Scott v. Anderson Newspapers, Inc., 4-583A158

Decision Date29 April 1985
Docket NumberNo. 4-583A158,4-583A158
Citation477 N.E.2d 553
PartiesJohn T. SCOTT and Lucinda Shafer, Plaintiffs, Counterdefendants, Appellants and Cross-Appellees, v. ANDERSON NEWSPAPERS, INC., Robert E. Jackson, Charles Laughlin, Joe Murdock and Willis D. Crittenberger, Jr., Defendants, Counterclaimants, Appellees and Cross-Appellants.
CourtIndiana Appellate Court

John R. Van Winkle, John P. Price, Grace M. Curry, Bingham Summers Welsh & Spilman, Indianapolis, for plaintiffs, counterdefendants, appellants and cross-appellees.

John W. Houghton, James E. Mahoney, Barnes & Thornburg, Indianapolis, George B. Davis, Davis & Davis, Greenfield, for defendants, counterclaimants, appellees and cross-appellants.


Plaintiffs counter-defendants, appellants, cross-appellees John T. Scott and Lucinda Shafer (The Herald Group) appeal certain holdings of the Hancock Superior Court in a declaratory judgment action. Defendants, counter-claimants, appellees, cross-appellants Anderson Newspapers, Inc. (ANI) and Jackson, Laughlin, Murdock and Crittenburger, Jr., directors (the Bulletin Group), cross-appeal certain holdings therein.

Affirmed in part, reversed in part, and remanded with instructions.


Restated, this appeal/cross-appeal presents the following ultimate issues:

A. The Herald Group's Issues:

1. Whether the Herald Group's preemptive right to "print, publish and distribute" the Herald "as before the consolidation" contained in the agreement of consolidation prohibits the amendment of the articles so as to extinguish such right by simple majority vote of ANI shareholders.

2. Whether the ANI by-laws may be amended by simple majority vote of the ANI board of directors.

3. Whether ANI can recover $325.48 from Scott for unauthorized telephone calls.

B. The Bulletin Group's Issues:

1. Whether the trial court erred by imposing restrictions on ANI's right under the Indiana General Corporation Act (IGCA) requiring amendments of its articles of consolidation (articles) and by-laws by other than simple majority vote.

2. Whether the trial court erred by vesting in the Herald Group the perpetual right to select ANI's vice-president, the editor of the Herald, and three of ANI's directors.

3. Whether the trial court erred by holding this suit is a derivative action warranting recovery of attorneys' fees and expenses by the Herald Group.

4. Whether the trial court erred by awarding the Herald Group $122,818.12 attorneys' fees and expenses to be paid by ANI.

5. Whether the trial court erred by denying ANI recovery of money paid to Scott and reimbursement for long distance telephone calls charged by him while he acted as Herald interim editor under a court order subsequently vacated.


Prior to and since 1949, two newspapers were and are published in Anderson, Indiana, the Bulletin and the Herald. The Herald has the larger circulation. Originally, they were owned and operated by separate corporations. In 1949, however, the corporations and their stockholders duly approved and executed an agreement of consolidation, Anderson Newspapers, Inc. (ANI) being the new corporation resulting from that consolidation. Since that time, there has been no difficulty in tracing Bulletin and Herald-generated ANI shares to current stockholders. For easy reference, we shall call these two groups the Bulletin Group, ANI majority stockholders, and the Herald Group, ANI minority stockholders.

When ANI stock was issued, the two groups of shareholders were issued stock in proportion to the contributions each of the corporations made to the assets of the new corporation, as provided by ANI's Articles. This proportional ownership of stock has been maintained to date, the Bulletin Group now owning 4,738 shares of ANI [53.25%], and the Herald Group currenting owning 4,160 shares [46.75%]. ANI's articles and by-laws originally provided three ANI directors would come from the Bulletin Group and two ANI directors would come from the Herald Group. Later amendments raised the total number of directors to 7, 4 to be Bulletin and 3 to be Herald directors.

Prior to the events which precipitated this litigation, each group nominated its own directors annually, but they were elected by majority vote of all ANI shareholders. The directors annually elected ANI's president and secretary from the Bulletin Group directors and the vice-president from the Herald's. Each group of directors appointed the editor of its own newspaper.

John E. Scott, ANI Vice-President and founder of the Herald newspaper died in 1981. After John's death, his son, John T., acted as interim editor of the Herald, but without authority from ANI's board. It never did appoint an editor of the Herald, and it would not have had an editor but for John T.'s voluntary assumption of the editorship. He was paid the same weekly sum which had been paid to his father. While so acting, John T. made many telephone calls to his fellow plaintiffs in this litigation during which this lawsuit and matters related thereto were discussed. ANI paid the telephone bills resulting from these calls.

The Bulletin Group and its directors, after obtaining a legal opinion they could do so, sought to control all of ANI's affairs, including the nomination and election of the Herald Group's vice-president, its 3 directors, and the appointment of the Herald's editor. They offered amendments to the articles of consolidation and by-laws providing all the corporation's business and affairs could be transacted by simple majority vote of ANI's stockholders or its directors. These amendments would have effectively extinguished the Herald Group's preemptive right to publish the Herald. This declaratory judgment suit followed.

Further facts are set forth, as necessary, in the later portions of this opinion.

I. Standard of Review

Both groups accept the trial court's findings of fact without challenge in this appeal. Thus, the evidence as embodied in those findings is without conflict. In such case, we will affirm the trial court unless its judgment is contrary to law, that is, the evidence reasonably leads to but one conclusion and the opposite conclusion has been reached below. Andis v. Newlin (1982), Ind., 442 N.E.2d 1106; Chico Corp. v. Delaware-Muncie Bd. of Zoning Appeals (1984), Ind.App., 466 N.E.2d 472; Ridenour v. France (1982), Ind.App., 442 N.E.2d 716.

II. The Original Consolidation

No corporation can exist without the grant or consent of the sovereign: the power to create corporations is one of the attributes of sovereignty. A corporation can be created and exist only by virtue of statutory authority, and by that authority alone. Indiana Bond Co. v. Ogle (1899), 22 Ind.App. 593, 54 N.E. 407, 408. A corporation is a creature existing not by contract, but by statute. It is governed by the law which created it, and by those legislative enactments which in terms apply to it. Ohio Insurance Co. v. Nunnemacher (1860), 15 Ind. 294, 296. There may be a contract among individuals to enter into a corporation; but when the contemplated corporations comes into existence, the charter, not the contract, determines their rights. Its provisions are supreme. Nunnemacher, 15 Ind. at 295-296.

When a corporation is organized under general law, the charter of the corporation consists of its articles of incorporation and the laws applicable thereto. The State's constitutional and statutory law become part of its articles of incorporation. Westport Stone Co. v. Thomas (1911), 175 Ind. 319, 94 N.E. 406, 410. The relation between a corporation and its stockholders is one of contract in which the articles of incorporation, by-laws, provisions of the stock certificate, and pertinent statutes are embodied. The rights, interests, and obligations of the stockholders arise out of such contract. They are defined and established by the articles of incorporation and applicable laws. Berger v. Amana Society (1959), 250 Iowa 1060, 95 N.W.2d 909, 70 A.L.R.2d 830, 838; Crocker v. Waltham Watch Co. (1944), 315 Mass. 397, 53 N.E.2d 230, 233; 18 AM.JUR.2D, Corporations p 481. With these principles in mind, we turn to the case at hand.

ANI was the new corporation which resulted from the consolidation of two Indiana corporations, Bulletin Printing and Manufacturing Company, Inc. and the Herald Publishing Company, Inc. on September 29, 1949. This consolidation was authorized under those provisions of the IGCA relating to the merger or consolidation of corporations, currently codified as IND.CODE 23-1-5-1 to 23-1-5-8. 1

Consolidation in 1949 was, and still is, a simple procedure under our corporation act. The sine qua non thereof is the original agreement to consolidate. It must be adopted by the boards of directors of the consolidating corporations and approved by the shareholders of each corporation. This is the first and crucial step on the road to consolidation, cf. IC 23-1-5-3. Thereafter, articles of consolidation embodying the agreement are filed with the secretary of state and a certificate of consolidation issued. At that time or within 30 days after the articles are filed, the new corporation becomes a legal entity, cf. IC 23-1-5-4.

Tracking the IGCA provisions regarding what may be included within the articles of consolidation, we find IC 23-1-5-5(f) first provides

... in case of consolidation, the statements set forth in the agreement of consolidation as provided in subparagraph (4) of paragraph (a) of [IC 23-1-5-3] of this act shall be deemed to be the articles of incorporation of the new corporation formed by such consolidation. (Emphasis supplied).

IC 23-1-5-3(a) then provides the articles of consolidation shall set forth

* * *

(4) with respect to the new corporation, all the statements required by [IC 23-1-3-2] of this act to be set forth in original articles of incorporation for corporations formed under this act;

and, finally, IC 23-1-3-2, in appropriate part, reads


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