Brooks v. State ex rel. Richards

• Decision Date: 17 January 1911
• Citation: 79 A. 790,26 Del. 1
• Court: Supreme Court of Delaware
• Parties: BROOKS v. STATE ex rel. RICHARDS, Atty. Gen

79 A. 790

26 Del. 1

BROOKS v. STATE ex rel. RICHARDS, Atty. Gen

Supreme Court of Delaware

January 17, 1911

Simpson & Brown and Saulsbury, Ponder & Morris, for plaintiff in error.

Christopher L. Ward and Herbert H. Ward, for defendant in error.

Argued before BOYCE, CONRAD, and WOOLLEY, JJ.

OPINION

WOOLLEY J.

On or about the 28th day of October, A.D. 1901, Henry Brooks Richard B. Morrell and William M. Pyle organized a corporation under the general corporation laws of the state of Delaware, for the purpose of conducting and carrying on the textile business in which Brooks and Morrell had been previously engaged in the state of Pennsylvania. Before entering upon its business, the corporation, which was known as Geo. Brooks & Son Company, issued $300,000 of its capital stock, of the share value of $100 each, $100,000 of which was preferred stock, the holders of which, by the provision of its charter, were excluded from any voice or vote in the management of its affairs, and $200,000 of which was common stock, the holders of which, by like provision, were vested with the sole right to vote in matters pertaining to the corporation. To Henry Brooks were issued 1,000 shares (or all) of the preferred stock and 1,000 shares (or one-half) of the common stock, and to Richard B. Morrell were issued 1,000 shares (or the balance) of the common stock. From the holding of Morrell, 3 shares were transferred to William M. Pyle in order to qualify him as a director, resident in Delaware.

The three named incorporators were duly elected directors and together acted as such until February 5, 1908, when a vacancy in the board of directors occurred by the death of Henry Brooks, which was filled by the election of Marshall A. Brooks at a meeting held by Morrell and Pyle, the two surviving directors.

Dissatisfaction and disagreements arose and culminated at a stockholders' meeting held on May 11, 1908, which was a deferred annual meeting of the stockholders of the company for the election or directors. At that meeting those who had succeeded to the stock of Henry Brooks, who proved to be members of the Brooks family and one John B. Wurtz, a stranger to both the Brooks and Morrell interest, voted 1,000 shares of preferred and 1,000 shares of common stock for George H. Brooks, the plaintiff in error, John W. H. Brooks and Marshall A. Brooks, while the 1,000 shares of common stock represented by the Morrell interests were voted for Richard B. Morrell and William M. Pyle.

George H. Brooks, John W. H. Brooks and Marshall A. Brooks were declared elected directors, which offices they immediately assumed by organizing a board of directors, electing George H. Brooks president of the company, and taking possession of its property and assuming control of its business.

In contest of the right of those claiming election as directors by the vote of the preferred stock of the company, Morrell filed a bill of complaint against the company in the United States Circuit Court for the District of Delaware, at Wilmington. At a hearing in that court on a motion for a preliminary injunction prayed for in the bill, George H. Brooks, the president of the defendant company, was present with the company's solicitor, rendering him such aid as his official position afforded. During a recess and while in the Federal Building, George H. Brooks was served with the rule allowed by the Superior perior Court in this case, requiring him to show cause why leave to file an information in the nature of a writ of quo warranto should not be granted against him.

Upon the return of the rule and under leave to appear specially, the respondent moved to vacate the service of the rule on the ground of privilege and exemption from service while in attendance on the United States Circuit Court under the circumstances indicated. The motion was denied and exception noted.

Upon the failure of the respondent in the rule to show cause, the court made the rule absolute and granted leave to the Attorney General to file against the respondent an information in the nature of a writ of quo warranto. The information is in the following form:

"New Castle County - ss.:

"Robert H. Richards, Attorney General of the state of Delaware, who sues for the said state of Delaware, in this behalf, comes here before the judges of the Superior Court of the state of Delaware in and for New Castle county, on this thirteenth day of June, A.D. 1908, at the June term of said court, and for the said state of Delaware, gives the said court to understand and be informed that under the provisions of the general corporation law of the state of Delaware, on or about the twenty-eighth day of October, A.D. 1901, Geo. Brooks & Son Company was created a corporation of the state of Delaware and forthwith thereafter duly organized and engaged in the business for which it was chartered, with all franchises, privileges and rights of a corporation, and that for upwards of one year prior to, on and after the eleventh day of May, A.D. 1908, Richard B. Morrell, Marshall A. Brooks and William M. Pyle were and are the lawfully elected and duly chosen and qualified directors of said corporation, holding office as such until their successors shall be duly elected and qualified, and that notwithstanding the premises, George H. Brooks and John W. H. Brooks have, during all the time since the eleventh day of May, A.D. 1908, used and still do use the franchises, offices, privileges and liberties of directors of the said Geo. Brooks & Son Company, and during the said time hitherto the said franchises, offices, privileges and liberties of directors of the said company have usurped and still do usurp to the great damage and prejudice of the state of Delaware.

"Whereupon the said Attorney General prays that the court do grant a writ of quo warranto directed to the said George H. Brooks and John W. H. Brooks commanding them and each of them that they appear in the said court on some day to be named by the said court, to show by what warrant or authority they claim to have and enjoy the franchises, offices, privileges and enjoy the franchises, offices, privileges and liberties aforesaid.

"Robert H. Richards.

"Attorney General of the State of Delaware."

After refusal by the court to allow subsequent motions to quash the information and discharge the rule for reasons that appear in subsequent pleadings, the defendant below filed his plea to the information. By his plea he admits the incorporation of the Geo. Brooks & Son Company, and that prior to the stockholders' meeting of May 11, 1903, Marshall A. Brooks, Morrell and Pyle were its lawfully elected and qualified directors to remain such until their successors were lawfully elected and qualified. For title to his office as director, he shows that at the election for directors on the date last named, all of the stockholders of the company were present either in person or by proxy, that the stock vote was equal to the stock issued, that he received 2,000 of the 3,000 votes cast, that 1,000 votes represented the votes cast upon the 1,000 shares of preferred stock and that the other 1,000 votes were cast upon 1,000 shares of the common stock, and that the votes so cast for him upon the shares of preferred stock were legally cast and counted under and by force of the provision of the Constitution of the state of Delaware of 1897, as then existing (article 9, § 6), which was that: "In all elections for directors or managers of stock corporations each stockholder shall be entitled to one vote for each share of stock he may hold."

The plea concludes with a denial of the usurpation of the office charged in the information, by employing the formal language of a special traverse: "Without this, that the said George H. Brooks during all the time since the eleventh day of May, A.D. 1908, the said franchises, offices, privileges and liberties of director of the said corporation has usurped and still does usurp in the manner and form as in the said information is alleged, and this the said George H. Brooks is ready to verify."

To that part of the defendant's plea in which he shows the title by which he claims and holds the office he is charged to have usurped, the Attorney General replied by special replication, setting up new matter in avoidance of that upon which the defendant based his title. By this new matter he challenges the right of holders of the preferred stock to vote for directors, and quotes from the charter and by-laws of the corporation the provisions respecting the voting power of stock. The provision of this charter is that: "The holders of said preferred stock shall not be entitled, by reason of their holdings thereof, to any voice or vote in the management of the affairs of the corporation. The voting power shall be confined to the holders of the common or general stock." And it is further shown that the by-laws provide that:

"The one hundred thousand of preferred stock shall have no vote in the transaction of any business of the company, being a first lien on all of the property, and in case of liquidation shall be redeemed at par, shall draw a regular yearly dividend of 6%, which may be paid quarterly, and which shall be cumulative.

"The two hundred thousand common stock shall have and possess all voting power, shall meet and elect board of directors, once a year, order and amend by-laws, and, in fact, exercise all the power of stockholders, as hereinafter provided."

It is therefore replied that the 1,000 votes received by the defendant below and cast for him by the holders of that quantity of preferred stock, were illegal, that without the votes on the preferred stock, each person voted for at the election mentioned received the same number of votes, that the...