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Warren v. 536 Broad Street Corp.

Decided: June 28, 1949.

MARIE B. WARREN, PLAINTIFF,
v.
536 BROAD STREET CORPORATION ET AL., DEFENDANTS



Stein, J.s.c.

Stein

[4 NJSuper Page 587] Plaintiff, holding 90 out of the 3,500 outstanding shares of the common capital stock of the defendant 536 Broad Street Corporation, complains of a proposed special meeting of the company's stockholders and of the action contemplated to be taken thereat. That meeting was called by the secretary of the company for September 27, 1948, for the purpose of considering and acting upon a resolution of the company, adopted by the company's board of directors at its

meeting held on September 15, 1948. That resolution declares that it is advisable to amend the company's charter by deleting and excising therefrom paragraph or article Seventh which reads and provides as follows:

"Seventh. No real estate owned by the corporation may be leased, mortgaged, sold or exchanged, unless the Board of Directors shall at a properly called meeting adopt a resolution authorizing the officers to make such sale, lease, mortgage or exchange of the real estate of the corporation, and unless and until such resolution of the Board of Directors receives the approval in writing of the holders of not less than seventy-five per cent. (75%) of the stock of the company issued and outstanding at the time such resolution is adopted."

The proposed meeting has not been held due to the restraining order allowed by this court pending the trial of the action.

The main question posed for decision concerns the power of eliminating by amendment the quoted Seventh article from the company's certificate of incorporation, in which it is provided, amongst other things, that no real estate owned by the corporation may be leased unless its board of directors authorizes such lease and unless and until such action by the board receives the approval in writing of the holders of not less than 75% of the stock of the company issued and outstanding at the time the board's action is taken. The plaintiff contends that such amendment may not be made except by the unanimous action of all the stockholders, while in behalf of the defendants it is claimed that the charter provision in question is subject to the power of amendment provided for in the General Corporation Act and that in a conflict between the two, the prohibitory provision in the charter must yield to the statutory power of amendment. For the plaintiff it is insisted that the provision in question, present in the charter from its very inception, constitutes a contract between the company and its stockholders and by the stockholders inter sese , that the provision gives rise to vested rights, that these rights may not, in the absence of unanimous approval by the stockholders, be altered or impaired without violence to constitutional guarantees.

The court is not left to conjecture about the true basis of the controversy. The evidence taken at the trial frankly and

fully reveals divergent views concerning a lease proposed to be made by the company, as lessor, to the defendant Simon Ackerman Clothes, Inc., a New York corporation, as lessee. In fact, a copy of the proposed lease is in evidence, and it is frankly admitted by the defendants that Article Seventh of the company's certificate of incorporation is a present barrier to the execution of that lease and that the proposed amendment is designed to eliminate that charter obstacle.

It appears that the individual defendants together own or control 2,333 shares, while the plaintiff and other stockholders (not including any of the individual defendants) together own or control 1,167 shares. The pleadings were filed and the issues here framed on the assumption and assertion that one group (that of the individual defendants) owns two-thirds of the outstanding stock, while the plaintiff and other stockholders own or control together one-third of the stock. In fact, the plaintiff's brief contains the following statement: "By a coincidence 66 2/3% happens to be the percentage of the stock controlled by the Belfatto interests." The like statement appears in paragraph sixteen of plaintiff's complaint. However, at the opening of the trial counsel for the plaintiff pointed out to the court a fact which had come to his attention only the day before, namely: that the allegations of a one-third holding by one group and of two-thirds by the other group were mathematically inaccurate in that the individual defendants held less than 66 2/3%, while the plaintiff and other stockholders together held more than 33 1/3%. Mathematically examined, it would appear that the individual defendants are one-third of one share short of holding two-thirds of the outstanding stock. The evidence shows that when the stock of the company was originally issued, one-third thereof was to go to John Warren and his associates to compensate them for services in certain litigation in which they had professionally represented Mr. Fred M. Barnet under a contingent retainer agreement by which they were to receive one-third of the fruits of their professional effort. Plaintiff sought an amendment to the pleadings, so as to present with mathematical precision the true fractional

interests of the contending groups of stockholders. This was reserved, to be determined at the conclusion of the trial, and may now be disposed of. The amendment will be allowed, but there will be no finding or adjudication as to the true ownership of the one-third of one share of stock. Not all the stockholders appeared and answered in the action and it may well be suggested that those who failed to answer did so in reliance upon the allegations of ownership set forth in the pleadings. There may be equities affecting the ownership of that one-third of one share, in turn involving questions that were not here yet litigated. The court may not assume the result of the balloting should the present restraint be lifted and the meeting of stockholders permitted. It is entirely conceivable that those desiring the amendment may be able to muster more than the statutory two-thirds without taking into account the aforementioned one-third of one share. It is equally conceivable that the opposing group might muster more than one-third of the voting power without including the questioned one-third of one share. In either situation any dispute over that one-third of a share would be uninfluential and moot. For this reason the cause is undecided and reserved with respect to the said one-third of one share and the parties are given leave to make such amendments and frame such issues in respect thereof as they may desire. If that is done, those issues will be tried and disposed of at some time in the future. This disposition is not intended to arrest or delay the stockholders' meeting, with which matter I later deal.

Complaint is also made that the 536 Broad Street Corporation has refused to transfer upon its books Certificate No. 42, which was in the name of John Warren, trustee for plaintiff, and assigned and delivered by him to the plaintiff, and also refused to transfer Certificates Nos. 11, 15, 32, 33, 38, 39 and 41, issued for a total of 834 shares, transferred to Warack Corporation. The defendants in their answer admit the refusal to transfer those shares, claiming that the ...


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