Opinion
March 20, 1950.
Scherl, Kuh Berley, New York City, for petitioners.
Rosett Weinstein, New York City, for respondents.
Motions Numbers 71 and 72 are considered together. Motion Number 71 is an application of Harry Keith for an order to set aside the election of directors and officers of Multifade Corporation of America, held on July 14, 1949. Motion Number 72 is an application of Arthur E. Krows, to set aside the election of directors and officers of said corporation held on December 8th, 1949. Each of the petitioners is the owner and holder of shares of stock in the corporation.
The by-laws of the corporation provide that the corporation shall be managed by a board of three directors. Despite this express provision (Art. II, Sec. 1, By-Laws), a meeting of stockholders was held on July 14, 1949, at which four directors were elected: William O. Hurst, Sr., William O. Hurst, Jr., Arthur E. Krows and Ira F. Augstadt. That thereafter, the following officers were purportedly elected by said board of directors: Arthur E. Krows, President: William O. Hurst, Sr., Vice-President and Treasurer; Ira F. Augstadt, Secretary.
The Hursts allege they were nominated and elected directors without their knowledge or consent, were not present at the meeting held on July 14, 1949, did not participate therein; have refused to accept the office of director and have not functioned as such, nor as any officer. Mr. Hurst, Sr., states that he has been a director since the inception of the corporation and has continued to function as such under his original title as director, his successor not having been validly chosen. The Hursts and Keith have not recognized the meeting of July 14, 1949, as legal or valid. They advance a number of reasons, but not all of them need be considered. Indeed, they claim no meeting was ever held on July 14, 1949.
Following refusal to recognize the purported meeting held on July 14, 1949, as legal or valid, Hurst and other stockholders of the corporation owning in all 70 shares of a total of 121 shares issued and outstanding stock of the corporation caused a notice to be served by mail on November 14, 1949, on said Krows, President, and said Augstadt, Secretary, of the corporation, both being directors, to call a special meeting of stockholders of the corporation, for the purpose of electing directors. This notice was given pursuant to Article 1, Section 3, of the by-laws. This among other things provides:
"The Board of Directors shall also, in like manner, call a special meeting of stockholders whenever so requested in writing by stockholders representing not less than one-half of the capitol stock of the company."
No attention was paid to the request to call a meeting and thereupon relying on Section 22 of the General Corporation Law, Hurst, Sr., on November 23, 1949, sent a notice of a special meeting of stockholders for the election of directors, to each stockholder, to be held on December 8, 1949, and caused same to be published in two newspapers on November 25, 1949, and on December 1, 1949.
At the said meeting of December 8, 1949, 70 shares of stock of the corporation were represented out of a total of 121 shares issued and the following elected directors: William O. Hurst, Sr., Harry Keith and James A. Norris. That thereupon the said directors elected the following officers: William O. Hurst, Sr., President and Treasurer; William O. Hurst, Jr., Vice-President and (Mrs.) James A. Norris, Secretary.
It is alleged, and appears undisputed, that under the provisions of Article II, Section 10 of the by-laws, any one or more of the directors may be removed with or without cause, at any time, by a vote of the stockholders holding a majority of the stock, at any meeting called for the purpose, and under the provisions of Section 7 of Article III of the by-laws any officer may be removed at any time with or without cause by a majority vote of the board of directors, at any time, with or without cause.
In attacking the validity of the meeting held on December 8, 1949, and the action taken thereat in the election of directors and officers, petitioner, Krows, proceeds, in sum, on the premise that the meeting held on July 14, 1949, and the action taken thereat were regular, legal and valid, and, hence, the subsequent action taken in calling a meeting for December 8, 1949, and all action taken thereat are illegal and void.
I do not see that the provisions of the By-laws, Article II, Section 10, and Article III, Section 7, are relevant here. In calling the meeting for December 8, 1949, it was done in reliance on the provisions of Section 22 of the General Corporation Law and Article I, Section 3 of the By-laws; hence, these other provisions are immaterial.
Assuming, arguendo, there was a meeting held on July 14, 1949, and that there took place election of four directors instead of three, and election of officers, the question arises whether this was valid and effective.
An election of an excessive number of directors is irregular and voidable and will be set aside upon complaint of a stockholder duly made, Matter of Hammond Light, Power Co., Inc., 131 Misc. 747, 228 N.Y.S. 70, affirmed 224 App.Div. 684, 229 N.Y.S. 865; Mitchell v. Forest City Printing Co., 107 Misc. 709, 176 N.Y.S. 157, affirmed 187 App.Div. 743, 176 N.Y.S. 157; Election of Baldwinsville Fed. Sav. Loan Ass'n, 268 App.Div. 414, 51 N.Y.S.2d 816, and a new election will be ordered.
Accordingly the application of petitioner Keith is granted, and the election of directors and officers which took place on July 14, 1949, is adjudged to be irregular, illegal and void and is set aside and a new election ordered for a day to be fixed in the order to be entered hereon.
As to the meeting called for December 8, 1949, the validity of which is assailed by petitioner, Krows, this meeting was called on the theory that no meeting was held on July 14, 1949. This presents a disputed issue of fact. I am satisfied from the record presented that the meeting was held, and it may be mentioned that the court is satisfied that though not held at the principal office of the corporation, the place where held was one of convenience for all parties and is held to be of no fundamental significance.
Holding, as the court does, that the meeting was held on July 14, 1949, Section 22 of the General Corporation Law is without application and action taken by Hurst in pursuance thereof is of no effect.
The notice of November 23, 1949, calling a meeting for December 8, 1949, Ex. B., is apparently given by virtue of Article I, Section 3 of the By-laws, that the board shall call a special meeting of stockholders whenever so requested in writing by stockholders representing not less than one-half of the capital stock of the corporation. The failure or refusal of the board to do so did not, under this By-law, authorize Hurst, Sr., to call the meeting. He could have compelled the board to call the meeting by court order.
I therefore reach the ultimate conclusion that the meeting of December 8, 1949, is invalid and void and so is all action taken thereat.
The ultimate result is that both meetings and elections of July 14, 1949, and December 8, 1949, are illegal and void and the irregularities and invalidities are to be corrected by a new election, which is ordered to be held in compliance with law.
Settle order on each motion.