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1. Marcus v. R. H. Macy & Co., 297 N.Y. 38

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Marcus v. R. H. Macy & Co.
Court of Appeals of New York
Submitted May 15, 1947. ; July 2, 1947, decided
No Number in Original
Reporter
297 N.Y. 38 *; 74 N.E.2d 228 **; 1947 N.Y. LEXIS 910 ***
In the Matter of HAZEL MARCUS, Appellant. R.H.
MACY & Co., Inc., Respondent.
Prior History: [***1] Matter of Marcus (Macy & Co.),
270 App. Div. 934, reversed.
APPEAL, by permission of the Court of Appeals, from
an order of the Appellate Division of the Supreme Court
in the first judicial department, entered May 31, 1946,
which unanimously affirmed an order of the Supreme
Court at Special Term (COHALAN, J.), entered in New
York County, (1) denying a motion by petitioner for an
order appointing three persons to appraise the value of
50 shares of the common stock of respondent owned by
petitioner, and (2) dismissing the petition.
Disposition: LOUGHRAN, Ch. J., CONWAY,
DESMOND, THACHER, DYE and FULD, JJ., concur.
Orders reversed, etc.
Core Terms
stock, shares, voting rights, stockholder, common stock,
preferred stock, holders, outstanding, appraisal,
certificate of incorporation, certificate, objected, rights,
annual meeting, common shares, Stock Corporation
Law, conditions, notice
Case Summary
Procedural Posture
Appellant stockholder appealed a judgment of the
Appellate Division of the Supreme Court in the First
Judicial Department (New York), which affirmed an
order of the trial court denying the stockholder's
application for the appointment of appraisers to evaluate
her stock in respondent corporation and dismissed her
petition.
Overview
The corporation notified its stockholders that at its
annual meeting it would act on a proposal to give
preferred stockholders voting rights, equal to those
which common stockholders' were entitled. Prior to the
meeting, the stockholder, a common stockholder,
notified the corporation that she objected to the
proposed actions and demanded payment for the
common stock then owned by her. The proposal was
approved and the stockholder's stock was voted against
the amendment. The stockholder brought an action to
determine the value of her stock as a basis for the
enforcement of payment for it. The trial court denied her
application for the appointment of appraisers to evaluate
her stock and her petition was dismissed. The appellate
court affirmed the order of the trial court. The court
reversed the order of the appellate court and remitted
the case. The court held that by limiting the voting
power of the stockholder's common shares to a

297 N.Y. 38, *38; 74 N.E.2d 228, **228; 1947 N.Y. LEXIS 910, ***1
proportionate extent as it did, the corporate action was
of such a character as to afford her a legal basis to
invoke the procedure prescribed by N.Y. Stock Corp.
Law § 38(9)(d), as a means to accomplish the appraisal
of her stock and payment for it.
Outcome
The court reversed the order of the appellate court,
which affirmed an order of the trial court, which denied
the stockholder's application for the appointment of
appraisers to evaluate her stock and dismissed her
petition. The court remitted the case to the trial court.
LexisNexis® Headnotes
Business & Corporate Law > ... > Actions Against
Corporations > Standing > General Overview
Business & Corporate
Law > Corporations > Corporate Finance > General
Overview
Business & Corporate Law > ... > Corporate
Finance > Initial Capitalization & Stock
Subscriptions > General Overview
Business & Corporate Law > ... > Shareholder
Actions > Appraisal Actions & Dissent
Rights > General Overview
Business & Corporate Law > ... > Appraisal Actions
& Dissent Rights > Right to Dissent > Procedural
Matters
HN1[ ] Actions Against Corporations, Standing
N.Y. Stock Corp. Law § 38 provides: If the certificate
abolishes any voting right of the holders of shares of
Page 2 of 7
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 N.Y. Stock Corp. Law § 21, 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.
Headnotes/Summary
Headnotes
Corporations - certificate amending voting rights of
classes of stock - (1) where preferred stockholders
could vote only in specified contingencies and
corporation proposed to grant them equal voting rights
with common stock, effect on common stock "limits their
voting rights" pro rata, and nonconsenting common
stockholder who gave written notice of objection and
demand for payment and voted against amendment was
entitled to appraisal of her stock (Stock Corporation
Law, § 38, subd. 9, par. [d] ) - (2) immaterial that she
could have sold [***2] her few shares on market for
thrice her investment; Legislature created right and
remedy by precise language.
1. A corporation may file a certificate amending the
"privileges or voting powers of any shares previously
authorized, or the restrictions or qualifications thereof"
(Stock Corporation Law, § 36, par. [E] ); but "If the
certificate * * * 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 * *

297 N.Y. 38, *38; 74 N.E.2d 228, **228; 1947 N.Y. LEXIS 910, ***2
* 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." (§ 38, subd. 9, par. [d]; italics
supplied.) Where preferred stockholders of
corporation had a right to vote only in specified
contingencies, and the [***3] corporation proposed to
grant them voting rights equal share for share with
common stockholders, a common stockholder who gave
the corporation written notice of her objection and
demand for payment, and who thereafter voted against
the proposed amendment, was entitled to invoke the
statutory procedure for an appraisal of and payment for
her stock. The amendment had the effect of limiting the
voting power of each common share by a resulting
prorata diminution of its potential worth as a factor in the
management of the corporation's affairs. The preferred
stock here was not a new issue ( Matter of Kinney, 279
N.Y. 423, distinguished).
2. The corporation had an authorized capitalization of
2,500,000 common shares and 500,000 preferred
shares, of which it had issued 1,656,000 common and
165,600 preferred. The good faith of the nonconsenting
stockholder's application cannot be attacked on the
ground that she could have sold her 50 shares of
common stock at market value for approximately three
times her investment and at more than twenty points per
share above book value. Where, as in this instance, the
Legislature by precise language has created a right and
with equal precision [***4] has set forth the procedure
by which that right may be availed of, and there is no
legislative declaration of a minimum percentage or value
of stock required to qualify a nonconsenting stockholder
Page 3 of 7
as petitioner in an appraisal proceeding, the courts may
not limit or enlarge that right or alter that procedure.
Counsel: William Rosenfeld for appellant. I. The
statutes clearly grant the right to an appraisal under the
circumstances. (Stock Corporation Law, § 36, par. [E],
§ 38, subd. 9, par. [d]. ) II. The dilution of the voting
rights of one class of stock by the granting of voting
rights to another class of stock constitutes a "limiting" of
the voting rights of the former class. ( Matter of Kinney,
a
279 N.Y. 423.) III. The courts below overlooked or
ignored the fact that the preferred stock to which voting
rights were given had been previously authorized.
Leon Lauterstein, Melbourne Bergerman and George
Siegel for respondent. I. As a matter of law appellant is
not entitled to an appraisal of the value of her common
stock. Respondent, by granting voting rights to the
preferred stockholders without giving them any new or
additional rights to vote separately [***5] as a class, did
not abolish or limit the voting rights of any common
stockholder. ( Lord v. Equitable Life Assurance Society,
194 N.Y. 212.) II. Appraisal has been refused where
new or additional rights were given to stockholders of a
certain class leaving the rights of stockholders of
another class untouched. The enactment of paragraph
(d) of subdivision 9 of section 38 of the Stock
Corporation Law evinces no intention to grant an
appraisal in such situation. ( Matter of Kinney, 279 N.Y.
423; Matter of Silberkraus, 250 N.Y. 242; Matter of
Dresser, 247 N.Y. 553; Wagstaff v. Holly Sugar Corp.,
253 App. Div. 616, 279 N.Y. 625; Pouch v. Prudential
Ins. Co., 204 N.Y. 281; Matter of Cole, 235 N.Y. 48.) III.
Because paragraph (d) of subdivision 9 of section 38 of
the Stock Corporation Law denies the right of appraisal
even though voting rights of existing stock "may be
limited by the voting rights given to new shares of any
class authorized by the certificate", it does not follow
that an appraisal is warranted where the giving of voting

297 N.Y. 38, *38; 74 N.E.2d 228, **228; 1947 N.Y. LEXIS 910, ***5
rights to the existing preferred stock does not, as matter
of law, limit the rights of the common stock. ( [***6]
Grausman v. Porto Rican-American Tobacco Co., 95
N.J. Eq. 155.) IV. The statute does not give any right of
appraisal where, as here, the majority stockholders
apart from the statute had a legal right to undertake the
action and a dissenting minority stockholder had no right
to block such action. ( Matter of Timmis, 200 N.Y. 177;
Matter of Leventall, 241 App. Div. 277; Lord v. Equitable
Life Assurance Society, 194 N.Y. 212.) V. Courts of
equity have inherent general equitable discretion in
dealing with the relations between a corporation and its
stockholders. Therefore, on application for the
appointment of appraisers the court has power to deny
the application in the exercise of sound discretion if it is
not made in good faith but is sought for an ulterior
purpose. ( Matter of Durr v. Paragon Trading Corp., 270
N.Y. 464; Matter of Baker Macfadden Publications, 270
App. Div. 440.)
Opinion by: LEWIS
Opinion
[*40] [**229] LEWIS, J. 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, [***7] 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
Page 4 of 7
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 [*41] 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 [***8] 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 [***9] issued and

297 N.Y. 38, *41; 74 N.E.2d 228, **229; 1947 N.Y. LEXIS 910, ***9
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
[**230] 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 [*42] 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 [***10] 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
Page 5 of 7
"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:
HN1[ ] "§ 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. If the certificate * * *
(d) [***11] 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.)
[*43] 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 [***12] 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
 Page 6 of 7
297 N.Y. 38, *43; 74 N.E.2d 228, **230; 1947 N.Y. LEXIS 910, ***12

preferred stock, while in the case at bar the charter the appellant has objected was of such a character as to
amendment, to which the appellant objects, granted afford her a legal basis to invoke the procedure
new voting rights - equal to those of the common shares prescribed by [***14] paragraph (d) of subdivision 9 of
- to previously authorized preferred stock of which section 38, as a means to accomplish the appraisal of
165,600 shares were then issued and outstanding. The her stock and payment therefor.
significance of that fact is emphasized by the following
With emphasis placed upon the fact that of the
excerpt from the opinion per FINCH, J., at pages 430-
1,656,000 shares of the respondent's common stock
431 - "* * * section 38 permits an appraisal only when an
outstanding the appellant owns only 50 shares, we are
amended certificate alters the preferential rights of the
told in support of the respondent's position that "The
outstanding stock of a corporation as between the
effect of the amendment upon appellant's stock (if any)
different classes of [**231] stock * * * it does not apply
was so trivial and insignificant that it may fairly be
to a case where such rights are left unchanged as
described as de minimis." We are also told that if the
between themselves, but are both made subject to a
appellant had a bona fide desire to sell her stock at
new issue of stock." ( Matter of Kinney, supra.)
market value she could have done so on October 30,
(Emphasis supplied.)
1945, for approximately three times the amount of her
In that connection it is significant that when - after our investment and at more than twenty points per share
decision in the Kinney case (supra) - the Legislature, by above its book value. These asserted facts form the
chapter 600 of the Laws of 1943, amended basis for the respondent's argument that the appellant's
subdivision [***13] 9 of section 38 by granting to a application now before us should be denied because it
nonconsenting stockholder the right to an appraisal of was not made in good faith.
his stock - "If the certificate * * * (d) abolishes any voting
As to that argument it is enough to say that the
right of the holders of shares of any class or limits their
Legislature has clearly prescribed the conditions under
voting rights * * *", it added the following provision -
which a nonconsenting stockholder may have his stock
"except as the same may be limited by the voting rights
evaluated and enforce payment therefor. We find in
given to new shares of any class authorized by the
those conditions no legislative declaration of a minimum
certificate". (Emphasis supplied.) (And see Stock
percentage or value of stock [***15] which must be
Corporation Law, § 36, par. [E] and, § 38, subd. 11, as
owned by a nonconsenting stockholder to qualify him to
those sections were amended by L. 1943, ch. 600.)
invoke the prescribed statutory procedure. (Cf. General
In the case at bar, as we have seen, the appellant as Corporation Law, § 61-b.)
the owner of respondent's common stock objects to
In Anderson v. International Minerals & Chemical Corp.
corporate action which granted to previously authorized
(295 N.Y. 343), we dealt with an analogous situation
preferred stock the right to vote upon matters as to
which arose as an incident to a corporate consolidation.
which the common stock, prior to [*44] such action,
There, as in the case at hand, we considered the
had the exclusive right to vote. Our conclusion is that,
Legislature's purpose in enacting those provisions of the
by thus limiting the voting power of the appellant's
Stock Corporation Law which, under prescribed
common shares to a proportionate extent measured at a
conditions, grant to dissenting shareholders the right to
given time by the number of preferred shares then
have their stock holdings appraised and to enforce
issued and outstanding, the corporate action to which
 Page 7 of 7
297 N.Y. 38, *44; 74 N.E.2d 228, **231; 1947 N.Y. LEXIS 910, ***15

payment therefor. Referring to the legislative purpose

Judge THACHER wrote for the court at page 350: "The
remedy of appraisal and [*45] 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. ( [***16] Matter of Cantor, 261
N.Y. 6, 12; [**232] Thompkins v. Hunter, 149 N.Y. 117,
122-123.)

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.

End of Document