88 N.J. Eq. 237 | New York Court of Chancery | 1917
(orally).
This is an application for a preliminary injunction restraining tire Bethlehem Steel Corporation from increasing its capital by the issuance of thirty million of stock termed “Eight Per Cent. Cumulative Convertible Preferred.” A meeting is to be held to-morrow at eleven o’clock. The court of errors and appeals, I understand, is in session and application for any ad interim relief on appeal may be made to that court to-morrow morning. That is the reason why I have changed my mind and have concluded to decide the case at this time.
The application is made by General Investment Company and Continental Securities Companjq other names for one Vernier. They are holders respectively of one hundred shares of the present common and one hundred shares of preferred stock, and the application is made on behalf of both interests. Venner (and I shall use his name in place of the names of his corporations) bought -his common stock in January .of this year, as I find, for the sole purpose of harassing in any way’that, he could the stockholders and directors of this corporation. At the time the specific purpose that he had in mind was to pi-event a scheme of financing which was then under discussion. He bought his preferred stock after- notice of the present plan and for the specific purpose of preventing its success. He is entitled from a court of equity' to only such consideration as that court is absolutely bound under the rules of law to accord him. The company at the present time has a,preferred stock issue of $15,000,000, and a common stock issue of $60,000,000. The common stock is divided-into two classes, fifteen million termed
The objections raised I will consider, I think, in the order of their importance. It is insisted by the complainant that the proposed scheme violates his contract rights evidenced by the certificate of incorporation, or the amended certificate of incorporation. That certificate provides in terms that' the -present preferred-stock shall be preferred as to dividends over all other stocks of the corporation. It further provides that the common stock shall be entitled to all the surplus earnings as dividends after pajment of dividends upon the present preferred. It is argued that the effect of this certificate' is practically an agreement on the part of the corporation and its stockholders that at all times present preferred shall be entitled to these dividends in preference to dividends on any other stocks, and that the common is entitled to all surplus earnings. That in effect it is an agreement that no other stock will be created which will change the rights of the preferred and common as stated in the certificate. The case of Pronick v. Spirits Distributing Co., 158 N. J. Eq. 97, opinion by Vice-Chancellor Emery, is cited as authority. He held that, notwithstanding the broad power of amendment which was at that time included in tiie statute, the rate of dividends fixed by the certificate of incorporation could not, Without the assent of all the stockholders, be reduced. The hearing before the vice-chancellor was on an application for a preliminary injunction. The case never went to the court of errors and appeals: The vice-chancellor also held (hat the stockholder had no adequate remedy at law. By tne- express terms of the statute, all its teams are read into every certificate of incorporation, and it is insisted for defendant that under the
The next objection is that there is found nowhere in the statute a right to create a preferred stock convertible into common. There is no express provision in’the statute which warrants this. There is an express provision permitting a conversion of preferred into bonds, and it is argued that the fact that tlie legislature has provided specifically for such conversion is an indication of -the legislative intent not to permit the issuance of preferred which may be converted into any other class of, security than that specifically provided by the statute. Un the other hand, the company unquestionably may issue preferred stock and may retire that preferred stock by buying it with the acquiescence of its holders and may issue common which may be purchased with the proceeds of preferred. It may, I have no doubt, issue a preferred stock with preferences for a limited length of time, say ten years, and thereafter only to have the rights of common. What is now sought to be done i's to issue a preferred with limited preferences, the time when the preferences will cease being at the 'option of the holder of the stock. I had some doubt as to whether, if this plan were carried out, it might not, in some eases, result in the issuance of a common stock for less than joar, for, at the time the common stock might be issued, the preferred might be worth less than par. The -answer is that the common and preferred, although divided into two classes, are really issued as one; it is really the issuance of
The next objection is .that there is no legal warrant for the redemption of preferred stock at more than par. This argument is based on the provisions of section 29 which provides for retirement. The section specifically provides for retirement and only retirement and limits the company to payment of par. In section 18, the legislature has provided that preferred stock may be made redeemable at not less than par. It is argued that the two sections must be read together. It seems to me that the legislature clearly had in mind two things, and although it may be that the effect of redeeming stock is to retire it, and is really a purchase for retirement, still it would seem that had the legislature intended that the stock might not be made redeemable for more than par,, it would not have in express terms provided that it might be made redeemable at not less than par.
It is next objected that the present preferred stock is not given the right to subscribe to the new preferred. Generally speaking, I think the law is well settled that unless there is something in the certificate of incorporation to the contrary the rights of preferred and common stockholders are equal. Whether a particular right is enjoyed equally by both, however, must depend upon the reason for the existence of the right; at least, a very strong argument may be made to that effect. It will be observed that the present preferred has no right in the assets except to the extent of par and accrued dividends. The reason for the existence of the pre-emptive right of subscription is that the relative rights of the existing stockholders both in.the assets of the company and in its control may not be altered. The relative interest of the present, preferred stock in the assets of the company is not affected by the presént scheme. The proposed preferred stock has no voting power so that the relative interest in the control is not affected. It is argued with force that to permit the present preferred to subscribe for the proposed preferred would b.e to permit a change in the relative rights of the present preferred and common and would be illegal. ■ Of course, if the reason for the rule fails, the rule is not to be applied.
Without deciding, therefore, any of the .questions raised, solely upon balancing -the conveniences I will discharge the order to show cause.
If when this case gets to the court of errors and .appeals on application for a stay, if one is made, that court thinks that this court' should have gone further and actually decided the questions raised, it will be for that court to say whether the case should come back here for such determination. •
Lest this opinion may be misunderstood, I desire to add that as presently advised I am not at' all in doubt as to how I should decide this case upon the merits. Fundamentally important questions of this kind involving the construction of so many sections of the Corporation act ought not to be determined, however, no matter how clear the court may feel, without careful consideration. That consideration cannot in the nature of things be given without time. If I should hold this case for a sufficient length of time to properly consider the merits incalculable harm may be done. If I should decide now without
While it is true that Vice-Chancellor Emery in the Pronick Case held, that the stockholder had no adequate remedy at law, I presume upon the ground that there was no exact method of ascertaining his damages, yet he has a remedy at law. If the acts of this corporation are illegal he may sue at law and recover compensation for such damage as may be found. Although compensation may be difficult to estimate, yet it can be done, at least with approximate justice to -both parties concerned so that it cannot be argued that I am leaving him with no remedy whatever. If counsel for the complainant desire, I will compel the corporation to give a bond conditioned as the bond was conditioned in the case of the United Shoe Machinery Company. In that case, the court of errors and appeals upon the application to stay a merger required the defendant company to give a bond, I think of $250,000, conditioned to pay such damages as might be assessed by the chancellor. It would seem that counsel in that case and the court conceived that there was some method of arriving at just compensation. It will be no more difficult to assess the damages of the present complainant, than it will be to assess the damages of the complainant in the Shoe Machinery Case.