Court Opinion

ID: 8268619
Source: CourtListenerOpinion
Date Created: 2022-10-16 19:17:23.429736+00
Date Added: 2024-06-11T16:43:26.977013
License: Public Domain

Green, J.
(concurring in the decree).
Although, as already observed, the pleadings, affidavits and exhibits are voluminous, and although the questions discussed are important and the interests at stake are large, the decision of this court may, in my humble judgment, rest upon a principle of corporation law which is at once simple and sure.
The principle to which I allude is the equality of each share of stock in the eye of the law. This principle appears to be our settled policy with respect to corporations. It has an illustration in the right of voting at corporate elections, when (although it was not so many years ago) each shareholder is entitled to one vote for each share by him held. See revised Corporation act of 1896, section 36. We find another illustration in the declaration of dividends, wherein each shareholder is entitled to the same rate per cent, upon each share by him held (see revised Corporation act, sections 30 and 47; Laurel Springs Land Co. v. Fougeray, 5 Dick. Ch. Rep. 756, 759; Griffing v. Griffing Iron Co., 16 Dick. Ch. Rep. 269, 270; Bouv. Dict., word "dividend;” Morawetz Corp. (2d ed.) § 435); and another illustration in assessments upon stock not fully paid up (see revised Corporation act, section 21); and yet another illustration in the increase of capital stock, when the shareholders are entitled to take the new shares in proportion to their several holdings (see revised Corporation act, section 47; Way v. American Grease Co., 15 Dick. Ch. Rep. 263, 269); and yet another illustration in the distribution of any surplus assets of an insolvent corporation (see revised Corporation act, section 86) . The principle of share equality is not to be departed from, unless the departure be sanctioned by law — either expressly declared or negatively suffered — and by the contract relation of the shareholders. Illustrations of departure thus allowed may be found in the classification of shares, usually as preferred and common (see revised Corporation act, sections 8 and 18); and *420in special powers of voting at meetings other than for elections (see revised Corporation act, section 17).
I think it is but an outgrowth of this principle of share equality that in the decisions of our courts, whether upholding or overturning a particular voting trust, it has been plainly held that the validity of such a trust 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, if they shall so choose; and (b) that the object and aim of the trust shall be the equal benefit of all the shares.
In Cone v. Russell & Mason (1891), 3 Dick. Ch. Rep. 208, there was a voting agreement which had been made and entered into, to be binding for five years. In setting aside this agreement, Vice-Chancellor Pitney said (at p. 216) : “I conclude that the contract complained of in. this case is void, as against public policy. This conclusion does not reach so far as necessarily to forbid all pooling or combining of stock where the object is to carry out a particular policy with a view to promote the best interests of all the stockholders. The propriety of the object validates, the means and must affirmatively appear.”
In Kreissl v. Distilling Company of America (October, 1900), 16 Dick. Ch. Rep. 5, there was under consideration an agreement for a voting trust, entered into by certain shareholders of the distilling company. In setting aside the agreement, at the suit of another shareholder, the present chancellor said (at p. 1JR) : “If stockholders, upon consideration, determine and adjudge that a certain plan for conducting and managing the affairs of the corporation is judicious and advisable, I have no doubt that they may, by powers of attorney, or the creation of a trust, or the conveyance to a trustee of their stock, so combine or pool their stock as to provide for the carrying out of the plan determined upon. But, if * * * they reserve to themselves any benefit to be derived from such a plan to the exclusion of other stockholders who do not come into the combination, then, in my judgment, such combination and the acts done to effectuate it are contrary to public policy, and other *421stockholders have a right to the interposition of a court of equity to prevent its being put into operation. The agreement in this case must be tested by these principles.”
And, further. (at- p. 17): “By the provisions of the fifth article of the agreement, stockholders who do not enter into it are expressly declared to he entitled to no benefits under it. * * * It is sufficient to say that the agreement discloses an intent to exclude stockholders who do not enter into it from whatever benefits could be claimed thereunder. This, in my judgment, shows a combination contrary to public policy, and one to which any non-assenting stockholder may object.”
In Chapman v. Bates and Lee (November, 1900), 16 Dick. Ch. Rep. 658, a paper called a proxy and power of attorney was sustained in this court. It gave voting powers and rights of dealing with the stock of the parties; and negotiations had been entered into and moneys expended on the faith of it. Justice Garretson, speaking for the whole court, said (at p. ‘6-67) :
“No illegal purpose is manifest upon the face of this agreement, neither has any been alleged in the bill. It appears to be consistent with the purposes for which the company was created, and its continuance appears to be necessary for the advantage of all who are interested in the development of the property; it is expressly declared to be for the benefit of all who join in it. No stockholder is prevented from joining in the agreement, and no stockholder who has not availed himself of the opportunity to join in it is excluded from the benefit of it; no one appears to have been injured by it.”
These quotations appear to me fully to sustain the view that, in order to the validity of a voting trust in New Jersey, at least the two limitations above set forth, (a) and (b), must be regarded. Have these been duly regarded in the voting trust under consideration?
Although the original plan of reorganization of the American Fisheries Compan)', predecessor of the Fisheries Company, provided a fair opportunity of coming in for all shareholders, whether American or foreign (see Warren’s letter of April 20th, 1900, and the Pirn committee’s report of April 26th, 1900), *422organization under the certificate of incorporation of the new Fisheries Company, May 23d, 24th, 25th, 1900, could hardly have been perfected when the Pirn committee sent out, to the foreign shareholders only, the circular of June 1st, -1900, proposing and outlining a plan, or “voting trust,” for securing control of the new company, to the shareholders in the United Kingdom; by which means the Pirn committee hoped, and so averred, that a solid controlling vote would be obtained on all important questions at the company’s meetings in America. In furtherance of the plan, or trust, the Pirn committee actively brought about the incorporation, early in November, 1900, of the Association of Foreign Shareholders of the Fisheries Company of New Jersey, Limited, under the Companies acts of Great Britain, and then the Association of Foreign Shareholders and the Pirn committee executed the deed, poll of November 12th, 1900 (already referred to), as the capstone of their plan. The dominant idea running through these instruments (articles of association and deed poll) is, for the present discussion, sufficiently indicated by the name and title of the association. Under these instruments, the court below pertinently remarks, the trust was naturally and necessarily confined to the foreign shareholders; and we may, as pertinently, add, the benefit thereof was naturally and necessarily to be confined to the same shareholders, even though the results might be the very opposite of beneficial to the American shareholders. Nothing more need be said to show that the voting trust, or agreement, created or attempted to be created by the Pirn committee, ignores or denies the limitations laid down in the Cone, Kreissl and Chapman Cases, above cited at length.
Now, I do not deny that, in a particular juncture of a company’s affairs, the holders of a bare majority of shares may combine together to accomplish, by their votes, a particular result in company management, and that, as remarked in the Kreissl Case, there are more ways than one in which this may be done. Such a combination is nothing more — brings about nothing more — than the rule of the majority, after a discussion and upon a ballot, in which, in respect of each share, there are equal *423voice and vote. See Camden and Atlantic Railroad Co. v. Elkins, 10 Stew. Eq. 273, 276. It is the method adopted in the case in hand which is obnoxious to law. Not only does the voting trust, as devised, fail to disclose the propriety of the objects ultimately to be attained (see the Cone Case); not only does it fail to allow shareholders not entering into it to enjoy the benefits to accrue from it, whatever such may be (see the Kreissl Case); but it reveals, in its necessary operation, a marked inequality in the voting power of different shares. This it does, notwithstanding that neither in the certificate of incorporation of the Fisheries Company nor (so far as shown) in any by-law is any provision made for such departure from equality as our laws permit. See revised Corporation act, sections 17 and 36; Camden and Atlantic Railroad Co. v. Elkins, supra; Loewenthal v. Rubber Reclaiming Co., 7 Dick. Ch. Rep. 440. Be it observed that the deed poll of November 12th, 1900, declares that the voting trust may be terminated only by one of the events following:
“(1) When and so soon as the association by deed declare that it is to be closed.
“(2) 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.
“(3) When the last survivor of the now existing descendants of Her Majesty shall have been dead for twenty years.
“ (4) When fifty years from the execution hereof shall have elapsed.”
Of thc.se four events the second only is within the control of the shareholders at all, 'and this control may, under the facts shown by the pleadings and proofs, operate in manner following:
Preferred shares '(American holders) ............. 9,995
“ “ (foreign holders) ...............10,005
Common “ (American holders) ............. 524
“ “ (foreign holders) .............:. 4,803
Total “ outstanding..................... 25,327
One-seventh of the whole 3,018
*424Assume that all of the foreign shareholders come in under the association of foreign shareholders and the-deed poll, and there would be, of
Preferred shares........................10,005
Of which one-fourth is....................... 2,501
Common shares ........................ 4,803
Of which one-fourth is....................... 1,201
3,702
and-the holders of these three thousand seven hundred and two shares, by refraining from action, can secure the continuance of the voting trust, and all the consequences that may flow therefrom, against the will of the holders of all other shares. To put it in other words, about one-seventh of the shares can control the other six-sevenths, and each share in the one-seventh will, without .authority in law, have the power of six in the other sevenths. Not only, then, does the plan or trust ignore or defy the two limitations (a) and (&), bait it ignores or defies the settled statutory policy of the equality of shares in the e3>e of the law.
It has been suggested that section 51 of the revised Corporation act, in its logical effect, permits the -inequality pointed out, but I cannot accede to such a view. This section, in my opinion, permits a corporation to take and hold the shares of another corporation, and, respecting such shares, to enjoy the same rights, powers and privileges which a natural person would enjoy. See State v. Rohlffs, 19 Atl. Rep. 1099.
When, through such corporate ownership, it is sought, by a species of juggleiy, to overturn the settled policy of the law, the attempt should not, in my view, receive sanction from this court.
Believing that the voting trust is contrary to the policy of our Corporation laws, I have no difficulty in concluding that it should be set aside, and that the other relief sought lay the bill of complaint should be accorded.
Some subordinate questions remain to be considered :
1. The parties complainant are the legal holders of certain shares in the stock of the Fisheries Compaq, on which they *425are entitled to vote, and tlaey^ are also the equitable holders of certain other shares, whereof the legal title is in the Pim committee or the Association of Foreign Shareholders. The question arises, are the complainants entitled to any right of challenging the validity of the voting trust in respect of both classes of shares or in respect of the former class alone ? I think in respect of both. This question (as it relates to assenting shareholders) was before the court of chancery, in the case of Cone v. Russell and Mason, supra, and was there decided (rightly, as I believe) in accordance with the view now expressed. That decision (see 3 Dick. Ch. Rep. 216, 217) was placed upon two grounds, of which I prefer the second. This ground is thus expressed in 1. Story Eq. Jur. (13th ed.) § 298:
“In general, where parties are concerned in illegal agreements or other transactions, whether they are mala, prohibita or mala in se, courts o£ equity, following the rule of law, as to participators in a common crime, will not at present interpose to grant any relief. But in cases where the agreements or other transactions are repudiated on account of their being against public policy, the circumstance that the relief is asked by a party who is partieops eriminis, is not in equity material. The reason is that the public interest requires that the relief should be given, and it is given to the public through the party.”
2. The final decree of November 10th, 1903, adjudges, concerning the deed poll of November 12th, 1900, that it “is hereby declared by this court to be against public policy [a fraud upon and unauthorized by the stockholders], inoperative, null and void.” I would prefer that the words which I have enclosed in brackets should lie stricken out, or at least disapproved, in this court. To say that the voting trust is a fraud upon the shareholders may imply fraud in fact, and I think such a finding unnecessary. To say that it was unauthorized by the shareholders is, in my view, wholly immaterial. The question then arises, maj^ the words be stricken out, or at least disapproved, •without reversing the decree below? It is to be observed that the words are found in the declaratory part of the decree only. Of this part of an equity decree it is said: “The court frequently prefaces its decrees by declarations of matters of fact or of the rights of the parties, and then proceeds to decree the consequent *426relief.” See Seton Dec. (Heard's ed.) 7;.3 Dan. Gh. Pr. (l¡lh Am. eel.) 2181, and notes. Thus, where a party establishes his right to property, the direction to transfer it to him may be prefaced by a declaration of his title (Jenour v. Jenour, 10 Ves. 568); where a partnership induced by misrepresentation is set as,ide, the decree may be preceded by a declaration that the deed of partnership is invalid and void and ought to be set aside (2 Seton Dec. (4th Eng. ed.) 1194) ; so, also, where an agreement is set aside for surreptitious dealings (2 Seton Dec. 1360). In Panama and Southern Pacific Telegraph Co. v. India Rubber, Gutta Percha and Telegraph Works Co., 10 Ch. App. 515, a decree of Vice-Chancellor Malins, wherein he had declared that “the agreement of the 12th of January, 1870, was invalid and not binding upon the plaintiffs,” was affirmed, and Lord-Justice James (at p. 528), remarked: “Nothing would have persuaded me to give my voice for the reversal of it [the decree]. I think, however, that the form of the decree ought to be varied, and that the word ‘invalid’ should be left out.” See, also, Gray v. Blum, 10 Dick. Ch. Rep. 553, 555, 558; 2 Dan. Ch. Pr. (4th ed.) 1502.
Making the variation in the declaration thus indicated, I am ready to vote to affirm the whole of the operative part of the decree.
The foregoing paragraph had been finished before the decree pronounced in this court was settled by the votes of many of my brethren. Upon reflection, I am satisfied that I neither sacrifice my convictions nor act unwisely in voting for the decree which sets aside the decree below and prescribes the terms of the decree to be made instead thereof. My reasons are these:
Firstly. The decree, as settled, is in agreement with the views which I have already expressed, in three important particulars. It adjudges the voting trust to be against public policy, inoperative, null and void; it accords to the complainants the substantial relief sought; it omits the words “a fraud upon and unauthorized by the stockholders,” to which I objected. To stand aloof from so many of my associates on a matter of form, when we agree upon so much that is of substance, would, I fear, be taken as evidence of my conceit, rather than of my consistency.
*427Secondly. Since the decree, as settled, is, in substance, right, I wish it to be supported by as large a majority of votes as it can command in this court.
Thirdly. The draftsman of the original decree in the court below did not carefully distinguish the declaratory and mandatory parts of the decree by means of the appropriate introductory words, such as “this court doth declare” and “this court doth order.” See Seton Dec. (Heard’s ed.) 6, 7, 611, 644; Dick. Ch. Free. (2d ed.) 179, and notes. The draftsman has throughout used the words “order, adjudge and decree” (see the printed case, page 694, at bottom, to page 701, at top); hence, although I find no difficulty in separating that part of the decree which declares from that which discerns, I concede the possibility that every reader might not agree with me; and I further concede that it is well to refrain from asserting that this court will vary a decree in its declaratory part without a technical reversal, until the ease shall arise wherein the applicability of the doctrine shall be beyond denial.
At the request of three members of this court, the following questions are ordered to be voted upon separately:
First. Shall the final decree, entered in the court of chancery on November 10th, 1903, be set aside?
Yes — The Ciiiee-Justice, Dixon, G-arrison, Eort, GarRETSON, SlVAYZE, BOGEET, VREDENBURGH, VOORIIEES, GREEN, Gray — 11.
No — Pitney, Vroom — 2.
Second. That decree being set aside, shall a decree be entered in its stead to the effect that J. Harold Pim, Langley Archer West and R. Montgomery Horne-Payne, known in this cause as the Pim committee, and the “Association of Foreign Shareholders of the Fisheries Company of New Jersey, Limited,” assign and transfer to the several complainants the shares of stock in the “Fisheries Company,” which are held by the said *428committee or the said association, and are alleged in the amended hill of complaint to belong to the complainants, respectively; that the Fisheries Company cause such assignments and transfers to be regularly entered upon its proper books, and, in due course, issue proper certificates to the assignees, respectively, for the shares of stock so assigned and transferred; and that the Fisheries Company he restrained from holding any election for directors of said company until thirty days after the said certificates shall have been issued ?
Fes — Tiib Chief-Justice, Dixon, Garrison, Fort, Garretson, Pitney, Swayze, Bogert, Yredenburgt-i, Vooriiees, Yroom, Green, Gray — 13.
No- — Uone.
Third. Shall the decree to be entered adjudge that the “voting trust,” described and set forth in the pleadings in the court of chancery, is contrary to public policy, inoperative, null and void?
Yes — Dixon, Garrison, Pitney, Bogert, Yredenburgi-i, Yroom, Green — 7.
No — Tiie Chief-Justice, Fort, Garretson, Swayze, Yoori-iees, Gray — 6.