Court Opinion

ID: 4936106
Source: CourtListenerOpinion
Date Created: 2021-09-24 01:15:32.645415+00
Date Added: 2024-06-11T08:14:41.406214
License: Public Domain

Savage, J.
Bill of interpleader by the plaintiff as assignee in insolvency of the Waldoboro Packing Company. The plaintiff alleges, among other things, that by reason of conflicting claims to the funds in his hands, he is in danger of- being harassed and that-he cannot safely pay out and distribute the. same without the aid of the court in equity. The previous phases of this litigation may be found in Miller v. Kenniston, 86 Maine, 550, and Miller v. Waldoboro Packing Co., 88 Maine, 605.
. The cause comes to. us on report. All the parties who claim. to be interested in the fund, waiving technical questions, ask for-a decision upon the merits. Therefore, in the hope of being able to put an end to this long and annoying controversy, we proceed to inquire whether the bill, after any species of amendment suggested by the pleadings or facts proved, can be sustained.
The vital question is whether certain conveyances, executed by the officers of the Waldoboro Packing Company, and in its name and under its seal, long prior to its being adjudged insolvent, are-valid. The purchase money received for these conveyances constitutes the fund in the hands of the assignee. The records of the, corporation show that these conveyances were both authorized .and ratified by votes of - the stockholders in meetings duly called.
But it is objected, (and this is the only objection that is raised) *531that the action of the stockholders was void for want of a quorum at any of their meetings. It appears that at the organization of the corporation, April 23, 1888, it was voted that “the capital stock of this company shall be $30,000; that said capital stock shall be divided into shares of $50 each.” Subsequently, July 5, 1888, the following by-law was adopted:—“At all legal meetings of the company there must be present at least 1-3 of the stockholders, holding at least 1-3 of the shares of stock, to constitute a quorum to do business.” It also appears that only 96 shares of stock were ever “subscribed for or issued.”
It is not claimed that there were not present at the stockholders’ meetings at least one-third of the stockholders in number, holding at least one-third of the ninety-six shares which had been issued. But it is claimed that under the by-law, the presence of stockholders holding one-third of the entire authorized capital stock of 600 shares, namely 200 shares, was necessary to make a quorum, and that “the whole number of shares of stock subscribed for being considerably less than one-third of the shares of [authorized] stock, by reason whereof, said corporation was legally incapable of having present at any of its meetings a legal quorum of stockholders.” If this is so, then it appears that stockholders holding less than one-sixth of the authorized capital stock, by adopting this by-law, committed corporate suicide. Thereafter, the stockholders could hold no meeting, could elect no officers, could fill no vacancies, could make no new by-laws nor alter old ones, could neither buy nor sell, could make no contracts, could transact no corporate business whatever. The only possiblé escape from corporate destruction would be by obtaining additional subscriptions for stock, and this, it is easy to see, might be impracticable or impossible. If such is the construction which we are required to place upon the by-law in question, we should not hesitate to declare it to be unreasonable and void, as being totally subversive of corporate purposes. If a corporation chooses to die, there are easier and more appropriate methods.
It is conceded, and correctly so, that stockholders holding less than a majority of the authorized stock, but holding a majority of *532the stock issued or subscribed for, may adopt by-laws, in the absence of any restrictive provisions in the charter or previous by-laws. Accordingly no question is made but that the by-law under consideration was legally adopted.
Does the phrase in the by-law, “holding at least one-third of the shares of stock” have reference to the whole amount of stock authorized, or to the whole amount of stock issued or subscribed for? We think the latter. The by-law relates to meetings of the stockholders. It established a quorum. It determined what proportion of stockholders’ interest in the corporation must be represented at a meeting. There must be present at least one-third of the stockholders in number, and the stockholders present must hold at least one-third of the shares of stock.
While it is not denied that the stockholders have the right, in general, to fix the number of shares necessary for a quorum at a certain proportion of the capital stock authorized, still we think their intention so to do should be clearly expressed. The amount of capital stock authorized may have, and frequently does have, very little to do with the amount actually issued or subscribed for, and which represents the actual working capital.
The entire pecuniary stockholding interest is owned by those holding shares issued or subscribed for. It would be natural to suppose, that in fixing the amount necessary for a quorum, the stockholders would have in mind the stock which represented value and was owned and which could be voted upon in stockholders’ meetings. Capital stock which has never been subscribed for nor issued cannot be voted upon, even by the corporation. American Railway Frog Co. v. Haven, 101 Mass. 398; Ex-parte Holmes, 5 Cow. 426; 1 Morawetz on Private Corporations, § 478. It is commonly said to “remain in the treasury.” Such stock has not been divided into shares; it remains to be divided, as issued. The shares in such stock are potential, rather than actual. Sturges v. Stetson, 1 Biss. 246. They belong to the stockholders collectively. They can haye no place or purpose in a stockholders’ meeting. The very words “ shares of stock ” in this by-law seem to imply that the stock intended is stock that has been divided into shares *533and issued, or at least subscribed for. Burrall v. Bushwick R. R. Co., 75 N. Y. 216. The phrase “holding at least one-third of the shares of stock” naturally relates, we think, to “shares of stock,” that are capable of being held, and are held, by stockholders. The undivided stock is not held by anyone. This construction seems to be fairly deduced from the purpose of the by-law, and from its language also, and such was, we think, the intention of the stockholders. For as we have already seen, only 96 of the 600 shares of authorized stock have ever been issued or subscribed for. Any other interpretation is destructive.
A case in point is Greenpoint Sugar Co. v. Whitin, 69 N. Y. 328. Tn that case, the validity of a mortgage was, by statute, made dependent upon “ the written assent of the stockholders owning at least two-thirds of the capital stock” of the corporation. It will be observed that these words are substantially identical with the language of this by-law, the only essential difference being that in the New York case, the number of stockholders necessary to give effect to their action is not limited. The court in that case, said: “The capital stock fixed in the articles of association was 2500 shares, but tiñere had been only 2000 shares actually issued; and only that number were then owned, and for aught that appears no more was intended to be issued. The owners of more than twotliirds of that number signed the assent.....For the purposes of this act, we think that the amount actually issued and owned should be regarded as the amount of the capital stock. The design was to confer this power of assent upon those who represented two-thirds of the actual stock. They represented two-thirds of the pecuniary interest and property of the corporation. Otherwise it might happen that there would not be a sufficient ownership of stock to enable the company to execute a mortgage at all.” Precisely what it is claimed has happened in this case. See State v. Morristown Fire Association, 23 N. J. Law, 195.
But it is earnestly claimed that such views as these are inconsistent with the opinion of this court as expressed in Ellsworth Manufacturing Co. v. Faunce, 79 Maine, 440, and that that case should be regarded as decisive of this. In that case, the by-law *534construed was, “No business shall be transacted at any meeting of the stockholders, unless a majority of the stock is represented, except to organize the meeting and adjourn to some future time.” The authorized capital stock was 400 shares, and 243 shares had been subscribed for. At the meeting whose acts were called in question, only 138 shares of the capital stock were represented. The court held that under the by-law, “it would take 201 shares to constitute a majority of that stock.” But in some important respects, certainly, the by-law in that case may be distinguished from the one in the case at bar. The language of the two by-laws is far from being identical. There, the phrase construed was, “ a majority of the stock.” Here it is, “at least one-third of the stockholders holding at least one-third of the shares of stock.” In that case, there was no reference to the stock being held, no reference to stockholders holding stock, no reference to “shares”, and possibly no implication, that stock issued or divided was meant. And the action of the stockholders in adopting that by-law was not self-destructive. More than a majority of the authorized stock had been subscribed for. The learned justice who drew that opinion seems to have placed much stress upon this latter fact, and upon the construction which the stockholders themselves had placed upon the by-law after its adoption. At best, the case of Ellsworth Manufacturing Co. v. Faunce, seems to go to the extreme limit of strict construction. Plow far that case may be distinguished from this, or how valid the distinctions drawn between that -case and this, we do not deem it necessary for us now to decide. We are satisfied that “the language, as well as the evident intent and meaning,” of this by-law compels us to hold that a quorum of the stockholders of the Waldoboro Packing Company was “ at least one-third- of the stockholders holding at least one-third of the shares of stock ” which had been issued or subscribed for. And in so far as the opinion in Ellsworth Manufacturing Co. v. Faunce, is in conflict with the views herein expressed, it must be regarded as overruled.
It follows that the conveyances by the officers of the Waldoboro Packing Company were duly authorized, and were valid. But this *535finding makes it necessary to dismiss this bill. The plaintiff as assignee, being necessarily himself one of the claimants of the fund, cannot be awarded an interpleader.
Nor have we any original or concurrent jurisdiction over the distribution of the fund. In the first instance, the court of insolvency has sole jurisdiction. Bird v. Cleveland, 78 Maine, 524.

Bill dismisssd.