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HOWELL v. MCCLOSKEY (10/05/53)

October 5, 1953

HOWELL
v.
MCCLOSKEY, APPELLANT



Appeal, No. 5, Jan. T., 1954, from decree of Court of Common Pleas of Montgomery County, April T., 1951, No. 1, in case of George B. Howell and Edward D. Gray v. Matthew H. McCloskey, Jr., Henry S. Bamford, J. Dress Pannell and Electronic Tube Corporation. Decree reversed; reargument refused October 28, 1953.

COUNSEL

Earl G. Harrison, with him Aaron S. Swartz, Jr., William A. Schnader, High, Swartz, Childs & Roberts, and Schnader, Harrison, Segal & Lewis, for appellants.

Robert W. Sayre, with him Thomas P. Mikell, Walter Biddle Saul, Smillie, Bean & Scirica, and Saul, Ewing, Remick & Saul, for appellees.

Before Stern, C.j., Stearne, Jones, Bell, Chidsey, Musmanno and Arnold, JJ.

Author: Arnold

[ 375 Pa. Page 102]

OPINION BY MR. JUSTICE ARNOLD

This is an appeal by the defendants from a decree in equity which required conveyance of four shares of stock to the corporation for cancellation or for equal division between the plaintiffs and the defendants, and declaring invalid the action of the shareholders and directors in amending by-laws and electing officers.

The defendant corporation was organized to carry on the business of a predecessor corporation whose assets and liabilities were acquired in 1947 through funds supplied by the plaintiff, Howell. All but six of its shares of stock were owned equally by the plaintiffs, Howell and Gray, and the defendant, Bamford. These three were the only directors.

Howell, Gray and Bamford agreed that attempts be made to acquire the remaining six shares, and that after they were acquired they should be divided among them or cancelled by the corporation. Gray and Bamford were authorized to acquire them. In 1948 McCloskey, one of the defendants, invested in the corporation, and all of the common stock (exclusive of the six missing shares) was divided equally between Howell, Gray, Bamford and McCloskey. The latter was elected an officer and director. Disagreements arose between McCloskey and Howell over the management of the corporation. McCloskey wanted Bamford as the executive head and Howell desired Gray to continue to operate it. Matters were thus at a stalemate when, in February, 1950, McCloskey directed Bamford to purchase the remaining six shares for him, so that they would have a controlling interest in the corporation.

[ 375 Pa. Page 103]

Bamford acquired four shares and McCloskey directed their transfer to the defendant, Pannell, who was attorney for the corporation, and who held the shares for the benefit of McCloskey.

On May 1, 1950, a special meeting of shareholders was held. At this meeting the by-laws of the corporation were amended to increase the number of directors from four to five. Gray and Howell voted against the amendment. Pannell was elected the fifth director, Gray and Howell not voting. On March 16, 1951, a meeting of stockholders was held for the election of directors. Gray and Howell (Gray as proxy), McCloskey, Bamford and Pannell were present. Howell's shares were not voted. However, all the remaining shares including Gray's, were voted, and five directors were elected, Gray voting for each director elected. The directors elected were Howell, Gray, Bamford, McCloskey and a Mr. Toole, each one receiving 1749 1/2 votes, which constituted a majority of the stock even excluding the four shares held by Pannell.

Following this meeting, and on the same day, the new board of directors met and Bamford was elected president of the corporation in place of Gray. All the directors except Howell were present. By unanimous vote Howell was then elected ...


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