Hammer v. Cash

Owen, J. Appellants attempt to vindicate their title to the stock issued to them in December, 1918, upon the ground that they had the absolute right to purchase the amount of the increased stock provided for by the resolution of November 13, 1915, proportionate to the amount of stock held by them prior to the adoption of said resolution. It is firmly established as the law of this state by Luther v. C. J. [189] Luther Co. 118 Wis. 112, 94 N. W. 69, and Dunn v. Acme A. & G. Co. 168 Wis. 128, 169 N. W. 297, that upon an increase of the capital stock of a corporation a stockholder is entitled to retain and maintain his relative and proportionate voice and influence in the control and management of the affairs of the company^ by purchasing an amount of the increase of the capital stock proportionate to his then holdings in the corporation, and before the stock can be sold to outsiders each stockholder must be given an opportunity -to avail himself of this right. This principle is not questioned by respondents, but they insist that this right does not accrue until the corporation concludes to issue the increased stock, and that then it only applies to so much of the stock as it is proposed to issue; and whether this position is correct is the principal question to be determined. The amendment of the articles of the corporation increasing its capital stock merely authorizes and empowers the corporation to issue increased stock in such amounts and at such times as may thereafter be determined by proper corporate authority. It is under no obligation to issue the stock merely because it has acquired power and authority so to do. Articles of incorporation are frequently so amended as to increase the amount of the authorized capital stock of a company in such amounts as will meet its contemplated requirements for some time in the future, without aiy thought that the whole amount of such increase shall at once be issued. May a stockholder, immediately upon an amendment of such character becoming effective, demand that his proportionate share of the entire amount of such increase be issued to him? Bearing in mind that this right is accorded to the stockholder in order that he may maintain his relative voice in the affairs of the corporation, it is manifest that the reason upon which the principle is founded is fully satisfied if he is permitted to purchase his relative proportion of such amount of the stock as is authorized to issue. To illustrate, a corporation may so amend its articles [190] as to provide for an increase of its capital stock in the sum of $100,000. From the mere amendment of the articles, however, it does not follow that the entire amount of such increase is to be issued: Whether any part of such increase is to be issued, and when, and for what amount, rests with the corporation after it has acquired the authority so to do by the amendment to its articles. When the corporation decides to issue $50,000 of the authorized increase, the right of the stockholder is fully protected by permitting him to purchase his proportionate share, of such $50,000 proposed to be issued, and this we think is as far as the rule extends. ■ ‘ ' In this case the corporation had done nothing more than to amend its articles authorizing an increase in its capital stock. Neither the stockholders nor the board of directors had taken action authorizing the issue of any part of such increase. Moreover, the resolution authorizing the increase of the capital stock recites that it is necessary, to raise the money for the purpose of constructing a proposed extension of the railroad, and specifically provides “that said stock and bonds when issued be disposed of only as may be neces.sary to procure funds for the construction and equipment of said extension, and should it be found not tó be necessary to use the entire issue hereby provided for, then the balance shall be held in the treasury of the company to be disposed of in the future as may be determined.” It is without dispute that the building of the extension was abandoned when fwar was declared, and there is no pretense on the part of the defendants that the money accruing from the sale of this stock’ was necessary for the purpose of constructing the ex-' tension. Under the circumstances,- the sale of the stock was not only unauthorized, but was prohibited by the fundamental governing body of the corporation, the stockholders themselves. There-was. therefore no power or authority on the part of the president and secretary of the. company to sell the stock in question to themselves or to. any other per [191] son, and its issuance was void. The judgment of the lower court canceling said stock was plainly right. It is further claimed by appellants that the court had no power to determine the right and title of the directors, elected at the 1918 meeting, to their offices, as the right of one to an office in a private corporation must be tested by quo warranto.' The right of the directors elected at the 1918 meeting to their offices depended upon the validity of the stock issued to the defendants on December 10, 1918. If the stock were legally issued the title to their offices could not be questioned.. In order to determine the validity of their offices, therefore, it was first necessary to establish the validity of the stock so is'sufed. This could be done only in a proceeding in equity. ■ ■ Appellants’ contention amounts to this: It was first necessary to bring an action in equity to determine the validity of the stock. After the invalidity thereof had been determined and the stock canceled, an independent and subsequent action in quo warranto was necessary in order to oust the directors, so illegally elected, from office. This position is not tenable. “A court of equity has jurisdiction to determine the right to an office, and to remove or enjoin an incumbent who is not entitled thereto, when it has jurisdiction of the suit on other grounds, and such relief is merely incidental to the other relief sought.” 3 Fletcher, Corp. § 1829. See, also, High, Injunctions (4th ed.) §§ 1235, 1315a. Such relief .was granted in a similar action in Luther v. C. J. Luther Co. 118 Wis. 112, 94 N. W. 69. By the Court. — Judgment affirmed.