In re the Excelsior Fire Insurance

Clerke, J. The charter of this company expressly prescribes the place and day when the election for directors shall take place, and adds that the board of directors shall cause public notice of the time and place of holding each election to be published each day for one week preceding such election in one or more daily papers printed in the city of Hew York. The case to which the counsel for the petitioner refers has no application to the circumstances of the present case. In that case, the charter declared that the election should be conducted in the manner prescribed in the by-laws; and the by-laws fixed a time and place for the election, and required notice of the — 10 — same to be given, but omitted to specify the length of notice, and the mode of giving it. It was held that notice must be given for the time and in manner prescribed by the general statute relating to corporations, that is, for at least two weeks in some newspaper in the county where such election shall be held, at least thirty days before such election. In. the case before us, the charter, as we have seen, expressly provides for a public notice to be published each day for one week preceding such election. Here the length of notice is specified, and, consequently, it is not necessary to resort to the general act to ascertain what the length of notice should be. The only question is, whether the words, “ each day for one week preceding such election,” require a publication on Sunday as well as every other day in the week, that is, for every actual day in the week. It has been held in this court, that a publication of an advertisement on a Sunday was a violation of the laws for the observance and regulation of the Christian Sabbath. And if this is correct, it must be presumed that the Legislature, by this provision of the charter of the company, did not intend that the notice should be published on a day forbidden by the general law of the land. Besides, independently of this consideration, it cannot reasonably be supposed that they intended that a notice was indispensable on a day not only dies non juridious, but a day when no transactions of the kind occur, saving some exceptional instances; when the daily papers in which it was required to publish the notice were not themselves published, with one or two exceptions. It is evident to my mind that the “ each day for one week” meant each business -day. The three substitutes for inspectors of election were properly appointed. The fact that the appointment was provisional does not make it invalid. It would be productive of serious inconveniences if substitutes could not be appointed for elections of this kind until the vacancy actually occurred; neither was the election affected by the fact that only two inspectors -conducted the election. A'majority was sufficient. The most important question in this matter relates to the reduction of the number of directors. The language of the amendment is, “The Excelsior Eire Insurance Company is hereby authorized to reduce the number of its directors to — 11 — twenty-one instead of forty, as provided for by the charter.” Here it is the company, which, of course, is composed of the whole body of the stockholders, that is authorized to reduce the number of directors. This is an option which is given to the company, and not to the directors of the company. The directors of all associations are only agents with limited power, appointed for specific business purposes; and they have no power to act for the company, except for these purposes. In this case, the directors undertook ordering an election for twenty-one directors, to reduce the number at their option. They should have first submitted the question of reduction to the stockholders, on due notice before the notice of the election. H. September, 1862.—Appeal from the order so granted. From the order entered in conformity with the decision of Mr. Justice Clerke, the company appealed to the general term. It is no answer to say that the stockholders acquiesced in this action of the directors by voting for twenty-one directors. The notice of election was in the ordinary form. It was the usual notice of the annual election of directors and inspectors, without specifying the number of directors to be elected, without any reference to the amended act, or to the reduction of the number of directors. Not even half of the number of stockholders voted pursuant to this notice; and it cannot be supposed that by merely voting under such circumstances they entertained any intention of ratifying the action of the directors. It does not even appear that the directors adopted a resolution at any meeting to reduce their number. At all events, if by voting pursuant to the notice as published, any subsequent act of this nature should be deemed a ratification, a majority, at least, of the votes of all the stockholders was necessary, and‘these votes should have been given with a full knowledge of the facts affecting their rights. Otherwise, a subsequent ratification of the unauthorized act of an alleged agent is not valid. On this ground, the prayer of the petition must be granted. Augustus Schell, for the appellants. I. The election was held at the time prescribed by the charter, and was regular in all respects. 1. The publication was in conformity with the charter. 2. The inspectors were duly chosen, entered upon the duties of their office, and no objection was made thereto. (19 Wend., 135; lb., 635 ; 1 Bev. Slat., 596, §§ 32, 33.) ! II. The twenty-one persons who received the votes of those holding a majority of the shares (being all the votes cast) were duly elected directors. (See Charter; Lems of 1862, § 2; Weldey a. Washburne, 16 Johns., 49; People, &c., a. Jones, It Wend., 81.) HI. The act of those stockholders who represented a majority of all the shares, was an acceptance or assent by the company of the act of 1862, and reduced the number of directora from forty to twenty-one, as therein provided. {Angelí efe Ames on Corporations, 68, 69, 459, ed. of 1846.) IY; If the act of the stockholders was not an acceptance of the statute, or an assent to the reduction of the number of directors from forty to twenty-one, then the election by the stockholders of twenty-one persons only constitutes those so chosen the legal directors, and all those who previously held the office are ousted. (People a. Johns, It Wend., 81.) And the Board thus constituted are alone authorized to 'fill the vacancies. (See Charter; Wilde a. Johnson, 16 Johns., 49.) Y. If a new election is the proper remedy,‘time should be given to the company to elect whether they wish to avail themselves of the provisions of the act of 1862, authorizing the company to reduce the number of directors. George W. Stevens, for the respondent. I. The notice of election was insufficient, having been published only six days, instead of “ each day for one week prior to the election.” II. The notice should have been so published that the full time would have expired at least thirty days before the day on which the election was to be held. (Matter of the Long Island B. B. Co., 19 Wend., 37.) III. The election should be set aside because enough of the' duly elected or appointed inspectors did not serve,—only one elected and one appointed inspector acted as such at the election. While the statute declares that any two of the elected inspec — 13 — tors may act, it makes no such provision as to the appointed inspectors, nor does it allow of the joint action of each class. (1 Rev. Stat., 596, § 32.) IV. The act of 1862 was permissive merely. .Until something was done by the corporators to accept it, or to reject it, it was of no force. The directors, as such, had no power to do so. V. The subsequent voting by a part of the stockholders, representing even a majority of the stock of the corporation, for twenty-one directors, would not amount to an acceptance by the corporation, nor to a ratification of any resolution of the Board of Directors (even if one had been passed by them) to reduce the number of directors. 1. No notice to the corpora-tors, requiring them to take action for the acceptance or rejection of the permission extended by that act, is pretended to have been given. 2. No act will amount to a ratification of any particular matter, unless full notice of all the things in-. tended or sought to be ratified be given. (Nixon a. Palmer, 8 JST. 7., 398.) VI. At all events, a new election must be ordered for nineteen directors, to fill up the Board to the forty required by the charter. (Matter of the Union Ins. Co., 22 Wend., 591.) Ingraham, P. J. This company was incorporated under the general law. By the seventh section of the charter, it is provided that “ the rights, powers, and privileges now or hereafter conferred by law on this company, are hereby vested in, and shall be exercised by, a Board of Directors, to consist of forty persons.” In April, 1862, the Legislature passed an act, which provided as follows: “ The Excelsior Eme Insurance Company is hereby authorized to reduce the number of its directors to twenty-one instead of forty, as provided by its charter.” After the passage of this act, a notice was published, directing an election to be held for directors; and notice specifying the time and place of the election was duly published, and at such election the stockholders elected only twenty-one directors, who entered upon their duties. The petitioners now ask to have the election set aside, and a new election ordered, upon the ground that there had been no — 14 — action taken by the stockholders to reduce the number of directors, and therefore the whole election is void. At special term the application was granted, and from this order the company appeals. It appears to me to be clear, that even if the correct number of the directors was forty instead of the reduced number, still the neglect of the stockholders to elect the whole number did' not vitiate the election of those who had a majority of the votes cast. Eo provision of the charter and no law compelled each stockholder to vote for the whole number of directors, and their refusal or neglect to vote for the whole number did not make the election illegal. Such as had a majority of the votes were elected. There may have been a tie vote as to' some, which would prevent the election of the whole number, and yet it would not be contended in such a case that the election of those who had a majority was void on that account. It nowhere appears that stockholders were not allowed to vote for as many as they pleased, and the returns do not show that any one, not even the petitioner, voted or desired to vote for any more. If the petitioner or any other stockholder claimed to have a right to vote for forty directors, he should have exercised that right, and then he could have insisted on the admission of the forty persons having the largest number of votes to be directors, if he was right in his supposition that the number had not been properly changed. The next question is as to the mode of putting into operation the provisions of the act of 1862, reducing the number of the directors. The decision of the special term appears to be based upon the supposition that the act of reduction should be by the stockholders, and not by the Board of Directors. The statute says, “ The company is authorized to reduce the number of its directors,” &e. It makes no provision for a meeting of the stockholders for that purpose. In the absence of any provision of that character, the power rested in the Board of Directors. Stockholders, as such, possess no powers in the management of a corporation, except specially authorized so to do by their charter. Their power ends with the election of the directors. Their acts, without the action of the Board of Directors, would be inoperative. — 15 — This was clearly stated by Lott, J., in McCullough a. Moss (5 Den., 567, 575). He says, “ When a charter invests a Board with the power to manage the concerns of a corporation, the power is exclusive in its character. The corporators have no right to interfere, and courts will not, even on a petition of the majority, compel the Board to do an act contrary to their judgment. The stockholders, as such, could do no corporate act. The-directors were their representatives, and alone authorized to act. So, also, in Come a. Port Henry Iron Co. (12 Barb., 27, 63), Willard, P. J., says, “ The stockholders had no power to make a lease, or do any other administrative act in the management of the affairs of the corporation......When not acting in their official character (as directors), and in the mode prescribed by law, their acts are no more binding than those of other private citizens. This view of the question is founded on the general principles as applicable to corporations. In the present case, the provisions of the charter are so full as to remove any doubt, if it could exist on this question. The seventh section of the charter expressly gives to the-Board of Directors, and vests in the Board, all the rights, powers, and privileges, now or hereafter conferred by law on the company, and such powers are to be exercised by the Board. The power to reduce the number of directors is given to the company by their corporate name. By this section, that power is vested in the Board of Directors, and should be exercised by them. Any other mode would be contrary to these provisions. The directors might, with propriety, have _ submitted to the stockholders the matter for their advice; but, afterwards, the action of the Board of Directors was necessary to carry it out. We are, then, to inquire whether the Board have so acted, and upon this point the papers are silent,—nothing appears in the case except that, pursuant to notice of an election, the stockholders elected a less number than forty, and that the persons so elected entered upon their duties. Why the rest were not elected, does not appear. As before suggested, an omission to elect the full number will not vitiate the election of the residue. If the Board of Directors have not accepted the act of 1862, and exercised the — 16 — •authority vested in them by that act, the number would still remain as fixed by the charter. In such a case, there would be vacancies in the Board of Directors. The eighth section of the ■charter provides for filling such vacancies by the Board, if they exist, but no authority is given to hold a special election, where only a part of the Board has been elected. There is not, in my judgment, any ground for setting aside the election of those who were eleóted, and no reason for ordering an election of other directors, not chosen by the stockholders. The provisions of the charter provide for such a case, and if the Board of Directors do not comply with the provisions of their charter, the remedy is different from that now sought by the petitioner. I think it proper to add that (as heretofore shown) the power is with the Board of Directors; and that Board can now remove any doubt that may exist, by filling the vacancies in the present Board, and adopting a formal resolution, reducing the number of directors previous to the next election. I think the order at special term should be reversed. Baknaed, J., concurred. Clerke, J. I agree with so much of the opinion of the presiding justice as asserts, when a charter invests a Board with the power to manage the concerns of a corporation, the power is exclusive in its character, and the corporators have no right to interfere. But this principle, I consider, is confined- to the ordinary affairs of the corporation; in other words, to the business in which it is engaged, and every thing incidentally necessary to the prosecution of that business. I do not think this power extends to any matter relating to the constitution or organization of the company; and, hence, when the Legislature, as in this case, authorizes the company “ to reduce the number of its directors from forty to twenty-one,” or to make -any other organic change, the suffrages of the stockholders are necessary legally to effectuate it. I am aware, that the language of the 7th section of the charter expressly gives to the Board of Directors all the rights, powers, and privileges, now or hereafter conferred by law on the company. This, no doubt,, invests the Board with all the rights, — 17 — powers, and privileges essential to the prosecution of the business of the company. The stockholders, as such, could perform no corporate acts; the directors are their representatives for this purpose, and they alone can exercise the rights, powers, and privileges necessary to the performance of such acts. But, they have no right to undertake • the performance of any act, which effects any organic change in the constitution of the company, when the act of the Legislature, allowing the change, states that “ the company is authorized to make it.” I think it is left to the option of the stockholders alone, on due notice, to accept or to reject the exercise of the power conferred by the act. The special term, however, erred in entirely setting aside the election, and ordering a new election for forty directors; the election sought to be set aside was good as to the number who were elected. The order should, therefore, be accordingly modified, and a new election ordered for nineteen directors, to complete the number required by the charter. (Matter of the Union Ins. Co., 22 Wend., 591.) Order reversed.