FACTS: The sole SH’s of Kenton Hotel, Inc. (Dondero, owner of 2/3’s of the stock, and Benintendi, owner of 1/3.) Dondero and Benintendi agreed to and adopted certain bylaws providing (1) SH action on any corp. matter required unanimous action by all SH’s, (2) election of directors required unanimous SH vote, (3) action by directors required unanimous vote of all the directors, and (4) any amendment of bylaws required unanimous vote by all the SH’s. Benintendi brought this action to have the bylaws declared valid and to enjoin Dondero from taking any action contra to these bylaws. Special Term and the Appellate Division held bylaws No. 1 and No. 2 invalid, and bylaws No. 3 and No.4 valid.
ISSUE: Is a bylaw valid where it requires unanimous vote by (1) all SH’s on any action they take, (2) all SH’s in electing directors, (3) all directors on any action before the board, and (4) all SH’s in amending a bylaw?
HOLDING: (1) No, a bylaw provision requiring unanimous SH approval on resolutions or any other action is obnoxious to the statutory scheme of stock corp. management. When SH’s combine to require unanimous vote on all corp. matters, the minority gains an absolute veto power over the majority, thus destroying representative corp. gov’t. (2) No, NY law is that a nominee for director is elected by receipt of a plurality of the votes. And even though SH voting agreements to vote for certain persons as directors is allowed, a requirement that no election of directors is allowed unless all votes are cast for the same nominees will not be upheld. (3) No, the common-law rule was that only a majority of directors is needed for a quorum. NY Corp law, §27, modifies the common law rule, allowing a corp. to fix its own quorum for directors’ meetings at any number not less than 1/3 nor more than a majority. The votes of the majority are binding. (4) Yes, a bylaw requiring unanimity of action by all SH’s to amend bylaws is against neither public policy nor NY statutory law.
They went too far – What’s wrong w/the unanimous vote requirement? If only 2, and one says yes and one no – nothing happens. If you can’t agree, nothing gets done.