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DODGE V. FORD MOTOR CO.

Facts

• Ford Company was a very strong corporation at the time in which this case was decided (1919),
and the cars were sold for relatively high prices.

• However, Ford decided to decrease the price of the cars (down to less than 1/3 of their original
price), because he wanted the cars to be affordable for
• more people.

• Further, he announced a plan to end paying out special dividends to shareholders, and would instead
take the profits and reinvest them in order to employ more employees and build more factories.

• Minority shareholders sued to stop Ford’s plans.

• Plaintiffs argued that the purpose of a company is to maximize shareholders’ profits, not to help
community by making more affordable cars or employ more employees.

• The law states that the corporation’s directors have some discretion to chart the course of the
business. However, that discretion does not extend to the reduction of profits or the non-distribution
of profits among stockholders in order to benefit the public.

Issue

• Whether Plaintiff shareholders can force the Company (Defendant) to payout larger dividends.

Holding

• The court held that plaintiff shareholders can force the Company to increase dividends. Indeed, a
corporation is organized first for profit and not for charity.

Reasoning

• A corporation is a business, and it is created to produce wealth.

• The primary duty of the management is to maximize the shareholder wealth.

• This doesn’t mean that the sole duty of the directors is to maximize profits, indeed, the Court noted
that an incidental humanitarian expenditure for the benefits of the employees is permissible.