Rice And Hutchins Inc. v. Triplex Shoe Company

• Decision Date: 10 July 1929
• Citation: 147 A. 317,16 Del.Ch. 298
• Court: Court of Chancery of Delaware
• Parties: RICE AND HUTCHINS INCORPORATED, a corporation organized and existing under the laws of the State of Maine, v. TRIPLEX SHOE COMPANY, a corporation organized and existing under the laws of the State of Delaware, L. E. DILLMAN, JOHN A. CURTIS, HARRY MILLER, L. T. RIDER, ALBERT W. DILLMAN, HARRY L. RICE, FRED B. RICE, FRANK B. ELLISON, and PHILIP MULVIHILL

147 A. 317

16 Del.Ch. 298

RICE AND HUTCHINS INCORPORATED, a corporation organized and existing under the laws of the State of Maine, v. TRIPLEX SHOE COMPANY, a corporation organized and existing under the laws of the State of Delaware, L. E. DILLMAN, JOHN A. CURTIS, HARRY MILLER, L. T. RIDER, ALBERT W. DILLMAN, HARRY L. RICE, FRED B. RICE, FRANK B. ELLISON, and PHILIP MULVIHILL

Court of Chancery of Delaware, New Castle

July 10, 1929

[Copyrighted Material Omitted]

APPLICATION FOR DETERMINATION OF ELECTION OF DIRECTORS of Triplex Shoe Company, filed under the provisions of Section 31 of the General Corporation Law (Revised Code of 1915 § 1945, as amended by Chapter 85, § 15, of Volume 35, Laws of Delaware, approved March 2, 1927).

The Triplex Shoe Company was incorporated December 13, 1919. Its certificate of incorporation provided that its total authorized capital stock should be one hundred and fifty thousand dollars, "divided into seven hundred and fifty preferred shares, of the par value of one hundred dollars ($ 100) each. And the remaining Seventy-five Thousand Dollars in shares of common stock without any par value." What the preferred stock's preferences, if any, were, was not stated.

At the first meeting of the directors held on January 8, 1920 Albert W. Dillman was elected president, Elmer Solly vice-president and secretary, and Louis E. Dillman treasurer. According to one set of minutes, these individuals composed the entire board of directors at that time. According to another set, two other persons, Messrs. M. J. Robinson and W. F. Emery, had also been elected to the board. At the board meeting held on January 8, 1920, the following resolution was adopted by the directors:

"That in consideration of the services rendered in organizing the Company, and in agreeing to serve the Company at a much smaller compensation than they would otherwise, upon and in consideration of other services to be rendered in the premises and for actively managing the Company, that Mr. Albert C. Dillman receive three hundred and seventy-six shares (376) of the common stock of the Company; that Mr. Louis E. Dillman receive one hundred and fourteen shares (114) of the common stock of the Company; and that Elmer Solly receive fifty shares (50) of the common stock of the Company, which shares shall be full paid and non-assessable and which shall include the original subscriptions to Capital Stock made by these three named persons."

The stock was issued in accordance with this resolution. Thereafter, Solly transferred his fifty shares to the two Dillmans, so that Albert W. Dillman's holdings of common then amounted to four hundred and one shares and Louis E. Dillman's to one hundred and thirty-nine shares.

At various times prior to February 28, 1921, other common shares to the number of one hundred and twenty-one were issued to various persons.

On February 28, 1921, at a special meeting of stockholders, a resolution authorizing an amendment to the certificate of incorporation was adopted but not filed in the office of the Secretary of State until nearly a year later, viz., on January 20, 1922. The certificate filed with the Secretary of State certifies that all of the outstanding common and preferred shares voted for the amendment. The amendment contained the following provisions as to capital as a substitute for the original:

"The total authorized capital stock of this corporation consists of Twenty-three Hundred and Seventy-five Shares (2375) of preferred stock with a par value of One Hundred ($ 100.00) each, and amounting in the aggregate to Two Hundred and Thirty-seven Thousand Five Hundred ($ 237,500.00) dollars an Ten Hundred Seventy-five (1075) shares of Common Stock, which common shares shall be without nominal or par value."

(Here follows a description of the preferences which the preferred stock should be entitled to.)

"The sole voting power shall reside in the holders of the common stock."

On April 5, 1921, Rice and Hutchins Incorporated, the petitioner, purchased two hundred and forty-nine shares of preferred stock paying therefor in merchandise, and was given eighty-three shares of common stock as a bonus on the basis of one share of common for three shares of preferred.

According to one set of minutes, though not according to another, the stockholders at their annual meeting held January 24, 1922, unanimously adopted the following resolution:

"Whereas, on January 8, 1920 the Board of Directors voted to pay for services rendered the following number of shares of Common Stock of the Company to the gentlemen named:

"Albert W. Dillman 376 Shares

"L. E. Dillman 114 Shares

"Elmer Solly 50 Shares

"And whereas, question has arisen as to the validity of this stock by reason of the imperfections in the original Certificate of Amendment,

"Now, therefore, be it

"Resolved: That the corporation approve the action of the Board of Directors as passed at that meeting and instruct the Officers of the Company to issue valid certificates for a like amount of stock to the gentlemen named in place of the stock certificates executed to them at that time."

The petitioner gave a proxy to the Dillmans to vote its eighty-three shares of common stock at this meeting. The said shares were voted in favor of the resolution.

On April 1, 1922, the petitioner purchased two hundred and fifty shares of preferred receiving with it fifty shares of common as a bonus.

The petitioner then held, as will be seen, four hundred and ninety-nine shares of preferred and one hundred and thirty-three shares of common. Its certificates were in the form originally used by the company before the amendment authorized by the meeting of February 28, 1921, was adopted.

Thereafter all outstanding certificates were called in and new certificates, gotten up in a form adapted to the amended charter, issued in lieu thereof. This was later than April 24, 1922. The petitioner surrendered its old certificates and accepted the new ones for its common and preferred stock.

On May 20, 1922, the certificate of incorporation was again amended, altering to some extent the features of the preferred stock, but leaving practically undisturbed the existing provisions as to the common.

On May 15, 1922, the petitioner purchased four hundred shares of preferred, receiving also as bonus eighty shares of common; and on January 1, 1925, the petitioner purchased two hundred and fifty shares of preferred, receiving also as a bonus fifty shares of common.

This was the last acquisition of stock by the petitioner. Its present holdings therefore are eleven hundred and forty-nine shares of preferred stock and two hundred and sixty-three shares of common.

The petitioner gave proxies for voting its common stock at all meetings of the stockholders down to the meeting of January, 1929. One of its directors was also elected to the board of the respondent as its representative in 1925 and continued to act as a director of the respondent as late at least as 1928.

The 1929 annual meeting of the stockholders was held on January 28th. At that meeting a contest developed over the election of directors. Two tickets were presented, one designated as the "A" ticket supported by the petitioner and the other as the "B" ticket supported by the Dillman faction. The "B" ticket was declared to have been elected.

The pending petition was filed for the purpose of reviewing and determining the validity of the election of the directors so declared as having been elected. The prayer is that the candidates appearing on the "A" ticket be decreed to have been the ones elected rather than those who appeared on the "B" ticket.

Charles C. Keedy, for petitioner.

Josiah Marvel, of the firm of Marvel, Morford & Ward, for L. E. Dillman, John A. Curtis, Harry Miller, L. T. Rider, Albert W. Dillman ("B" ticket), and Triplex Shoe Company.

Robert H. Richards, for Harry T. Rice, Fred B. Rice, Frank D. Ellison, and Philip Mulvihill, who with Albert W. Dillman were on the "A" ticket.

OPINION

THE CHANCELLOR

At the annual stockholders' meeting which the petition calls up for review, the petitioner challenged the right of certain shares of common stock to vote. From the stock register which is in evidence it appears that there are outstanding nine hundred and forty-three alleged shares of no par common stock and about fifteen hundred and sixty shares of preferred stock. Of the nine hundred and forty-three shares of common all were represented at the annual stockholders' meeting either in person or by proxy, and of the preferred stock the petitioner's eleven hundred and forty-nine shares were present and claimed the sole right to vote, notwithstanding the provision in the amendment to the certificate of incorporation, filed January 2, 1922, that "the sole voting power shall reside in the holders of the common stock."

Before taking up the questions which call for decision, it will perhaps be helpful to point out certain respects wherein the organizers and managers of this corporation clearly disregarded the law of its creation. From its inception, the bungling results of ignorance of the law have marred its features. In fairness to the solicitor appearing for it in this cause it should be stated, however, that he is in no wise identified with these results.

I now proceed to point out the particulars wherein the statute under which the corporation was created was completely disregarded.

In the original certificate of incorporation two classes of stock were created--a preferred with a par value, and a common with no par value. The preferred was simply called such; any description of preferences, however, was omitted. The word "preferred" therefore meant nothing. Gaskill v Gladys Belle Oil...