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Smith v. Biggs Boiler Works Co.

Court of Chancery of Delaware, New Castle County

July 6, 1951

SMITH
v.
BIGGS BOILER WORKS CO. et al.

K. McKinley Smith filed a petition against the Biggs Boiler Works Company and others to set aside as illegal a meeting of the shareholders of respondent corporation at which petitioner was ousted as a director and removed as president of the corporation. The Court of Chancery, Layton, Acting Vice Chancellor held that voting trust of stock then in escrow was invalid where due to escrow agreement statutory requirement that the shares be deposited with voting trustees was not and could not be complied with, and that purported voting trust agreement was not enforceable as a pooling agreement or as a proxy coupled with an interest.

Petition sustained.

If agreement by which the two owners of all outstanding stock in Delaware corporation then in escrow attempted to form a voting trust of such stock could be construed as a proxy to the voting trustees to vote the shares, it was not an irrevocable proxy and was revoked when one of the owners of such stock notified the corporation and the other voting trustees that he considered notice of special stockholders' meeting for the purpose of removing a director invalid and the contemplated meeting illegal. Rev.Code 1935, § 2050.

[32 Del.Ch. 148] Petition under Section 31 of the General Corporation Law, Rev.Code 1935, § 2063, seeking to set aside as illegal a meeting of Shareholders of Biggs Boiler Works Company, at which Petitioner was ousted as a Director and removed as President of the Company. Petition sustained.

Page 373

[32 Del.Ch. 149] This litigation arises from a petition filed pursuant to Section 31 of the Delaware Corporation Law to determine the validity of a purported special meeting of stockholders of The Biggs Boiler Works Company, a Delaware Corporation, held on April 16, 1951, at which Petitioner was both ousted from the Board of Directors and removed as President of the Company. Defendants having filed their Answer, Petitioner has moved for judgment on the pleadings. The pertinent facts are these: Petitioner, hereinafter called ‘ Smith’, is the owner of 50 percent of the total issued and outstanding capital stock of The Biggs Boiler Works Company, a Delaware Corporation, which I shall refer to as ‘ Biggs.’ One Krizanek owns the remaining half of the stock. Smith was and still claims to be President and a Director of Biggs, and Krizanek is Vice President, Treasurer, and also a Director. In December 1950, all the stock just referred to was made the subject of a Voting Trust. The agreement conforms generally to the usual Voting Trust formed under Section 18 of the General Corporation Law of this State, Rev.Code 1935, § 2050, with the exception of the following language:

‘ The certificates for common shares of Companies owned by Shareholders are presently deposited with the First National Bank of Akron, Ohio, as Escrow Agent, under the terms of a refunding agreement entered into as of August 1, 1950 by and between Byron R. Barder, Alma I. Sherbondy (executrix of the estate of Fred J. Sherbondy), Biggs Realty Corporation, Companies and Shareholders, whereunder said certificates for shares shall be delivered to Shareholders on September 30, 1951 upon the performance of certain conditions and upon nonperformance of said conditions said certificates for shares shall be delivered to Shareholders on September 30, 1951 upon the performance of certain conditions and upon nonperformance of said conditions said certificates for shares shall be delivered to Byron R. Barder and Alma I. Sherbondy.

‘ Shareholders entered into an option agreement dated November ___, 1950, whereby they gave to Vera Brenten and Ruth Linkow, or their nominees, the right to purchase on or before October 31, 1951, one-third of the common shares of Companies owned by Shareholders.

[32 Del.Ch. 150] ‘ Now Therefore, in consideration of the mutual covenants herein contained and for other good and valuable consideration.

The Parties Agree.

‘ 1. This Agreement shall be subject to the terms and provisions of the refunding agreement and option agreement set forth in the Recitals above.

‘ 2. Each of Shareholders agrees that the deposit of certificates for common shares of Companies with the First National Bank of Akron, under the aforesaid refunding agreement shall be a deposit of said certificates with Voting Trustees for the purposes of the within agreement and agrees further that if and when said certificates are delivered to each of Shareholders by said Bank, he will forthwith deposit said certificates with Voting Trustees together with proper assignment or assignments thereof to Voting Trustees. Provided, however, if the option to Vera Brenten and Ruth Linkow is exercised, the common shares transferred thereby shall not be subject to the within agreement.'[1]

The Voting Trustees were Smith, Krizanek and one Steadman. The Escrow Agreement is still in force, and as a result the stock representing the Voting Trust has never been, and cannot be, deposited with, or transferred to, the Voting Trustees until July 31, 1951.

On April 7, 1951, Smith received notice of a special stockholders meeting called for April 16, for the purpose of removing ‘ a Director’ and promptly notified the Corporation, Krizanek and Steadman that he regarded the notice as invalid and the contemplated meeting illegal. On April 21, ...


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