Opinion
No. 42353.
July 9, 1951. Motion to Clarify Opinion Sustained in Per Curiam Opinion Filed, September 10, 1951.
Action for a declaratory judgment. Plaintiff corporation was entitled to issue preferred stock after a 3/4 vote of its stockholders without the consent of defendant, a minority stockholder, although the corporation was incorporated when the 1875 Constitution required unanimous consent. The declaratory judgment in favor of plaintiff is affirmed.
1. CORPORATIONS: General Law Part of Charter. At the time plaintiff corporation was incorporated, Sec. 4556 R.S. 1929 made the general law a part of the charter of said corporation.
2. CORPORATIONS: Constitutional Law: Actions: Preferred Stock Properly Authorized by 3/4 Vote: Constitutional Rights of Minority Stockholder Not Violated: Declaratory Judgment Affirmed. Plaintiff corporation was properly authorized to issue preferred stock by a vote of its stockholders representing 3/4 of its stock pursuant to Sec. 351.090 R.S. 1949. Although the 1875 Constitution required the consent of all the stockholders, said Sec. 351.090 is not unconstitutional. The 1945 Constitution authorized the legislature to provide by general law the manner in which and under what conditions corporations may issue preferred stock. The general law was a part of the charter of the corporation. This meant the general law currently in force, and not the law as it was when the corporation was incorporated in 1936. The declaratory judgment entered by the trial court is affirmed.
On Motion to Clarify Opinion.3. CORPORATIONS: Constitutional Law: Issuance of Preferred Stock: Minority Shareholder Without Vested Right Under 1875 Constitution. Defendant minority stockholder did not have a vested right under the 1875 Constitution to prohibit the issuance of preferred stock except by unanimous consent. The statute authorizing the corporation to adopt the general law was part of defendant's contract when he became a shareholder, and such law was a part of the charter.
Appeal from Circuit Court of City of St. Louis; Hon. Robert L. Aronson, Judge.
AFFIRMED.
Henry B. Pflager and Orr, Pflager, Foulis Andreas for appellant.
(1) The trial court's finding that there was a reservation of an express power in the state to alter, amend or repeal the corporate charter because Section 5031 was, by implication, a part of respondent's charter since said section was in effect at the time of its incorporation and continued to be a part of its charter by implication after repeal of said section, is erroneous. Gregg v. Granby Mining Smelting Co., 164 Mo. 616, 65 S.W. 312; Monongahela Navigation Co. v. Coon, 6 Barr's Pa. St. 379; Fletcher, Private Corporations, sec. 3677, p. 828; Pearcy, Missouri Corporation Law, sec. 175, p. 656; Secs. 5014, 5031, R.S. 1939; Secs. 56, 175, General and Business Corporation Act of Missouri (approved August 6, 1943); Hicks v. Forsyth Electric Water Co., 330 Mo. 839, 50 S.W.2d 1045. (2) Section 5031 does not authorize the majority stockholders to alter the original contract entered into between the individual stockholders and the corporation at the time of incorporation, since the purpose of said section was only to permit a modification of the contract existing between the state and the corporation under certain limited conditions. 22 Cornell Law Quarterly, p. 257; Avondale Land Co. v. School, 170 Ala. 379, 54 So. 268; Pronik v. Spirits Distributing Co., 58 N.J. Eq. 97, 42 A. 586; Carey v. St. Joe Mining Co., 32 Utah 497, 91 P. 369; State v. Baltimore and Ohio R. Co., 127 Md. 434, 96 A. 636; Watson Seminary v. Pike County Court, 149 Mo. 57, 50 S.W. 880; 62 A.L.R., p. 573; 7 Fletcher, Private Corporations, sec. 3675; State of New Jersey, the Morris and Essex R.R. Co. v. Jones S. Yard, Commissioner of Railroad Taxation of the State of New Jersey, 95 U.S. 104, 24 L.Ed. 352. (3) The utilization by the majority stockholders of a statute enacted subsequent to incorporation to increase the preferred stock over the objection of the appellant deprived him of his fundamental rights regardless of whether or not there was an implied reservation to amend, alter, or repeal included in the corporate charter at the time such action was taken. Fletcher, Private Corporations, sec. 5775, pp. 80-82; Carey v. St. Joe Mining Co., 32 Utah 497, 91 P. 369; Gregg v. Granby Mining Smelting Co., 164 Mo. 616, 65 S.W. 312; Mower v. Staples, 20 N.W. 225; Stevens v. The Rutland Railroad, 29 Vt. 546; Hinkley v. Schwartzchild, 107 A.D. 470, 95 N.Y.S. 357; Johnson v. Tribune-Herald Co., 155 Ga. 204, 116 S.E. 810; Wheatley v. A-1 Root Co., 147 Ohio St. 127, 67 N.E.2d 187; Fletcher, Private Corporations, sec. 3726, p. 900; McKenzie v. Guaranteed Bond Mtg. Co., 168 Ga. 145, 147 S.E. 102; Macon Gas Co. v. Richter, 143 Ga. 397, 85 S.E. 112; Orloff v. State, 239 Mich. 563; Johnson v. DeSoto Hardwood Flooring, 167 Tenn. 145; Dartmouth College v. Woodward, 4 Wheat. 518, 4 L.Ed. 629. (4) It would be unconstitutional to limit the remedy of the appellant to the valuation of his shares, as provided for in Sec. 56, since that section of the General and Business Corporation Act of Missouri was enacted subsequently to the creation of the respondent corporation, and the act must be prospective in its operation and not deprive appellant of rights which existed for him before its passage. Geiger v. American Seeding Machine Co., 124 Ohio St. 222, 177 N.E. 594; 79 A.L.R., p. 626; Hicks v. Forsyth Electric Water Co., 330 Mo. 839, 50 S.W.2d 1045; Pearcy, Missouri Corporation Law, p. 657.
Cobbs, Logan, Armstrong, Teasdale Roos, Kenneth Teasdale, William H. Armstrong, C.E. Dapron, Kemp, Koontz, Clagett Norquist, Paul G. Koontz, Elliot Norquist and Thomas J. Wheatley for respondent.
(1) The trial court's finding that Section 5031 continued to be part of respondent's charter, and that Section 5031 permitted acceptance of provisions of Section 56 of Corporation Act of 1943, was proper. Sec. 5031, R.S. 1939. Watson Seminary v. Pike County Court, 149 Mo. 57, 50 S.W. 880; Salt Lake City Automobile Co. v. Keith-O'Brien Co., 45 Utah 218, 143 P. 1015; Sec. 56 General Business and Corporation Act of Mo. of 1943; Dartmouth College v. Woodward, 4 Wheat. 518, 4 L.Ed. 629; 7 Fletcher, Corporations, sec. 3635; Dorris Motor Car Co. v. Colburn, 307 Mo. 137, 270 S.W. 339; State v. Toombs, 324 Mo. 819, 25 S.W.2d 101; Boston Beer Co. v. Massachusetts, 97 U.S. 25, 24 L.Ed. 989; The Freehold Mutual Loan Assn. v. Brown, 29 N.J. Eq. 121; United Hebrew Benevolent Assn. v. Joshua Benshimol, 130 Mass. 325; Hinckley v. Schwartzchild and Sulzberger Co., 107 A.D. 470, 95 N.Y.S. 357. (2) A "reserved" power was part of Missouri law at time of respondent's incorporation and, such power being part of law, issuance of preferred stock does not disturb vested rights. Pearcy, Missouri Corp. Law, sec. 175, p. 654; Sec. 5014, R.S. 1939; Sec. 2, Art. XII, Constitution of 1875; Chap. 34, Art. I, Sec. 7, R.S. 1845; Chap. 34, Art. I, Sec. 7, R.S. 1855; Gregg v. Granby Mining Smelting Co., 164 Mo. 616, 65 S.W. 312; Sec. 4, Art. VIII, Constitution of 1865; State ex rel. Crow v. Lindell Ry. Co., 151 Mo. 162, 52 S.W. 248; State ex rel. Kinloch Tel. Co. v. Roach, 269 Mo. 437, 190 S.W. 862; Sec. 5014, R.S. 1939; Missouri Digest, Appeal Error, sec. 854; Chap. 224, Title LI, Sec. 2, General Statutes Missouri 1866; Sec. 7, Art. IX, Constitution of 1875. (3) Amendment authorizing issuance of preferred stock, being a method of corporate financing, is a nonfundamental change possible of adoption without existence of reserved power. Mower v. Staples, 32 Minn. 284, 20 N.W. 225; Everhart v. The Westchester Philadelphia Ry. Co., 28 Pa. 339; Rutland Burlington Ry. Co. v. Thrall, 35 Vt. 536; Sec. 56, General and Business Corporation Act of Mo. of 1943; Sec. 5031, R.S. 1939; 2 Cook, Corporations, sec. 499; 13 Am. Jur., Corporations, sec. 80, p. 224; Banet v. Railroad Co., 13 Ill. 504; Kenosha, etc., Railroad Co. v. Marsh, 17 Wis. 13; Woodfork v. Union Bank, 3 Cold, 488; Clearwater v. Meredith, 1 Wall. 25; Nugent v. Supervisors of Putnam County, 19 Wall. 241; Gregg v. Granby Mining Smelting Co., 164 Mo. 616, 65 S.W. 312. (4) Respondent having accepted benefits of general law relating to corporations is subject to provisions thereof providing for reserved power. 7 Fletcher, Corporations, sec. 3677, page 827; Louisville Nashville Ry. Co. v. State ex rel. Gray, 154 Ala. 156; Cincinnati, etc., Ry. Co. v. Cole, 29 Ohio St. 126, 23 Am. Rep. 729; Sec. 175, General Business Corporation Act of Mo. of 1943; 2 Cook, Corporations, sec. 493, p. 1640; 2 Morawetz, Corporations, sec. 1109; 13 Am. Jur. Corporations, sec. 86, p. 230; Gregg v. Granby Mining Smelting Co., 164 Mo. 616, 65 S.W. 312; Monongahela Navigation Co. v. Coon, 6 Barr's Pa. St. 379. (5) Amendment to respondent's articles afforded by Section 56 is in exercise of police power by legislature available to respondent without existence of reserved power. Venner v. Ry., 246 Ill. 170, 92 N.E. 813; Louisville, etc., Ry. v. Kentucky, 161 U.S. 677, 16 S.Ct. 714, 40 L.Ed. 849; Mazaika v. Krauczanas, 233 Pa. 138; Art. XII, Sec. 5, Constitution of 1875; Coolbough v. Herman, 221 Pa. 496; Persons v. Gardner, 42 N.Y. App. Div. 490; Pearsall v. Great Northern Ry. Co., 161 U.S. 646, 16 S.Ct. 705, 40 L.Ed. 838; Texas Ry. Co. v. Miller, 221 U.S. 408, 31 S.Ct. 534, 55 L.Ed. 789; Fifth Avenue Coach Co. v. N.Y., 221 U.S. 467, 31 S.Ct. 709, 55 L.Ed. 815; Baltimore Ry. Co. v. Interstate Commerce Comm., 221 U.S. 612, 31 S.Ct. 621, 65 L.Ed. 878; Chicago Ry. Co. v. Arkansas, 219 U.S. 453, 31 S.Ct. 275, 55 L.Ed. 290; Broadnax v. Mo., 219 U.S. 285, 31 S.Ct. 238, 55 L.Ed. 219; Crescent Cotton Oil Co. v. State of Miss., 257 U.S. 129, 42 S.Ct. 42, 66 L.Ed. 166; Woodson v. State, 69 Ark. 521; Crom v. Frahn, 33 Idaho 319, 193 P. 1013; Newell v. Wagner Mfg. Elec. Co., 318 Mo. 1031, 4 S.W.2d 1072. (6) Appellant is bound by and limited to the remedy of valuation of his shares provided for in Section 56. Sec. 56, General and Business Corporation Act of Mo. of 1943; Hicks v. Forsyth Elec. Water Co., 330 Mo. 839, 50 S.W.2d 1048; 75 Univ. of Pa. Law Review, 585; Pearcy, Corporation Law of Missouri, p. 653.
This suit was filed pursuant to the Declaratory Judgment Act, Chapter 527, Mo. R.S. 1949, Sections 527.010 to 527.140 inclusive.
The plaintiff corporation on August 1, 1949, by a vote of owners of more than 75% of common stock authorized an increase of its capital stock by the issuance of 500 shares of 5% preferred stock of a par value of $100 per share.
The defendant George B. Atwood owned 25 shares of common stock. He objected to the authorization of the issuance of preferred stock. The question for determination is whether the action of the corporation through its shareholders violated the constitutional rights of the defendant Atwood.
In the petition of plaintiff it is asserted that defendant's constitutional rights had not been violated. The prayer of the petition asked the court so to decree. The defendant Atwood in his answer and brief contended that the action of the majority stockholders was contrary to the due process clause of the Constitution. The trial court held the action of the corporation authorizing the issuance of preferred stock was not contrary to the constitutional rights of the defendant. From the decree the defendant appealed.
The admitted facts as revealed by the record are as follows: Plaintiff was organized as a business corporation in 1936. Its authorized capital stock was $50,000. The articles of incorporation did not authorize the issuance of preferred stock. Section 10 of Article XII of the Constitution of 1875, in force in 1936, provided: "No corporation shall issue preferred stock without the consent of all the stockholders." Statutory provisions implementing the constitutional provisions may be found in Section 5357, Mo. R.S.A. 1939. Section 5031, Mo. R.S.A. 1939, was also in force at the time plaintiff was incorporated. It provides in part as follows: "The powers enumerated in the preceding section shall vest in every corporation that shall hereafter be created or organized, and any corporation, including those heretofore organized and now in existence under any general or special law of this state, may accept the provisions of the general laws of this state relating to corporations, by filing with the secretary of state a certificate of such acceptance, signed by its president and secretary, duly authorized by its board of directors and approved by a vote of three-fourths of its stockholders, at any meeting duly and legally called for that purpose * * *." The substance of Section 5031 just quoted is now contained in Section 351.025, Mo. R.S. 1949.
In 1945 the voters of Missouri adopted a new Constitution. With reference to the manner of authorizing a corporation to issue preferred stock, the Constitution, Section 7, Article XI, reads as follows: "The stock or bonded indebtedness of corporations shall not be increased nor shall preferred stock be issued, except according to general law." That part of Section 5031, Mo. R.S.A. 1939, which was Section 4556, Mo. R.S. 1929, quoted supra, was in force when the plaintiff corporation was organized. That law applied to the plaintiff corporation and, therefore, became a part of its charter. State v. [906] Toombs, 324 Mo. 819, 25 S.W.2d 101, l.c. 105 (4, 5). All rights of stockholders were subject to the provisions of that section. 18 C.J.S. 745, Sec. 269; Haggard v. Lexington Utilities Company, 260 Ky. 261, 84 S.W.2d 84, l.c. 88 (4, 5); Shanik v. White Sewing Machine Corporation, 15 A.2d 169, affirmed 19 A.2d 831, l.c. 834 (3).
On August 1, 1949, the stockholders representing 3/4 of the shares of plaintiff's stock voted to accept the provisions of the code applicable to general and business corporations, i.e., Chapter 351, Mo. R.S. 1949. Under the general laws, particularly Section 351.090, Mo. R.S. 1949, the plaintiff corporation had authority to issue preferred stock if the holders of 75% of the shares of stock approved. The defendant if not satisfied could avail himself of the provisions of that section, i.e., Subsection 4, and receive the fair value of his stock as of the day prior to the date the issuance of preferred stock was authorized.
The contention of Atwood that Section 56 of the corporation law enacted by the Legislature of 1945, Laws 1945, p. 702, now Section 351.090, Mo. R.S. 1949, is unconstitutional is without merit. As it appears to us, it is argued that the provisions of the 1945 Constitution, Section 7, Article XI, that "the stock or bonded indebtedness of a corporation shall not be increased nor shall preferred stock be issued, except according to general law." prohibited the Legislature from changing the general law which permitted preferred stock to be issued only when all shareholders voted in the affirmative. It is our opinion that the provisions of the 1945 Constitution in question authorized the Legislature to provide by general law the manner in which and under what conditions corporations may issue preferred stock. If it were intended that no change should be made then the provisions of the previous Constitution, Section 10, Article XII, supra, to the effect that "no corporation shall issue preferred stock without the consent of all the stockholders" would have been retained.
Under the admitted facts in this case, we hold that shareholders owning more than 75% of the shares of plaintiff corporation stock voted to accept the general corporation code; that meant the general law as then in force and not the law as it was in 1936 when plaintiff was incorporated. Pursuant to the general corporation code of 1949, preferred stock was authorized to be issued. We hold that under the 1945 Constitution the Legislature was authorized to regulate the manner in which corporations may issue preferred stock and that Section 56 of the corporation act, Laws 1945, p. 702, now Section 351.090, Mo. R.S. 1949, in so far as applicable to the issues here presented, is not unconstitutional.
We hold that no constitutional rights of the defendant were violated. The preferred stock was authorized in accordance with the corporation charter and laws applicable thereto which were a part of the charter of the corporation. The judgment is affirmed. Bohling and Barrett, CC., concur.
The foregoing opinion by WESTHUES, C., is adopted as the opinion of the court. All the judges concur.
ON MOTION TO CLARIFY OPINION
A motion to clarify the opinion in this case was filed and joined in by both parties. The specific point on which clarification is sought is whether Atwood as a shareholder was vested with rights under the 1875 Constitution prohibiting the increase of capital stock except by unanimous vote of all shareholders. The answer to this question is that Atwood did not have any such vested right. The statute at the time of respondent's incorporation permitted and authorized the corporation to amend its charter and by an affirmative vote of three fourths of the stockholders to adopt the general corporation law as its charter. The [907] change was made according to law. Therefore, the corporation was governed by the general corporation law which authorized an increase in stock without the vote of all the stockholders. The statute authorizing the corporation to adopt the general law as its charter was a part of Atwood's contract when he became a shareholder. 18 C.J.S. 456, Sec. 71. The law was a part of the charter. General Investment Co. v. American Hide Leather Co., 129 A. 244, 44 A.L.R. 60. A shareholder in a corporation tacitly consents to any subsequent amendment of articles of incorporation designed to enable the corporation to conduct its business in a more profitable manner. In re Sharood Shoe Corporation, 192 F. 945, l.c. 948 (2, 3).
The change in the corporation's charter in this case was made as the law authorized and, therefore, Atwood had no right to complain. As we said in the opinion, when the corporation through its shareholders chose to be governed by the general law, "that meant the general law as then in force and not the law as it was in 1936 when plaintiff was incorporated." The corporation was therefore authorized to increase its stock under the provisions of Sec. 56 of the corporation act of 1945, p. 702, now Sec. 351.090, Mo. R.S. 1949.