Sohland v. Baker

• Decision Date: 17 November 1927
• Citation: 141 A. 277,15 Del.Ch. 431
• Court: Supreme Court of Delaware
• Parties: DORA SOHLAND, Defendant below, Appellant, v. MATHIAS H. BAKER, Complainant below, Appellee. ALFRED SOHLAND, Defendant below, Appellant, v. MATHIAS H. BAKER, Complainant below, Appellee

141 A. 277

15 Del.Ch. 431

DORA SOHLAND, Defendant below, Appellant, v. MATHIAS H. BAKER, Complainant below, Appellee. ALFRED SOHLAND, Defendant below, Appellant, v. MATHIAS H. BAKER, Complainant below, Appellee

Supreme Court of Delaware

November 17, 1927

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

STATEMENT OF THE CASE. These were separate appeals from the decree of the Chancellor entered in the Court of Chancery for New Castle County, in accordance with the opinions filed in the case of Mathias H. Baker vs. Bankers Mortgage Co., et al., and reported ante pp. 183, 209, and were heard together as one action.

The record shows that Mathias H. Baker filed a stockholder's bill in the court below against Bankers Mortgage Company (a corporation of this State), Alfred Sohland, Dora Sohland, and the Harrisburg Corporation (a corporation of the State of Delaware also) praying for the cancellation of certain stock of the Bankers Mortage Company standing in the name of the said Alfred Sohland and Dora Sohland, and for an account of the dividends paid thereon.

The Bankers Mortage Company was organized in April of 1922 with a capital stock of $ 1,020,000 preferred and founders' stock, and 100,000 shares of common stock, without par value. Of the authorized capital of $ 1,020,000, 20,000 shares of the par value of $ 1.00 each were founders' shares and 100,000 shares of the par value of $ 10.00 each were preferred shares. The holders of the preferred stock were entitled to one vote for each share of stock held by them the holders of the common stock were entitled to one vote for each share of stock held by them; and the holders of the founders' shares were entitled to ten votes for each share of such stock held by them.

On and prior to June 16th of that year, one Paul F. Skinner, who had promoted the organization of that company, was a director and the president of the company, and N. B. Skinner and A. E. Kimmel, constituted the remaining members of the board of directors.

Some time during the early part of June, 1922, Alfred Sohland and certain other persons decided to purchase a large block of the stock of the Bankers Mortgage Company. Sohland, himself, contemplated subscribing for a substantial amount of the stock, but did not have the necessary funds. He was then a director and the president of a corporation known as the Harrisburg Corporation, which he claimed was indebted to him to the extent of approximately $ 125,000, and he, therefore, conceived the plan of using the credit of that company to procure stock for himself in the Bankers Mortgage Company.

In explanation of the alleged indebtedness of the Harrisburg Corporation to him, Alfred Sohland stated that in March of 1920, on behalf of himself and one D. G. Derry, he had contracted to purchase from one Christian W. Lynch 2,760 shares of the second preferred stock and 3,604 shares of the common or voting stock of the Harrisburg Foundry & Machine Works, which latter stock constituted about sixty-three per cent. of the voting stock of that company; that the contract price was $ 187,510, of which $ 50,000 was paid in cash, and the balance was to be paid, with interest, in four equal installments at the expiration of six, twelve, eighteen and twenty-four months; that in May of 1921, an arrangement was made whereby Derry relinquished his one-half interest in the stock in question to Alfred Sohland for the agreed consideration of $ 100,000; that Sohland in turn, for the agreed consideration of approximately $ 287,000, was to transfer the stock in question to the Harrisburg Corporation, which was a subsidiary corporation of the Harrisburg Foundry & Machine Works; that the Harrisburg Corporation was to reimburse Sohland for the amount he had already paid Lynch on the Harrisburg Foundry & Machine Works stock; that the Harrisburg Corporation was, also, to pay the balance still due Lynch under his contract with Sohland and Derry for the Harrisburg Foundry & Machine Works stock; that it was, also, to pay the $ 100,000 which Sohland had agreed to pay Derry, this latter payment was, however, to be paid in securities to be issued by the Harrisburg Corporation; that the Harrisburg Corporation was unable to make the cash payments called for by the agreement between it and Sohland and Derry; that Sohland was, therefore, compelled to pay the cash balance due Lynch on his contract with himself and Derry, and at the time the bill was filed in the court below the Harrisburg Corporation was still indebted to Sohland for the amount so paid by him; that, by reason of the transactions above detailed, he claimed that the Harrisburg Corporation was indebted to him in the amount of $ 118,000 with interest.

It appears from the record that Sohland, also, claims to have made some other monetary advances to the Harrisburg Corporation, but what they were does not appear in detail.

At the time that the Harrisburg Corporation assumed the obligation of $ 287,000 above referred to, Sohland was not only a director and the president of that company, but he was, also, a director and president of the Harrisburg Foundry & Machine Works, the stock of which company the Harrisburg Corporation had agreed to purchase.

On June 16th, 1922, an application for a loan of $ 125,000 to the Harrisburg Corporation was presented to the Bankers Mortgage Company. This application was to be secured by the collateral assignment of 2,760 shares of the second preferred and 3,604 shares of the common, or voting stock, of the Harrisburg Foundry & Machine Works, which the Harrisburg Corporation had agreed to purchase from Sohland. The board of directors of the Bankers Mortgage Company, consisting of Skinner and two of his associates, approved the application for this loan, with the understanding that the same was to be consummated "as soon as the financial condition of the Bankers Mortgage Company would, in the opinion of its directors, justify investment."

After this application of the Harrisburg Corporation had been approved, the directors of the Bankers Mortgage Company recessed for one-half hour. The board then reconvened and Skinner and his associates resigned as directors, and Sohland and two of his associates and nominees, namely, Coble and Webbert, were elected in their places, Sohland being elected president of the corporation. On the 22nd day of June, the board of directors was increased from three to five members; Webbert resigned and Miller was elected in his place. Kines and Nissly were also elected members of the board.

On August 2nd, 1922, the application of Harrisburg Corporation was considered by the new board of directors of the Bankers Mortgage Company and was approved with the addition of the significant provision "that the loan be made by the issuance of stock in the Bankers Mortgage Company in the number of shares required."

At the August 2nd meeting of the Bankers Mortgage Company, while Mr. Sohland was presiding, it appears from the record that he brought the Harrisburg Corporation matter to the attention of the board. At this time he said: "I want to buy $ 125,000 of Bankers Mortgage Company stock, and this is the way I want to pay for it." Sohland in fact admitted that he made the statement above quoted with the change of the words "want to pay for it" to "can pay for it."

The record, also, shows that on June 15th of that year he had stated to Mr. Miller, who subsequently became a director of the Bankers Mortgage Company at his instance, that he wanted his help "to put something over." He further stated: "I don't want your money; I want you to take care of mine."

In referring to the collateral, which had been offered and approved at the preceding meeting, Sohland said at this meeting:

"It is sixty-three per cent. of the stock of that company (referring to the Harrisburg Foundry & Machine Works) and is worth three or four hundred thousand dollars. I can take the receiver off the hook and this minute get $ 125,000 for it. I can and will go to New York and Philadelphia and borrow money on it up to one hundred or one hundred and twenty-five thousand dollars, as the Bankers Mortgage Company may need it in its business."

He also mentioned the particular banks from which he could secure the sum above referred to.

At the time the resolution of August 2 was passed, the directors apparently knew nothing as to the ability of the Harrisburg Corporation to pay the note which they approved, or as to the value of the stock of the Harrisburg Foundry & Machine Works, which they approved as collateral security therefor. While the record shows that some inquiry as to its value was made at this meeting by Miller, such inquiry was stopped by Sohland.

On August 14, the note of the Harrisburg Corporation for $ 125,000 to which was attached the shares of stock of the Harrisburg Foundry & Machine Works approved as collateral, was brought to the office of the Bankers Mortgage Company. The Bankers Mortgage Company thereupon drew its check to the order of the Harrisburg Corporation for the sum of $ 125,000. The Harrisburg Corporation then gave to the Bankers Mortgage Company its check for $ 150,000. It also gave its check at the same time to the Bankers Mortgage Company for $ 12,500 to cover the bonus and interest on the alleged loan. At the same time the Bankers Mortgage Company also gave its check to C. W. Webbert for $ 37,500 which represented an alleged commission due him on the sale of the $ 150,000 worth of stock of the Bankers Mortgage Company to the Harrisburg Corporation. This last-mentioned check was duly indorsed by Webbert and desposited to the credit of the Harrisburg Corporation.

While it thus appears that both the Bankers Mortgage Company and the Harrisburg Corporation received each...