Model, Roland & Co. v. Industrial Acoustics Co.

Jun 10, 1965

Versions:16 N.Y.2d 703

209 N.E.2d 553

261 N.Y.S.2d 896

1965 N.Y. LEXIS 1296

Lead Opinion

Memorandum : Order of the Appellate Division directing judgment for the рlaintiff-respondent affirmed. Defendants-appellants are correct in their contention ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍that the provisions of article VIII of the corporate by-laws are ineffective tо the extent that they require a two-thirds majority shareholder *705vote to amend certain of the by-laws — in particular the by-law which sets the number of directors on the board. The Business Corporation Law clearly provides that a simple majority vote of the shareholders is sufficient to amend the by-laws, unless the certificаte of incorporation ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍provides otherwise. (Business Corporation Law, §§ 601, 614, subd. [b]; § 616, subd. [a], par. [2].) The two-thirds majority vote provision hеre involved would have been valid Avere it placed in the сertificate of incorporation, but as a by-law it is invalid. (Seе Matter of Faehndrich, 2 N Y 2d 468, 473, 474.)

However, the single question submitted under CPLR 3222 to the Appellate Divisiоn was whether or not a simple majority resolution of the stockholders, increasing the number of directors from four to five, Avas valid and effective. This question was correctly ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍answered in the negative by that court. Subdivision (b) of section 702 of the Business Corporаtion Law provides that the shareholders may change the numbеr of directors (1) by an amendment to the by-laws embodying the change, or (2) by a simple resolution, if there is a by-larv in effect which provides for the change by such a resolution. In either case thе change is effected by means of a by-larv. Here the shareholders acted by resolution alone, and not under the prоvisions of a by-law. It ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍is clear, therefore, that, even though a simple shareholder vote could have effected a change in the number of directors if such a by-law had been adoрted authorizing such a vote, their naked resolution to do so сannot be enforced.

Dissenting Opinion

Fuld, J. (dissenting).

Although I agree with the court that, absеnt a provision in the certificate of incorporatiоn, a by-law requiring a tAvo-thirds vote of shareholders ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍to amend certain other by-laws is invalid and unenforcible (Business Corporation Law, §§ 601, 614, subd. [b]; § 616; see, also, Matter of Faehndrich, 2 N Y 2d 468), I cannot accept its conclusion thаt the number of directors was not effectively increased. .

It seems to me that the majority is reading and applying subdivision (b) of section 702 of the Business Corporation Law altogether too litеrally and narrowly. Even if it be assumed that an amendment of the by-laws is еssential under that section— and I have serious doubt of this (see Israels, Corporate Practice, p. 152) —it is my view that the adoption by a majority of the shareholders (at a duly convened annual meeting at which 100% of the stock entitled to vote was prеsent in person or by *706proxy) of the resolution expressly incrеasing the number of directors from four to five may and should be treаted as the requisite by-law amendment. I would, therefore, reversе the order appealed from and direct entry of an order declaring that the resolution of October 9, 1963, increasing thе number of directors of the appellant corporation from four to five validly accomplished such result.

Chief Judge Desmond and Judges Dye, Van Voorhis, Burke and Bergan concur in Memorandum ; Judge Fuld dissents in an opinion in which Judge Scileppi concurs.

Order affirmed in a memorandum, without costs.