Opinion
Decided January 26, 1933.
Corporations — Statutes part of stockholder's contract — Amendment of articles by majority vote of stockholders — Changing preferred to common stock — Compensation of dissenting stockholders — Statutory remedy exclusive — Constitutional law — Sections 8623-14, 8623-15 and 8623-72, General Code.
1. Statutes authorizing corporation to amend articles by less than unanimous vote of stockholders, and providing for compensation of dissenting stockholders, were part of stockholders' contracts and authorized majority of stockholders to amend articles changing preferred stock to common (Sections 8623-14, 8623-15 and 8623-72, General Code).
2. Dissenting stockholder seeking to specifically enforce preference provision in stock held not entitled to such relief, where his preferred stock was changed to common by majority vote of stockholders, since statutory remedy was exclusive (Sections 8623-14, 8623-15 and 8623-72, General Code).
3. Statutes providing for amendment of corporate articles and for compensation of dissenting stockholders held constitutional (Sections 8623-14, 8623-15 and 8623-72, General Code).
APPEAL: Court of Appeals for Montgomery county.
Messrs. Goebel, Dock Goebel, for plaintiff.
Messrs. Craighead, Cowden, Smith Schnacke, for defendant.
This case comes into this court both on appeal and as a proceeding in error, for the purpose of reviewing the judgment of the lower court.
We think the case is appealable and will therefore consider it upon appeal.
The pleadings set forth in detail the issues in dispute between the parties. There was no dispute as to the facts, and the case was therefore submitted to the lower court upon the pleadings and an agreed statement which sets forth in detail the facts necessary for a determination of the questions presented for consideration.
In brief, W.D. Williams, the plaintiff, is a stockholder in the defendant corporation, and, upon behalf of himself and others similarly situated, seeks to specifically enforce the provisions contained in ten shares of stock owned by him in the defendant corporation. For securing such enforcement he relies upon the provisions contained in his certificate of stock, and upon the provisions as they existed in the articles of incorporation prior to an amendment thereof in May, 1930.
The agreed statement of facts shows that the ten shares of stock in question were issued to the plaintiff by the defendant corporation on July 19, 1929. Such certificate of stock shows that he is the owner of ten shares of convertible stock, without nominal or par value, of the defendant corporation; that said convertible stock is a preferred stock entitling the holder thereof to certain dividends, and has priority or preference over all other classes of stock, and has certain preferences in the event of a distribution of the assets of said corporation upon dissolution either voluntarily or involuntarily.
The express terms of such certificate of stock are set forth in detail in paragraph 2 of the stipulation.
It further appears from the stipulation that on May 9, 1930, a meeting was held at which the stockholders present voted to amend the articles of incorporation of the defendant company so as to cancel and eliminate the existing convertible or preferred stock, and to convert the same into common stock without nominal or par value, without any of the preferences specified in said certificates of stock as to the payment of dividends or distribution of assets in case of dissolution.
It further appears from the stipulation that plaintiff was not present at said meeting, nor did he consent to the action taken by the stockholders who were present at such stockholders' meeting; that notice of such action was sent to the stockholders June 14, 1930, but that plaintiff had no actual notice of the action at said meeting until some time afterward.
The action amending the articles of incorporation of May 9, 1930, was taken at a duly called and held directors' and stockholders' meeting. No complaint is made as to any irregularity at such meeting, but the plaintiff insists that he is not bound by such amendment.
There is no complaint by plaintiff of any act of the defendant corporation prior to the time he became a stockholder. His entire complaint is based upon the amendment of May 9, 1930.
In brief, as shown by the agreed statement of facts, the amendment of May 9, 1930, converted the 45,000 shares of convertible stock without par value into 45,000 shares of common stock without par value, and converted the 45,000 shares of manager's stock into 10,000 shares of common stock without par value. All distinction as between the different classes of stock was removed, and the capital stock thus became 55,000 shares of common stock without par value. The preferences given the convertible stock as to dividends and as to the distribution of the company's assets in the event of dissolution were removed. The number of shares denominated manager's stock was reduced in the sum of $35,000. The agreed statement of facts shows that about 87 per cent. of the convertible stock and all of the manager's stock voted for the amendment. Plaintiff, however, was not among the number. The agreed statement of facts is quite lengthy, and it would not be practical to recite the same in detail.
No question however is raised as to the regularity of the proceedings in adopting the amendment in question.
In brief, the questions presented for determination are: First, are the provisions of the Code of Ohio relating to amendments by a corporation a part of the stockholder's contract? Second, if so, are such statutory provisions in reference to amendments constitutional, and do they furnish an exclusive remedy for stockholders who are dissatisfied with the action of the other stockholders in making such amendments?
The plaintiff insists that the relations between a corporation and its stockholders are founded in contract, that a stock certificate issued by the corporation is the written evidence of such contract, and that the terms of the contract, as expressed in such certificate of stock, cannot be changed by the corporation or its stockholders without the consent of such stockholders.
The defendant claims that a very important part of the contract between a corporation and its stockholders consists of the provisions of the law under which the corporation was formed and the stock in question was issued; that when the plaintiff became a stockholder Sections 8623-14, 8623-15 and 8623-72, General Code, were in full force and effect and became a part of the contract between plaintiff and the corporation so issuing said stock. It will be kept in mind that this is not a case wherein the plaintiff acquired the stock in question after the enactment of the sections of the Code referred to, but is a case where the sections of the Code referred to were in full force and effect when the plaintiff became such stockholder.
Section 8623-14, General Code, is as follows: "A corporation organized under the provisions of this act or of any previous corporation act of this state may by amendment alter its articles in any respect; provided, that only such provisions shall be included or omitted by amendment as it would be lawful to include in or omit from original articles filed at the time of making such amendment or effect changes of shares as hereinafter provided for. In particular, without prejudice to the generality of such power of amendment, a corporation may by amendment: (a) Change its name; (b) Change the place in this state where its principal office is to be located; (c) Change, add to or diminish its purpose or purposes; (d) Increase or reduce the par value of issued or unissued shares having par value; (e) Increase or reduce the authorized number of shares of any class; (f) Change issued or unissued shares of any class whether with or without par value into a different number of shares of the same class, or into the same or a different number of shares of any other class or classes with or without par value, theretofore or thereby created; (g) Create a new class or classes of shares; (h) Authorize the board of directors, within the limitations and restrictions stated in such amendment, to adopt an amendment in respect to unissued or treasury shares of any class or series, fixing or altering the dividend rate, redemption price or liquidation price of such shares or the number of shares constituting any series; (i) Change the express terms and provisions of any class of shares; or of any series; (j) Change any provision of the articles which was included or add any provision proper to be included pursuant to paragraph 7 of Section 8326-4 [8623-4] of the General Code." (113 Ohio Laws, 417.)
Section 8623-15 and Section 8623-72, General Code, without quoting the same in detail, provide the manner in which compensation may be made to any stockholder who objects to the amendment.
Counsel have favored the court with unusually exhaustive briefs in which many of the pertinent decisions of this and sister states, and of the United States courts, are cited and discussed in detail. The briefs also refer to the relevant sections of our Code, and we have examined these briefs and considered the leading cases cited therein with care.
Reference is made in the briefs to the case of Weston v. Beaver-Remmers-Graham Co., 8 Ohio Law Abs., 85. This case originated in Montgomery county, and was considered by this Court of Appeals. The case of Geiger v. American Seeding Machine Co., 124 Ohio St. 222, 177 N.E. 594, 79 A.L.R., 614, originated in Clark county and was also considered by this Court of Appeals. In the case of Mansfield, Coldwater Lake Michigan Rd. Co. v. Brown, 26 Ohio St. 223, the third paragraph of the syllabus reads: "Subscriptions to the capital stock of such corporations are to be construed with reference to consolidation statutes in force, and subscribers are bound thereby as if the statutes were part of the contract of subscription."
From a review of the Ohio and other authorities we cannot escape the conclusion that the power to amend the charter of a corporation by less than a unanimous vote, when considered in connection with the provisions of Sections 8623-15 and 8623-72 of the General Code, which provide a fair compensation to those stockholders who object to such amendment, forms a part of the plaintiff's contract as a stockholder. These sections provide a remedy for the objecting stockholders, and we are of opinion that the remedy so provided is exclusive.
We think the provisions of Sections 8623-14, 8623-15 and 8623-72, General Code, are constitutional, and entertaining the view that these sections should be read into the certificates of stock, and form a part thereof, it follows that the plaintiff is not entitled to the relief sought.
The finding will therefore be in favor of defendant.
Decree for defendant.
ALLREAD, P.J., and HORNBECK, J., concur.