Case Name: Lyman E. Warren et al., complainants and respondents, v. J. Harold Pim et al., defendants and appellants
Court: New Jersey Court of Errors and Appeals
Jurisdiction: New Jersey
Decision Date: 1904-11-21
Citations: 66 N.J. Eq. 353
Docket Number: 
Parties: Lyman E. Warren et al., complainants and respondents, v. J. Harold Pim et al., defendants and appellants.
Judges: 
Reporter: New Jersey Equity Reports
Volume: 66
Pages: 353–428

Head Matter:
Lyman E. Warren et al., complainants and respondents, v. J. Harold Pim et al., defendants and appellants.
[Argued December 7th, 1903.
Decided November 21st, 1904.
Filed November 30th, 1904.]
1. The “voting trust” in the stock of “The Fisheries Company,” a New Jersey corporation, claimed by or on behalf of the “Pim committee” and “The Association of Foreign Shareholders of the Fisheries Company, Limited.” a corporation of Great Britain, or either of them, is contrary to the public policy of this state, inoperative, null and void. (By the court.)
2. An irrevocable “voting trust,” or any other irrevocable grant (uncoupled with an interest in the stock to be voted upon) assuming to confer upon the donee the power to vote at stockholders’ meetings for the choice of directors, is contrary to the letter, and also to the spirit and policy of the General Corporation act of New Jersey. P. L. of 1S96 p. 277. (Pitney, J.)
3. The equality of each share of corporate stock in the eye of the law is an established principle in this state. (Green, J.)
4. The validity of a voting trust in this state is subject to at least two limitations, to wit, (a) that the holders of all of the shares of the corporation shall have an equal privilege (after fair information) of availing themselves of the trust agreement, and (ii) that the object and aim of the trust shall be the equal benefit of all the shares. (Green, J.)
5. The voting trust under consideration ignores or defies the two limitations (a) and (6), and also ignores or defies the statutory policy of the equality of every share in the eye of the law; hence it cannot stand. (Green, J.)
On appeal from a decree of the court of chancery advised by Vice-Chancellor Pitney, whose opinion is reported in Í80 Dick. Ch. Rap. 86.
Mr. Richard Y. Lindabury and Mr. William I. Lewis, for the appellants.
Mr. William II. Corbin, for the respondents.

Opinion:
Dixon, J.
The bill of complaint in this cause was filed in January, 1903, by Lyman E. Warren against the Fisheries Company, a corporation of this state, I. Harold Pim, Langley Archer West and Montgomery Iiorne-Payne, constituting what is called the "Pim committee," and the Association of Foreign Shareholders of the Fisheries Company of New Jersey, Limited, a corporation of Great Britain. Subsequently Nathaniel 3. Church, Adolph Hirsh, James E. Heller, the American Net and Twine Company, William B. M. Chase and John Shepard were admitted as complainants in the suit.
The objects of the bill are — first, to compel a transfer to the complainants, upon the books of the Fisheries Company, of certain shares of stock in that eompan3r, now standing on its books in the names of the Pim committee, but claimed by the complainants as their property; second, to restrain the Fisheries Company from holding any election of directors until such transfer shall have been made; and, third, to have it decreed that a certain "voting trust," under which the Pim committee and the British association claim some control over' shares of stock in the Fisheries Company, is against public policy, fraudulent, inoperative, null and void. The bill was accompanied by affidavits and exhibits.
The members of the Pim committee and the British association filed an answer, which was also accompanied by affidavits and exhibits.
The Fisheries Company filed a separate answer, adopting substantially the views of the complainants.
The bill and the answer of the Pim committee and the British association disclose the ground of litigation.
The cause being submitted on bill and answers, the chancellor,. on November 10th, 1903, made final decree in conformity with the prayer of the bill, and from that decree the appeal now to be decided was taken.
It appears that when the Fisheries Company was organized on May 25th, 1900, a majority of the shares of its stock was taken by persons residing in Great Britain and Ireland, and in order that a combination called a "voting trust" might be formed, enabling some representative of these shareholders to control the Fisheries Company, the British association was incorporated. As a preliminary to the formation of the "voting trust" most of the shares of these foreign holders, being a majority of the stock of the Fisheries Company, were transferred to the Pim committee. Afterwards, on November 12th, 1900, a deed poll was executed by that committee and the British association, which recites the authority of the Pim committee to create a "voting trust" of the shares of the Fisheries Company, and that the British association is the proposed "voting trust," and then, to complete the constitution of the trust, declares as follows:
"Tlie'said shares in the Fisheries Company now held by the said I. II. Tim, L. A. West and R. M. Iiorne-Payne shall be held by the association with all rights and powers against third persons as if it were the absolute owner and holder thereof, but as between the association and the owners of the deposited shares the certificates of the association issued to such owners shall carry all rights and benefits except that of voting, subject, nevertheless, to the provisions hereof. The association will recognize the registered owner of any deposited share as the absolute equitable owner thereof subject to these presents. The deposited shares shall be held by the association upon trust that they may and shall, according to the best of their discretion, do the things following, that is to say: Exercise ail voting rights incident to the ownership of shares as and when the association shall think it expedient to exercise the same; receive all dividends and bonuses and other moneys receivable in respect of the deposited shares; raise or borrow on the security of the deposited shares any money required for the purposes of the 'execution of the trust; take all such action and proceedings as they think expedient from time to time to protect the interests of the owners of the deposited shares. Dividends received shall be paid over to the respective owners of the deposited shares, but the association may retain any sum which the association may deem it advisable to set aside to meet contingencies and anything due for expenses. The trust shall be closed when and so soon as the association shall by deed declare that it is to be closed, or when the owners of three-fourths of the deposited shares of each class by notice in writing to the association declare the trust to be closed, or when the last survivor of the now existing descendants of Her Majesty shall have been dead for twenty years, or when fifty years from the execution hereof shall have elapsed."
These excerpts denote the character of the voting trust now in question, and, it may be added, the corporate powers of the association are such as would enable it to execute the trust, but the owners of the deposited stock, as such, have no voice in its management.
It is admitted by the defendants that all of the shares claimed by the complainants really belong to them, hut the defendants insist that some of those shares were by consent- of the present or former owners subjected to1 the provisions of this deed poll, while the complainants contend that, although these shares were deposited with the Pim committee for the purpose of forming some voting trust, one having the qualities specified in the deed poll was not contemplated. This disputed question of fact would not dispose of the whole case and need not be considered until it is decided whether, even if consented to by the stockholder, such a scheme would be binding upon him or supportable against other stockholders.
The provisions of the deed poll above recited make it plain that the only claim which the Pim committee and the British association can make to the stock is the power of voting upon it and the right to defray out of the dividends the expenses incident to tlio protection and exercise of that power. If the power to vote be denied, aro reason is suggested for their retention of any conarectioai with the stock. The object of the deed poll is to lodge the votiaig power thus separated from the ownership of the stock in the British association; and the question is therefore fairly presearted whether such a foreign corporation can lawfully exeo'cise that power upon the stock of a New Jersey corporation which it does not owar.
The underlying judicial doctrine pertinent to the solution of this question was declared by our supreme court in Taylor v. Griswold, 2 Gr. 222. In that case the petitioner sought to. set aside, uaader the act of December 8th, 1825 (P. L. of .1825 p. 81), an election held by the stockholders of a bridge eoanpan}, organized in 1797 (Laws of 1797 p. 201), because the tellers had refused to receive votes tendered by proxy. The petitioaa was denied, on the ground that the commooa law required all votes to be given ioa persoaa, aaad that the duty of the corporators to attend in person for the purpose of exercising the franchise is implied iai aaad forms part of the fuoadamental constitution of every charter in which the contrary is not expressed. This decision was affirmed by the court of appeals on February 21th, 1835, and since that time has beeaa deemed settled law concerning the corporations of this state.
Primarily, therefore, the voting power of corporate stock must be coaisidered the personal privilege of the stockholder, not separable froan ownership of the stock except as such separation is saaictioaied by the .legislature.
laa 1811 the legislature authorized stockholders iaa all incorporated coanpaaaies whose charters did aaot otherwise provide, to vote by proxy at the election of directors, if the vote was tendered aaot more than three years after the date of the proxy. P. L. of 1841 p. 116 § 2.
In 1846 (P. L. of 1846 p. 64) it was enacted, with regard to manufacturing companies, that at all meetings of the company abseait stockholders anight vote by proxy, authorized in writing (§ 11); that every person holding stock in such company as executor, administrator, guardian or trustee, should represent tlie stock in his hands at all meetings of the company and might vote accordingly as a stockholder; and that every person who should pledge his stock as collateral security might, nevertheless, represent the same at all meetings and vote as a stockholder (§§ 40, 41)- These provisions were in 1849 (P. L. of 1849 p. 300 § 11, 37) extended to some other sorts of corporations.
In the revision of our Corporation acts, adopted April 7th, 1875, these enactments of 1841 and 1846 were made applicable to all companies organized under the laws of this state (Gen. Stat. p. 907 § 21, 38, 39), and they are also embraced in the Revision of 1896, with these additions, that persons holding stock in any other representative or fiduciary capacity than those above specified, may likewise represent the stock, and the person pledging his stock as collateral security may empower the pledgee to vote thereon. P. L. of 1896 p. 277 § 17, 37.
For many years past our statutes have required corporations to keep books in which the transfer of stocks should be registered, and have declared that at any election these books should be the only evidence as to who were the stockholders entitled to vote. But while the books are conclusive evidence for the officers conducting the election, they are only "prima facie evidence when the right to vote is the subject of judicial investigation. Archer v. American Water Works Co., 5 Dick. Ch. Rep. 33.
In no respect, other than as above stated, has the legislature hitherto modified the general principle' that the right to vote upon corporate stock is the peculiar privilege of the owner of the stock.
Although the language of the statutes above mentioned is capable of application to corporations as stockholders, it should not be so construed, because of another legal rule generally adopted in this country and now to be considered: The rule is that one corporation cannot become a stockholder in another corporation unless authority therefor' is clearly granted by statute. Franklin Company v. Lewiston Savings Bank, 68 Me. 43; Franklin Bank v. Commercial Bank, 36 Ohio St. 350; Green Br. U. V. 91, note; Elkins v. Camden and Atlantic Railroad Co., 9 Stew. Eq. 5; Parsons v. Tacoma Company, 65 Pac. Rep. 765. This doctrine presents two aspects: it brings into view both the law conferring power upon the corporation claiming to own the stock and also the law subjecting the stock to ownership. The latter aspect is that now chiefly to be regarded.
The first general statute of this state which expressly permitted the stock of a New Jersey corporation to be held by another corporation was section 55 of our revised act of 1875. Other acts of similar purport were passed April 17th, 1888 (P. L. of 1888 p. 445), and April 6th 1891 (P. L. of 1891 p. 329). They are now embodied in sections 49 and 50 of the Bevision of 1896. Their scope is so narrow as to render it unnecessary to give them here further attention.
In 1893 (P. L. of 1893 p. 301) a more general act was passed, which made it lawful for any corporation created under the revised act of 1875 to purchase, hold and dispose of shares of the capital stock of any corporation created under the law of this or any other state, and to exercise, while owner of such stock, all the rights, powers and privileges, including the right to vote thereon, which natural persons being the owners of such stock might exercise. This is now section 51 of the Bevision of 1896, except that the revisers dropped the reference to the act of 1875.
The bearing of this statute on the matter now in hand is, I think, very marked. In it, for the first time in our legislation, is the power of voting upon corporate stock expressly conferred upon corporations, and the limitations of the grant are very significant. These are threefold: First. The stock voted upon must be owned by the voting corporation; this excludes all interests less than or different from ownership. Second. The stock voted upon must be stock in a corporation created under the law of this or some other state, i. e., some state of this Union. It has been suggested that "other state" may here include foreign countries, but that it does not is, I think, made manifest on noticing that in sections 6, 7, 95, 101, 254 and 255 of the statute, where foreign countries are intended, they are expressly mentioned in addition to "other states." Third. The voting corporation must bo a Now Jersey corporation. Although the expression now is "any corporation," yet I think it must be thus confined, not only because it is a revision of acts in terms so limited, but also because, if it be not thus confined, it presents an absurdity by indicating that the legislature intended to authorize corporations, not created under our laws, to own and vote upon the stock of corporations not subject to our laws.
Keeping in mind the legal principles and statutes above mentioned, I come to the question to be decided in the present case — is it lawful for a corporation organized under the laws of a foreign country to vote upon the stock of a New Jersey corporation which it does not own? An affirmative answer is, I think, rationally impossible. On the doctrine established for this state by the case of Taylor v. Griswold, ubi supra, such an answer must be based on the clear intent of some statute, and no such statute can be found.
But it is said the policy indicated by our statute is such that on the principle of comity the courts must answer the question affirmatively, in order to concede to foreign corporations such privileges in domestic corporations as the legislature has designed that our corporations should enjoy in foreign corporations. In my view, the utmost demands of comity are inadequate for the end sought. The legislature has given its sanc-e tion to the exercise by New Jersey corporations of the right to own and (while owners) to vote upon the stock of corporations created by the laws of sister states. The corporations of a sister state, whose laws permitted the right thus sanctioned to be exercised, might invoke the doctrine of comity to support them in exercising a similar right in our corporations, but the claim could fairly go no further. That falls far short of the present exigency. The corporation to be favored comes, not from a sister state, but from a foreign country. It is not shown that the laws of that country would extend like favor to our corporations, and, even if they would, our corporations are not empowered to enjoy it; and the stock to be voted on is not owned by the corporation desiring to vote upon it, while ownership is made a condition essential to the exercise of the voting power by our own corporations, either within or without the state.
The question as to who shall exercise the voting power in our corporations is not one of mere private concern; it involves matters of public interest. Whether the laws of the state shall be faithfully observed in the management of these bodies depends, primarily, on the parties voting upon the stock. Even if, on principles of comity, such voting power should be conceded by the courts to corporations of sister states, which are subject to the federal constitution and laws and to state constitutions of which we take judicial cognizance, it would by no means follow that a like concession ought to be made to corporations organized under' law's wholly unknown to us, and over which our courts, either federal or state, cannot acquire personal jurisdiction without their consent. A public policy having so wide a sweep ought, I think, to be supported by a clear expression of legislative purpose.
I therefore conclude that the British association cannot lawfully exercise the voting power which it was the design of the deed poll to confer upon it. Consequently, as the object of the proposed trust wholly fails, the complainants are entitled to have the stock which they own restored to them, whether tlpe'trust was concurred in or not, and also to enjoin the association from voting on stock belonging to other stockholders in the Fisheries Company.
The complainants are entitled to the same relief against the members of the Pim committee, but on different grounds.
The right of stockholders to place their stock in the hands of individual trustees and to have those trustees,vote-úpffn it is distinctly recognized "in* section 37 of our statute, and has been sustained in this "court. Chapman v. Bates; 16 Dick. Ch. Rep. 658. Such a trust need not embrace all the stockholders of the company, and fhe questions that can be raised concerning it by stockholders not included in it arc only those which relate to the propriety of the trust under the general rules of law and equity.
But in the present case no such trust was legally formed. The Pim committee was not empowered by any stockholder to be itself the holder of stock and to vote upon it; its authority was confined to the creation of a voting trust, not consisting of the members of the committee alone. The purpose of the consenting stockholders must have been that such a trust should be constituted forthwith, and an attempt so to form it was made. That attempt is still persisted in, but now, after the lapse of four years, is finally determined to be futile. Changes, which during this interval have doubtless taken place in the ownership of so large an amount of stock, must, so far as they had reference to any voting-trust, have rested on the idea that the trust had been legally formed and the power of formation exhausted. It therefore caiinot be reasonabty presumed that the present owners have assented to the making of another attempt to form a voting trust, and without such assent they should not be subjected to the hazards of a new formation.
On these grounds, I think the complainants are entitled to the relief granted by the decree below. But my examination of the case has not led me to concur in that statement in the decree that the deed poll'was "a fraud upon and unauthorized by the stockholders," and I therefore think it should be eliminated.
The following opinions were also delivered: