Case ID: ohio-st_35/html/0010-01.html
Source: Caselaw Access Project
Author: {"author": "Okey, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The State of Ohio, ex rel. the Attorney-General v. Bonnell.
    Where the stockholders of a corporation wore notified that the annual meeting for the election of directors would be held at a certain hour of the day fixed by the charter, and the corporation was restrained from holding an election on that day, in consequence of which no meeting was held until several hours after the time fixed in the notice, when a small number of the stockholders, without the knowledge of the others, met, organized, and adjourned until the next day, at which time an election was held by a minority of the stockholders, without notice to others, who were in the vicinity for the purposes of the meeting, and might have been readily notified: Held, That such election was unfair, and must be held to be invalid, whether the restraining order did or did not bind the stockholders.
    Quo Warranto. On February 3, 1879, Hon. Isaiah Pillars, attorney-general, filed in this court a petition in the nature of a quo warranto, against Henry 0. Bonnell and others, asking that each of them be required to answer by what warrant he claims to exercise the office of director of Brown, Bonnell & Co., a corporation. An answer and reply were filed, and testimony was taken.
    On September 13, 1875, Joseph H. Brown, Henry 0. Bonnell, and, others acknowledged the certificate of the incorporation of a company, under the laws of this state, under the name of Brown, Bonnell, & Co. The object of the corporation was the manufacturing iron, mining coal, etc. The capital stock was $1,500,000, divided into fifteen thousand shares of one hundred dollars each. The principal office and place of business was fixed at Youngstown Ohio. It was further provided in the certificate, “ that the annual meeting of the stockholders of such body corporate, for the election of directors and the transaction of such other business as may be lawful, shall be held on the third Tuesday of January in each year.” The certificate was filed and recorded in the office of the secretary of state, on September 16, 1875, and a certified copy was issued in due form by the secretary of state, on the same day; and thereupon the corporation was organized, and it has ever since been engaged in the business for which it was created, the number of directors being fixed at seven. There was no bylaw as to notice to be given of meetings; but in January of each year, previous to the annual meeting, the secretary gave to the stockholders notice of the annual meeting, stating the hour at which it would be held.
    Meetings of stockholders were regularly held on the third Tuesday of January, in 1876,1877, and 1878, and directors elected, the following persons being chosen at the meeting in 1878: Joseph H. Brown, Richard Brown, Thomas Brown, George W. Hale, Henry 0. Bonnell, Herbert C. Ayer, and "W. Scott Bonnell, each receiving 13,044 votes. They were duly qualified and entered upon their duties as such officers. The meeting in each year was held in the morning, from ten to eleven o’clock, though, in 1877, the meeting was adjourned until two o’clock in the afternoon, when the election was held.
    Notice of the annual meeting to be held on the third Tuesday, being the 21st day of January, 1879, at half after ten o’clock, a. m., was served by the secretary on each stockholder.
    On the night of January 20,1879, an action was commenced by Joseph H. Brown and others, against George W. Hale and the corporation, Brown, Bonnell & Go., in the Court of Common Pleas of Mahoning county. In the petition it was stated that twelve hundred and fifty shares of the capital stock, amounting to $125,000, had been issued to Joseph H. Brown, and that he was legally and justly entitled to vote thereon, at all elections for directors of the corporation; but that, on January 15, 1879, said George W. Hale, having obtained possession of the certificates for said shares, fraudulently surrendered them, and procured the company to issue to himself a new certificate for the same shares, and unlawfully caused himself to be placed on the books of the company as the owner of the shares; that said Hale intended to vote on said stock, at the election of directors, on January 21,1879; that the facts had not come to the knowledge of the plaintiffs, until January 20, 1879, at two o’clock, p. m. The prayer was, among other things, that said Hale be restrained from voting on said shares, and that the company be enjoined from refusing to receive Joseph II. Brown’s vote on said shares.
    The application for an injunction was made to Hon. William T. Spear, one of the judges of the court of common pleas, on the night of January 20, 1879, Peter M. Hitchcock, George W. Hale, Henry 0. Bonnell, Thomas W. Sanderson, attorney of the company, and others being present. The judge, on January 21, 1879, at two o’clock, A. M., allowed a restraining order, in the following terms: “ By consent, all the parties in this action are hereby enjoined from holding any election, or attempting to hold any election, for officers of Brown, Bonnell & Co., and from transferring, or attempting to transfer, any stock of said Brown, Bonnell & Co., until January 22,1879, at ten o’clock, A. m., unless this order is sooner modified or vacated. January 21, 1879. William T. Spear, judge of the court of common pleas.”
    The arrangement was that the case should be heard, on the application for an injunction, in the afternoon of January 21, 1879. On that day, at two o’clock, p. m., Mr. Sanderson, attorney of the company, obtained the papers at the court-house, and remarked to Judge Spear that the defendants would be ready, and return with their affidavits for a hearing, within an hour. The judge and counsel for plaintiffs remained at the court-house until half after five o’clock, but, the defendants and their counsel not appearing, the judge made the following additional order: “ The foregoing order is continued in force until January 23, 1879, at ten o’clock, a. m., unless sooner modified or vacated, January 21, 1879. William T. Spear, judge of t]ie court of common pleas.” On the same day, Judge Spear informed Mr. Sanderson that this additional order had been made.
    A few minutes before the additional order was made— that is, about five o’clock on the evening of January 21st — • certain stockholders, to wit, Peter M. Hitchcock, Richard Brown, ~W. Scott Bonnell, Henry 0. Bonnell, James L. Botsford, and Martin Bonnell, met at the office of Brown. Bonnell & Co., for the purpose of “ saving the charter day,” as some of the witnesses expressed it. No meeting had been previously held on that day. A chairman and secretary were chosen, and, without transacting any other business, the meeting was adjourned until ten o’clock the next morning — that is, January 22d. No other stockholder had notice of the meeting.
    At the meeting on the morning of January 22d, certain proceedings were had, which appear in the records of the corporation as follows: “ On motion of T. ~W. Sanderson, it was resolved to proceed to the election of seven directors to serve for the ensuing year. . . . The whole number of votes east at said election was 4,806, and George ~W. Hale, George M. Ayer, Henry 0. Bonnell, ~W. Scott Bonnell, Herbert C. Ayer, Peter M. Hitchcock, and James L. Botsford each received 4,806 votes. . . . Thereupon, the chairman deelai-ed the above-named persons duly elected directors for the ensuing year.” The meeting then adjourned.
    The office of Brown, Bonnell & Co. consists of three rooms. The election was held in the room in the rear, which is reached by passing through the other two. After the meeting had organized, Henry 0. Bonnell, Peter M. Hitchcock, and their associates, saw Henry Crawford, Herbert 0. Ayer, and Henry I. Higgins, whom they knew to be stockholders, in the middle rooms, where they remained a few minutes and went away. Soon after they had gone, the chairman went to the front office and announced that if any stockholders of Brown, Bonnell & Co. were present, they could now come forward and vote for directors. Crawford, Herbert 0. Ayer, and Higgins, when they were present in the middle office, thought Henry O. Bonnell and his associates, in the back room, were preparing affidavi ts to resist the injunction, and none of them suspected that to hold an election was contemplated, until they were informed of the election after it had been actually held. Other stockholders, who had been in Youngstown since January 20th, were not notified of either meeting. This Henry O. Bonnell, Peter M. Hitchcock, and their associates, well knew. As Henry O. Bonnell stated in his testimony, “ no special pains were taken to give them notice.”
    On the trial of the case of Brown and others against Hale aud others, the court of common pleas, on March 5, 1879, found and adjudged in accordance with the petition, and made the perpetual injunction prayed for, and the defendants appealed to the district court, where the cause is now pending.
    Herbert C. Ayer has declined to accept under the election of January 22, 1879, and George ~W. Hale neither accepts nor rejects the office. The others elected at that time claim by virtue of such election.
    
      Henry Crawford and A. W. Jones (with Isaiah Pillars, attorney-general), for the relator:
    Burden on defendants: People v. Utica Ins. Co., 15 Johns. 358; Comm’rs v. Woelfer, 3 S. & R. 29; State v. Ashley, 1 Ark. 513. Meeting on evening of January 21st, and on morning of January 22d, illegal, because all the stockholders did not have notice : Green’s Brice’s Ultra Vires, 452 ; Eield on Corp., § 227; McCrary on Elect., 114; Smith v. Darley, 2 H. L. Cas. 789; People v. Batchelder, 22 N. Y. 134; Dickey v. Hurlbut, 5 Cal. 345; Knowles v. Yates, 31 Cal. 93 ; Musgrave v. Nevinson, 2 Ld. Ray. 1358; Stevens v. Eden Soc., 12 Vt. 688 ; School Dist. v. Blakeslee, 13 Conn. 227; Melvin’s case, 68 Penn. St. 340 ; San Buenaventura Mfg. Co. v. Vassaul, 50 Cal. 534. Election illegal, because held in violation of restraining order: Eield on Corp., §§ 184, 245 ; 1 Bl. Com. 467 ; Grant on Corp. 154; Green’s Brice’s Ultra Vires, 451, 455; Ang. & Am. on Corp. 89; Kyd on Corp. 399; Ex parte Wilcock, 7 Cowen, 409; 1 S. & C. Stat. 310, § 82; lb. 317; People v. Hatch, 33 Ill. 127. Under the circumstances, the election operated as a surprise anti fraud on the stockholders who did not participate : Grant on Corp. 204; Cooley on Const. L. 616 ; Ft. Dodge v. District, etc., 17 Iowa, 85 ; R. v. Gaborian, 11 East. 77 ; People v. Peck, 11 Wend. 611; People v. A. & S. R. Co., 55 Barb. 344; Foster v. Scarff, 15 Ohio St. 534.
    
      G. M. Tuttle and T. W. Sanderson, for defendants:
    Meeting of January 21st lawful, and hence could lawfully adjourn till January 22d, and then hold election: 14 Ohio St. 40. Right to hold election in nature of franchise: Com. Dig. Franchise F. 11; Grant on Corp. 68; Att'y-Gen. v. Davy, 2 Atk. 212; R. v. Foxcroft, 2 Burr. 1017; Comm’rs v. Read, 2 Ashm. 261; Brightley’s El. Cas. 126; People v. Clute, 50 N. Y. 451; 14 Ind. 97; 15 Ind. 331; 7 Ad. & El. (N. S.) 406; 10 East. 211; 1 S. & C. Stat. 276, § 9 ; lb. 301, § 2 ; Brewster v. Hartley, 37 Cal. 15; Petty v. Tooker, 21 N. Y. 267; People v. Phillips, 1 Den. 388; Ex parte Holmes, 5 Cowen, 426; 19 Wend. 37; 4 Cowen, 358, 382 ; 32 Ind. 393; 37 Cal. 543 ; Field on Corp., § 230. The stockholders not being parties, the restraining order did not operate on them: 75 Ohio L. 721; 1 Clarke, 348; Barb. Ch. Pr. 633 ; 9 N. Y. 263, 269; 32 How. Pr. 501; Calvert on Parties, 20-43 : Story’s Eq. PI. 149,1 57, 207; 11 Coke, 99a; Ang. & Am. Corp., § 420. Quo warranto discretionary: Comm’rs v. Cully, 56 Penn. St. 270; Comm’rs v. Jones, 12 Penn. St. 365.
   Okey, J.

Where the meeting is stated and general, notice of the time and place of holding it, or of the business to be transacted, is, in the absence of provision or regulation to the' contrary, in no case required. That is the general law of private corporations. Nevertheless, actual notice that the election for directors would be held at half after ten o’clock on the morning of January 21, 1879, was received by every stockholder. Moreover, it was the uniform custom to meet for such purpose on the morning of the day named in the certificate of incorporation, though, when directors were chosen in 1877, the meeting was adjourned until two o’clock in the afternoon for the purpose. Here no election was held at the time prescribed, in the certificate (January 21,1879), for the reason — known to all the stockholders — that the court had granted an order restraining the holding of such election on that day. Nor was any meeting held by the stockholders at the hour designated for the meeting. As the restraining order would not have prevented the stockholders from holding a meeting, if they had met at the time designated and adjourned until the next day, and then held an election, a different question would have been presented. It has been held that any business which may be properly transacted at a regular meeting may, if commenced but not completed at the regular meeting, be done at an adjourned meeting, which is simply a continuation of the regular meeting, and that no notice to the stockholders of the holding of such adjourned meeting is necessary. But this case does not fall within any such principle.

That all or nearly all the stockholders of Brown, Bonnell & Co. were present in the city of Youngstown, on the 21st and 22d days of January, 1879, and felt themselves deeply interested in the question of the election of directors for the corporation, and that this was known to every stockholder, is very clear; and it is equally clear that stockholders representing more than two-thirds of the shares of the capital stock were in no way notified of the meeting Held at the office of Brown, Bonnell & Co., on the evening of January 21st, or that held on the morning of January 22d, until the new directors were actually elected. To be sure, the chairman made proclamation, during the meeting on the morning of January 22d, that all stockholders of the corporation could come in and vote for directors ; but we can not doubt that making that proclamation was purposely delayed until Henry Crawford, Herbert C. Ayer, and Henry I. Higgins, three of the stockholders, had left the office.

We do not feel called upon to employ harsher language, in stating the course which was pursued, than is essential to accurate knowledge of the condition of things at the time the election in question was held. The stockholders had become divided in opinion as to the proper management of the affairs of the company. Some of them thought the iron should be disposed of to certain persons in Chicago. Others were of a different opinion. The course to be pursued by the corporation would, of course, be determined by the majority of stockholders in electing directors. In fact, the question really turned upon the 1,250 shares of stock in controversy in the case of Brown and others against Hale and others. Doubtless, the Bonnells, Hitchcock, and others, thought that bringing that action was a very improper thing to be done. With that feeling, it is, perhaps, not strange that the election in question was held. We express no opinion as to the merits of the questions involved in that case, nor as to the force and effect of the restraining orders. The only question we find it necessary to determine is, whether, without regard to the effect of the restraining orders, the law will uphold an election held under such circumstances. On careful consideration of the case, we unite in holding that it will not. To sustain an election held under such circumstances would, indeed, be a most dangerous precedent. The liberal rule which is extended to elections fairly but irregularly held, has no just application to this case. It follows that j udgment of ouster must be entered against all persons claiming' by virtue of the election held January 22,1879 ; and the directors elected January, 1878, will be restored to office ; for, where directors have been regularly elected, and enter upon the duties of the. office, they will continue to be directors until their-successors are duly elected and qualified, though they may,, for a time, be interrupted in the discharge of their duties;. and such successors must be chosen as provided in the statute, that is, at the annual meeting in January or at a special election.

Judgment of ouster, etc.,