Story Case

The Tennessee Steel Company was a corporation organized under the laws of the state of Tennessee for the purpose of manufacturing steel. It was suspected by many people that the corporation was violating the state laws in several particulars. Mr. Brown, a public spirited citizen, purchased a share of stock in the corporation. After he purchased the stock, he demanded of the directors the right to inspect all the books of the corporation. He wished to take with him an attorney and discover just how the affairs of the corporation stood in relation to the law. The directors of the corporation refused to grant the permission, on the ground that he wished to get the information in order to expose the internal affairs of the corporation, which, as the directors claimed, were in perfect accordance with the law. Thereupon, Mr. Brown instituted mandamus proceedings to compel the corporation to permit the inspection of the books.

What should be the decision of the Court under the facts as stated?

Ruling Court Case. Venner Vs. Chicago City Railway Company, Volume 246 Illinois Reports, Page 170

The Chicago City Railway Company was incorporated under a special act of the legislature of the state of Illinois in 1859. By its charter it was given authority to construct, maintain, and operate street railways in the city of Chicago. In 1872, the legislature passed an act which provided that "it shall be the duty of the directors or trustees of every stock corporation to cause to be kept at its principal office or place of business in this state, correct books of account of all its business, and every stockholder in such corporation shall have the right at all reasonable times, by himself or by his attorney, to examine the records and books of account of the corporation."Venner was a stockholder in the Chicago City Railway Company, and as such desired to inspect the books of account of the corporation. The directors of the corporation refused to grant him this privilege. Thereupon, Venner filed this action to have the corporation, its officers, and directors permit him to inspect the books of the corporation in accordance with his legal right.

The directors of the corporation contended that since the foregoing act was passed, subsequent to the forming of the corporation, that it gave no right to Venner to inspect the books; and that, therefore, he had only the common law right, which grants inspection, only when the stockholder wishes it for a proper purpose and with a good motive.

Decision

At common law, a stockholder was entitled to inspect the books of his corporation only when he was able to show that he had a proper motive in desiring the privilege. Under the statute, a stockholder has the absolute right to inspect the books of the corporation, regardless of his motive. The Court was of opinion that the corporation was subject to the act in question, even though the act was passed after the formation of the corporation. Therefore, Venner was entitled to inspect the books of account of the Chicago City Railway Company regardless of his purpose or motive.

Mr. Chief Justice Cickers rendered the opinion of the Court:

"There is a well recognized distinction between the right of a stockholder to inspect the books and papers of a corporation under the common law and an unlimited right given by statute. Under the former the examination can be compelled only where the stockholder asks it in good faith and for reasons connected with his rights as a stockholder. Where the right is conferred by statute in absolute terms, the purpose or motive of the stockholder in making the demand for an inspection is not material and he cannot be required to state his reasons therefor."

Having decided that the act in question applied to the corporation, the Court was of opinion that Venner was entitled to inspect the books of this corporation, regardless of his purpose or motive.

Ruling Law. Story Case Answer

It is generally held that a shareholder may at any time, if reasonable, inspect the books of the corporation, for proper purposes. This right is based upon the theory that the shareholder has some right in the dividends, an ultimate benefit from the corporation, or an ultimate liability imposed upon him. In order to protect this right to the dividends, and to evade possible liability, he should be given the right to inspect the books of the corporation. But if the corporation can show that the motive of the shareholder is not good, or that he is exercising this right for some improper purpose, from the standpoint of the corporation, then the corporation would be permitted to deny this right. In the Story Case, for the foregoing reason, probably the corporation was justified in refusing the privilege to Mr. Brown. However, when the statute says that every stockholder shall have the right to inspect the books of the corporation, this is an absolute right, which cannot be denied, because of a bad motive or because of an improper purpose.