LAWRENCE et al. v. I.N. PARLIER ESTATE CO. et al.*
This is an action brought under the provisions of section 315 of the Civil Code to determine the legality of an attempt to remove an old board of directors and of the election of three members of the board of directors of the I.N. Parlier Estate Company. The trial court found that Lula G. Lawrence, G.W. Parlier and E.B. Campbell were the duly elected directors of that company and entered judgment accordingly. This judgment is before us for review.
At the written request of two shareholders a special meeting of the shareholders was called by the board of directors for October 15, 1938, under the provisions of section 313 of the Civil Code.
The company had issued 2499–1/9 shares of its capital stock. Nora Osterhout, the owner of 415–6/9 shares, had died and in the probate of her estate this stock had been distributed to the corporation. It is admitted this stock then assumed the status of unissued treasury stock which could not be voted at a shareholders' meeting. It was found by the trial court that Bessie N. Parlier, formerly an owner of one share of stock, was not a shareholder at the time of the meeting. This left 2082–4/9 shares of issued stock which might be represented and voted at the special meeting.
On October 15, 1938, the books of the company showed the following ownership of the issued stock: Lula G. Lawrence, 277–7/9 shares; Carrie A. Thomas, 277–7/9 shares; C.A. Parlier, 277–7/9 shares; C.A. Parlier, trustee for I.N. Parlier Estate Company, 275–7/9 shares (formerly owned by G.W. Parlier and pledged to secure his debt to I.N. Parlier Estate Company); J.B. Parlier, 277–7/9 shares; Ada Sharp, 415–7/9 shares; National Bankitaly Company, 275–7/9 shares; G.W. Parlier, 2 shares; W.W. Parlier, 2 shares.
At the meeting the shareholders divided into two groups. C.A. Parlier, in his individual capacity and as trustee, J.B. Parlier, Ada Sharp and W.W. Parlier, whom we will refer to as the defendant group, representing 1249–1/9 shares, voted as one unit. The other shareholders, representing 833–3/9 shares, whom we will refer to as the plaintiff group, voted as another unit.
The special meeting was called to order by the president of the company and, as a quorum was present, the meeting proceeded to the consideration of the business specially noted in the call. There was then presented and filed a written request and direction to C.A. Parlier to vote all the stock held by him, or standing in his name “as trustee or in any other fiduciary capacity” for the removal of all the directors of the company and thereafter to vote in favor of G.W. Parlier, Lula G. Lawrence and E.B. Campbell as new directors. This request was signed by Lula G. Lawrence, Corporation of America by E.B. Campbell, Philip Conley and H.L. Jacobs, its proxies, Carrie A. Proctor, by Lula G. Lawrence, her proxy, and G.W. Parlier. It should be here observed that the Corporation of America and Carrie A. Proctor did not appear as shareholders on the books of the company.
A motion was made to adjourn the meeting for two weeks to October 29, 1938. All the stock of the defendant group (12491/919 shares) was voted in favor of the motion. It was declared carried, the meeting was declared adjourned for two weeks and the defendant group left. The plaintiff group of shareholders remained. They proceeded to elect a temporary chairman and a temporary secretary, passed a motion removing all of the then members of the board of directors and elected Lula G. Lawrence, G.W. Parlier and E.B. Campbell as directors. In this meeting G.W. Parlier voted the 275–7/9 shares of stock formerly owned by him. These were the shares pledged to secure his debt to the I.N. Parlier Estate Company, a certificate for which had been issued to C.A. Parlier, trustee. Whether C.A. Parlier, the trustee, or G.W. Parlier, the trustor or pledgor, had the right to vote that stock is the first and important question to be considered. If C.A. Parlier, the trustee, had the legal right to vote the stock in favor of the motion to adjourn the meeting for two weeks, to October 29, 1938, that motion was carried and no further business could be transacted by the shareholders on October 15, 1938.
The provisions of the Civil Code pertaining to the organization and government of corporations were amended in 1931. Stats.1931, p. 1762 et seq. In so far as we are advised, there is no reported case in California touching on the precise question before us here under these amended code sections.
Section 310 of the Civil Code provides that a board of directors of a corporation “may be removed from office by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors”.
Section 313 of the Civil Code authorizes the calling and holding of special meetings of the shareholders.
Section 316 of the Civil Code provides that the presence of a majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business. After the meeting is once regularly opened with a quorum present the withdrawal of part of the shareholders does not interfere with the power of those remaining to transact business until the adjournment of the meeting.
Section 330.1 of the Civil Code provides the manner in which the title to certificates and the shares represented thereby may be transferred.
Section 320a of the Civil Code contains the following: “Subject to the provisions of sections 320b and 320c of this title, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day three days prior to any meeting of shareholders, or, if some other day be fixed for the determination of shareholders of record, then on such other day, shall be entitled to vote at such meeting.”
Section 320b of the Civil Code contains the following: “(1) Shares standing in the name of any person or persons as pledgee, trustee or other fiduciary may be voted and all rights incident thereto may be exercised only by such pledgee, trustee or other fiduciary in person or by proxy, and without proof of authority.”
The following text supports the rule that where, as in California, the statute gives the person who appears as owner, either as owner or pledgee, the right to vote such stock, that right is absolute. 6a Cal.Jur. 664, 668, 401.
We can see no difference in principle between permitting a pledgee to vote stock standing on the books of a corporation in his own name and in allowing a trustee to have the same right. The code (sec. 320b, Civ.Code) gives both the same right to vote the stock. We, therefore, conclude that under the authority of the Civil Code the stock formerly standing in the name of G.W. Parlier, which stood in the name of C.A. Parlier, trustee, at the time of the meeting, was properly voted by the latter in favor of adjournment of the meeting and that the motion was properly carried. It follows that all of the proceedings taken by the plaintiff group of shareholders, after the motion to adjourn the meeting for two weeks had been carried, were void and of no effect and that the then members of the board of directors were not removed. There being no vacancies to fill, plaintiffs could not elect a new board of directors for the corporation.
Under the assumption that only the pledgee or trustee could vote pledged shares, and to escape the conclusion that the motion to adjourn the meeting for two weeks had been carried, plaintiffs point to the fact that the stock of Ada Sharp and J.B. Parlier had been pledged to secure debts to the corporation. From this they argue that as that stock was not voted by C.A. Parlier in favor of the motion to adjourn, but by Ada Sharp and J.B. Parlier, the motion to adjourn was not carried. There is no merit in this argument. The stock stood in the names of Ada Sharp and J.B. Parlier on the books of the corporation. No certificates for it had been issued to C.A. Parlier. Under the clear provisions of the code the shareholders of record had the right to vote that stock.
Plaintiffs point to the rule prevailing in several states to the effect that when the stock of a shareholder is pledged to a corporation to secure the shareholder's debt to it, that stock then partakes of the nature of treasury stock and cannot be voted in a shareholders' meeting. They urge that under this rule the stock of C.A. Parlier, trustee, Ada Sharp and J.B. Parlier could not be counted in favor of the motion to adjourn and that therefore it was not carried by a majority vote of the shareholders.
In a case like this where the stock certificates had not been delivered into the actual possession of the corporation as pledgee, but to a trustee for the corporation, and where the certificates for the shares were issued to individuals and not the corporation, this rule invoked by plaintiffs cannot prevail here because of the clear provisions of our statutes.
A pledge is a deposit of personal property with another to secure the performance of some act by the pledgor. Section 2986, Civ.Code. It merely creates a lien on the pledged property that can only ripen into title by a foreclosure of the pledge. While the pledgee has legal possession of the pledged property, the vesting of the entire legal title in him does not follow from the pledge. (21 Cal.Jur. 328.) Therefore, as no certificate for the shares had been issued to the corporation, title to this pledged stock was not vested in the I.N. Parlier Estate Company by the pledge and it was not owner of the stock at the time of the meeting on October 15, 1938.
“Corporations are, of course, creatures of statute and subject to legislative control. The legislature may exercise all legislative powers not denied to it by the State Constitution or not inconsistent with the state or Federal Constitution.” Kaysser v. McNaughton, 6 Cal.2d 248, 57 P.2d 927, 929. Section 320b of the Civil Code gives to any trustee, pledge holder or trustee, in whose names shares stand on the books of the corporation, the right to vote such shares. There is no distinction made in the section between different classes of pledgees and trustees and their rights to vote pledged stock. As these provisions of the section are clear and unambiguous it is our duty to assume the legislature meant just what its language implies (People v. Stanley, 193 Cal. 428, 225 P. 1) and that it intended to give all pledgees and trustees and other persons having shares standing in their names as such, the right to vote such shares.
The right of the proxies to vote the stock standing in the name of National Bankitaly Company is argued at considerable length by counsel. The National Bankitaly Company had been merged into the Corporation of America and a proxy was presented, signed by that corporation. While the conclusion already reached makes a decision of this question unnecessary, we desire to call counsel's attention to Estate of Barreiro, 125 Cal.App. 153, 13 P.2d 1017, where a merger of corporations is considered at length. Further, many of the arguments presented under this topic are applicable to stock standing in the name of Carrie A. Thomas. The proxy to vote this stock was signed “Carrie A. Proctor”.
Our conclusion that the old board of directors was not removed and that Lula G. Lawrence, G.W. Parlier and E.B. Campbell were not legally elected directors of the I.N. Parlier Estate Company makes it unnecessary for us to consider the remaining question argued, namely, the sufficiency of the call for and notice of the meeting to permit the question of the removal of the directors to be considered at such meeting.
The judgment is reversed with directions to the trial court to modify its findings and conclusions of law in accordance with the views herein expressed and to enter judgment for defendants.
We concur: BARNARD, P.J.; GRIFFIN, J.