Einstein v. Raritan Woolen Mills

• Decision Date: 22 May 1908
• Citation: 70 A. 295,74 N.J.E. 624
• Parties: EINSTEIN v. RARITAN WOOLEN MILLS.
• Court: New Jersey Court of Chancery

70 A. 295

74 N.J.E. 624

EINSTEIN

v. RARITAN WOOLEN MILLS.

Court of Chancery of New Jersey.

May 22, 1908.

Action by William Einstein against the Raritan Woolen Mills to restrain the increase of capital stock and the issuance of preferred stock. Injunction granted.

R. V. Lindabury, for complainant.

Nelson Y. Dungan and Edward Lauterbach, for defendant.

HOWELL, V. C. The Raritan Woolen Mills was Incorporated by a special act of the Legislature of New Jersey, entitled "An act to incorporate the Raritan Woolen Mills," which act was approved March 23, 1869, and is found in the laws of that year at page 536. The charter provides that the capital stock shall be $100,000, "with the privilege of increasing the same from time to time to any sum not exceeding $250,000." Capital stock to the amount of $150,000 has been issued and is outstanding. The directors have passed a resolution providing for the amendment of the company's charter by increasing the total capital stock of the company to $525,000, $150,000 of which shall be first preferred cumulative 7 per cent. stock and the remainder common stock. The resolution further provides that the present outstanding common stock of the corporation shall be converted Into the first perferred cumulative 7 per cent. stock which the resolution provides for; so that, when the change shall have been effected, the capital stock of the corporation shall consist of $150,000 of preferred stock and $375,000 of common stock. The directors have called a meeting of the stockholders to vote upon the adoption by them of the resolution, and the complainant, who is one of the stockholders of the corporation, now files his bill to enjoin the corporation, its officers and directors, from increasing the capital stock or issuing any preferred stock, or converting the present outstanding issue of $150,000 of common stock into a like amount of preferred stock, and restraining the stockholder from voting at the stockholders' meeting in favor of the directors' resolution.

Two questions are raised: One, the power of the corporation without the universal consent of its shareholders to Increase the amount of its capital stock; second, the right of the corporation to issue preferred stock, and compel its substitution for the present outstanding common stock without the consent of all the shareholders. The charter of the corporation confers upon it the general powers, and subjects it to the general restrictions contained in the corporation act of 1846 (P. L p. 16), and it may be sufficient, without further reference to the statute, to say that it contains no specific authority to a corporation organized under it to do any of the things that are attempted to be done in this case. The charter provides in so many words that the capital stock may be increased from time to time to any sum not exceeding $250,000.

This I take it is a limitation upon the power of the company which is part of the contract existing between the stockholders among themselves and between the stockholders and the corporation itself, and that it cannot be abrogated or avoided by the corporation or by its directors, or by any majority, however large, of its stockholders against the objection of the holder of a single share. This is on the ground that such action would violate that provision of the federal Constitution which prohibits the states from passing any laws which impair the obligation of contracts. The decisions of the Supreme Court of the United States are the final authority on questions arising under this provision of the Constitution, because they are necessarily federal questions. In Chicago City Railway v. Allerton (1874) 18 Wall. (U. S.) 233, 21 L. Ed. 602, the question which is now before the court arose for final decision in the Supreme Court of the United States. The appellant was a street railway company having a capital of $1,250,000, which it proposed to increase to $1,500,000. The appellee, Allerton, objected, and filed his bill to prevent the increase. The charter of the corporation provided the capital stock should be $100,000, and that this might be increased from time to time at the pleasure of the corporation, and that all corporate powers of the corporation should be vested in and exercised by the board of directors and such officers and agents as the board should appoint. The board of directors attempted to make the increase by a mere resolution of that body. Mr. Justice Bradley, without attempting to decide questions which arose under the Constitution and laws of the state of Illinois,...