Triplex Shoe Company v. Rice And Hutchins, Inc.

• Decision Date: 27 February 1930
• Citation: 152 A. 342,17 Del.Ch. 356
• Court: Supreme Court of Delaware
• Parties: 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 and ALBERT W. DILLMAN, Respondents Below, Appellants, v. RICE AND HUTCHINS, INCORPORATED, a corporation organized and existing under the laws of the State of Maine, Petitioner Below, Appellee, and HARRY L. RICE, FRED B. RICE, FRANK D. ELLISON and PHILIP Mulvihill, Respondents Below, Appellees

152 A. 342

17 Del.Ch. 356

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 and ALBERT W. DILLMAN, Respondents Below, Appellants, v. RICE AND HUTCHINS, INCORPORATED, a corporation organized and existing under the laws of the State of Maine, Petitioner Below, Appellee, and HARRY L. RICE, FRED B. RICE, FRANK D. ELLISON and PHILIP Mulvihill, Respondents Below, Appellees

Supreme Court of Delaware

February 27, 1930

APPEAL FROM THE COURT OF CHANCERY. The facts appear in the opinion of the Court.

Decree of the Chancellor affirmed.

Marvel & Morford, for appellants.

Charles C. Keedy, for appellee Rice & Hutchins, Inc.

Robert H. Richards, for appellees Harry L. Rice, Fred B. Rice, Frank D. Ellison, and Philip Mulvihill.

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

OPINION

PENNEWILL, C. J.

This case is an appeal from the decision, 16 Del.Ch. 298, 147 A 317, of the Chancellor determining, under the provisions of Section 31 of the General Corporation Law of the State (Revised Code 1915, § 1945, as amended by 35 Del. Laws, c. 85, § 15), who were elected directors of the Triplex Shoe Company at the last annual meeting of the stockholders thereof held January 28, 1929. The proceeding below was on a stockholder's petition asking for the determination by the Chancellor of the validity or invalidity of such election.

It would be very difficult to state the facts in the case more clearly and fully than counsel have done in their respective briefs. But there is not entire agreement on certain facts alleged on the one side and denied on the other. The disagreement does not seem to pertain to any facts that are material to the real issues in the case, but because of it the court will adopt, for the most part, the statement of facts called "Summary of the Case" prepared by the Chancellor and preceding his opinion. The correctness of such summary does not appear to be questioned by either side, and it is full enough to clearly present the issues upon which the case will be decided in this court. To state at length the alleged facts and the many contentions of counsel would not only cause unnecessary labor, but might confuse rather than clarify the real issues and the arguments made thereon.

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 W. 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., 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 dollars ($ 100.00) each, and amounting in the aggregate to two hundred and thirty-seven thousand five hundred ($ 237,500.00) and ten hundred seventy-five (1075) shares of common stock, which common shares shall be without nominal or par value."

(Then 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 below, 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 a bonus of 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 long, 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.

Notwithstanding the voluminous briefs filed in the case, and the elaborate arguments and numerous contentions made by counsel, the court think the case, so far as the real issues are concerned, lies within a narrow compass. The important question is, was there any common stock voted for the "B" ticket at the election in 1929 that was legally issued and outstanding at that time? It is admitted by the appellees that if there was any such stock the preferred stock could not be voted because the sole voting power resided in the holders of the common stock, and the "B" ticket was, therefore, property declared elected.

It is admitted by the appellants that the preferred par value stock was valid stock and outstanding at the time of the election but denied that it was...