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§ 34 erly kept cannot work a repeal of the statute or relieve against its operation." (Downing v. Potts, 23 N. J. Law, p. 77; In re Election of Cape May, &c., Nav. Co., 51 N. J. Law, 78, 81.)

34. Directors, election of, etc.

All elections for directors shall be by ballot, unless otherwise expressly provided in the charter or certificate of incorporation; the poll at every such election shall be opened between the hours of nine o'clock in the morning and five o'clock in the afternoon, and shall close before nine o'clock in the evening; the same shall remain open at least one hour, unless all of the stockholders are present in person or by proxy and have sooner voted, or unless all the stockholders waive this provision in writing; the persons receiving the greatest number of votes shall be the directors; provided, however, that unless otherwise provided in the original or amended certificate of incorporation, or in the by-laws approved at a stockholders' meeting, in all corporations formed under the provisions of this act, a majority in interest of all the stockholders shall be present in person or by proxy to constitute a quorum.1

(As amended by Chap. 52, Laws of 1902; P. L. 1902, p. 201.)

P. L. 1841, p. 116; R. S. (Ed. of 1846), p. 139, § 2; Act of 1875, § 37; P. L. 1898, p. 409; P. L. 1899, p. 262.

The 1899 amendment of this section limits the application of the proviso to corporations organized under this act. The statute is different from the New York act, under which it was held in a recent case that the common law rule was in force and that any number of stockholders who attend a regularly called meeting, however small their holdings, can proceed to hold the election, and that a majority of those who vote can elect the board. (Matter of Rapid Transit Ferry Co., 15 App. Div., 530.)

Under the amendment of 1902 (printed in bold faced type) the certificate of incorporation or by-laws may provide that less than a majority shall be a quorum.1

Elections of directors: When irregularities will not invalidate. The stockholders of a corporation organized under the General Act may, at a special meeting duly called for the purpose, increase the number of directors of the company by an amendment to the by-laws taking immediate effect. In the absence of other provision in the by-laws it would then be the right and duty of the stockholders to elect the additional directors, but it seems that such election should be held at a meeting subsequently called with due regard to Sections 33 and 36 of the Act. In the case at 1 Precedents, p. 408, ¶ 5; P. 417, § 3.

bar, however, all of the stock was represented at the meeting and voted on. It was held, therefore, that, notwithstanding the informality of the meeting, its acts would not be disturbed. (In re A. A. Griffing Iron Co., 63 N. J. Law, 168.)

Corporation in hands of receiver may elect directors.—A corporation in the hands of a receiver can legally hold an election for directors, and the court may order such election. (Lehigh Coal & Navigation Co. v. Central R. R. of N. J., 5 N. J. L. J., 214.)

35. No person who is a candidate for the office of director shall act as judge, inspector or clerk of any election for directors; and if any candidate shall so act and be elected, his election shall be void, and the directors shall not appoint such person a director within twelve months next succeeding; this section shall not apply to the first election of directors.

P. L. 1825, p. 82; R. S. (Ed. of 1846), p. 139, § 5; P. L. 1870, p. 27; Act of 1875, § 42.

35a.* Cumulative voting.

The certificate of incorporation, original or amended, of any corporation now or hereafter organized under the laws of this state and thereunder issuing or authorized to issue shares of its capital stock, may provide that at all elections of directors, managers or trustees, each stockholder shall be entitled to as many votes as shall equal the number of his shares of stock multiplied by the number of directors, managers or trustees to be elected, and that he may cast all of such votes for a single director, manager or trustee or may distribute them among the number to be voted for, or any two or more of them as he may see fit, which right, when exercised, shall be termed cumulative voting.

This act shall not be construed as affecting in anywise the determination of whether or not the right of cumulative voting has been heretofore granted by implication or the right of cumulative voting, if any, granted specifically by special charter or certificate of incorporation.

("An act to provide in terms for cumulative voting in corporations issuing or authorized to issue shares of capital stock." P. L. 1900, p. 418.)

Cumulative voting is thus allowed on condition that suitable provision is made in the certificate of incorporation.

* Arbitrary number; section inserted here merely for convenience of reference.

§ 35-35a

§ 36

68

REGULATIONS AS TO VOTING; VOTING TRUSTS.

36. Regulations as to voting.

Unless otherwise provided in the charter, certificate or bylaws of the corporation, at every election each stockholder, whether resident or non-resident, shall be entitled to one vote in person or by proxy for each share of the capital stock held by him, but 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.

At common law, unless the charter otherwise provided, a stockholder was entitled to but one vote, and that vote he was required to cast in person. Proxies were not permitted. (Taylor v. Griswold, 14 N. J. Law, 222.) This decision brought about the statute providing that each stockholder should be entitled to one vote for each share held by him, and authorizing the use of proxies, limiting them, however, to three years. (Cone v. Russell, 48 N. J. Eq., 208, 213.)

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. (Chapman v. Bates, 61 N. J. Eq., 667.)

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 vali- § 36 dates 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, 47 Atl. Rep., 471, 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 purposes 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.

§ 36

"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 necessarily 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 interest 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. San 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, 230.

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