1

majority of the votes of the stockholders voting at such elections." No formidable and effective opposition to an existing board, however obnoxious, could be organized without combination. The combining shareholders may legally transfer their stock to trustees with a power of attorney to vote thereon, accepting transferable trust certificates as convenient vouchers or receipts in lieu of their shares. Agreements of this character are clearly distinguishable from cases in which one of the parties stipulates to accord or secure to the other, for a consideration, some private or personal advantage not shared by the stockholders at large. But of course, where there is a preconceived scheme, combination or conspiracy to carry an election of directors, as for example by the use and abuse of injunctions to restrain other stockholders from voting, by efforts and contrivances to prevent a fair election of inspectors, the premature convening of the meeting and a preoccupation of the room by hired ruffians, the proceedings are undoubtedly void.

§ 305. The same subject continued. So long as all the parties to a voting trust comply with the terms of the agree

1 1 Havemeyer v. Havemeyer, (1878) 43 N. Y. Super. Ct. 506, 512.

2 Havemeyer v. Havemeyer, (1878) 43 N. Y. Super. Ct. 506, 512, 513.

3 Griffith v. Jewett, (Cin. Super. Ct. 1866) 15 Week. L. Bul. 419, where speaking of such an arrangement the court said: "The entire beneficial interest in the stock is severally vested in the certificate-holders, the voting power in the trustees, and the situation does not differ materially from what it would be if the stockholders retaining their shares had simply united in a proxy authorizing the trustees to cast the vote of all of them for directors." Hafer v. New York, L. E. & W. R. Co., (1885) 14 Week. L. Bul. 68, which appears to be contra and in which a similar agreement between shareholders was pronounced unlawful, turns upon the point that the object of the agree

ment was to place the control of one railway company in the hands of the directors of another, who had no interest in the successful operation of the former. "It is the duty," said the court, "of each stockholder to vote for directors of the company with an eye singly to its best interests. . . . Both on the ground that the power is denied to one corporation thus to acquire control of another, and that the stockholder can not barter away the right to vote upon his stock, we hold these contracts void."

4 Havemeyer v. Havemeyer, (1879) 43 N. Y. Super. Ct. 508, 513, 514, distinguishing Fremont v. Stone, 42 Barb. 170; Gurnsey v. Cook, 120 Mass. 501, and Card v. Hope, 2 B. & C. 661.

5 People v. Albany & Susquehanna R. Co., (1869) 55 Barb. 344, 381, 382.

ment, it can not be successfully attacked either by the State or by shareholders of the company not parties thereto. For, ordinarily, a court of equity will not interfere by injunction to restrain a portion of the stockholders from voting upon their shares even upon the ground that they are about to gain control of the company to the injury of the corporate enterprise; unless an illegal combination in the nature of a conspiracy to defraud the plaintiffs can be shown. The legal difficulties which arise grow out of stipulations in the agreement by which it is sought to restrain any recalcitrant member from transferring his shares to the opposition or from voting against the trust. For, ordinarily, any stockholder may withdraw from such a contract, although it be expressly agreed that it shall be irrevocable." Thus where certain stockholders for mutual protection and to prevent a sale of the company's property by the directors, who were and who represented a minority in interest, entered into a sealed agreement not to sell their stock nor to vote by proxy without the consent of all the parties to the agreement, it was held that the contract was void as in restraint of trade, against public policy, and because an agreement not to vote by proxy is a

1"We can perceive no reason why any number of shareholders, either by means of a proxy or by vesting the legal title in another, may not authorize him to vote upon their stock, and as such is the substance of this agreement, we consider it not illegal. So long as the parties to it, or their successors in interest, are satisfied with it, no other person may complain." Griffith v. Jewett, (Cin. Super. Ct. May, 1866) 15 Week. L. Bul. 419. But see Fisher v. Bush, 35 Hun, 641.

2 Camden &c. R. Co. v. Elkins, (1883) 37 N. J. Eq. 273. Cf. Hilles v. Parish, (1862) 14 N. J. Eq. 380; Ryder v. Alton &c. R. Co., 13 Ill. 516. Thus where steps had been taken by the officers of a corporation to obtain from the shareholders a deposit of their stock, together with powers of attorney, with themselves or their

agents, in order that they might vote on them at a meeting of the shareholders, an injunction to restrain them from so doing, on the ground that a trust was created by the transaction in behalf of the company, was refused, as it did not appear that corporate funds had been employed. Woodruff v. Dubuque & S. C. R. Co., (1887) 30 Fed. Rep. 91.

3 Brown v. Pacific Mail Steamship Co., (1867) 5 Blatchf. 525; People v. Albany &c. R. Co., (1869) 55 Barb. 344; Webb v. Ridgely, 38 Md. 364; Hafer v. New York &c. R. Co., (1885) 14 Week. L. Bul. 68; Beach on Railways, § 451; Hoppin v. Buffum, (1870) 9 R. I. 513; s. c. 11 Am. Rep. 291; Griffith v. Jewett, (Cin. Super. Ct. 1886) 15 Week. L. Bul. 419. Cf. Reed v. Jones, 6 Wis. 680. 4 Griffith v. Jewett, (Cin. Super. Ct. 1886) 15 Week. L. Bul. 419.

The agreement not to

pernicious and unlawful provision. vote by proxy was said to be pernicious in that it tends to concentrate in the hands of a few shareholders the power of selecting the executive and managing officers of the corporation, and deprives the owner of shares of one of the attributes of ownership, that is, of selecting agents and attorneys to counsel and aid him in the prudent and intelligent management of his property. The right of alienation, it was said, is an incident of the property represented by shares of stock, and any restraint placed thereon by a contract which has no other consideration to uphold it than the mutual promise of the parties is contrary to public policy and can not be recognized by the courts. Mutual promises alone do not constitute a good and sufficient consideration in contracts in restraint of trade. And contracts of that character are not to be upheld, unless they are made upon a real and bona fide consideration,' actual, adequate and not colorable. But contracts in partial restraint of trade are not obnoxious to the law. Accordingly, where the agreement does not place an absolute restraint upon alienation, but merely provides that the parties to it shall not sell their stock without having first offered it to their associates at the market price, there is nothing which can be said to be contrary to public policy or any wise open to objection.'

1 Fisher v. Bush, (1885) 35 Hun, 641, distinguishing Havemeyer v. Havemeyer, 45 N. Y. Super. Ct. 464. 2 Fisher v. Bush, (1885) 35 Hun, 641, 644.

fered to sell it to the rest of their associates, at a price not above the then current market value, and in case of their declining to take it, without next offering it to Brown

3 Fisher v. Bush, (1885) 35 Hun, Brothers & Co.; but any one of the 641, 642.

parties is to be at liberty to withdraw

4 Fisher v. Bush, (1885) 35 Hun, on those terms at any time. The 641, 645.

5 Collins v. Locke, 4 App. Cas. 674.

6 Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; Fisher v. Bush, (1885) 35 Hun, 641, 646.

7 In Brown v. Pacific Mail S. S. Co., (1867) 5 Blatchf. 525, 527, Blatchford, J. said: "The provisions of the agreement substantially are, that the parties to it are not to sell their stock without having first of

agreement also takes the shape of an irrevocable power of attorney to Brown Brothers & Co. to vote upon the stock; and all increase of such shares of stock, by dividends, until the 1st of December, 1868, is to come under the same agreement. In this respect, the agreement seems to differ very little from a mere power of attorney, or proxy, to Brown Brothers & Co., to vote upon these shares, with the addition that the

$306. The same subject continued-"The Reading Voting Trust."-While a person who votes upon stock at a corporate election must be an owner thereof it does not follow that he must be the only owner. On general principles, the right to vote on stock can not be separated from the ownership in such sense that the elective franchise shall be in one man and the entire beneficial interest in another; nor to any extent, unless the circumstances take the case out of the general rule. It matters not that the end is beneficial and the motive good, because it is not always possible to ascertain objects and motives, and if such a severance were permissible it might be abused. The person who votes, must, consequently, be an owner, but 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

power is irrevocable, and that there are certain privileges reserved to the owners of the stock, in regard to the manner of dealing in it, and withdrawing from the arrangement. I am unable to perceive anything in this agreement contrary to public policy or anywise open to objection."

1 Ervin v. Philadelphia & Reading R. Co., (Ct. Com. P. Phila. 1890) 7 Ry. & Corp. L. J. 87, where the court, while not deciding whether the trustees of the Reading voting trust of 1887 representing shareholders and creditors could elect one of their own number a director of the road, denied an injunction to stay or regulate a corporate election and to restrain the trustees of the voting trust from voting. The main outlines of the Reading voting trust as stated in the case above cited are these: The creditors' securities and the certificates of the stockholders were to be placed in the keeping or under the control of persons selected

with the consent of all concerned,
and known as the Reconstruction
Board, with power to adjust priori-
ties, fix or reduce the rates of inter-
est, execute mortgages, give liens in
lieu of those surrendered, and issue
new certificates of stock.
The plan
was made known to the stockhold-
ers and creditors, who for the greater
part, ratified it by depositing their
securities and certificates, but the
Board was armed with a large dis-
cretion in the choice of the means
of carrying it into effect. They
were, however, to act with the ad-
vice and consent of another body
designated collectively as the "Vot-
ing Trust." This consisted of four
persons named by syndicates repre-
senting different interests, who were
to complete their number and guard
against the possibility of a tie, by
adding a fifth.

2 Ervin v. Philadelphia & Reading R. Co., (Ct. Com. P. Phila. 1890) 7 Ry. & Corp. L. J. 87.

the parties may, consequently, determine on which side it shall lie.' The question then arises whether the debtor and creditor may agree to lodge the vote in some one who is to act for both so long as the debt remains and the stock is held as security for its payment? And this has been decided in the affirmative so far as to deny a preliminary injunction seeking to restrain the trustees of the Philadelphia and Reading Railroad Voting Trust from participating in the election of directors for that company.2