Court Opinion

ID: 6238067
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:37:24.923137+00
Date Added: 2024-06-11T08:58:06.685229
License: Public Domain

Mr. Justice Sterrett
delivered the opinion of the court
The Act of March 24th, 1852, incorporating the American Academy of Music, provides that after due notice given by the first five persons named in the letters patent, the subscribers to capital stock shall proceed to organize the corporation, and “then and there, in person or by proxy, choose by ballot or ticket in writing twelve suitable persons, members of the corporation, to be directors thereof for the year next ensuing, or until the next election.” After providing for the election of president and other officers of the board, the fourth section of the Act authorizes the board of directors “ to adopt such by-laws, rules and regulations, not' inconsistent with the laws of the Commonwealth, as may bo deemed expedient for the well being of the corporation.” and then gives them, generally all the authority, powers and privileges necessary and proper for the management of the affairs thereof.” The next section declares that “in all elections of directors, each stockholder shall have one vote for every share of stock which he may hold.” In the absence of any qualifying clause in tbe charter, the last quoted provision clearly empowers the holders of the major part of the stock, represented at any such election, to elect a full board of directors, composed entirely’ of persons selected by themselves. As was said in Hayes v. Commonwealth, 1 Norris, 518, “This was part of the contract under which they entered into the company and paid their money. The compact was that they should have the power to select those who should have the management and control of the” corporate funds and property’. For reasons given at length in that case, and which need not be now repeated, the authority thus conferred on the stockholders is a vested right, with which the Constitution of 1874 has not intended to interfere, except in the manner therein provided. But, on behalf of appellees, *472it is contended that the provisions of the new constitution were duly accepted by the board of directors and thus became substantially a part of the charter ; and, if there should be any doubt, as to the authority of the board to do what they did, their action in the premises was subsequent^ approved by a majority of the stockholders present at the last annual meeting in June, 1884. In view of the duties and powers of the directors, as specified in the charter, we have no hesitation in saying it was not within the scope of their authority to accept the provisions of the present constitution relating to the subject of cumulative voting. They had no power express or implied to surrender, as they undertook to do, the vested rights of their constituents. Their action was not only without authority, but it was manifestly designed to deprive the majority in interest, of the stockholders, of a right guaranteed to them by their charter. Directors clothed, as they were, merely with the ordinary powers of executive management are powerless to effect a radical change in the chartered rights of stockholders, contrary to the wishes and against the objection of a majority in interest. But, aside from all this, the Act of 1878, under which it is claimed the board of directors acted, was never intended to apply to such corporations as the Academy of Music. In very terms it is restricted to private corporations applying to the state for aid, and hence it embraces only charitable corporations which have no stockholders with vested property rights. The Act of 1876 had previously prescribed a mode of proceeding by which corporations for profit and having capital stock may adopt the system of cumulative voting. The acceptance required po be filed in the office of the Secretary of the Commonwealth, must not only be under the corporate seal, but it must also appear that the Act was duly authorized by a meeting of the stockholders called for that purpose. It is only by complying with this provision of the Act of 1876 that a regular and valid acceptance, of the cumulative sj'stem of voting, by the Academy of Music can be accomplished. If at a meeting duly called for that purpose, a majority, not in number but in interest of the stockholders present thereat in person or by proxy, authorizes such acceptance, then and not till then can the holders of the major part of the capital stock be stripped of their vested right to elect a full board of directors all of their own selection. A stock vote on the question of acceptance may undoubtedly be waived, but if demanded by stockholders they are entitled to it.
The attempted acceptance by the board of directors was irregular and unauthorized, and the so called approval by vote of a majority, in number but not in interest, of the stockhold*473ers present at the last animal meeting was wholly ineffectual for the purpose of engrafting upon the charter of the Academy the provisions of the present constitution. It follows therefore that cumulative voting for directors at the last annual meeting was unauthorized, and so far as such votes affected the result of the election they should have been disregarded. The assignments of error are sustained.
Decree reversed, at the costs of appellees, and it is now adjudged and decreed that Charles W. Potts, Charles Lenuig, George W. Biddle, Simon Gratz, Joshua Z. Gregg, Alfred G. Baker, George A. Hey], Francis P. Steel, Henry Budd, John Wright, Charles'W. Swain, Peter A. Keller, were duly elected and are the directors of the American Academy of Music for the vear ensuing after the annual election of 1884."