Bridgers v. First National Bank

MANNING, J. The defendants’ counsel frankly concede that-the judge below was correct in his ruling, unless we now modify the doctrine announced by this Court in Harvey v._Imp. Co., 118 N. C., 693; Bridgers v. Staton, 150 N. C., 216; Sheppard v. Power Co., 150 N. C., 776. We have, therefore, re-examined the question presented with great care, and have reached the conclusion that the principles .controlling the decision of those cases above cited are wise, salutary and make for the better management of corporate bodies. The “voting-trust” agreement presented in the present case is in contravention of a wise public policy, opposed, in our opinion, to a proper construction of the Federal statutes governing the management of National banks', and is invalid. [299] In the absence of a decision of the Supreme Court of the United States which would be controlling upon us, we are constrained to determine the validity of the agreement by the principles heretofore declared by this Court and which we find to be in accord with the well-considered opinions of other courts, and with a proper construction of the Federal statutes. This agreement confers upon the trustees and their successors the uncontrolled power of management of the bank for fifteen years; the unrestricted power of filling vacancies in their number; it accomplishes the cqmplete_jepjj:atipiL_pf JheJegajLand e^uitaM^_qwnership of the stock; it confers an irrevocable grmt^ representationRy proxy for the term; its sole consid-"1 eration is -the mutual promises "of the subscribers; it is uncoupled with any interest; and by it, the subscribing stockholders, owning ajnajority of the stock of the bank, strip themselves of their power to .vote, and to participate in tEehmnual meetings of the stockholders', at which directors are elected, and to formulate and determine the policy of the bank. Those who are attempted to be entrusted with these large powers are the president, vice president, and cashier — persons^ forbidden by section 5144, Rev. Stat. U. S., act as^proxies, and the- avowed purpose, to quote the words of the agreement, is that “we and each of us desire to have, for a period of fifteen years from and after the date of this instrument, the continuance of the conditions above set out, and to assure ourselves and each other that these conditions and this regime will not be disturbed or affected by the act of any of us, except as hereinafter provided (to wit, unanimous consent).” The surrender of their duties by the stockholders to their proxies is complete."‘ "NdMimitatioñ is placed uponUhN trustees "named- in “ "selecting other trustees to fill any vacancy that may occur, no stipulation that the subscribers to the agreement shall be consulted, no power reserved in them to be used except by unanimous consent. “The power is absolute in the trustees to do as they see fit, and any ín&tfüc-" tions from the majority of stockholders would be useless.” In Warren v. Pim, 66 N. J. Eq., 353, Judge Pitney, in a well-reasonecl and*elab"orate opinion, considers these voting-trust agreements in every point of view. At p. 378 he says: “I base my view that an irrevocable voting trust, or any other irrevocable grant (uncoupled with an interest) assuming to confer upon the donee the power to vote at corporate elections for the choice of directors, is unlawful and void: first, upon .the plain letter of our general corporation act (P. L. of 1896, p. 277); and, secondly, upon the reason, spirit and manifest policy of the act.” [300] . 'Tbe provisions of tbe New Jersey statute, cited by tbe learned judge as controlling, are tbe same as those of our statute, to. wit, that tbe directors are to be cbosen annually by tbe stockholders, and tbat each stockholder shall bo entitled to one vo.te, in person or by proxy, for each share of _stobk held by him, but no juoxy shall be votecf on after three years from its date. Rev., sec. 1184. ' Tbe learned judge proceeds further: “When it says an absent stockholder may vote by proxy, it means tbat no_substitute for an absent' stockholder, other thaaJris jn’oxy, may be [admitted to vote in his stead. A proxy, ex vi termini, isWevocable unless coupled with an interest. A proxy is presumably voicing the judgment and will of his principal. An irrevocable assignment of the voting power, or, what amounts to the same thing, an act that irrevocably delegates the voting power to one who has no interest in the stock, upon trust that he will vote according to his own judgment, discretion and will, is an attempt to constitute a substitute voter who is not actuated by any interest in the welfare of the company. The difference is fundamental.” Again, lie says: “There may be room for dispute as to how unimportant may be the duties of a bona fide trustee witlf respect to the property, in order that the right to vote in the management of the property may be annexed to the trust; but there is, in my mind, no doubt that the right to vote cannot be annexed to a trust which holds only the power of voting. An appurtenant right cannot be appurtenant to itself alone; an incidental power cannot be incidental to itself alone. Such a status is to me as unthinkable as a human voice without a human being, as a lever without a fulcrum; and, of course, to say that the assignment of the mere voting power In trust’ passes to the trustee, by implication, such interest in the stock as will support the voting power, is the same as to say that the power may be appurtenant to itself alone.” In accord with these views is the opinion of the Supreme Court of Georgia in Morell v. Hoge, 130 Ga., 625; 61 S. E. Rep., 481; 16 L. R. A. (N. S.), 1136. _ ... . : . _ ... . . The National banking act contains similar provisions. Indeed, in prescribing the qualifications of directors.this act goes even further than our own statutes. Sections 5146 and 5147, Rev. Stat. U. S., prescribe that a director must be the owner in good faith of at least ten shares of stock, and the same shall not be in any way pledged or hypothecated, and the three-fourths of the directors must have resided at least one year in the State wherein the bank is located, and must be residents therein dur [301] ing their continuance in office. The evident purpose of this enactment is stated in Concord Natl. Bank v. Hawkins, 174 U. S., 364. The views of this Court, as expressed in the three cases cited above, are supported by the Shepaug Voting Trust Cases, 60 Conn., 553. In Foll’s Appeal, 91 Pa. St. Rep., 434, the Court said: “A National bank is a gwasi-public institution. While it is the property of its stockholders, and its profits inure to their benefit, it was nevertheless intended by the la¡w creating it that it should be for the public accommodation. It furnishes a place, supposed to be safe, in which the general public may deposit their moneys and where they can obtain temporary loans upon giving the proper security, in the exercise of its equitable power.” So that Court refused, “for reasons of public policy, to decree specific performance of a contract to sell certain shares of stock of a bank where such shares were sought for to control the bank, and were being purchased by borrowed money.” We can see, therefore, less justification for these voting-trust agreements where the purpose is to obtain the control of the majority of the stock of a banking institution. It is urged upon us that this voting-trust agreement ought to be sustained, because it was mtendgd_to prevent; thecontrol of a majority of the^ stock of_fhe bank from passing into the Hands of a stockholder who, to many of the stockholders, seems to He persona non grata, and who is buying up the stock and paying for it much nlore than its- market or even book value. •It is clear that the control of the stock cannot be acquired by this person unless some of the subscribers to the present agreement are willing to sell their stock to him; some, it seems, have done so; and this agreement prevents the transfer of the absolute and unconditional title. We are, by this argument, asked to sustain this agreement to prevent a man who has invested a large sum of money in the purchase of this stock, who has that direct interest in the success of the bank which an investment of his own money necessarily creates, and who shall be denied the full use of his property by being deprived of an incident or privilege inseparably connected with it; and this to be done in favor _of three trustees whose only interest in the stock of the otherHuBiefibeFs'is'TcTvote it at the annual or special meetings of the stockholders — to perform a trust uncoupled with an interest. While it may be, in exceptional eases, that some good may be accomplished by such agreements, yet, iiLQur opinion, the general effect js_ vicioiis and in contravention of a sound public policy. [302] It cannot be, nor is it intended to be, denied that those .stockholders, be they few or many, owning the majority of the stock of a corporation, can agree, after full consideration, to_ maintain a certain business policy of .the corporation or a certain management, and inj^hdng the right of voting by proxy, our statute recognizes tEas^tÓ accomplisUthis7”tliéy‘can‘give proxies {ERUcan~lasTTó7lEreé years; but these proxies¡jire revocable at the will of the principal, and "they"eánnót Re ‘madcTirrevocable, and the sale of the stock is itself a revocation of the proxy. While the agreement presented, certainly, in the largest measure, expresses the confidence of the subscribers in the judgment, capacity and integrity of the three trustees named, 'we are constrained to hold the agreement contrary to public policy and void. There was no error in the order appealed from, and the judgment is Affirmed.