Citation. Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413 (Mich. 1919)
Law Students: Don’t know your Studybuddy Pro login? Register here
Brief Fact Summary.
Ford Motor Co. (D) in an attempt to lower the price of its autos and increase jobs, allegedly discontinued payments of dividends.
Synopsis of Rule of Law.
Courts will intervene to force dividends that normally only the directors of the corporation alone have power over if it is discovered that refusal to do so on the directors’ part was for fraud or for an intention unrelated to the shareholder’s welfare.
Facts.
In 1916, Ford (D) held $60 million in profit, $132 million in assets, $54 million in cash and municipal bonds, and $112 million in surplus against a small $20 million in liabilities. Despite this abundance, Ford (D) announced the cancellation of payment of dividends to stockholders. Two reasons were announced. First, $11.3 million was anticipated to go to the construction of a smelter for company use. Second, policy would be rededicated to general public welfare via an increase in jobs and a lowering of car prices annually. Dodge (P) shareholders in Ford (D) objected to the second reason and filed suit demanding payment of the dividends. After judgment for Dodge (P), an appeal followed.
Issue.
Will courts intervene to force dividends that normally only the directors of the corporation alone have power over if it is discovered that refusal to do so on the directors’ part was for fraud or for an intention unrelated to the shareholder’s welfare?
Held.
(Ostrander. C.J.) Yes. Courts will intervene to force dividends that normally only the directors of the corporation alone have power over if it is discovered that refusal to do so on the directors’ part was for fraud or for an intention unrelated to the shareholder’s welfare. It is improper for the directors of a corporation to refuse to use their powers for the benefit of the shareholders. Ford (D) is directed to pay dividends to stockholders yearly equivalent in amount to legitimate expansions and business interests of the corporation.
Concurrence.
(Moore, J.) The very fact that there was such a large surplus should be enough to justify an abuse of discretion and qualify for intervention.
Discussion.
The general rule, despite policy objections, is that a corporation may not put public interest above the interests of its shareholders. Generally, under normal law, there is also no rights to dividends for any shareholder unless the contract specifies for it. Note finally, that this case is on of the rare instances where the equity was so disproportionate, refusal to pay the dividends was in bad faith and mandated court intervention. Of course, since Henry Ford dominated the operations of Ford (D) it was ineffective to continually protect the minority interests of the Dodge (P) brothers until they left.