Commonwealth ex rel. Eberhardt v. Dalzell

Opinion by Mr. Justice Mitchell, The right of voting stock at corporate elections is an incident of ownership, to be exercised, of course, in the mode and under the restrictions prescribed by the charter and by-laws; but nevertheless a part of the stockholder’s property, inherent in him by virtue of his title. As said by the present Chief Justice in Tunis v. Hestonville R. W. Co., 30 W. N. 96, “ the right of voting stock is inseparable from the right of ownership. The one follows as a sequence from the other, and the right to vote cannot be separated from the ownership without the consent of the legal owner.” But though the person who votes must be an owner, “ it does not follow that he must be the only one. If, for instance, stock is pledged as a collateral, whether the debtor or creditor shall vote depends on the terms on which the pledge is made. The power is, under these circumstances, necessarily to some extent severed from the ownership, and the parties may consequently determine on which [221] side it shall lie: ” Hare, P. J., Shelmerdine v. Welsh, 47 Leg. Int. 26. In the absence of any agreement between the parties on this point, it would seem that the right to vote should follow the legal title. If that was allowed to remain in the pledgor his right to vote could not be questioned, while, on the other hand, if the legal title was transferred to the pledgee, his prima facie right would be equally clear. It was held in Aultman’s Appeal, 98 ■ Pa. 505 (516), that the pledgee of stock as collateral transferred and standing in his name, is as to the corporation the legal owner, and liable for assessments, etc., just as if he was the actual beneficial owner. If he is thus charged with the burdens of ownership, it would seem to follow that he is entitled to the corresponding rights and privileges. These being the rights of the parties under the common law, we have now to consider the effect upon, them of the act of May 7,1889, P. L. 102. It is entitled “An act defining evidence of stock ownership in corporations and for determining the right to vote thereon,” and begins by declaring that “ the certificate of stock and transfer books, or either, .... shall be prima facie evidence of the right to vote thereon, by the person named therein as the owner.” So far this is merely declaratory of the existing law, but it then proceeds, that upon objection by an actual stockholder, the judges of the election shall inquire and determine summarily whether the name on the books is “ that of the absolute and bona fide owner thereof, or of a holder of the same as executor, administrator, guardian, or as trustee created by last will and testament, or by decree of court. If not, then the vote or votes so tendered shall be rejected.” The critical question that arises on the first glance at this act is whether the enumeration of owners and trustee» is meant to be exhaustive and exclusive, and the direction to reject all other votes mandatory. It is at once apparent that this direction cannot be taken literally without consequences of the most sweeping and dangerous character. Whole classes of stockholders, whose rights are as indisputable as any of those named, would be disfranchised. Thus no trustee, unless created by will or decree of court, is to have his vote received, and the whole class of trustees under deeds, however carefully framed for the protection of the separate [222] estates of married women, or the management of estates during minority, lunacy, insolvency, or spendthrift lives, and trustees of the funds of public or private charities which may have corporate stock among their investments, would be entirely excluded from any vote in the management of the property committed to their charge, and it is doubtful if any partner, manager of a limited or joint stock company, or officer of a corporation holding stock of other corporations, could be brought under the literal description of “ absolute and bona fide owner,” while they are certainly not trustees created by will or by decree of court. The rights in all these cases are as unquestionable, as absolute, and as much entitled to exercise and protection as any of those expressly named in the act. It is not supposable that the legislature, even' if it could do so constitutionally, meant to strike them down in this indirect and summary way. They are rights of property, and can only be taken away, if at all, by the clearest and most imperative language. The statute is very loosely and improvidently drawn, and there is no construction of it entirely free from difficulty; but it is far more reasonable to suppose that the legislature had another and different intent. Corporate interests had grown so large, and the conflict of opposing views of internal management at times so violent, that elections not unfrequently became matters of public concern. Our recent reports show a number of appeals to the equitable powers of the courts not only to decide questions of voting rights, but to take entire charge of corporate elections. One such, involving enormous amounts of capital, and great public interests, came to this court in Gowen’s Appeal, 10 Weekly Notes, 85. Corporate elections cannot be stopped to settle nice questions of legal title, and it is important to the interests of the corporations that their elections should proceed under their own rules and with their own officers. This statute appears to us as an outgrowth of that state of affairs, an effort in the direction of regular and orderly elections, to afford means of speedy and present determination of questions of voting as they arise, and as they may affect the interests of the corporations, a directory establishment of the prima facies in the enumerated cases, for the guidance of the election officers, but not intended to interfere with the privileges of individual owners, or the by-laws of corporations, and certainly not to take [223] away or settle finally any legal rights. The enumeration of executors, administrators, guardians, and trustees created by will or by decree of court, was in pursuance of this purpose, and Wfis meant to afford a general prima facie rule for such cases. ! That the existence of other trustees, not within the classes named, was not meant to be disregarded, appears by the second section, which prescribes that when a pledgor of stock as collateral for a debt has reserved the right to vote upon it, his vote shall be recéived. This also is only declaratory of the law as it stood before. But the case of a pledge with no express agreement as to the voting power, was not provided for. Whether this was merely through inadvertence or purposely, because questions of much nicety may arise in such cases, where rights will be dependent on the exact circumstances, it is not material to inquire. The act makes no express provision for such eases, and they must be decided upon the common law. The general rule is that as between the corporation and the person offering to vote, the right follows the legal title, of which the certificates and the stock books are the prima facie evidence. By-laws may establish a different rule, and there may be special circumstances to change the equities as to individuals or even as to the corporation: See Morawetz on Corporations, and the cases cited, § 483; Biddle on Stock Brokers, 342 ; Spelling on Private Corporations, § 380; Beach on Private Corporations, § 855; and some cases taking a contrary view, cited in Cook on Stock and Corporation Law, ed. 1889, § 468. But we have no question of that kind in the present case. The by-laws of the corporation provide that all persons holding shares “ either in their own right, or as trustees,” shall have the right to vote. In this there is no restriction as to the kind of trustees or the mode or purpose of their appointment as such. It is admitted that Messrs. Watson and Wood held the title to the stock which was entered on the corporation books in their names as trustees. It is also admitted that they were pledgees, but it does not appear that the pledgors had reserved the right to vote. Both by the common law and the corporate by-laws, therefore, they were entitled to vote. It was a right of property incident to their legal title to the stock, and the declaratory and directory provisions of the statute did not take it away. Their votes should have been received and counted. [224] The result of counting these votes, as appears, will be that the election was incomplete and abortive as to the four vacancies for which five candidates received equal votes. Whether the by-laws provide in any way for such a contingency, or for a special election to supply the failure, or the difficulty can be arranged by the withdrawal of one of the candidates or in some other way, we are not informed. We cannot, therefore, enter a final decree, but must send the case back for further proceedings. Decree reversed, and record remitted for further proceedings in accordance with this opinion.