Case ID: cow_7/html/0401-01.html
Source: Caselaw Access Project
Author: {"author": "\n      \n      Curia.\n    ", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*Ex parte Willocks and others.
    UTICA,
    August, 1827.
    The statute, 52,)S' incorpori ating the Utica Insurance Co., confers no power on any particular number of directors to do the business, or manage the concerns or affairs of the company. The number depends on the common law.
    Where a-statute authorizes a select body of men to make by-laws, rules and regulations, (e. g. directors of a corporation, to make, &c., as to an election,) a majority of that body at least, is necessary to constitute a quorum, (e. g. for the purpose of designating inspectors of a corporate election.) •.
    Words in such a statute, directing that a majority of those present at a regular meeting shall be competent to do business, cannot be construed as authorizing a minority to act. A majority is necessary to constitute a regular meeting. Otherwise, where the right to do the act is in the constituent members.
    The statute, (sess. 48, ch. 325, s. 9,) authorizing the supreme court, on motion, to set aside a corporate election, and to make such order and give such relief as right and justice may require, does not warrant the establishing of an election which has not been legally conducted; though the objection be merely technical, and it be evident that the result is satisfactory to those who have a majority of the legal votes.
    The words right and justice in a statute, mean legal, not arbitrary right, &c.
    The owner of stock in an incorporated company, which stands in his name on the transfer books, may vote upon it, within the statutes, (sess. 39, ch. 52, and sess. 48, ch. 325, s. 9,) though such stock be at the time hypothecated by him.
    A by-law, such as is authorized by the statute, (sess. 39, ch. 52, s. 10,) viz., that a stockholder, indebted to an incorporated company, shall not transfer his stock till what he owes the company is paid, does not amount to a hypothecation.
    A hypothecation is conventional; and implies a right to convert the subject into money by sale, on default of paying the debt.
    D. B. Ocden, for the relators, moved to vacate the electi°n °f directors for the Utica Insurance Company, held the 3d of July last. The company was incorporated by the statute, (sess. 39, ch. 52.)
    
      Semble, the rule that the acts of officers de facto are valid, applies only to third not where the proceeding is directed to the vacating of an election conducted by o. duly appointed.
    Inspectors of a corporate election may be candidates at such election.
    Eorm of rule setting aside a corporate election, and ordering a new one.
    He read affidavits, that shortly before the election, at a meeting purporting to be a meeting of the president and directors of the company, but at which no one was present beside the president and one of the directors, the president being also a director, they appointed themselves and another of the directors inspectors of, and these three presided at the election.
    That in the month of January, 1829, the directors passed a by-law, or resolution, to the import that when any of the directors should be indebted to the company, so much of their stock as should, at 85 per cent, amount to the debt, should be considered as hypothecated to, and held by the company, as security for the debt; and that such directors should not be at liberty to transfer it, till the debt should be paid. That he believed, that, at least, 450 shares, thus hypothecated, were voted upon by the directors *in favor of the ticket which succeeded; and which the relators now sought to set aside. It was not disputed that the shares in question stood in the name of those who voted on them, upon the transfer books.
    
      W. H. Maynard, contra,
    read affidavits, denying that the alleged by-law, or resolution, had been passed, and to show that the election had been fairly conducted, and that the result was satisfactory to stockholders owning a majority of the shares.
    The election was for 9 directors, the number originally designated by the commissioners under the act; and which had been continued ever since. Two opposite tickets were supported; one by the relators and their friends, which failed. The inspectors certified in favor of the candidates named upon the other ticket, who had entered upon the execution of their duties.
    
      
      Ogden, in support of the motion.
    The statute incorporating this company, (sess. 39, ch. 52, 4 L. N. Y. 47, a,) contains no provision authorizing a less number of the directors for the time being, than a majority, to appoint inspectors of election. Clearly, two only out of the nine do not constitute a board.
    But suppose the inspectors to have been regularly appointed. The election itself was irregular. The stock upon which several of the directors were allowed to vote for the successful ticket, was hypothecated, to the company in virtue of the by-law. The case is within the principle of Ex parte Holmes, (5 Cowen, 426.)
    The denial in the opposite affidavits, that the by-law exists, is not full and satisfactory.
    
      S. A. Foot and Talcott, (attorney-general,) contra.
    The only provision in the act of incorporation, bearing upon the number of directors necessary to constitute a board, is contained in the 15th section. The number is not directly specified. But the act declares, that at every regular meeting of the board of directors,.a majority of the directors present, shall be competent to decide on all business *and concerns relating to the corporation. The word regular relates to the time, place and manner of calling the meeting; not the number. The intention of the statute, is, that any number of directors regularly convened in these respects, shall be able to bind the company by a majority of their voices. If there be any one present at such a meeting, his resolution alone would be conclusive. Unless this be the construction, the words of the statute, a majority present, cannot have effect. The rule is, that every part shall operate, when it can be made to do this. (1 Show. 108; Hardr. 344.) The statute intended to facilitate business, by thus enabling any one present to act, though all the others may chance to be absent.
    But suppose the appointment of inspectors void. We say there was no need of any. The act no where requires that any should be appointed. It is proper; but not essential. The right of nominating persons to govern the proceedings and canvass the votes, is incident to every corporation. Ho certain form of doing this is necessary. It is enough that , -itt i . ,, . , the voters attended, and acquiesced in the inspectors named, by voting through them. This was a virtual election.
    Again; the inspectors acted under color of authority; and, as to third persons, their acts are valid, even admitting the necessity of an appointment. The election, if it were necessary, might be sustained upon this intermediate point. (9 John. 135; 7 John. 549.) Suppose some of the inspectors of our political elections improperly appointed: would this, per se, subvert the election ?
    Resting the question on general principles, independent of the statute, and admitting that inspectors must be chosen, it is by no means clear that the choice was irregular. (Lane, 21.) It is the case of an electing power: and the rule would seem to be, that unless the number is defined, a majority of those acting may elect. (Id. 5 Burr. 2598.) Here the number of directors is not definite; for by the 3d section, (though they may not exceed nine,) it may be varied on resolution, and due notice given.
    *The by-law supposed to work an hypothecation, is denied. But suppose it to exist, as set forth in the relators’ affidavit: it does not appear that the number of votes charged as improperly given, would have turned the election the other way, had they been subducted. This is necessary according to the case Ex parte Murphy, (7 Cowen, 153.)
    We deny that the case is within that cited from the 5th of Gowen, if the number of votes excepted to were sufficient to raise the question. The names there stood on the transfer books as trustees. Here they are absolute. The statute, (sess. 48, ch. 325, s. 11,) upon which that case went, is peremptory, that the transfer books shall be conclusive of the right to vote. Indeed, such is the effect of the decision. The entry was satisfied by looking to the cestui yue trust; and it turning out that he had no right to vote, a new election followed. The entry was ambiguous. But the court will not go beyond that case, unless the entry is fraudulent, or in evasion of the statute. Nothing of that kind is pretended here.
    We utterly deny, however, that there is, or can be a bylaw operating as a hypothecation of stock. The only power to secure debts due from stock-holders through the medium of their stock, is given by the 10th section, which authorizes the directors to refuse a transfer of anyone’s sto'ck until what he owes the company is paid. Any bylaw beyond this is denied • and if passed, it would be void for want of power. Almost every company in the state, it is presumed, has such a standing by-law. It is authorized by almost every charter. But it bears no resemblance to a hypothecation. There is a very great difference between a hypothecation and this general lien. A hypothecation must be conventional entirely. It is a mortgage, or pledge of specific property for a specific debt; very differeht from a mere lien for general indebtedness. The object is merely to retain the stock within reach of the company, by execution for the debt, or a proceeding in chancery in nature of an execution; or to create a disability, as a penalty for not paying. The stock cannot be uSed; *but no absolute property can be acquired in virtue of the lien. It is an essential characteristic of a hypothecation, that the creditor may make the absolute property his own, by a sale either at law or on a. bill filed. In this case, chancery would not compel a sale on default of payment.
    But if this be a hypothecation, the stock rightfully stood in the name of the original owner, and conferred the right to vote. It is of the nature of a hypothecation, that it transfers no possession. (2 Bl. Com. 159.) The charter gives the right of voting to the possessor of the stock, (§3.) .
    But why was not this objection raised at the timé of the election ? When can bodies corporate be quiet or safe in their elections, if a secret defect, known to the objector, may be passed over at the time ; and, the result turning out adversely, be afterwards urged as the .ground of a motion for a re-election ?
    
      There is no doubt the result was according to the wishes of those holding a majority of the stock. And the court are not bound to overturn the election, if they see that it may in justice be supported. (Laws, sess. 48, ch. 325, s. 9.)
    
      E. Williams, in reply.
    The frequent scrambles for the direction of these incorporated money companies became a public evil. This produced the provisions in the 9th section of the act of 1825, (sess. 48, p. 451,) conferring the right of summary interference, now sought for at the hands of the court. This statute should be construed liberally. The election-should be set aside, if there is the least probable chance that the exclusion of the improper votes would have turned the scale. This should be done for the sake of purity and confidence in such proceedings. •
    The number of directors are definite. By the 8th section, the commissioners for organizing the company were empowered to designate that number. It was fixed at nine, and has ever since remained the same. The number being designated, it became definite. What was before uncertain was thus made certain, unless altered by a law of the company. But the directors are not the electors. "The right of election resides in the stockholders, whose number is indeed indefinite; and the votes of a minority will control, unless met by votes for other candidates. A majority need not appear. This must, in the nature of things, be so of all elections, political and corporate, where they are not confided to a select body. The voters here are electors. They do not act as officers. Our complaint is, that the directors, the officers of the company, have not legally appointed inspectors; an act pertaining to them as officers.
    The corporation has, through their directors, power (by the 9th section of their charter,) to pass laws regulating the election. This involves the right of requiring inspectors; a body essential to the due ordering of an election; a body which exists in this company, under their by-laws. The contrary is not pretended. In making the by-law for inspectors, and passing resolutions for their appointment, we say there must he a full board adequate to do a législative aet_ Can that ever be done by only one or two of a large aggregate body ? Gan a minority possess the power of enactment ? Can the speaker and clerk, in the absence of every other member, pass a valid law ? By-laws are the expressed will of the corporate body. When the statute of charter says that a majority present may act, it pre-supposes that a board regular and competent by the common law, have first convened. Admit that a majority may then, by the common law, do business: this is not to say the statute has no operation. It operates in affirmance of the common law; a very usual case in legislation. The most of the provisions in this very charter are merely confirmatory of powers, which would have been full and undisputed at the common law.
    What effect the acts of illegal officers may have in relation to third persons, it is not necessary to inquire; for the question here is directly between the original parties. All are members of the corporation, and party or privy to the proceeding. A man who undertakes to decide on my rights, must, as between him and me, show himself something more than an officer de facto. The statute of 1825 Contemplates a case of this kind. Elections are always conducted, in the sense of gentlemen, by officers either de facto or de jure. To say the court cannot interfere in either case, would be to repeal the statute. But they were not in by color of office. They appointed themselves at a meeting which had not the semblance of a board; and acted without legal pretence of authority. The rule, however, does not apply to a proceeding which brings the election directly in question. That case involves every question of right, every question of regularity. The favor extended to officers de facto, is an exception in favor of innocent strangers who act without a view of the whole ground.
    We agree that the court must be satisfied, before they can act on the ground of illegal votes, that a sufficient number were received against us to turn the election. [The counsel examined the proofs, and contended that this fact was established.]
   Curia.

The affidavits in this case are very voluminous; and disclose the utmost fairness throughout the proceedings in question. The result probably accords with the wishes of those holding a decided majority of the votes. But these are considerations to which we cannot advert, if there be lawful ground, however strict and technical, for saying the election was irregular. True, by the 9th section of the act of 1825, we- are to make such order and give such relief as right and justice may appear to require. But we cannot pronounce on this right and justice arbitrarily. The statute means the legal rights of the parties.

By the 3d section of the act incorporating this company, the stock, property, estate, affairs and concerns of the corporation, shall be managed and conducted by directors; and the 15th section is, that a majority present at a regular meeting, shall be competent to decide on all business and concerns relating to the corporation. The original commissioners declared that the number of directors should be r nine; and no alteration has since taken place in that respect. We must, therefore, assume this as the settled ""and definite number. Then, did two of that number constitute a board for the purpose of doing any act regulating the election? We must take both parties as assuming upon these papers, that inspectors were necessary. It would be violent to presume that the corporation intended to proceed without so usual, not to say necessary organ of an election. _The 11th section of the act of 1825, supposes them to exist in every case. It was the business of the directors, as officers of the company, to see that these agents were properly appointed. In order to the transaction of this as well as other business, there must be a competent board. Whether we are to regard this as an electing power ; or as part of the business of the directors in their regulation of the election; and (among other regulations) a designation of the persons who shall receive and canvass the votes; in either view, we think there must, at least, a majority of the directors be present to constitute a board. Some statutes of incorporation declare expressly what jyjjokgj. ig necessary to make a board. Not so here. We do not understand the words; “ a majority of the directors present shall- be competent,” &c., in the 15th section, as amounting to a declaration that a minority, however small, may decide. It leaves the number competent to a quorum, to be determined by the rules of the. common law, which in no case of this kind is satisfied with less, than a majority, If it be the exercise of the power to make by-laws, rules or regulations, conferred upon them by the 9th section of-the act of incorporation, the point is clear. They are, prescribing a rule of conduct; and their acts are in-the nature of legislation. The general rule, also, is, that to make a TJ-orum °f a select and definite body of men possessing the power to elect, a majority at least must be present; and then a majority of the quorum may decide. Here were but two out of nine directors. Not being a majority, the election must beset aside on that ground. The distinction is between a corporate act to be done by a select body, and one to be performed by the Constituent members. In the latter case, a majority of those who appear may act.

Here we might stop. But it is important to any future election, that we should pronounce on the right to vote upon'what is here called hypothecated stock. We do not consider it such, in virtue of the standing by-law which is admitted to exist under the. 10th section; and which we believe is very common in the corporations of the state. Hypothecation is conventional; and implies the power of ren(3erjng the subject available by way of sale, to satisfy *ke debt on default of payment. The stock stood on the transfer books in the name of the voters. This is generally conclusive upon the inspectors; and we consider it so in the case.

*But we do not hesitate to say that, in a clear case of hypothecation, the pledger may vote. The possession may well continue with him, consistently with the nature of the contract; and the stock remain in his name. Till enforced, and the title made absolute in the pledgee, and the name changed on the books, he should be received to' vote. It is a question between him and the pledgee, with which the corporation have nothing to do. Ex parte Holmes has been relied on as governing this case: but there the shares stood in the names of persons who were trustees for *the corporation. They were designated as trustees. Literally, they might have voted: but we allowed it to be shown that they were trustees. To give the transfer books such a binding effect as to shut out all inquiry in every case, might enable the directors to control the election through the funds of the institution. We never intended by that decision, to open an inquiry into every case of hypothecation.

H. B. On an inquiry by the counsel for the present acting directors, whether it would be considered lawful for the inspectors to be candidates for the direction ; the justices answered in the affirmative.

Bule, “ That the election held upon the 3d day of July last, for nine directors of the Utica Insurance Company, be vacated and set aside; and that a new election for directors of the said company be held pursuant to the charter and by-laws of the said company; and that the same be held within thirty days.’’ 
      
      
        Rex v. Miller, 6 T. R. 278, per Ld. Kenyon, Ch. J., and Rex v. Bellringer, Here cited.
     
      
       Id. & vid. 2on Corp. ill.
     
      
       1 Kyd on Corp. 401, 411 Cowp. 538, per Ld. Mansfield, Ch. J.
     
      
       1 Kyd on Corp. 401. 4 T. R. 822, 23, per Ld. Kenyon; and the cases there cited.
     
      
       In the first, and I believe, the only edition of Kyd on Corporations, author remarks, that, “ At common law, independently of any specific * . constitution, when the power of acting is entrusted to any specific number of persons, whether definite or indefinite, any number of the whole body, however minute, is sufficient to form a legal assembly, if all be properly summoned to attend.” He instances the house of commons composed of 558, any number of which, 40, for instance, form a house. If this learned writer intended to include bodies of men, empowered to act judicially, he certainly spoke against what is" now, at all events, the settled law. Not only a majority, but the whole number of such a body must, convene; though when convened, a majority may decide.
      In saying so of any integral part of a corporation, hg admits that, he is at issue with what he insists was an abstract proposition of lord Kenyon, ip Rex v. Bellringer, (4 T. R. 810.) This was, that where the number of the integral part is definite, there must be a major part of the whole number constituted by the charter, in order to make the elections, and do the several acts under it. In. that case, the chartgr expressly authorized the major part of the common council, 36 in number, to make the election. The defendant was elected a member by 18, the whole surviving number of the council. The election was pronounced void, on pleading, upon information in nature
      
        of a quo warranto. Mr. Kyd assumes that words conferring a power to act, on a majority of a definite number, by the words they, or a majority of them, or the like, are restrictive; and had been held by the cases to mean (what he admits is counter to the grammatical construction of the words) “not less than a majority." He therefore puts Rex v. Bellringer among the cases which went upon the restrictive nature of those words; hence infers that lord Kenyon was speaking obiter; rejects his position; and winds up with stating the general rule, “ That where no mention is made" (in the charter) “ of the major part, either in the case of a definite or indefinite body, any number duly assembled, however small, is sufficient to form a corporate assembly." He admits that where the number is indefinite, the clause of the “ major part" is inoperative. (Vid. 1 Kyd. on Corp. 418 to 425.)
      How, admitting that some of the former cases had gone upon the special words, “ the major part," is it not quite as natural to suppose that lord Kenyon, in the case cited, intended to bring them all back to the grammatical sense; the sense which prevailed when they were applied to an indefinite number; and, we may add, to their common sense, by denying all restrictive effect in both cases ? H so, his proposition was not an abstract one. He adopted the idea which Mr. Kyd himself hints as probable; (id. 423;) that these words were introduced through more abundant caution, to avoid the possible inference that without them, the presence of the whole body might be required. In this view, lord Kenyon was speaking within the record; and the case of Rex v. Bellringer, must be considered as a direct authority for the proposition in question. Almost any lawyer, too, I imagine, would concur with lord Kenyon, that he was borne out in his proposition by the dictum of lord Mansfield, in Rex v. Varlo, (Cowp. 250.)
      
        Rex v. Bellringer was decided in 1192. In 1193 and 1194, Mr. Kyd’s treatise was published. With that before them, the king’s bench continued to reason in the same way. In 1195, Rex v. Miller, (6 T. R. 268,) came before that court. The mayor of Horthampton was, by statute charter, to be elected by 48 burgesses, as one of the several integral parts of the corporation. The burgesses were reduced to 19 when the defendant was elected mayor; only 3 of whom assembled on that occasion. The town received a royal'charter subsequent to its statute incorporation; but the former was laid out of view as void; the latter standing in its way at the time. The question was upon the validity of the election, on pleadings, upon information in nature of a, quo warranto. All the judges spoke to the question; and three of them expressly recognized the proposition in Rex v. Bellringer, which Mr. Kyd questions as abstract. The words, “ or the major part of them,” may now, therefore, be considered as mere surplusage, when ap-
      
        plied to a corporate body, either of a definite or indefinite number. (Vid. 6 T. R. 278 to 281, per Ld. Kenyon, C. J., Grose and Lawrence, Js.)
      I observe that Mr. Dane, of Massachusetts, in his late abridgment, puts the two cases above cited from the Term Reports, on general principles, not the words of the charter. He illustrates these cases thus: “If the charter require 12 common council men, &e., to elect or do an act, 7 of them at least must be present; though 4 of the 1 may give the vote; and if 3 of the 12 .die, still 7, a major part of the whole 12, must meet.” (5 Dane’s Abr. 150.)