Opinion
August, 1896.
Samuel Untermeyer, for petitioners.
Robert E. Deyo, opposed.
In a summary proceeding, pursuant to section 27 of the General Corporation Law, I am to determine whether the respondent Schweyer was duly elected a director of the Henry Elias Brewing Company.
If the respondent was disqualified for the office his election is a nullity (Matter of Newcomb, 42 N.Y. St. Repr. 442); and whether he was eligible depends upon the construction of section 20 of the Stock Corporation Law, providing that "the directors of every stock corporation shall be chosen from the stockholders * * * and if a director shall cease to be a stockholder his office shall become vacant." Thus the qualification attaches to the election of the officer as well as to the incumbency of the office. State v. Van Beek, 19 L.R.A. 622, 625.
In the present proceeding the court is not concluded by the respondent's apparent title to the stock, but may institute an inquiry as to his real right and relation to the company. Strong v. Smith, 15 Hun, 222.
At the time of his election the respondent held a registered certificate for five shares of stock, but the undisputed fact is that he was not then, in any sense, its beneficial owner. He bought and paid for it after the election. Hence, the question is: Does the possession of the bare legal title to stock, taken for the purpose of qualifying one to be a director, constitute him a stockholder within the intent of the statute prescribing the condition of eligibility to corporate office?
It has been held, I know, that the mere titular property in stock suffices to qualify the holder as a voter; and well enough, perhaps, because such communication of title may be the equivalent of a proxy from the owner. In the one case as in the other, it may be said that the holder votes by right and representation of the owner, but eligibility to office is a personal attribute and not a quality subsisting by delegation.
But, whatever the rule elsewhere, in this state the question whether a nominal property in stock gives the right to vote at a corporate election must be solved by construction of our own statute. Now, the section 20 of the General Corporation Law, which regulates the exercise of a stockholder's suffrage, twice employs the term own to designate the relation of the voter to the stock. Similarly, by section 22, a voter, when challenged, must make oath that the stock is "still owned by me;" and, if a proxy, must swear that the stock "is truly and in good faith vested in the person in whose name it stands."
Upon the terms of the statute, therefore, I should conclude, were the matter before me for adjudication, that, except in the case of representation, some actual, beneficial interest in the stock is requisite to the right to vote upon it.
If, then, the policy of the law be that none without a stake in the enterprise shall vote for corporate officers, how much more obvious and imperative the policy that those officers shall have an interest in the welfare of the company! The fate of the corporation is in the hands of its board of directors, and I cannot conceive that the legislature meant to commit its interest to men to whom its miscarriage or success is a matter of indifference. The requirement that a director be a stockholder "manifests that it was the policy of the legislature that the management of the affairs of such corporations should only be committed to those having a personal pecuniary interest in its success or failure; otherwise the provision is without reason." Chemical Nat. Bank v. Colwell, 132 N.Y. 250, 256.
As the respondent at the time of the election held only the legal title, in formal compliance with the statutory provision, but without any proprietary or beneficial interest in the stock, he was ineligible to the office of director. Bartholomew v. Bentley, 1 Ohio St. 37.
Upon another ground still this election should be set aside. The respondent "as trustee owes the duty of active management for the protection and preservation of the trust estate. When that consists of stock in a corporation, the duty of voting at elections of directors thereof is too plain for argument." Matter of Ferry Co., 63 Barb. 556, 572. Nevertheless, he persisted in casting a ballot for himself — in itself an opposition of personal interest to fiduciary obligation — and this he did for the undisguised purpose of nullifying the influence of the trust stock in the choice of directors, and with the effect of devolving the administration of the corporate affairs on the minority interest. By so manipulating the election he leaves the estate of which he is trustee, although a majority in the amount of stock, without a voice in the councils of the company, and grasps for himself the presidency, with all its power of control and opportunity for emolument. It is a mockery for the respondent to affect to represent the trust stock in the corporate administration. Its vote did not make him director. On the contrary, he became director by deliberately disfranchising that vote. He occupies the position against the protest of the beneficiaries of his trust, and he occupies it for his own aggrandizement.
It must be owned that the respondent has exhibited no ordinary skill and enterprise in the conquest of this corporation. "It is the law of joint stock corporations that a majority of the stockholders in interest shall control in the election of the officers of a company and in its management." People v. Albany, etc., R.R. Co., 55 Barb. 345. And yet, without a share of stock or any individual interest whatever in the corporation, the respondent contrived to usurp absolute dominion over it, conducts it in defiance of the will of the majority, and has so intrenched himself in his position that only the extreme energies of the law are adequate to dislodge him.
The founder of this establishment left it a heritage to his family, but, to their utter exclusion, it is seized upon by a stranger in blood and interest, and its control appropriated as his private perquisite. The spectacle is revolting to the sense of justice.
Election vacated.