Summary
In Metzger v. George Washington Memorial Park, supra (380 Pa. 350), the corporation had 2,000 shares of voting common and an unstated number of cumulative preferred shares.
Summary of this case from Dentel v. Fidelity Savings LoanOpinion
Argued November 19, 1954.
January 3, 1955.
Corporations — Business corporations — Articles of incorporation — Amendment — Validity — Creating voting rights — Business Corporation Law.
Under § 801 of the Business Corporation Law of May 5, 1933, P. L. 364, the shareholders have power to adopt an amendment to the articles of incorporation which gives to the preferred stock voting rights share for share with the common; no property or contractual rights are affected where the method of voting is changed by charter amendment.
Before STERN, C. J., STEARNE, JONES, BELL, CHIDSEY, MUSMANNO and ARNOLD, JJ.
Appeal, No. 19, Jan. T., 1955, from decree of Court of Common Pleas of Montgomery County, June T., 1953, No. 27, in case of William F. Metzger, William J. McCahan, 3rd, Anna K. Johnson, Herbert Heywood and Isabel Heywood v. George Washington Memorial Park, Inc. Decree affirmed.
Proceeding in equity.
The opinion by KNIGHT, P. J., of the court below is, in part, as follows:
The question to be determined in this case is whether the proposed amendment to defendant's charter as contained in the resolution of May 18, 1953, abrogated substantial rights of property of these plaintiffs or altered their contractual relations inter se or whether it was but the changing of regulations governing the administration and conduct of the defendant corporation's internal affairs.
The plaintiffs contend that the proposed amendment abrogates their property and contractual rights and is therefore null and void. . . .
The defendant was incorporated under the provisions of Business Corporation Law of 1933, P. L. 364: and it bases its case on the amendments authorized by Section 801 of the Act. Among these authorized amendments are: "To increase or diminish its authorized capital stock, or to reclassify the same by changing the number, par value, designations, preferences, or relative, participating, optional or other special rights of the shares, or the qualifications, limitations, or restrictions of such rights . . . and in any and as many other respects as desired, provided that the articles, as so amended, would be authorized by this act as original articles of incorporation."
There seems to be little doubt that the original Articles of the defendant could have provided that the preferred stock would have voting rights share for share with the common.
These provisions of the Act of 1933 supra, entered into the issuance of the preferred stock of the defendant on May 29, 1940. Schaad v. Hotel Easton Co., 369 Pa. 486, at page 491.
It will be noted that a majority of each class of stock, common and preferred, voted in favor of the resolution. See § 804 of the Act of 1933 supra.
We are of the opinion that the proposed amendment is valid unless it takes from these dissenting stockholders some property or contractual right.
"Provisions in corporate by-laws may, generally speaking, be divided into two classes (a) those that are mere regulations governing the conduct of the internal affairs of the corporation. These may be repealed, altered and amended at the will of the majority unless a greater vote is required by the by-laws themselves or by statute. (b) Provisions in the nature of a contract which are evidently designed to vest property rights inter se among all stockholders. These cannot be repealed or changed without the consent of the other parties whose rights are affected." Bechtold v. Coleman Realty Company, 367 Pa. 208 at page 213 (1951). Amendments to articles of incorporation are in the same position as a by-law. We have seen no case and none has been called to our attention in which the courts have held that the exclusive right of common stockholders to vote is a property, contractual or vested right. Counsel for the defendant in his brief has cited cases from the State of Delaware, which hold to the contrary, viz.: Morris v. American Public Utilities Co., 122 A. 696 (1923); Maddock v. Vorclone Corp., 147 A. 255 (1929); Topkis v. Delaware Hardware Co., 2 A.2d 114 (1938); Aldridge v. Franco Wyoming Oil Co., 14 A.2d 380 (1940).
All these cases hold in effect that no property or contractual rights are affected where the method of voting is changed by charter amendment.
The majority of the holders of the common stock of the defendant corporation on May 29, 1940 by amending the articles of incorporation gave the holders of preferred stock the right to vote under certain conditions and on May 18, 1953, a majority of the common stock voted to give equal rights to the preferred stockholders with the common stockholders. This proposed amendment took nothing from the preferred stockholders but gave them rights they did not possess before. The amendment affected all of the common stock whether held by the majority or minority group.
We are of the opinion that the proposed amendment is one which concerns the internal management of the corporation and hence is subject to the general power to amend given stockholders by the Act of 1933 supra.
Decree entered dismissing bill. Plaintiffs appealed.
Benjamin Ludlow, with him Duffy, McTighe McElhone, for appellant.
H. James Sautter, with him Harold W. Spencer, for appellee.
The decree is affirmed on the opinion of President Judge KNIGHT, contained in his adjudication as chancellor and confirmed by the court en banc, reported in full at 70 Montgomery County Law Reporter, page 230 et seq.
Decree affirmed at appellant's costs.