no proxy shall be voted on after three years from its date; nor shall any share of stock be voted on at any election which has been transferred on the books of the corporation within twenty days next preceding such election.

P. L. 1825, p. 83; P. L. 1841, p. 117; R. S. (Ed. of 1846), p. 139, §3; Act of 1875, §38.

A stockholder is not entitled to vote unless he is registered on the books on the day the election is held. Johnston v. Jones, 23 N. J. Eq., 216. This section applies only to voting at elections. Bates, 61 N. J. Eq., 658, 666.

See also 17.

Voting by proxy.

Chapman v.

Absence of a seal does not invalidate a proxy for use at the election of directors. Hankins v. Newell, 75 N. J. Law, 26.

A proxy executed by a majority of a board of directors becomes invalid when a part of such majority, sufficient to reduce the remainder to a minority, revokes such execution. In re Delaware River & A. R. Co., 76 N. J. Law, 163.

It is against the settled rules governing the control of corporations that an irrevocable power of voting or directing votes on stock should be vested in a person who is neither interested in the stock nor a representative of persons interested. Clowes v. Miller, 60 N. J. Eq., 179, White v. Thomas Inflatable Tire Co., 52 N. J. Eq., 178.

Voting pools or trusts.

Of late years there have come to the courts several cases involving the legality of voting pools or trusts. Briefly stated, the scheme is for several holders of shares to enter into an agreement to transfer their shares to a trustee, who has power to vote on them and to the extent of the shares so held by him, by the election of directors, dictate the policy and management of the company.

The trustee issues to the shareholders in exchange for their shares trust certificates, which are usually made transferable in the same manner as stock. The duties of the trustee are fixed by the trust agreement.

Four cases involving such agreements have recently come before the Courts of New Jersey.

The first case, Cone v. Russell, 48 N. J. Eq., 208, was decided in 1891. There the agreement was held to be void because the objects intended to be derived from the agreement were bad as against public

policy and the carrying out of which also involved a breach of trust by one of the parties. It was not held that a voting trust was in itself void as against public policy. Vice-Chancellor Pitney said: "This conclusion [that the contract was void as against public policy] does not reach so far as to necessarily forbid all pooling or combining of stock, where the object is to carry out a particular policy with the view to promote the best interests of all the stockholders. The propriety of the object validates the means and must affirmatively appear." Id., p. 215.

In the second case, White v. Thomas Inflatable Tire Co., 52 N. J. Eq., 178, decided in 1893, the agreement was declared to be invalid because it did not by its terms extend to certain shares of the company issued after the execution of the agreement directly to persons who were not parties to the agreement.

It was held to be immaterial whether they had or had not notice of the trust agreement.

"As such holders they were entitled to have the other shares of stock in the company stand upon an equal footing," and they were deprived of all voice in the management of the company. The issuing of the stock was, therefore, held to be "a waiver and abandonment by the directors who united in issuing it, of their rights under the contract in question."

The question again came before the Court of Chancery in the case of Kreissl v. Distilling Company of America, 61 N. J. Eq., 5, in which Chancellor Magie stated the principle as follows:

"Under the statutes permitting stockholders to give proxies and under the doctrine of the cases in this court to which I have referred, I conceive it is impossible to maintain that a proxy which confides to the attorney thereunder the power to exercise his judgment in certain cases, and so separates the voting power from the ownership of the stock, is void, per se. The principal may, doubtless, limit the power conferred to voting on certain questions and in a certain way. But if, as is customary, the power is unlimited, it must be exercised by the judgment and determination of the attorney on any questions which may be presented.

"The power of revocation is deemed sufficient to protect the rights of other stockholders. If, however, the stockholder undertakes to make irrevocable his grant of power and to denude himself for a fixed period of the power to judge and determine and vote as to the proper management and control of the affairs of the corporation, then whether the grant of power is good or not must depend on the parposes for which it is given.

"When the scheme devised does not embrace a grant of irrevocable powers by proxy, but seeks a similar object by the creation of a trust and the appointment of a trustee, to whom the title of the stock is conveyed, a like doctrine must be applied. If no provision is made

for the conduct of the trustee, at least he would be bound to vote on the stock held in trust in accordance with the expressed wishes of the cestui que trust; but if the transfer of the legal title to the stock is made and accepted under an agreement of the stockholder which deprives him of all power to direct the trustee, and all opportunity to exercise his own judgment in respect to the management of the affairs of the corporation, then whether the transaction is open to the objection of other stockholders, as depriving them of the right they have to the aid of their co-stockholders, must be dependent upon the purposes for which the trust was created, and the powers that were conferred.

"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 so determined upon. But if stockholders combine by either mode to entrust and confide to others the formulation and execution of a plan for the management of the affairs of the corporation, and exclude themselves by acts made and attempted to be made irrevocable for a fixed period, from the exercise of judgment thereon, or 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 stockholders have a right to the interposition of a court of equity to prevent its being put into operation."

The agreement in that case was held invalid because it provided for the absolute management and control of the company during a fixed period of time by the judgment and determination of the voting trustees, and because by its terms stockholders who did not enter into it were expressly declared to be entitled to no benefits under it.

The Court of Errors and Appeals in the case of Chapman v. Bates, 61 N. J. Eq., 667, said:

"We recognize the principle laid down in Cone v. Russell, 48 N. J. Eq., 208, and White v. Thomas Tire Co., 52 N. J. Eq., 179, that every stockholder is entitled to the benefit of the judgment of every other stockholder in the management of the affairs of the corporation, but in this case complaint is not made by one claiming that injury has been done to his interest by reason of a stockholder divesting himself of control of his stock, but by one of the very parties who has entered into this agreement and to which his consent has been given. He cannot complain of the injury done to his interests by this action for he is a consenting party. Such arrangements with regard to the control of stock as contemplated in this proxy and power of attorney, and which have been denominated pooling agreements, are not neces

sarily void as being against public policy. In the case of Cone v. Russell, 48 N. J. Eq., 208, the Court, while holding the agreement in that case void as against public policy, expressly holds that this conclusion does not reach so far as to necessarily 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.

"The following are cases in which pooling agreements have been held valid: Brown v. Pacific Mail Steamship Co., 5 Blatch, 525; Smith v. Francisco & N. R. R. Co., 115 Cal. 584; s. c., 35 L. R. A., 309; Mobile & Ohio R. R. Co. v Nicholas, 96 Ala., 92; Hey v. Dolphin, 92 Hun. (N. Y.), 230.

"No illegal purpose is manifest upon the face of this agreement, nor has any been alleged in the bill. It appears to be consistent with the purposes for which the company was created, and whose 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 this 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. The complainant does not allege in what way he is damaged by its continuance; he with about four hundred out of five hundred stockholders executed it, and he alone of all the stockholders asks to have it revoked. We do not think he should be allowed to revoke it."

Again, in the case of Warren v. Pim, 66 N. J. Eq., 353, the Court of Errors and Appeals held that the validity of a voting trust depended upon two conditions: first, that the holders of all the shares of the corporation should have an equal privilege, after information, to come into the trust agreement; second, that the object and aim of the trust should be the equal benefit of all the shares. See 19 Yale Law Journal, 343; Knickerbocker Investment Co. v. Voorhees, 100 App. Div. (N. Y.), 414.

As to the rights of the holder of a "voting trust certificate," O'Grady v. U. S. Independent Telephone Co., 71 Atl. Rep., 1040.

Voting qualification of stockholders.

see

To enable a person to vote as a stockholder, it is not necessary that he have a certificate of stock. A subscriber for stock is a stockholder, even though he has paid nothing on his stock, and as such he is entitled to vote. It is necessary, however, that he should be a stockholder of record on the books of the company, whether such books be the original books of subscription, if any, or books containing the original entries of such subscription. In cases of dispute the transfer book must control. See Section 40. Downing v. Potts, 23 N. J. Law,

66; Am. Pig Iron Storage Co. v. Assessors, 56 N. J. Law, 389, 393. In New York, however, it has been held that the relation of stockholder in a corporation is created by the subscription for stock. Beals v. Buffalo Expanded Metal Const. Co., 49 App. Div. (N. Y.), 589. held even though no payment has been made on the subscription. Wheeler v. Millar, 90 N. Y. 353.

The fact that a stockholder is indebted to subscription does not impair his right to vote. N. J. Eq., 142; Downing v. Potts, supra.

And so

the company on his Savage v. Ball, 17

Stock must be voted by the actual owner unless disqualified by law. A corporation cannot, through another corporation whose stock it owns, hypothecate its own stock and thus enable the pledgees to vote, the power of a corporation to vote its own stock being limited by Section 38. Thomas v. International Silver Co., 72 N. J. Eq., 224.

Owners of shares are under no disability to vote because they are also directors. United States Steel Corporation v. Hodge, 64 N. J. Eq., 807.

37. Voting Powers of Executors and Trustees. Hypothecated Stock.

Every person holding stock as executor, administrator, guardian or trustee, or in any other representative or fiduciary capacity, may represent the same at all meetings of the corporation, and may vote thereon as a stockholder, and every person who shall pledge his stock as collateral security may, nevertheless, represent the same at all such meetings, and may vote thereon as a stockholder, unless in the transfer to the pledgee on the books of the corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent said stock and vote thereon.

P. L. 1846, p. 72; P. L. 1849, p. 308; Act of 1875, §§39, 40. As to investments by administrators, executors, etc., see P. L. 1899, p. 236.

Administrators and executors.

A formal transfer of stock on the books of the company is not necessary to enable an executor, administrator, etc., to vote. The corporation books are evidence of the ownership of the stock by the testator or intestate, and this section gives to the executor or other representative virtute officii the right to vote thereon in his representa