150 N.Y.S. 296 | N.Y. App. Div. | 1914
This action was commenced by the plaintiff Archer on behaf of himself and all other stockholders of the Turbo-Electric Construction Company, a domestic corporation, to procure a judgment adjudging void a resolution of its board of directors and the issuance of 191 shares of its preferred capital stock to the defendant Hesse in pursuance thereof, and decreeing that the same be declared invalid and surrendered to the corporation for cancellation. At the time the resolution was passed and the stock issued the defendants Hesse and Bushnell constituted a majority of the board of directors, and with the corporation, they were, made defendants in the action. After the action was ■ commenced Archer transferred his stock to the plaintiff Tisdall, who was thereupon joined as a party plaintiff. Each defendant answered separately, putting in issue the material, allegations of. the complaint. .The issues raised by the pleadings came on for trial at Special Term, the corporation being represented by its attorney, the appellant McCorkle, and ' with ' the' other defendants'' by Bayne "as counsel. ' The' trial lasted 'five days, and at its conclusion the court rendered a decision upon which judgment was entered in favor of the plaintiffs and against the defendants Hesse and Bushnell for
In pursuance of the judgment on the 18th of March, 1914, Hesse surrendered to the corporation the certificate for the 197 shares, and the same was on that day actually canceled. A formal resolution canceling the same was passed by the board of directors two days later. After such cancellation the corporation had 197 shares of its authorized preferred capital stock unissued.
The appellants McOorkle and Bayne, not having been paid for the services rendered by them to the corporation in the action, and it not having funds to pay them, agreed to accept in payment certain shares of the preferred capital stock — McOorkle forty and Bayne fifteen shares. A resolution was then passed — Hesse and Bushnell voting in favor of and Archer against it — authorizing the issuance of such stock and directing the proper officers to execute a certificate in the name of each for the amount which they had agreed to accept. Certificates were so issued, delivered and receipted for. On the day following the issue of this stock the plaintiffs obtained from the learned justice who tried the action an order to show cause, returnable before him, why Hesse, Bushnell, McOorkle and Bayne should not be punished for a contempt of court, the two former for issuing and delivering and the two latter for receiving the certificates representing such stock. Upon the return of the order they were each adjudged guilty of contempt and for their misconduct fined the sum of $250, which was directed to be paid to the plaintiff Tisdall within ten days after, service of a copy of the order and notice of entry upon the attorneys for the plaintiffs; McOorkle and -. Bayne- were directed to deliver up for cancellation the certificates of stock which they had respectively received; Hesse and Bushnell, as officers of the corporation, were directed to cancel the ..same, and for a failure- to do as-directed they-were ordered committed to the jail of the county, there to be detained until -the -order had been complied with. Each of the parties adjudged guilty of contempt separately appeals.
It may be that the issue of the fifty-five shares to McCorkle and Bayne transfers a majority of the stock frota one set of stockholders to another, or prevents Tisdall obtaining a majority, but this does not concern the corporation. It has no interest in who holds or controls a majority' of the stock; indeed, its only concern is that its business and affairs shall be • honestly managed for the benefit of all the stockholders. The action was brought by the plaintiffs as stockholders for the benefit of the corporation, since those who had committed the wrong were in control of, and would not permit the corpora
But it is urged that the issuance of the stock to McCorkle and Bayne was unlawful, and, therefore, the order may be sustained upon that ground. What is claimed in this respect is that such stock was “ unissued authorized capital stock of the company and before it could be issued lawfully every existing stockholder of the company was entitled to an opportunity to subscribe to it in such proportions as the stock he then held bore to the total amount of stock then outstanding.” I do not understand this to be a correct statement of the law. A corporation may use its original unissued authorized capital stock for any legitimate or lawful purpose it sees fit, and the authori- i ties cited are not to the contrary. (Stokes v. Continental Trust Co., 186 N. Y. 285; Waters v. Waters & Co., supra.) Before making such use it is not obligated to give to existing 1 Stockholders an opportunity to purchase. It is only when the capital stock is increased by the issue of new shares that each holder of the original stock has a right to subscribe for and demand from the corporation such a proportion of the new stock as the number of shares already owned by him bears to the whole number of shares before the increase. In that case
The order appealed from, therefore, is reversed, with ten dollars costs and disbursements, and the motion to punish appellants for contempt denied, with ten dollars costs.
Ingraham, P. J., Laughlin, Clarke and Scott, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.