Missouri Valley Grocery Co. v. Hall

Bikdzell, J. This is an appeal from a judgment of the district court of Burleigh county awarding a peremptory writ of mandamus directed to the secretary of state, requiring him to file and record a [420] certificate of increase of the capital stock of the plaintiff and respondent. The plaintiff is a domestic corporation and, prior to the proceedings looking toward the increase of its capital stock, its articles of incorporation provided that the amount of its capital stock should be $250,000, divided into 2,500 shares of the par value of $100 each. Of this amount 1,250 shares were subscribed and issued. Pursuant to § 4557, Comp. Laws 1913, a meeting of the stockholders was called and held for the purpose of increasing the capital stock from $250,000 to $500,000. At this, meeting were represented 1,205 shares of the capital stock or an amount largely in excess of two thirds of the stock issued. All of the stock represented at the meeting was voted in favor of the proposed increase. Thereafter, a certificate of increase, properly executed, was tendered to the defendant, together with the legal costs and fees for filing. The defendant, however, refused to file the certificate on the ground that it did not show compliance by the corporation with subdivision 3 of § 4557, Comp. Laws 1913, which provides as follows: “At least two thirds of the entire capital stock, except as hereinbefore provided, must be represented by the vote in favor of the increase or diminution thereof.” It is the contention of the appellant that the expression “entire capital stock” contained in the above statute means the entire authorized capital stock, whereas the respondent contends that it means the entire subscribed or issued capital stock. The term “capital stock” seems in itself to be an ambiguous expression, as it may, under varying circumstances, refer to entirely different subjects of corporate ownership. It may be used, for instance, as describing the property of the corporation in which its capital is invested, and it may be used as referring to the actual stock which has been subscribed or paid in, or as referring to the potential or authorized stock. In a true sense, however, stock which is merely authorized has no real existence until actually issued or subscribed. See 14 C. J. §§ 499 to 504, inclusive. The usual method according to which a corporation acquires its business capital is by the sale of its stock; and as the stock is issued it represents, in the hands of the shareholder, his interest in the combined capital which the corporation employs in carrying on the business. The unsubscribed stock is not, in reality, capital stock of the corporation, for the reason that it has not been employed for the purpose of supplying capital. It is only potential capital stock and does [421] not become so actually until disposed of by tbe corporation according to law. 14 C. J. 1552. Since the term “capital stock,” is ambiguous, tbe statute in wbicb it occurs must be so construed as to give to it tbe meaning wbicb tbe legislature bad in mind in employing it. In ascertaining tbe legislative intention in this connection, reference will be made to various provisions of tbe Constitution and statutes wbicb seem to bear upon tbe question. Section 138 of tbe Constitution provides that tbe stock of a corporation shall not be increased except in pursuance of general law, nor without tbe consent of tbe persons holding tbe larger amount in value of tbe stock, wbicb consent must be first obtained at a meeting held after sixty days’ notice. It is plain that tbe Constitution contemplates representation only by tbe issued stock, because it provides for obtaining tbe consent of tbe persons bolding tbe stock. Unsubscribed and unis-' sued stock is, of course, not held by any person. By § 4543, Comp. Laws 1913, directors are precluded from redricing or increasing tbe capital stock except as specially provided by law. And § 45 5Y, which provides tbe procedure for increasing and diminishing capital stock, in providing for notice of meeting and voting, takes into consideration only tbe stockholders. So it would seem that no power is conferred upon anyone to represent unsubscribed stock. Section 4543 limits the power of directors in creating debts to tbe “subscribed capital stock,” and § 4559, wbicb provides for issuing bonds, requires tbe favorable vote of “at least two thirds of tbe entire capital stock,” tbe expression “entire capital stock” being identical with that found in subdivision 3 of § 455Y, governing tbe increase of capital stock. It would thus seem that if tbe contention of tbe appellant in regard to tbe meaning of the expression is correct, no corporation could issue bonds unless two thirds or more of its stock were first subscribed. Tbe only possible alternative would be that tbe directors could vote tbe unsubscribed stock, which would lay tbe actual stockholders open to tbe possibility of having a maj ority of tbe board of directors voting a bond issue against tbe wishes of an overwhelming majority of tbe stockholders. It is inconceivable that tbe legislature contemplated any such possibility. Tbe identical expression occurs also in § 4561, wbicb provides for tbe amending of articles of incorporation, in § 4563, wbicb provides [422] for the changing of the corporate name, and in § 4564, which provides a method of changing the corporate headquarters. But yet in each of the three sections last referred to it is provided that the written consent of the “holders of three fourths of the capital stock or members” shall be as effectual to authorize the amendment or change as if a meeting were called and held. If the contention of the appellant is correct, a meeting to accomplish any of these purposes would be ineffectual unless two thirds or more of the stock had been issued and subscribed. But yet by obtaining the written consent of the holders of three fourths of the capital stock, though less than two thirds were issued, the same ends could be accomplished. It would seem to be very apparent that in these instances “the entire capital stock” means the entire issued or subscribed capital stock, and that the desired amendments or changes could be effected either by a two-thirds vote of such stock at a meeting or by the written consent of three fourths of such stock without a meeting. It is clear that the two methods are regarded as equivalents. In view of § 138 of the Constitution, it would be impossible for the legislature to dispense with such a meeting for the purpose of increasing the stock or indebtedness; — this alone sufficiently accounts for the absence of a three-fourths consent provision as an equivalent of a two-thirds vote at a meeting in the sections regulating indebtedness and stock increases. That the legislature contemplated only the issued or subscribed stock in the statutes above mentioned becomes all the more apparent upon referring to other articles in the chapter dealing with corporations in general. Bef erring to the subjects of dissolution and assessments, for instance, two-thirds of the stockholders or members are authorized to vote a dissolution of the corporation. It would be strange, indeed, if two-thirds might vote a dissolution but yet lack the power to adopt a simple amendment to the articles of incorporation. And stock may be sold for nonpayment of an assessment and the corporation may become the purchaser. In this event, by § 4583, the remaining stock is alone considered for purposes of election and voting at stockholders’ meetings. The meaning which we thus deduce from the statute is in no wise altered by the qualifying word “entire.” This can mean only that the basis for computation of the vote must be the entire stock rather than the stock which happens to be represented at the meeting. In other [423] words, if the entire issued or subscribed capital should be 4,500 shares, it would require the favorable vote of at least 3,000 to accomplish any purpose for which a two-thirds vote of the entire stock is required. "Whereas, in the absence of the word “entire” in the governing statute, the two-thirds requirement might be computed upon the number of ■shares actually represented at the meeting. While authorities directly in point seem to be lacking, the adjudicated cases cited below tend to sustain the interpretation of the statute which we have adopted. London & L. F. Ins. Co. v. Ludwig, 86 Ark. 581, 112 S. W. 197; Excelsior Water & Min. Co. v. Pierce, 90 Cal. 131, 140, 27 Pac. 44; Stemple v. Bruin, 57 Fla. 173, 49 So. 151; Foote v. Greilick, 166 Mich. 636, 132 N. W. 473, 476; Pratt v. Munson, 17 Hun, 475; Green Point Sugar Co. v. Whitin, 69 N. Y. 328, 338; Com. v. Lehigh Ave. R. Co. 129 Pa. 405, 408, 419, 5 L.R.A. 367, 18 Atl. 414, 498; Sturges v. Stetson, 1 Biss. 246, 248, Fed. Cas. No. 13,568. It follows from what has been said that the judgment appealed from is correct and it is affirmed. Christianson, Ch. J., and Robinson, J., concur. Grace, J. I concur in the result.- Bronson, J., disqualified, did not participate.