§ 301. Cumulative voting.- While the manner of electing directors of corporations is one of the most important features of corporation law, yet it has received comparatively little attention from legislative bodies. Statutory provisions relating to elections generally provide, among other things, for the number of votes to be cast on a single share of stock, but seldom prescribe any details as to the manner of conducting an election. With reference to the number of votes to be cast on a single share of stock there are two classes of statutes. The one which prevails in a majority of States gives but one vote to each share of stock. The other class of statutes expressly secures for each share as many votes as there are directors to be elected. This is known as the cumulative method of election, and gives, in addition to the plural vote, the right to cast all for one candidate, or to distribute them at pleasure. Under statutes of the single vote type there is usually no express provision that the single vote given to each share shall be cast for all the directors. That, however, is the usual method of voting under "Miscellaneous Provisions," § 5; Pa. Const., (1874) art. xvi, § 4; People v. Kenney, (1884) 96 N. Y. 294; People v. Crissey, (1883) 91 N. Y. 616; State v. Greer, 78 Mo. 188; Hays u Commonwealth, 82 Pa. St. 518, 522. Wright v. Commonwealth, (1885) 109 Pa. St. 560; s. c. 11 Am. & Eng. Corp. Cas. 609; State v. Constantine, 42 Ohio St. 437; s. c. 51 Am. Rep. 833. The provision of the Pennsylvania Constitution of 1874, providing "that in all elections for directors or managers of a corporation each member or shareholder may cast the whole number of his votes for one candidate, or distribute them upon two or more candidates as he may prefer," is held to be more than directory and not to require any legislative action to make it effective. Pierce v. Commonwealth, (1884) 104 Pa. St. "Proportionate Representation," § 8; Neb. Const., (1875) art. xi, by Daniel S. Remsen, (1890) 8 Ry. & Corp. L. J. 183. 'In all elections for directors or managers of corporations every stockholder shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors or managers to be elected, or to cumulate said shares and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute them on the same principle, among as many candidates as he shall see fit, and such directors or managers shall not be elected in any other way." Cal. Const., (1879) art. xii, § 12; Wright v. Central California &c. Water Co., 67 Cal. 532. See also W. Va. Const., (1872) art. xi. 4; Mo. Const., (1875) art. xii, § 6; Ill. Const., (1870) art. xi, 150. such statutes, and seems to be necessarily implied in some cases.1 302. Judicial review of elections. An illegal or fraudulent election will be set aside by a court of equity. Where at an election of directors votes wrongfully rejected would have given the persons for whom they were tendered merely a majority of the votes offered at the election, the election will be set aside, and a new election ordered. But where the persons for whom the votes wrongfully rejected were tendered, would, with those votes, have had a majority of all the shares of the capital stock of the company, the court will set aside the election certified, and order the admission of those persons who would have been elected if the rejected votes had been received. And persons assuming to act as 1" Proportionate Representation," by Daniel S. Remsen, (1890) 8 Ry. & Corp. L. J. 183. Ohio Rev. Stat. § 3245, which provides that directors of corporations "shall be chosen, by ballot, by the stockholders who attend for that purpose, either in person or by lawful proxies; each share shall entitle the owner to as many votes as there are directors to be elected, and a plurality of votes shall be necessary for a choice," does not confer upon stockholders the right of cumulative voting at the election of directors held thereunder. State v. Stockley, (1887) 45 Ohio St. 304. 2 Davidson v. Grange, 4 Grant's Ch. (U. C.) 377; Wandsworth &c. Gas Light & Coke Co. v. Wright, 18 Week. Rep. 728; In re St. Lawrence Steamboat Co., 44 N. J. 529; 1 N. Y. Rev. Stat. 603, § 5; 1 N. Y. Rev. Stat. 598, 47-50; Schoharie Valley R. Case, 12 Abb. Pr. N. S. 394; Cal. Stat. 1876, § 5315: Putnam v. Sweet, 1 Chand. 286; Brewster v. Hartley, (1869) 37 Cal. 15; s. c. 99 Am. Dec. 237. Cf. Wright v. Central California Water Co., (1885) 67 Cal. 532; s. c. 13 Am. & Eng. Corp. Cas. 89; Mechanics' National Bank v. Burnet Manuf. Co., 32 N. J. Eq. 236; Johnston v. Jones, (1872) 23 N. J. Eq. 216. But see Mickles v. Rochester City Bank, (1845) 11 Paige, 118; s. c. 42 Am. Dec. 103; New England &c. Co. v. Phillips, (1886) 141 Mass. 535; s. c. 13 Am. & Eng. Corp. Cas. 104; Owen v. Whitaker, 20 N. J. Eq. 122. Cf. Beecher v. Wells Flouring Co., 1 Fed. Rep. 276; s. c. 1 McCrary, 62; "Jurisdiction of Equity to Enjoin Corporate Elections," by James L. High, 3 So. L. Rev. N. S. 211. 3 In re Cape May & D. B. N. Co., (N. J. 1889) 16 Atlan. Rep. 191. Ae. People v. Phillips, 1 Denio, 385; In re Long Island R. Co., (1838) 19 Wend. 37: State v. McDaniel, 22 Ohio St., 354. 4 In re Cape May & D. B. N. Co., (N. J. 1889) 16 Atlan. Rep. 191. Cf. Ex parte Desdoity, 1 Wend. 98; McNeely v. Woodruff, (1833) 13 N. J. 352; Mousseaux v. Urquhart, 19 La. Ann. 482; State v. Swearingen, 12 Ga. 22; Downing v. Potts, 23 N. J. 66; In re St. Lawrence Steamboat Co., 44 N. J. 529, officers of a corporation under color of an illegal election may be ousted by proceedings in the nature of quo warranto.1 A statute in New York authorizes any person who "may be aggrieved by, or may complain of, any election," to make application to the supreme court to compel a new election; but it is held that this provision can not be invoked by anyone who was not a stockholder at the time of the election complained of, and who received his stock from one of the authors of the wrong. A similar statute in New Jersey makes it the duty of the supreme court upon the application of persons complaining regarding any election to give a hearing, and "thereupon establish the election so complained of, or to order a new election, or to make such order and give such relief in the premises as right and justice may appear to said supreme court to require." This act has been held to apply to the election of officers of private corporations, and the court, having determined who would have been elected if all the legal votes tendered had been received, may put those persons in office and oust intruders. But an election is not to be set aside and declared void merely because votes were received from persons not entitled to vote, if there were still a majority of legal votes for the ticket declared to be elected." § 303. Proxies.- Members of a corporation have no right to vote by proxy at a corporate election, unless that right is conferred by the charter or by-laws, or by some statute of 1 People v. Albany &c. R. Co., (1869) 55 Barb. 344, 385. Cf. Ex parte Willcocks, (1827) 7 Cow. 402; s. c. 17 Am. Dec. 525; Boardman v. Halliday, 10 Paige, 228; People v. Albertson, 8 How. Pr. 363; Weeks v. Ellis, 2 Barb. 325; Mechanics' National Bank v. Burnet Manuf. Co., 32 N. J. Eq. 236. 21 N. Y. Rev. Stat. 603, § 5. School District v. Gibbs, 2 Cush. 39; First Parish in Sudbury v. Stearns, 21 Pick. 148; Christ Church v. Pope, 8 Gray, 140; McNeely v. Woodruff, (1833) 13 N. J. 352; People v. Devin, 17 Ill. 84; In re Chenango &c. Ins. Co., (1838) 19 Wend. 635; Ex parte Murphy, (1827) 7 Cow. 153; State v. Lehre, (1854) 7 Rich. 235, 325. 7 Commonwealth v. Bringhurst, 3 In re Syracuse, Chenango &c. R. (1884) 103 Pa. St. 134; s. c. 49 Am. Co., 91 N. Y. 1. 4 Revision of N. J. 184, § 44. In re St. Lawrence Steamboat Co., (1883) 44 N. J. 529. Rep. 119; Craig v. First Presbyterian People v. Tuthill, 31 N. Y. 550; v. Wickham, (1829) 1 Paige, Ch. 500; the incorporating State.' But an injunction should not be granted in one State, to restrain officers of a corporation from voting upon proxies of the stockholders, at an approaching meeting of stockholders to be held in another State, upon an allegation that voting by proxy is only legal when expressly allowed by statute, and that there is no such statute in the latter State. For it is to be presumed that the officers of the corporation will proceed legally, and, if they do not, the plaintiff has another remedy. It has been questioned whether it be within the province of the by-laws to confer the right of voting by proxy, but it would seem that in the absence of any statute to the contrary, the right may be thus conferred. The inspectors of election should not reject proxies for trivial defects in matters of form; and it has even been held that an undated proxy should have been accepted where People v. Twaddell, 18 Hun, 427; IN. Y. Rev. Stats. (7th ed.) 1369, 1370; In re Election of St. Lawrence Steamboat Co., 44 N. J. 529; General Railroad Act of New York, Laws of 1850, ch. 140, § 5; Me. Rev. Stats. (1871) p. 304, § 5; Mich. Comp. Laws, (1871) p. 1148; Ind. Stats. (1870) p. 268; R. I. Pub. Stats. (1882) § 3; Del. Rev. Code, (1874) p. 376. See generally: Abbott v. American Hard Rubber Co., 33 Barb. 578; Harger v. McCullough, 2 Denio, 119, 122; Haywood &c. Plank Road Co. v. Bryan, 6 Jones, (N. C.) 82; Cumberland Coal Co. v. Sherman, 30 Barb. 533. The General Incorporation Act of New York, Laws of 1890, ch. 564, § 54, provides that stockholders not in default in payment of their subscriptions, may vote by proxy upon shares in their possession or control; that proxies shall be revocable at pleasure, and shall expire eleven months after date, unless otherwise specified therein. No person shall be entitled to vote as a proxy unless the instrument appointing him have been transmitted to the secretary of the company for a period prescribed by the charter, or if no period be prescribed, then for not less than forty-eight hours before the time appointed for holding the meeting at which the proxy is to be used. 8 Vic. ch. 16, § 77. If any shareholder be a lunatic or idiot, he may vote by his committee; and if any shareholder be a minor, he may vote by his guardian or any one of his guardians; and every such vote may be given either in person or by proxy. The Companies Clauses Act of 1845, 8 Vic. ch. 16, § 79. 2 Woodruff v. Dubuque & S. C. R. Co., (1887) 30 Fed. Rep. 91. 3 Taylor v. Griswold, 14 N. J. 222; s. c. 27 Am. Dec. 33, annotated. 4 State v. Tudor, 5 Day, 329; s. c. 5 Am. Dec. 162; People v. Crossley, 69 Ill. 195; Philips v. Wickham, (1829) 1 Paige, 598; 2 Kent's Com. 294. the person presenting it offered to show a letter of instructions also from his principal in respect to his votes at the meeting about to be held.' A deposit of corporate stock, made by a shareholder with the directors or their agent, to enable the stock to be voted on and to be sold, is revocable before sale. One stockholder is not entitled to have the officers of the corporation enjoined from voting upon the shares of other stockholders deposited with them for that purpose upon a plea that a trust for the corporation is thereby created, unless corporate funds were used in securing the deposit of the shares.' § 304. "Voting trusts"- Combinations among shareholders. It is the general rule sanctioned by the policy of the law that those who have the largest interest in corporations may control them, since they have the greatest interest that the enterprise shall be well managed. The owners of shares may enter into agreements, as between themselves, to elect the officers of the company and to manage its affairs as they or a majority of them shall determine, and it is held that agreements of that character are not illegal nor void as against public policy; for, as was said by the court in a leading case, their interests are identical with the interests of the minority of shareholders. If they increase the value of their own stock by their prudent management of the corporate affairs, they also increase the value of all other stock. If they destroy the stock of others, they also by the same act destroy their own." The selection of candidates must precede an election, and it would often be difficult, if not impossible, to make the selection without comparison of views, combinations, concession and concerted action. There is nothing in these combinations which tends to defeat the rights of stockholders generally, or of the interests of the public at large as defined by statutes declaring that the directors "shall be chosen annually by the In re St. Lawrence Steamboat Co., (1882) 44 N. J. 529. 5 Faulds v. Yates, (1870) 57 Ill. 416; s. c. 11 Am. Rep. 24; Barnes v. 2 Woodruff v. Dubuque & S. R. Brown, (1880) 80 N. Y. 527, 537. Co.. (1887) 30 Fed. Rep. 91. 6 Havemeyer v. Havemeyer, (1878) 3 Woodruff v. Dubuque & S. C. R. 43 N. Y. Super. Ct. 506, 512; s. c. Co., (1887) 30 Fed. Rep. 91. affirmed without opinion, 86 N. Y. 4 Barnes v. Brown, (1880) 80 N. Y. 618. 527, 537. |