Summary
In Matter of Tate v. Sonotone Corp. (272 App. Div. 103, 105, cited by respondents) the court stated: "It is not intimated that the burden is on the stockholder affirmatively to show his good faith."
Summary of this case from Matter of Weistrop v. Necchi MachOpinion
April 18, 1947.
Appeal from Supreme Court, New York County, WALTER, J.
Alfred L. Becker of counsel ( Franchot, Corwin Dessner, attorneys), for appellants.
Lester B. Lipkind for respondent.
The order below authorizes petitioner to inspect and make extracts from the stock book of appellant Sonotone Corporation as a stockholder under section 10 of the Stock Corporation Law. The proceeding is in the nature of mandamus under article 78 of the Civil Practice Act. "While section 10 of the Stock Corporation Law gives stockholders the right to inspect the stock book of a corporation, the court may consider the purpose of such an examination on an application for an order under article 78 of the Civil Practice Act, and may, in its discretion, deny such an application where the purpose is not consonant with law, the business of the corporation or good faith. ( Matter of Coombs v. Edwards, 280 N.Y. 361, 364; Matter of Durr v. Paragon Trading Corp., 270 N.Y. 464, 469.)" ( Matter of Baker v. Macfadden Publications, Inc., 270 A D 440, 443.) That is similar to the common-law rule ( Matter of Steinway, 159 N.Y. 250) and, although it has sometimes been stated that the right of inspection under what is now section 10 of the Stock Corporation Law is absolute ( Henry v. Babcock Wilcox Co., 196 N.Y. 302), "During the last few years, especially, the principle that the stockholder's bad faith and improper purposes or motives constitute a bar to the judicial enforcement of the right of inspection has received new support. As said in one late case, `the trend, however, is toward a reversion to the common-law rule, which makes motive and good faith material in an application for inspection.' In some of the states where the courts originally took the position that the positive terms of the statute were mandatory with respect to the granting of mandamus to enforce the right, as well as to the abstract right itself, that extreme position has been receded from, especially with respect to the remedy, either by the legislature, or by the courts themselves in overruling or limiting their former decisions and adhering to the common-law rule that on application to the courts to enforce the right, a showing of bad faith and improper purpose or motives are sufficient to move the court to exercise its discretion against enforcing the right." (5 Fletcher's Cyclopedia Corporations [Perm. ed.], § 2220, pp. 595-596; see 59 A.L.R. 1375 et seq.)
It is not intimated that the burden is on the stockholder affirmatively to show his good faith, but where, as here, the papers before the court establish that the purpose of the inspection is unrelated to the welfare of the petitioner as a stockholder, the application should be denied. If the papers before the court disclosed an issue of fact on this subject, an order in the nature of an alternative mandamus would be warranted, but the facts in this record lead only to the conclusion that the application is made in bad faith. That petitioner is not motivated by a desire to aid a competing business has no tendency to establish that he is trying to better his economic position as stockholder where what actuates him is clearly "disinterested malevolence" ( American Bank Trust Co. v. Federal Reserve Bank of Atlanta, Georgia, 256 U.S. 350; Beardsley v. Kilmer, 236 N.Y. 80, 88-90) against the individuals in charge of the corporation.
The order appealed from should be reversed, with $10 costs and disbursements to the appellants and the motion denied.
In addition to his common-law right to inspect all the books of his corporation at a proper time and place and for a proper purpose, a stockholder is by statute afforded the right to inspect the stock book of the company subject to the restrictions therein set forth (Stock Corporation Law, § 10; L. 1923, ch. 787, as amd. by L. 1926, ch. 688; L. 1933, ch. 641; Matter of Schulman v. Dejonge Co., 270 App. Div. 147, 149). Unlike the other books of the corporation, the stock book has no relation to the business carried on by the company and the statutory right to inspect it "was doubtless made to enable stockholders to promptly learn who are entitled to vote for directors" ( Matter of Steinway, 159 N.Y. 250, 264).
Where, as here, the right to inspection of the stock book is conferred by statute, it becomes absolute when all statutory requirements are complied with. In such case, there is nothing left to the discretion of the court and the petitioner is entitled to a final directory order as a matter of course. That has been the direct holding of the Court of Appeals in the leading case of Matter of Steinway ( supra), pp. 263-264), and still appears to be the rule in this State. ( Henry v. Babcock Wilcox Co., 196 N.Y. 302, 305; Matter of Hurley v. National Bank of Middletown, 252 App. Div. 272, 274; 6 Thompson on Corporations [3d ed.], p. 436.) "An order denying mandamus cannot rest in discretion when there are no disputed facts, when the law is with the petitioner and when there is no reasonable basis for a holding that other remedies are adequate; and there is no element of hardship or laches or other unequitable conduct." (CRANE, J., Matter of Brennan v. Board of Education, 245 N.Y. 8, 16; see, also, Matter of Smidt v. McKee, 262 N.Y. 373, 380.)
Upon the conceded facts it appears that petitioner is a qualified stockholder of respondent corporation; that upon request he supplied the corporation with the written statement required by section 10 of the Stock Corporation Law and that his written demand to inspect the stock book met with a refusal. Nonetheless, in view of the averments in respondents' answer and the charges of bad faith made in their affidavits submitted in opposition to this application, there is a triable issue of fact as to whether plaintiff's motive in desiring an inspection of the stock book is "for the purpose of communicating with stockholders in the interest of a business or object other than the business of the corporation," a purpose prohibited by statute (Stock Corporation Law, § 10). If, upon a trial, it be established that the purpose for which the inspection sought is one that does not encompass a business or object other than the business of the corporation, a final order granting the inspection should follow.
Accordingly, I dissent and vote to modify the order by granting an alternative order directing the trial of the issue of good faith as indicated herein, pursuant to the provisions of section 1295 of the Civil Practice Act.
MARTIN, P.J., GLENNON and VAN VOORHIS, JJ., concur in Per Curiam opinion; DORE, J., dissents and votes to modify the order appealed from by granting an alternative order directing trial of the issue of good faith; COHN, J., dissents in opinion.
Order reversed, with $10 costs and disbursements to the appellants and the motion denied. Settle order on notice.