Opinion
Docket No. 51641.
Decided April 10, 1981. Leave to appeal applied for.
Kerr, Russell Weber (by Robert R. Nix and Daniel G. Beyer), for plaintiffs.
Law, Weathers Richardson, for defendants.
Before: CYNAR, P.J., and J.H. GILLIS and ALLEN, JJ.
Plaintiffs, as minority shareholders of Magline, Inc., commenced suit against the corporation and individual members of management seeking, inter alia, dissenter's rights to the corporation's action extending its life from 30 years to an indefinite term. MCL 450.1621; MSA 21.200(621). Partial summary judgment was granted by the lower court, dismissing all claims for dissenter's rights. Plaintiffs appeal from the resulting final order.
Magline was incorporated in 1947 for a term of 30 years, which was then the maximum term permitted by Michigan law. To extend the corporate term, an affirmative vote of the holders of two-thirds of the outstanding shares was required. Const 1908, art 12, § 3. Constitutional limitations on the duration of corporate life were abrogated in 1963. Pursuant to the Michigan Business Corporation Act, 1972 PA 284, a corporation may amend its articles to change its duration by the vote of holders of a simple majority of outstanding shares. MCL 450.1602(c), 450.1611(4); MSA 21.200(602)(c), 21.200(611)(4).
At a 1975 shareholders meeting, Magline's articles of incorporation were amended by a majority vote to extend the corporate life to a perpetual term. Plaintiffs, who own approximately 41% of the outstanding shares, voted against the amendment.
MCL 450.1621; MSA 21.200(621) allows for dissenter's rights where an amendment materially affects a preferential right or a right to redemption. We do not agree with plaintiffs' interpretation of the right to redemption as including the right of pro rata distribution of assets upon the dissolution of a corporation. Therefore, we cannot agree that upon the impending expiration of the corporation's existence plaintiffs were possessed of a right of redemption which was materially altered by the amendment extending the corporate term.
"(1) A holder of adversely affected shares who does not vote for or consent in writing to a proposed amendment may dissent, pursuant to §§ 761 and 762 and receive payment for the shares, if the amendment does either of the following:
"(a) Materially alters or abolishes a preferential right of such shares having preferences.
"(b) Creates, alters or abolishes a material provision or right in respect of the redemption of such shares or a sinking fund for the redemption or purchase of such shares.
"(2) A dissenting shareholder shall not receive payment in excess of the sum payable upon redemption of the shares or liquidation of the corporation, whichever is less."
While the term "redemption" is not specifically defined by the Business Corporation Act, certain sections indicate that the term does not extend to the general right to a pro rata distribution of assets upon dissolution. MCL 450.1361-450.1366; MSA 21.200(361)-21.200(366). Redemption arises out of a contract between the corporation and its shareholders, whereby the corporation agrees to repurchase the shares under terms agreed upon by the parties and set forth in the articles. See generally 11 Fletcher, Cyclopedia Corporations, §§ 5308-5312, pp 580-597. Redemption privileges are often granted in an effort to raise capital from those investors who desire a more secure investment than common stock without the promise to repurchase. Affeldt v Dudley Paper Co, 306 Mich. 39, 46; 10 N.W.2d 299 (1943).
Dissenter's rights is a specific remedy granted only in specific situations set forth by statute. Had the Legislature intended to extend the right to shareholders dissenting to an amendment extending the corporate term, it could have specifically done so as have other jurisdictions.
"Some statutes permit appraisal and payment of stock owned by stockholders who dissent to a renewal or extension of corporate existence. But it has been deemed that unless the legislature has provided for the right of a dissenting stockholder to obtain appraisal and payment of his shares where a particular corporate change is made, he does not have such right." 19 Am Jur 2d, Corporations, § 510, p 49. (Footnotes omitted.)
The extension of the corporate term in this case had a substantial effect on plaintiffs as minority shareholders. While this might be a situation where appraisal rights would be appropriate, there is simply no basis for allowing these rights under § 621 of the Business Corporation Act.
This does not mean that the trial court cannot find that plaintiffs are entitled to have their stock purchased by the corporation as relief for unfair and oppressive conduct under MCL 450.1825; MSA 21.200(825). The relevant counts of plaintiffs' complaint requested relief under both § 621 and § 825. While the trial court dismissed Count II of the complaint only with regard to its claim of dissenter's rights, Count IV was dismissed in its entirety. Although there is some redundancy in the two counts, the relief asked for in Count IV pursuant to § 825 should have been preserved as was done with Count II.
"(1) The circuit court of the county in which the registered office of the corporation is located may adjudge the dissolution of, and liquidate the assets and business of, a corporation, in an action filed by a shareholder when it is established that the acts of the directors or those in control of the corporation are illegal, fraudulent or wilfully unfair and oppressive to the corporation or to such shareholder.
"(2) In an action filed by a shareholder to dissolve the corporation on a ground enumerated in subsection (1), the circuit court upon establishment of such ground may make such order or grant such relief, other than dissolution, as it deems appropriate, including, without limitation; an order providing for any of the following:
* * *
"(d) Purchase at their fair value of shares of a shareholder, either by the corporation or by the officers, directors or other shareholders responsible for the wrongful acts."
Plaintiffs also contend that the Business Corporation Act, to the extent it altered the voting requirement for extending the corporate term, is an unconstitutional infringement on their vested contractual rights. US Const, art I, § 10, Const 1908, art 2, § 9, Const 1963, art 1, § 10. See Trustees of Dartmouth College v Woodward, 17 U.S. 518 (4 Wheat); 4 L Ed 629 (1819). We disagree.
At the time of the Magline incorporation, Michigan had enacted a constitutional provision reserving the power to amend, alter, repeal, or abrogate the laws pertaining to the formation and rights and privileges of corporations. Const 1908, art 12, § 1. The Supreme Court has approved legislation under the reserved power clause allowing for changes in corporate charters. E.g., Attorney General ex rel Dusenbury v Looker, 111 Mich. 498; 69 N.W. 929 (1897), Stott v Stott Realty Co, 288 Mich. 35; 284 N.W. 635 (1939), Detroit Canada Tunnel Corp v Martin, 353 Mich. 219; 91 N.W.2d 525 (1958).
"Corporations may be formed under general laws, but shall not be created, nor shall any rights, privileges or franchises be conferred upon them, by special act of the legislature. All laws heretofore or hereafter passed by the legislature for the formation of, or conferring rights, privileges or franchises upon corporations and all rights, privileges or franchises conferred by such laws may be amended, altered, repealed or abrogated."
Nonetheless, a state may not under its reserved power impair or destroy vested property rights or impair the contractual obligations of third parties. Coombes v Getz, 285 U.S. 434; 52 S Ct 435; 76 L Ed 866 (1932). Thus, in Sutton v Globe Knitting Works, 276 Mich. 200; 267 N.W. 815 (1936), the Court held that the right of a preferred stockholder to have his stock redeemed on a given date could not be altered by legislation under the reserved power clause allowing shareholders to amend the articles of incorporation and thus postpone the redemption date.
The present case is distinguished by the nature of the expectation that has allegedly been impaired. We do not characterize any belief the plaintiffs might have had that the corporation would expire, absent a two-thirds vote for extension, as a vested contractual right. The fact that plaintiffs initially had the power to prevent extension by virtue of their substantial minority holdings does not give rise to a right to have the corporation expire. The power of plaintiffs to cast their votes in opposition to an amendment to extend the corporate existence was continuously subject to the power of the Legislature to alter the rights and privileges granted in the corporate charter. Plaintiffs have not suffered an unconstitutional impairment of a contractual right.
Affirmed, except as to that part of the trial court's order dismissing relief pursuant to § 825 in Count IV of plaintiff's complaint. No costs.