The State ex rel. Frank v. Swanger

• Decision Date: 25 October 1905
• Citation: 89 S.W. 872,190 Mo. 561
• Parties: THE STATE ex rel. FRANK et al. v. SWANGER, Secretary of State
• Court: Missouri Supreme Court

89 S.W. 872

190 Mo. 561

THE STATE ex rel. FRANK et al. v. SWANGER, Secretary of State

Supreme Court of Missouri

October 25, 1905

Peremptory writ awarded.

J. C Harper, D. W. Voyles and Silver & Brown for relators.

(1) The Constitution recognizes preferred stock, but provides that it shall not be issued without the consent of all the stockholders. Art. 12, sec. 10. This requirement is complied with in the case at bar. (2) At common law, it was well recognized that the voting power might be withheld from the preferred stock and vested exclusively in the common stock. In England and in this country the limitation of its voting power was one of the well-recognized characteristics of preferred stock. Cook on Corp. (5 Ed.), sec. 622b; Clark & Marshall, Priv. Corp., sec. 652; Campbell v. Poultney, 6 Gill & J. 94; Webb v. Ridgley, 38 Md. 364; Mack v. DeBardleben, etc., Co., 90 Ala. 410; Com. v. Detweiler, 131 Pa. 614; State v Hunton, 28 Vt. 594; In re Steel Co., L.R. 39 Ch. Div. 603; Miller v. Ratterman, 47 Ohio St. 157. In Ohio there existed the same cumulative-voting law as is found in Missouri. Sec. 3245, R.S. Ohio, as amended April 23 1898 -- 61 Ohio St. 497. (3) In order to deprive stockholders of their common-law right to contract as to which class of stock and under what conditions it shall possess the voting power, there should be a clear and express legislative intention to take away such right. On the contrary, the Missouri statute of 1901 expressly recognizes the right of the stockholders to determine the "character" of the stock, whether voting or non-voting. Laws 1901, p. 91. (4) The cumulative-voting provisions of the Constitution and statutes of Missouri in nowise militate against this view. Clark & Marshall, Priv. Corp., sec. 655; State ex rel. v. McGann, 64 Mo.App. 232; Wright v. Water Co., 67 Cal. 535. (5) This court has recently had before it the question whether another section of the article of the Constitution dealing with corporations should be given a literal application in every case, or whether it should be given a common sense meaning and made to subserve the purpose of its being. Section 8 requires that sixty days' notice must be given before a corporation can increase its stock or bonded indebtedness. It was contended that this provision was for the public benefit and could not be waived by the stockholders. This court, though, held that the provision was for the benefit of the stockholders alone, and could be waived by them. Riesterer v. Land & Lumber Co., 160 Mo. 141, overruling State ex rel. v. McGrath, 86 Mo. 241; State ex rel. v. Cook, 178 Mo. 189. (6) "The method of voting prescribed in the charter is part of the contract between stockholders. It relates to the manner of controlling the association and its property represented in their shares as between themselves. It in nowise affects the public." Re Newark Library Assn., 64 N.J.L. 219; State ex rel. v. Greer, 78 Mo. 188; Printing, etc., Co. v. Sampson, L.R. 19 Eq. 465; Besant v. Wood, L.R. 12 Ch. Div. 605; Smith v. Railroad, 115 Cal. 600; State v. Tie and Timber Co., 181 Mo. 536; Rumsey v. Railroad, 154 Mo. 246. (7) Mandamus is the proper remedy. State ex rel. v. Cook, 178 Mo. 189.

Herbert S. Hadley, Attorney-General, John Kennish, Assistant Attorney-General, and W. C. Irwin for respondent.

(1) This is not a question solely of the rights of the incorporators inter sese, in which the public is not concerned, but rather a question in which the public is vitally concerned and has rights that cannot be overlooked. Secs. 1, 8 and 10, art. 12, Const.; secs. 947, 953, R.S. 1899. (2) The question arises, Can a majority of the stockholders set aside and annul the plain provisions of the statute (sec. 953, R.S. 1899), and thereby deprive any of its shareholders, whether the holders of common or preferred stock, of the right to participate in the business affairs of the corporation? Tomlin v. Bank, 52 Mo.App. 430; State ex rel. v. McGann, 64 Mo.App. 225; Gregg v. Granby Min. & Smelt. Co., 164 Mo. 625; Clark & Marshall, Corp., p. 1997. (3) The Secretary of State should not be required to pass upon the legality of any contract interested parties may seek to insert in the articles of association for the incorporation of any company, but he must see that the law is complied with.

GANTT, J. Brace, C. J., Marshall, Valliant, Fox and Lamm, JJ., concur; Burgess, J., absent at hearing.

OPINION

In Banc.

Mandamus.

GANTT J.

This is an original proceeding brought by the plaintiffs, in this court at its April term, 1905, to obtain a peremptory writ of mandamus directed to Hon. John E. Swanger, Secretary of State, requiring him to issue a certificate of incorporation to the "Star-Chronicle Publishing Company." The petition, omitting caption, is in the words following; "Your petitioners Nathan Frank, Milton A. McRae, J. C. Harper, Robert F. Paine, F. W. Hunsicker, August, Frank and John M. Hertel (relators herein), state and say as follows: That John E. Swanger is now and has been, since on or about January 1, 1905, the Secretary of the State of the State of Missouri, duly qualified and acting as such officer. That on the 2nd day of June, 1905, last past, your petitioners did execute articles of agreement for the incorporation of a business corporation (pursuant to and under article 9 of chapter 12 of the Revised Statutes of 1899 of this State), under the name and style of the 'Star-Chronicle Publishing Company.' That said articles of agreement duly set forth the said name of the contemplated corporation, the place of its location, viz., in the city of St. Louis, Missouri; the names and places of residences of the several shareholders; the number of the board of directors (consisting of seven shareholders) and their names for the first year after the incorporation; the duration of the corporation, viz., for a term of fifty years; the purpose of the corporation, viz., the printing and publishing of one or more newspapers, magazines and other publications and all business usually connected therewith; amount of capital stock of the intended corporation, viz., $ 500,000, divided into shares of the par value of one hundred dollars each, that the same was bona fide subscribed and all thereof actually paid up in lawful money of the United States, and that the same was in the custody of the persons named in said articles of agreement as the first board of directors of said proposed corporation, they being the same persons as your petitioners herein.

"That said articles of agreement further provide that 2,500 of said shares shall be preferred stock, and that the remaining 2,500 shares shall be common stock.

"That the holders of said common and preferred stock shall have the preference, classification, character and rate of dividends as follows: 'The holders of the preferred stock shall be entitled to receive out of the surplus or net earnings, and the corporation shall be bound to pay thereon as and when declared by the board of directors, a dividend at the rate of six per centum per annum, cumulative from and after the issue of such stock, payable monthly unless otherwise ordered by the board of directors, before any dividend shall be set apart or paid on the common stock; provided, however, that after the payment in full of all dividends on the preferred stock, and so long as a dividend of six per cent is paid each year on the preferred stock, the directors shall have the power then and thereafter to declare and pay from the net earnings, dividends on the common stock until it has received the same amount of dividends as have been paid on the preferred stock, and no further dividend shall be paid on the preferred stock until the common stock has received an equal amount of dividends, calculated cumulatively from the date of the issue of stock, and thereafter the preferred and common stock shall be entitled to share ratably in all dividends declared in excess of the preferential dividend of six per cent to be paid on the preferred stock and a like amount on the common stock; provided, always, that dividends may be declared from the net earnings only, and from such net earnings the preferred stock shall receive preferentially and cumulatively a dividend of six per cent per annum, and the common stock shall at no time be entitled to a dividend until all arrearages of such dividends have been paid to the holders of the preferred stock. The voting power shall be vested exclusively in the common stock, and at all meetings of the stockholders, and at all elections for directors, each holder of common stock shall be entitled to one vote for each share of common stock held by him and registered on the books of the company; and the preferred stock shall have no voting power, the holders thereof expressly waiving any right to vote the preferred stock at elections for directors or on any question, or to participate in stockholders' meetings.'

"That said articles of agreement were on the second day of June, 1905, last past, duly subscribed and acknowledged by your petitioners, before Laura L. Sutton, a notary public for and within the city of St. Louis aforesaid, and after being so subscribed and acknowledged, said articles were, on June 5, 1905, filed in the office of Paul Young, Jr., recorder of deeds for the said city of St. Louis, and were, by said recorder on said day last aforesaid, recorded in corporation book 28, page 207, of said recorder's office. That a duly certified copy of said articles of agreement, as recorded in the office of said recorder of deeds of the city of St. Louis, are attached to this petition, marked 'Exhibit A.'

"That thereafter, and on June 5, 1905, your petitioners did present to and file in the office of said John E. Swanger, Secretary of...