Hughes v. Citizens' Electric Light, Heat & Power Co.

Opinion by Mr. Justice Brown, A by-law of the Citizens’ Electric Light, Heat & Power [101] Company, one of the defendants below, provides that none of the stock of the company “shall be sold or transferred, unless the board of directors shall have received a notice thirty days previous thereto and an option given said board to purchase it.” This bill was filed for the enforcement of the by-law by enjoining transfers of stock which had been sold by stockholders without giving to the board of directors of the company an option to purchase the same, and the appeal before us is from the preliminary injunction awarded. The board of directors is to receive thirty days’ notice of any sale or transfer and an option is to be given it to purchase the stock which the stockholder proposes to sell. This is all there is in the bylaw upon the subject. Upon receiving notice of the contemplated sale and the extension of the option to it to purchase the stock, no duty is imposed upon the board of directors to submit the option to the stockholders for their acceptance or rejection of it. To the board the option is to be given and upon it the board alone is to act. The board is to exercise or decline the option, and in declining the same is not responsible to the stockholders in the absence of collusion between it and the selling stockholder to consummate an illegitimate scheme to defraud the other stockholders. No such averment is to be found in this bill. If, then, from all that appears in the bill the board of directors could have exercised or declined options extended to it to purchase the stock, the transfers of which the court below has enjoined; it certainly could have waived its right to the options, because the right belonged to it alone to have them, and from the face of the' bill, to say nothing of the evidence produced by the complainants themselves on the motion to continue the preliminary injunction, it clearly appears that the right to the options was waived by the board. No other interpretation is to be given to its action when the twelfth paragraph of the bill of complaint is read. The averment of the complainants there is that notwithstanding notice to the board of directors of the requirement of the by-law it was about to allow the transfers of the stock to be made and new certificates issued therefor. If the board saw fit to waive the option given it under the by-law, there is nothing in the [102] thirteenth section, of which it is an independent part, giving a stockholder the right to complain. The preliminary injunction should not have gone out and as it was clearly erroneous to continue it, working immediate injury to the appellants, we cannot permit it to stand any longer. It is within the exception to the rule as to not disturbing preliminary injunctions. Whether the by-law invoked by the appellee is a valid and enforcible one we need not now decide. “Conceding (arguendo, merely) that it may be, nevertheless, that provision is intended for the benefit of the corporation, and not of individual stockholders, and it cannot be invoked by the latter merely upon the ground that the persons acquiring stock which had not been first offered to the company did so for the purpose of obtaining control of the company, since they had a right to acquire it for that purpose; nor can it be invoked by the company, since, in permitting the stock to be transferred to the persons acquiring it, the company necessarily waived any rights which it may have had to purchase it by preference:” Bartlett v. Fourton, 115 La. 26. As this bill is for the enforcement of the by-law relating to an option to be extended to the board of directors which it has waived, the right of Guy M. Gest, a purchaser or prospective purchaser of thirty shares of stock, to have the same transferred to him instead of to another alleged purchaser of the same cannot be determined in this proceeding. His right to a transfer of these shares of stock is not here involved. That must be the subject of an independent proceeding in which his right as against' the other alleged purchaser is to be determined without regard to the by-law which is the subject of this complaint. The decree of the court continuing the preliminary injunction is reversed and the injunction is dissolved, the costs of this appeal to abide the final decree.