CORPORATIONS-ACCRUED PREFERRED STOCK DIVIDENDS-CHARTER AMENDMENT

In 1943 defendant corporation\u27s charter was amended to cancel 5 per cent cumulative preferred stock, outstanding since 1926 or earlier, and all accrued dividends in exchange for new 5 per cent ,non-cumulative preferred and non-voting common stock. Dividends had accumulated on the old preferred stock both before and after 1939 in a total amount of $50 per share. The recapitalization plan rested on a 1939 amendment to the Ohio General Code providing that the terms of outstanding stock can be changed in such a manner as to discharge (without payment), adjust or eliminate rights to accrued undeclared cumulative dividends by charter amendment, subject to a dissenting shareholder\u27s right to demand appraisal and payment for his stock. Preferred stockholders bring this bill to enjoin execution of the plan claiming unlawful impairment of their contract rights. The trial court sustained the broad provisions of the 1939 statute under federal and state constitutions, and ruled that dissenters were protected adequately by the appraisal remedy. In the court of appeals the statute was held unconstitutional insofar as it authorized destruction of dividends accruing before 1939. Further appeal was taken to the Ohio Supreme Court. Held, injunction granted. The statute is an unconstitutional impairment of contracts so far as it permits destruction of dividends accrued before or after 1939 on stock issued before the effective date of the statute. Wheatley v. A. I. Root Co., 147 Ohio St. 127, 69 N.E. (2d) 187 (1946)