Case Name: The State, ex rel. Webber, Pros. Atty., v. Shaw et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1921-12-20
Citations: 103 Ohio St. 660
Docket Number: No. 16999
Parties: The State, ex rel. Webber, Pros. Atty., v. Shaw et al.
Judges: Johnson, Hough, Wanamaker, Jones and Matthias, JJ., concur.
Reporter: Ohio State Reports, New Service
Volume: 103
Pages: 660–670

Head Matter:
The State, ex rel. Webber, Pros. Atty., v. Shaw et al.
Corporations — Rules and regulations — Constitute contract between corporation and members' — Section 8704, General Code — • Stockholders^ meeting and quorum — Annual meeting adjourned subject to call — Right of stockholders to call meeting — Section 8647, General Code.
1. The rules and regulations of an Ohio corporation made' pursuant to Section 8704, General Code, not in contravention of any other statutory provisions, have all the force of contracts as between the corporation and its members and as between the members themselves, and provisions of such regulations stating the place of holding stockholders’ meetings and the number of shares of stock constituting a quorum are valid and binding.
2. When the annual meeting of the stockholders of a corporation has been regularly convened the stockholders may by action of a majority of the shares of stock represented in person or by-, proxy at such meeting adjourn the same to a future date subject to call, and during the interim between such annual meeting and the adjourned session stockholders may not legally call another meeting by virtue of the provisions of Section 8647, General Code.
(No. 16999
Decided December 20, 1921.)
In Quo Warranto.
The pleadings in this case are somewhat lengthy, and voluminous testimony has been taken under the direction of a master commissioner. We deem it unnecessary to enter upon an extended statement of the pleadings or an elaborate discussion of the testimony, because it is believed that the following undisputed facts are the basis of the controversy.
The Western Reserve Finance Company is a corporation under Ohio laws, having issued and outstanding 3617 shares of stock. By its regula tions its principal office is located at room 206 Ely' Block, Elyria, Ohio. Its regulations further provide that annual meetings of stockholders shall be held at 7 o’clock, P. M., on the second Tuesday in January each year, at the principal office of the corporation, special meetings to be' held at the same place as the annual meeting and to be called at any time by the president, or in his absence by the vice-president, or by the directors. Such meetings shall be called when requested by stockholders holding twenty-five per cent, or more of the capital stock. Notice of the time and place of qll annual and special meetings shall be mailed by the secretary to each stockholder ten days before the date the’reof. A quorum for the transaction of business at any meeting shall consist of a majority of shares of stock issued and outstanding, though less than a quorum may adjourn the meeting to a future time. Among the duties devolving upon the secretary by the regulations is that of issuing to all stockholders notice of stockholders’ meetings. The regulations provide for nine directors, divided into three classes, each to serve for a period of three years, three to be elected each year, and prior to the meeting of January, 1921, this provision in the regulations had been faithfully observed. Prior to that ■meeting cumulative voting had never been practiced in this corporation. There had been some dissension in the corporation and it was desired at this meeting by certain minority stockholders to exercise the right of cumulative voting in order t'o have representation on the board. The minutes of the meeting show that it was proposed by the presiding officer to elect three directors, one at a time, but that there was opposition to this method, which, after some discussion, resulted in a motion to adjourn the meeting at the call of the secretary, who should in the meantime ascertain from counsel the proper and legal method of procedure. The minutes also show that during the discussion the question was asked as A0 how the stockholders would be notified of the adjourned meeting and that the secretary stated that ten-days notice would be given to all stockholders and that the call would be-issued as soon as the proper method of election should be determined. The motion to adjourn was then submitted to vote and 2538 shares were voted in favor of adjournment and 907 shares against it, there being only 3584 shares represented at the meeting. Thereafter, without waiting for the secretary to, reconvene the adjourned meeting, two stockholders published in the Grafton Citizen, a newspaper published in .Grafton, Lorain county, a call for a meeting of stockholders to be held at 7 o’clock, P. M., February 8, 1921, at the office of T. A. Conway, room 401 Ely Block, Elyria, Ohio, for the election of directors and the transaction of other lawful business. No other notice was given of that meeting and at the time and place appointed it was attended by four stockholders, owning 88 shares of stock and holding proxies for 884 additional shares, making the total number of shares represented at the meeting 972. At that meeting nine directors were chosen each receiving 972 votes. Thereafter a majority of those elected at that meeting met on February 17, 1921, and elected the usual corps of officers for the corporation. On February 14, 1921, the secretary mailed to each stockholder a written notice of the. adjourned session of the annual meeting to be held on February 25, 1921, at 7 o’clock, P. M., at the office of the company, 206 Ely Block, Elyria, Ohio. At that meeting eighteen stockholders were present in person, owning 1119 shares, and proxies were presented for 2393 additional shares, making the total number of shares represented 3512. At that meeting a full corps of directors was elected, each receiving 3512 votes. This is a quo warranto suit originally filed in this court to inquire by what right the members of the board of directors elected at the meeting on February 25, 1921, claimed to hold their offices.
The inquiry has been much simplified by a stipulation made during the course of taking testimony, as follows: “The claim of Relator to have the directors named in the petition inducted into office is based on the election of- directors at the stockholders’ meeting held on February 8, 1921, and if the Court should find that a valid election of directors did not take place at said meeting, then relator will concede that the defendants constitute the legal board of Directors of The Western Reserve Finance Company.”
Mr. Lawrence H. Webber, prosecuting attorney; Mr. Timothy S. Hogan; Mr. Q. A. Gillmore and Mr. T. A. Conway, for relator.
Mr. L. B. Fauver; Mr. A. H. West and Mr. Wm. L. Hughes, for respondents.

Opinion:
Marshall, C. J.
The sole question for determination is concerning the legality of the election of February 8, 1921. It is sought to justify this election on the theory that the majority did not intend to hold another meeting for the purpose of electing directors and that the majority in adjourning the meeting of January 11 were not acting in good faith, but were moved by a desire to prevent the minority from, having any representation on the board of directors. The minority proceeded upon the theory that if the majority did not intend to call another meeting the minority had a right to proceed under Section 8647, General Code, to call an annual meeting, and to hold the same by such representation as might attend, whether it amounted to a majority of the outstanding stock or not, arid that such meeting would be valid even though it proceeded in disregard of certain provisions in the regulations of the corporation, which regulations were not in conflict with the provisions of Section 8647, but supplementary thereto. Section 8647 provides as follows: "Except club-house companies, unless the regulations of a corporation otherwise provide, an annual election for trustees or directors shall be held on the first Monday in January' of each year. When for any cause, trustees or directors are not elected at the annual meeting, or other meeting called for that purpose, they may be chosen at a members' or stockholders' meeting, if all the members or stockholders are present in person or by proxies,, or at a meeting called by the trustees or directors, or any two members or stockholders, notice of which has been given, in writing, to each stockholder, or by publication for ten days in some newspaper printed in the county where the corporation is situated, or has its principal office. Trustees and directors in all cases shall continue in office until their successors are elected and qualified."
Acting under the provisions of this section, two stockholders published notice of the meeting in the Grafton Citizen, a weekly newspaper published in Grafton, some distance from the county seat, although the record shows that not a single stockholder of the corporation lived in Grafton and only one stockholder received his mail on a rural delivery line leading out of Grafton. The notice was published in the issue of January 28th, and although another issue of the Grafton Citizen appeared on February 4th the publication did not appear in that issue. The language of the statute is, "by publication for ten. days in some newspaper printed in the county where the corporation is situated." It will be seen that the statute does not require ten-days notice of the meeting, or that the notice be given ten days before the meeting, but requires "publication for ten days." This clearly means that the publication is to continue for the period of ten days, and if the paper had been a daily paper it could only continue by keeping the notice in the paper during the entire period of ten days, which would mean ten different insertions. Inasmuch as it was a weekly paper, it could be kept in the paper the entire period of ten days by having it also appear in the issue of February 4th. The statute as to the giving of notice has not therefore been strictly complied with. It is not claimed that any other mode of notice was employed or that the provisions as to giving notice set forth in the regulations of - the corporation were complied with. Even if it should be conceded for the purposes of the argument that the publication was legal and regular, it still remains to be shown thát the situation was such as to permit two stockholders to call a meeting for the election of directors. Two stockholders could only have such authority when the "directors are not elected, at the annual meeting, or other meeting called for that purpose." The un-contradicted record shows that the annual meeting had not been finally adjourned. The meeting had been regularly called and by the action of nearly three-fourths of the stock represented at the meeting an adjournment had been made to meet at a later date at the call of the secretary upon notice given by the secretary in the usual method provided by the regulations, the postponement being for the .purpose of obtaining the opinion of an attorney upon the procedure to be followed in holding such election. It is not material to inquire whether the adjournment was in good faith, or whether it was intended not to call another meeting, or whether the subsequent meeting which was in fact held on February 25th proceeded regularly, because the inquiry has been limited to an inquiry into the validity of the meeting of February 8th. It is sufficient to say that a majority of the stockholders present or represented by proxies at the meeting of January 11th saw fit to adjourn the meeting to a later date and that their action in this respect was legal and regular. If during the pendency of the annual meeting the minority conceived that their rights were not being respected, and if the minority believed that no adjourned meeting would be held, they had the right to demand that the annual meeting be reconvened, and upon such demand being refused by the secretary mandatory injunction would lie to compel giving the notice of such meeting. This is clearly the spirit of Cincinnati Volksblatt Co. v. Hoffmeister, 62 Ohio St., 189, and Fraternal Mystic Circle v. State, ex rel. Fritter, 61 Ohio St., 628.
It should also be pointed out in this connection that the regulations of the corporation make ample provision for calling meetings, it being provided that meetings shall be called "whenever so requested by stockholders holding twenty-five per cent, or more of the capital stock." * Nine hundred and seven shares were more than twenty-five per cent, of the entire outstanding capital.
If it be assumed that two stockholders had the right to call a meeting to elect directors at the time the publication was made, and if it be further assumed that the meeting was otherwise regular in every respect, it becomes pertinent to inquire whether 972 shares out of a total of 3617 shares could hold a valid election. Section 8704, General Code, provides in part: "When no other provision is specially made in this title, a corporation by its regulations may provide —
"1. The time, place and manner of calling and conducting its meetings.
"2. The number of stockholders or members constituting a quorum."
Section 8647 does not make any provision'as to the place of holding meetings and the power is therefore clearly conferred upon the corporation to make provision by its regulations for the place at which its meetings. shall be held. The regulations are very specific in requiring that all meetings shall be held at the principal office of the company and that its principal office is located at room 206 Ely Block, Elyria, Ohio. Section 8647 is also silent as to the requirement of the number of shares constituting a quorum, and the power is therefore conferred by Section 8704 upon the corporation to stipulate the number which shall constitute a quorum, and it is accordingly provided in the regulations that a quorum shall consist of a Majority of the stock outstanding. It is very clear therefore that the meeting of February 8th was not attended in person or by proxy by sufficient number of shares of stock to hold a legal meeting or to take any valid action except to adjourn,
Much stress has' been placed in the argument upon the alleged motive or animus which moved the majority to adjourn the annual meeting. It is in all cases difficult to determine motive or a state of mind, but it is proper to observe in this case that the corporation had been proceeding for many years in direct violation of one of the main provisions of the corporation code. This court cannot therefore say that the majority was acting in a want of good faith in adjourning the meeting a few-days to permit their attorney to examine the law. The delay was of course an unusual length of time for a question which involved no great difficulty, but on the other hand this court cannot say that the reason assigned for the delay in the action of legal counsel is insufficient or that it indicates'bad faith.
The rules and regulations of a corporation, when not in conflict with statutory provisions and when made pursuant to authority specifically granted by legislative enactment, have all the force and effect of a contract between the corporation and its members and between the members themselves. When stockholders subscribe to stock in a corporation they are deemed to know the statutory law governing corporations, and they are also deemed to know the provisions of the corporation's rules and regulations, and they therefore impliedly if not expressly agree to abide by such regulations. Such regulations have been uniformly recognized as essential to orderly action in the business of the corporation and they would become a farce and worse than a plaything if not recognized and enforced. If this court should say that the provision in the regulations requiring that all meetings should be held at the office of the company and that the provision requiring a quorum to consist of a majority of all shares issued and outstanding are not to be recognized and enforced in this case, then it might well be inquired what provisions of rules and regulations would be enforceable ?
The minority stockholders having proceeded in disregard of the by-laws and regulations of the corporation, it is the judgment of this court that their action was illegal and the election held on February 8, 192*1, invalid. The relief prayed for will therefore be denied and the petition dismissed.
Judgment for respondents.
Johnson, Hough, Wanamaker, Jones and Matthias, JJ., concur.
Robinson, J., concurs in proposition one of the syllabus and in the judgment.