Court Opinion

ID: 3631504
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:10:53.538529+00
Date Added: 2024-06-11T13:45:07.525174
License: Public Domain

The right which the appellants seek to enforce is purely a statutory right under subdivision 12 of section 38 of the Stock Corporation Law, which provides that "if the certificate alters the preferential rights of any outstanding shares, any holder of such shares not voting in favor of such alteration" may, upon objecting and demanding payment for his shares, have them appraised. It is, therefore, only when preferential rights are altered that the holders of stock not consenting may lawfully demand an appraisal of their stock. The preferential rights of petitioners are only such as are given in the certificate of incorporation, that is, that their stock shall be paid at par upon the distribution of the assets of the corporation before anything shall be paid on the common stock.
Petitioners, by instituting this proceeding, necessarily concede the legality of the amendments to the certificate and of the procedure by which it was amended. They are in the position of asserting that the certificate has been legally amended and because of such amendment the *Page 249 
preferential rights of this stock to share in the assets of the corporation upon distribution have been altered, and that, therefore, they are entitled to an appraisal of such stock. The new stock which they are to receive under the amended certificate gives them the same right to share in the assets of the corporation which their old stock gave.
In Matter of Dresser (247 N.Y. 553) it was held that the amendment of a certificate of incorporation, which provided for a new issue of preferred stock that should be ahead of and superior to the old issue of preferred stock, did not have the effect of altering the preferential rights of the old stock to be first paid out of the assets of he corporation upon distribution. I can see no difference in principal between creating a new issue of preferred stock which shall be ahead of an outstanding issue, and consolidating an outstanding issue with a new issue, making them equal in preferential rights and preserving the preferential rights of the old stock the same as they existed before the new issue. In fact, it seems to me that the Dresser case went farther than it is necessary to go in this case, in holding that petitioners have not lost any preferential rights given them through the ownership of the stock in question. The fact that the old certificates are to be taken up and canceled and new certificates issued in their place called "cumulative 7% preferred callable at 110" does not, it seems to me, alter their preferential rights to be first paid par for their stock upon dissolution of the corporation, because the new certificates preserve that right. They had no preferential right to have their certificates of stock remain unaltered or to be non-callable. Such right, if it existed, was a common right which all stockholders had. The exercise of the right to change the rate of dividend on the stock did not alter any preferential right possessed by petitioners. Their stock was not a preferred stock having a fixed rate of dividend. It was only entitled to *Page 250 
receive such dividends as were voted by the board of directors.
I think that the Appellate Division reached the right conclusion and I favor affirmance.
POUND and CRANE, JJ., concur with O'BRIEN, J.; LEHMAN, J., concurs in opinion with which POUND, CRANE and O'BRIEN, JJ., concur; HUBBS, J., dissents in opinion with which CARDOZO, Ch. J., and KELLOGG, J., concur.
Order reversed, etc.