HODSON et al.
HODSON CORP. et al.
Action by Lee N. Hodson, Sr., and others against the Hodson Corporation, a Delaware corporation, and Jessie Blanche Price, to cancel certain stock certificates issued to individual defendant. Corporate defendant filed a motion for summary judgment and individual defendant filed a motion to vacate an order for substituted service and to quash the service on her. The Court of Chancery, in and for New Castle County, Wolcott, Chancellor, held that the Delaware court had jurisdiction by virtue of the situs of stock being within state, notwithstanding that owner of stock was a nonresident.
Order in accordance with opinion.
[32 Del.Ch. 78] William H. Bennethum, of Morford, Bennethum, Marvel & Cooch, of Wilmington, for plaintiffs.
Hugh M. Morris and George T. Coulson, of Morris, Steel, Nichols & Arsht, of Wilmington, for defendants.
The complaint alleges that The Hodson Corporation issued 34 shares of its preferred stock to Jessie Blanche Price, and that the issuance of such stock was a fraud on the other shareholders. The relief sought is a preliminary injunction, an ultimate determination that the 34 shares of preferred stock are null and void, and that the certificates be ordered to be surrendered for cancellation.
The corporate defendant appeared and answered the complaint. By order, Jessie Blanche Price was directed to appear and answer the complaint or suffer judgment to be taken pro confesso. The order directed substituted service to be made in conformity with the statutes and rules. With leave of court, defendants' attorneys appeared specially for Jessie Blanche Price and moved to vacate the order for appearance and to quash and vacate the substituted service on Jessie Blanche Price.
The corporate defendant moved for summary judgment in its favor on the ground that Jessie Blanche Price is an indispensable party to the action and that this court is without jurisdiction over her because she is not within the State of Delaware, and because the shares of stock in question, the certificates therefor, or any other property of Jessie Blanche Price are not within the State of Delaware.
The two motions in effect raise the same questions and will be disposed of as though they were one.
It is the rule, long settled in this state, that [32 Del.Ch. 79] the owner of shares of stock in a Delaware corporation is an indispensable party to an action to cancel such shares or to restrain the voting of or the payment of dividends on such shares. Bouree v. Trust Francais des Actions de la Franco-Wyo. Oil Co., 14 Del.Ch. 332, 127 A. 56; Chappel v. Standard Scale & Supply Corporation, 15 Del.Ch. 333, 138 A. 74; West v. Sirian Lamp Co., 28 Del.Ch. 328, 42 A.2d 883. As the owner of the shares in controversy, Jessie Blanche Price is, therefore, an indispensable party.
Substituted service on Jessie Blanche Price was purportedly obtained pursuant to the provisions of Section 4374, R.C.1935, but no seizure of property of the defendant has been made. Defendants argue that this action is one essentially in personam and that, therefore, substituted service of process upon a non-resident defendant is governed by the provisions of the first paragraph of Section 4374 requiring
seizure in limine of property of the non-resident located in Delaware in order to support jurisdiction. In the event of the failure of the non-resident defendant to appear, then sufficient of the property so seized may be sold to satisfy the demand of the plaintiff. If this action were an action in personam, the argument made necessarily would be accepted. Cantor v. Sachs, 18 Del.Ch. 359, 162 A. 73, 78.
However, the case at bar seeks a judgment declaring the stock in question to be null and void. It is an action which is directed essentially toward the validity of a res which, it is contended, is located within the state. It is true that as additional relief the plaintiffs pray that the surrender of the certificates be ordered for cancellation, but that fact does not change the fundamental nature of the action, which is quasi in rem . When that is the fact, if the property in question has its situs in Delaware, the jurisdiction of this court is clear and its power broad in compelling obedience to its judgment, whether or not seizure of the res has been made prior to substituted service [32 Del.Ch. 80] by notice and ...