Duffy v. Loft Inc., a Corporation of State

• Decision Date: 29 April 1930
• Citation: 17 Del.Ch. 140,151 A. 223
• Court: Court of Chancery of Delaware
• Parties: FLORENCE M. DUFFY v. LOFT INCORPORATED, a corporation of the State of Delaware

151 A. 223

17 Del.Ch. 140

FLORENCE M. DUFFY v. LOFT INCORPORATED, a corporation of the State of Delaware

Court of Chancery of Delaware, New Castle

April 29, 1930

PETITION FOR A SUMMARY ORDER FOR ELECTION OF DIRECTORS. In response to the petition two answers were filed each purporting to be the answer of the corporation. One answer filed in behalf of the corporation by Alfred R. Miller, who claims to be its president and was elected as such by the directors chosen in 1929, admitted the allegations of the petition to the effect that the stockholders had failed on March 19, 1930 (the date set by the by-laws of the corporation for the annual meeting at which directors were to be elected for the ensuing year), to elect directors. The other answer was filed in behalf of the corporation by Charles G. Guth, who also claims to be its president. It denies that the stockholders failed to elect directors on March 19, 1930. On the contrary, it avers that the stockholders were duly convened in meeting on said date and duly elected a board of directors and that the board so elected thereafter organized and selected officers for the corporation, and that Charles G. Guth was elected president of the corporation.

The annual meeting of stockholders for the election of directors was regularly called for March 19, 1930, and was attempted to be held on that date at the hour specified in the call. Two principal factions were contesting for the control of the meeting. For convenience they are called the Miller faction and the Guth faction. The former contends that the meeting resulted in no action recognizable as legal; the latter that the proceedings of the meeting lawfully resulted in the election of a new board of directors, which in turn chose Mr Guth as president.

The question before the court is the sole one, viz., were directors elected at the March 19th meeting? If so, the petition should be dismissed; if not, a master should be appointed as prayed.

Hastings Stockly & Morris, for petitioner.

Paul Leahy, and Richard B. Tippitt, and Derby A. Lynch, of Baltimore, Md., for Miller faction.

George N. Davis, Charles C. Keedy, and Clarence A. Southerland, and Arthur F. Driscoll, of New York City, for Guth faction.

OPINION

THE CHANCELLOR

The argument has reduced the questions involved in this cause to two in number.

1. The first question is whether the meeting which convened on March 19th was an invalid one because of the fact that Mr. Miller the incumbent president of the corporation, was not allowed to preside after the meeting was convened. A stenographic report of the meeting was made and the stenographer's transcript of his notes is conceded by both factions to be as faithful an account of what transpired as it was possible for any person to get in the midst of the confusion that was at times prevalent. The rival factions had been engaged, prior to the meeting, in a rather strenuous campaign for proxies and as soon as the meeting started, that happened which so often happens on such occasions, namely, the spirit of contest which the proxy campaign had engendered began to show itself. The president, Mr. Miller, at the hour of twelve, the time designated in the call for the convening of the meeting, appeared and commenced to address the gathering of from 250 to 300 people there assembled. He did not get far before he was asked to proceed in accordance with the by-laws. He replied that he had not yet called the meeting. There then followed a great amount of discussion and argument. Whether the president formally opened the meeting or not, is of no moment, for stockholders were present in response to the call and the president as a matter of fact made rulings from the chair. Of course it was not in the power of the president to prevent the meeting by refusing or neglecting to formally announce its opening.

The first controversy that engaged the attention of the meeting presented the question of who should preside. The president insisted that under the by-laws he was the only one entitled to preside. Stockholders on the floor moved that a chairman be selected by the meeting. The president ruled the motion out of order and insisted that the first thing to be done was to call the roll to see if enough stock was present either in person or by proxy to constitute a quorum. For page after page of the stenographic report the discussion of this question continued. Nominations were made for chairman, the president at one point stating that a "Mr. Sawyer has been nominated over here." There were several nominations, but the president would not put them to a vote. Finally a Mr. Donald arose from the floor and asked all that were in favor of the nominee, Dr. Sullivan, to stand. Practically all present stood up. Some time thereafter Dr. Sullivan took the chair and Mr. Miller, with some of his following, left and went to their offices at the other end of the room, taking a stock list certified by the transfer agent with them. Mr. Miller at all times refused to recognize the right of the meeting to choose a chairman and repeatedly declared all attempts to elect one to be out of order on the ground that under the by-laws he as president was entitled to preside.

Was he right in this contention? It is necessary at this point to refer to the by-laws. They provide, in one place that "the president shall preside at all meetings of the stockholders, unless the stockholders shall appoint a chairman, who may be the president." Another by-law provides for the order of business at a stockholders' meeting as follows:

(1) Call to order;

(2) Election of a chairman, if necessary;

(3) Presentation of proofs of the due calling of the meeting, etc.;

(4) Presentation and examination of proxies;

(5) Reading of prior minutes;

(6) Reports of officers;

(7) Election of directors, when that is the purpose of the meeting;

(8) Unfinished business;

(9) New business;

(10) Adjournment.

Mr. Miller evidently noticing the phrase in the second order of business "if necessary," took the position that the election of a chairman was not necessary and therefore all motions looking to such election were out of order. This position was untenable. The language of the by-law first above quoted giving the right to preside shows this to be so. It imposes a limitation on his right which is--"unless the stockholders shall appoint a chairman." The presence of the president ready and willing to preside cannot be said to oust the stockholders of their right to choose a chairman on any such theory that the president's presence makes such choice unnecessary, for the plain reason, if no other, that the by-law proceeds expressly to say that the stockholders may choose the president himself as chairman, a thing which if done bespeaks his presence, and therefore negatives the idea that his absence is a prerequisite to the right of the stockholders to elect. The by-law that deals with the order of business --"election of a chairman, if necessary"--must be construed in harmony with the other by-law giving the stockholders the right to choose a chairman. It can be so construed by holding the necessity of an election of a chairman to arise when a stockholder moves to choose one. The president was in error, therefore, when he repeatedly refused the demand of the stockholders that the meeting elect a chairman.

A chairman was elected in the manner above stated. In view of the president's refusal to put the motion, and of his disregard of the overrulings of his decisions on appeals, the stockholders could resort to no other course than they did, namely, vote on the motion when put to them by one of their fellows. They did so and I can find no legal objection to their course in that regard.

But, assuming that the stockholders had the right to choose a chairman, yet it is argued the choice they made was by a viva voce vote and under the by-laws it should have been by a vote of shares and by ballot. The by-laws contain a provision which answers this argument. It is as follows:

"The vote in election of directors, and, upon demand of a stockholder present in person or by proxy, the vote on any question, shall be by a stock vote and by ballot."

This by-law clearly implies that upon all votes other than upon directors, the vote shall not be a stock vote unless a demand is made by a stockholder for such a vote. In view of the particular language of the by-law it is not necessary to refer to the contention that the Guth faction puts forth to the effect that, under general law, votes directed to such a question as the chairmanship of the meeting are to be taken viva voce and not by shares.

The language of the by-law in this case is such as to differentiate the case from Proctor Coal Co., et al., v Finley, 98 Ky. 405, 33 S.W. 188, 190, which is relied on so confidently by the solicitors for the Miller faction, for in the cited case the by-laws provided that "at stockholders' meetings, each stockholder shall cast one vote for each share of stock owned by him," and there was no language from which an exception to the method of voting by shares was inferable...