In re Lighthall Manufacturing Co. — 13 N.Y. St. Rep. 381

Majority

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In the Matter of the Lighthall Manufacturing Co.

(Supreme Court, General Term, First Department,

Filed January 23, 1888.)

Headnote

1. Manufacturing corporations—Right of stockholder to be represented BY PROXY AT ELECTIONS MAY NOT BE RESTRICTED BY BY-LAW— Laws 1848, chap. 40, § 3.

It is provided by the General Manufacturing Act, Laws 1848, chap. 40, § 3, that the elections of trustees, in companies incorporated under that act, shall be made by such of the stockholders as shall attend for that purpose, either in person or proxy. Held, that a company incorporated under

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that act could not restrict the right oí the stockholder to be represented at elections by proxy, and that a by-law made, requiring proxies to be held by a stockholder of the company, was invalid.

8. Same—Elections must be conducted by at least two inspectors— 2 B. 8 . (6th ed.), 399, 400, §§ 6, 7.

Held, that by 2 B. S. (6th ed.), 399,400, §§ 6,7, it was impliedly directed that two or me re inspectors must be appointed to preside at all elections, and legally manage and conduct it.

3. Same—Proceeding to test validity of election—What is insufficient authority to institute.

A petition presented to the supreme court, to test the validity of an election of officers of a company, organized under the general manufacturing act, was not subscribed by the company, or either of the officers, but by a party as attorney, who did not state under oath that he was authorized to present the petition in the name of the company, while affidavits used in opposition showed that a large number of the stockholders of the company were adverse to the prosecution of the proceeding, and the only authority claimed to exist for it was the action of two trustees who met at the office of the company on the days when the by-laws provided for holding a meeting, and themselves being a minorky, adjourned to another place, where they were afterwards joined by a third trustee, and then adopted a resolution directing the secretary of the new board to instituí such proceedings as might be necessary or proper to test the validity of the election. Held, that this failed to authorize the institution of the proceeding.

4. Same—Failure of trustees to hold election—Bemedy of stockholders.

Held, that in case of the failure of the officers of the corporation to call a meeting for an election of trustees of the company at the time when it was their duty to do so, either one of the stockholders aggrieved might apply to the court for relief requiring an election to be held.

Appeal from an order denying a motion made to determine the legality of an election of trustees of a manufacturing corporation.

A. G. N. Vermillya, for app’lt; Alexander Cammeren, for resp’t.

The corporation was created unaer the general manufacturing laws of this state. Its organization took place in May, 1885, and its by-laws designated the second Monday in January in each year as the time of the annual meeting of the stockholders for the election of its board of trustees. No election was held in compliance with the direction of the by-laws, but in April, 1887, at the instance of Allen Gr. N. Vermillya, one of the stockholders of the corporation, notices were published by the president for an election to take place on the 21st of April, 1887. At the time and place mentioned in the notice an election was held, in which it has been asserted that William H. Jewett, Abram Gr. Rankin, William A. Osborn, A. Gr. N. Vermillya and J. L. Lamport were elected trustees of the company. For their election, sixty-five votes were given out of 171 outstanding shares of stock of the company. Timothy Cornwell held proxies from George EL

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•Stover and Edwin 0. Turner for ninety shares of the stock. He was present at the election claiming to represent these •owners by virtue of the proxies which he held. A list of the stockholders of the company was read, showing Stover ¡to be the owner of seventy shares and Turner the owner of twenty shares; but Mr. Vermillya, from his own affidavit, appears to have objected to Cornwell voting, “on the ground that proxies must be held by a stockholder.” And as Cornwell, “was not a stockholder he was not entitled to hold a proxy.” And an examination of the by-laws showing this statement to be correct, Mr. Cornwell refrained from voting. And the affidavit made by Cornwell, also, •sustains this fact, and that because of the objection, he was not allowed to and did not vote upon the stock. A further objection has been made to maintain the appeal ■that Stover was not at the time when the election should have been held under the by-laws, the owner of all these seventy shares of stock and entitled to vote upon them. But as that objection was not taken .at the election, and Mr. Cornwell was not for that cause deprived of the right to vote upon these shares, it very clearly cannot be now for the first time brought forward to support the appeal.

If it had been presented at the time of the election, the fact might have been shown to be otherwise. And there is certainly a probability that the objection incorrectly stated it, for Mr. Jewell, the president of the company, has sworn that on the 10 of January, 1887, when the election ought to have been held, it did appear on the transfer books of the company that Stover had the right to vote on eighty-eight shares of the stock, and that turner had the right to vote -on twenty shares, and that they had continued to have the .right to vote on such shares to the time of the election on the 21st of April, 1887. The rights of the parties on the appeal must, therefore, stand upon the objection which was taken, that Cornwell could not vote under the proxies, for the reason that he was not a stockholder in the company. That was the only objection urged and it was allowed to prevail. And as Cornwell was present for the purpose of ■voting, it had the effect of depriving him of the right, if that, in fact, existed, of voting on these ninety shares of ■stock. If he had been permitted to vote, he may have voted against the persons who were declared elected as the result of the election. And if he had, that would have defeated their election, for the reason that they received no more than sixty-five votes. The point is accordingly presented whether the objection to Cornwell voting under the .authority of the proxies were lawfully taken.

The by laws of the company did direct that the proxies ■should be in the hands of the stockholders in order to en

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title them to be voted upon. But the statute of the state under which the company was organized, has created no such restriction, but it has provided in general terms by section 3, chapter 40 of the Laws of 1848, that “ the election shall be made by such of the stockholders as shall attend for that purpose either in person or by proxy.” It has not restricted the right of the stockholders to select any person whom he may consider to be advisable for that object, to vote under the authority upon his shares as a stockholder.

In this respect the largest liberty has been secured and provided for the stockholders, and being entirely unrestrained by the legislature, this privilege was maintaine.d by the authority of the law; without having so declared expressly, the clear implication of the section is that it' was not intended to impose any restriction whatsoever upon the stockholder as to the person he should be at liberty to select to act under his proxy. And the statute having in this manner created this right in as general a manner as it did, the trustees of the corporation were not at liberty to restrict it or declare by their by-laws, that it should not be so used.

The authority to make by-laws, has been given and prescribed by the seventh section of the act, and the trustees have been authorized to make them “ for the management and disposition of the stock and business affairs of such company, not inconsistent with the laws of this state, and prescribing the duties of officers, artificers and servants that may be employed; for the appointment of all officers, and for carrying on all kinds of business within the object and purposes of such company. ” The only additional authority given to the trustees of the company to make by-laws is that contained by implication in section 4 of the same act, permitting them to designate in that manner when the election of trustees should take place, and providing generally that in case of a failure to elect at the time prescribed for that purpose, that an election for trustees in such manner as should be provided for by the by-laws, might be afterwards, held, and should be valid and binding against the company., Neither of these sections in language or by anything to be-inferred from them, appeared to have been intended to confer upon the corporation the power to restrict the right of its stockholders to vote by proxy, as that was declared in the other section of the act. What the trustees were authorize^ to do was to adopt by-laws for the management and disposition of the stock and business affairs of the company; and to declare the duties of its officers, artificers and servants, and provide for the appointment of officers, and for carrying on all kinds of business within the objécts and purposes, of the company, and to appoint the time when the annual

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election should take place. And even this has been required to be done by such by-laws as should not be inconsistent with the laws of this state.

A by-law declaring that a stockholder should be restricted in his liberty of choice of the person authorized to vote under his proxy, is inconsistent with the general liberty to be implied from the provisions of the statute authorizing the stockholders to vote by proxy, and forms no part of either of the objects for which by-laws have been allowed by these sections to be made. It has been the practice of the courts to construe the authority of corporations quite . strictly in this respect. The subject was discussed and considered in Taylor v. Griswold (2 Green N. J., 223), where, in the course of its examination, the chief justice said, in Rex v. Ginever (6 Term. R., 732), the power of making bylaws was delegated by the charter in very comprehensive terms. But a by-law giving the senior bailiff a casting vote in case of a tie was held to be illegal. So a by-law imposing an oath of office where none was required by the charter was declared to be invalid. Rex v. Decan, 1 Str., 536.

And a by-law restricting or extending the right of admission of a member, or of eligibility to office, or prescribing new or additional tests or qualifications to voters was held to be unlawful. Id., 227-8.

In the King v. Wardens, etc. (7 Term. R., 543), a by-law made by a company in a corporation to restrain the number of apprentices to be taken by any of the members was declared to be void. And the same conclusion was adopted in King v. Tappenden (3 East, 186). And Rex v. Spencer (3 Burrows, 1827) held that while the number of electors might be narrowed or fixed by a by-law the elegibility of members could not in that manner be changed. And People v. Tibbits (4 Cowen., 358), and People v. Kip (Id., 382) followed this construction of the law. And it is entirely reasonable that it should be so followed. For if the trasloes could in this manner limit the choice of the stockholder, to only another stockholder, to exercise his authority under a proxy, it might still further be limited to either one of the officers of the company, or in fact to a particular one of such officers, and the stockholder in that manner deprived of the power of exercising any choice as to who the persons should be for whom his votes might be in this manner cast.

The policy of the statute has not been to restrict the right of the stockholder in this respect, but to vest him with liberty to select any person to act under his proxy in whom he might be willing to confide the exercise of this

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privilege, and carry into effect his desires. The objection ought not to have been interposed to the right of Mr. Corn-well to vote upon these shares. And when it was interposed, it should not have been allowed to prevail, as it was at the election. And the case of Union Insurance Co. ( 22 Wend., 591 ), in no manner sanctions the election managed in this way, for Cornwell was not in attendance, declining to vote, and in that manner silently giving his consent to the action by a majority of the votes cast, but he was there for the purpose and with the design of voting, and was prevented from so doing by this unfounded objection.

The election took place under the appointment and authority of one inspector, while the language of the statute carries with it a clear implication that two or more inspectors must be appointed to preside at the election and legally manage and conduct it. 2 R. S. (6th ed.), 399, 400, §§ 6, 7.

The law has not, it is true, expressly required the appointment of more than one inspector, but the manner in which it has been framed in the use of the word “inspectors,” discloses the intention of the legislature to have been that one will not be sufficient. His appointment did not satisfy the language of the law, and he, therefore, had no authority to hold the election. The least number that can do that is two inspectors. If two or more had been appointed, the ruling upon the objection which was made to the authority of Cornwell to vote, might very well have been otherwise, and all the votes received which it was lawfully proposed to give at the election.

The petition by which the proceeding was taken was not. subscribed by the company or either of the officers, but that was done by J. P. Pitch, as attorney. He has not sworn that he was authorized by any officer of the company to present the petition in the name of the company, while the affidavits used to oppose the motion show that a large majority of the stockholders of the company were adverse to the prosecution of this proceeding and the only authority claimed to exist for it is the action of two trustees who met at the office of the company on the day when the by-laws provided for holding a meeting, and themselves being a minority adjourned to another place, where they were afterwards joined by a third trustee, and then adopted a resolution directing the secretary of the new .board to institute such proceedings as might be necessary or proper to test the validity of the election. This failed to authorize the proceeding which has been taken. It almost empowered Mr. Osborn to proceed as he might and should have done in his own name as a person aggrieved by refusal of the old board of trustees to recognize

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him as an officer of the company. Matter of Syracuse, etc., R. R. Co., 91 N. Y., 1 .

The affidavits in support of the election are extremely loose, having been made upon information and belief, derived to a great extent from Mr. Jewell, the president of the company, and what he stated to have been the sworn testimony of Mr.Iighthall, in which, on some occasion not ¡ described or mentioned, he stated that Stover had not' received forty of the shares of the stock owned by him i until the 15th of January, 1887. The papers were very defectively drawn and presented, making no more than an informal statement of the facts upon which it was expected to support the application. It probably is not very important at this time that the application should be held not entitled to success, for early in the ensuing month a regular election can be held for a new board of trustees of the company. And if the officers shall fail to call it, as they are bound in duty to do, then either one of the stockholders, or any person aggrieved, may apply to the court for relief requiring an election to be held. Matter of Pioneer Paper Co., 36 How., 111 ; Angell & Ames on Corporations (10th ed.), Sec., 700.

The order from which the appeal has been brought appears to have been rightly made, and it should be affirmed, with the usual costs and disbursements.

Van Brunt. Oh. J., and Brady, J., concur.