132 A. 138 | Del. Ch. | 1926
Information in the nature of a bill in equity. The State of Delaware on the relation of the Attorney General seeks a decree declaring the certificate of incorporation which purports to evidence the existence of the defendant, U. S. Realty Improvement Company, as a corporation of this State to have been fraudulently procured from the Secretary of State. The bill charges that the defendant, Glasgow, caused a certain paper purporting to be a certificate of incorporation to be filed in the office of the Secretary of State; that the Secretary of State thereupon filed the same and issued a duly certified copy thereof; and that the certificate was duly recorded as required by law. All the steps necessary to be taken in order to create a corporation of this State appear to have been regularly taken. The bill alleges that the purported certificate filed by Glasgow, though it appears to have been signed and acknowledged by three persons as required by law, was nevertheless not so signed and acknowledged; that the three names appearing thereon are fictitious names and that Glasgow signed all of them and himself made all the acknowledgments under the fictitious names assumed by him. Wherefore, the bill charges, the certificate of incorporation certified to by the Secretary of State was fraudulently obtained and the procuring and recording thereof constitute a fraud on the State. The bill further charges that the defendant Glasgow has used certificates of stock of said pretended corporation as collateral for the purpose of borrowing money, representing that said certificates represented stock in a corporation of similar name whose stock is quoted on the New York Stock Exchange at $140 per share; and that-the sole purpose of the attempted creation of the defendant corporation was the furtherance by the said Glasgow of such frauds.
The prayers for relief are that the purported certificate of incorporation be decreed to be void; that the record of the same be cancelled; and that the certificate of incorporation obtained from the Secretary of State be delivered up and cancelled.
The bill was taken pro confesso against the defendant U. S. Realty Improvement Company, and now came on for final hearing.
A certificate of incorporation evidences a contract between the State and the corporate entity created thereby. Morris v. American Public Utilities Co. (Del.Ch.)
That the contract between the State and the corporation was thus obtained by fraud is clear. When the Secretary of State was deceived by the false statements, the State, in whose behalf the Secretary was acting, was likewise deceived. This false and fraudulent statement was the inducing consideration which led to the acceptance *139 and filing of the certificate. I can see no reason why the State should not be permitted to sue in this court to undo all that the fraud had accomplished and to restore things so far as this alleged corporation is concerned to the status quo ante. In certain cases an individual may sue in equity to cancel contracts which are vitiated by fraud and false representation. The State in proper cases ought also to be permitted to do so. Here the contract is an executed one. The corporation on the face of the records in the office of the Secretary of State and of the Recorder of Deeds is a lawfully organized one. It would be a strange situation if the State could not appeal to this court to cancel the contract of incorporation which is fraudulently embodied in these records and take from the pretended corporation all color of legality which has been wrongfully and fraudulently conferred upon it.
If it be granted that quo warranto might lie to oust the defendant of its claimed franchise, nevertheless equity may exercise jurisdiction. The State is entitled to something more than a mere judgment of ouster which the writ of quo warranto would result in. It is entitled to a cancellation of the fraudulently induced records. By analogy, the principle of Hollis, Adm'r, v. Kinney, 120 A. 356,
The public character which the records possess is not a circumstance which can make cancellation an improper remedy, for not only can equity declare such records to be cancelled where they are found to be fraudulent, but the cancellation can be ordered to be made on the face of the records themselves. Fenton v. Way,
It is hardly necessary to say that the basis on which the decree will rest is solely on the fraud practiced upon the State in procuring the certificate of incorporation. The allegations in the bill concerning the alleged use of stock certificates for the purpose of fraudulently obtaining loans of money have not entered into consideration as a ground for relief upon this particular bill.
A final decree in accordance with the foregoing will be entered.
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