Court Opinion

ID: 3617211
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:00:02.996256+00
Date Added: 2024-06-11T14:24:55.917364
License: Public Domain

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In the view that we take of this case, it is unnecessary to consider the appellant's argument as to the rights gained through his contract with the Brush Company, otherwise than with respect to the question of whether there has been an increase of the capital stock of that company. Assuming all that he claims, in regard to his absolute right under the contract to receive forty-eight per cent, of any increase of the capital stock, we do not think it can be said that there has been any such increase effected through the transactions referred to. It may be perfectly true that the transaction with the Rochester Gas and Electric Company, by which that company acquired all of the stock of the Brush Company, at the rate of five shares of the former for one of the latter, was a device, adopted by the officers and stockholders of the latter company, to accomplish by indirect means what could not be done directly, because of their inability to secure the appellant's consent, or to agree upon terms with him. But it was a possible transaction and one which the contract did not contemplate or provide for. The language of the contract is explicit with respect to what the company agreed to do and that is "that in case at any time hereafter the capital stock * * * shall be increased * * * that then in that case said party of the second part (the company) will issue and deliver to the said party of the first part (Einstein's assignor) * * * forty-eight per cent * * * of such increase." No condition of things will meet that provision, unless there be, in fact, as in law, an increase of the capital stock. Now the capital stock of the Brush Company, which was $250,000, is to-day $250,000 and *Page 53 
it is only by regarding the holdings by the former stockholders of the Brush Company of the shares of capital stock of another company, to wit: The Rochester Gas and Electric Company, that it can be supposed that the capital of the company is larger, as the result of the transactions complained of, than it was before. But that notion is quite untenable. There is but one way by which the capital stock of a company can be increased and that is in the manner authorized by its charter, or by some express authorization of the legislature of the state. No acts of the officers or agents of the company are competent to enlarge the capital stock; nor can the stockholders do so, save in the particular manner pointed out by the statute. There is no such thing as an implied authority to increase or diminish the capital stock of a company. The transaction in this case was simply one whereby all the stockholders of the Brush Company have parted with their stock to the Rochester Gas and Electric Company, upon certain terms which had been recommended by the directors. The appellant's agreement forbade the company from selling any of its interests or rights without his written consent; but it expressly recognized and preserved the right of any stockholder to dispose of his stock if he so elected. The Rochester Gas and Electric Company had the right to purchase, and the consequence was that it became a stockholder in the Brush Company in the place of those who, by transfers of their stock, had ceased to be stockholders therein. But that has no effect upon the Brush Company's stock, except to change the ownership; and that the Brush Company is to-day a distinct and existing organization, with its own officers and board of directors, and with a capital stock of $250,000, is an indisputable fact and is conceded. The argument of the appellant, that the proceedings through which the Rochester Gas and Electric Company was formed, and through which it subsequently acquired all of the stock of the Brush Company, "transmuted the stockholders of the Brush Company into stockholders of the Rochester Gas and Electric Company," may be perfectly true; but the stock of the Brush *Page 54 
Company never changed in form or amount. All that took place was a change of its ownership.
If it is true, as alleged in the complaint, that the Rochester Gas and Electric Company has "completely absorbed" the Brush Company and is infringing upon any of its rights, by the use of the patents which were assigned to it; or if it is, in other legally appreciable ways, violating any of its corporate rights, then the appellant, if his contract with the company gives him such an interest in the corporation and such a standing in court as to enable him to assert his rights, or the rights of his company, is not precluded from seeking relief in a proper action. Whether his having ceased to be a stockholder (and he disclaims here any right of action in that character) affects his capacity to bring such an action, in assertion of the corporate rights of the Brush Electric Company, is a serious question about which grave doubts may be entertained, but which we are not called upon now, and which we do not undertake, to decide. The appellant's action must fail, if there has not been that increase of capital stock which his contract contemplated and provided for and, as we think that no such change was effected by the transactions set forth in the complaint, it follows that the judgment of the General Term, which reversed the interlocutory judgment overruling the demurrer of the defendants to the complaint, was correct and should be affirmed, with costs to the respondent; but with leave to the plaintiff to amend his complaint within twenty days after service upon his attorneys of a copy of the order entered upon our remittitur.
All concur, except BARTLETT, J., not voting, and HAIGHT, J., not sitting.
Judgment accordingly. *Page 55