States have no power to enact legislation contravening federal
laws for the control of national banks, but such banks are, for
actions against them at law or in equity, deemed citizens of the
states in which they are located, and the federal courts have such
jurisdiction only as they have in cases between individual citizens
of the same states.
The shareholder has a common law right, for proper purposes and
under reasonable regulations as to time and place, to inspect the
books of the corporation of which he is a member.
The possibility of the abuse of a legal right affords no ground
for its denial, and while an examination of the books of a
corporation should not be granted for speculative or improper
purposes, it should not be denied when asked for legitimate
purposes.
Page 199 U. S. 149
Where stockholders of a national bank have the legal right to
enforce inspection, the state court has authority to enforce the
right by granting the proper relief in a judicial proceeding.
Nothing in sec. 5211, Rev.Stat. requiring reports by, or in sec.
5240, Rev.Stat. providing for examination of, national banks cuts
down the usual common law rights of shareholders in such
corporations. The term visitorial powers as used in sec. 5241 does
not include the common law right of the shareholder to inspect the
books of the corporation.
The defendant in error was the owner of nearly one-fifth of the
capital stock of the Commercial National Bank of Ogden, Utah. As
such shareholder, he applied for leave to inspect the books,
accounts, and loans of the bank, which was refused him. He alleges
the reasons for seeking such inspection to be that he might
ascertain the value of his stock in the bank, and whether the
business affairs of the same had been conducted according to law.
He charges that loans had been made to patrons of the bank of more
than one-tenth of the capital stock, in violation of law, and that
an inspection of the books, accounts, and loans of the bank would
reveal other irregularities. Upon the hearing in the district
court, the following findings of fact were made:
"1. That the Commercial National Bank of Ogden, Utah, is a
corporation organized and existing under and by virtue of the laws
of the United States; that said corporation is doing a banking
business in Ogden City, Weber County, State of Utah; that the
capital stock of said bank is $100,000, divided into 1,000 shares
of the par value of $100.00 per share."
"2. That the defendants are directors and have under their
control and in their possession all books, papers, accounts, and
loans of said Commercial National Bank."
"3. That there is no acting cashier of said bank, and that there
has been no such cashier since the first day of November, 1902;
that J. W. Guthrie is president, A. R. Heywood, vice-president, and
R. T. Hume is assistant cashier of said bank."
"4. That on or about the first day of February, 1903, plaintiff
made a demand upon said directors at the banking house of said
bank, and also upon J. W. Guthrie, as president, A. R.
Page 199 U. S. 150
Heywood, as vice-president and general manager of said bank, and
upon R. T. Hume, as assistant cashier of said bank, for permission
to permit plaintiff to inspect all books, accounts, and loans of
the said bank, and plaintiff made demand for such inspection at
such time or times as would not interfere with the proper
conducting and operating of said bank."
"5. That each and all of said persons refused permission to
plaintiff to inspect the said books, accounts, and loans of said
bank at any time or at all and they still refuse to permit such
inspection."
"6. That the plaintiff is the owner and has in his possession
183 1/3 shares of the capital stock of said bank, of the par value
of $18,333.33, and that said stock appears on the stock books of
said bank in the name of the said plaintiff."
"7. That plaintiff sought and now seeks the inspection of the
books, accounts, and loans of said bank for the purpose of
ascertaining the true financial condition of said bank, and also
for the purpose of ascertaining the value of his stock in said
bank, and also for the purpose of ascertaining whether the business
affairs of the said bank have been conducted according to law."
"The court further finds that sufficient reason exists for the
inspection of said books and accounts of said bank."
Upon this finding, the court entered a judgment requiring the
defendants to permit the plaintiff to inspect the books, accounts,
and loans of the bank at such time or times as would not interfere
with the business of the bank.
Page 199 U. S. 152
MR. JUSTICE DAY delivered the opinion of the Court.
While the state has no power to enact legislation contravening
the federal laws for the control of national banks,
Davis v.
Elmira Savings Bank, 161 U. S. 275,
Congress has provided that, for actions against them at law or in
equity, they shall be deemed citizens of the state in which they
are located, and that in such cases the circuit and district courts
of the United States shall have such jurisdiction only as they
would have in cases between individual citizens of the same state.
25 Stat. 433. If the stockholders had the legal right to enforce
inspection, there is no room to question the authority of the state
courts to enforce the right by granting the proper relief in a
judicial
Page 199 U. S. 153
proceeding.
Petri v. Commercial National Bank,
142 U. S. 644;
Continental National Bank v. Buford, 191 U.
S. 119,
191 U. S.
123.
Upon review in the Supreme Court of Utah, the judgment of the
district court was affirmed, it being held that it was the common
law right of the shareholder to have the inspection demanded, and
that the same had not been cut down by the act of Congress
regulating the business of national banks. 27 Utah 248.
There can be no question that the decisive weight of American
authority recognizes the common law right of the shareholder, for
proper purposes and under reasonable regulations as to place and
time, to inspect the books of the corporation of which he is a
member. Morawetz, in his work on Private Corporations § 473, vol.
1, says:
"However, in the United States the prevailing doctrine appears
to be that the individual shareholders in a corporation have the
same right as the members of an ordinary partnership to examine
their company's books, although they have no power to interfere
with the company's management."
In many of the states, this right has been recognized in
statutes which are generally held to be merely in affirmance of the
common law. Nor do we find the authorities making an exception as
to this right when a corporation which does a banking business is
the subject of consideration. It is said to be customary for
banking companies in England to insert in their constitutions a
provision forbidding the inspection of customers' accounts by
shareholders or creditors.
Morgan's Case (1885), L.R. 28
Ch.Div. 620; Cook, Corp. § 517, note. The subject appears to be now
regulated by statute in England. Cook, Corp. § 518. In
Cockburn
v. Union Bank of Louisiana, 13 La.Ann. 289, it was held that a
stockholder in the Union Bank of Louisiana had the right to a writ
of mandamus to compel the officers of the bank to allow him the
privilege of inspecting the discount books of the bank within
proper and reasonable hours, and in the course of the opinion it
was said:
"A stockholder in a corporation possesses all his individual
Page 199 U. S. 154
rights, except so far as he is deprived of them by the charter
or the law of the land; as long, then, as the charter, or the rules
and bylaws passed in conformity thereto, and the law, do not
restrict his individual rights, he possesses them in full, and can
demand to exercise them. It cannot be denied that it is the right
of everyone to see that his property is well managed, and to have
access to the proper sources of knowledge in this respect."
This case was cited with approval in
State ex Rel. Burke v.
Citizens' Bank of Jennings, 51 La.Ann. 426, and
Tuttle v.
Iron National Bank, 170 N.Y. 9, 12. In the latter case, it was
said:
"The principle upon which a stockholder is allowed access to the
books of a corporation is as applicable to the case of a banking
corporation as it is to any other kind of corporation."
In
State ex Rel. Doyle v. Laughlin, 53 Mo.App. 542, a
stockholder in an incorporated bank had been denied by the
directors the right to inspect the books for the purpose of
acquainting himself with the conduct of its affairs and to learn
how it was managed. The court there held that he was entitled to a
writ of mandamus to compel the inspection, and this notwithstanding
the bank contended that it occupied such a confidential and trust
relation to its customers and depositors that it would be a breach
of duty on its part to open up the books to the inspection of the
relator. The authorities are fully examined, and the right of the
shareholders to inspect the books for proper purposes and at proper
times is recognized, in
In re Steinway, 159 N.Y. 251;
Comm. ex Rel. Sellers v. Phoenix Iron Co., 105 Pa. 111. To
the same effect are
Deaderick v. Wilson, 67 Tenn. 108,
137;
Lewis v. Brainerd, 53 Vt. 520, and
Huylar v.
Cragin Cattle Co., 40 N.J.Eq. 392, 398. In the latter case, it
was said:
"Stockholders are entitled to inspect the books of the company
for proper purposes at proper times . . . , and they are entitled
to such inspection though their only object is to ascertain whether
their affairs have been properly conducted by the directors or
managers. Such a right is necessary
Page 199 U. S. 155
to their protection. To say that they have the right, but that
it can be enforced only when they have ascertained, in some way
without the books, that their affairs have been mismanaged, or that
their interests are in danger, is practically to deny the right in
the majority of cases. Oftentimes frauds are discoverable only be
examination of the books by an expert accountant. The books are not
the private property of the directors or managers, but are the
records of their transactions as trustees for the
stockholders."
The right of inspection rests upon the proposition that those in
charge of the corporation are merely the agents of the
stockholders, who are the real owners of the property.
Cincinnati Volksblatt Co. v. Hoffmeister, 62 Ohio St.
189-201.
It is suggested in argument that, if the shareholder has this
right, it may be abused in that he may make an improper use of the
knowledge thus gained. There is nothing in this record, however, to
suggest, by way of argument or testimony, that the shareholder
desired the information which the books would give for other than a
lawful purpose. On the other hand, there is a distinct finding that
the inspection was desired for the purpose of ascertaining the true
financial condition of the bank, and for the purpose of enabling
the complainant to find out the value of his stock, and whether its
business was being conducted according to law. There is no
suggestion that the complainant was acting in bad faith or from
improper motives, or that he was seeking in any way to misuse the
information which the books would afford him. We need not hold that
there may not be circumstances which would justify the courts in
withholding relief to a stockholder seeking an examination of the
books and accounts of the bank. In the case before us, no reason is
shown for denying to the stockholder the right to know how his
agents are conducting the affairs of a concern of which he is part
owner. Many legal rights may be the subjects of abuse, but cannot
be denied for that reason. A director, who has the right to an
examination of the books, may abuse the confidence reposed in him.
Certainly this possibility
Page 199 U. S. 156
will not be held to justify a denial of legal right, if such
right exists in the shareholder. The possibility of the abuse of a
legal right affords no ground for its denial.
State ex Rel.
Doyle v. Laughlin, 53 Mo.App.,
supra; People v.
Goldstein, 37 App.Div. 550. The textbooks are to the same
effect as the decided cases. Cook, Stocks & Stockholders § 511;
Boone on Law of Banking § 235; Angell & Ames on Corporations
607.
It does not follow that the courts will compel the inspection of
the bank's books under all circumstances. In issuing the writ of
mandamus the court will exercise a sound discretion, and grant the
right under proper safeguards to protect the interests of all
concerned. The writ should not be granted for speculative purposes,
or to gratify idle curiosity, or to aid a blackmailer, but it may
not be denied to the stockholder who seeks the information for
legitimate purposes.
In re Steinway, 159 N.Y. 250;
Thompson on Corporations §§ 4412
et seq.
We are unable to find in § 5211, requiring reports to be made to
the Comptroller of the Currency, or in § 5240, providing for the
appointment of examiners to investigate the condition of national
banks, anything which cuts down the usual common law right in
shareholders in such corporations.
In § 5210 it is provided that a list of shareholders shall be
kept, subject to inspection by the shareholders and creditors of
the corporation and the officers authorized to assess taxes under
state authority. The purpose of this section seems obvious in view
of the other provisions of the statute, authorizing taxation by the
state, upon the shareholder (section 5219 ), and providing for the
individual liability of the shareholder to an amount equal to his
stock, in cases of insolvency. (Sec. 5151.)
This Court has said that one, if not the principal, object of
this section was to acquire information as to the shareholders upon
whom may rest individual liability for contracts, debts, or other
engagements of the bank.
Pauly v. State Loan and Trust
Co., 165 U. S. 606,
165 U. S.
608-621.
Page 199 U. S. 157
It is true that, for some purposes, a national bank is a public
institution, notwithstanding it is the subject of private
ownership. It may issue bills, which circulate as part of the
currency of the country. It is subject to examination, and, in a
large measure, to the supervision, of the Comptroller of the
Currency. It is examined at stated periods, and may be the subject
of special examination by order of the Comptroller. But it is owned
by shareholders, like other banking institutions. It is subject by
statute to be sued in the courts of the state. 25 Stat. 433. There
is nothing in the banking act, as we read it, which limits a
shareholder or shareholders, seeking knowledge for a lawful purpose
of an institution in which they have a proprietary interest, to an
application to the Comptroller for an examination by a public
officer of the affairs of their company. A director need only own
ten shares of the stock. Rev.Stat. § 5146. The directors together
need not necessarily own the controlling interest in the bank. Yet
it is contended they, or the officers of their choice, may deny
stockholders the privilege of inspecting, for legitimate purposes,
the property which belongs to them.
But, it is said, the right of the shareholder to inspect the
books is cut off by § 5241, providing "no association shall be
subject to any visitorial powers other than such as are authorized
by this title, or are vested in the courts of justice." We are
unable to find any definition of "visitorial powers" which can be
held to include the common law right of the shareholder to inspect
the books of the corporation. "Visitation" is defined by Bouvier
(Law Dict. vol. 2, p. 1199) as follows:
"The act of examining into the affairs of a corporation."
"The power of visitation is applicable only to ecclesiastical
and eleemosynary corporations. 1 Bl.Com. 480. The visitation of
civil corporations is by the government itself, through the medium
of the courts of justice.
See 2 Kent 240. In the United
States, the legislature is the visitor of all corporations founded
by it for public purposes.
17 U. S.
4 Wheat. 518. "
Page 199 U. S. 158
The origin and nature of "visitorial" power received full
discussion in the case cited by Bouvier from 4 Wheaton.
See opinion of Mr. Justice Story in
Dartmouth College
Case, 4 Wheat. 673.
The meaning of this section was before Judge Baxter in the case
of
First Nat. Bank of Youngstown v. Hughes, 6 F. 737, and
of the meaning of the term "visitorial powers," as used in section
5241, that learned judge said:
"Visitation, in law, is the act of a superior or superintending
officer, who visits a corporation to examine into its manner to
conducting business, and enforce an observance of its laws and
regulations. Burrill defines the word to mean 'inspection;
superintendence; direction; regulation.'"
At common law, the right of visitation was exercised by the King
as to civil corporations, and as to eleemosynary ones, by the
founder or donor. 1 Cooley's Blackstone 481.
"In the United States, the legislature is the visitor of all
corporations created by it, where there is no individual founder or
donor, and may direct judicial proceedings against such
corporations for such abuses or neglects as would at common law
cause a forfeiture of their charters."
1 Cooley's Blackstone 482, note.
In the case before us the Supreme Court of Utah quotes from
Merrill on Mandamus, as follows:
"Visitors of corporations have power to keep them within the
legitimate sphere of their operations, and to correct all abuses of
authority, and to nullify all irregular proceedings. In America,
there are very few corporations which have private visitors, and,
in the absence of such, the state is the visitor of all
corporations."
In no case or authority that we have been able to find has there
been a definition of this right which would include the private
right of the shareholder to have an examination of the business in
which he is interested, and the right of discovery of the methods
and means by which the agents of the corporation are conducting its
affairs. The right of visitation
Page 199 U. S. 159
being a public right, existing in the state for the purpose of
examining into the conduct of the corporation with a view to
keeping it within its legal powers, Congress had in mind, in
passing this section, that in other sections of the law it had made
full and complete provision for investigation by the Comptroller of
the Currency and examiners appointed by him, and authorizing the
appointment of a receiver to take possession of the business with a
view to winding up the affairs of the bank. It was the intention
that this statute should contain a full code of provisions upon the
subject, and that no state law or enactment should undertake to
exercise the right of visitation over a national corporation.
Except insofar as such corporation was liable to control in the
courts of justice, this act was to be the full measure of
visitorial power.
That the statute did not intend, in withholding visitorial
powers, to take away the right to proceed in courts of justice to
enforce such recognized rights as are here involved, is evident
from the language used. If the right to compel the inspection of
books was a well recognized common law remedy, as we have no doubt
it was, even if included in visitorial powers as the terms are used
in the statute, it would belong to that class "vested in courts of
justice" which are expressly excepted from the inhibition of the
statute.
Finding nothing in the act of Congress limiting the common law
right of the shareholder, we think that, under the circumstances of
this case, he was wrongfully denied an inspection of the books and
accounts of the bank by its officers, and the judgment of the
Supreme Court of Utah is
Affirmed.