Humphrys v. Winous Co.

• Decision Date: 14 March 1956
• Docket Number: No. 34485,34485
• Citation: 133 N.E.2d 780,165 Ohio St. 45,59 O.O. 65
• Parties: , 59 O.O. 65 HUMPHRYS et al., Appellees, v. The WINOUS CO. et al., Appellants.
• Court: Ohio Supreme Court

Page 45

165 Ohio St. 45

133 N.E.2d 780, 59 O.O. 65

HUMPHRYS et al., Appellees, v. The WINOUS CO. et al., Appellants.

No. 34485.

Supreme Court of Ohio.

March 14, 1956.

Syllabus by the Court.

1. Where there are contradictory provisions in statutes and both are susceptible of a reasonable construction which will not nullify either, it is the duty of the court to give such construction thereto.

2. Under Section 1701.64, Revised Code (prior to October 11, 1955), the articles or code of regulations of a corporation could provide for the classification of a board of three directors into three classes containing one director each.

3. The provision of Section 1701.58, Revised Code, that the right of a shareholder of a corporation to vote cumulatively for the election of directors shall not be restricted or qualified by the articles or code of regulations of the corporation, confers upon a minority shareholder only a right to vote cumulatively and does not ensure minority representation on the board of directors by the exercise of that right.

Appellants Putnam and Andrews and directors and majority shareholders of The Winous Company and own between them approximately 59 per cent of the stock of the corporation. Appellee Humphrys controls approximately 40 per cent of the stock and for several years prior to the annual meeting of the shareholders of the corporation on January 18, 1954, had been a director of the corporation.

Having failed to give notice of his election to vote cumulatively at the annual meeting on January 18, 1954, as required by Section 1701.58, Revised Code, Humphrys was not re-elected to the board of directors and was replaced on the board by one Anthony.

Following this election of directors, the annual meeting of the corporation was adjourned, at about noon on January 18, until certain financial statements requested by Humphrys could be typed for presentation. Upon reconvening at about 2:30 p. m. on January 18, the shareholders adopted a resolution amending the code of regulations and providing that each director, after the election at that meeting, shall hold office for three years, and that the three directorships shall be designated by classes as follows: Class A director shall hold office for one year and thereafter for three years; class B director for two years and thereafter for three years; and class C director for three years and thereafter for three years. The shareholders then adopted a resolution which 'designated and appointed' Anthony as the first class A director, appellant Andrews as the first class B director and appellant Putnam as the first class C director.

Appellees filed a petition for declaratory judgment and equitable relief in the Common Pleas Court of Cuyahoga County praying for a declaration of the invalidity of the amendment to the code of regulations of the company and the consequent election of directors by classes. The Court of Common Pleas held that, although under Section 1701.64, Revised Code, it was within the power of the majority of the shareholders to classify their three directors in the manner undertaken, the notice of the annual meeting was insufficient to permit such classification at that meeting. It, therefore, held that the three directors, having been duly elected for terms of one year, should continue in office during the remainder of such period.

Humphrys perfected an appeal to the Court of Appeals for Cuyahoga County on questions of law, which court held as follows:

'That the Court of Common Pleas should have rendered final judgment for the plaintiffs appellants for the reason that where three directors are provided for with three-year terms of office, one to be elected each year, the right to cumulative voting is, in such case, completely nullified, and such amendment to the code of regulations for the classification of directors is null and void, being a violation of the terms of Section 1701.58, R.C.; that the resolution seeking to designate each of the directors already duly elected on the morning of January 18, 1954, to different respective classes was consequently also invalid; that the provisions of Section 1701.58, R.C., prohibiting the restriction or qualification of cumulative voting is specific in character and constitutes a limitation upon the applicability of Section 1701.64, R.C.; and this court coming now to render the judgment which the Court of Common Pleas ought to have rendered, it is therefore considered, ordered and adjudged by this court that the attempted classification of directors by the purported amendment of the code of regulations of the Winous Company is null and void, and that the resolution seeking to designate each of the directors already duly elected on the morning of January 18, 1954, to different respective classes is invalid.'

The cause is before this court upon the allowance of appellants' motion to certify the record.

Horace Andrews and Lad J. Roth, Cleveland, for appellants.

Thompson, Hine & Flory and H. Walter Stewart, Cleveland, for appellees.

BELL, Justice.

It can not be disclaimed that by reason of the stock distribution of this particular corporation a classification of the three directors into three classes containing one director each effectively divests the minority shareholders of a measure of control they formerly exercised over the corporation by electing one member of the board through the expedient of cumulative voting.

The issue herein, however, is not whether a particular result was accomplished but whether, under the statutes, such a result can legally be accomplished.

Section 1701.64, Revised Code, provides, in part, as follows:

'The articles or the code of regulations may provide for the term of office of all of the directors or, if classified upon the basis of the expiration of the terms of office of the directors, of each class thereof, provided that no term shall be fixed for a period of more than three years from the date of their election and until the election of their successors.'

Section 1701.58, Revised Code, after providing that any shareholder may, upon giving 24 hours notice of his desire to do so, cumulate such voting power as he possesses and give one candidate as many votes as the number of directors multiplied by the number of his votes equals, then provides that 'such right to vote cumulatively shall not be restricted or qualified by the articles or the code of regulations.'

The Court of Appeals sustained the contention of appellees and held that, since Section 1701.58, Revised Code, was specific in character, it constituted a limitation upon the applicability of Section 1701.64, Revised Code, and that, since the classification by appellants, attempted under the authority of Section 1701.64, Revised Code, did restrict the right to vote cumulatively as specifically guaranteed by Section 1701.58, Revised Code, such classification was invalid.

It is a well settled rule of statutory construction that where a statute couched in general terms conflicts with a specific statute on the same subject, the latter must control. Gibson v Summers Construction Co., 163 Ohio St. 220, 126 N.E.2d 326; Andrianos v. Community Traction Co., 155 Ohio St. 47, 97 N.E.2d 549; Acme Engineering Co. v. Jones, 150 Ohio St. 423, 83 N.E.2d 202. The rule, however, often is much easier stated than applied, and especially is this true in the instant case.

The primary duty of a court in construing a statute is to give effect to the intention of the Legislature enacting it. In determining that intention, a court should consider the language used and the apparent purpose to be accomplished, and then such a construction should be adopted which permits the statute and its various parts to be construed as a whole and gives effect to the paramount object to be attained. Cochrel v. Robinson, 113 Ohio St. 526, 149 N.E. 871.

In enacting Section 1701.58, Revised Code, did the General Assembly intend, as urged by appellants, to guarantee only that the right to vote cumulatively shall not be restricted or qualified? Or did it intend to guarantee that the effectiveness of cumulative voting to ensure minority representation on the board of directors shall not be restricted or qualified?

In 1897, immediately prior to the enactment of the first statute expressly providing for cumulative voting of shares of stock in the election of directors, Section 3245, Revised Statutes, provided that directors 'shall be chosen, by ballot, by the stockholders * * *; each share shall entitle the owner to as many votes as there are directors to be elected, and a plurality of votes shall be necessary for a choice.' This court held in State, ex rel. Baumgardner v. Stockley, 45 Ohio St. 304, 13 N.E. 279, that this statute did not confer upon shareholders the right of cumulative voting at the election of directors held thereunder.

Section 3245a, Revised Statutes, provided: 'A corporation may provide in its articles of incorporation that each stockholder, irrespective of the amount of stock he may own, shall be entitled to one vote, and no more, at any election of directors or upon any subject submitted at a stockholders' meeting, and when such provision is made it shall be governed thereby.' 2 Bates Annotated Statutes (4 Ed.), p. 1843.

It is interesting to note that, as early as 1893, the organized bar of Ohio began to interest itself in the rights of minority shareholders. In an address before the annual meeting of the Ohio State Bar Association held at Put-in-Bay in July 1893, John H. Doyle, then president of the association, said:

'* * * While there is a unanimity of purpose and an accord of thought amoungst the shareholders, the corporation moves smoothly, and its directors represent and carry out the wishes of such shareholders.

'But that is not always the case, and under the present law, as it has been interpreted by the Supreme Court, a bare majority can absolutely exclude the minority from all voice in...