Name:Dodge v. Ford Motor Co.
Cite:170 N.W. 668 (Mich 1919).
Dodge brothers met with Henry Ford and complained about the ending of dividend payments, offered to sell their shares to Ford, and filed suit when he refused.
2. Should Ford be enjoined from building an iron ore smelter?
Directors of corporations alone have the power to declare a dividend and to determine its amount. Courts of equity will not interfere with management of the directors unless it is clearly made to appear that they are guilty of fraud of 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 fraud, or breach of that good faith which they are bound to exercise towards the stockholders.
2. No. The injunction should be lifted. Plans for the long-term future of corporations must be made, as Ford has done with the proposed smelter. Ford has proven it has capable management and thus those managers should be allowed to continue.
Money that Ford gave to the Dodge brothers as dividends was feeding them as his competitors. The purpose of the corporation to make money for shareholders - maximize profits. Ford had been getting his parts from Dodge, but he wanted to produce his
Extremely rare for courts to force payments of dividends to shareholders because of the business judgment rule.
Why did the court find that Ford was running a quasi-charitable organization?
1. Drive the cost of cars down
2. Doubles wages for employees
2a. Increased productivity of the workers
2a1. Limited turnover
2a2. Limited absenteeism
2b. Allowed more workers to be able to purchase vehicles
The business judgment rule is a very strong, but not absolute, protection against liability.
Cite:170 N.W. 668 (Mich 1919).
- Procedural Posture:
- Background and Description:
Dodge brothers met with Henry Ford and complained about the ending of dividend payments, offered to sell their shares to Ford, and filed suit when he refused.
- Issues:
2. Should Ford be enjoined from building an iron ore smelter?
- Holding:
Directors of corporations alone have the power to declare a dividend and to determine its amount. Courts of equity will not interfere with management of the directors unless it is clearly made to appear that they are guilty of fraud of 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 fraud, or breach of that good faith which they are bound to exercise towards the stockholders.
2. No. The injunction should be lifted. Plans for the long-term future of corporations must be made, as Ford has done with the proposed smelter. Ford has proven it has capable management and thus those managers should be allowed to continue.
- Other Discusion:
Money that Ford gave to the Dodge brothers as dividends was feeding them as his competitors. The purpose of the corporation to make money for shareholders - maximize profits. Ford had been getting his parts from Dodge, but he wanted to produce his
Extremely rare for courts to force payments of dividends to shareholders because of the business judgment rule.
Why did the court find that Ford was running a quasi-charitable organization?
1. Drive the cost of cars down
2. Doubles wages for employees
2a. Increased productivity of the workers
2a1. Limited turnover
2a2. Limited absenteeism
2b. Allowed more workers to be able to purchase vehicles
The business judgment rule is a very strong, but not absolute, protection against liability.