Case Name: JOHN L. BRIDGERS v. THE FIRST NATIONAL BANK et als.
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1910-04-06
Citations: 152 N.C. 293
Docket Number: 
Parties: JOHN L. BRIDGERS v. THE FIRST NATIONAL BANK et als.
Judges: 
Reporter: North Carolina Reports
Volume: 152
Pages: 293–311

Head Matter:
JOHN L. BRIDGERS v. THE FIRST NATIONAL BANK et als.
(Filed 6 April, 1910.)
1. Corporations — “Voting Trusts” — Public Policy — Void.
A “voting-trust” agreement which, under certain conditions respecting the sale of stock, giving the trustees option of purchase at the book value, etc., provides for the transfer of the controlling vote of the shares of stock in a National bánk to its president, vice president and cashier, for a term of fifteen years, in order to control the management of the bank for that period, is held void as against the public policy of this State, there being no controlling decisions of the United States courts on the subject.
2. Corporations — “National Banks” — Trusts and Trustees — Officers — Proxies—Void.
A.“voting trust” of a majority stock vote in the shares of a National banking corporation, naming the president, vice president, and cashier as trustees, is directly 'violative of the provisions of the United States Revised Statutes, sec. 5144, prohibiting these officers to vote as proxies; and, also, of Revisal, see. 1184, relating to the election of officers by the stockholders present in person or by proxy, and that no proxy may be voted more than three years from its date.
Brown, J., dissenting.
Appeal from Cooke, J., heard at chambers, in Nance County, 8 October, 1909, by consent, in an action arising in Edgecombe.
This was a civil action instituted in the Superior Court of Edgecombe County, on motion to continue the restraining order issued. His Honor continued the restraining order and enjoined the defendants from putting the agreement hereinafter stated into effect, or taking any action thereunder. It was admitted that the First National Bank of Tarboro was duly organized under the National banking act, and was conducting a general banking business as authorized by law; that plaintiff is a stockholder in the bank; that the defendant Holderness is president, Johnson vice president and Pennington cashier of the bank; that the bank was organized in the fall of 1906, and the above named have been its officers since its organization; that the stock in the bank is held by many persons, distributed among the business men of Tarboro; that its business has been well managed and tbe bank bas been prosperous; tbat on 2 Marcb, 1909, certain stockbolders of tbe bank, among’ tbem tbe defendants, anticipating tbat one Henry Clark Bridgers was attempting to acquire tbe control of tbe stock in tbe bank, entered into tbe following agreement: •
“Memorandum of an agreement made tbis 2 Marcb, 1909, between certain stockbolders of tbe First National Bank of Tarboro, hereinafter specifically named and designated, and George A. Holdemess, ,0. A. Johnson and Ed. Pennington, trustees and attorneys witb power: / ,
“Whereas tbe First National Bank of Tarboro, a National bank organized under tbe banking laws of tbe United States of America, is engaged in conducting and carrying on tbe business of a National bank at Tarboro,-N. C.; and
“Whereas tbe management, direction and control of said institution bas at all times to' tbis date been satisfactory to tbe undersigned and in conformity witb tbe laws of tbe United States and State of North' Carolina; and
“Whereas we, tbe following, represent and own tbe number of shares in bank, certificate number or numbers, which are set opposite our names, viz. (reciting names, certificate numbers, and numbers of shares of tbe subscribers, amounting to 269 shares out of a total of 500) ;
“Whereas we and each of us desire to have for a period of fifteen (15) years from and after the date of tbis instrument tbe continuance of tbe conditions above set out, and to assure ourselves and each other that these conditions and tbis regime will not be disturbed or affected by tbe act of any one of us, except as hereinafter provided for; and
“Whereas, in order to effect our purpose here and guarantee each to tbe other good faith in tbe performance of the conditions and agreement hereof, we and each of us have agreed to transfer our respective shares of stock to George A. Holdemess, C. A. Johnson and Ed. Pennington, trustees named above, for tbe purposes and witb tbe objects and intents herein declared:
“Now, therefore, tbis agreement witnesseth: That'we (reciting names, certificate numbers and numbers of shares held by each subscriber) do hereby sell, set over, assign and pledge our respective shares of stock as named and described above to tbe said George A. Holdemess, O. A. Johnson and Ed. Pennington, and their successors, on tbis special trust and for tbe uses following, to wit:
“First. Tbe said trastees herein named are hereby given and clothed witb tbe full power and authority during and for tbe term of fifteen (15) years next succeeding, upon tbe execution and delivery of tbis agreement, to vote said shares and certificates of stock at all stockholders’ meetings, and for that purpose and to that end we and each of us do hereby appoint, name and designate the said George Holderness, C. A. Johnson and Ed. Pennington, and their successors, our true and lawful attorneys, for us and in our names during said period, to vote said stock and fully represent us in all meetings, whether regular or called, of the stockholders, giving and granting unto our said attorneys full power and authority to do and perform all -and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully to all intents and purposes as we might or could do if personally present.
“Second. In the event that any of the stockholders hereto signing shall desire to pledge his stock as collateral for a loan or to sell and assign the same absolutely, then and in that event we do hereby bind ourselves • and agree to give and do hereby give to said trustees above named and appointed, and to their successors, the right, option and privileges, if they shall so elect and desire, to sell for us and in our names and to transfer upon the books of the company the certificate or certificates of stock held by us, to such purchaser or purchasers as they or their successors shall furnish or procure: Provided, always, that the price by said trustees to be had and obtained for said certificate of stock shall be the book value of the same at the time said sale, pledge or transfer is attempted to be made, said trustees agreeing to take same at book value. For that purpose and to that end we do further appoint said trustees and their successors for a like period of fifteen (15) years our lawful attorneys, for us and in our names, to sell, transfer upon the books and deliver our said stock, receive for our use and benefit the price thereof, and to do all other acts and things in the premises that may be necessary to fully and legally effectuate and carry out the purpose hereof.
“Third. Contemporaneously with the signing, sealing and delivery of these presents the several shares of stock subscribed above and hereby transferred are to be assigned and transferred in blank, according to form on the back of each certificate or certificates, and delivered into the custody of said trustees, who, at the time that the said stock is delivered to them, shall execute and deliver to the persons transferring and surrendering the same, receipts showing the serial' number, certificate and number of shares so transferred and delivered to them by each person.
“Fourth. If a vacancy shall occur during the term of fifteen (15) years herein fixed in the board or number of trustees here in named, either by death, resignation or the removal from the State of either one of the three named, then the trustee or trustees remaining shall have and they are hereby clothed -with full power and authority to fill the vacancy or vacancies so caused, by appointing in the stead and place of the trustees or trustee so dying, resigning or removing the other trustees or trustee to succeed to the rights, powers, trusts and responsibilities herein given, imposed and declared in favor of the said Holderness, Johnson and Pennington, and such successor or successors are hereby given like power with the original trustees herein named, and will hold the shares of stock hereby transferred in like plight and condition as do the three original trustees herein named.
“Fifth. That this agreement shall be binding and obligatory upon each and every of the subscribers hereto, and the said stock hereby undertaken to be transferred and delivered to the trustees shall remain in their custody and possession under the conditions and for the purpose herein declared for a period of fifteen (15) years from and after the date of this instrument: Provided, nevertheless, that the said agreement may be earlier rescinded and made nugatory by the unanimous vote and agreement of the several signers thereof.
“In witness whereof, the above-named stockholders have hereunto set their hands and affixed their several seals, this the day and year written above. (Signed under seal.)”
“We do hereby accept the certificates of stock transferred to us, upon the trusts, terms and provisions set forth in the above paper-writing.
“Geo. A. Holdeeness,
“C. A. JOHNSON,
“Ed: Pennington,
"Trustees and Attorneys in Pact.”
It is further admitted that the trustees executed to each of the subscribers to said agreement a receipt or certificate in the following words:
' “Received of.Certificate No.for shares of stock in the First National Bank of Tarboro, the same being assigned, transferred and delivered to us and held by us, under and according to the terms and provisions of an agreement made the second day of March, 1909, between certain, of the stockholders of said bank and the undersigned. This the .... of March, 1909.”
The plaintiff alleged that the “said agreement is in violation of his rights and the rights of the other stockholders, and is in law void and of no effect, in that it seeks, in advance of the meeting of tbe stockholders, to fix tbe control of tbe stock of tbe bank, so tbat no argument, reason or persuasion on tbe part of tbe minority stockholders can or shall have any effect in any of tbe meetings of said stockholders, etc.”
Tbe defendants allege tbe following as tbe intent, purpose and justification of said agreement: “4. Tbat tbe only object and purpose of tbe. said paper-writing were, first, as long as tbe stock represented in and by said paper-writing remained tbe property of him who signed tbe agreement, to bold together enough of tbe stock to protect tbe bank and tbe stockholders thereof against injurious, menacing and sinister designs of tbe said H. C. Bridgers, and to assure tbe continued prosperity, welfare and success of tbe institution; and, second, tbat whenever any owner of any share of said stock should desire to pledge tbe same as collateral for a loan, or to sell and assign tbe same absolutely, then to give to tbe trustees and attorneys named and appointed, and to their successors, tbe right, option and privilege to sell for said stockholder and in bis name to transfer upon tbe books of the bank, tbe certificate or certificates of stock held by him to such purchaser or purchasers as said trustees and attorneys, or their, successors, should furnish and procure, with tbe express provision, always, tbat tbe price by said trustees to be bad and obtained for said certificates of stock should be tbe book value of tbe same at tbe time tbe sale, pledge or transfer should be made; tbe said trustees agreeing to take tbe stock at its book value.
“In respect of its first primary object of tbe agreement, these defendants say tbat each and every one who signed tbe said agreement, at tbe time of signing tbe same, were fully informed and knew, and these defendants know, tbat tbe effect of tbe said agreement, so far as it attempted to clothe tbe trustees named with tbe power to vote the stock at corporate meetings, was but a ■simple voting pool, tbe legal effect of which was to empower said trustees to vote the shares of stock deposited with them at all meetings of tbe stockholders of tbe said bank, only when tbe beneficial owner thereof should fail to attend and demand tbe right to vote tbe same in person, it being perfectly understood at tbe time tbat tbe trustees named in said paper, at any meeting at which any subscriber to said paper should be present, if the stock of such subscriber were not voted personally, it should be voted by the trustees as said stockholder desired and directed, and tbat only in the event of tbe failure of said stockholder to attend a meeting and vote in person, or to attend tbe meeting and direct tbe trustees bow to vote, should tbe trustee vote said stock according to their judgment and opinion. And these de fendants solemnly ayer that all of the parties to said agreement were so informed and so understood the same, before subscribing their names thereto, and subscribed the same expressly upon such agreement.
“In respect of the second object sought to be accomplished, to wit, that of giving a primary right of option to said trustees, these defendants say, recognizing the fact that so long as the owner of a share of stock remained its owner, he had the legal right to vote it in person, if he so elected; but anticipating that a contingency might arise which would compel some such owner to part with the stock, either by sale or by hypothecation, the said.stockholders signing the said contract solemnly agreed one with another, that because the life and success of the bank and the interest of the small stockholders therein were imperiled by the persistent attempt on the part of the said H. 0. Bridgers to acquire control, in the event any one of them found it necessary to sell his or her holding, gave to the trustees named, acting for their associates, a first right of purchase of'said stock. In order to safeguard the rights and interests of him or her who might be impelled by necessity to part with said stock, it was, on the other hand, pledged by the trustees, acting for their associates, that such stockholders should receive for his or her stock not only its market value, but its book value, which these defendants allege is, under normal conditions, always a few points in advance of the market value.”
The defendant appealed from the order of the judge making the injunction perpetual against the defendants.
Aycoclc & Winston for plaintiff.
F. 8. Spruill, II. A. Gilliam, W. W. Glarh and L. V. Bassett for defendants.

Opinion:
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.
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."
. '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 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.
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.