Lawson v. Household Finance Corporation

• Decision Date: 27 February 1930
• Citation: 17 Del.Ch. 343,152 A. 723
• Court: Supreme Court of Delaware
• Parties: JOHN H. LAWSON, v. HOUSEHOLD FINANCE CORPORATION, a corporation of the State of Delaware

152 A. 723

17 Del.Ch. 343

JOHN H. LAWSON, v. HOUSEHOLD FINANCE CORPORATION, a corporation of the State of Delaware

Supreme Court of Delaware

February 27, 1930

Supreme Court, No. 2, October Term, 1929.

Appeal from the Court of Chancery.

STATEMENT OF THE CASE. The complainant below filed a bill in the Court of Chancery of this State, against the defendant below, a Delaware corporation, praying that it be decreed to transfer to him one hundred (100) shares of its Class B common stock registered in the name of Echo R. Davis, the certificate for which had been indorsed to him and tendered for cancellation.

The material facts alleged in the bill were admitted by the answer of the defendant below, but its refusal to transfer the stock in question was justified by the provisions of its certificate of incorporation as amended, and its by-laws. Those portions of said certificate of incorporation which were relied upon were as follows:

Ninth. (a) Any holder of Class B. common stock if desirous of selling or transferring all or any of his shares of Class B common stock, and the executor or administrator of any deceased holder of Class B. common stock if desirous of selling or transferring all or any of such shares belonging to the estate of such deceased and the purchaser of any share or shares of Class B. common stock sold on execution or at any judicial sale if desirous of selling or transferring any such share or shares and the pledgee of any share or shares of Class B. common stock before bringing any suit, action or proceeding or doing any act to foreclose his pledge shall first deliver to the president or treasurer of the corporation written notice of such desire to sell or transfer, or of intention to foreclose, designating the number of such shares to be sold, transferred or foreclosed as the case may be, and the number of the certificate or certificates therefor and the name and residence address of a person who is then a holder of Class B. common stock of the corporation who shall act as an appraiser.

(b) The president and treasurer or the board of directors of the corporation shall within ten days after delivery of such notice select another holder of Class B. common stock as an appraiser and give written notice of his name and residence address to the person desirous of making such sale, transfer or foreclosure and to the appraiser appointed by him; the two appraisers so selected shall within twenty days after the giving of said last named notice select a third appraiser who shall be experienced in the business of loaning money or in banking and who shall reside or be engaged in business in the city in which the general administrative office of the corporation is located; and they shall at once notify both parties in writing of the name and residence address of said third appraiser.

(c) If the two appraisers so selected shall not within said twenty days select such third appraiser, either party may apply upon five days' written notice to the other, to any judge of any court of general jurisdiction in the said city for the appointment of such third appraiser.

(d) The three appraisers so selected shall within thirty days after the selection of the third appraiser appraise such share or shares proposed to be sold, transferred or foreclosed and the majority of them shall determine their value as at the time of such appraisal and shall forthwith give written notice of their determination to both parties. In determining the value good will shall not be considered.

(e) Said appraisal shall take place at the said general administrative office of the corporation and the appraisers shall notify both parties in writing of the time when the appraisal will be made; each party shall pay the expenses and fees of the appraiser selected by him or it and one-half of the expenses and fees of the third appraiser.

(f) The board of directors shall thereupon have the option, for twenty days after receipt by the corporation of written notice of the determination of the appraisers, of purchasing said share or shares for the corporation at the appraised value. Payment for any such share or shares may be made by the board by share or shares for the corporation at the appraised value. Payment for any such share or shares may be made by the board by depositing the said appraised value to the credit of such shareholder, executor, administrator grantee, assignee or pledgee, as the case may be, in any National Bank in Chicago or New York, to be paid to such person by said bank upon the surrender of the certificate or certificates for said share or shares of Class B. common stock properly endorsed; the board shall give written notice of such deposit to the seller.

(g) Every holder of Class B. common stock who, being a director, officer, employee or agent of the corporation, shall whether with or without his fault cease to be such director, officer, employee or agent and every executor or administrator of any deceased holder of Class B. common stock and every purchaser of any share or shares of Class B. common stock sold on execution or at any judicial sale shall immediately offer all shares of Class B. common stock by them respectively owned or held, for appraisal and purchase by the corporation as above set forth, whenever requested by the board of directors so to do and no dividend shall be paid or allowed upon any such share or shares, after failure to comply with such request.

(h) Said board shall not be obliged to purchase any share or shares of Class B. common stock at the appraised value aforesaid unless it shall think fit; but if it shall not within said last named twenty days purchase and pay for the said share or shares, such shareholder, executor, administrator, grantee, assignee, or pledgee shall be at liberty to sell said share or shares to any person whomsoever.

(i) The board of directors and the person desiring to sell or foreclose may waive the foregoing requirements as to appraisal and may mutually agree upon the value of any share or shares of Class B. common stock to be sold.

(j) Failure of the board to purchase any share or shares of Class B. common stock so appraised and the sale or transfer thereof to any other person, shall not, as to any future sale or transfer of said share or shares, or of any share or shares issued in lieu thereof, discharge any such share or shares of Class B. common stock from any of the restrictions herein contained; it being the intent that all restrictions hereby imposed upon the sale or transfer of shares of Class B. common stock shall apply to all shares of Class B. common stock, whensoever, howsoever or by whomsoever acquired, in the hands of all holders or owners, whether original shareholders or subsequent purchasers or transferees and whether acquired through the voluntary or involuntary act of a shareholder or by operation of law and whether a part of the first authorized issue or of any subsequent or increased issue.

That portion of the by-laws relied upon, being section two of article six, is identical with the above quotation from the certificate of incorporation.

These provisions were also printed on the back of the stock certificate and referred to on the face thereof.

For the opinion in the Court of Chancery, see ante p. 1.

Decree affirmed.

William Prickett, for appellant.

E. Ennalls Berl, (Frank R. Hubachek and F. B. Hubachek, of Chicago, Ill., of counsel), for appellee.

PENNEWILL, C. J., and RICE, HARRINGTON, RICHARDS and RODNEY, JJ., sitting.

OPINION

RICHARDS, J.

The general proposition that no power or authority can be conferred upon a corporation by its charter, which was not provided by the statute under which it was created is not disputed.

All corporations created in this State and powers thereby granted must be sanctioned by an Act of the Legislature. Constitution, Article 9.

Corporate existence and powers were well defined by Chief Justice Marshall in the celebrated Dartmouth College Case, when he said, "A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created." Dartmouth College v. Woodward, 17 U.S. 518, 4 Wheat. 518, 636, 4 L.Ed. 629.

The same rules which govern the construction of statutes, contracts and other written instruments, are made use of in construing the provisions and determining the meaning of charters and grants of corporate powers and privileges. Hartford Bridge Co. v. Union Ferry Co., 29 Conn. 210; Dempster Mfg. Co. v. Downs, 126 Iowa 80, 101 N.W. 735, 106 Am. St. Rep. 340, 3 Ann. Cas. 187; State v. Noyes, 47 Me. 189; Casper v. Kalt-Zimmers Mfg. Co., 159 Wis. 517, 149 N.W. 754, 150 N.W. 1101.

An examination of the General Corporation Law of this State, being Chapter 65 of the Revised Code of 1915, as amended, discloses that the following powers are expressly granted to every corporation organized under its provisions.

Section 2, par. 6: "To make by-laws not inconsistent with the Constitution or laws of the United States or of this State, fixing and altering the number of its directors, for the management of its property, the regulation and government of its affairs and for the certification and transfer of its stock. * * *"

Section 3: "In addition to the powers enumerated in the second section of this Chapter every corporation, its officers, directors and stockholders, shall possess and exercise all the powers and privileges contained in this Chapter, and the powers expressly given in its charter or in...