Nelson v. Keith-O'Brien Co.

• Decision Date: 26 June 1907
• Docket Number: 1809
• Citation: Nelson v. Keith-O'Brien Co., 32 Utah 396, 91 P. 30 (Utah 1907)
• Parties: NELSON v. KEITH-O'BRIEN CO. et al
• Court: Utah Supreme Court

91 P. 30

32 Utah 396

NELSON v. KEITH-O'BRIEN CO. et al

No. 1809

Supreme Court of Utah

June 26, 1907

APPEAL from District Court, Third District; M. L. Ritchie, Judge.

Action by H. A. Nelson against the Keith-O'Brien Company and others. From a judgment for defendants, plaintiff appeals.

M. P Braffett and King, Burton & King for appellant.

APPELLANT'S POINTS.

There being, then, no statutory authority, or no express provision in the articles of incorporation, the corporation had no power to levy an assessment. (Enterprise Ditch Co. v Moffitt, 58 Neb. 642; Omaha Library Assn. v Connell, 55 Neb. 396; 2 Beach on Private Corp., sec 590; Thompson on Corp., secs. 1037, 1038; Rosenback v. Bank, 53 Barb. 495; State v. Fire Assn., 23 N. J. L. 195.)

The courts are therefore unanimous in holding that a corporation has no power as incident to its organization to levy an assessment upon stock which has been fully paid up. ( Duluth Club v. Macdonald, 74 Minn. 254; Atlantic, etc., Co. v. Mason, 5 R. I. 463; Library Assn. v. Connell, 55 Neb. 396; Toner v. Fulkerson, 125 Ind. 224.)

Dickson, Ellis, Ellis & Schoulder and Howat & Macmillan for respondents.

RESPONDENT'S POINTS.

In all cases where at the time of subscribing stock in a corporation, there are existing laws by which the charter of such corporation may be changed, such subscription must be presumed to have been made with a view to such laws and to changes which may possibly be made conformably to them; and in such case, a majority of the stockholders may adopt such changes against the will of a minority. (Bish v. Johnson, 21 Ind. 299; Mowry v. Railroad, No. 9891 F. Cas.; Mower v. Staples [Minn.], 20 N.W. 226.)

When such power is reserved at the time of the organization of a corporation, any changes in the law made by the Legislature are binding upon the stockholders, even if the liability of the stockholders is thereby changed. (In re Empire City Bank, 18 N.Y. 199; In re Oliver Lee & Company, 21 N.Y. 19; Sleeper v. Goodwin, 67 Wis. 577, 31 N.W. 335; Tomlinson v. Jessup, 15 Wall. 454; McGowan v. McDonald [Cal.], 43 P. 418.)

If the construction should be given to the statute that is claimed for it by the appellant, yet the stockholders themselves in the articles of incorporation waived its provisions and agreed that amendments might be made to the articles of incorporation as provided in article 19. Such a provision in the statute, where the question of public policy or the interests of creditors are not involved, is solely for the protection of the stockholders, and the stockholders may waive the benefit of the statute. (Sedgwick on Con. & Stat. Laws, 111; 3 Clark & Marshall on Corporations, 2614; Shutte v. Thompson, 15 Wall. 151, 159; Phyfe v. Eimer, 45 N.Y. 102; Bucher v. Marq. & P. R. C. Co., 45 Mich. 107; Robinson v. Bidwell, 22 Cal. 379, 388; French v. Teschmaker, 24 Cal. 518, 559, 560; People v. Robinson, 46 Cal. 95; Meredith v. S.C. M. A. etc., 60 Cal. 617, 619; Bush v. Robinson, 95 Ky. 492.)

AFFIRMED.

STRAUP, J. McCARTY, C. J., and FRICK, J., concur.

OPINION

STRAUP, J.

This action was brought by plaintiff against the Keith O'Brien Company, a corporation engaged in general mercantile business and organized under the laws of the state of Utah, and against its directors and its secretary, for an alleged conversion of certain shares of the capital stock of the corporation owned by the plaintiff and his assignors. Judgment was in favor of the defendants, and plaintiff appeals.

The full-paid capital stock of the plaintiff and his assignors was sold by the defendants for nonpayment of assessments levied against it. The only question presented is whether the board of directors had authority to assess the stock. Section 331, Rev. St. 1898, provides:

"The property of the corporation and the unpaid stock shall be liable for the debts of the corporation; but the individual property of any holder of full-paid capital stock of any corporation organized since March eighth, eighteen hundred and ninety-four, or that hereafter may be organized, under the laws of this state, except as otherwise expressly provided in this title, shall not be liable for the corporate obligations, nor shall assessments be levied on such stock for any purpose whatever, except to such extent and in such manner as may be expressly provided in the articles of incorporation."

Section 338 provides:

"The articles of incorporation of any corporation now existing, or that may hereafter be organized under the laws of this state, may be amended in any respect conformable to the provisions of this chapter by a vote representing at least two-thirds of the outstanding capital stock thereof at a stockholders' meeting called for that purpose, as hereinafter prescribed; provided, that the original purpose of the corporation shall not be altered, nor shall the capital stock be diminished to an amount less than fifty per cent in excess of the indebtedness of the corporation; and provided further, that the liability of the holder of full-paid capital stock for assessments or for the indebtedness of the corporation shall not be changed without the consent of all the stockholders."

Section 354 provides:

"The full-paid capital stock of any corporation organized since March eighth, eighteen hundred and ninety-four, or that may hereafter be organized under the laws of this state, shall not be assessable for any purpose whatever, except to such extent and in such manner as may be expressly provided in the articles of incorporation; provided, that if such stock is made assessable and the manner of levying the assessment is not provided for, it shall be levied in the manner and form hereinafter prescribed."

The defendant company was organized December 2, 1902. So far as material, the articles of incorporation provided: That the capital stock should be $ 250,000, divided into twenty-five hundred shares, of the par value of $ 100 per share and stated the names of the incorporators and the amount of stock subscribed by each, aggregating two thousand shares, of which the plaintiff and his assignors subscribed 222 1/2 shares. They further provided that: "The remainder of said shares of said capital stock, to wit: five hundred shares thereof, shall be and remain in the treasury of said corporation, unissued, and shall be disposed of at such time and for such price as the board of directors of said corporation may determine, for the purpose of carrying on the business of said corporation, or in the payment of debts, obligations or the purchase of property necessary or proper for the uses and purposes of said corporation, provided, however, the stockholders of record of said corporation shall have the first right to purchase said stock pro rata." Article 16 provides: "That the board of directors of said corporation shall have the power and authority, for the purposes of paying expenses, conducting the business, or paying the debts of said corporation, to levy and collect assessments upon the outstanding capital stock of said corporation in the manner and form and to the extent as is provided by law. For that purpose and to that end the capital stock of this corporation is hereby declared assessable." Article 19 provides: "That these articles of incorporation may be amended in any respect at any stockholders' meeting called for that purpose, specifying in the notice of such stockholders' meeting the nature of the amendments; a majority of the outstanding capital stock of said corporation represented at such meeting either personally or by proxy voting for such amendments."

In 1903 (Sess. Laws, p. 78, c. 94) the Legislature, among other sections, amended section 338, Rev. St. 1898, to read:

"The articles of incorporation of any corporation now existing or that may hereafter be organized under the laws of this state may be amended in any respect conformable to the laws of this state by a vote representing at least two-thirds of the outstanding capital stock thereof at a stockholders' meeting called for that purpose as hereinafter prescribed. Provided, that the original purpose of the corporation shall not be altered, nor shall the capital stock be diminished to an amount less than fifty per cent in excess of the indebtedness of the corporation; and provided further, that the personal or individual liability of the holder of full-paid capital stock for assessments or for the indebtedness or obligations of the corporation shall not be changed without the consent of all the stockholders."

Section 1, art. 12, of the Constitution of Utah, is:

"Corporations may be formed under general laws, but shall not be created by special acts. All laws relating to corporations may be altered, amended or repealed by the Legislature, and all corporations doing business in this state, may, as to such business, be regulated, limited or restrained by law."

On the 15th day of February, 1904, in pursuance of previous notice of a special meeting for that purpose, the stockholders of the defendant company representing 1,655 shares of the capital stock amended article 16 of the articles of incorporation to read: "That, whenever the said corporation is indebted to an amount exceeding ten per cent of the amount of the outstanding capital stock of said corporation, the board of directors shall have the power and authority, for the purpose of paying said indebtedness, to levy and collect an assessment upon the outstanding capital stock of said corporation in an amount sufficient to pay said indebtedness, but not to exceed fifty per cent. of the outstanding capital stock, and shall have the power and authority to levy and collect such other assessments upon the...