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Matter of Coats

Appellate Division of the Supreme Court of New York, First Department
Jun 1, 1902
73 App. Div. 178 (N.Y. App. Div. 1902)

Opinion

June Term, 1902.

Charles Gibson Bennett, for the appellant.

William Rumsey, for the respondent.



In Matter of Steinway ( 159 N.Y. 250) it was held that a stockholder has the right to inspect the books of his corporation at a proper time and place and for a proper purpose. This right of the stockholder we think applies as well to a fire insurance company as to any other corporation. It is, therefore, a matter of discretion whether the inspection shall be allowed or not, and this necessarily depends upon whether the facts show that the purpose is or is not a proper one. So far as appears from the petition herein, the object sought by the inspection is entirely proper. If, however, the affidavits in opposition sufficiently show that the petitioner is not the real party in interest, but is a mere dummy for those seeking to get control of the company, and that the purpose of Price or Baker was in fact to get possession of the company in order to destroy it, and the petitioner was closely connected with them in such a scheme so that an inspection is sought merely to obtain information that would in that connection be of assistance to the parties, the application should have been denied.

In determining an application for a peremptory writ of mandamus thus submitted the affidavits by a respondent must be taken as true. They are to be regarded just as a pleading that has been demurred to by the petitioner, for it is only upon conceded facts that a peremptory writ can issue. Applying this rule, it remains to determine whether the present was a proper case for the issuance of a peremptory writ.

Had Price or Baker made the application for an inspection it would undoubtedly have been denied upon the proofs submitted tending to show that the object for which the information was sought was neither proper nor legitimate nor in the interests of the stockholders of the company, but was in fact to obtain information which might be used to secure control of the company for the purpose, as in the instances cited, of throwing it into liquidation. Will a court permit to be done indirectly that which it would not sanction if applied for directly? We think not. The question, therefore, really resolves itself into whether or not the company has presented facts from which the inference reasonably and naturally follows that Coats, the petitioner, is not the real party in interest, but is a mere dummy for the persons named who are seeking to get control of the company and with whom he is acting in concert.

In support of the contention that this represents the real attitude and relation of Coats as a stockholder, we have the facts, which are not denied, and though they had been, must be regarded as true, that he had not been known as a man of means, but had been employed by Price for many years as a stenographer, and that the transfer of the large amount of stock which he now claims to own, and which is worth a great many thousands of dollars, was made to him while still so employed. This naturally suggests the inquiry as to where he got the large amount of money necessary to purchase such a large amount of stock, and how it was that, without some concert of action, he should by a strange coincidence have his money invested in the stock of a company of which his employer was then making strenuous efforts to secure control. Although employed as a stenographer, he appears not only to have had money enough to purchase the large block of stock now standing in his name, but, according to the averment of his petition, he offered to purchase all the stock of the company. When this averment is considered in connection with an almost identical offer made by Price in his letter to the president of the company, the conclusion is almost irresistible that Coats and Price are acting together.

With respect to these applications it must be remembered that the court is concerned not alone with according to a petitioning stockholder all the rights to which he is entitled with respect to information which he should properly receive from the officers and the books of the company, but must in that connection keep in mind the rights and interests of other stockholders and of the corporation itself; and, where there is a strong and natural inference that the granting of the application is inimical and destructive of these rights and interests, it would be an abuse of discretion to grant the application. The conclusion reached by us upon a reading of this record is, that the respondent made a strong case tending to show that it would be inimical to the interests of every one else concerned in the company to compel it to turn over to either Price or Baker, in the language of the writ granted at Special Term, "and his attorney and accountants, all the books of accounts, vouchers and records and other papers, * * * and all minutes * * * covering the period from September 1, 1901, to the time of such exhibition, and to permit them and each of them freely to examine the same and to take extracts therefrom." That is the relief granted to this petitioner, without restriction as to the place or duration of the inspection, and without adequate provision made against interfering with the proper administration of the business of the company while such an unlimited inspection or exhibition proceeds; and if the company is right in its assertion that Coats, the petitioner, really represents either Price or Baker, or both, or is acting in concert with them, then the extent of the privilege accorded and the injury that might result therefrom are clearly foreshadowed in a way that would make it, as it seems to us, reprehensible for a court to lend its aid in the purpose sought.

On the other hand, we desire not unduly to restrict the right of a stockholder to have any legitimate information to which he is entitled, nor do we desire to intimate that specific information, if properly applied for by either the petitioner or Price or Baker as stockholders, should not be given. The order entered in any event was too broad in not providing proper safeguards against abusing the right of examination granted. Upon the showing made, however, the application should have been denied, and for that reason the order must be reversed, but we think with leave to renew the application upon papers from which the court may see, whoever the petitioner may be, that he is the real party in interest, and in good faith desires certain definite information. This, under proper restrictions, the Special Term can compel the company to furnish or allow the stockholder to obtain by a proper inspection of the books.

The order should accordingly be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs, but with leave to renew the application in the manner indicated.

INGRAHAM and HATCH, JJ., concurred; McLAUGHLIN, J., concurred in result.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs, but with leave to renew application in the manner indicated in opinion.


Summaries of

Matter of Coats

Appellate Division of the Supreme Court of New York, First Department
Jun 1, 1902
73 App. Div. 178 (N.Y. App. Div. 1902)
Case details for

Matter of Coats

Case Details

Full title:In the Matter of the Petition of RUSSELL R. COATS, Respondent, for an…

Court:Appellate Division of the Supreme Court of New York, First Department

Date published: Jun 1, 1902

Citations

73 App. Div. 178 (N.Y. App. Div. 1902)
76 N.Y.S. 730

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