governing body of the corporation. A majority of the stockholders, in a case of this kind, represent the ultimate corporate sovereignty, within the limits of its charter, and can bind the minority by its refusal to disaffirm as to a matter intra vires. The only remedy of the minority is to appeal to a court of equity to enforce the rights of the corporation, if the majority has acted fraudulently, or in bad faith to the minority, in refusing to redress a fraud upon the corporation. * * * That charge is not made here. * * * It may or may not be, as argued for complainants, that the Land Company, though not now in a position which entitles it to the aid of a court of equity to compel a reconveyance of the land or to disturb the purchaser's possession, is nevertheless entitled to personal recourse against the defendants "for the damage and loss which the Ensley Land Company and stockholders have suffered by reason of the transactions complained of," etc. Such relief, however, is merely incidental to the equitable cause of action, and when that fails the bill should not be retained to administer relief which is merely incidental, and ordinarily a matter purely of legal cognizance. The demurrers are sustained, and the cost decreed against complainants. If the complainants desire to amend, they may apply for leave. SECTION 9.-RIGHTS WITH RESPECT TO DECLARED DIVIDENDS AND SURPLUS SEARLES v. GEBBIE et al. (Supreme Court of New York, Appellate Division, 1906. 115 App. Div. 778, 101 N. Y. Supp. 199.) SPRING, J. The defendant Mohawk Condensed Milk Company is a domestic corporation with a paid-up capital stock of $60.000, and the plaintiff is a stockholder thereof, owning stock of the par value of $1.000, and until January, 1905, was one of the directors of the corporation. The other defendants are its present officers and directors. A brief summary of the salient allegations of the complaint is necessary for a comprehension of the questions at issue on this appeal. On the 14th day of July, 1902, the directors of said corporation at a regular meeting declared a dividend of 50 per cent. on its capital stock, payable on the 1st of August thereafter. At the time of the declaration of the dividend there was on hand a surplus of net earnings of more than $100,000, and in February, 1905, these earnings aggregated $108,000. The plaintiff has not been paid his dividend of $500 although he has demanded it and he seeks to recover that sum of the corporation in this action. The complaint further alleges: That in 1905 the stockholders by resolution voted to increase the capital stock of said company to $240,000, and the directors were ordered to take the legal proceedings essential to make effective this increase. The directors thereupon proceeded to provide for such increase by allowing those taking the new stock to do so at par, thus ignoring the "more than twice par" value of the present stock by reason of the existing surplus and which had been earned by the present capital. The directors in their plan of increase expect to allow each of the present stockholders to subscribe for three times his present holding of stock, paying therefor in cash, and the plaintiff was so advised and permitted to so subscribe for the $3,000 of stock, which would represent his aliquot share of the increased capital. That the defendant directors have each subscribed for their shares of said increase and they control said corporation and own a majority of its stock. In January, 1905, the plaintiff was dropped from the directorship and there were other changes in that body, and the plaintiff charges that the election of new officers "was pursuant to a fraudulent agreement or understanding" among these majority stockholders to refuse to pay the said dividend, "and thereby to reappropriate said dividend to the company, and to share in said dividends and receive the benefits thereof, under their new subscription to increase the capital stock of the said company, their said new subscriptions being at par, whereas the old stock of said company is fully worth considerable more than $200 on a share.” That the plaintiff has "protested" against this proposed issue of new stock, and has requested the corporation to commence an action in equity to restrain its issue and also to require the corporation to pay the dividend declared, and upon refusal this action was commenced on his own behalf as a minority stockholder, and for the benefit of all other stockholders similarly situated who desire to participate therein. The relief asked for is the payment of the dividend to the plaintiff and to restrain the proposed increase of the capital stock. * * * * There is a clean-cut cause of action at law set forth against the corporation. Upon the declaration of the dividend the sum of $500 became due the plaintiff from the corporation. It became the debtor of the plaintiff. * The directors were not personally chargeable with the payment of this dividend unless they converted it to their own use, or by some act changed their relation to it. At any time after the date fixed for the payment of the dividend the plaintiff could have maintained an action at law against the corporation to recover this sum. Nor was a suit-in equity proper for an adequate remedy at law existed, and the directors would not be proper parties defendant in an action to recover this sum. They are not the debtor, but the corporation is the party liable. Now, where the amount of the dividend has been segregated or set apart into a distinct fund for the purpose of paying the dividend and is within the dominion of the directors, who refuse to use it for the purpose intended, they become trustees of the fund, and an action in equity may be maintained to reach the fund and to charge the directors with official misconduct. * * * The complaint contains every allegation essential to constitute a perfect cause of action to recover this dividend of the corporation, and the facts alleged are supplemented in the demand for judgment that the corporation be required to pay the dividend with interest. * * * DODGE et al. v. FORD MOTOR CO. et al. (Supreme Court of Michigan, 1919. 204 Mich. 459, 170 N. W. 668, Action by John F. Dodge and Horace E. Dodge against the Ford Motor Company and others. Decree for plaintiffs, and defendants appeal. The Ford Motor Company is a corporation, organized and existing under Act No. 232 of the Public Acts of 1903. The articles of as sociation were executed June 16, 1903, and acknowledged on that day by the parties associating. In the articles the capital stock is fixed at the sum of $150,000, with 1,500 shares of the par value of $100 each. It is recited therein that the amount of capital stock subscribed is $100,000, and that said sum is actually paid in, $49,000 in cash and $51,000 in other property. The other property described is: Letters patent, issued and applied for, valued at $40,000; machinery and stock, $10,000; contracts for supplies, $1,000. The parties in the first instance associating, who signed the articles, included Henry Ford, whose subscription was for 255 shares, John F. Dodge, Horace E. Dodge, the plaintiffs, Horace H. Rackham and James Couzens, who each subscribed for 50 shares, and several other persons. The company began business in the month of June, 1903. In the year 1908, its articles were amended and the capital stock increased from $150,000 to $2,000,000, the number of shares being increased to 20,000; and in the certificate, made in November, 1908. evidencing the increase of capital stock, it was recited: "The amount of capital stock subscribed is the sum of two million ($2,000,000) dollars; the amount of said stock actually paid in at the date thereof is the sum of two million ($2,000,000) dollars, of which one hundred thousand ($100,000) dollars represents the capital stock originally subscribed and paid in, and one million nine hundred thousand ($1,900,000) dollars by surrender to the corporation by all stockholders of their claim to dividends duly declared by the board of directors payable out of surplus." The business of the company continued to expand. The cars it manufactured met a public demand, and were profitably marketed, so that, in addition to regular quarterly dividends equal to 5 per cent. monthly on the capital stock of $2,000,000, its board of directors declared and the company paid special dividends: December 13, 1911, $1,000,000; May 15, 1912, $2,000,000; July 11, 1912, $2,000,000; June 16, 1913, $10,000,000; May 14, 1914, $2,000,000; June 12, 1914, $2,000,000; July 6, 1914, $2,000,000; July 23, 1914, $2,000,000; August 23, 1914, $3,000,000; May 28, 1915, $10,000,000; October 13, 1915, $5,000,000, a total of $41,000,000 in special dividends. Sales and profits for several years were: Year ending Sept. 30, 1910, 18,664 cars, $4,521,509.51. Year ending Sept. 30, 1911, 34,446 cars, $6,275,031.07. Year ending Sept. 30, 1912, 68,544 cars, $13,057,312.24. Year ending Sept. 30, 1913, 168,304 cars, $25,046,767.43. Year ending Sept. 30, 1914, 248,307 cars, $30,338,454.63. Ten months ending July 31, 1915, 264,351 cars, $24,641,423.17. Three years ending July 31, 1916, 472,350 cars, $59,994,918.01. The surplus above capital stock was, September 30, 1912, $14,745,095.67, and was increased year by year to $28,124,173.68, $48,827,032.07, $59,135,770.66. July 31, 1916, it was $111,960,907.53. Originally, the car made by the Ford Motor Company sold for more than $900. From time to time, the selling price was lowered and the car itself improved until in the year ending July 31, 1916, it sold for $440. Up to July 31, 1916, it had sold 1,272,986 cars at a profit of $173,895,416.06. As the cars in use multiplied, sales of parts and of repairs increased, so that, in the year ending July 31, 1916, the gross profits from repairs and parts was $3,915,778.94; sales being more than $600,000 for each of the months of May, June, and July. For the year beginning August 1, 1916, the price of the car was reduced $80 to $360. The following is admitted to be a substantially correct statement of the financial affairs of the company on July 31, 1916: The following statement gives details of the business of the Ford Motor Company for the fiscal year July 31, 1915, to July 31, 1916: Cars in transit and at branch assembling plants (about 21⁄2 weeks' output) Cars sold during year. Employed at home plant. Employed at home offices. Total employés in Detroit plant getting $5 a day or more. Employed at 84 branch plants. Total employés (all plants). Total employés getting $5 a day or more. 59,994,118 01 52,550,771 92 31,895,434 69 35,650 472,350 34,489 1,028 27,002 14,355 49,872 36,626 From a mere assembling plant, the plant of the Ford Motor Company came to be a manufacturing plant, in which it made many of the parts of the car which in the beginning it had purchased from others. At no time has it been able to meet the demand for its cars or in a large way to enter upon the manufacture of motor trucks. No special dividend having been paid after October, 1915 (a special dividend of $2,000,000 was declared in November, 1916, before the filing of the answers), the plaintiffs, who together own 2,000 shares, or one-tenth of the entire capital stock of the Ford Motor Company, on the 2d of November, 1916, filed in the circuit court for the county of Wayne, in chancery, their bill of complaint, which bill was later, upon leave granted, on April, 26, 1917, amended, in which bill they charge that since 1914 they have not been represented on the board of directors of the Ford Motor Company, and that since that time the policy of the board of directors has been dominated and controlled absolutely by Henry Ford, the president of the company, who owns and for several years has owned 58 per cent. of the entire capital stock of the company; that the directors of the company are Henry Ford, David H. Gray, Horace H. Rackham, F. L. Klingensmith, and James Couzens, and the executive officers Henry Ford, president, F. L. Klingensmith, treasurer, and Edsel B. Ford, son of Henry Ford, secretary; that after the filing of the original, and before the filing of the amended, bill, at the annual meeting of the stockholders, David H. Gray retired from the board of directors and Edsel B. Ford was elected and is acting as a director. Setting up that on the 31st of July, 1916, the end of its last fiscal year, the said Henry Ford gave out for publication a statement of the financial condition of the company (the same as hereinabove set out), that for a number of years a regular dividend, payable quarterly, equal to 5 per cent. monthly upon the authorized capital stock, and the special dividends hereinbefore referred to, had been paid, it is charged that notwithstanding the earnings for the fiscal year ending July 31, 1916, the Ford Motor Company has not since that date declared any special dividends: "And the said Henry Ford, president of the company, has declared it to be the settled policy of the company not to pay in the future any special dividends, but to put back into the business for the future all of the earnings of the company, other than the regular dividend of five per cent. (5%) monthly upon the authorized capital stock of the company-two million dollars ($2,000,000).” This declaration of the future policy, it is charged in the bill, was published in the public press in the city of Detroit and throughout the United States in substantially the following language: "My ambition,' declared Mr. Ford, 'is to employ still more men; to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this, we are putting the greatest share of our profits back into the business.'" It is charged further that the said Henry Ford stated to plaintiffs personally, in substance, that as all the stockholders had received back in dividends more than they had invested they were not entitled to receive anything additional to the regular dividend of 5 per cent, a month, and that it was not his policy to have larger dividends declared in the future, and that the profits and earnings of the company would be put back into the business for the purpose of extending its operations and increasing the number of its employés, and that, inasmuch as the profits were to be represented by investment in plants and capital investment, the stockholders would have no right to complain. It is charged (paragraph 16) that the said Henry Ford, "dominating and controlling the policy of said company, has declared it to be his purpose and he has actually engaged in negotiations looking to carrying such purposes into effect-to invest millions of dollars of the company's money in the purchase of iron ore mines in the Northern Peninsula |