Lippman v. Kehoe Stenograph Company

• Decision Date: 21 January 1918
• Citation: 11 Del.Ch. 412,102 A. 988
• Court: Supreme Court of Delaware
• Parties: MARTIN LIPPMAN, Complainant below, Appellant, v. KEHOE STENOGRAPH COMPANY, Defendant below, Appellee

102 A. 988

11 Del.Ch. 412

MARTIN LIPPMAN, Complainant below, Appellant, v. KEHOE STENOGRAPH COMPANY, Defendant below, Appellee

Supreme Court of Delaware

January 21, 1918

APPEAL FROM COURT OF CHANCERY. The appellant sought an injunction in the court below to enjoin the sale and transfer of three shares of stock of the Kehoe Stenograph Company, ownership of which was claimed by the appellant. An answer was filed to the bill and supplemental bill in the court below, executed by Julius Strauss, as president, and Abraham M. Ackerman, as secretary, admitting the allegations of the bill and supplemental bill. Thereafter a petition was filed purporting to be that of the Kehoe Stenograph Company, executed by H. C Dunlap as president thereof, asking that the answer filed by Strauss and Ackerman on behalf of the company be stricken from the files and that leave be granted to file as the answer of the company an answer submitted with the petition. After a hearing on the petition, the answer executed by Strauss and Ackerman was stricken from the files and leave given to file as the answer of the company, the answer executed by Dunlap. (See ante p. 80.)

After a full hearing in the court below the bill of complaint was dismissed (see ante p. 190), and thereupon an appeal was taken from the decree of the Chancellor.

Decree of the court reversed.

James I. Boyce, for the appellant.

James M. Tunnell, and with him John J. O'Connor, of New York City, for the appellee.

Argued before BOYCE, CONRAD, RICE and HEISEL, J. J. BOYCE, J dissenting.

OPINION

HEISEL, J. (delivering the opinion of the majority of the court). The appellant, Martin Lippman, on August 14, 1914, filed in the Court of Chancery in New Castle County, a bill of complaint against the Kehoe Stenograph Company, a corporation of this State, the appellee, the object of which was to restrain the appellee, its officers agents, attorneys and factors from selling or disposing of or attempting to sell or dispose of, three shares of the capital stock of said Kehoe Stenograph Company claimed to be owned by Lippman, and which had been advertised for sale by certain persons claiming to act as the officers of the Kehoe Stenograph Company, because the par value of said shares had never been paid to the company.

On the same day a rule issued out of the Court of Chancery against the appellee to show cause why an injunction should not be granted as prayed for, and a restraining order issued to prevent the sale of the shares of stock mentioned in the advertisement recited in the bill of complaint.

On August 18, 1914, an answer to the bill of complaint signed Kehoe Stenograph Company, by Julius Strauss, president and attested by Abraham M. Ackerman as secretary was filed, which answer admitted the averments of the bill of complaint, and averred that it was a bogus and unlawful board of directors, who, pretending to act as the board of directors of the Kehoe Stenograph Company caused the advertisement for the sale of stock to be inserted in the paper as set out in said bill.

On August 31, 1914, appellant filed a supplemental bill setting forth that notwithstanding the restraining order of August 14, 1914, and the answer of the company signed by Julius Strauss as president and Ackerman as secretary, the shares of stock of appellant were sold, or pretended to be sold, on the eighteenth day of August, and prayed for a restraining order prohibiting the transfer of said shares of stock upon the books of the company. On the same day the restraining order issued.

To this supplemental bill an answer was also filed by the company signed by Strauss, as president, and Ackerman as secretary on September 11, 1914, in which the allegations of the supplemental bill are admitted and it further avers that the said pretended sale was not made by the company, but by certain persons, pretending to act as directors of the company; and that said sale was not authorized, sanctioned or approved by said company.

Thus the cause stood until November 19, 1914, when a petition signed, Kehoe Stenograph Company, by H. C. Dunlap president, was filed. This petition, after reciting the several proceedings in Chancery substantially as hereinbefore stated, denied that Strauss was president and Ackerman, secretary of the Kehoe Stenograph Company, and that the answers heretofore filed by them pretending to be the answers of that company were the true answers of the company; and averred that H. C. Dunlap was president and G. H. West was the secretary of the company; that petitioner had no knowledge of the proceeding heretofore had in this case until September 3, 1914; and that the petitioner would, if permitted to file an answer, deny many of the allegations of both bills filed by the appellant, and prayed that it be allowed to file answers to these bills, and that the answers heretofore filed by Kehoe Stenograph Company by Strauss as president and Ackerman as secretary be stricken from the record.

On March 22, 1915, an answer to this petition signed by Strauss, president, and Ackerman, secretary, was filed. Thus was raised a collateral issue by two factions, each claiming to have been the de jure board of directors of the Kehoe Stenograph Company during the months of August and September, 1914.

On December 11, 1915, after the filing of affidavits and argument, the Chancellor ordered the answers theretofore filed by the Stenograph Company by Strauss as president to be stricken from the record and the proposed answer of the company signed by Dunlap as president to be filed.

The answer signed by Dunlap as president was thereupon filed, and after the taking of evidence orally, the Chancellor, on the fourth day of October, 1916, declined to grant the injunction prayed for and dismissed the bill with costs on the complainant.

From this decree the appellant has taken his appeal, alleging five assignments of error: That the Chancellor erred:

First. In dismissing the bill of complaint.

Second. In not granting the relief prayed for by the complainant in his original and supplemental bills.

Third. In not declaring the pretended forfeiture of the said complainant's stock null and void.

Fourth. In not striking from the files the answer, purporting to be the answer of the Kehoe Stenograph Company, signed by H. C. Dunlap purporting to be the president of the said company.

Fifth. In not re-instating the answer of the Kehoe Stenograph Company signed by Julius Strauss as president of the said company.

The determination of the questions thus raised depends upon the validity of two meetings held, or claimed to have been held, by different groups of persons claiming to be directors of the company, one on October 29, 1913, and the other on January 21, 1914.

If the meeting of October 29th was a valid meeting of the directors of the company then the meeting of January 21st, was invalid, and all subsequent meetings of the board headed by Dunlap, including the meeting at which the three shares of stock of the appellant were forfeited were invalid. If, however, the meeting of October 29th was invalid and the meeting of January 21st, was valid, then all the subsequent meetings of the board headed by Dunlap were valid, and the three shares of stock of appellant forfeited by that board, were properly forfeited, and there was no error in dismissing the bill.

The reasons urged by appellant why the meeting of January 21st, was invalid are:

First, there was not a quorum of directors present, because those who had been elected were not qualified to serve, either, because they were not stockholders when elected or had become disqualified before that meeting by assigning their stock.

Second, without authority the meeting was held outside the State of Delaware, and

Third, because none of the alleged board of directors was a resident of the State of Delaware.

Counsel for appellee contended that none of these reasons can properly be urged in an action by a stockholder in Chancery in an effort to enjoin a corporation acting through a de facto board of directors from forfeiting his stock for non-payment of the amount due thereon. That quo warranto is the proper and only action by which such questions can be determined, citing 32 Cyc. 1426; 10 Cyc. 755-758, 520; 32 Cyc. 1415; 7 Ruling Case Law, §§ 83, 396, 423, 425; Hayes v. Burns, 25 App. D.C. 242; 4 Ann. Cas. 704; Sherman v. Clark, 4 Nev. 138, 97 Am. Dec. 516; St. Luke's Church v. Mathews, 4 Desaus, (S. C.) 578, 6 Am. Dec. 619; Mickles v. Rochester City Bank, 11 Paige (N. Y.) 118, 42 Am. Dec. 103; Chubb v. Upton, 95 U.S. 665, 24 L.Ed. 523; Cayuga Lake R. R. Co. v. Kyle, 64 N.Y. 185; Buffalo & Allegheny R. Co. v. Cary, 26 N.Y. 75; Geneva Mineral Spring Co. v. Coursey, 45 A.D. 268, 275, 61 N.Y.S. 98; Williams v. D. L. & W. R. Co., 255 Pa. 133, 99 A. 477.

In reply to this appellant contends that he is entitled to relief, if it can be shown that his stock was forfeited by other than a de jure board of directors and that the reasons urged by him against the validity of the meeting of the board on January 21, 1914, can properly be urged and considered by the Chancellor in this action. Citing in support of this contention the following: Thompson on Corporations, (2d Ed.) §§ 4607, 3750; Garden G. U. Q. Min. Co. v. McLister, 1 L. R. App. Cas. 39; Hart v. Clarke, 6 Deg. M. & G. 232; Sweeny v. Smith, L. R. 7 Law Rep. Eq. 324; Norman v. Mitchell, 5 Deg. M. & G. 648; Johnston v. Jones, 23 N.J.Eq. 216; Cook on Corporations, (7th Ed.) § 134; Mitchell v. Vermont Copper Min. Co., 67 N.Y. 280; Dewing v. Perdicaries, 96 U.S. 193, 24 L.Ed. 654; Raisch v. M., K. & T. Oil Co., 7 Cal.App. 667, 95 P. 662; Moses, et al., v. Tompkins, 84 Ala. 613, 4 So. 763.

The general principle that may be...