator is the owner of about seven per cent of the whole capital stock of the Stein way & Sons corporation. It is alleged by the petitioner that he has not been able to obtain any statement of the business or management of the corporation for about five years, except that he had an inspection of the annual balance sheet and inventory in 1893. He also had submitted to him, under the provisions of the 53d section of the Stock Corporation Law, something which purported to be a statement of the assets and liabilities of the corporation as of December 31, 1896. An examination of that statement is sufficient to show that it does not constitute the particular account required by the statute of all assets and liabilities, but is only a very general statement of aggregates of items. It was further shown on this application that there had been a great diminution in the amounts of dividends declared by the corporation ; that they were but five per cent in the year 1896, and that never with that one exception had they, since 1883, been less than ten per cent, and that they had at times been as high as eighteen or twenty per cent. It was also shown that the relator had been refused access to the books from time to time, although some years ago he was permitted to examine the same, but for alleged abuses in that examination he was excluded from its further pursuit. It was also shown that other large stockholders in control of the corporation have been making some effort or agreement looking to the transfer of the business to an English company, and that they have applied to the relator, to sell his stock at §250 a share, and that the scheme of the transfer to the English corporation involves the issuing of stock [72] which shall bring in a larger return than five per cent pn the shares. Under these circumstances the relator wishes to examine the books to ascertain, among other things, the value of his shares, what they are really worth in view of the actual condition of the business, and how it is possible that a business which pays only five per cent on stock at par would be taken by intelligent- persons on a basis of guaranteeing five per cent on two and one-lialf times that par. There are certainly matters brought to our attention in' these papers that would require the "issuance of the writ, if the court, as said before, had power so to do. ■ I think it has that power, and that it is a part of its general jurisdiction, as successor of the Supreme Court of the Colony of New York, whose jurisdiction was substantially that of the King’s Bench in England. There is no statutory provision in this State respecting the right of shareholders to examine and inspect the general books of corporations ; the only existing enactment on the subject relates to transfer books, as to which a particular provision is made. But that legislation does not affect the right of a shareholder to examine other books, which right remains, as it was, at law. Nor does it, by a provision for the examination of one book, necessarily exclude the right to examine others. I am not prepared to say that there is a complete and absolute right, under any and all circumstances, of a shareholder to examine at will the books'of a corporation, but there is a qualified right, the qualification being that a good and sufficient reason exists for the inspection, and the information required cannot be obtained in any other way. Text writers of recognized authority are unanimous in their statements as to this law. (Angell & Ames Corp. § 681; Cook Stock & Stockh. § 511; Morawetz Priv. Corp. § 473.) The latter writer points out the difference in the rule as applied in England and in the United States, and the authorities cited by him establish the right of a stockholder to inspect the books and papers of a corporation for a definite and proper purpose and at a reasonable time. There are no real controlling authorities in the State of New York on the subject. I can find no positive statement of the law in this State other than that contained in a Special Term decision of the Supreme Court in People ex rel. Onderdonk v. Mott (1 How. Pr. 247), where Beaedslet, J., held that a director or corporator had a right at all reasonable times to examine all the books, [73] papers and records of the company, and he directed a mandamus to issue for that purpose. There are many cases holding that mandamus is the proper remedy to procure an inspection of corporate books and records, and the question of the right is ordinarily treated in connection with .that of the method of its enforcement. It is said in High on Extraordinary Legal Remedies (§ 308) that mandamus is the proper remedy to enforce the rights of corporate stockholders and members to an inspection of the books and records of a corporation, and the writ will issue for this purpose upon a proper showing of the relator’s right and a refusal on the part of the corporate authorities to allow the inspection (citing People ex rel. Muir v. Throop, 12 Wend. 183; People ex rel. Richmond v. Pacific Mail S. S. Co., 50 Barb. 280). An examination of transfer books has been compelled by mandamus in many cases, such as Matter of Sage (70 N. Y. 222); People ex rel. Stobo v. Eadie (63 Hun, 320). I do not find that there is anything in the legislation of this State which has in terms abridged the common-law right of stockholders in this regard. The Steinway corporation was organized in the year 1876, but it was under the General Manufacturing Act of 1848 and its amendments. No new right was given by the provision of that act relating to the transfer book and its being subject to inspection. It was partially declaratory of a right respecting one book, but did not exclude the right to examine any other book. Nor does section 1 of chapter 472 of the Laws of 1862, establish an exclusive method of obtaining information relating to the business and affairs of a corporation. It affects a right of a person or persons holding a certain percentage of stock, and creates a new method before unknown of attaining an object, but it is not to be construed as a legislative enactment that a person holding a less number of shares than the percentage mentioned in that section cannot procure information to which he is entitled by some other process. The provisions of section 16 of chapter 611 of the Laws of 1875 apply exclusively to what were known as business corporations ; that is to say, corporations specially organized under the provisions of that act, and that provision, so far as it related to the examination of books of account containing business transactions, was also only declaratory of a com [74] mon-law right; and it is well understood that where an affirmative statute is merely declaratory, the common-law rule relating to the subject is not repealed but the two things coexist. (Potter’s Dwar. Stat. chap. 3, pp. 68, 69.) So, under the general statute of 1892, remodeling the Corporation Law of the State and repealing antecedent acts, the common-law right of stockholders was not impaired but still existed. This legislation is not to be construed in such a way as to deprive holders of a small proportion of stock in the corporation of the right to know how their interests are being administered. I think the right is not one of statutory creation. It might be taken away by statute, but it never has been. Statutory provisions are not always to be construed as exclusive. Here the right is one subject to the control of the court, when it is sought to be enforced by the remedy of a mandamus. I am of opinion that the relator established certain facts which require the court to permit an examination of the corporation’s books, as there is no other way in which he can acquire the information to which he is entitled. As to the right, nothing more need be held than that it exists, its extent to be determined; in particular cases, in connection with the object for which the inspection is desired. Although in that sense it is a qualified right, nevertheless, the object being legitimate, the right is a legal one,'and mandamus is the proper remedy for its enforcement. It is a remedy which is to be allowed only in* the sound discretion of the court, and under such control and safeguards as may prevent abuse. The order appealed from should be reversed, with ten dollars costs and disbursements, and motion for mandamus granted, with ten dollars costs, the terms of which to be settled upon the entry of the order upon this appeal. O’Brien and McLaughlin, JJ., concurred; Van Brunt, P. J., and Ingraham, J., dissented.