Horn v. Kaupp

147 N.W.2d 607 (1967)

Elmer K. HORN, Plaintiff and Respondent,
v.
Oswald KAUPP, Thomas LaPrath, Paul Voelzke, Robert Sperl, Woodrow Sinkular, Harold Robertson and Raymond Hoffman, Defendants and Appellants.

No. 10317.

Supreme Court of South Dakota.

January 4, 1967.

Herman & Wernke, Gregory, for defendants and appellants.

G. F. Johnson and Charles Rick Johnson, Gregory, for plaintiff and respondent.

HOMEYER, Presiding Judge.

This action was brought to establish plaintiff's right to serve as a member of the board of directors of a cooperative corporation. The trial court entered judgment confirming his right to the office and commanded the remaining directors, all of whom are defendants, to allow him such office. This appeal is by the defendants in said action including Oscar Kaupp, the defeated director, whom plaintiff replaced.

At the annual meeting of stockholders of the Rosebud Farmers Union Cooperative of Gregory, South Dakota, on October 12, 1964, two directors were to be elected for three year terms. The incumbents, Paul Voelzke and Oscar Kaupp, were nominated, as was the plaintiff Horn. The bylaws prescribed no particular method of voting and the chairman of the board presided. He announced several times that only stockholders could vote and there could only be one vote per family.^[1] In prior elections it had been customary for the wife to vote stock registered in her husband's name, if the husband was not present, and vice versa. The cooperative kept no up to date stock register showing eligible voters and was in arrears several years in issuing stock certificates to people entitled thereto by reason of accumulated patronage refunds.^[2] A record of people in attendance was kept as they entered. Prior to voting, a motion was made and seconded that the two candidates receiving the most votes be declared elected. Tellers were appointed who passed out ballots. During the voting or shortly afterwards Kaupp complained to the chairman and some other board members he had seen some women voting who should not have voted without mentioning names. No other objection was made.

Two separate tabulations were made by a canvassing board and showed that Voelzke received 103 votes, Horn 73 votes, and Kaupp 64 votes. The meeting was adjourned without formal announcement of election results although Horn learned before he left that he had received more votes than Kaupp.

On October 21, 1964 at a board meeting at which Horn was present, Kaupp filed a letter in which he challenged the election "as there were several votes cast by persons that are not qualified voters." Legal advice on the regularity of the election was obtained from the cooperative attorney at St. Paul^[3] and subsequently Horn was notified to attend the board meeting on October 28th. He attended such meeting and participated in decisions as a member of the board of directors. On November 18th Edwin Meyer, a stockholder who was present at the annual meeting, filed with the board a letter in affidavit form as a purported contest of the election "because there was more than just stockholders voting." At the meeting on that date at which Kaupp was present but Horn was absent, the board declared the election void.^[4] Thereafter Horn was denied a seat on the board and Kaupp continued to act as a director. No attempt was made to call a special stockholders' meeting to hold another election.

The trial court concluded there was no evidence that the election was fraudulently conducted; that Paul Voelzke and plaintiff Horn were legally elected; that the board of directors was without power to summarily declare the election void and deprive Horn of his office. We agree.

We do not concern ourselves with the regularity of the election other than to say we are satisfied the court correctly concluded no fraud was practiced either by the candidates or by those in charge of the election. It is also undisputed that the votes cast were correctly tabulated and Voelzke and Horn received the largest number of votes. Both accepted the offices to which they were elected and assumed their duties as members of the board of directors.^[5]

In our opinion the board of directors exceeded its authority when it declared the election void and unseated Horn. Horn had become a member of the board of directors. The general rule is stated in 19 Am.Jur.2d., Corporations, § 1107, p. 547:

"As regards officers elected by the corporation itself, there is no implied power of removal vested in the directors. Officers so elected derive their title to their respective offices from the same source as the directors, and they can be removed only by the power that appointed them. For the same reason the board of directors has no inherent power to remove one of its number."

See also 19 C.J.S. Corporations § 738(2), p. 72, 2 Fletcher Cyclopedia Corporations, Permanent Edition, § 357; Annotation 63 A.L.R. 781.

In Wharton v. Fidelity-Baltimore National Bank, 222 Md. 177, 158 A.2d 887, the court said:

"Ordinarily, a director is not subject to dismissal by the board or by any officer thereof, nor can he hire or discharge any employee. Nor can he be discharged by the officers, his fellow directors, by any stockholder or any employee or agent of the Company. He can be removed only through action by the stockholders."

No contention is made that the board of directors is empowered by statute^[6] or by-law to remove a director.

SDC 11.0703 provides:

"Upon the application of any person or body corporate aggrieved by any election or proceedings thereof held by any corporate body, the Circuit Judge of the circuit in which such election is held must proceed summarily to hear the allegations and proofs of the parties or otherwise inquire into the matter of complaint, and thereupon confirm the election, order a new one, or direct such other relief in the premises as accords with right and justice. Before any such proceedings are had, five days notice thereof must be given to the adverse party or those affected thereby in such manner as the Court may order."

This statute is applicable to cooperative corporations. SDC 11.0101. If Kaupp, the defeated candidate, or Meyer, a stockholder, was dissatisfied with the election or the manner in which it was conducted and wished to contest, he was entitled to proceed under the statute, or possibly by some other judicial recourse, 5 Fletcher Cyclopedia Corporations, § 2073, but the complaint to the board on which Kaupp purported to serve and its action thereon was a nullity.

Appellants have raised a number of constitutional questions on method of voting and procedural statutes available to stockholders on election matters. Since the trial court must be sustained for the reasons stated we are not warranted to pass upon the constitutional matters argued by appellants. Ehlers v. Jones, S.D., 135 N.W.2d 22; Goetsch v. Home Owners' Loan Corporation, 67 S.D. 194, 291 N.W. 575.

Judgment affirmed.

ROBERTS, HANSON and BIEGELMEIER, JJ., concur.

RENTTO, J., not participating.

NOTES

[1] Section 5 of Article 1 of the Bylaws provides: "A stockholder shall not be entitled to more than one vote which shall be cast in person, not by proxy * * *".

[2] When accumulated refunds reached $45.00 a patron was entitled to a common stock certificate and to a vote, except if the holder thereof ceases "to be a producer of agricultural products for one year or ceases to patronize the association for one year, the Board of Directors shall notify such holder that this right to vote no longer exists and request him to surrender his shares of common stock in exchange for a like amount of preferred stock and thereupon such stockholders' right to vote shall terminate." § 4, Article 5, of Bylaws.

[3] Under date of October 23, 1964, the attorney wrote the president of the cooperative: "* * * In other words at this time, unless the president is reasonably satisfied that there was fraud involved in the election, I believe he should leave the election standing as it is and any aggrieved party, of course, has the right of legal redress and can bring an action in court."

[4] The minutes of the November 18, 1964 meeting contain the following: "In as much as the board of directors has received a(n) notarized affidavit stating that the election of two directors which was held Oct. 12, 1964 was not legal as there were ineligible votes cast Robinson moved that the chair be authorized to declare the election of directors void. Seconded by Hoffman. Motion carried".

[5] Section 1 of Article 2 of Bylaws which designates the number and terms of directors states: "All directors shall hold office until their successors are elected and qualified." Generally, unless required by statute, bylaw, or custom, no formal acceptance is necessary. "If a person enters upon the duties of an office after his election or appointment, it is a sufficient acceptance, or rather, sufficient ground for implying acceptance, in the absence of proof to the contrary." 2 Fletcher Cyc.Corp. § 314. See also 19 C.J.S. Corporations § 727; 19 Am.Jur. 2d., Corporations, § 1085; Blish v. Thompson Automatic Arms Corporation, 30 Del. Ch. 538, 64 A.2d 581, 602; Du Bois v. Century Cement Products Co., 119 N.J.Eq. 472, 183 A. 188, 190.

[6] SDC 11.0704: "No director shall be removed from office unless by a vote of two-thirds of the members or of stockholders holding two-thirds of the capital stock at a general meeting held after notice of the time and place and of the intention to propose such removal * * *."