Bisera Gjosevska 09/30/2002 Brief #5

DODGE v. FORD MOTOR CO. Supreme Court of Michigan, 1919 204 Mich. 459, 170 N.W. 668 Justice Ostrander The Parties Plaintiffs, John F. and Horace E. Dodge, and sued defendants Ford Motor Company and its directors; an action in equity to compel the declaration of dividends and for an injunction restraining a contemplated expansion of the business. History of the Case The trial court in the state of Michigan entered a decree requiring the board of directors to declare and pay a dividend, and enjoined the corporation from using its funds for expansion of the business. Facts of the Case

Plaintiffs allege that Henry Ford, president of Ford Motor Co. and member of the board of directors, had declared it to be the policy of the comapny not to pay any special dividends in the future. Prior to this decision, the company had regularly paid quarterly dividends to its shareholders for a number of years. Plaintiffs allege that Henry Ford had proposed to continue the corporation hereafter as a semicharitable institution that would work for the benefit of all people, not just the shareholders. In addition, plaintiffs contend that it is Mr. Ford who is behind this reasoning of the board of directors, and that his altruistic goals interfere with the profit-maximizing goals of the stockholder body. Defendants assert that the sum the plaintiffs are referring to was reserved for planned business expansion in the near future.

Plaintiffs argument The plaintiffs argued that the apparent immediate effect of withholding the sum designated for dividends would be to diminish the value of shares and return for shareholders. Defendants argument Defendants maintained that the money allocated for expansion were necessary for long-term profits. Issue Is the refusal to pay dividends merely an exercise of discretion on the part of the board of directors, or is it based on a non-corporate motive that would ultimately diminish the value and return to shareholders? Holding The court found that the doctrine of shareholders right to compel a dividend is applicable in this case. Rationale The court adopted the reasoning that a corporation is organized and carried on primarily for the profit of stockholders, and the power and discretion of directors is to be used for that end. Resolution The superior court affirmed the decision that a certain amount will be distributed to stockholders as dividends. In all other respects, the said decree is reversed.

Bisera Gjosevska 09/30/2002 Brief #5