Court Opinion

ID: 7156307
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:09:39.77802+00
Date Added: 2024-06-11T16:15:14.941599
License: Public Domain

Dissenting opinion by

Judge Hargis.

The agreed facts do not show that the purchasers of new stock knew at the time they purchased that the old stockholders had voted themselves double the amount of their stock; hence the new stockholders are not estopped to controvert the right of the appellants to the increase of stock for which they never paid anything, if indeed the appellants under any state of case could double their stock unless authorized by the charter to do so.
It is contended by the appellants that they had expended the dividends arising from their original stock in keeping the road in repair, and that the use of the dividends furnished a valuable consideration for the increase of their stock to $200 in amount for *840each $100 of stock which they had originally subscribed. This position can not be supported because what the appellants denominate as dividends do not constitute dividends.
It took all the receipts of the fragment of road which the old stockholders had constructed to keep it in repair and from going to destruction; hence there could not have been any dividends, as dividends can only be declared after all expenses incurred in the necessary and proper repair of the road and its management are paid. Therefore, the act of the old stockholders in doubling their stock has no good or valuable consideration to support it, and it is clearly a case of the unauthorized watering of stock under circumstances of hardship.
The most plausible arguments or the worst returns of an ill-advised venture should never be permitted to justify the watering of stock, which is a power so easily wielded by the majority that the minority may be virtually deprived of their stock; and it is to be hoped that uncontrolled increase of stock by its holders without a valuable consideration therefor paid to the corporation will not be sanctioned by a precedent.
The capital of the company is limited by the charter to -$25,000 to build a road more than twice as long as the portion completed by the old stockholders. If, therefore, they can increase their stock from $10,600 to $21,200 they will have swelled the stock to a sum greatly beyond the capital stock allowed by the company's charter if the remainder of the cost of the road is as much as the completed portion, and the amendment to the charter authorizing the increase of the capital stock to such amount as they may find necessary for the completion of said road does not authorize the company to double its old stock and then issue new stock in addition sufficient to finish the road. If such were the meaning of the amendment there would be no limit to the capital stock of this company, 'whose members might double or increase their shares many fold and still lack means to finish the road.
Besides, it seems no set of stockholders, even if every one of them agrees to it, can double or issue stock in any manner not authorized by the charter of the corporation of which they are members. The reason for this rule is that the corporation derives all its power from the legislative grant, and can exercise none other, the public being entitled to protection against trading with or being subjected to the exercise of extraordinary powers by *841the corporation, whose stock may thus be made to represent capital which the corporation does not have or own in fact, and which the legislature never intended to be done. For these reasons the judgment should, in my opinion,, be affirmed.

O'Hara & Bryan, for appellants.

William Lindsay, James B. Wright, for appellee.

[See Jones v. Newport & L. Tpk. R. Co., p. 698, this volume.]