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corporation
statutecorporation

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Gow v. Consolidated Coppermines Corp., 19 Del.Ch. 172, 165 A. 136

Facts

The Consolidated Coppermines Corporation was established in 1922 with a board of nine directors. In 1932, a stockholder meeting was held to elect new directors, which was preceded by a proxy campaign between two factions: the Adee committee supporting the existing management and the Higgins committee opposing it. The Higgins committee claimed to have amended the by-laws to increase the board size to fifteen and proceeded to elect six new directors, which led to a dispute over the legitimacy of the election and the authority of the respective factions.

The annual meeting of the stockholders for the election of directors to fill expiring terms was called to convene on May 3, 1932. The meeting was preceded by a vigorous campaign for proxies.

Issue

The main legal issues were whether the number of directors could be lawfully increased from nine to fifteen through an amendment to the by-laws, and whether the proxies used in the election were valid.

The following are the issues involved: Was the membership of the board of directors lawfully raised from nine to fifteen? Were certain proxies entitled to vote?

Rule

The court ruled that changes to the number of directors must be made through an amendment to the charter rather than by a by-law amendment, as the charter holds superior authority in this matter.

The master found that the amendment of the by-laws was void and therefore ineffective to alter the size of the board as fixed in the certificate of incorporation.

Analysis

The court applied the principle that the charter of the corporation, which specified a board of nine directors, could not be altered by the by-laws. The master found that the attempted amendment to increase the board size was void, and thus the election of the six new directors was invalid. The court emphasized that the authority to regulate the number of directors lies within the charter, and any changes must follow the proper legal procedures.

The master's view was that those matters which the statute permits to be defined and regulated in the certificate of incorporation or the charter, are, under the principle of gradation of authority referred to in Gaskill v. Gladys Belle Oil Co., 16 Del. Ch. 289, 146 A. 337, beyond the reach of the inferior authority of the by-laws to change or alter.

Conclusion

The court concluded that the amendment to the by-laws was ineffective, and therefore the original board of directors remained in control of the corporation. The Adee faction was recognized as the lawful governing body.

It remained for the master to make a finding upon who were elected as directors to succeed the three directors who composed the outgoing class.

Who won?

The Adee faction prevailed in the case as the court upheld the validity of the original board of directors and rejected the claims of the Higgins faction.

The Adee faction who were in possession of the corporation, refused to recognize the amendment of the by-laws as lawful and declined to surrender their control over the corporation.

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