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Danby v. Osteopathic Hospital Ass'n of Delaware

Court of Chancery of Delaware, New Castle County

November 18, 1953

DANBY
v.
OSTEOPATHIC HOSPITAL ASS'N OF DELAWARE et al.

Page 309

[Copyrighted Material Omitted]

Page 310

Action by former president of hospital association's board of trustees against association and lender to enjoin negotiation of notes bearing signatures of former president as guarantor. The former president moved for preliminary injunction and defendants moved to dismiss. The Court of Chancery, Bramhall, Vice-Chancellor, held that guaranty agreement between former president and association constituted a binding contract, that complaint was sufficient to allege an agreement between former president and association and a breach thereof by association, but that complaint would be dismissed as to lender.

Restraining order dissolved, and motion for preliminary injunction denied, association's motion to dismiss denied and lender's motion to dismiss granted.

Page 311

[34 Del.Ch. 175] Action of John Kenneth Danby, plaintiff, against The Osteopathic Hospital Association of Delaware, and Wilmington Trust Company, both corporations of the State of Delaware, to enjoin the negotiation of certain promissory notes bearing the signature of plaintiff as guarantor. Motion for Preliminary Injunction. Motions to Dismiss.

John Merwin Bader, Wilmington, for plaintiff.

Thomas Herlihy, Jr., and Morris Cohen, Wilmington, for defendant The Osteopathic Hospital Ass'n of Delaware.

Rodney M. Layton, of Richards, Layton & Finger, Wilmington, for defendant Wilmington Trust Co.

BRAMHALL, Vice-Chancellor.

For the purpose of the motions in this case the following facts as alleged in the complaint and affidavits, are pertinent:

The Osteopathic Hospital Association of Delaware, hereafter called ‘ defendant’, was desirous of remodeling the building known as the Sellers Mansion into a hospital building. Plaintiff was president of its Board of Trustees from 1949 until his resignation on May 22, 1953. He was also quite active for several years in the solicitation of funds for the erection of an osteopathic hospital. At the direction of the Board of Trustees plans for the construction of the hospital building [34 Del.Ch. 176] were prepared by an architect. To finance the work plaintiff was asked to, and did, sign as guarantor certain blank promissory notes and deliver them to defendant. At the same time the Board of Trustees of defendant passed a resolution authorizing defendant to borrow from the defendant Wilmington Trust Company the sum of $40,000. The notes endorsed by plaintiff were filled in for the principal amounts of $11,000, $10,000, and $10,000, respectively, payable on demand. Construction of the hospital building was begun in October of 1952. Some months later, at the further request of the Board of Trustees of defendant, plaintiff signed additional notes, all in blank, payable on demand, for a total sum of $15,000.

The sketches prepared by the architect provided for a three-story, basement hospital comprising the remodeled Sellers Mansion, together with a new wing. Due to an insufficiency of funds, the Board of Trustees of defendant decided to use only the basement and first floor of the Sellers Mansion without elevator service. Later, when additional funds became available, it was decided to build up to the third floor, install an elevator to the second floor, but to postpone construction of the additional wing until sufficient funds should be available for that purpose.

The notes over and above the sum of $31,000 have never been filled in, are still in the possession of defendant and have never been negotiated. Defendant proceeded with the remodeling of the Sellers Mansion, in the course of which it obligated itself for a sum in excess of $55,000, the amount guaranteed by plaintiff. After the construction of the work had begun, without consulting plaintiff, the Board of Trustees of defendant made a number of substantial changes in the plans for the hospital building, as a result of which, it is contended by plaintiff, defendant may be deprived of accreditation by the American Osteopathic Association. Upon learning of the change in plans plaintiff submitted his resignation as president of defendant and notified defendant not to use the blank notes ...


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