Smith v. Prattville Manufacturing Co.

RICE, 0. J. Prattville Manufacturing Company, Number One, is a manufacturing corporation created by an act of the [507] general assembly of this State, approved January 13th, 1846. The charter defines the rights and powers of the corporation, and determines its objects ; but it does not define the terms of the individual contract of the member with the corporation itself. The terms of that contract are prescribed and fixed by the written instrument adopted pursuant to the powers conferred by the charter, and signed by all the members, as their “ constitution for the future government of said incorporated company a copy of which is attached as an exhibit to the answer of the defendant Mims. By signing and adopting that constitution, each of the members agreed to be bound by the terms of his contract, as therein defined, and by the acts of the corporation and its managers, performed within the scope of the powers conferred by the said constitution and charter. It is part of that contract, as shown in that constitution, that the five managers, to be elected annually from the stockholders, shall have the control and direction of the business of the company, and that the board of managers “ shall make and declare such dividends, and such only, as in their discretion they may think the true interest of the company will warrant and allow.” — N. O. J. & G. R.R. Co. v. Harris, 27 Mississippi Rep. 517 ; Livingston v. Lynch, 4 Johns. Ch. Rep. 573 ; Pratt v. Bacon, 10 Pick. R. 123. The complainant is one of the stockholders. He does not question the validity of the contract, nor show any ground which would authorize a court of chancery to relieve him from it. But, conceding its validity, he files his bill against the other stockholders, the corporation, and its managers, to compel them to come to an account in the court of chancery, as to the management of the business of the company, and to declare a dividend of the profits, or to have such dividend declared by the court itself. It is not the meaning of the contract, that the partial inconvenience of a member should prevail over the interest of the company, or that the right of a member to receive dividends should be absolute and unrestricted. The managers ■ are officers of the company, and trustees of the stockholders. In both capacities, they are clothed with a large discretion in relation to the declaration of dividends. They may be compelled to exercise that discretion, if they [508] improperly fail or refuse to exercise it. But when they have exercised it, without any violation of the charter or constitution of the company, their action cannot be disregarded or controlled by any court, at the instance of a stockholder, unless it is shown to have been a willful abuse of their discretion, or the result of bad faith, or of a willful neglect or breach of a known duty. —Angelí & Ames on Corporations, §§ 312-314 ; Robinson v. Smith, 3 Paige, 222 ; Forbes v. Whitlock, 3 Edw. Ch. R. 446 ; The Bushwick & Turnpike Co. v. Ebbetts, ib. 353; Van Courtlandt v. Underhill, 17 Johns. R. 405 ; Dodge v. Woolsey, 18 How. (U. S. Sup. Ct.) Rep. 331 ; Godbold v. Br.Bk. at Mobile, 11 Ala. R. 191. It appears in this case, that a short time before the bill was filed, to-wit, in July, 1854, the discretion vested in the managers was exercised by them, at the instance, and upon the demand, of the complainant; that, in the exercise of that discretion, they denied his application for the declaration of a dividend, and passed a resolution, declaring that they thought the true interest of the company would not warrant and allow a dividend of any of the surplus on hand at that time, “ because the apparent amount due the company by the annual report to the 1st July, 1854, was not in available funds.” There is no violation of the charter and constitution, and no proof, of any fraud, willful neglect, or breach of a known duty, or bad faith, in that exercise of their discretion' •Their action was certainly nothing more than a mere error of judgment. There is, therefore, no ground upon which to rest the jurisdiction of the court of chancery to interfere with their discretion or with its exercise. — Dodge v. Woolsey, and other authorities cited supra; Ware v. The Grand Junction Water Works Co., 2 Russel & Mylne, 470. It is alleged in the bill, that large profits have been realized from the business of the company, and that the managers, having control of those profits, have appropriated them to their own use. If this allegation had been either admitted or proved, there would have been ground for the interposition of a court of chancery. An appropriation by the managers, of those profits, to their own use, would be a breach of trust; and for this, or any other like violation of the trust on the part of the manan-ere, a stockholder would be entitled to [509] relief in a court of chancery. But there is no admission or proof of any such violation of the trust; and the bill in this respect must therefore fail. — Dennis v. Kennedy, 19 Barb. Sup. Ct. Rep. 517. The only other matter to be noticed, is that feature of the bill which seeks to compel the managers to account for that part of the debt or demand of the company against Hazard & Green, its commission merchants in New Orleans, from which they were discharged on the compromise effected in relation to that demand or debt. It appears that the compromise was made by Mims, under the direction of the managers. There is not the slightest proof of fraud, or bad faith, or gross neglect, in making that compromise. Managers of corporation affairs, clothed with such discretion as is conferred upon those of Prattville Manfacturing Company Number One, stipulate to the stockholders for no more than good faith and reasonable diligence : where these are not wanting, mere errors of judgment on the part of such managers do not entitle a stockholder to relief in a court of chancery. — See authorities above cited, and Mozley v. Ashton, 19 Eng. Ch. Rep. 790. The complainant was, at the time he became a stockholder, competent to contract. He did contract; and, so far as the •facts of the case appear in the uncontroverted answers, they show that the acts of which he complains were done in good faith, and in the exercise of the powers vested in the managers, by the contract of himself and the other stockholders. If the contract operates harshly upon him, that of itself is no reason why the court should relieve him from it. He should have considered its effects before entering into it. The court cannot “go the romantic length” of affording indemnity against the consequences of indolence or folly. Nor can it usurp the direction of private corporations, at the instance of a member whose only complaint is against acts of the managers done in good faith, and clearly authorized by his own contract. — We cannot, open the door to any such fields of litigation. The decree is affirmed, at the costs of the appellant.