Court Opinion

ID: 3631209
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:10:41.735307+00
Date Added: 2024-06-11T13:45:06.774788
License: Public Domain

[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 539 
[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 540 
[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 542 
The decisive inquiry on this appeal is whether the plaintiff was bound by the by-laws of the corporation, and so by the action of the majority of its stockholders.
The "Chelsea" became a corporation and was organized as such under chapter 589 of the Laws of 1881. That act permits any three or more persons to organize themselves into a corporation "for the purpose of purchasing, acquiring, maintaining and improving real estate for residences, homesteads *Page 543 
and apartment houses, to be leased and conducted by the corporation so formed," and authorizes it to distribute its property and the rents, income and proceeds thereof among its members and stockholders "in such manner as shall be determined by its by-laws." Ordinarily, the business of a corporation is conducted by and placed within the control of its board of directors or trustees, but in the present case an important limitation was attached to their authority by the by-laws which were adopted the day following the formal organization of the company. Article 9 provides that "all questions as to the purchasing of land, the character and style of building to be erected thereupon, as to how and to whom and at what rent the several apartments shall be leased, and as to the apportioning and distributing of the said apartments among the stockholders shall be decided by the vote of the majority of the stock, and not otherwise." Authority to decide these questions, which were vital to the success and prosperity of the common enterprise, must necessarily rest somewhere, and the statute authorized the corporation to settle that for itself through the operation of its by-laws, and these conferred the authority not upon the trustees, but upon the majority of the stockholders. Notwithstanding that fact, the board of trustees took it upon themselves to adopt the prospectus which had previously been issued. That contemplated an outlay of five hundred and eighty thousand dollars, one-half of which was to be obtained by mortgage of the property, and the other half by sales of stock. The prospectus dealt wholly in estimates, and these, as is generally the fact, were hopeful and flattering much beyond the realized truth. A subscription for seventy shares, costing thirty-five hundred dollars, it was asserted, would entitle the subscriber to certain apartments on any of the floors without additional rent. But all this was estimate merely, and whoever bought the stock must necessarily take it subject to the authorized control and the emergencies which the actual construction should develop. One of the subscribers was Cruikshank, who acted for Van Brunt, and to the latter, in virtue of his seventy shares, was assigned *Page 544 
the apartment in controversy, now numbered 21, and whose rights afterwards passed to the plaintiff.
But before the latter purchased, great changes in the plan were adopted, which at once made the results outlined by the prospectus utterly impossible. These changes made the building thoroughly, instead of partially, fire-proof, added an additional story, and almost exactly doubled the contemplated expenditure. The plaintiff was present at the stockholders' meeting at which the changes were made, "representing his wife," and favored them all. The by-laws were read at that meeting and in his presence. He, therefore, perfectly understood the situation and knew before he purchased the seventy shares of Van Brunt that the estimates of the prospectus had become illusory by reason of the added expenditure. Nevertheless, he bought the stock and went into possession of the apartments assigned. But he took that possession subject to the action of the majority of the stockholders as provided by the by-laws.
At a stockholders' meeting held in January, 1884, which was after plaintiff's purchase of Van Brunt, but before the transfer of the stock to him upon the books of the corporation, it was unanimously determined, in view of the increased cost of the structure and the added burden of the mortgage debt, to increase the capital stock to five hundred thousand dollars and to charge to the stockholders as rent for their apartments ten per cent upon the par of their stock. The increased capital was distributed pro rata without additional cost to the stockholders and the plaintiff, when he took his stock certificate, received the sixty-seven new shares and became and remains the owner of one hundred and thirty-seven instead of seventy shares. He rented the apartment assigned to him for eight hundred and fifty dollars, thus receiving as interest upon his original investment about twenty-four per cent, and utterly refused to pay the rent or accept a lease as tendered. When his tenant vacated the apartment, the corporation resumed possession of it and excluded him from it after having many times demanded the rent and been refused. *Page 545 
I agree with the trial judge that the plaintiff had no legal title to his apartment, but an equitable right to it upon the reasonable conditions imposed by the majority of the stockholders under the authority of the by-laws. By rejecting those conditions, he lost his right to the apartment assigned, and has no title to it upon which he can recover the possession. The original prospectus was not an element of a completed contract, but a tentative plan, subject by the very law of the corporate organization to such material modifications as the necessities of the enterprise should require and a majority of the associates direct. It is shown that the certificate of stock is only such, and has no connection with any specific apartment. It simply confers upon the holder the rights of a stockholder and those rights are subordinate to the law of the corporate organization. This view was that adopted by the courts below and it seems to us correct.
The judgment should be affirmed, with costs.
All concur.
Judgment affirmed.