CARAM V.

CA
FACTS:

Fermin & Rosa Caram question the order of the respondent court,
CA, holding them jointly & severally liable with Filipinas
Orient Airways, Barretto & Garcia to Alberto Arellano

Carams claim that the order for solidary liability has no support in
fact & law because they had no contract with Arellano

Barretto & Garcia initiated the incorporation of a company called

Filipinas Orient Airways

Prior to creation, they contracted with a third person, Alberto

Arellano
o For Arellano to prepare a project study for the feasibility of
creating a corporation

It was on the basis of this study that defendant corporation was

organized and rendered operational

Project study was revised for purposes of presentation to

financiers & the banks

Project study was then presented to the would-be incorporators &

investors
o On the basis of the project study, Fermin & Rosa Caram
agreed to be incorporators of FOA
o They became members of the Board

Later on, Arellano filed a collection suit against FOA,

Barretto & Caram
o Claimed that he was not paid for his work on the
project study
ISSUE: W/N the Carams are personally & solidarily liable to Arellano NO!
HELD:

As mere subsequent investors in the corporation that was later

created, they should not be held liable with FOA & Barretto
& Garcia

Petitioners were merely among the financiers whose interest was

to be invited & to invest on the airline

They did not contract the services of Arellano

o It was only the result of the services of Arellano that
Barretto & Garcia presented to the petitioners &
persuaded petitioners to invest in the airline
o The most that can be said is that they benefitted from the
services which is not a justification to hold them liable

Otherwise, all other stockholders including those

who came in later would be equally & personally
liable

FOA is now a bona fide corporation FOA should be liable for its
corporate acts as duly authorized by its officers
o INCLUDES ACTS WHICH ULTIMATELY LED TO ITS
INCORPORATION

FOA has a separate & distinct personality from its incorporators

o It is not justified to make the Carams, as principal
stockholders to be responsible for FOAs obligations

YUTIVO V. CTA
FACTS:

Yutivo: Domestic corporation, incorporated under Philippine Laws

o Engaged in the importation & sale of hardware
supplies & equipment

After the first world war, it resumed business & bought a number
if cars & trucks from General Motors

1946 Southern Motors was organized to engage in the

business of selling cars, trucks & spare parts

Subscribers of the stocks were

o Yu Khe Thai, Yu Khe Siong & Hu Kho Jin Sons of Yu Tio Yee
o Yu Eng Poh & Washington Sycip Sons of Albino Sycap
o Founders of Yutivo

Cars & trucks purchased by Yutivo from GM were sold to SM

which the latter sold to the public in the Visayas &
Mindanao

When GM withdrew from the PH Yutivo was appointed as

importer for Visayas & Mindanao by the US manufacturer sold
by GM
o Yutivo continued selling exclusively to SM

Yutivo paid the sales tax prescribed

SM paid no sales ta on its sales to the public

Assessment was made upon Yutivo for deficiency sales tax

( P1,804, 769. 85)

Collector for Internal revenue contends that the taxable sales

were the retail sales by SM to the public not the the sales
at wholesale made by Yutivo to the SM inasmuch as SM &
Yutivo were one and the same corporation

The assessment was disputed by the petitioner; alleged that:

o There is no valid ground to disregard the corporate
personality & to hold that it is an adjunct to the
petitioner
o Assuming the separate personality may be disregarded,
the sales tax already paid by Yutivo should first be
deducted from the selling prince of SM in the Sales
tax due on each vehicle
o Surcharge has been erroneously imposed by the
respondent
ISSUE: W/N the corporate personality of SM could be disregarded. YES
HELD:

When the notion of legal entity is used to defeat the public

convenience, justify wrong, protect fraud or defend crime the law
will regard the corporation as an associate of persons, or
in case of 2 corporations, merge them in to one
When the corporation is a mere alter ego, it may be
disregarded
SC ruled that CTA was not justified in finding that SM was
organized to defraud the Government
SM was organized in June 1946, from that date until June 30,
1947,
o GM was the importer of the cars and trucks sold to Yutivo,
which in turn was sold to SM.
o GM, as importer was the one solely liable for sales taxes.
o Neither Yutivo nor SM was subject to the sales
taxes.
o Yutivos liability arose only until July 1, 1947 when
it became the importer. Hence, there was no tax to
evade.
However, SC agreed with the respondent court that SM was
actually owned and controlled by petitioner.
Consideration of various circumstances indicate that Yutivo
treated SM merely as its department or adjunct:
o The founders of the corporation are closely related to
each other by blood and affinity.
o The object and purpose of the business are the
same; both are engaged in sale of vehicles, spare parts,
hardware supplies and equipment.
o The accounting system maintained by Yutivo shows that
it maintained high degree of control over
SM accounts.
o Several correspondences have reference to Yutivo as the
head office of SM.
o SM may even freely use forms or stationery of Yutivo.
o All cash collections of SMs branches are remitted
directly to Yutivo.
o The controlling majority of the Board of Directors of
Yutivo is also the controlling majority of SM.
o The principal officers of both corporations are
identical
o Both corporations have a common controller in the
person of Simeon Sy, who is a brother-in-law of
Yutivos president, Yu Khe Thai.
o Yutivo, financed principally the business of SM and
actually extended all the credit to the latter not
only in the form of starting capital but also in
the form of credits extended for the cars and vehicles
allegedly sold by Yutivo to SM.

JARDINE V. JRB REALTY

FACTS:

1979-1980 JRB Realty, Inc. built a nine-storey building Blanco

Center
on its parcel of land in Salcedo Village, Makati City

An air conditioning system was needed for the Blanco Law

Firm housed at the second floor of the building

March 1980 JRBS EVP Jose R. Blanco, accepted the contract

quotation of Mr. A.G. Morrison, President of Aircon and
Refrigeration Industries, Inc. (AIRCON) 2 sets of Fedders air
conditioning equipment with a net total selling price of
P99,586.00

2 brand new packaged air conditioners were installed

When the units with rotary compressors were installed, they

could not deliver the desired cooling temperature

The parties thereby agreed to replace the units with

reciprocating/semi-hermetic compressors instead.

March 1981 Aircon stated that it would be replacing the

units currently installed with new ones using rotary
compressors, at the earliest possible time
o It could not specify a date when delivery could be effected

TempControl Systems, Inc. (a subsidiary of Aircon until

1987) undertook the maintenance of the units, inclusive of
parts and services

October 1987 the respondent learned, through newspaper

ads, that Maxim Industrial and Merchandising Corporation
(MAXIM) was the new and exclusive licensee of Fedders Air
Conditioning USA in the Philippines for the manufacture,
distribution, sale, installation and maintenance of Fedders
air conditioners.

JRB requested that Maxim honor the obligation of Aircon, but the
latter refused

JRB instituted, an action for specific performance with

damages against Aircon & Refrigeration Industries, Inc.,
Fedders Air Conditioning USA, Inc., Maxim Industrial &
Merchandising Corporation and petitioner Jardine Davies,
Inc.
o The latter was impleaded as defendant, considering that
Aircon was a subsidiary of the petitioner
o The respondent prayed that judgment be rendered, as
follows:

RTC: ordered defendants jointly & severally to deliver 2 new units

of Fedders unitary packaged airconditioning; reimburse plaintiff fot
the unsaved electricity bills

CA: affirmed RTC ruling

ISSUE: W/N Jardine is liable for the alleged contractual breach of Aircon
because the latter was formerly the formers subsidiary.
HELD:

While it is true that Aircon is a subsidiary of the petitioner, it does

not necessarily follow that Aircon's corporate legal
existence can just be disregarded.

In Velarde v. Lopez, Inc the Court held that a subsidiary has an

independent and separate juridical personality, distinct
from that of its parent company
o Any claim or suit against the latter does not bind
the former, and vice versa

The records bear out that Aircon is a subsidiary of the

petitioner only because the latter acquired Aircon's
majority of capital stock.

It does not exercise complete control over Aircon

o Nowhere can it be gathered that the petitioner manages
the business affairs of Aircon

Indeed, no management agreement exists between the

petitioner and Aircon, and the latter is an entirely different
entity from the petitioner

Jardine Davies, Inc primarily a financial and trading company

Aircon manufacturing firm

The existence of interlocking directors, corporate officers and

shareholders, which the respondent court considered, is not
enough justification to pierce the veil of corporate fiction, in the
absence of fraud or other public policy considerations

But even when there is dominance over the affairs of the

subsidiary, the doctrine of piercing the veil of corporate
fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend
crime

There is no evidence that Aircon was formed or utilized with the

intention of defrauding its creditors or evading its contracts and
obligations

There was nothing fraudulent in the acts of Aircon in this case

o Aircon, as a manufacturing firm of air conditioners,
complied with its obligation of providing two air
conditioning units for the second floor of the
Blanco Center in good faith, pursuant to its
contract with the respondent
o Unfortunately, the performance of the air conditioning
units did not satisfy the respondent despite several
adjustments and corrective measures

We sustain the petitioner's separateness from that of Aircon in this

case

It bears stressing that the petitioner was never a party to

the contract.
Privity of contracts take effect only between parties, their
successors-in-interest, heirs and assigns.

The petitioner, which has a separate and distinct legal

personality from that of Aircon, cannot, therefore, be held
liable
GARRETT V. SOUTHERN RAILWAYS
FACTS:

A wheel moulder in the employ of Lenoir Car Works, a Tennessee

corporation, brought suit against the Southern Railway Company
for alleged injuries from silicosis claimed to have been
contracted from silica dust which permeated the foundry

Upon completion of the trial, at which much evidence was

received, the United States District Judge entered judgment in
favor of the defendant railway company

Garrett contends that the district court erred in finding that

Lenoir was not the alter ego or instrumentality of Southern
Railways
o Appellant insists, that the district court also erred in
finding that the Southern Railway Company did not
exercise such control over Lenoir Car Works as to
require a determination that the railway company
was the employer of appellant within the meaning
of the Federal Employers' Liability Act,
In a carefully considered opinion, the United States District Court
found that there was no evidence that the Southern
Railway Company dictated the management of the Lenoir
Car Works, although it owned the entire capital stock of
that corporation.
It was found that the evidence indicated that an individual, Henry
Marius, was in full control of the operation of the car
works.
He established prices and handled all negotiations and collective
bargaining agreements
Lenoir paid local taxes, had local counsel, and maintained
workmen's compensation.
Lenoir sold substantial quantities of its product to other companies
than Southern; it operated no rolling stock; and had nothing to do
with the transportation business.
The court found further that the facts did not reveal such
intimacy and inseparability of control as would lead to the
conclusion that the Southern Railway Company and Lenoir
Car Works were one and the same.

 Lenoir was not "common carrier by railroad"; it was not

performing the non-delegable duties of a railroad; it was
not the operator of a terminal; and it performed no
switching or transportation functions at all. It was
distinctively a manufacturer, performing no commoncarrier operations
Upon the issue of whether or not the control by Southern of Lenoir
was of such character as to constitute the latter a mere adjunct of
the former
o The court held that no such control was evident

In Kentucky Electric Power Company v. Norton Coal Company

o On the other hand, it is likewise well settled that a
corporation is ordinarily an entity, separate and
apart from its stockholders,
o Mere ownership of all the stock of one corporation by
another, and the identity of officers of one with officers of
another, are not alone sufficient to create identity of
corporate interest between the two companies or to
create the relation of principal and agent or to
create a representative or fiduciary relationship
between the two
o If such stock ownership and potential control be resorted
to only for the purpose of normally participating in the
affairs of the subsidiary corporation in a manner usual to
stockholders and not for the purpose of taking some unfair
advantage of the subsidiary or using it as a mere adjunct
to the main corporation or as a subterfuge to justify
wrongdoing

Their identity as separate corporations will not be

disregarded but their respective rights when
dealing with each other in respect to their
separate property will be recognized and
maintained
o The extent of stock ownership and mere potential
control of one company over another has never
been regarded as the determining factor in the
consideration of such cases.
o Something must be disclosed to indicate the exercise of
undue domination or influence resulting in an
infringement upon the rights of the subservient
corporation for the benefit of the dominant one.
o Otherwise, the rights of the separate corporations in
respect to their corporate property must be governed by
the rules applicable in ordinary cases. [Citing cases.]"
The district court concluded that, upon the principles of the
Kentucky Electric Power Company case, the control of Southern
Railway Company over Lenoir Car Works was not such as

constituted Lenoir an adjunct of Southern. We think this

conclusion was correct.
Accordingly, the judgment of the district court dismissing the
complaint herein is affirmed

RIZAL LIGHT & ICE V. PUB. SERV. COMM

FACTS:

Rizal Light & Ice Co., Inc domestic corporation with business
address at Morong, Rizal

August 1949granted by the Commission a certificate of public

convenience and necessity for the installation, operation
and maintenance of an electric light, heat and power
service in the municipality of Morong, Rizal.

Commission required the petitioner to appear before it to show

cause why
o It should not be penalized for violation of the conditions of
its certificate of public convenience and the regulations of
the Commission,
o For failure to comply with the directives to raise its service
voltage and maintain them within the limits prescribed in
the Revised Order No. 1 of the Commission, and
o To acquire and install a kilowatt meter to indicate the load
in kilowatts at any particular time of the generating unit.

For failure of the petitioner to appear at the hearing the

Commission ordered the cancellation and revocation of
petitioner's certificate of public convenience and necessity
and the forfeiture of its franchise

Petitioner moved for reconsideration of said order on the ground

that its manager, Juan D. Francisco, was not aware of said hearing

Respondent municipality opposed the motion, alleging that

petitioner has not rendered efficient and satisfactory service and
has not complied with the requirements of the Commission for the
improvement of its service.
o The motion was set for hearing

Finding that the failure of the petitioner to appear at the

hearing set for February 18, 1957 the sole basis of the
revocation of petitioner's certificate was really due to
the illness of its manager, Juan D. Francisco, the
Commission set aside its order of revocation

Respondent MR; DENIED

In a petition filed in the same case, respondent municipality

formally asked the Commission to revoke petitioner's
certificate of public convenience and to forfeit its franchise
on the ground, among other things, that it failed to comply
with the conditions of said certificate and franchise

Said petition was set for hearing jointly with the order to
show cause. The hearings had been postponed several
times.

Meanwhile, inspections had been made of petitioner's electric

plant and installations by the engineers of the Commission.

The inspection on June 21-24, 1961 was made upon the request of
the petitioner who manifested during the hearing on December
15, 1960 that improvements have been made on its service since
the inspection on July 12-13, 1960, and that, on the basis of the
inspection report to be submitted, it would agree to the
submission of the case for decision without further
hearing

When the case was called for hearing on July 5, 1961, petitioner
failed to appear

Respondent municipality was then allowed to present its

documentary evidence, and thereafter the case was submitted for
decision.

July 1961 petitioner filed a motion to reopen the case upon the
ground that it had not been furnished with a copy of the
report of the June 21-24, 1961 inspection for it to reply as
previously agreed.

Petitioner was granted a period of 10 days within which to submit

its written reply to said inspection report
o On condition that should it fail to do so within the said
period the case would be considered submitted for
decision.
o Petitioner failed to file the reply. In consonance with the
order, therefore, the Commission proceeded to decide the
case

July 1962 petitioner's electric plant was burned

Commission: Found that the petitioner had failed to comply with

the directives contained and had violated the conditions of its
certificate of public convenience as well as the rules and
regulations of the Commission.

The Commission concluded that the petitioner "cannot render

the efficient, adequate and satisfactory electric service
required by its certificate and that it is against public
interest to allow it to continue its operation."
Ordered the cancellation and revocation of petitioner's
certificate of public convenience and the forfeiture of its
franchise

Petitioner moved for reconsideration of the decision, alleging that

before its electric plant was burned its service was greatly
improved and that it had still existing investment which the
Commission should protect

But eight days before said motion for reconsideration was filed
o

Morong Electric, having been granted a municipal

franchise by respondent municipality to install, operate
and maintain an electric heat, light and power service in
said municipality approved by the Provincial Board
of Rizalon August 31, 1962 filed with the Commission
an application for a certificate of public convenience and
necessity for said service.
Petitioner opposed in writing the application of Morong Electric,
o Alleging that it is a holder of a certificate of public
convenience to operate an electric light, heat and power
service in the same municipality of Morong, Rizal
o And that the approval of said application would not
promote public convenience, but would only cause
ruinous and wasteful competition.
Although the opposition is dated October 6, 1962, it was actually
received twenty four days after the order of general default was
issued in open court when the application was first called for
hearing on October 15, 1962.
On November 12, 1962, however, the petitioner filed a motion to
lift said order of default
But before said motion could be resolved, petitioner filed another
motion dated, January 4, 1963, this time asking for the dismissal
of the application upon the ground that applicant Morong
Electric had no legal personality when it filed its
application on September 10, 1962, because its certificate
of incorporation was issued by the Securities and
Exchange Commission only on October 17, 1962.
This motion to dismiss was denied by the Commission in a formal
order issuedon the premise that applicant Morong Electric was
a de facto corporation
Consequently, the case was heard on the merits and both parties
presented their respective evidence
On the basis of the evidence adduced, the Commission, in its
decision dated found that there was an absence of electric service
in the municipality of Morong and that applicant Morong
Electric, a Filipino-owned corporation duly organized and
existing under the laws of the Philippines, has the
financial capacity to maintain said service.
Morong Electric; application approved
o

ISSUE: W/N Morong had legal personality when it filed its application
HELD:

The certificate of incorporation of the Morong Electric was issued

by the SEC on October 17,1962, so only from that date, not
before, did it acquire juridical personality and legal existence

Morong Electric argues, and to which argument the Commission

agrees, that it was a de facto corporation at the time the franchise
was granted and, as such, it was not incapacitated to enter into
any contract or to apply for and accept a franchise

Not having been incapacitated, Morong Electric maintains that the

franchise granted to it is valid and the approval or disapproval
thereof can be properly determined by the Commission

The juridical personality and legal existence of Morong Electric

began only on October 17, 1962 when its certificate of
incorporation was issued by the SEC.

Before that date, or pending the issuance of said certificate of

incorporation, the incorporators cannot be considered as de facto
corporation.
But the fact that Morong Electric had no corporate
existence on the day the franchise was granted in its name
does not render the franchise invalid, because later
Morong Electric obtained its certificate of incorporation
and then accepted the franchise in accordance with the
terms and conditions thereof.
The fact that a company is not completely incorporated at the
time the grant is made to it by a municipality to use the streets
does not, in most jurisdictions, affect the validity of the grant. But
such grant cannot take effect until the corporation is organized.

While a franchise cannot take effect until the grantee corporation

is organized, the franchise may, nevertheless, be applied for
before the company is fully organized.

An ordinance granting a privilege to a corporation is not void

because the beneficiary of the ordinance is not fully organized at
the time of the introduction of the ordinance. It is enough that
organization is complete prior to the passage and acceptance of
the ordinance. The reason is that a privilege of this character is a
mere license to the corporation until it accepts the grant and
complies with its terms and conditions.

The incorporation of Morong Electric on October 17, 1962 and its

acceptance of the franchise as shown by its action in prosecuting
the application filed with the Commission for the approval of said
franchise, not only perfected a contract between the respondent
municipality and Morong Electric but also cured the deficiency
pointed out by the petitioner in the application of Morong EIectric.

Thus, the Commission did not err in denying petitioner's motion to

dismiss said application and in proceeding to hear the same

The efficacy of the franchise, however, arose only upon its

approval by the Commission on March 13, 1963.

The conclusion herein reached regarding the validity of the

franchise granted to Morong Electric is not incompatible with the
holding of this Court in Cagayan Fishing Development Co., Inc.
vs.Teodoro Sandiko, where it was held that a corporation

should have a full and complete organization and

existence as an entity before it can enter into any kind of a
contract or transact any business

It should be pointed out, however, that this Court did not say in
that case that the rule is absolute or that under no circumstances
may the acts of promoters of a corporation be ratified or accepted
by the corporation if and when subsequently organized.

It will be noted that American courts generally hold that a contract

made by the promoters of a corporation on its behalf may be
adopted, accepted or ratified by the corporation when organized.
Although a franchise may be treated as a contract, the eventual
incorporation after the grant of the franchise and its
acceptance thereof, as well as the efforts made to
prosecute the application not only perfected a contract but
cured the deficiency

Cagayan rule is not absolute;

o A corporation once formed may adopt, ratify, or
accept a contract made by promoters in behalf of
the corporation before its incorporation
MARCUS V. RH MACY
The appellant, since May 19, 1943, has been the registered owner of fifty
shares of the common stock of the respondent, R.H. Macy Co., Inc. On
September 28, 1945, the respondent gave formal notice to its
stockholders, including the appellant, that among other matters to be
acted upon at its annual meeting to be held on October 30, 1945, would
be a proposal, recommended by its board of directors, that its certificate
of incorporation be so amended as to add to the rights of preferred
stockholders voting rights, equal share for share, to those to which the
holders of the corporation's common stock are entitled. On October 27,
1945, prior to the annual meeting to which such notice referred, the
appellant sent to the respondent by registered mail a written notice that,
as a common stockholder, she objected to the proposed amendment of
the certificate of incorporation, and to the adoption of any resolution
designed to effect an amendment by which there would be added to the
rights of owners of the corporation's preferred stock voting rights equal,
share for share, to the voting rights of common stockholders. By her
written notice of objection the appellant also demanded payment for the
common stock then owned by her. Subsequently, at the annual meeting of
the corporation when the proposal to amend the certificate of
incorporation was approved by the stockholders the common stock
owned by the appellant was voted against such amendment.
Thereafter, as a nonconsenting common stockholder, the appellant
instituted the present proceeding to determine the value of her stock as a
basis for the enforcement of payment therefor. (Stock Corporation Law,
21, 38, subd. 9, par. [d].) At Special Term her application for the
appointment of appraisers to evaluate her stock was denied and the

petition herein was dismissed. Upon her appeal to the Appellate Division
the order of Special Term was unanimously affirmed.
By this appeal which was taken by our leave we are to determine
whether upon the facts of record before us the appellant may invoke
paragraph (d) subdivision 9 of section 38 of the Stock Corporation Law as
a means legally appropriate to accomplish the appraisal of her stock and
to enforce payment therefor.
The respondent does not deny the appellant's allegation that prior to its
corporate action taken on October 30, 1945, to which she objected, the
corporation had an authorized capitalization of 500,000 shares of
cumulative preferred stock ($100 par value) and 2,500,000 shares of
common stock (without par value); nor is it denied that there were then
issued and outstanding 165,600 shares of authorized preferred stock and
1,656,000 shares of common stock. It also appeared that prior to the
annual stockholders' meeting of October 30, 1945, the respondent's
certificate of incorporation gave to the holders of the preferred stock no
voting rights except in the event of specified contingencies.
Concededly the amendment to the respondent's certificate of
incorporation, adopted by the stockholders at the annual meeting of
October 30, 1945, granted to the holders of the corporation's preferred
stock additional rights which increased their voting privileges from a right
to vote only in specified contingencies to voting rights equal to those of
the holders of the corporation's common stock. By thus granting to the
165,600 preferred shares then outstanding voting rights equal share for
share to those to which the holders of common stock are entitled, the
aggregate number of shares having voting rights equal to those of the
common shares was substantially increased and thereby the voting power
of each common share outstanding prior to October 30, 1945, was altered
or limited by the resulting prorata diminution of its potential worth as a
factor in the management of the corporation's affairs.
We conclude that such an alteration or limitation in the voting power of
the common shares held by the appellant when considered with the
facts that she gave to the respondent formal written notice of her
objection to the proposed amendment to the corporation's charter with a
demand for payment for her stock, and thereafter caused her shares to be
voted against that amendment at the annual meeting of October 30, 1945
was sufficient to qualify her to invoke the statutory procedure upon
which the present proceeding is based.
By paragraph (E) of section 36 of the Stock Corporation Law the
respondent was given the right to alter the "privileges or voting powers of
any shares previously authorized, or the restrictions or qualifications
thereof * * *." But that statutory right was burdened with conditions set
forth in section 38, which section provides in part:
" 38. PROVISIONS APPLICABLE TO ONE OR MORE PROCEEDINGS UNDER
SECTIONS TWENTY-EIGHT AND THIRTY-SIX. The following provisions shall
be applicable to a certificate under * * * section thirty-six. * * *
"9.
2

If the certificate * * *
(d) abolishes any voting right of the holders of shares of any class or limits
their voting rights, except as the same may be limited by the voting rights
given to new shares of any class authorized by the certificate;
any holder of any such shares not in favor of such action may at any time
prior to the vote authorizing such action * * * object to such action and
demand payment for his stock, and thereupon such stockholder or the
corporation shall have the right, subject to the conditions and provisions
of section twenty-one, to have such stock appraised and paid for as
provided in said section. Such objection and demand must be in writing
and filed with the corporation." (Emphasis supplied.)
When, in the present proceeding, Special Term concluded that, within the
meaning of the statute last quoted above, the new voting privileges
granted to respondent's preferred stockholders at the meeting of October
30, 1945, did not cause such a deprivation of an existing stockholder's
rights as would justify granting the relief sought by this proceeding, the
court cited our ruling in Matter of Kinney ( 279 N.Y. 423) as authority for its
decision. In doing so we think Special Term failed to give proper weight to
the decisive fact that the amendment to the certificate of incorporation
which was objected to by the petitioner in the Kinney case ( supra),
involved a new and previously unauthorized issue of preferred stock, while
in the case at bar the charter amendment, to which the appellant objects,
granted new voting rights equal to those of the common shares
to previously authorized preferred stock of which 165,600 shares were
then issued and outstanding. The significance of that fact is emphasized
by the following excerpt from the opinion per FINCH, J., at pages 430-431
"* * * section 38 permits an appraisal only when an amended certificate
alters the preferential rights of the outstanding stock of a corporation as
between the different classes of stock * * * it does not apply to a case
where such rights are left unchanged as between themselves, but are
both made subject to a new issue of stock." ( Matter of Kinney, supra.)
(Emphasis supplied.)
In that connection it is significant that when after our decision in
the Kinney case ( supra) the Legislature, by chapter 600 of the Laws of
1943, amended subdivision 9 of section 38 by granting to a
nonconsenting stockholder the right to an appraisal of his stock "If the
certificate * * * (d) abolishes any voting right of the holders of shares of
any class or limits their voting rights * * *", it added the following
provision "except as the same may be limited by the voting rights given
to new shares of any class authorized by the certificate". (Emphasis
supplied.) (And see Stock Corporation Law, 36, par. [E] and, 38, subd.
11, as those sections were amended by L. 1943, ch. 600.)
In the case at bar, as we have seen, the appellant as the owner of
respondent's common stock objects to corporate action which granted to
previously authorized preferred stock the right to vote upon matters as to
which the common stock, prior to such action, had the exclusive right to
vote. Our conclusion is that, by thus limiting the voting power of the
appellant's common shares to a proportionate extent measured at a given

time by the number of preferred shares then issued and outstanding, the
corporate action to which the appellant has objected was of such a
character as to afford her a legal basis to invoke the procedure prescribed
by paragraph (d) of subdivision 9 of section 38, as a means to accomplish
the appraisal of her stock and payment therefor.
With emphasis placed upon the fact that of the 1,656,000 shares of the
respondent's common stock outstanding the appellant owns only 50
shares, we are told in support of the respondent's position that "The effect
of the amendment upon appellant's stock (if any) was so trivial and
insignificant that it may fairly be described as de minimis." We are also
told that if the appellant had a bona fide desire to sell her stock at market
value she could have done so on October 30, 1945, for approximately
three times the amount of her investment and at more than twenty points
per share above its book value. These asserted facts form the basis for
the respondent's argument that the appellant's application now before us
should be denied because it was not made in good faith.
As to that argument it is enough to say that the Legislature has clearly
prescribed the conditions under which a nonconsenting stockholder may
have his stock evaluated and enforce payment therefor. We find in those
conditions no legislative declaration of a minimum percentage or value of
stock which must be owned by a nonconsenting stockholder to qualify him
to invoke the prescribed statutory procedure

In Anderson v. International Minerals Chemical Corp. ( 295 N.Y. 343), we

dealt with an analogous situation which arose as an incident to a
corporate consolidation. There, as in the case at hand, we considered the
Legislature's purpose in enacting those provisions of the Stock
Corporation Law which, under prescribed conditions, grant to dissenting
shareholders the right to have their stock holdings appraised and to
enforce payment therefor. Referring to the legislative purpose Judge
THACHER wrote for the court at page 350: "The remedy of appraisal
and payment was intended to afford fair and just compensation to the
dissenters and at the same time provide the method by which their
objections could be fairly composed so as to enable the consolidation to
proceed."
Where, as in this instance, the Legislature by precise language has
created a right and with equal precision has set forth the procedure by
which that right may be availed of, the courts may not limit or enlarge
that right or alter that procedure.
The orders should be reversed and the matter remitted to Special Term for
further proceedings not inconsistent with this opinion, with costs in all
courts to the appellant.