1921]. Krell et al vs Krell Piano Co. VALIDITY OF AGREEMENT GIVING SOLE VOTING RIGHTS TO ONE CLASS OF STOCKHOLDERS. Superior Court of Cincinnati. LAURA A. KRELL V. THE KRELL PIANO COMPANY.* Decided, March 29, 1920. Corporations-Sales of Property and Assets of-Agreements Between Stockholders Not a Matter of Public Concern-Where Not Against Public Policy-Voting Rights Subject to Such Agreements. 1. A sale of corporate property does not constitute a sale of the company's "entire property and assets" within contemplation of Sections 8710-12, where book accounts, notes and leases of an aggregate value of more than $200,000 are not included. 2. Where the articles of incorporation contain a stipulation that in the event there occurs a default of payment of six or more semi-annual preferred dividends, then the preferred stockholders shall have the sole and exclusive right to vote, such stipulation in law is a valid binding contract between the stockholders and upon such default the common stockholders are excluded from voting. Theodore Horstman, for plaintiff. Ernst, Cassatt & Cottle, for defendant. GUSWEILER, J. This an action by some of the stockholders of the defendant company to have this court declare void a sale of certain property and assets of defendant company made by the defendant company on or about August 27th, 1917. The issues are to be found in the second amended petition, the answer thereto and the reply to the answer. Stated briefly the plaintiffs allege two causes of action. First. That the sale in question was a sale by the corporation of "its entire property and assets" within the meaning of G. C. Section 8710 et seq.; that as such it required the approval of a three-fourths vote at a stockholders' meeting, as provided in *Affirmed by the Court of Appeals. Krell et al vs Krell Piano Co. [Vol. 23 (N.S.) Section 8712; that at the stockholders' meeting at which the approval was given in this case, the common stockholders were excluded from voting and that the sale was not therefore in accordance with the statute. Second. The second cause of action alleges that a named individual was the owner of a majority of the preferred stock of the defendant company and that a majority of the board of directors of the company were under his domination and control; that by virtue of his control of the board and his ownership of a majority of the preferred stock, he caused the directors' and the stockholders' meetings to approve a sale of the entire assets of the defendant company to another company, of which he was the principal owner, at a price far below the real value of such assets. As to the first issue the evidence shows that the sale to the cther company did not include the cash, notes, accounts, bills receivable and certain real estate valued at $300 in Cheboygan county, Michigan. The notes, accounts and bills receivable included amounts due to the company on open account, notes secured and unsecured, and piano leases, under which the defendant company had leased pianos to customers, said pianos to become the property of the customers upon final payment in installments. The latter item amounted to over $150,000; the total of all the items, not including cash. amounted to over $200,000. We conclude that a sale of the property of the defendant company which excluded assets of that character and amount, was not a sale of the "entire property and assets" of the corporation and that Section 8710 et seq. of the General Code of Ohio do not apply. The evidence in the instant case does, however, disclose that this sale practically terminated the company's customary operations as a manufacturing concern. However, if we concede that this sale was a sale of the "entire property and assets" of the corporation, we find that the requirerents of Sections 8710 to 8712 inclusive were fully complied with. The evidence shows that the agreement for the sale was authorized by three-fourths of the directors as required by Section 1921.] Krell et al vs Krell Piano Co. 8710; it was submitted to a meeting of which due notice had been given to each of the persons in whose names the stock of the corporation stood on its books, and by due notice published in the newspapers, as required by Section 8711. The agreement of sale was considered and a vote by ballot taken for its adoption or rejection, and the agreement was approved by three-fourths of all the votes cast at the meeting by stockholders who were entitled to vote. The preferred stockholders had the exclusive voting power in the corporation at the time of this transaction. The articles of incorporation of the defendant company con tain the following language: "Said preferred stock shall not be entitled to any voting power at the annual or other meetings of the stockholders of said corporation unless default shall have been made by it in the payment of six, or more, of said semi-annual preferred dividends, in which event the holders of said preferred stock shall have sole voting right, to the exclusion of the holders of its common stock.” It is not denied that at the time of the sale in August, 1917, there had been a default in the payment of more than six semiannual preferred dividends. The preferred stockholders thereupon became entitled to the "sole voting rights, to the exclusion of the holders of its common stock." This provision in the articles of incorporation was authorized not only by General Code, Section 8669 (107 O. L. 411), which expressly authorizes "preferences and voting powers or restrictions or qualifications thereof in the certificate of incorporation," but it was also valid and binding under the laws of Ohio prior to and without such statute. Any restriction or deprivation of voting power is a matter of contract between the stockholders, binding upon them and in which the public has no concern. In Miller v. Ratterman, 47 O. S. 141, the 3rd syllabus is as follows: "The ownership of stock in an incorporated company, as a general rule, carries with it the right to vote upon the same at Krell et al vs Krell Piano Co. [Vol. 23 (N.S.) any meeting of the holders of the capital stock. But to this rule there may be exceptions; and it is competent for a railroad company, in issuing certificates of preferred stock, to stipulate therein that the holders shall not have or exercise the right to vote the same, or as owners of the same, at any meeting of the holders of the capital stock of the company." The court say on page 158: "In any view, it is fair to treat the proviso as but an arrangement between two classes of stockholders which did not concern the public. It is true that one characteristic of stock generally is that it can be voted upon. But this is not essential. Indeed, instances may arise where it is good policy to prohibit the voting upon stock." At the time of this decision of the Supreme Court there was no statute authorizing the exclusion of any class of stockholders from their right to vote under any circumstances. On the contrary, the statute provided (R. S. 3245 Smith & Benedict) with reference to the election of directors "each share shall entitle the owner to as many votes as there are directors to be elected," yet the Supreme Court held that in spite of this statute the stockholders might agree among themselves to the exclusion of one class of stockholders from the right to vote. When the provisions of the articles of incorporation give the preferred stockholders the "sole voting rights to the exclusion of the holders of the common stock," this applies to the voting rights given under G. C. Section 8712 as well as any others. Section 8712 is as follows: "At such meeting of stockholders, the agreement of the directors shall be considered and a vote by ballot taken for its adoption or rejections. For each share of stock on which all the installments called for by the board of directors are paid, the holder thereof shall be entitled to one vote. The ballots must be cast in person or by proxy, and if three-fourths of all the votes cast at the meeting be for the adoption of the agreement, it shall be valid and binding on such corporation. Upon its adoption the officers of the company shall execute and deliver to the purchaser good and sufficient deeds and transfers of all the property and 1921.] Krell et al vs Krell Piano Co. assets of the corporation, upon the terms and conditions in the agreement provided." It should be observed that the thing called for by Section 8712 is not the consent of stockholders in writing or otherwise. The thing called for is a meeting of the stockholders at which the agreement shall be voted upon. The power exercised by the stockholders under this section is a "voting power" within the meaning of the articles of incorporation. It is immaterial that the statute provides that the holder of "each share of stock on which all installments called for by the board of directors are paid" shall be entitled to one vote. That is merely a regulation to be applied to those stockholders who have voting rights. It would supersede the provision of Section 8636, allowing a vote for each share owned and substitute there for a limited franchise, viz a vote for each share on which all installments were paid. The voting right conferred by Section 8712 is no more sacred than that conferred by Section 8636, which gives each stockholder the right to vote for directors the "number of shares owned by him," and no one would question that such a provision as that found in the articles of incorporation of this company effectually deprives the common stockholder, on the contingency named, of the power to vote for directors. Section 8712 does no more than state in a general way the conduct of a stockholders' meeting for the consideration of a contract of sale, and states in an equally general way, the voting rights of the stockholders thereat and it does not over-ride any agreement between the stockholders evidenced in the articles of incorporation and in the stock certificates authorized by General Code Section 8669, and also by the law of Ohio prior to and without such a statute, excluding either preferred or common stock holders from the right to vote. If it be said that a stockholder ought to have the right to vote on the sale of the entire corporate property, especialy for the securities of another company, the answer is that so ought he to have the right to a vote in the election of directors. His in |