Court Opinion

ID: 8199725
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:23:25.732355+00
Date Added: 2024-06-11T16:40:52.960928
License: Public Domain

FowleR, J.
(dissenting). It was held in Koeppler v. Crocker Chair Co. 200 Wis. 476, 228 N. W. 130, that a corporation cannot affect a stockholder’s right to recover according to the terms of his preferred stock certificate by any action of the corporation or. its stockholders taken after its issue without his consent.
The terms of the stock certificate of the plaintiff in that case gave him the right to have his preferred stock redeemed at a fixed date. This provision was authorized by the corpo*584rate articles at the time the certificate was issued. After its issue the stockholders by a majority sufficient under sec. 182.13 (3), Stats., changed the articles to substitute for the fixed time provided for redemption a provision for redemption upon call of the corporation. We held that this could .not be done. The situation was precisely the same as the instant situation. The changes by amendment in the two cases are different, but they are of like nature in that they change the contract rights of stockholders and the manner in which they were effected is the same, and the holding of the Koeppler Case was that such a change cannot be made in that manner. It is true that in the_ opinion in the Koeppler Case there is no particular discussion of the rule stated, but the statute was in mind when the decision was rendered. The statement of facts preceding the opinion so shows, page 478, where it is said: “Before any of the [plaintiff’s] certificates became due, a sufficient majority of the holders of both common and preferred stock voted to amend the articles of incorporation” to effect the change above stated. The holding in the instant case overrules the Koeppler decision.
It is true that the court may now, if it considers its former ruling erroneous, correct its error. But was the former ruling erroneous? Under the common law the ruling was correct. “In the absence of such [statutory provisions authorizing] provisions, the general rule of law is that a vital, radical and fundamental amendment of the charter” must receive the consent of all the stockholders. 7 Fletcher, Cyc. Corp. p. 898, § 3726. “The contract between a corporation and the holders of its preferred stock cannot be changed, or their rights in any way impaired, without their consent, by any subsequent action of the corporation.” 11 id. p. 732, § 5296. This common-law rule is recognized in Martin Orchard Co. v. Fruit Growers C. Co. 203 Wis. 97, 233 N. W. *585603. That common law may be changed by statute is of course true. But it is an accepted general principle that statutes in derogation of the common law are strictly construed. Fundamental changes in contract rights by amendment of a charter are not authorized by a statute unless such authority is expressly given. Blanket language in a statute does not authorize such changes. These propositions are amply sustained by the following cases cited in appellant’s brief: Sutton v. Globe Knitting Works, 276 Mich. 200, 267 N. W. 815; Pronick v. Spirits Distributing Co. 58 N. J. Eq. 97, 42 Atl. 586: Yoakam v. Providence Biltmore Hotel Co. (D. C.) 34 Fed. (2d) 533, 543; Breslav v. New York & Queens Electric Light & Power Co. 249 App. Div. 181, 291 N. Y. Supp. 932; id. 273 N. Y. 593, 7 N. E. (2d) 708; McKenzie v. Guaranteed Bond & Mortgage Co. 168 Ga. 145, 147 S. E. 102.
The statutes relied on to' support the changes here involved do not, in my opinion, authorize such changes as were here made. The changes are vital and fundamental. They destroy highly valuable rights. Two- statutes are relied on as authorizing the changes. One of them is sec. 180.07 (1), Stats., and the other sec. 182.13, Stats. Sec. 180.07 (1) reads:
“Any corporation organized for any of the purposes authorized by this chapter, may, by a vote of two thirds of all stock outstanding, and entitled to vote, . . . unless a greater vote shall be required in its articles, amend its articles so as to modify or enlarge its business or purposes, change its name or location, increase or diminish its capital stock, change its officers or its directors, or provide anything which might have been originally provided in Such articles. . . .”
The language here relied on is the “blanket” language held ineffectual in the cases above cited. Where general lan*586guage follows specific language relating to powers granted or acts permitted by statute the general rule is that the general language only covers powers or acts of the same nature as those specified. Chicago & N. W. R. Co. v. Railroad Comm. 162 Wis. 91, 155 N. W. 941. See other cases cited in 5 Callaghan’s Wis. Dig. p. 4894, as to ejusdem generis. To give to the blanket provision of the statute the construction contended for by the respondents renders the inclusion of the specified things senseless and futile. The amendments specifically authorized by sec. 180.07 (1), Stats., cover change of business or purposes, location, increase, or diminishing of capital stock, and change of officers or directors. The changes here involved are a far reach from those specified. They are entirely different in character and effect. I cannot assent that this statute contemplates any such radical and fundamental changes in contract rights as are here involved.
That sec. 180.07, Stats., does not authorize amendment of corporate articles to- provide for issue of preferred stock appears from the fact that it was considered necessary to make a special provision for it in the revision of 1898. The former section' was then and had for years been in existence. The revisors of 1898 provided that preferred stock might not be issued after organization of a corporation unless all stockholders consented thereto. Subsequently it was provided that such amendment might be adopted by a three-fourths vote. Ch. 324, Laws of 1925. But this amendment did not authorize any change in articles in respect of preferred stock that had not theretofore been expressly authorized by statute, and no such change had been theretofore, and none such has been since expressly indicated.
The only provisions of sec. 182.13, Stats., that relate to changes by amendment are subs. (1), (3), and (4). Sub. (1) authorizes amendment to provide for preferred stock, *587and in- relation thereto to provide for payment of dividends thereon at a fixed rate before common stock can receive dividends; for accumulation of dividends; for preference of preferred over common stock in distribution of assets; for the redemption of preferred stock; and for denying or restricting the voting power of preferred stock. That this section does not warrant the amendment here involved is manifest from consideration of the changes made by that amendment. That amendment provides for changes in provisions of the existing preferred stock in six respects, as specifically noted in the opinion of the court. (1) Reduces dividends from seven to- five per cent. (2) Changes sinking fund provisions. (3) Reduces quick-asset provision from one hundred twenty to sixty per cent of preferred stock outstanding. (4) Reduces the excess profits that shall be devoted to the sinking fund from three to two per cent. (5) y Refers to substitution for unpaid cumulated dividends on t preferred stock warrants for $20 for every $35 of such unpaid dividends. (6) Increases nopar common stock from " 20,000 to 50,000 without giving holders of existing common stock the right to take new stock in amount sufficient to retain their relative rights incident to- stock ownership.
The changes indicated by (2), (3), (4), (5)\ or (6) above clearly do not fall within the amendments authorized by sub, (1) of sec. 182.13, Stats. s There is nothing in that subsection that purports to provide or implies that preferred stockholders may by amendment of articles be compelled to surrender their preferred stock for other preferred stock with provisions less beneficial to them than the provisions of the stock they hold. Sub. (1) only purports to provide for issues of preferred stock in addition to stock already issued. Nothing is said about compelling stockholders to take a new issue of stock in lieu of their holdings of stock already issued.
*588It does not appear from the printed case or the exhibits referred to therein that the proposed amendment of articles expressly provides for compulsory exchange of old for new certificates of preferred stock. However, it is not apparent how the provisions of subs. (2) and (4) of sec. 182.13, Stats., can be complied with without such exchange. These subsections provide that certificates of preferred stock shall state on their face or contain on their face reference to a statement on their back of “all privileges accorded to and all restrictions imposed” on preferred stock. And it is immaterial whether such exchange is expressly provided for in the amendment or the same effect is produced by mere amendment of the articles without such express provision.
Sub. (3) of sec. 182.13, Stats., is the provision most strongly relied on. It reads :
“No change in relation to such preferred stock shall be made, except by amendment to- the articles adopted by a vote of three fourths of the preferred and three fourths of the common stock.”
My view of this subsection is that'it relates back to sub. (1). It authorizes the changes covered by sub. (1) when three fourths of the stockholders shall so vote, but it goes no further. It does not purport or imply power to do anything except what sub. (1) expressly empowers. It does not therefore authorize what was here done.
Sub. (4) only purports to authorize common stockholders to- vote a second issue of preferred stock, provided such issue preserves all rights and equities secured by the first issue. It has no application to- the instant situation, except as far as it recognizes that rights and equities of existing holders of preferred stock ought not, as common honesty manifestly requires, to be prejudicially interfered with, and thereby refutes intention of the legislature to- authorize such interference. The doctrine adopted by the court in this case *589renders all preferences of preferred stock subject to destruction, and renders such stock subject to be placed on absolutely the same status as common. If by a vote of three fourths of the stockholders what was done in this case by amendment can be authorized, anything conceivable can be so- accomplished. As well, in principle, may cancellation of preferred stock be authorized as destruction of the rights and privileges inherent in it by the terms of .the certificates representing it. The legislature could not have intended any such destruction of contract rights as is here involved. We should assume an intent of honesty and fair dealing on the part of the legislature, not an intent to* authorize plunder when three fourths of the stockholders shall vote for it because they consider that what is to be gained by the plundering of others will be of more advantage to- them than what they themselves lose. If three fourths or all but one stockholder desire the change here attempted let them accept it for themselves, but they should in common honesty be held to respect the rights of the stockholders who do' not wish to forego their rights. By this it is not meant to imply that there was any intent to defraud in this case. I agree that those voting for the change .doubtless considered the change necessary to save the corporation. But those opposing no doubt thought otherwise, and preferred what they had to what was offered in exchange. In my opinion what was here attempted cannot be done under sanction of a statute unless the statute shall expressly or by necessary implication so declare. The facts here involved might well justify the legislature in declaring that when such facts exist the changes here attempted may be made by a three-fourths vote of all stockholders. But the present statutes do- not expressly declare, nor do they necessarily or reasonably imply, that such changes in the contract rights of holders of preferred stock as were here attempted were contemplated. It was early *590held by this court that the clause of our state constitution reserving the right to change corporate charters after their adoption did not apply to the contract rights of stockholders secured by the corporate charter. Kenosha, Rockford & Rock Island R. Co. v. Marsh, 17 Wis. 13, 16, 17. Upon like reason it ought to be held that such changes are not authorized by the statutes here relied upon. The instant sub. (3) by its terms imposes no restrictions or conditions upon which changes by amendment may be made. The implication therefore is, if it is held that amendments outside of those mentioned in sub. (1) may be made at all, that they may be made for slight or whatever reason, or for none at all, or from whatever motive. No such intent of the legislature is expressed nor should such intent be inferred.
For the reasons above stated, the judgment of the circuit court should be reversed and judgment entered in accordance with the prayer of the complaint.
I am authorized to state that Mr. Justice Fritz and Mr. Justice Fairchild concur in this dissent.
A motion for a rehearing was denied, with $25 costs, on September 13, 1938.