State ex rel. Swanson v. Perham

• Decision Date: 29 March 1948
• Docket Number: 30456.
• Citation: 191 P.2d 689,30 Wn.2d 368
• Parties: STATE ex rel. SWANSON et al. v. PERHAM et al.
• Court: Washington Supreme Court

191 P.2d 689

30 Wn.2d 368

STATE ex rel. SWANSON et al. v. PERHAM et al.

No. 30456.

Supreme Court of Washington

March 29, 1948

Department 2

Suit by the State of Washington, on the relation of Walter V. Swanson and others, against Ben Perham, Sr., and others to compel recognition of the relators' right of cumulative voting. From a judgment for the defendants, the plaintiffs appeal.

Judgment affirmed.

Appeal from Superior Court, Yakima County; Jay Whitfield, judge.

Walter V. Swanson, of Yakima, for appellants.

Grady &amp Grady and Gavin & Robinson, all of Yakima, for respondents.

STEINERT Justice.

The basic question presented to us for decision is this: Are stockholders of a private corporation, organized under the General Business Corporation Act in 1919, the by-laws of which corporation provide for straight voting of stock entitled, solely by virtue of the adoption of the Uniform Business Corporation Act of 1933, Rem.Rev.Stat. § 3903-1 et seq., to vote their stock cumulatively, over the objection of the majority stockholders, at a stockholders' meeting called for the purpose of electing directors?

Relators, constituting a minority of stockholders of the corporation, brought this suit to compel recognition of such right of cumulative voting claimed by them. Defendants, constituting a majority of the stockholders, appeared in resistance to the claim. The trial court, sitting without a jury, held that relators were not entitled to vote their stock cumulatively and entered judgment dismissing the action. Relators appealed.

Perham Fruit Company, the corporation whose stockholders' voting rights are here involved, was organized in 1919, under the general corporation laws of the state of Washington. In 1942 it changed its name to Perham Fruit Corporation and has borne that name ever since. It has always been, and not is, a private corporation qualified to engage in buying, selling, handling, and otherwise dealing in fruits, vegetables, grain, and all kinds of agricultural, horticultural, and poultry products. At the time with which we are here concerned, it was capitalized at $151,000, represented by 750 shares of common stock and 760 shares of preferred stock each share having a par value of $100. The common stock alone has voting power. The board of directors of the corporation consists of three members. The by-laws provide that at all stockholders' meetings each stockholder shall be entitled to cast one vote for each share of stock standing in his name on the books of the corporation.

The respondents herein, Ben Perham, Sr., Ben Perham, Jr., and Frank E. Freshwater, together hold 380 shares of common stock of the corporation, of 50.66 2/3 percent of the total amount of the outstanding common stock. Ben Perham, Jr., is the son, and Frank E. Freshwater is the son-in-law, of Ben Perham, sr. The relator appellants, Walter v. Swanson, Betty Crockett, Herbert Crockett, Virginia Turner, John Turner, John M. Bloxom, Marian Bloxom, Merritt Bloxom, Jr., and Mary Jane Bloxom, together hold 370 shares of common stock, or 49.33 1/3 percent of the total amount of stock of that classification.

The 1947 annual meeting of stockholders of the corporation was held on June 28 of that year, all of the voting stock being represented in person or by proxy. Respondent Ben Perham, Sr., president of the corporation, presided as chairman at that meeting. The three respondents above named and the appellant Swanson were nominated for the three offices of director. Appellants thereupon claimed the right to cast their votes cumulatively, as hereinafter described. The chairman ruled that this could not be done, and that the only permissible method of voting was that of 'straight' voting. The three respondents accordingly cast their votes in this latter manner, with the result that each of them received 380 votes for such office. Appellants nevertheless insisted on casting their votes cumulatively, for Mr. Swanson, with the result that by this method he received 1,107 votes. The chairman refused, however, to allow those votes to be counted in that manner, but insisted that they be counted according to the straight voting method, which would have given Swanson only 369 votes. Respondents having each received 380 votes by the straight voting method, amounting to a majority of all votes entitled to be cast in that manner, they were declared duly elected directors.

Appellants as relators thereupon instituted this action to have their rights relative to the voting of their stock in such case determined.

As stated above, the by-laws of the corporation provide that each stockholder shall be entitled to cast one vote for each share of stock standing in his name on the books of the corporation. This was in accordance with Rem.Rev.Stat.§ 3812, the existing statute in 1919 when the corporation was organized. This statute provided in part as follows:

'* * * all elections shall be by ballot, and each stockholder, either in person or by proxy, shall be entitled to as many votes as he may own, or represent by proxy, shares of stock, and the person or persons receiving the greatest number of votes shall be trustee or trustees * * *.'

This method of voting is referred to as the 'straight voting method.' It differs from the 'cumulative method' in that, by the latter method, a stockholder, instead of casting for each one or more of the candidates or nominees for the office of director as many votes as would equal the number of his shares of stock, is allowed to give one candidate as many votes as will equal the number of directors to be elected multiplied by the number of his shares of stock, or otherwise to concentrate and distribute the number of his votes as he may see fit.

It is well settled that, in the absence of express provision therefor by the charter or by-laws of a corporation, by a general statute, or by a constitutional provision, a stockholder has no right to cumulate his votes. 5 Fletcher, Cyclopedia Corporations, Perm.Ed., 161 § 2048; 13 Am.Jur. 527, Corporations, § 487; 19 C.J.S., Corporations, § 720.

In this state, the right to vote shares of stock cumulatively was specifically conferred by the Uniform Business Corporation Act, adopted in 1933. Chapter 185, Laws of 1933, § 28, Rem.Rev.Stat. (Sup.) § 3803-28. That section confers and defines the right to vote at stockholders' meetings as follows:

'1. Except as otherwise provided in the articles of incorporation, every shareholder of record shall have the right at every shareholders' meeting to one vote for every share standing in his name on the books of the corporation.

* * *

* * *

'3. In the election of directors, every shareholder of record shall have the right to multiply the number of votes to which he may be entitled under subdivision 1 of this section by the number of directors to be elected, and he may cast all such votes for one candidate or he may distribute them among any two or more candidates.'

The section of the former law providing for straight voting, Rem.Rev.Stat. § 3812, heretofore quoted, was impliedly repealed by § 62 of the 1933 act, Rem.Rev.Stat. (Sup.) § 3803-62, which provides that all acts or parts of acts inconsistent with the 1933 act are repealed. This former provision for straight voting was later specifically repealed by an amendment to the 1933 act, passed in 1939, Rem.Rev.Stat. (Sup.) § 3803-62a, which also specifically repealed many other sections of the former law.

It is conceded by respondents that, by express provision in the Washington constitution, the state has reserved to itself the power to alter, amend, or repeal laws relating to corporations. Article XII, § 1, of the organic law provides:

'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 at any time, and all corporations doing business in this state may, as to such business, be regulated, limited, or restrained by law.'

It is now universally recognized as an historical fact that constitutional or statutory provisions reserving to the legislature the power to alter, amend, or repeal corporate laws or existing charters were formulated and adopted because of the principle established by the famous case of Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 17 U.S. 518, 4 L.Ed. 629. In that case the United States supreme court held that a charter which had been granted by the British crown to a private corporation constituted a contract within the meaning of Art. 1, § 10, of the United States constitution, wherein it is provided that no state shall make any law impairing the obligation of contracts, and that consequently a statute of the state of New Hampshire increasing the number of trustees of Dartmouth College as fixed by its charter, and providing for the appointment of a majority of the trustees by the executive government of New Hampshire, instead of by the board of trustees as the charter provided, was unconstitutional and void.

In his concurring opinion in that case, Mr. Justice Story took occasion to say:

'If the legislature mean to claim such an authority, it must be reserved in the grant.'

Following the decision of the Dartmouth College case, and acting upon the suggestion of Justice Story, many, if not most, of the states of the Union in course of time incorporated in their constitutions, or else enacted by statute, provisions reserving to the state, through its legislature, the right to alter, amend, or repeal laws which granted corporate charters or authorized the creation of corporations under general laws. That practice was followed in this state in 1889 by the framing and ratification of our constitution, which included ...