State ex rel. Daubenspeck v. Day

123 N.E. 402, 189 Ind. 243, 1919 Ind. LEXIS 11

• Court: Indiana Supreme Court
• Decided: May 27, 1919
• Docket: No. 23,508
• Status: Published

Opinion

Myers, J.

This is a proceeding in quo warranto brought by the relator, George B. Daubenspeck, against appellees to determine the right of each ap■pelleeto the office of. director, ofHhe Union Telephone Company of Carmel, Indiana. Issues were formed, trial had, special finding of facts made, and conclusions of law stated thereon in favor of appellees, and judgment against appellant. The errors assigned question (1). the ruling of the trial court on relator’s demurrer to the second paragraph of answer, and (2) each conclusion of law..

The assignments of error present the same question. The following facts taken from the special findings will suffice to indicate the question for decision. The Union Telephone Company was incorporated on August 10,1903, under an act of the general assembly of this state, approved on April 7, 1881, and acts amendatory thereof and supplemental thereto. From then until now the board of directors has been composed of five stockholders. It was the custom of the company to elect annually three, one for the term of one year and two for the term of two years. Ninety-six and one-half shares is a majority of all the snares of stock issued and outstanding. Appellees are now acting as directors of the company, claiming to have been elected at a regular annual stockholders’ meeting.

The facts pertaining to their election are as follows: Three directors were to be elected. Tellers were chosen, and six persons, appellees and three others, all qualified for the office of director, were nominated to be voted for,* Appellees each received sixty-eight votes, and all were counted for them. The other three nominated received 96% votes each, but the tellers counted for them only 28% votes and rejected and refused to count the other sixty-eight, on the sole ground that these votes represented sixty-eight shares of stock of the company-owned and controlled by the relator over and above the five shares voted by him, and that to count the sixty-eight votes would be in violation of, and. contrary to, article. 11 of the articles of association, which reads as follows:

“No person, firm or company can ever at any one time own or control more than five shares of the capital stock of this company, and every such person, firm-or company shall be entitled to only one telephone connection for éach paid up share of stock so owned.”

That said sixty-eight shares were not in the name of the relator on the books of the company, and never had been, but were held by others in blocks of five shares or less, under an agreement with the relator that said stock should be voted as directed by him at all stockholders’ meetings, and for the purposes by him of controlling the corporation and its policies notwithstanding article 11. •

Appellees claim that article ll has the force and effect of a by-law, and also that it amounts to a stipulation between the stockholders as to their holdings of stock.

1. The by-law contention of appellees cannot be sustained. The power to adopt by-laws for the government of a telephone corporation and the management of its business, and to determine the manner in which the stock of the company shall be held, and assigned is by statute conferred exclusively upon the board of directors. §§6, 11, Acts 1881 p. 698, §§4186, 4191 E. S. 1881, §§5794, 5800 Burns 1914; Manufacturers’ Bldg. Co. v. Landay (1905), 219 Ill. 168, 76 N. E. 146.

2. Ordinarily by-laws are made by the stockholders, but, where the statute gives that power to the board of directors, the stockholders cannot change it or interfere with the board in this particular so long as such by-laws are reasonable and do not interfere with the vested and substantial rights of the stockholders, or are not contrary to public policy or to the established law of the land. State, ex rel. v. Anderson (1903), 31 Ind. App. 34, 67 N. E. 207; Manufacturers’ Bldg. Co. v. Landay, supra; Van Atten v. Modern Brotherhood, etc. (1906), 131 Iowa 232, 108 N. W. 313; Farmers’, etc., Bank v. Wasson (1878), 48 Iowa 336, 30 Am. Rep. 398. In this case the board of directors has never assumed to pass any by-law other than to define the duties of the president, secretary-treasurer and manager. Neither of these by-laws has any reference to the holding, transferring, or assign-' ing of the stock from or to stockholders. If only the board of directors had power to pass by-laws, and none were passed by that body limiting the number of' shares of stock an individual person might own or control in the corporation, then it cannot be said that a by-law on that subject was passed by any authorized authority. This is not a case where the corporation has exceeded its authority or is in any manner guilty of criticizable conduct. Consequently, the question before us does not involve any act of the corporation, but relates alone to the power of the incorporators to limit the number of shares of stock which may be held at any one time by an individual stockholder.

3. It will be noticed that articles of incorporation under, the telephone act requires only three affirmative statements, namely: (1) The name assumed by the company; (2) the counties or places within which such company proposes to establish, maintain and operate telephones and telephone exchanges; and (3) the amount of capital stock and the number of shares into which it is divided. Acts 1881 p. 698, §2, §4182 R. S. 1881, §5790 Burns 1914. Other provisions of this act provide: §6 (§5794, supra): “The board of directors shall adopt by-laws for the government of the corporation and the man.agement of its business;” §11 (§5800 supra)'. “The board of directors shall have power * ■ * *. It may also, in its by-laws, determine the manner in which the stock of the company shall be held and assigned. ’ ’ Section 5 requires the principal office of the company to be maintained in this state. Section 7 limits the life of corporations organized under this act to fifty years, and §4, as amended, Acts 1899 p. 124, provides that “the stockholders shall elect, from among their •number, not less than three directors.” It thus appears that this act contains no provision expressly restricting stock ownership nor any provision relative to the voting of the stock of such company. The title of the act is, “An act concerning telephone companies and supplemental to ‘an act for the incorporation of manufacturing and mining companies and companies for mechanical, chemical and building • purposes’; approved May 20’, 1852, and all acts amendatory thereof and supplemental thereto, and declaring an emergency. ’ ’

4. 5. At this point we meet the question, Is the telephone act a part of the manufacturing act and, if so, must they be construed together and as appplicable to telephone companies? Appellees insist that the telephone act is independent legislation and to it alone the corporation must respond, and must look to it for its limitations.

True, this act does not purport to be an amendment, and for that reason it is suggested that these acts must be construed separately because there is no power in the general assembly to pass supplemental acts. This court has held otherwise, and we know of no good reason why this rule should be changed. McCleary v. Babcock (1907), 169 Ind. 228, 234, 82 N. E. 453. There is nothing to indicate that the legislature used the word “supplemental” in any sense other than as generally understood. Thus considered, it will be regarded as referring to “that which is added to a thing to complete it. ” 3 Bouvier, Law Dictionary (Rawle’s 3d ed.) 3187. It means an addition which cannot be made in the form of an amendment. “It is that which supplies a deficiency, adds to, or completes, or extends that which is already in existence, without changing or modifying the original.” McCleary v. Babcock, supra.

6. The title of the manufacturing act is fully incorporated into the title of the telephone act; therefore, if the title of an act may be used as a guide in determining the intention of the lawmakers— and it certainly can — it would be hard to find a title more expressive of intention to supplement an act than the one under consideration.

4. At the time the manufacturing act was passed, telephones and telephone companies were unknown, but, as time passed on and the demand for a law authorizing the incorporation of such companies arose, it was met by the general assembly by adding to the manufacturing act, as amended and supplemented and in force April 7, 1881, provisions whereby such companies might be created and also provisions especially applicable to this new class of companies; and otherwise they should be subject to the laws then in force. But in applying these laws, it must be understood that the provisions of the manufacturing act step in only when there is no supplemental provision covering the point involved.

As we have seen by amended §4 of the telephone act, supra, the stockholders are required to elect not less than three directors who shall serve for one year, and until their successors are elected. This statute, when read in connection with §3 of the manufacturing-act, makes it the duty of the stockholders to elect such directors annually. In 1861 §4 of the manufacturing act of 1852, post, was amended by re-enaeting the privilege to absent stockholders to vote by proxy, and by repealing- the limitation that “No one stockholder shall give more than 20 votes,” and in place thereof, “and each share of -stock shall entitle the owner thereof to one vote.” This amendment has been in force continuously since its adoption. Acts 1861 p. 135, §3855 R. S. 1881, §5071 Burns 1914. While §7 of the act of 1852 was amended in 1891, yet no change was made in that part of the section which provided that “the stock of such company shall be deemed personal estate, and when fully paid in shall be transferable in such manner as the by-laws may prescribe.” Acts 1891 p. 344, §5088 Burns 1914.

These considerations require us to hold that the telephone act should be considered a part of the manufacturing act, and hence the manufacturing act of 1852 as amended and supplemented must control the rights of the parties to this appeal.

3. We have seen that the articles of incorporation must contain three affirmative statements as a condition precedent to a legal incorporation. When incorporated, it and likewise the stockholders are granted certain rights and powers, and at the same time they are subject to certain corporate regulations. For instance, upon the incorporation of the Carmel Telephone Company, the statute provided that “the board of directors shall adopt by-laws for the government of the corporation and the management of its business ’ ’; also that the board of directors may by the adoption of by-laws determine the manner in which the stock of the company shall be held, assigned and transferred. §§5800, 5088, supra. These restrictions are intended for the benefit of the corporation,, whereby its rights may be protected from the transfer of stock to irresponsible persons and thereby rendering authorized assessments worthless to the impairment of the company’s credit; and for the further reason to enable the corporation to know its stockholders. As to the stockholder, he is given one vote for each share of stock owned by him, and, if absent from stockholders’ meetings, he may vote by proxy. His shares of stock are to be deemed personal estate and transferable in the manner prescribed by the by-laws. In the particulars mentioned, the stockholder is secured by legislative enactment. He knows his shares of stock have been classed as personal property, along with which goes the inseparable right of alienation, unless the paramount law imposes some inconsistent restriction. In case of a telephone company, he is bound to know that the legislature has confided to the board of directors, as a part of the internal management of the corporation’s affairs, the power to determine the necessary restrictions to be placed on the alienation and transfer of its stock. However, this general authority of the board is qualified by the declaration that the stock ‘ ‘ shall be deemed personal estate,” thereby impliedly saying to the board of directors that all such regulations or restrictions, unless otherwise provided, shall be adopted in accordance with the law applicable to personal property generally. In re Klaus (1886), 67 Wis. 401, 407, 29 N. W. 582.

1. True, as appellees claim, the Carmel Telephone Company is a voluntary association of persons engaged in a common enterprise, but we cannot agree that the article in question is responsive to any specification in the law which is necessary, to give it any force or effect as a charter regulation. Obrien v. Cummings (1883), 13 Mo. App. 197. Nor can we agree that the incorporators were free to make a law for themselves limiting every stockholder to not more than five shares of stock at any one time. That was a restriction, no doubt, intended for the benefit of the corporation, but it is with reference to a matter expressly by statute referred to the board of directors on which it is conceded that the board had neglected to act.

From these considerations we conclude that the article in question is without force or effect; that the facts fail to disclose any legal restriction as to the number of shares of stock which an individual stockholder may own and control in the Carmel Telephone Company. As to the relator it appears that he owned and controlled sixty-eight shares of stock which were not in his name on the stock book of the company, but in the name of other persons. However, persons representing fifty-five shares thereof were present in person and voted the same, and relator held the proxies of persons in whose name thirteen shares were so shown and held.

From all the facts we conclude that the relator was the owner of the stock in question and, in the absence of any statute or valid by-law to the contrary, was entitled to vote the same, and the fact that another voted this stock will not have the effect of invalidating such votes.

It is conceded that appellees received only sixty-eight votes each, and each of their opponents received 96% votes. Under such circumstances appellees cannot be regarded as the choice of the stockholders at such election. The exclusion and rejection of certain votes, for the reason stated by the tellers, was error, and neither of the appellees were duly elected. People v. Phillips (1845), 1 Denio (N. Y.) 388.

Judgment reversed, and cause remanded with instructions to the trial court to restate its conclusions of law in accordance with this opinion, and to render judgment in conformity with the restated conclusions of law.