board of directors. This conclusion, however, is based upon the view which I entertain of the condition of the corporation and its business in 1903 and 1904, which is the period during which the bill alleges the dividends should have been declared, and at the present time. An entirely different conclusion might be proper and might be the only proper conclusion one year or two years from the present time. In the case of Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. (5 Dick.) 756, Mr. Justice Garrison, speaking for the court of errors and appeals, indicates that under the general equity power of this court, the court is not without control over a corporation where the directors roll their profits into their business year after year until the great snowball has been magnified twenty diameters. The intimation is distinctly made that a time will come when it is not fair to the stockholders, even though the directors may be acting in good faith, to indefinitely extend the corporate business. We start here in this case in 1894we do not go back twenty years earlier when the original capital was $8,000-but we start here in 1894 with a capital of $300,000. The rolling-in process has not yet doubled the capital, but if this process keeps on indefinitely through eight or ten more years, until, instead of having less than $600,000 imperiled in this business the corporation has several millions and desires to own almost all the paper mills in the country, then a very different question would be presented. There must come a time, it seems to me, when it is unreasonable for directors to pursue a policy of expansion, but I cannot see that the proofs indicate that that point has been reached in this particular instance. It is a matter of common knowledge that all great industries during the last twenty years, in order to their preservation, have been obliged to expand. It is a matter of common knowledge that a paper mill that was a fortune to a man thirty or forty years ago might by itself be a worthless asset to that man's grandson to-day. In order to keep that mill alive, in order to enable the business to be prosecuted advantageously and with profit, it might be necessary now to have four or five such mills so as to secure an enormously increased product. It is a matter of common knowledge that thirty or forty years ago the profit on every pound or yard or any other unit of measure was enormously greater than it is to-day, and therefore, in order to conduct one of these large manufacturing businesses profitably, the output has to be very much greater than of old. Well, I cannot as a single equity judge sitting here, say that these gentlemen when they bought this Saugerties mill in 1903 and spent their $133,000, were not doing an act that was absolutely necessary to the preservation of the successful business of the corporation. There is direct evidence in the case which indicates that that was true. This energetic, capable manager, this expert, Mr. Thompson, the president, the head of this great enterprise, swears positively that they would have had to curtail their business, they could not have handled their or ders, without the acquisition of this mill or some other mill. Now, merely because they have nearly doubled the capital that they started out with in 1894 by constantly piling up their profits and adding them to their capital, I am not warranted in holding that dividends have unreasonably and unfairly been retained from distribution. The dividends distributed to the common stockholders, however, are exceedingly small. My recollection is that they averaged for five years less than four per cent. Beginning with 1890 during the years that have followed, this great business, in which such large gains have been made, has only yielded a little less than four per cent. to the holders of the stock. Well, it is perfectly plain that a court of equity cannot tolerate an indefinite continuation of that situation-the increasing of mills and machinery and vast expansion of this enterprise to the practical starvation of the stockholders. The situation would be very different, as counsel for the complainant very forcibly brought out in his argument and in his brief, if Mr. Raynolds' stock could be readily sold in the market and the market price of it increased as its book value increases, and these undistributed profits accumulate. If Mr. Raynolds held six hundred shares of stock in some of the banks or trust companies which have been established during the last ten years, it might make no difference to him whether dividends were paid from year to year or not. His share of these undistributed profits might be rendered to him. completely from year to year in the shape of a steady increment of the market value of his stock. He might be able at any time and from time to time to realize such part of his share of the annual accumulation of profits as he might desire to have in the form of cash, by selling a few shares of his stock. But in fact in this case the complainant's stock is that of a private manufacturing corporation, a close corporation, whose stock does not appear to have any market value. There is nothing to suggest that Mr. Raynolds could have sold his stock, or any part of it, for any more money in 1904 than it would have brought in 1900. In the case of corporations of this class sales of stock outside of the small coterie of officers and managers are generally hard to make excepting upon disadvantageous terms. I think the distinction drawn by counsel for complainant between private manufacturing corporations like this paper mill company, and banks and trust companies, and even railroad companies, the shares of which are readily salable at all times on the market, and the market price of which is directly affected by the prosperity of the corporation, ought not to be overlooked in determining whether or not a dividend is being unreasonably and improperly withheld from expectant stockholders. In my opinion it is the plain duty of the majority of the stockholders of a corporation like this paper mill company, who also constitute its entire corps of salaried officers and managers, to bear in mind that the only sure benefit to the stockholders to be derived from the successful prosecution of the corporate business must come from the distribution 37-PRIVATE CORP. of dividends in cash, and that the piling up of a surplus which remains undistributed may in the end go wholly to future creditors of the corporation. On the whole case, however, especially keeping in view the expenditure in 1903 of $133,000 for the acquisition and equipment of the Saugerties mill, I do not think that a point was reached when this bill was filed at which it became the duty of this court to intervene and compel this corporation to declare a dividend for the benefit of its stockholders. I think I have now stated the more important considerations which have led me to the conclusion that this court ought not now to set aside the judgment of these practical managers of such ability who are conducting their business apparently with great success and direct them to make a dividend, although, as I have heretofore intimated, an entirely different conclusion may be proper within a very short time.10 10 In Stevens v. United States Steel Corporation (1904) 68 N. J. Eq. 373, 59 Atl. 905, Stevenson, V. C. said: "The general rule is well settled that the directors of trading corporations are invested with a wide discretionary power in regard to the distribution of profits in the form of dividends among the stockholders. Subject, of course, to provisions in the charter, and also to the by-laws of the company, it is for the directors to say whether profits shall be distributed to the stockholders or retained for the purpose of the corporate business. It is, however, equally well settled that this discretionary power is not absolute, and when the directors 'improperly refuse to make a division of unused profits,' a court of equity will intervene on behalf of any stockholder who may complain." See Rollins v. Denver Club (1908) 43 Colo. 345, 96 Pac. 188, 18 L. R. A. (N. S.) 733 (court loath to interfere); Cratty v. Peoria Law Library Assn. (1906) 219 Ill. 516, 76 N. E. 707 ("as to common stock, such discretion will not be interfered with by a court of equity in the absence of bad faith or arbitrary or unjustifiable conduct"); Hunter v. Roberts (1890) 83 Mich. 63, 47 N. W. 131; Griffing v. Griffing Iron Co. (1901) 61 N. J. Eq. 269, 48 Atl. 910; Trimble v. American Sugar Refining Co. (1901) 61 N. J. Eq. 340, 48 Atl. 912 (mere existence of "a large amount of surplus" not sufficient to warrant intervention); McNab v. McNab & Harlin Mfg. Co. (1891) 62 Hun (N. Y.) 18, 41 N. Ý. St. 906, 16 N. Y. S. 448, affd. 133 N. Y. 687, 31 N. E. 627 (ultimate test is good faith); Richardson v. Vermont &c. R. Co. (1872) 44 Vt. 613; Kaufman v. Charlottesville Woolen Mills Co. (1896) 93 Va. 673, 25 S. E. 1003; Morey v. Fish Bros. Wagon Co. (1901) 108 Wis. 520, 84 N. W. 862; Bernier v. Grescom-Spencer Co. (1908) 161 Fed. 438; N. Y. & R. v. Nickals (1886) 119 U. S. 296, 7 Sup. Ct. 209, 30 L. ed. 363. Cf. Crichton v. Webb Press Co. (1904) 113 La. 167, 36 So. 926, 67 L. R. A. 76, 101 Am. St. 500 (large surplus, dividend of $50,000 declared); Anderson v. W. J. Dyer & Bro. (1904) 94 Minn. 30, 101 N. W. 1061 (fraud on minority shareholder); Laurel Springs Land Co. v. Fougeray (1893) 50 N. J. Eq. 756, 26 Atl. 886, reversing Fougeray v. Cord (1892) 50 N. J. Eq. 185 (fraudulent conduct of directors); Scott v. Eagle Fire Co. (1838) 7 Paige (N. Y.) 198, esp. p. 203.-Eds. Section 4.-Right to Subscribe to New Stock. CURRY v. SCOTT. 1867. 54 Pa. St. 270.1 STRONG, J.-The objects sought to be attained by the bill are mainly such as are attainable by a writ of quo warranto, and it might perhaps be questioned whether they can be secured in a court of equity. A portion of the relief sought, however, is such as a court of law cannot give, and it is not assigned as one of the grounds of the demurrer that the plaintiff has an adequate remedy at law. We proceed, therefore, to inquire whether the bill exhibits a case entitling the plaintiff to relief. It avers in substance that the Erie and Pittsburg Railroad Company, of which the plaintiff is a stockholder, having a portion of its authorized capital stock undisposed of, prescribed a time and manner for subscription of that which had previously remained. untaken; that afterwards, and, so far as it appears, at the time and in the manner prescribed, John Van McCullom, one of the defendants, subscribed for all the stock that remained untaken, to wit, 7460 shares; that the company received his subscription, that he then paid on account of each share $5; that the company issued certificates of stock for the stock thus taken; and that at the annual election next succeeding he was permitted to vote such shares. It is not averred that there was any fraud in the subscription or that the plaintiff or any other person was denied the privilege of subscribing or that the stock taken by McCullom was worth more than its par value at which he took it, but the bill rests upon the assumption that the directors of the company had no power thus to dispose of their untaken stock, and that McCullom could not thus acquire the rights of a stockholder to vote at an election. The bill also avers that an Act of Assembly was passed on the 10th day of February, 1865, by which it was enacted that the board of directors of the Erie and Pittsburg Railroad Company be authorized to receive subscriptions for all or any part of the unsubscribed stock of said company under such regulations as to time and manner of such subscription as said directors should prescribe, any law or usage to the contrary notwithstanding, and that the subscribers to said stock should have the same rights in said company as if they had been original subscribers thereto. Provided, that any person subscribing therefor should pay at the time of subscribing $5 on each share so subscribed. But the plaintiff insists that this act is of no force because it is an unwarranted infringement upon the rights of those who were stockholders at the time of its passage. And much of the argument has been expended 'The facts sufficiently appear in the opinion. Small portion of opinion omitted.-Eds. in assailing and sustaining the validity of the enactment. We are of opinion, however, that the discussion was unnecessary, for without the act the directors of the company had power to receive subscriptions for all the untaken stock and issue certificates therefor. And the moment this was done the holder became a stockholder and entitled to the rights of a stockholder. The company was incorporated without any appointment of commissioners to receive subscriptions for stock, but it was enacted that the stock should consist of 20,000 shares of $50 each. It was not required that any portion of it should be subscribed or paid in before the organization of the company, but the corporation was endowed at once with all the rights and privileges conferred by the General Railroad Act and its supplements. Of course subscriptions for stock were authorized. after the organization until the authorized amount had been taken. And what else do new subscribers become than stockholders having equal rights with others? The law authorizes no distinction between the rights of one stockholder and those of another. If one has not paid his subscription in 'full he is a debtor for so much as remains unpaid, but he is none the less a shareholder. It is insisted, however, that the directors had no right to allow McCullom to subscribe and thus obtain the untaken stock because it belonged to the old stockholders, and it should have been sold for their benefit, or they should have been allowed to take it in proportion to the shares they held. It would be a sufficient answer to this to say the bill does not allege that the plaintiff or any of the old stockholders offered or that they are willing to take it at par, nor does it allege that the stock could have been sold at a higher price than par. It therefore sets forth nothing that is injurious to the complainant. But when it is said that the untaken stock belonged to the old stockholders, more is meant than can be admitted. In a certain sense the assertion is true. But it is not to be admitted that an old stockholder had a right to subscribe to the untaken stock superior to the right of one who owned no stock. If this were so a first subscriber might compel all the remaining untaken stock to be sold, or, at least, would have a right to exclude any other person from subscribing. The cases upon which the plaintiff relies are inapplicable to the case now in hand. In Gray v. The Portland Bank, 3 Mass. 364, it was held that when a banking company had been incorporated with a capital not less than one sum and not greater than another and had commenced business with the smaller capital, and afterwards voted to increase to the largest, those who held the stock in the capital first raised had a prior right to subscribe to the new stock. The case was really decided by two judges of a court consisting of five, but assuming its ruling to be sound law, it is unlike the case we have. Here is no increase of capital but a filling up of one both authorized and required. This is a substantial difference. So the case of Reese v. The Bank of Montgomery County, 7 Casey 78, |