Sheppard v. Rockingham Power Co.

Clark, C. J. This is a suit to. declare illegal and void a stock deposit or voting trust agreement, and restrain tbe voting trustees from using or exercising any power or control over the common stock of the defendant, Rockingham Power Company, and from voting the same in any meeting, and to declare the holders of the stock-deposit certificates issued by the trustees to *778 be tbe bona, fide owners of tbe common stock of tbe Rockingham Power Company, and for tbe election of officers and for tbe transfer and assignment of ten shares of common stock to the plaintiff in lieu of a stock-deposit receipt, issued by tbe voting trustees, calling for ten shares of stock. Tbe stock agreement takes away from tbe stockholders all right-to vote for a period of three years after the first installation of tbe power plant of tbe Rockingham Power Company, and provides that tbe decision of tbe voting committee as to any of tbe facts or conditions of tbe said stock-deposit agreement shall be conclusive and bind all tbe parties in interest. Tbe agreement is not made for tbe protection of bondholders, but to enable the stockholders to pool tbe stock and to control tbe corporation by a voting trust. Tbe plaintiff was not a party to said agreement, but is a purchaser of ten shares of tbe stock thus pooled. Tbe agreement deprives tbe stockholders of tbe right to vote, and is therefore contrary to public policy and void. Harvey v. Improvement Co., 118 N. C., 693; Cone v. Russell, 48 N. J. Eq., 209 ; Shepaug Voting Trust Cases, 60 Conn., 579; Clark v. Railroad, 50 Fed., 338; Cook Stockholders (4th Ed.'), sec. 622. Harvey v. Improvement Co., supra, is “on all fours,” except that tbe agreement here is, if anything, more objectionable. In Harvey’s case we said: “Every stockholder must be free to cast bis vote for what be deems for tbe best interest of tbe corporation, tbe other stockholders being entitled to tbe benefit of such free exercise of bis judgment 'by each; and hence any combination or device by which any number of stockholders shall' combine to place tbe voting of their shares in tbe irrevocable power of another is held contrary to public policy.” In that case, as in this, tbe action was brought by the holders of a certificate issued by tbe voting committee. Tbe voting-trust agreement in Harvey’s case provided that if a vacancy occurred among the trustees it should be filled by tbe votes of tbe holders of tbe majority of tbe stock represented in tbe agreement, and that tbe holders of a majority of such stock should have tbe right, whenever they saw proper to do so, to instruct tbe trustees bow to vote ux>on matters arising in tbe meeting, and also to remove tbe trustees and fill their- places at any time. *779 No such agreements or stipulations appear' in this case. The power is absolute in the trustees to do as they see fit, and any instructions from the majority of the stockholders would be useless. Chief Justice Baldwin, of Connecticut, in a recent article (Tale Law Journal, 1891), says: “It is obvious that a trust of this character virtually severs the ownership of the stock from the power to vote on it. The legal owner casts the vote, but at the dictation of a third party who is not the equitable owner. And not only is the third party not the equitable owner, but he may, in the progress of time, be directly opposed to his interests. He represents the interests of the original constituents of the trust as they existed years before. Their interest in the stock meantime may have been sold to others, of different views, but these can take no share in the management of the corporation during the life of the trust. The legal theory of the relation between the State’ and those who receive from it a corporate franchise is that it is one resting on a personal confidence. The State issues, so to speak, its commission to the corporators, as its trusted and well-beloved servants, fit to do this special work which it commits to them. They can, therefore, ño more alienate the right to vote on their stock at corporate meetings than the citizen can alienate his right to vote at public elections. Delegation is a temporary alienation, and therefore proxy voting is not recognized at common law at meetings of corporations. As wag said in Taylor v. Griswold, 14 N. J. L., 222, ‘The obligation and duty of corporators to attend in person and execute the trust or franchise reposed in or granted to them is implied in and forms a part of the fundamental constitution of every, charter in which the contrary is not expressed.’ ” Any agreement which separates the beneficial ownership of the stock from the legal title is contrary to public policy and void., Harvey v. Improvement Co., 118 N. C., 693; White v. Fire Co., 52 N. J. Eq., 178; Shepaug Voting Cases, 60 Conn., 576; Cone v. Russell, 48 N. J. Eq., 208 ; Beach on Corporations, sec. 306; Clark v. Railroad, 50 Fed., 338; Kriessel v. Distilling Co., 61 N. J. Eq., 5. *780 “A sale by a stockholder of the power to vote_ upon his shares is illegal for very much the same reason that a sale of his vote by a citizen at the polls, or by a director of a corporation at a meeting of the board, is illegal. Each is a violation of duty; in effect, if not in purpose, a betrayal of the trust.” Guernsey v. Cook, 120 Mass., 501 Woodruff v. Wentworth, 133 Mass., 309; Fremont v. Stone, 42 Barb., 169; Noel v. Drake, 28 Kan., 265. This agreement cannot be justified as a proxy, for a proxy is good only for three years. Revisal, 1184. A proxy is always revocable, and even when by its terms it is made irrevocable, the law allows the stockholder to revoke it.- Frequently an attempt is made to permanently unite the voting power of several stockholders and thus control the corporation by giving irrevocable proxies to specified persons, but the' law allows the stockholder to revoke this proxy at any time. Cook on Corporations (4th Ed.), sec. 611; Woodruff v. Railroad, 30 Fed., 91; Cone v. Russell, 48 N. J. Eq., 208; Bridgets v. Staton, ante, 216. 1 It is true that the voting trustees deny that they have any intention of voting the said stock, or causing the s,ame to be voted, to bring about a reorganization of the company, and are advised by counsel and believe that they have absolutely no power whatever to vote said stock or cause said stock to be voted to bring about a reorganization of the company without the assent of all the holders of all said deposit receipts. This is not a sufficient answer for their refusal to transfer and assign the stock and deliver it to the plaintiff upon his demand. Plaintiff demanded the stock of the voting trustees prior to the institution of this action. In Griffith v. Jewett, 15 Weekly Law Bulletin, 419, the Court said: “We are dealing with the rights of property, and it is no answer, to one’s demand for the possession and control of his own property, to say that he who withholds it does not intend to use it for an illegal purpose. The law gives to every one not under disability the control of his own property, and imposes upon him- the duty of making lawful use of it.” Restrictions on the right to vote stock, like restrictions on the right to sell-stock, are not favored by the courts, and the courts have held that any holder of trustee’s certificates issued under *781 similar contracts and agreements as this one might at any time demand back Ms part of the stock.- 2 Cook Corporations (4th Ed.), sec. 622; Fisher v. Bush. 35 Hun., 641; Guernsey v. Cook, 120 Mass., 501. A mandamus or mandatory injunction lies to compel a corporation to transfer stock and to compel election of officers. Cook on Corporations, sec. 309; Trust Co. v. Moran, 29 L. R. A., 212; Railroad v. Pennsylvania Co., 54 Fed., 741, 745, 750-752; High Inj., see. 2; Railroad v. Felton, 69 Fed., 273. The illegality of voting trusts having been held by this Court, in Harvey v. Improvement Co., 118 N. C., 695, and Bridgers v. Staton, ante, 216, his Honor properly enjoined the voting trust in this case from using or exercising any control over the common stock of the Eockingham Power Company and from voting the same in any meeting whatsoever, and in adjudging that all bona fide owners of such stock and -holders of receipts issued therefor by said voting committee shall be entitled.to vote the number of shares to which they are entitled in all meetings of the stockholders of said company, and enjoined the voting trust from carrying out any plan of reorganization'. Affirmed.