Opinion ID: 1480915
Heading Depth: 1
Heading Rank: 5

Heading: As to the Consent of Transit Investment Corporation.

Text: The decree of May 28, 1940, appointing the receivers was in fact a consent decree. This is apparent both from the terms of the decree itself and from the conduct of the parties prior to and at the time of its entry. [5] Nothing was gained by the purported consent of Transit Investment Corporation. We are not dealing here with a case where the allegations of a complaint show an equity for the appointment of a receiver for reorganization of a corporation and the defendant consented thereto by answer or otherwise. Here, as we have demonstrated, the amended complaint makes no case for the appointment of receivers for the reorganization of Transit Investment Corporation. A court's powers may not be enlarged by consent. Moreover, in the case at bar the purported consent was no consent at all for it was beyond the authority of the officers who gave it to bind the corporation in this manner. Putting to one side for a moment any question which might arise as to the sufficiency of a consent to the appointment of receivers for reorganization given by the members of an executive committee (a majority of whom were defendants in the suit) drawn from the board of directors of a solvent Pennsylvania corporation, the consent was of no effect in view of a lack of confirmation by the stockholders of Transit Investment Corporation. Reorganization of a solvent Pennsylvania corporation either by the sale of its assets or the reclassification of its stock involves dealing with the internal affairs of the corporation and with the rights of stockholders inter sese and in relation to the corporation. There are existing Pennsylvania statutes which provide means of doing this. In every instance rearrangement of stockholders' rights is based upon the consent of the holders of the majority of the stock affected. The government of a Pennsylvania business corporation in its ordinary business transactions is vested in its board of directors. See the Act of May 5, 1933, P.L. 364, art. IV, § 401, and the Act of July 2, 1937, P.L. 2828, § 1, 15 P.S. § 2852401. The election of a Pennsylvania business corporation to dissolve voluntarily is governed by the provisions of the Act of May 5, 1933, P.L. 364, art. XI, § 1102, 15 P.S. § 28521102, and requires    the affirmative vote of the holders of at least a majority of outstanding shares    entitled to vote on the resolution [of dissolution]   . The sale of all or substantially all of the assets of a Pennsylvania business corporation likewise requires the ratification of the resolution of the board of directors by a majority of the stockholders of the corporation. See the Act of May 5, 1933, P.L. 364, art. III, § 311, 15 P.S. § 2852311. In the case at bar the executive committee of Transit Investment Corporation seeks to accomplish by indirection and without the consent of stockholders, a corporate reorganization by the processes of the federal court. The members of the executive committee or board of directors of Transit Investment Corporation, a solvent Pennsylvania corporation, seek to substitute their consent to reorganization for that of the stockholders as required by the law of Pennsylvania. This they cannot do. The law of Pennsylvania provides methods of reducing stated capital, Act of May 5, 1933, P.L. 364, art. VII, § 706, 15 P.S. § 2852706; means of redeeming and cancelling shares of stock, Act of May 5, 1933, P.L. 364, art. VII, § 705, 15 P.S. § 2852 705; methods of dissolution, both voluntary and involuntary, Act of May 5, 1933, P.L. 364, art. XI, §§ 1104, 1105, and Act of May 5, 1933, P.L. 364, art. XI, §§ 1107, 1108, 15 P.S. § 28521104, 28521105 and § 2852 1107, 28521108; and like provisions which are common to the general corporation laws of most of the states. But the changes must be effected by a majority vote of all the classes of stock affected. A consent might have been effective in a proceeding in which the relief sought and granted was based upon the allegations of the pleadings if Transit Investment Corporation had been insolvent or in financial difficulty, for the provisions of the Act of May 5, 1933, P.L. 364, art. III, § 319, 15 P.S. § 2852319 would then have been applicable and would have authorized the board of directors by resolution and without the consent of the shareholders to file an answer in a proceeding consenting to the appointment of a receiver. This statute has not been construed by the Pennsylvania courts. While the term in financial difficulty is broad, we think it cannot be construed to apply to the circumstances of Transit Investment Corporation in the case at bar. The difficulties with which the corporation is confronted are primarily those which have arisen between the corporation and its stockholders by reason of alleged improper corporate management amounting to fraud. We use the word alleged advisedly because Transit Investment Corporation made no admissions even when it consented to the appointment of receivers. The allegations of its answer denying the statements of the amended complaint still stand.