Opinion
Argued May 19, 1965
Decided June 10, 1965
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department.
Spencer Pinkham, Carlos L. Israels, Samuel Hoffman and David J. Colton for appellants.
Joseph Rogers for respondent.
MEMORANDUM: Order of the Appellate Division directing judgment for the plaintiff-respondent affirmed. Defendants-appellants are correct in their contention that the provisions of article VIII of the corporate by-laws are ineffective to the extent that they require a two-thirds majority shareholder vote to amend certain of the by-laws — in particular the by-law which sets the number of directors on the board. The Business Corporation Law clearly provides that a simple majority vote of the shareholders is sufficient to amend the by-laws, unless the certificate of incorporation provides otherwise. (Business Corporation Law, §§ 601, 614, subd. [b]; § 616, subd. [a], par. [2].) The two-thirds majority vote provision here involved would have been valid were it placed in the certificate of incorporation, but as a by-law it is invalid. (See Matter of Faehndrich, 2 N.Y.2d 468, 473, 474.)
However, the single question submitted under CPLR 3222 to the Appellate Division was whether or not a simple majority resolution of the stockholders, increasing the number of directors from four to five, was valid and effective. This question was correctly answered in the negative by that court. Subdivision (b) of section 702 of the Business Corporation Law provides that the shareholders may change the number of directors (1) by an amendment to the by-laws embodying the change, or (2) by a simple resolution, if there is a by-law in effect which provides for the change by such a resolution. In either case the change is effected by means of a by-law. Here the shareholders acted by resolution alone, and not under the provisions of a by-law. It is clear, therefore, that, even though a simple shareholder vote could have effected a change in the number of directors if such a by-law had been adopted authorizing such a vote, their naked resolution to do so cannot be enforced.
Although I agree with the court that, absent a provision in the certificate of incorporation, a by-law requiring a two-thirds vote of shareholders to amend certain other by-laws is invalid and unenforcible (Business Corporation Law, §§ 601, 614, subd. [b]; § 616; see, also, Matter of Faehndrich, 2 N.Y.2d 468), I cannot accept its conclusion that the number of directors was not effectively increased.
It seems to me that the majority is reading and applying subdivision (b) of section 702 of the Business Corporation Law altogether too literally and narrowly. Even if it be assumed that an amendment of the by-laws is essential under that section — and I have serious doubt of this (see Israels, Corporate Practice, p. 152) — it is my view that the adoption by a majority of the shareholders (at a duly convened annual meeting at which 100% of the stock entitled to vote was present in person or by proxy) of the resolution expressly increasing the number of directors from four to five may and should be treated as the requisite by-law amendment. I would, therefore, reverse the order appealed from and direct entry of an order declaring that the resolution of October 9, 1963, increasing the number of directors of the appellant corporation from four to five validly accomplished such result.
Chief Judge DESMOND and Judges DYE, VAN VOORHIS, BURKE and BERGAN concur in MEMORANDUM; Judge FULD dissents in an opinion in which Judge SCILEPPI concurs.
Order affirmed in a memorandum, without costs.