Court Opinion

ID: 5215039
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:21:05.448485+00
Date Added: 2024-06-11T08:27:25.673474
License: Public Domain

Miller, J. (dissenting ):
I 'dissent. The defendant corporation was not bound by the agreement of its organizers unless it adopted that agreement; but with full knowledge of its provisions, it changed its plan of organization to comply with it, and pursuant to- it received the stock and thereby the assets of the three original corporations. It is settled in this State that, under such circumstances, it became bound by the contract. (Bommer v. Am. Spiral, etc., Hinge Mfg. Co., 81 N. Y. 468; Rogers v. N. Y. & Texas Land Co,, 134 id. 197; Oakes v. Cattaraugus Water Co., 143 id. 430.) The question in the first instance then is one of construction.
. By the contract the parties stipulated for a plan of organization of the new corporation, which, so far as material,- involved three essential elements: (a) Cumulative voting; (b) a directorate of
*683twelve members ; (c) the division of the directors into three classes of four each, to be elected for terms of three years. By that plan the plaintiff and his associates, who were to and did acquire twenty per cent of the stock of the new company in exchange for their stock in one of the old companies, were assured that they could elect one of each class "of directors. There can be no doubt that the parties intended the proposed plan to be permanent, for it was idle to adopt it if, immediately thereafter, a majority of the stockholders could change it. The fact that the parties did not in terms stipulate against a change seems to me of no moment, because, construed according to its manifest purpose, the contract imports an understanding that the plan agreed upon should not be subject to change in any of its essential features. Ho doubt that contract was performed. The certificate of incorporation of the new company did contain the provision for cumulative voting; its directors were increased to twelve by the written consent of all its stockholders as provided by statute; its by-laws were amended so as to provide for the stipulated classification and manner of election of the directors ; and in reliance upon such performance, stockholders of the old companies accepted stock of the new company in exchange for the stock deposited by them with the committee. Thereby the contract made by the organizers of the new corporation became a compact, binding upon it and all of its stockholders. (Kent v. Quicksilver Mining Co., 78 N. Y. 159 ; Loewenthal v. Rubber Reclaiming Co., 52 N. J. Eq. 440.) The contract is evidenced by the certificate of incorporation, the by-laws and the said consent of stockholders, and is tobe interpreted in the light of the contract of which they were a part performance.
The learned counsel for the appellants boldly asserts that the purpose of the change now proposed is to deprive the plaintiff and his associates of the power to elect a representative on the board of directors, and that that will not violate the contract in question: The argument is that as the contract did not expressly provide against a subsequent reduction of the number of directors, a majority of the stockholders, upon making the increase stipulated for, could immediately turn about and decrease the number pursuant to the statute, which authorizes the number of directors to be increased or diminished, and pursuant- to the general provision of the original *684by-laws, not changed by the amended by-laws, that they might be “ altered, amended or. added to.” But contracts have to be performed according to their spirit and intent. An agreement to do a thing imports an agreement not to undo it, immediately it is done. The plaintiff and his associates accepted the stock of the new company in exchange for the stock surrendered, upon the faith of the agreement, adopted by the new company, which assured them a voice in the management of the company. It is not supposable that the plan of organization agreed upon was a mere temporary expedient. The right to vote, incident to stock ownership, is a property right. (Lord v. Equitable Life Assurance Society, 194 N. Y. 212.) A fortiori, the right to elect a representative on the board of directors, secured by contract, is a property right of equal inviolability. The general power of amendment, reserved by the by-laws, like the reserve power in the Legislature to alter, suspend or repeal charters, is subject to the qualification that vested rights cannot be infringed. (Kent v. Quicksilver Mining Co., supra; Lord v. Equitable Life Assurance Society, supra.)
I fail to see how any question of public policy is involved. Indeed, it might be argued that it is in the interest of public policy to give minority stockholders representation on boards of directors. The statutes of this State permit cumulative voting, and the statutes of many States have been amended so as to provide for it. Such was the statute involved in Looker v. Maynard (179 U. S. 46), but that case did not decide the question before us. A. statute which merely permits the number of directors to be increased or decreased by the action of the stockholders is not contravened by an agreement between the stockholders and the corporation, which prevents such decrease. If the proposed change does not violate the contract, an amendment of the certificate of incorporation, striking out the provision for cumulative voting, would not violate it. One is as essential to the scheme agreed upon as the other, and it is of no consequence that one was incorporated in the certificate and that the other was provided for by the consent of the stockholders, subsequently filed pursuant to the statute. That consent in effect amended the certificate of incorporation.
But it is said that the agreement is not binding on subsequent stockholders, and that the proposed action is to be taken by them, *685not by the corporation. That argument carried to its logical conclusion would enable a corporation upon a change of its membership to disregard its contract obligations. The corporation is but a collective body of stockholders, and the latter should not be permitted to do individually what they cannot do collectively. A purchaser of stock in a corporation su.ccee.ds to the rights of his vendor but acquires no superior rights as a member of the corporate body. In this case the certificate of incorporation, as in effect amended by the consent of the stockholders and the by-laws, prescribed what those rights were. Ho doubt the provisions in question would have been subject to change but for the contract pursuant to which they were adopted and pursuant to which the corporation acquired its property. Ho authority has been cited and no principle of law has been stated which requires us to hold that new members of a corporation may change its plan of organization for the purpose of depriving minority stockholders of representation on the board of directors, where the right to such representation is secured by a contract adopted by the corporation, its incorporators and original stockholders, merely because such new stockholders acquired their stock in ignorance of such contract. As the contract in question does not contravene any statute of the State or any rule of public policy, it seems to me that it is as binding upon the corporation and its stockholders as any valid contract could be. While the courts will not interfere with the internal administration of corporations, they will enjoin the infringement of contract rights.
I think the order appealed from might well have enjoined the defendants as individuals, and vote to affirm it.
Scott, J., concurred.
Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.