Court Opinion

ID: 7917127
Source: CourtListenerOpinion
Date Created: 2022-09-08 22:12:26.533674+00
Date Added: 2024-06-11T16:32:52.200291
License: Public Domain

Harvey, C. J.
(dissenting): I dissent from the opinion written for the court by Mr. Justice Wedell. I concur in the dissenting opinion of Mr. Justice Parker and wish to add thereto.
As the case reached this court, aside from questioned rulings of the trial court upon controverted testimony, the record presented two principal questions for our determination: First, the proper interpretation of our statute pertaining to corporations, particularly G. S. 1947 Supp. 17-2802 and 17-2803, and the charter of the Pabco Drill*154ing Company, Inc., issued thereunder; and, second, whether the equities of the case as shown by the record required or justified the trial court’s judgment.
Prior to 1939 our -statutes pertaining to corporations had been enacted from time to time to make effective the particular views of those who drafted the legislation and without much regard to statutes previously enacted.
This resulted in some overlapping and in much omission of appropriate statutory provisions for the organization of corporations and the conduct of their business. As early as 1930 the state bar association appointed a committee of lawyers whose work was largely in connection with corporations to write a corporation code. The committee made its first report to the bar association in 1932 (1 J. B. K. 78), a part of which we quote:
“The committee is unanimously of the opinion that the statutes of the State of Kansas having to do with the creation and organization, and the powers and exercise of powers of domestic corporations are so inadequate, uncertain, indefinite and even fragmentary, as to leave the bench and the bar and business advisers often in doubt as to the proper course to be pursued. This fact discourages the creation of Kansas corporations by both citizens of the State of Kansas and by citizens of other states expecting to do business within the State of Kansas, and retards the growth and development and the natural and normal exercise of the powers of business corporations in Kansas.”
The report points out the reluctance of people desiring to form corporations to organize them under the laws of Kansas, and treats of the advisability of encouraging the organization of corporations under the laws of this state for the purpose of converting raw materials into finished products, and continues:
“The entire state is concerned in this process of conversion and in encouraging organized capital to enter the state, to organize within the state, and to effect this process of conversion within the state. Your Committee believes that a revision of our corporation laws to meet modern business conditions will help to bring about this process of conversion, will greatly profit the state in general, and will also produce considerable additional revenue for the state by means of the additional fees which normally follow in the wake of a modern and proper corporation code.”
The committee prepared a temporary draft of the code, which was introduced in the legislature of 1933, not with the view of its passage at that time but for study, and a thousand copies of it were printed and distributed. Later it was presented to the legislative council. There, after a discussion at several of its sessions, the measure was recommended for passage, with only one dissenting vote. *155The bar association had a large number of copies of the proposed code printed and generally distributed in this state, and to some extent outside of the state. The committee continued its consideration of the draft and the many suggestions made to it by interested persons and made such modifications as it deemed appropriate. It was introduced at other sessions, but because of the desire for further study, or other pressing business, was not passed. By 1939 the committee had worked it over so much that they were fully satisfied with its provisions. It was presented early to the legislature in 1939. At the request of the chairman and vice-chairman of the Senate Judiciary committee and of the Speaker of the House of Representatives, Mr. Thomas A. Lee, a member of the committee, furnished them with a memorandum explaining the differences between the corporation code and existing statutes. This has been preserved by being published in 7 J. B. K. 260.
The draft proposed was enacted into law (Laws 1939, ch. 152), and is now G. S. 1947 Supp. 17-2401 to 17-4505. The statute has been in force ten years and appears to have proved to be as beneficial as the committee which formulated it had hoped. Its provisions have been so clear and complete that only a few cases involving it have reached this court, as the annotations to the statutes disclose. This is the first case in which an effort has been made to ignore or render nugatory the sections of the statute here involved — an effort which will be successful if the opinion written by this court stands.
Under the subtitle, “Organization of Private Corporations for Profit,” the pertinent sections are quoted or summarized as follows:
17-2801: “Private corporations organized for profit shall be created in accordance with this act.”
17-2802: “The articles of incorporation shall set forth” (our emphasis). This contains ten subsections lettered from A to J, inclusive.
17-2803: “The articles of incorporation may also set forth” (our emphasis). This is followed by eight subsections lettered from A to H, inclusive. We are concerned here with subsection B only, which reads:
“B. Any provision which the incorporators may choose to insert for the management of the business and for the conduct of the affairs of the corporation, and any provisions creating, defining, limiting and regulating the powers of the corporation, the directors or the stockholders, or any class of the stockholders, or in the case of a corporation which is to have no capital *156stock, of the members of such corporation; provided, such provisions are not contrary to the laws of this state.”
With reference to this section Mr. Lee, in the article mentioned, said:
“In accordance with the contractural theory of corporations which forms the fundamental basis for the Code as drawn, Section 12 which is entirely new, provides that the Articles of Incorporation may set forth in addition to the requirements of Section II certain additional agreements of the incorporators.” (Our emphasis.)
The defendant, Pabco Drilling Company, Inc., filed its articles of incorporation with the secretary of state in July, 1946, as a corporation for profit under the laws of Kansas. It stated all the matter required by G. S. 1947 Supp. 17-2802, and no controversy is presented concerning them. Acting under G. S. 1947 Supp. 17-2803, subdivision B, the incorporators wrote into the charter the following:
“Stockholders of record shall have the prior right to purchase any stock offered for sale and any stockholder desiring to sell his stock in said corporation, or any part thereof shall notify the President and Secretary in writing of his desire to sell, the number of shares and the price asked, and the Secretary on receipt of said notice shall immediately notify by registered mail, addressed to the last known address, or the address of record in the stock register, all stockholders of record, and any stockholder or stockholders desiring to purchase same may by exercising such rights purchase their pro rata share of same within 30 days of the date of the notice given by said stockholder to the Secretary, and by depositing with the Secretary the amount of the price thereof, and upon failure of the stockholders or any of them to purchase same within said 30 days, said stockholder shall have the right to sell the same to any person.”
None of the other subsections of this section was inserted in the charter. It was therefore improper for the opinion as written for the court to quote and rely on subsections E and F of this section, since as to this corporation they should be treated as nonexisting.
The opinion as written for the court is not helped by reliance upon Steele v. Telephone Association, 95 Kan. 580, 148 Pac. 661. In that case a telephone company had been organized under the general corporation law to do a general telephone business, with a capital stock of $33,000, divided into shares of $35 each. Plaintiff held 225 certificates for one share each issued to stockholders and assigned to him by a formal assignment in writing endorsed on each certificate. He presented them for transfer, and that being refused, he brought an action in mandamus to compel their trans*157fer. At some time subsequent to the organization of the corporation an effort was made to convert it into a cooperative concern by the adoption of what was called a “constitution and bylaws,” such as voluntary unincorporated societies are in the habit of using. These contained many restrictions, among them that no person could own more than one share, and he could not own that unless he could be elected by the board of trustees as a member. Plaintiff contended these bylaws were void as to him. This contention was sustained. In this respect the case is much like Wentworth v. Bussell State Bank, this day decided. It was further held that the bylaws were void because there was no statute which authorized the stockholders to adopt them. Here we are not dealing with bylaws adopted without statutory authority. We are dealing with a charter provision authorized by statute. We may add, also, that the statutes under which that case was decided have long since been repealed and we now have the provisions of the corporation code hereinbefore mentioned which are applicable.
The provision above quoted in the charter of the corporation here in question is not contrary to any law of this state. When agreed upon by the incorporators and incorporated in the charter it became a valid agreement between them, binding upon all of the stockholders. The general authorities supporting this statement are set out in the dissenting opinion of Mr. Justice Parker and need not be repeated here. Such authorities are supported by the decisions of courts throughout the country cited in support of them. One of the purposes of the provision is to prevent private agreements between stockholders to get control of the company, a purpose attempted to be thwarted here. The statute and a valid provision authorized by it to be inserted in the charter should not be rendered nugatory by a decision of this court. Since the corporation code was adopted in 1939 many corporations for profit have been organized under the laws of this state, and more are being organized from time to time. How many of the charters contain provisions similar to the one here in question is not disclosed, but it is the type of provision that many of them may have. To render nugatory this statute and the charter provision would seriously affect every corporation organized in this state in the last ten years where the charter contains a similar provision. This court should hold the charter provision valid and binding upon the plaintiff and all other stockholders of the corporation.
*158Was judgment for plaintiff justified upon principles of equity? To me it seems clear the answer must be “No.” When plaintiff purchased stock in the. company he was bound to know the provisions of its charter. That he did know them is demonstrated by letters he later wrote to other stockholders in which he copied the provisions of the charter, but inaccurately claimed to be acting under them. The contract he made with defendant was unauthorized by the provisions of the charter. He paid no consideration for it, not even the one dollar mentioned therein. What is stated in the opinion written for the court pertaining to consideration for that contract reads like a build-up in the nature of a camouflage. He had no authority under the provisions of the charter to give notice to other stockholders of his desire to purchase, or of his supposed contract to purchase. In his unauthorized letters to stockholders he did more than to offer them a chance to purchase part of the stock, but insisted if they did so they pay their proportionate share of the cost of this litigation. This involves more than the amount of money it would take. This restriction in effect required the other stockholders, if they would take any advantage of it, to side with him in an attempt to enforce a contract which, under the charter provision, was unlawful, and under a procedure directly in opposition to the provision in the charter. Much is said in the opinion as written for the court of what plaintiff did for the company. If I correctly understand the record, upon his purchase of the stock he was made president and general manager of the company. He is entitled to credit for what he did for the company in that capacity, but he is not entitled to a halo for performing his duty. It seems to me that he did not come into court with clean hands; that his conduct in dealing with the defendant and other stockholders was unlawful, arbitrary and dominating.
The judgment of the trial court should be reversed with directions to enter judgment for defendant.
PARKER, J., concurs in the foregoing dissenting opinion.