Silva v. Coastal Plywood & Timber Co.

PEEK, J.

Plaintiffs have appealed from a judgment entered following the order of the trial court sustaining defendants’ demurrer without leave to amend.

Defendant corporation was organized under the Constitution and laws of the State of Nevada. That state by its Constitution provides that “Corporations may be formed under general laws, and all such laws may, from time to time, be altered or repealed.” This provision was implemented by a statute which provides that a corporation in that state may amend its articles by “. . . increasing, decreasing or reclassifying its authorized capital stock, by changing the number, par value designations, preferences, or relative, participating, optional, or other rights, or the qualifications, limitations or restrictions of such rights, of its shares . . .” (Nev. Comp. Laws, Supp. 1931-1941, § 1606(3).) Like statutory provisions are found in the Corporations Code of this state, sections 3600 and 3601. The articles of the corporation provided that only one share of stock could be issued to or owned by any stockholder who “. . . must be an active employee, or a person acceptable to the Board of Directors as a future active employee of the corporation.” It is stated in the articles that the reason for such restrictions is “. . . the particular nature of this corporation and thé contribution to the success thereof expected to ensue from the plan of identifying the management personnel and employees with stock ownership. ...” Apparently for the purpose of implementing the so-called plan, there were extensive provisions in the bylaws having to do with minimum and maximum wages to be paid stockholder employees, and also job tenure. The corporation became involved financially and following notice of default under the provisions of certain mortgages, a petition was filed under chapter 10 of the National Bankruptcy Act for the reorganization of said corporation. Shortly thereafter the board of directors called a meeting of the stockholders for the purpose of approving an amendment to the articles so that “Shares of stock of this corporation may be sold and transferred by operation of law or otherwise without any restriction, and any person may own any number of said shares.” Previously the articles had been amended

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twice—the first amendment reduced the classes of stock, and the second eliminated the provisions relative to wages and job tenure. Presently only a portion of the stockholders are employed by defendants.