#### J. J. MEISENHEIMER v. S. B. ALEXANDER, Jr., et als.

(Filed 13 May, 1913.)

1. Corporations — Stockholders’ Meetings — Resolution—Consent.

Á stockholder in a private corporation is bound by a resolution regularly passed at a stockholders’ meeting in accordance with its charter and by-laws, and when he is present at the time a measure is formally passed, and votes or fails to vote thereon, he is ordinarily concluded.

2. Same — 'Diminishing Holdings of Stock — Contracts — Considera-' tion — Benefits Received..

The plaintiff and P., one of the defendants^ secured an option oh a city lot for the purpose of forming a corporation to erect an office building with a capitalization in a certain sum deemed necessary for the purpose, for which stock subscriptions were *227received in a certain smaller amount in accordance with the plan proposed, and the corporation was accordingly chartered and organized. The corporation then agreed to issue 33 shares of its stock to plaintiff in consideration of the purchase price of his part of the option on the lands, and for services performed and to be performed by him, and a similar arrangement was made with the defendant P. Thereafter, the stockholders of the corporation finding the requisite amount of stock could not be sold, and to ascertain the liability of each subscriber and to arrange for deferred payments about to become due on the purchase price of the lands, held a meeting, the plaintiff being present, and either with his consent or without his protest, passed a resolution to the effect that shares should be issued.to the subscribers only in the amount each had paid in cash, and that as no services were required of plaintiff and P., all certificates Issued to them in excess of the cash paid by them were to be invalidated or canceled; and, further,, to meet the deferred payments on the purchase price of the land, the corporate charter be amended "so as to permit an issuance of common and preferred stock in certain amounts: Held, (1) the plaintiff was concluded by the resoliition from claiming the -ownership of the 33 shares, and from voting them in relation to the proposed amendment to the charter; (2) if his right to these shares be regarded as contractual, their withdrawal was supported by the considerations (») that plaintiff would not be called upon to perform the services required of him; (T>) the consent of the other stockholders affecting his individual liability for the debts of the concern; (c) the benefits he has received, in common with the other stockholders, from the surrender by P. of his stock, similarly issued.

3. Same. — Annulment of Shares — Specific Performance — Damages. • • Where a 'corporation formed for a certain purpose requiring the sale of its stock in a certain amount, fails to sell the requisite amount thereof, and finding it necessary to meet certain of its obligations, its stockholders provide by resolution for the issuance of certificates only for money actually paid in, and withdraws certain certificates issued to plaintiff for an option on certain lands to be used in the enterprise, and for certain services to be rendered by him, to which the plaintiff, being present, does not object, and receives the benefits of the resolution : Held, as between the parties, the resolution had the force - and effect of annulling the shares-of plaintiff referred to, which is not the stock itself, but only prima facie evidence of ownership; and the question as to whether the plaintiff’s remedy was *228for specific performance of a contract or agreement, based upon the resolution, or one sounding in damages, is not relevant to the inquiry.

4. Corporations — Decrease of Capital Stock — Notice—Resolutions Binding Between Parties — Creditors—Interpretation of Statutes.

Revisa], sec. 1164, providing the method by which a domestic corporation may decrease its capital stock, requiring the publication of proper Aotices, etc., is for the protection of the stockholders of a corporation against its creditors; and as between the stockholders, a resolution for such purpose, if otherwise lawful and valid, will bind the members, and may be enforced, by corporate action.

Appeal from judgment rendered at chambers by Webb, J., 28 January, 1913; from Mecklenbueg.

Civil action to enjoin the issuance of 800 shares of stock, 400 of same being preferred and 400 common stock at par value, $100 per share, in a corporation known as the' Equitable Realty Company, involving also a change of name and amendment to charter of the company; heard on return to restraining order. On the hearing it was made to appear that plaintiff, holding certificate for 33 shares of stock in said company, was present at the meeting when the issue was determined upon, and proposed to vote his 33 shares against the measure. He was allowed to vote 14 shares and prevented from voting the entire 33 shares, defendant insisting that this was the extent of his. right; It was admitted that the question depended on whether the facts in evidence established the right of plaintiff to vote these 33 shares, or raised serious questions as to such right.

The court entered judgment dissolving the restraining order, and plaintiff excepted and appealed.

G. A. Shuford, O. A. Duckett, and Stewart & McRae for plaintiff.

Burwell & Oansler for defendant.

Hoke, J.

The evidence tended to show that on or about 15 April, 1912; plaintiff and one ~W. M. Paul had acquired and held an option on a valuable lot in the city of Charlotte, known as the mansion house lot, at the stipulated price of $80,000, and as a consideration had deposited their notes for $500 each. *229That desiring to avail themselves of their option, the holders, with others, chiefly the defendants, proposed to form a corporation and erect a sky-scraper on such lot, to cost not less than $400,000, the undertaking to be entered upon when a hona fide stock subscription of $100,000 should have been obtained. In pursuance of this purpose, plaintiff and his associate, W. M. Paul, and defendants, subscribed to as much as 260 shares of said stock at par value of $100 per share. That' much of the stock subscribed for was on condition that the amount considered requisite, to wit, the $100,000, should be first subscribed, and several of them on condition that they should be allowed to pay for their subscription in service of value to the company. That’ the option being about to expire, the corporation having been first formed, the company took over the option and bought and took a deed for the -property, paying therefor $20,-000 in cash and securing the remainder of the contract price, $60,000, by notes to the vendee and deed of trust on the property to secure the same; the notes of plaintiff and Paul having been assumed by the company and liquidated in the deal. In making the cash payment of $20,000, the amount of $10,000 was raised on the note of the company, indorsed by plaintiff and defendants, and the second $10,000 was secured by second mortgage on the property. In taking over the option at $5,000, the same was paid for by issuing 33 shares, the shares in controversy, to plaintiff and 17 shares to plaintiff’s associate, W. M. Paul, and there was evidence tending to show that in addition to the option the plaintiff and W. M. Paul were to give their services to the company in the effort to obtain the amount of stock subscription considered necessary to render the undertaking a feasible project.

The evidence further tended to show that the parties failed to obtain the amount of subscription desired and deemed requisite for the purpose contemplated, and the subscribers having some concern as to their possible liability to creditors by reason of their subscription, and desiring to settle the amount and question of such liability, assembled in corporate" meeting and passed resolutions as follows :

*230At a called meeting of the stockholders of the Equitable Realty Company, held in tbe office of Paul Chatham on the 25th day of November, 1-912, the following stockholders being personally present, S. B. Alexander, Jr., E. T. Garsed, Paul Chatham, 0. 0. Hook, C. A. Meisenheimer, and J. J. Meisen-heimer, and the following represented by proxy, W. H. Thompson, the following resolutions were unanimously adopted:

Whereas, at and before the organization of this company the following parties agreed to subscribe for the stock therein in the amounts, set opposite their respective names, filed with the secretary of this company, to wit:

> Paul Chatham.50 shares

> C. A. Meisenheimer.10 shares

> S. B. Alexander, Jr.25 shares

> E. T. Garsed.'..-.25 shares

> Charles C. Hook....25 shares

> W. G. Rogers.25 shares

> Walter M. Paul.25 shares

> J; J. Meisenheimer.25 shares

> Robert E. Milligan.”... 10 shares

> T'. C. Thompson Brothers, approximately • 3 5 shares

> W. R. Ebert. 5 shares

. The original incorporators, to wit, W. F. Harding, W. O. Gardner, and F. H. Chamberlain, having theretofore each subscribed for ten shares; and whereas the said S. B. Alexander, Jr., E. T. Garsed, Charles C. Hook, W. B. Rogers, T. C. Thompson Brothers subscribed for the number of shares of said stock in said company set opposite their respective names as above, upon the condition that the same should be paid for in services to be rendered the corporation in the construction of a fourteen-story building to be located at the corner of Church and West Trade streets in the city of Charlotte, and the said Walter M. Paul and J. J. Meisenheimer subscribed for the shares of stock in said company set opposite their respective names as above, on condition that the same should be paid for in services rendered and to be rendered the. said corporation, and -in consideration of the assignment of an *231option wbicb tbe said'Paul and Meisenheimer bad upon tbe lot of land above referred to; and whereas tbe other stockholders above mentioned subscribed for stock set opposite their respective names on condition that the company would proceed forthwith to the erection of said buildings upon said lot, all of which conditions were by the nrutual mistake of the parties left out of the paper-writing, signed by them; and whereas, since the organization of said company the following parties have paid in upon said stock subscriptions, the following amounts, to wit:

> Dr". 0. A. Meisenheimer .'.$1,400.00

> J. J. Meisenheimer .'.'. 1,400.00

> Paul Chatham. 1,400.00.

> E. T. Garsed. 1,400.00

> T. C. Thompson Brothers. 1,400.00

> Hook'Rogers . 1,400.00

> S. B. Alexander. 1,400.00

> W. M. Paul....'. 1,200.00

for which certificates of stock have been issued them respectively; and whereas it has been decided by the stockholders and officers of said corporation that it is not expedient at this time to proceed with the erection of said building upon the lot aforesaid, in view of the fact that a sufficient amount of stock has not been subscribed to enable the company to proceed therewith, thereby rendering it unnecessary that the parties above named should render the services with which they were to pay for their respective stock subscribed, and that those who made cash subscriptions should pay the same into the treasury of the company: Therefore, be it

Resolved unanimously, That each of the stockholders and stock subscribers to this corporation be and is hereby released from any and all liabilities on his respective stock subscription to said corporation beyond the amount which he has paid in in cash and for which stock certificates have been issued, it being recognized by this company that it is unable to fulfill the conditions upon which said stock subscriptions were made.

*232It is Further Resolved, That the certificates of stock issued to the said Walter M. Paul and J. J. Meisenheimer. for the original amount of their subscriptions be for a like reason surrendered, and that new certificates be issued to each of them for the amount of cash paid in by them respectively as above set forth.

There being no further business, the meeting adjourned.

Paul Chatham, Chairman.

ChaRles 0. IIooiv, ¡secretary.

The evidence of defendant was to the effect that plaintiff was present at the meeting and voted for these resolutions, and of plaintiff is that he was present and did not vote or make protest against them. ' In pursuance of the same, certificates of stock were issued to the different subscribers other than plaintiff W. M. Paul, the associate of plaintiff, as original holder of the option, surrendering his 17 shares, the number issued to him by the company at the time the option was taken over. The plaintiff, who has received a check for $17.01, the difference between the par value of the l^ shares to which he was entitled by the terms of the resolution and the cash paid in by him, to wit, $1,417.01, but has not received and has declined to take the 14 shares or to surrender the 33 shares of original issue.

Thirty thousand of the indebtedness for the purchase money being about to mature, the company having no available means to meet the demand, it was formally proposed to amend the charter, make the issue of stock at present in question, to wit, 400 shares preferred and 400 common stock, as a means of relieving the company and raising the money required to pay the claim. It is assumed and seems to be agreed upon as determinative that, at the corporate meeting when this was decided upon, the measure was properly carried, if plaintiff had the right to vote only 14 shares of stock, and that it would fail if he had the right, as claimed by him, to vote the entire 33 shares. It may be well to note that the resolutions referred to, after reciting that plaintiff and W. M. Paul had made their subscriptions on condition that same should be paid for in services rendered and to be rendered and on assignment of the option, contains provision:

> *233“Therefore, be it Resolved, That each of the stockholders and stock subscribers to this corporation be and is hereby released from any and all liabilities on his respective stock subscription to said corporation, beyond the amount which he has paid in in cash and for which stock certificates have been issued, it being recognized by this company that it is unable to' fulfill the conditions upon which said stock subscriptions were made.

> “It is Further Resolved, That the certificates of stock issued to the said Walter M. Paul and J. J. Meisenheimer for the original amount of their subscriptions be for a like reason surrendered, and that new certificates be issued to each of them for the amount of cash paid in by them respectively as above set forth.”

On-these, the facts chiefly relevant, we concur in the ruling of his Honor below, that plaintiff’s right to vote should be' restricted to the 14 shares, and that he is concluded by the force and effect of the corporate resolutions above set out and the acts done pursuant thereto, as to any right to vote the shares in excess of that amount. It is well understood that a stockholder in a private corporation is bound by a corporate resolution regularly passed in accordance with its charter and bylaws "(Clark on Corporations, p. 460), and although attended with some irregularities, a member who is present when a measure is formally passed and' votes for the same or fails to make protest, is ordinarily concluded. 1 Cook on Corporations, 6th Ed., secs. 39-730; Callahan v. Ditch Co., 37 Col., 331; Wood v. Waterworks, 44 Fed., 146.

It is urged for plaintiff, as we understand his position, that his option was a valuable right which he has passed to the company, and that this transaction should be regarded as an executory agreement to surrender .33 shares in exchange for the 14, and that as to him the resolution providing for such exchange is uncnforcible, from a total lack of consideration.

It is not infrequently true that as between the corporation and its stockholders and the stockholders themselves, a by-law or resolution of the company may be considered as a contract. New England Trust Co. v. Abbott, Exp., 162 Mass., 148; 10 Cyc., 351. But assuming, as plaintiff contends, that this is a case *234calling for tbe application of tbe principle, tbe further premise of defendant cannot be maintained, that on tbe facts in evidence there is a total lack of consideration. In a case of this kind tbe consent of one stockholder may well be regarded as a consideration -for tbe consent of tbe others, and tbe position is emphasized in this instance by tbe fact that W. M. Paul, tbe associate of plaintiff, as original bolder of tbe option and who received 11 shares of stock as part of tbe 50 issued, has surrendered these shares pursuant to tbe resolution and received or has tbe right to tbe number equivalent to tbe actual cash paid in by him, about $1,200, thus giving tbe company and plaintiff as one of its members tbe pecuniary value of tbe difference. And tbe surrender of this claim on plaintiff’s services recited in tbe resolutions as part of the consideration for tbe 50 shares and tbe relief against tbe contingent liability of plaintiff to creditors existent when stock has been issued in payment for property, may also be referred to in support of tbe resolution, tbe same being one of'the requisite steps in affording plaintiff protection from such a demand.

Speaking further to plaintiff’s position, that this resolution providing for tbe surrender of tbe 33 shares and tbe issue of tbe 14 in lieu thereof should be treated as a contract or agreement: while contracts for tbe sale or transfer of Government securities or shares of stock on tbe market and readily obtainable, will not as a general rule be specifically enforced, it is otherwise when tbe agreement, as in this instance, concerns stock of a different character and there are terms giving tbe contract special significance and presenting a case where tbe award of ordinary damages in case of breach would be inadequate. Tbe distinction adverted to is very well stated in Cook on Corporations, sec. 338, as follows: “An entirely different rule prevails as regards contracts, for tbe sale of stock of private corporations. If tbe stock contracted to be sold is easily obtained in the market, and there are no particular reasons why tbe vendee should have tbe particular stock contracted for, be is left to bis action for damages. But where tbe value of tbe stock is not easily ascertainable, or tbe stock is not to be obtained readily elsewhere, or there is some particular and reason*235able cause for tbe vendee’s requiring tbe stock contracted to be delivered, a court of equity will decree a specific performance and compel tbe vendor to deliver tbe stock.”

It is not required, however, in tbis case tbat defendants should have recourse directly to tbis principle in tbe doctrine of specific performance or tbe remedy ordinarily available in such cases. ■ The certificate for 33 shares held by plaintiff is not tbe stock itself, but constitutes only prima, facie evidence of tbe ownership of tbat number of shares. Cook on Corporations, 6 Ed., see. 13; Clark on Corporations, p. 260. And as between tbe parties, tbis resolution of 25 November, approved or certainly acquiesced in by plaintiff, bad tbe force and effect of annulling tbe 33 shares of stock held by plaintiff or reducing tbe same to 14, and tbe. company was well within its rights in denying the right, of plaintiff to vote tbe larger number.

It is further insisted for plaintiff tbat tbe reduction • contended for is not valid because of tbe failure of tbe company and tbe parties to comply with the • statutory requirements contained in Revisal, sec. 1164, and particularly as to tbe publication of tbe proper notices; but it will appear from a perusal of tbe section tbat tbis provision as to notice is only necessary to afford tbe stockholders of a corporation protection against creditors. As between the.parties, tbe reduction, if otherwise lawful and valid and pursuant to resolutions properly passed, ■will bind tbe members, and may be enforced, as in tbis instance, by corporate action.

There is no error, and tbe judgment dissolving tbe restraining order is

Affirmed.

ClaRk, C. J., not sitting.