Boggs v. Bellevue, Inc.

• Decision Date: 29 July 1931
• Citation: 18 Del.Ch. 108,156 A. 202
• Court: Court of Chancery of Delaware
• Parties: LUCY H. BOGGS, VERONICA F. BLAUROCK, LIEGE F. HOLMES, MARY J. BELTZHOOVER, EDITH BELTZHOOVER, ANNA PARK, MARGARET PRICE, LOUISE H. WEBSTER, SALLY B. GRYMES, MARY H. GRIMES, CHARLES J. WADE, J. H. BOGGS, LAURA M. POWELL, KATE WILKINSON, MARY WASNER, MERTIE FARQUHAR and MABEL STENNETT, v. THE BELLEVUE, INCORPORATED, OF WASHINGTON, D. C., a Delaware corporation

156 A. 202

18 Del.Ch. 108

LUCY H. BOGGS, VERONICA F. BLAUROCK, LIEGE F. HOLMES, MARY J. BELTZHOOVER, EDITH BELTZHOOVER, ANNA PARK, MARGARET PRICE, LOUISE H. WEBSTER, SALLY B. GRYMES, MARY H. GRIMES, CHARLES J. WADE, J. H. BOGGS, LAURA M. POWELL, KATE WILKINSON, MARY WASNER, MERTIE FARQUHAR and MABEL STENNETT, v. THE BELLEVUE, INCORPORATED, OF WASHINGTON, D. C., a Delaware corporation

Court of Chancery of Delaware, New Castle

July 29, 1931

BILL FOR RECEIVER. The complainants as stockholders, on behalf of themselves and all other stockholders and creditors, of the defendant corporation, seek the appointment of a receiver of said corporation under the provisions of Section 3883 of the Revised Code 1915, alleging insolvency consisting of the inability to meet its current and maturing obligations as they fall due.

The cause was heard on bill, answer, testimony of witnesses taken orally before the Chancellor, depositions and exhibits. The facts sufficiently appear in the opinion of the Chancellor.

Bill dismissed with costs on the complainants.

Thomas Muncy Keith, and Jesse C. Duke, of Washington, D. C., for complainants.

Christopher L. Ward, Jr., of the firm of Marvel, Morford, Ward & Logan and John A. Thompson and Thomas H. Patterson, both of Washington, D. C., for defendant.

OPINION

THE CHANCELLOR:

The defendant was created in June, 1928, for the purpose of erecting, owning and operating a hotel in the City of Washington, D. C. The hotel was completed and opened for business in December, 1929. It is favorably located near the capitol grounds, facing the Union Station Plaza.

The organizers of the corporation conceived the idea of operating it along co-operative lines. Their plan was to offer to each subscriber to its preferred stock the right to rent a room at as low a rental as would be consistent with the cost of operation. The complainants are for the most part persons who subscribed for preferred stock and who became renters at the rate originally fixed as reasonable. The erection and equipment of the building cost over $ 600,000, the exact sum for the moment escaping my memory. The balance sheet as of September 30, 1930, shows only $ 80,225 of capital stock to have been sold. So that it appears that the hotel was built and furnished for the most part on borrowed money. Its borrowings are evidenced principally by so-called first and second trust notes and by unsecured notes.

Creditors therefore have a much larger stake in the enterprise than have the stockholders.

During its first year of operation, the defendant was able to show an operating profit of a little over fifteen thousand dollars. Its indebtedness charges however far exceeded the operating profit and left a deficit for the year of a little over thirty thousand dollars. About January or February of the present year, the directors concluded that it would be advisable to raise the room rentals and to ask the stockholders to lend the corporation a total of about fifteen thousand dollars. They estimated that a loan in that amount and the additional annual receipts to be yielded by an increase of two dollars and fifty cents per month in rentals to stockholders and five dollars per month in rentals to non-stockholders, would place the corporation in such condition that in about four years its affairs would be established on a firm basis.

When it was proposed to call upon the stockholder-tenants, who were government employees, to pay two dollars and fifty cents a month more for their rooms, some indignation was felt by them. They seemed to take the view that the terms of their subscription agreements forbade the increase. In this they were plainly in error. As a result, I think it is fair to say, of the expressed desire of the defendant to obtain the increase in rent revenue, certain of the stockholders were stirred to bring this suit. According to their own showing if a receiver should be appointed, the valuable asset which the corporation owns would be entirely sacrificed to the creditors to the exclusion of the stockholders.

The creditors, however, whose claims, if liquidated out of the property, would absorb it, are not asking for a receiver. All the trade creditors are being paid promptly; so that the defendant is having no trouble to keep the hotel in operation. The other creditors, the holders of the trust notes and the other notes, appear to be content to give the defendant time to work out its problems. Even if their letters to the corporation expressing a willingness to withhold pressure be rejected as evidence, the fact remains that they have taken no proceedings anywhere to enforce payment. None of them have intervened in this suit though they know of it. This is true with respect to all of them except one, Minnie A. Strassner, who holds a second trust note for five hundred dollars. This note appears to be one that ...