Decided February 26, 1941.
Constitutional law — Dissenting shareholder's right to fair cash value of shares — Section 8623-72, General Code — Preferred shareholder substantially prejudiced by amendment transferring sinking fund balance, when — Pleading — Defense to dissenting shareholder's petition, insufficient, when — Purchase of shares from dissenting shareholder not forbidden, when — Section 8623-41, General Code.
1. The provision of Section 8623-72, General Code, giving to a dissenting shareholder the right to be paid the fair cash value of his shares, does not contravene any provision of the state or federal Constitution.
2. Where an amendment to the corporate articles and preferred stock provisions transfers the balance in a sinking fund for the redemption of preferred stock to the corporation's working capital, cancels the existing deficit in such sinking fund, and relieves the corporation from any liability to begin setting aside such sinking fund until a future date, a holder of the preferred shares subject to redemption from such sinking fund is substantially prejudiced thereby.
3. A defense to a petition filed under Section 8623-72, General Code, claiming that the relief, if granted, would render the corporation "unable to meet its obligations as and when the same would mature" and that the corporation "would be disabled from performing its corporate functions," is not sufficient in law. Section 8623-41, General Code, forbids the purchase of shares from dissenting shareholders only when there is reasonable ground for believing that such purchase would leave the corporation with assets of less value than the aggregate of its liabilities to creditors.
APPEAL from the Court of Appeals of Franklin county.
The questions in this case arise on the pleadings.
The petition sets out in detail the substance of provisions of the preferred shares and articles of incorporation under which it was issued and to which it was subject. The petition alleges that the preferred shares of the plaintiffs were authorized and put out in the year 1922; that there was an agreement to pay dividends on the preferred shares from the surplus profits before any dividend should be paid to the holders of the common shares; that the preferred shares were not entitled to participate in any profits beyond the fixed, preferential, annual cumulative dividend of seven per cent per annum; that the redemption price of the preferred shares was fixed at $110 per share, plus any accumulated dividends remaining unpaid at the time fixed for redemption; that the preferred dividends were to be paid on specified dates; that upon sale or distribution of the company assets the preferred shares should be paid in full at their par value with accumulated dividends before distribution should be made to the holders of the common shares; that the preferred dividends were cumulative, but not to bear interest; and that the holders of the preferred shares were not entitled to vote at shareholders meeings unless the company was in default for one full year's dividend on the preferred shares.
The petition sets out that paragraph 5 of the articles and provision 5 of the preferred shares, prior to amendment, established a special (sinking) fund for the redemption of the preferred shares, and obligated the corporation to set aside not less than eight cents per ton on all coal mined by it for the accumulation of such fund; that if the corporation was unable for any reason to set aside the full amount in such fund in any year, the deficiency must be made up in the next subsequent years; and that no dividends, either common or preferred, can be paid until such sinking fund has been set aside in full, including any deficiency that may have resulted from the failure of the corporation to set aside any part of such fund in any year.
The petition alleges that on September 29, 1939, the corporation adopted a resolution amending provision 5; that plaintiffs' preferred shares were voted against such amendment; and that such amendment cancelled the existing deficiency in the sinking fund, released the corporation from any liability to set aside such fund in respect of coal mined by it prior to the date of the passage of the resolution, transferred $7,620 from the sinking fund to the general funds of the company, and relieved the corporation from any liability to set aside the sinking fund obligation from that date to May 1, 1942.
The petition alleges the ownership of plaintiffs' shares; that within twenty days after the passage of the amending resolution, the plaintiffs made written objections to the action taken and written demands that the corporation pay them the fair cash value of their preferred shares, fixing their estimate of such value; that the defendant, within ten days from the receipt of such written objections and demands, refused, in writing, to pay the amounts demanded by the plaintiffs, and offered to pay a less amount "as and for the fair cash value of said stock"; and that plaintiffs refused the defendant's offer.
The petition contains the allegation "that neither in the articles nor in the provisions of the preferred stock was any right reserved to the defendant company, either expressly or by implication, to amend said paragraph 5 of the articles or provision 5 of the preferred stock."
The defendant filed an answer containing three defenses to the petition. In the first defense the amendment to the articles, the demand served upon it by the plaintiffs to be paid the fair cash value of their shares, and other matters were admitted. In the answer the defendant set out paragraphs 1, 4 and 5 of the preferred shares, and plaintiffs in their reply admitted that, as set out in the answer, they were correct. The first defense then set out that the deficiency in the sinking fund had arisen and existed by reason of the fact that the defendant company had been unable during the preceding years to set aside the sum of eight cents per ton on all coal mined by it on account of its need for current operating funds, and the low prices re ceived by it for the coal mined and sold by it, and on account of losses suffered by it "and that unless it is permitted to mechanize its said mines as hereinafter set forth, and of which plan to mechanize its said mines the amendment adopted on the twenty-ninth day of September, 1939, was an integral part, it will be unable to make good such deficiency in said special fund; to set up said fund as to coal mined by it in the future, and to continue the operation of its business."
It was further averred that on the 28th day of September 1939, "the financial condition of the company required that said fund be restored to the working funds of the company in order that the company might properly carry on its corporate functions and operate its said business * * * [and] that the rights of the preferred shareholders in and to said fund, if any, were at all times subordinate and inferior to the rights of creditors and to the needs and requirements of said defendant in the operation of said company and the prosecution of its said business."
The first defense also contained the following averments:
"The defendant denies that the plaintiffs or either of them are entitled to object to the action of the preferred shareholders taken on the twenty-ninth day of September, 1939, and to demand the fair cash value of their shares, on account of said action and the amendment to the articles, for the reason that said plaintiffs, as the holders of said preferred shares, were not substantially prejudiced by said amendment to said articles and to the provisions of said shares or by the action of the shareholders of said corporation in adopting the same.
"Defendant further says that said amendment was adopted by the shareholders of said corporation as a part of a general plan to borrow money for the purpose of providing necessary capital with which to operate the business of the defendant, and to provide funds with which to mechanize certain of its mines, and that if the defendant company is to survive and continue its said business it was and will be necessary to so mechanize its said mines, and that by mechanizing its said mines the value of the shares of the plaintiffs will be increased, and that the action of said shareholders in voting to adopt said amendment was not detrimental to, but was beneficial to, the holders of said preferred shares and to the value of said shares."
The first defense also contained a general denial of each and every other allegation in the petition of the plaintiffs "not hereinbefore specifically admitted to be true."
The second defense was in part as follows:
"Further answering, the defendant says that the plaintiffs are not entitled to maintain this action for the reason and upon the ground that if the said plaintiffs are permitted to maintain this action and the court ultimately determine the fair value of said shares and order the same paid by the corporation, the defendant would be unable to meet its obligations as and when the same would mature and would be disabled from performing its corporate functions, all to the detriment of the defendant, its creditors and preferred shareholders, and that as a result thereof, the status of the plaintiffs would be changed from that of holders of preferred shares to that of a creditor, and they would be preferred over the other preferred shareholders to the detriment of creditors of said defendant and the holders of its preferred shares, which action would be contrary to the purposes and intent of General Code Section 8623-72."
In the third defense the defendant raised the question as to the constitutionality of Section 8623-72, General Code, as contravening Sections 1 and 16 of Article I of the Constitution of the state of Ohio and the Fourteenth Amendment to the Constitution of the United States in that it may so operate as to place the plaintiffs in a position superior to that of the other holders of the preferred shares of the defendant of the same class by awarding to the plaintiffs a greater percentage of the assets of the defendant in payment of their shares than would be available for the remaining preferred shareholders of the defendant and thus deprive the remaining preferred shareholders of their property without due process of law.
The plaintiffs filed their reply which admitted certain allegations of the answer and contained a general denial denying each and every allegation contained in the answer, not specifically admitted to be true.
On the trial of the case, no evidence was offered, but it was agreed by counsel that plaintiffs' allegations in their reply were true to the effect that their shares had been voted against confirmation of the actions of the officials and directors annually, and that their shares had been voted against making the loan and executing the mortgage on September 29, 1939.
Plaintiffs then moved for a finding that plaintiffs were entitled to be paid the fair cash value of their shares and defendant moved to dismiss the action for failure of proof of any substantial prejudice.
As stated by the trial judge, plaintiffs claimed that, as a matter of law, the change in the articles of incorporation relieved the defendant "from the duty of making up the deficient sinking fund, and from further setting aside anything for that fund until May 1, 1942," and from appropriating the balance of the sinking fund to the general purposes of the corporation, constituting a substantial prejudice to plaintiffs as they had, under the provisions of the articles of incorporation before amendment, a vested right in such fund, and that the action taken by the defendant corporation divested them of that right.
The position of the defendant in the trial court is set forth in the following quotation from the opinion of the trial judge:
"The answer avers this to be the exact situation now existing when it pleads that the small amount which was already in the fund was necessary to be used to continue the company's business, and that the adoption of the amendment was necessary for the future operation thereof. If such claims are true, then plaintiffs have not been substantially prejudiced. There is no means available for the present replenishment of the sinking fund and, of course, without continued operation, there can be no funds available in the future to pay into this fund. Such being the case, and plaintiffs' proportionate interest in the assets of the defendant company remaining unchanged, the court is unable to see how it can determine as a matter of law that plaintiffs have been substantially prejudiced.
"The burden of proof is on plaintiffs to establish the fact of substantial prejudice, which could be done only by refuting the allegations of fact contained in the answer to the effect that the action of the shareholders was necessary to preserve the defendant as a going concern and enable it to further prosecute its operations and afford opportunity for earnings which would, of course, result in benefit to plaintiffs as shareholders.
"Having failed to sustain this burden by offering any evidence pertaining thereto and the court not being able to determine the question as a matter of law, defendant's motion to dismiss the action is sustained."
The trial court's journal entry reads, in part, as follows:
"This cause came on to be heard, and the plaintiffs having failed and refused to offer any testimony, was submitted to the court upon the pleadings filed in the case, the motion of the plaintiffs for an order finding them entitled to be paid for the fair cash value of their stock, and the motion of the defendant to dismiss the action for failure of proof of any substantial prejudice to said plaintiffs as the holders of preferred shares of the defendant. The court finds that the motion of the plaintiffs is not well taken, and should be overruled. The court further finds that the motion of the defendant to dismiss the action for failure of proof should be granted."
Plaintiffs then prosecuted an appeal to the Court of Appeals on questions of law.
The Court of Appeals reversed the judgment of the trial court and remanded the cause with instructions to proceed to have the value of plaintiffs' shares determined as prescribed under the Code.
The journal entry of the Court of Appeals reads, in part, as follows:
"The court being fully advised in the premises finds that the pleadings in the case adequately present a substantial prejudice to the plaintiffs-appellants, and that the Court of Common Pleas of Franklin county was in error in dismissing the petition for failure of proof, and that such error, as shown by the records and proceedings, is prejudicial to the plaintiffs-appellants.
"It is, therefore, ordered, adjudged and decreed that the judgment of the Court of Common Pleas of Franklin county, Ohio, be and the same is hereby reversed and that the cause be remanded to said Common Pleas Court with instructions to proceed to have the value of plaintiffs-appellants' stock determined in accordance with the provisions of General Code Section 8623-72, and for further proceedings according to law."
The case is in this court by reason of the allowance of defendant's motion to certify the record.
Mr. Roy L. Wildermuth, for appellees.
Messrs. Hedges, Hoover Tingley, for appellant.
The parties will be referred to as they appeared in the Court of Common Pleas.
This is an action brought by dissenting shareholders under favor of Section 8623-72, General Code, and related sections, to determine the fair cash value of their shares and to secure a judgment for such fair cash value against defendant corporation. When the case came on for hearing in the trial court, plaintiffs moved for a judgment on the pleadings, which was overruled, and the plaintiffs not desiring to introduce any evidence, defendant interposed a motion to dismiss plaintiffs' petition for failure of proof, which latter motion was sustained. Thereafter, a motion for new trial was filed, overruled, and final judgment entered.
On appeal, the Court of Appeals reversed the judgment of the trial court and remanded the cause with instructions to proceed to have the value of plaintiffs' shares determined and for further proceedings according to law. In seeking a reversal of the judgment of the Court of Appeals, and an affirmance of the judgment of the Court of Common Pleas, defendant relies upon the following three grounds:
(1) That plaintiffs failed to prove (a) substantial prejudice, and (b) that the corporate articles do not expressly or by implication provide for or permit the amendment adopted by the corporation and complained of by plaintiffs.
(2) That the relief, if granted, would render the corporation "unable to meet its obligations as and when the same would mature," and the corporation "would be disabled from performing its corporate functions."
(3) That Section 8623-72, General Code, "is in violation and contravention of Sections I and 16 of Article I of the Constitution of the state of Ohio and to the Fourteenth Amendment of the Constitution of the United States * * *."
At the outset, it should be noted:
(a) That plaintiffs' preferred shares were issued to them in 1922 — approximately five years before the enactment of the General Corporation Act, and
(b) In Ohio, a stock certificate issued by a corporation is still a contract between the corporation and the holder of the certificate. Geiger v. American Seeding Machine Co., 124 Ohio St. 222, 177 N.E. 594, 79 A. L. R., 614.
As the applicable statutes are plain, it will not be necessary to discuss the various theories adopted in different jurisdictions relative to the rights of dissenting shareholders.
To facilitate flexibility in the corporate structure, and at the same time to protect vested contractual rights of shareholders, the Legislature has provided in Section 8623-14, General Code, that broad amendments may be made, but when changes are made in the setup which substantially prejudice the holders of a particular class of shares, and the articles do not expressly or by implication provide for or permit such amendment, dissenting shareholders may petition the court to determine and render judgment against the corporation for the fair cash value of their shares, provided the corporation is not then insolvent or by the redemption of the particular shares would probably become insolvent. (Section 8623-41, General Code.) Upon the payment therefor by the corporation, the certificates are to be surrendered to the corporation. (Section 8623-72, General Code.)
The petition contains the following allegation: "That neither in the articles nor in the provisions of the preferred stock was any right reserved to the defendant company, either expressly or by implication, to amend said paragraph 5 of the articles or provision 5 of the preferred stock * * *." At the end of more than six pages of the answer, as set forth in the record, there is to be found the following: "Further answering, the defendant denies each and every allegation contained in the petition of the plaintiffs not hereinbefore specifically admitted to be true."
Following the holding of this court in Reiff v. Mullholland, 65 Ohio St. 178, 62 N.E. 124, wherein it was held that "all the allegations of a pleading should be considered in determining the effect of any of them, and a general denial of the allegations of a petition is unavailing if inconsistent with the express admissions of the answer," the Court of Appeals in the instant case said: "We determine that under the language of the pleadings no issue was presented on the question of reserved rights in the corporation to amend the articles in the particulars set out in the pleadings." We agree with this holding in respect of the pleadings.
We also agree with the following statement of the Court of Appeals: "Furthermore, a reading of all the pleadings leads to no other conclusion than that the entire proceedings relative to the amendment to the articles were carried on through the provisions of the Code authorizing such amendments, and not through any express provisions contained in the charter."
Releasing all moneys in the special fund and restoring such moneys to the general funds of the company free from any obligation of the company to use such moneys for the redemption of its preferred shares, canceling the deficit in the sinking fund, and relieving the company from setting aside the eight cents per ton prior to May 1, 1942, were each of advantage to the common shareholder and to the substantial prejudice of the preferred shareholder. As pointed out by the Court of Appeals:
"The deficiency in the sinking fund of almost $1,000,000 had accrued prior to the date of the amendment. This sinking fund was to be set aside in a special fund to be available to retire the preferred stock at 110. Originally article 5 provided that if for any reason the condition of the company would not permit the 8¢ per ton placed in this special sinking fund, this amount should be made good in subsequent years before the payment of any dividends on preferred or common stock. Under the amendment this right to have the deficiency made up is lost, and the obligation for the entire amount cancelled. Between the date of the amendment and May 1, 1942, the company may pay a dividend on preferred and common stock, conditioned only that the profits of the company are sufficient with which to make such payment. Following May 1, 1942, and after the payment of 8¢ per ton an all coal mined, the company, if profits warrant, could pay dividends on both common and preferred stock. Of course, the preferred stock would have prior rights, and this would probably include defaulted payments of dividends on preferred stock. In the provisions of the articles the dividends are cumulative. Nevertheless, common stockholders will be advantaged in the future, providing the profits of the company are sufficient to pay the current 8¢ per ton per year, and dividends to the preferred and common stockholders. By way of example, let us assume that the company under its plan of mechanizing makes a profit in the next one, two or three years, or any number of years, sufficient to pay off the defaulted cumulative dividends on preferred stock, and in 1942 and thereafter pay this 8¢ per ton on the coal mined, still has adequate profit to pay all preferred dividends and in addition dividends on common. But for the amendment the common stock would not receive any dividends, but the amount would go towards paying the $1,000,000 deficiency in the sinking fund.
"It is this advantage to the common stockholders which we think presents a substantial prejudice to the plaintiffs as holders of preferred stock."
The amendment which the defendant company adopted on September 29, 1939, follows. The additions to the original paragraph 5 are set out in italics. There were no eliminations.
" Commencing on the first day of May, 1942, the company agrees to set aside each year, in a special fund for the purpose of redeeming its preferred stock, not less than eight cents (8¢) per ton on all coal mined by it; said sum so set aside may be invested temporarily in such securities as the board of directors may determine; and said fund shall be used from time to time at such times and in such amounts, as the board of directors shall determine, in the redemption of the preferred stock pro rata among the holders of said preferred stock according to the number of shares held by each, provided, however, that if in any year, for any cause, the company is unable to set aside in said special fund said full sum of eight cents (8¢) per ton, or any part thereof, the deficiency shall be made up in the next subsequent years before any dividends are paid on any stock, common or preferred. Any deficiency in said special fund existing at the date hereof under this provision of the articles, as the same was prior to this amendment, as a result of the failure or inability of the company to set aside said special fund in respect to coal heretofore mined by it, is hereby cancelled and the company relieved from any liability to set aside said fund in respect to all coal mined by it to the date hereof and as to which any deficiency exists, and in respect to all coal mined by it from the date hereof to the first day of May, 1942. All moneys in said special fund as of the twenty-ninth day of September, 1939, are hereby released and restored to the general funds of the company, free from any obligation of the company to use said moneys for the redemption of its preferred stock."
Paragraph 5 of the articles and provisions of the preferred shares prior to the amendment, obligated the corporation to set aside eight cents per ton on all coal mined by it in a special fund for the redemption of the preferred shares at the price of $110 per share fixed in paragraph 4, before any dividends, either common or preferred, could be paid. On the day before the amendment, there was an admitted deficiency in this sinking fund of $988,064.89, as a result of the corporation having railed to set aside this fund on coal theretofore mined.
As provided in paragraph 5 prior to the amendment: "* * * if in any year, for any cause, the company is unable to set aside in said special fund said full sum of eight cents (8¢) per ton, the deficiency shall be made up in the next subsequent years before any dividends are paid on any stock, common or preferred." The answer admits that the amendment cancels the deficit in the fund, relieves the company from setting aside an estimated $268,666.67 between the date of the amendment and May 1, 1942, and that $7,620 was transferred from the sinking fund to the general funds of the corporation on the day the amendment was adopted.
The total sinking fund that would have accrued up to May 1, 1942, including the deficit and the estimated accumulation, would approximate $1,265,000. The proportionate share of that fund (if intact) applicable to the redemption of plaintiffs' shares would amount to approximately $60,000.
Under the amendment, the right of plaintiffs to have their proportionate share of the preferred stock redeemed by this sinking fund prior to the payment of any dividends has been lost.
Under this amendment to paragraph 5, the corporation is freed from its former sinking fund obligation to the preferred shares, and can pay dividends at any time on either the common or preferred, if earned, without regard to the original conditions of both the articles and provisions.
Appellant's brief contains the following statement: "The action taken by the shareholders wiped out the deficit existing in the special fund for the retirement of the preferred shares; postponed the setting up of said fund until May 1, 1942, and restored to the working funds of the defendant the sum of $7,620 in the special fund." The foregoing admissions are fully sustained by the pleadings.
As stated by the trial court, and as substantiated by the record, "it was agreed by counsel that plaintiffs' allegations in their reply were true that their shares had been voted against confirmation of the actions of the officers and directors annually and against making the loan and executing a mortgage on September 29, 1939."
In the case of Johnson v. Lamprecht, 133 Ohio St. 567, 15 N.E.2d 127, it was held in the third paragraph of the syllabus: "When there is a change in the terms and conditions of stock by reason of an amendment to the articles of incorporation, dissenting shareholders have a remedy under the provisions of Section 8623-72, General Code. * * *"
Under the allegations of the petition and the admissions contained in the first defense of the answer, plaintiffs' case was made and there was no necessity for the introduction of any evidence in respect thereof. Such admissions fully meet the requirements of Section 8623-15, paragraph 9, General Code, which provides: "(9) An amendment or amended articles, when adopted in the manner prescribed in this section, shall in the absence of clear and convincing proof to the contrary be presumed to be fair and equitable in every respect to all shareholders."
It remains to determine whether the allegations of either the second or third defenses are sufficient in law.
The principal allegation of the second defense is: "* * * the plaintiffs are not entitled to maintain this action for the reason and upon the ground that if the said plaintiffs are permitted to maintain this action and the court ultimately determine the fair value of said shares and order the same paid by the corporation, the defendant would be unable to meet its obligations as and when the same would mature and would be disabled from performing its corporate functions, all to the detriment of the defendant, its creditors and preferred shareholders." This allegation is insufficient in law, for the reason that it fails to measure up to the prohibition of Section 8623-41, General Code.
Section 8623-41, General Code, provides, in part:
"A corporation may purchase shares of any class issued by it: * * *
"(7) From shareholders who by reason of dissent are entitled to be paid the fair cash value of their shares; * * *
"A corporation shall not purchase its own shares except as provided in this section, nor when there is reasonable ground for believing that the corporation is unable, or by such purchase may be rendered unable, to satisfy its obligations and liabilities."
The last above-quoted paragraph of Section 8623-41, General Code, refers to insolvency; that is, when there is reasonable ground for believing that the corporation will not have sufficient assets left to pay its liabilities to creditors — not shareholders. The allegations of the second defense not only fall short of an allegation of insolvency, but the answer in the first defense alleges "that it did offer to pay to the plaintiff, Roy L. Wildermuth, the sum of $3,030 as and for the fair cash value of his said preferred shares, and to Goldie J. Wildermuth as and for the fair cash value of her preferred shares the sum of $29,904." Here is an admission in the defendant's answer that the corporation was solvent. Certainly there could not have been a fair cash value of plaintiffs' preferred shares unless the corporation's assets exceeded its liabilities to creditors.
The gist of the third defense is to be found in the following averment: "Further answering, the defendant avers that General Code Section 8623-72 is in violation and contravention of Sections 1 and 16 of Article I of the Constitution of the state of Ohio and to the Fourteenth Amendment of the Constitution of the United States of America in that it may so operate as to place said plaintiffs in a position superior to that of the other holders of the preferred shares of said defendant of the same class by awarding to said plaintiffs a greater percentage of the assets of said defendant in payment of their said shares than would be available for the remaining preferred shareholders of said defendant and thus deprive said remaining preferred shareholders of their property without due process of law."
So far as the "superior position" is concerned, that claim is fallacious on its face, for the reason that all that plaintiffs may recover is the fair cash value of their shares on the day preceding the amendment. The shares of the same class of every other shareholder would necessarily have the same fair cash value.
So far as concerns a violation of the Fourteenth Amendment, the Supreme Court of the United States, in the case of Voeller v. Neilston Warehouse Co., . . . . U.S., . . . ., 85 L.Ed., 314, 61 S.Ct., 376, decided January 6, 1941, furnishes a conclusive negative answer to any such contention.
As to Sections 1 and 16 of Article I of the Constitution of Ohio: In the absence of the provisions of Section 8623-72, General Code, plaintiffs might have a right to complain of the violation of their constitutional rights, but it is not seen how any right of the corporation itself has been violated. The corporation way not be heard to complain because the dissenting shareholder is given a remedy for the violation of a vested right.
In the cases of Williams v. National Pumps Corp., 126 Ohio St. 457, 186 N.E. 403, and Miller v. Canton Motor Coach, Inc., 133 Ohio St. 384, 14 N.E.2d 15, this court dismissed a petition in error and an appeal for the reason that no debatable constitutional question was involved in either of these causes. As will be seen from the report of the first case in 46 Ohio App. 427, 188 N.E. 756, and from the report of the second case in 58 Ohio App. 94, 16 N.E.2d 486, the Courts of Appeals had held that the statutes here involved were constitutional.
We hold that no constitutional right of the defendant is violated by the procedure herein undertaken under Section 8623-72, General Code, and that that section, so construed, does not offend or contravene any provision of the Constitution of the United States or of the Constitution of the state of Ohio.
Defendant, in its pleading and brief, makes the claim that plaintiffs would be better off and their shares would be worth more after the amendment — in substance, that the amendment is beneficial and not prejudicial. The short answer to that is that plaintiffs, whose vested rights will be substantially prejudiced by the amendment, have the sole right to make the decision whether they will approve and go along or dissent and withdraw. Whether the corporation will be able to continue business after paying to the plaintiffs the fair cash value of their shares is immaterial so long as such payment does not render the defendant company insolvent as of the day preceding the passage of the amendment. By insolvent here is meant that the corporate assets are of less value than the aggregate of the claims of creditors.
If paying off the dissenting shareholders is too great a burden for the corporation, the corporation may rescind its attempted action. Section 8623-72, General Code, contains the following provision: "The right of a dissenting shareholder to be paid the fair cash value of his shares shall cease if and when the corporation for any reason shall abandon its purpose or the shareholders shall revoke the authority to sell, lease, exchange, or otherwise dispose of its assets, consolidate, reorganize or amend its articles."
The defendant contends: "It never was the intention of the statute that one shareholder (and all too often a disgruntled shareholder) could 'hamstring' a corporation or take action which would put a going corporation out of business or disable it from performing its corporate functions or prejudice the rights of its creditors." Of course, the dissenting shareholder may not prejudice the rights of creditors, but it never was the intention of the Legislature that corporate management might secure capital upon the representation that the investment was to be safeguarded by provisions acceptable to the investor and then, after the investment had been made, that the corporate management or a majority of its shareholders might repudiate any part of the contract through which it had secured a part of its capital. Section 8623-72, General Code, is a protection to the corporation and a substitute for the former remedies of a minority shareholder.
Therefore, the judgment of the Court of Appeals will be affirmed.
WEYGANDT, C.J., WILLIAMS, MATTHIAS, HART, ZIMMERMAN and BETTMAN, JJ., concur.