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Lebold v. Inland Steel Co.

AUTHOR: Tiglao
[125 F. 2d 369 (1941)] NOTES: Plaintiffs in this case are questioning the decision of
TOPIC: Dissolution; Voluntary Dissolution Where the majority stockholders to dissolve the company. They
Creditors Affected think that the majority owners would take over the property
PONENTE: for themselves. The lower court dismissed it but the SC sided
with the plaintiffs because the directors acted in bad faith.
Directors should always put the company first above their
personal interests.
FACTS:
Plaintiffs, who are minority stockholders of the Inland Streamship Company, brought this suit to the District Court to
recover damages claimed to have been incurred by them by reason of alleged fraudulent of Inland Steel Company in
dissolving Inland Streamship Company, by buying Inland Streamships assets and appropriating its business.
They are questioning the position of the majority stockholders to force Inland Streamship out of business, to just have
their company dissolved and then the majority stockholders take over the companys property which would be
detrimental to the minority stockholders.
The majority stockholders own 80% of the stock and had the power to determine the actions of the streamship
company.
The court dismissed the complaint, hence this appeal. The district judge ruled in favor of the minority stockholders.
ISSUE(S): Did the lower court err in dismissing the complaint? YES.

HELD:
The directors of a corporation represent it and its stockholders; the majority stockholders of a corporation represent
it and its minority stockholders. The vote of every director and of every majority stockholder must be directed to
and controlled by the guiding question of what is best for the corporation, for which he is, to all legal intents and
purposes, a trustee. His own selfish interest must be ignored.
If when he votes he does so against the interest of his company, against the interest of his minority and in favor of
his own interest, by such selfish action, by omission of fidelity to his own duty as trustee, he forfeits approval in a
court of equity.
If the majority stockholders have acted in bad faith in dissolving the corporation for the purpose only of freezing
out the minority, said majority stockholders can be held liable for damages which the minority stockholders may
have suffered as a result of the wrongful dissolution.
Obviously, they were not thinking of the companys interest. They were actually ignoring it.
Hence, they failed to perform their duties as stockholders and directors. They were unfaithful to the company and to
the minority stockholders. Thus, it was rightful for the latter to go to court and complain.
RATIO:

CASE LAW/ DOCTRINE:
DISSENTING/CONCURRING OPINION(S):