Dodge v. Ford Motor Co.
Dodge v. Ford Motor Co.
The Dodge brothers, who are shareholders of both regular and special dividends, as well as common stock, sue Henry Ford for his decision to take a large amount of profits and reinvest it in the company in order to expand it, instead of taking the profit and using it to give out special dividends
Ford wanted to eliminate special dividends, while making more cars for much cheaper and paying their workers higher wages, and also investing profits to expand the company
The lower courts found in favor of the Dodge brothers and enjoined the building of a new smelting plant and ordered a payment of a dividend of $19.3 million to be paid to the shareholders
The directors of a corporation, and they alone, have the power to declare a dividend of the earnings of the corporation, and to determine its amount; Courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders
The case for plaintiffs must rest upon the claim, and the proof in support of it, that the proposed expansion of the business of the corporation, involving the further use of profits as capital, ought to be enjoined because inimical to the best interests of the company and its shareholders, and upon the further claim that in any event the withholding of the special dividend asked for by plaintiffs is arbitrary action of the directors requiring judicial interference
A business corporation is organized and carried on primarily for the profit of the stockholders; the discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes
It is not within the lawful powers of a board of directors to shape and conduct the affairs of a corporation for the merely incidental benefit of shareholders and for the primary purpose of benefiting others
The court lifted the injunction to the expansion of the Ford plant, but it approved the lower court’s order to give back $19.3 million in dividends