Bove v. Community Hotel Corporation of Newport, R.I.

249 A.2d 89 (1969)

Quick Summary

Michael J. Bove III (plaintiff) and other preferred stockholders challenged Community Hotel Corporation (defendant) over a proposed merger designed to eliminate their accrued dividend rights without unanimous consent. The dispute centered on whether this maneuver circumvented statutory requirements and impaired contractual obligations.

The Supreme Court of Rhode Island ruled that the merger was permissible under state law, which allowed changing shareholder rights via corporate action with a two-thirds vote, not impairing any constitutional contract obligations.

Facts of the Case

Michael J. Bove III and other preferred stockholders (plaintiffs) held shares in Community Hotel Corporation of Newport, R.I. (Community Hotel, defendant). The preferred stockholders had accrued dividends for about 24 years, totaling approximately $645,000.

Community Hotel’s management sought to amend the preferred stockholders’ rights to enable the sale of common stock. Rhode Island law required unanimous consent from preferred stockholders for such an amendment, which Community Hotel could not secure. Instead, Community Hotel formed a subsidiary, Newport Hotel Corp. (Newport), and proposed a merger that would effectively eliminate the preferred stockholders’ dividend rights with only a two-thirds vote required under a different Rhode Island statute applicable to mergers.

The plaintiffs filed suit to prevent the merger, arguing it was a circumvention of the law requiring unanimous consent for amending dividend rights. The proposed merger would convert each share of Community Hotel’s preferred stock, along with all accrued dividends, into five shares of Newport’s common stock. Common stockholders would receive a one-to-one conversion in the new company.

Procedural Posture and History

  1. Michael J. Bove III and other preferred stockholders filed suit to enjoin the proposed merger of Community Hotel Corporation and its subsidiary, Newport Hotel Corp.
  2. The trial justice sitting without a jury decided the case on the facts presented in exhibits and pretrial order, denying injunctive relief and dismissing the action.
  3. The plaintiffs appealed the judgment to the Supreme Court of Rhode Island.

I.R.A.C. Format


  • Whether a corporation can use a merger to circumvent the statutory requirement of unanimous consent by preferred stockholders to amend their dividend rights.
  • Whether the rights of preferred stockholders to accumulated dividends can be cancelled by a statutory merger without impairing the obligations of contracts under state and federal constitutions.

Rule of Law

Rhode Island law permits any two or more corporations to merge into a single corporation and allows for the terms and conditions of the merger, including the conversion of shares, to be determined by corporate action requiring a two-thirds vote rather than unanimity. The reserved power to alter or amend corporate charters permits subsequent legislation to affect shareholder rights without necessarily impairing contract obligations.

Reasoning and Analysis

The court found that the merger statute’s language did not concern itself with the underlying purpose of a merger, even if it was solely to change an existing corporation’s capital structure. The court also rejected the notion that corporate action under one section must be valid under another section of general corporation law.

Instead, it emphasized that the power to merge included the ability to cancel preferred stockholder priorities with less than unanimous consent.

Furthermore, the court reasoned that since the merger statute was part of Community Hotel’s charter when it was organized and its stock issued, preferred shareholders were informed that their rights could be extinguished through corporate action under this statute.

The court held that subsequent legislation enabling such corporate action did not unconstitutionally impair contractual obligations because it was enacted under the reserved power to amend or repeal charters—a power that is part of every Rhode Island corporation’s charter.


The Supreme Court of Rhode Island affirmed the judgment of the lower court, allowing the merger to proceed and effectively cancelling the preferred stockholders’ dividend rights without unanimous consent.

Key Takeaways

  1. A merger can be used as a legal strategy to alter a corporation’s capital structure without unanimous consent from preferred stockholders if authorized by statute.
  2. The reserved power to amend or repeal corporate charters can permit changes affecting shareholder rights without necessarily violating constitutional protections against impairing contracts.
  3. Statutory appraisal remedies may serve as adequate protection for dissenting shareholders in a merger, negating the need for equitable intervention by courts.

Relevant FAQs of this case

What legal recourse do shareholders have when their rights are diminished by a corporate merger?

Shareholders may have statutory appraisal rights to receive fair value for their shares, seek injunctive relief to prevent the merger, or file a lawsuit for breach of fiduciary duty committed by directors.

  • For example: If a company merges and a shareholder believes the terms are unfair, they can invoke appraisal rights, compelling the corporation to buy out their shares at a price determined by court to be fair.

How does the reserved power doctrine affect shareholder agreements?

The reserved power doctrine allows states to alter corporate charters, which can supersede existing shareholder agreements as long as the changes comply with constitutional safeguards and do not violate vested rights.

  • For example: If state legislation permits companies to change dividend policies through a new amendment, this can override previous agreements with shareholders regarding dividend rights, provided it doesn’t infringe on rights considered vested under the law.

Can statutes override unanimous consent requirements in company charters?

Yes, if a statute specifically allows for it. Statutes may permit actions like mergers with less than unanimous consent, reflecting a balance between majority rule and minority shareholder protection.

  • For example: A law requiring only a two-thirds majority for specific corporate decisions can override a charter clause necessitating unanimous consent for amending share classes or dividend rights.
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