Clowes v. Miller

Emery, V. C. (after statement of facts). The directors and stockholders of a corporation are expressly authorized by the statute to change the name of the corporation, and such change of name is ordinarily, if not always, a pure matter of internal business management, which they are entitled to control, and a subject upon which the court will not undertake to substitute its judgment for that of the directors and stockholders. The only basis for such interference on behalf of a stockholder would be, as it seems to me, the existence, under special circumstances, of a right, legal or equitable, in such stockholder, to the continuance of the existing name, together with such a threatened interference with such right as could be remedied only by the action of this court. No such right was expressly reserved to the complainant in the present case by the agreement which is the sole basis of his claim, nor can any such right be implied. The complainant having the right under the agreement to purchase the preferred stock at any time before Januarjq 1901, may, by such purchase, control — 185 — the change of name, and in the absence of .any express provision of the contract qualifying the ordinary rights of the administrator or his assignee, as holder of the preferred stock pending the option, the court will not interfere to control the vendor’s ■exercise of such right. It certainly should not interfere where, •as here, the matter sought to be controlled by the decree of the court is a matter of business management in which the defendants are not clearly shown to be acting in bad faith. The complainant is not, under these circumstances, entitled to the aid of this court to give him a control of the preferred .stock, pending his option to purchase, which is -not given him by the contract, and which he may at any time secure for himself by carrying out the contract of purchase. The application to enjoin Miller from voting on the preferred stock for a change •of name must therefore be denied. The principal question .argued was as to Miller’s right to direct the trust company to vote the entire stock held in trust in favor of such change. The deposit in trust in this case was not simply a deposit for voting or “voting trust,” but was in substance a deposit in trust for a limited period made by two persons who, at the time of the deposit, had, by reason of their agreement, for sale, with- the •company, a joint undivided interest in the two thousand seven hundred and fifty shares of common stock to be issued by the •company. The trust agreement provided for the ultimate division of the stock by the trustee between the parties so jointly interested, •on January 1st, 1901, in the proportion and the manner fixed by the agreement. The acceptance of the stock for these purposes of ultimate •disposal by the trustee constituted a valid trust, and, in the absence of any provision in the trust agreement, the trust ■company, pending the execution of the trust, would have a voting power on the stock, which right it would be under obligations as trustee to exercise for the benefit of the cestuis que trustent, according to its own best judgment. And, so far as the trust agreement has not deprived the trust company of this power and obligation by a valid and continuing restriction, — 186 — this power must still inhere in the trust company itself as a necessary incident to the legal ownership of the stock. The provision of the agreement that the stock held in trust was to be voted at all elections and other meetings, as directed by the administrator, until January 1st, 1901, was, in view of the character of the entire transaction, as part of a transaction for the sale of the stock and a settlement of partnership affairs, a valid provision, and not objectionable on any grounds of public policy. Hey v. Dolphin, 36 N. Y. Sup. 627 (1895), and cases cited at p. 632; Chapman v. Bates, 46 Atl. Rep. 591 (Vice-Chancellor Pitney, 1900). But, so far as the administrator’s personal right to direct the vote was concerned, the agreement could not be valid for the purpose of securing the control of the voting, on the trust stock to him personally, if he did not continue to be an owner of the stock or interested in the stock. It is against the settled rules governing the control of corporations that an irrevocable power of 'voting dr directing the votes on stock should be vested in a person who is neither interested in the stock nor a representative of persons interested. White v. Thomas Inflatable Tire Co., 7 Dick. Ch. Rep. 178, and cases cited at pp. 183, 184 (Vice-Chancellor Pitney, 1893). This agreement, therefore, so far as it expressly authorized Bandolph to direct the vote, is not valid for the purpose of continuing such a power of direction in Bandolph personally after the transfer of his entire interest in the stock of the company. And so far as the express provisions of the trust agreement extend to affect the right of voting inherent in the trust company by virtue of the legal ownership of the stock, it must be held that so far as Bandolph personally is concerned, it ceased to extend or operate upon his transfer of his entire interest in the stock, and that Bandolph has no longer the right to direct the vote. The question is whether Miller, as the assignee of all of Bandolph’s interests, has succeeded to this -right of Miller’s. I do not think he has. The common stock held in trust was, by the terms and method of the purchase from the company, owned by the complainant and the administrator jointly, and the deposit of this stock in trust was a joint act of deposit with a pro — 187 — vision for ultimate division between them and a separation of their joint interest. Had the stock been issued to them jointly, the concurrence of both would have been necessary to a vote on the stock. 3 Thomp. Corp. Off. § 3871. The provision giving Eandolph the direction of the trustee’s vote pending the trust was, in my judgment, and under all the circumstances of the case, intended as a personal authority to him pending the trust, and was not intended to be attached to the owner or owners of his interest in the eight hundred and seventy-five shares of the two thousand seven hundred and fifty deposited. The privilege certainly is not connected with the ownership of the preferred stock, for this may be separated from the right to the common stock, and the inference of intention should be very clear in order to justify the conclusión that the agreement intended to confer on any owner or owners of eight hundred and seventy-five shares a right to direct a vote upon the whole two thousand seven hundred and'fifty which was given in terms only to Eandolph himself, and was not expressly extended to Ms assigns. My judgment is that the authority to direct the vote was personal to Eandolph, and that he having now by his sale incapacitated himself from giving the direction, the trust company itself, as the legal holder of the stock, has the right to vote the stock without being bound absolutely under the agreement by the direction of either the complainant or Miller, and it must exercise this right and power honestly and in its best judgment as trustee, giving such weight as in its judgment it is entitled to, to the fact'that'the complainant, the owner beneficially interested in the majority of the stock held in trust, is opposed to the change. ' Irrespective of the omission in the agreement of any express provisions as to the right to direct the trustee’s vote on the whole stock following the assignment of Eandolph’s interest alone in the minority of the stock, 'there are serious practical difficulties in the way of holding that 'this right to direct the vote on the whole stock follows the assignment of' Eandolph’s eight hundred and seventy-five shares or his interest therein. These may be assigned to different holders, and if so, to whom — 188 — does the right of direction of the trustee’s vote go; to the holders of the majority, or to all the holders jointly and not otherwise? Manifestly such contingencies should be provided for in the trust agreement itself, if the trustee’s legal right to vote is to be controlled thereby, and in many instances of trust agreements there are such express provisions where,'by the issuing of trust certificates and other machinery, the holders of certificates as the equitable owners of the stock, are to a certain extent given, as against the trustee, rights analogous to those of legal shareholders. These rights in the ultimate equitable owners to direct the voting as against the legal holder and trustees, are the result, however, of express provisions in the trust agreement or necessary implications from its provisions. But where, as here, there are-no provisions, either expressly or by necessary implication, continuing the control or direction of the voting powers over the whole stock in the assignee or assignees of the minority of the stock, the provision as to the direction of the vote must be held to be personal in the appointee, and to have now become unlawful for him to exercise, because he has no interest either in the stock to be voted or the preferred stock. The-power thus given to Randolph having failed, there is no provision in the agreement which will deprive the trustee of the power or relieve it from the obligation of voting on the stock as trustee. As such trustee, however, the trust company, will not be entitled to vote merely as directed by Miller, and in view of Miller’s claim to this right to direct the vote, and the failure of the trust company to disclaim its intention to be directed by Miller, a preliminary injunction will be advised enjoining the trust company, until answer or further order, from voting on the trust stock under the direction of Miller, and enjoining Miller from giving such directions. The trust company, however, will not be enjoined from voting as trustee on the question of a change of name. As to the contention of the complainant that, by reason of the administrator’s sa-le of his stock, the “voting pool” is destroyed and complainant is entitled at once to his one thousand eight hundred and seventy-five shares of stock, it must be observed that the trust agreement is not simply a deposit for the pur — 189 — pose of voting, but is a trust to hold the stock for ■ a limited period, to await the result of certain options of purchase, which affect the ultimate disposal of the stock. The transfer of the subject of sale (the preferred stock) by the administrator, put it out of his power personally to carry out the contract, and might, perhaps, give the vendee the right to consider the contract rescinded, and the trust terminated except for the division of the stock. Upon this point, however, I express no opinion, because, even if it be well taken, yet it was clearly in the option of the complainant to consider the contract of sale as in force, and to consider the right to purchase the preferred stock as continuing against the purchaser Miller, who purchased not only with notice of the agreement of sale, but expressly subject to its provisions. The bill in this case is filed on the basis of a continuance of the contract to purchase the preferred stock and its continuing validity against the defendant Miller, and the continuance of the trust in the trust company-to hold the stock pending the expiration of the option. On this bill, therefore, it cannot be held that the trust has been extinguished by the sale to Miller, or that the complainant, who has not treated the sale to Miller as a rescission, is now entitled to a division of the stock as on the expiration of the trust by limitation. The case being one in which the defendant is entitled to a speedy hearing on appeal, the preliminary injunction, to the extent above indicated, will be directed on the condition that, if the defendant appeals within ten days after the order, complainant shall consent to have the appeal brought on for hearing at the next term of the court of errors and appeals.