State v. Urschel

• Decision Date: 08 February 1922
• Docket Number: 17031,17084
• Parties: The State, Ex Rel. Chapman, v. Urschel Et Al.; The State, Ex Rel, Stuart, Pros. Atty., v. Urschel Et Al.
• Court: Ohio Supreme Court

135 N.E. 630

104 Ohio St. 172

The State, Ex Rel. Chapman, v. Urschel Et Al.; The State, Ex Rel, Stuart, Pros. Atty., v. Urschel Et Al.

Nos. 17031 , 17084

Supreme Court of Ohio

February 8, 1922

Dismissals - Effective only when order journalized - Corporation organized in 1916 - Power to issue preferred stock - Section 8698, General Code - Procedure to authorize preferred stock - Sections 8699 and 8719, General Code - Voting power of preferred stock - Limitation or restriction accomplished how.

1. An attempt to dismiss a pending ease does not become effective until an order to that effect is duly entered upon the journal of the court.

2. An Ohio corporation originally authorized to issue only common stock may, after organization, under the law of Ohio existing August 29, 1916, make valid provision for an issue of preferred stock without the authorized common stock all being subscribed; and the conditions precedent relating to an increase of common stock, as provided in Section 5698 General Code, as of that date, have no application to preferred stock.

3. The procedure for authorization of preferred stock in a corporation on August 29, 1916, which corporation was originally authorized to issue only common stock, is governed by Section 8698, General Code, and could not at that time be effected by amendment of the articles under favor of Section 5719, General Code.

4. Preferred stock in Ohio corporations has equal voting power with every other class unless limitations or restrictions upon such power are made by the resolution by virtue of which the preferred stock was authorized, and any agreement, understanding or belief to the contrary, not expressed in such resolution, is ineffective.

IN QUO WARRANTO.

The Woodville Lime Products Company is an Ohio corporation located at Toledo, Ohio, incorporated in 1902, originally authorized to have only common capital stock in the sum of $30,000. This stock was successively increased until its authorized capital stock was $200,000, all common, and on February 26, 1916, 1,500 shares of $100 each were issued and outstanding. The remaining $50,000 had not then been issued and has not been issued at this time. Seven hundred and fifty shares were owned by William L. Urschel and others associated with him, and 750 shares by John J. Urschel and others associated with him. On February 26, 1916, proceedings were had to authorize the issuance of $100,000 of preferred stock bearing 6% interest. These proceedings were not in the nature of an amendment to the articles of incorporation, but were by certificate pursuant to the provisions of Section 8699 General Code, according to its provisions as of that data. Thirty-four thousand dollars of the preferred stock was issued, all of which was afterwards replaced with other preferred stock of a subsequent authorization. On August 29 1916, proceedings were had providing for a further increase of the capital stock in the additional sum of $100,000 of preferred stock bearing 7% interest. Of that authorization $49,000 is issued and now outstanding. The preferred stock was first sold to persons other than the parties to this controversy, and, prior to December, 1919 all of the preferred stock except ten shares was owned by persons other than the parties hereto. Neither authorization of preferred stock contained any provisions or limitations upon voting powers. it seems to have been assumed that unless voting power was expressly conferred upon the holders of preferred stock such stock would have no voting power, and it seems also to have been understood among the holders of the common stock, at the time of such authorization, that the preferred stock should not have voting power, thereby leaving the control of the corporation entirely to the owners of the common stock, in order that William L. Urschel and his friends and John J. Urschel and his friends might have equal authority in the management and control of the corporation without any advantage accruing to either. This thought was evidently carried out for several years, because prior to the annual election in January, 1920, the holders of preferred stock were never notified of meetings of stockholders; neither did any preferred stockholder ever make any complaint on such account or claim the right to or make any attempt to vote preferred stock until the annual meeting of January, 1920. At the annual meeting of 1920 William L. Urschel held a proxy representing fifty shares of preferred stock, and attempted to vote the same in the election of a board of directors. John J. Urschel, being chairman of the meeting, prevented the vote of the preferred stock from being counted, thereby resulting in a tie vote, and, inasmuch as John J. Urschel and his friends already had a majority of the directors, they were in control of the business for the year 1920. Thereupon both William L. Urschel and John J, Urschel began to purchase the preferred stock, but William L. Urschel was evidently more diligent, because he succeeded in purchasing 263 shares, while John J. Urschel purchased the remaining out standing preferred stock amounting to 227 shares.

In April, 1920, an action was begun in the court of appeals of Lucas county, in quo warranto, to oust John J. Urschel and his friends from control of the business, on the theory that the preferred stock tendered at the annual election should have been counted, which would have placed William L. Urschel and his friends in control. The court of appeals heard the testimony and decided that the relator was not entitled to the relief sought, that at the stockholders' meeting held January 5, 1920, no director or directors were elected for that year, and relator's petition was dismissed. Thereupon, in due time, error was prosecuted from that judgment to this court, being cause No. 17031, entitled State of Ohio, ex rel. Charles F. Chapman, v. John J. Urschel et al. The petition in error was filed in this court April 22, 1921.

In the meantime another annual meeting was held, on January 3, 1921, and on this occasion William L,. Urschel attempted to vote 263 shares of preferred stock then owned by him. John J. Urschel, still being the chairman, refused to permit such votes to be counted, which again resulted in a tie vote, and thereupon an original proceeding in quo warranto was filed in this court on April 25, 1921, entitled State of Ohio, ex rel. Roy R. Stuart, Prosecuting Attorney, v. John J. Urschel et al., being cause No. 17034.

The ultimate issue to be decided in both cases is whether or not, the preferred stock has voting powers.

The two cases were argued together and as it does not appear that the relator is complaining of any of the acts and proceedings of John J. Urschel and his associates during the year 1920, and it seems to be admitted by all parties that the error proceeding now presents only a moot question, both causes will be disposed of upon the issues presented in the quo warranto proceeding originally filed in this court.

The petition is short, merely alleging that at the annual meeting of January 3, 1921, William L. Urschel and his associates received more votes than John J. Urschel and his associates and that William L. Urschel and his associates have been denied any participation in or control over the affairs of the company, and praying judgment of ouster.

About June 1, 1921, and before an answer was filed, the relator attempted to dismiss the original suit filed in this court and announced and made known to the defendants his intention to do so. No order was ever entered on the journal of this court and nothing was done except that certain communications passed between counsel and an authorization of dismissal was filed by the attorneys in the office of the clerk of this court, which was later withdrawn. These matters are set up as a first defense in the answer which was filed June 28, 1921. The second defense denies that William L. Urschel and his assoc- ciates received the number of votes alleged in the petition. The third defense alleges the attempt of William L. Urschel and his associates to vote the preferred stock, and alleges the former adjudication upon the right to vote preferred stock in the court of appeals in the error proceeding, it being claimed that in no event should the preferred stock be entitled to vote while the judgment of the court of appeals subsists. The fourth defense alleges the equal ownership of the outstanding common capital stock by the contending parties and that at the tinge of the authorization of the preferred stock there was an agreement and an understanding between John J. Urschel and William L Urschel that said preferred stock should have no voting rights, and that this was so agreed and understood in order that neither of said parties should have or obtain any advantage over the other at stockholders' meetings, or in the management and control of the business of the company, and in order to further prevent persons not owning common stock from participating in the affairs of the company. It is further alleged that the preferred stock was always treated as not having voting rights and that no holder of preferred stock ever claimed such rights until the annual election of January, 1920; that by reason thereof William L. Urschel and his associates are estopped from claiming voting rights for the preferred stock. held by him. A fifth defense alleges that at the time of the authorization of the preferred stock the common capital stock had not been fully subscribed for, neither had an installment of 10% on each share of unissued stock been paid, and that by reason thereof such authorization was irregular and the preferred stock actually issued of no legal validity. The answer contains a sixth defense, but in the...