Berger v. United States Steel Corp.

• Decision Date: 11 October 1902
• Citation: 63 N.J.E. 809,53 A. 68
• Parties: BERGER v. UNITED STATES STEEL CORP.
• Court: New Jersey Supreme Court

53 A. 68

63 N.J.E. 809

BERGER

v. UNITED STATES STEEL CORP.

Court of Errors and Appeals of New Jersey.

Oct. 11, 1902.

(Syllabus by the Court.)

Appeal from court of chancery.

Suit by Miriam Berger against the United States Steel Corporation. Decree for complainant (53 Atl. 14), and defendant appeals. Reversed.

Robert McCarter, for complainant.

R. V. Llndabury and Charles L. Corbin, for defendant.

VAN SYCKEL, J. The United States Steel Corporation was organized in February, 1901, under the general corporation act of this state, and by its original certificate of that date, and its amended certificate filed April 1, 1901, had an authorized capital stock of one thousand millions of dollars, divided into ten millions of shares, of one hundred dollars each, equally divided, as to number and amount, between preferred and common stock. The holders of preferred stock are entitled to be paid out of the net profits of the corporation yearly dividends at the rate of 7 per cent. per annum, and no more; such dividends to be cumulative, and payable before any dividend can be paid on the common stock. On the 1st of April, 1902, the board of directors passed a resolution providing, among other things, that, "to the extent that holders thereof shall consent thereto, two million shares of the preferred stock of the corporation now outstanding shall be redeemed and be retired out of bonds or out of the proceeds of bonds of said corporation, which bonds shall bear interest at the rate of five per cent., payable semiannually; the principal payable in sixty years, and redeemable at one hundred and ten, after ten years, out of a sinking fund to be provided, or any other funds of the corporation"; the bonds to be issued to be secured by mortgage on all the present and future property of the corporation, and shares held by it in other corporations. Reasonable opportunity was to be given to the preferred stockholders of record on a date to be fixed in the offer to subscribe for their ratable share of 200,000,000 of the bonds, payable in preferred stock at par, and being 40 per cent. of their several holdings. Notice of a special meeting of stockholders was duly given as required by law to take action upon the resolution of the directors relating to the issue of said bonds and the retirement of stock, at which meeting, held in May, 1902, the stockholders, by a vote of 3,745,731 of preferred stock and 3,958,557 of common stock in favor of the resolution, and 4,865 shares of preferred and 7,675 of common stock against the resolution, adopted the said resolution, and approved and ratified the said action of the directors. A certificate of the adoption and ratification of the said resolution, signed by the president and secretary of the corporation under its corporate seal, acknowledged or proved as in the case of deeds of real estate, together with the written assent, in person or by proxy, of two-thirds in interest of each class of such stockholders, was duly filed in the office of the secretary of state, as required by the twenty-seventh section of the act concerning corporations. Thereupon the complainant, who is a holder of preferred stock of the corporation, filed her bill to enjoin the issue of these bonds to retire the preferred stock. At her instance an order was obtained in the court of chancery that an injunction should issue, which order is the subject of appeal to this court.

In presence of the fact that over 99 per cent. of all the stockholders in attendance at the meeting, personally or by proxy, voted in favor of the resolution, it cannot reasonably be expected that the court is impressed with the belief that the complainant will suffer any substantial injury by the consummation of the scheme. Nevertheless, if it appears that the proposed action is without legal authority, the complainant cannot be denied the relief which she seeks; but in passing upon this controversy the greatest care must be observed that this overwhelming majority of the shareholders are not deprived of their rights by the very few dissentients.

The adjudicated cases in other states and in England which have been cited and ably discussed on the argument before us turn upon statutes so essentially differing from our own that they furnish very slight, if any, aid to the proper disposition of this case. Not only does the English companies act differ from our corporation act, but the English parliament is under no such constitutional restraint as is here the paramount law. It is deemed to be unnecessary, therefore, to refer to such cases on this branch of the controversy. The rights of the parties to this suit must rest upon the just interpretation of the language of our act concerning corporations, and of the terms of the certificate of incorporation, and its amendment.

Some reliance is placed by the appellant upon the fact that at the time when the complainant became a stockholder a section of the by-laws was in force which provided that, where any contract should be approved by the vote of a majority of the stockholders at a meeting called for the purpose of considering such contract, it should be "as binding upon the corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the corporation." In my judgment, this bylaw has no significance in the present case as to the question of power, and cannot be invoked to validate, as to nonassenting shareholders, any act for the doing of which there is a want of legal authority in the legislative grant. Carried to its logical result, it would enable the majority to deprive the minority of their shares. The question to be solved is whether the act concerning corporations, in connection with the certificate of incorporation filed under it, contains a grant of power to retire shares of stock in the manner adopted by the board of directors, and ratified by the vote of the stockholders. The twenty-seventh and twenty-ninth sections of the corporation act of 1896 expressly provide for the retirement of both classes of stock. The fifth section of the act (P. L. 1896, p. 279) provides "that this act and all its amendments shall be a part of the charter of every corporation heretofore or hereafter formed under it, except so far as the same are inapplicable and inappropriate to the objects of such corporation." The complainant therefore has no vested right to retain her shares in opposition to any lawful method provided for retiring them. Nor, under the provisions of our corporation act, can any just basis be found for the assertion that her vested rights as a stockholder are impaired by the purchase by the corporation of its own shares of stock. In Chapman v. Rheostat Co., 41 Atl. 690, Mr. Justice Dixon, in an opinion delivered in our supreme court, very clearly demonstrates that under the corporation act of 1896 there is an implied grant of power to corporations to purchase shares of their own capital stock whenever such purchase is required for legitimate corporate purposes. Section 20 makes such shares personal property. Section 1, s'ubd. 4, gives power to purchase such personal property as the purposes of the corporation shall require, except what is excepted in section 3, which exception does not include shares of its own stock. Therefore, in connection with sections 29 and 38, the right of a corporation to purchase its own shares is necessarily implied. This right is also so fully recognized by the twenty-ninth section that it seems to be removed from debatable questions. That section provides that capital stock may be decreased by retiring shares owned by the corporation, which unquestionably implies the power to acquire and hold its own shares.

The first question to be considered is whether the appellant has power under the act of 1896 to retire its shares in the proposed method which is now challenged by the complainant That act provides several ways in which stock may be retired by a vote of two-thirds in interest of each class of stockholders: (1) By retiring or reducing any class of stock. This is compulsory, and must operate equally upon all holders. (2) By lot, and this is also compulsory. (3) By surrender of shares, and the issue of a less number of shares pro rata. (4) By the purchase, at not above par, of certain shares for retirement. (5) By retiring shares owned by the corporation. (6) By reducing the par value of shares. It is important to notice that this legislation favors the capacity of corporations to retire their shares by a two-thirds vote of the holders thereof, as it has provided every available way in which it can with any degree of facility be exercised, and also that this court adopted the opinion of Vice Chancellor Pitney in Meredith v. Iron Co., 59 N. J. Eq. 257, 44 Atl. 55, which held that under the thirty-third section of the act of 1875, which authorized a corporation "to change the nature of its business," the corporation might purchase a reducing plant outside of this state, and engage in business where it was located. The vice chancellor said, "It is fairly inferable that the thirty-third section was intended to prevent a few dissentient stockholders, as here, from setting up their wills against the will of a large majority, and the statute should be so construed as to further that object." A liberal, and not a narrow, construction must therefore be given to the language of the twenty-seventh and twenty-ninth sections of the act of 1896, in order to give effect to the intent of the legislature manifested in this broad and comprehensive grant of authority to retire shares of stock. The directors claim to have taken action under the fourth method of retirement,—"by the purchase, at not above par, of certain shares for retirement"—as well as under the act of 1902, hereafter referred to. In the notice of the meeting, as well as in the proceedings and certificate filed, the mere formalities required by sections 27 and 29 of ...