Cunningham's Appeal

108 Pa. 546 | Pa. | 1885

Lead Opinion

Mr. Justice Gordon

delivered the opinion of the court, February 23d, 1885.

The learned counsel for the respondents, in the opening sentence of their counter statement, say: “ It was never pretended that the company could, without legislative sanction, increase or diminish the number of shares or par value thereof.” From this admission, which we readily indorse as correct, we pass at once to the twenty-seventh section of the Act of 1876, from which the stockholders of this corporation derived their power to issue the stock shares the subjects of the present controversy. The section referred to reads as follows : “ Any existing Fire or Fire and Marine Insurance Company, and any stock company formed under this Act, may at any time increase the amount of its capital stock if authorized so to do by the stockholders holding the larger amount in value of the stock at a meeting specially called for that purpose, of which at least sixty days’ public notice shall be given.....Increase of stock as aforesaid may be made by increasing the number of the shares of stock or by increasing the par value of the same, and such increased shares or increased par value shall be allotted pro rata to the stockholders of said company, according to their interest, and may be paid in whole or in part out of the accumulated reserve of the company, in case the condition of the companyiwarrants such allotments, or the same may be disposed of as is provided in this Act for the organization of stock companies.” The first clause of the latter part of this section is that under which the stockholders acted in providing for the increase of the capital stock of the company which they represented, and the latter clause, which refers to section 4, needs no further notice as it does not enter into the present controversy. To this Act, then, and its interpretation, if any it needs, we are confined, for it contains the power under which the stockholders acted, and with it we have but to compare their resolution in order to ascertain whether the condition aj>pended to that resolution was, or was not, ultra vires, for it is utterly useless for us to attempt to be wise above what is plainly written in the statute, and to go wandering off among authorities which can have little or nothing to do with the 'case, That they had power to cause the stock to be issued is not denied, and that it was issued is a fact, so the only question left is, as we have already said, that respecting the lawfulness of the appended condition. Were the Act of 1881 operative in this contention there could be no debate about the lawfulness of the stockholders’ action, but as we agree with the learned Master that it is not so operative, we dismiss it from the case. Now, in the outstart, this is to be emphasised: the condition is found, not in the Act but in the resolution adopted by the meeting of the 15th of November, 1880. We cite the resolution with its condition, as follows: “ Resolved, that the capital stock of this company be increased $1,000,000, by the issue of one hundred thousand shares at par to stockholders, in proportion of one share for each two shares held by them on the day they shall respectively subscribe for the same, they subscribing an agreement to pay ten dollars per share for the stock, and also ten dollars per share for the privilege of subscribing, the proceeds of which privilege shall be added to the surplus fund of the company.” Par in this connection evidently means one hundred per cent, premium. Passing, however, so curious an interpretation of the word “par,” we ask by what authority did the majority of the corporate meeting impose such terms as these upon the minority ? The Act is specific, “ and such increased shares, or increased par value, shall be allotted pro rata to the stockholders of said company according to their interest.” The. resolution, on the contrary, provides that the stockholder shall not have such pro rata allotment unless he pays to the company a bonus of ten dollars on each share. But if ten dollars could be thus imposed, why not $20, $80, or $50 ? Under and by the Act the stockholder had' an important privilege, but under the resolution he has none, or only such as the majority of the stockholders’ meeting chose, ex gratia, to give him. The learned Master says: “But they,” the plaintiffs, “seemed to have overlooked the fact that there is no statutory right to them to subscribe to increased shares, except in pursuance of a resolution of the stockholders to increase.” But, on the other hand, the Master himself overlooks the fact that these stockholders could only act under the statute ; that in it their powers were found, that by it their powers were limited, and that everything they did beyond it was to no purpose whatever, utterly vain and nugatory. They had no power to append a condition to the statute to suit their own purposes, and to squeeze out of the corporation all those who either could not, or would not, pay to them jheir bonus; It is to no purpose to say that even after this shave on their| stock they-had still a bargain, for the sole^ question is, what was their right, and not what was, or mrgEt have been their] profit ? The answer to this inquiry may be easily had through the answer to the question, to what would they have been entitled had the resolution been passed in the terms of the Act and without the appended condition ? Certainly, to the stock clear of the bonus. Again, suppose the resolution had been to double the value of the existing stock, instead of issuing new shares ? Surely, then, a bonus could not have been compelled, and yet in the Act both means of increasing the capital of the company stand, on precisely the same footing, and tide pro rata distribution of either is as much the right -of the shareholder as is the ownership of his original stock. The Act of 1876 was designed not only to enable corporations to increase their' business capital, but also to protect the individual stockholder ; the resolution, however, under consideration, not only perverts the statutory idea of protection for the shareowner, but belies itself in doubling what it designates as capital. In this case, contrary to what is affirmed in the old saw, there seems to be a good deal in a name. By this artifice two millions of dollars are added to the working fund of the corporation, of which one million is said to be capital, and the other, though raised at the same time and by the same means, is called “ surplus fund ” earning of the association. Let those believe this who can or will, and let those who have agreed to the action of the, majority of the stockholders abide by that action, but as for the appellants they cannot be so held. There haiTbeen an attempt to deprive them of their statutory rights through an unlawful exercise of an alleged corporate power; an attempt which, without doubt or dispute, a chancellor has the power to restrain, and to refuse an exercise of that power would, in the present case, be a denial of the appellants’ right to have their cause heard and vindicated in a Court o'f Equity.

. The decree of the court below dismissing the plaintiffs’ bill' and imposing upon them the one half of the costs, is now reversed and set aside at the costs of the appellee; and it is ordered that- the said appellee allot to the appellants such an amount of the new stock shares as shall be their proportion under the Act of the General Assembly above recited, free from bonus or charges, and if they, or any of them have, under protest, paid such bonus or charges for the said stock shares, that the same be refunded to them with interest. That the record be remitted to the court below for the purpose, if necessaxy, of having an account stated between the parties, and for the full execution of this decree.

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Dissenting Opinion

Paxson J.

filed the following dissenting opinion:—

I do not fully agree with the majority of the court in their construction of the Act of 1876. But, conceding their view of it to be correct, I would not sustain this bill for obvious reasons. They may be briefly stated as follows:—

1. The complainant has no equity. His object is to get stock at $10 per share, for which other shareholders have in good faith paid $20. This is not equity; it is iniquity.

2. He has a full and adequate remedy at law. For the refusal of the company to allot him his proportion of the stock at par, he may sue at law and recover full damages. He has therefore sustained no injury which the law will not redress in the amplest manner. The right to particular shares of stock, where other shares can be bought in the market, is not a right which equity will enforce specifically. We have so decided, and it is familiar law: Foil’s Appeal, 10 Norris, 484.

8. It has been asserted, and it is undoubtedly true, that to enforce the complainant’s legal rights in this proceeding would inflict serious confusion upon the affairs of the defendant company. It is a well-settled rule in equity that a chancellor will not grant an injunction, even to enforce a legal righv, where the injunction will do more mischief than the evil sought to be redressed. Tins must continue to be the rule so long as his decree is of grace, not of right. Applying this principle to the case in hand, we find that a majority of the stock has already been issued under the arrangement adopted at the stockholder’s meeting, and cannot be recalled. Upon each share $20 has been paid in good faith. It requires but a moment’s reflection to see that a decree which requires the company to issue the balance of the stock at $10 must necessarily throw the affairs of the company into confusion, and produce the rankest injustice. If this is equity, it is equity misunderstood.

If there were circumstances of oppression in the case there! might be more ground for this severe exercise of power.. Nothing of the kind appears. On the contrary, the arrangement was entered into in entire good faith; in the belief that it was legal, and under the advice of counsel. Moreover, it was not pretended that all the stockholders were not treated alike. No one stockholder had any advantage over any other. The arrangement was evidently made with a view to the best interests of the company, and in my judgment was wise and conservative. That it was so may fairly be inferred from the fact that the legislature, by the subsequent Act of 29th June, 1881, P. L., 121, expressly authorized the course of proceeding adopted by the company.

I can readily understand why the complainant did not resort to bis remedy at law. The measure of damages would in sucb ease have compensated him, but it would have given him no advantage over other stockholders. By filing this bill he gets his stock at $10 per share, for which other shareholders have paid $20, and which is worth in the market $31. Moreover, he has succeeded in throwing the affairs of the company into confusion.

Against such a mode of administering equity I enter my solemn protest.