Stokes v. Continental Trust Co. of City of New York

Brief Fact Summary. Stokes, (Appellant), brought suit against Continental Trust Co. of City of New York, (Appellee), to compel it to issue to him at par 221 shares of an increase made in its capital stock or, in the alternative, damages.

Synopsis of Rule of Law. A stockholder has an inherent right to a proportionate share of new stock issued for money only and not to purchase property for the purposes of the corporation or to effect a consolidation, and while he can waive that right, he cannot be deprived of it without his consent except when the stock is issued at a fixed price not less than par and he is given the right to take it at that price in proportion to his holding, or in some other equitable way that will enable him to protect his interest by acting on his own judgment and using his own resources.

Facts. Appellant was one of the original stockholders in Appellee holding 221 shares in all. Blair & Co. offered, if the stockholders voted to increase the capital stock from $500,000 to $1,000,000, to purchase the increase at $450 per share ($100 par value). Appellant voted to increase the stock and the resolution was adopted. Appellant voted against the resolution directing the sale to Blair & Co. but it also was passed. Appellant protested against the proposed sale of his proportionate share of stock and demanded the right to subscribe and pay for the same but the demand was refused. The stock was issued to Blair & Co. Because the offer had become public, the market price had risen to $550 and at the time of trial was $700. Appellant brought suit to compel the issuance of stock to him at par or in the alternative damages.

Issue. Whether Appellant had the legal right to subscribe for and take the same number of share of the new stock that he held of the old.

Held. Yes. The right claimed by Appellant is a right of property belonging to him as a stockholder and he could not be deprived of it by the joint action of the other stock holders, directors, and officers of the corporation.

Discussion. The right to vote for directors and to increase the stock or mortgage the assets is the only power the stockholder has. The power of the individual stockholder to vote in proportion to the number of his shares is vital, and cannot be cut off or curtailed by the action of all the other stockholders even with the cooperation of the directors and officers. By the increase of stock, Appellants power was reduced by half. This touches him as a stockholder in such a way as to deprive him of a right of property. Appellant’s damages should be measured by the difference between the $450 sale price and the $550 market price.