In re the Election of Directors of the St. Lawrence Steamboat Co.

44 N.J.L. 529

• Court: Supreme Court of New Jersey
• Decided: November 15, 1882
• Status: Published

Opinion

The opinion of the court was afterwards prepared by

Depue, J.

The act under which this application was made, provides that “it.shall be the duty of the Supreme "Court, upon the application of any person or persons, or a body corporate, who may be aggrieved by, or may complain •of, any election, or any proceeding, act or matter, in or touching the same, reasonable notice having been given to the ■adverse party, or to those who are to be affected thereby, of ■such intended application, to proceed forthwith, and in a summary way, to hear the affidavits, proofs and allegations of the parties, or otherwise inquire into the matter or causes of complaint, and thereupon establish the election so complained of, or to order a new election, or make such order and give such relief in the premises as right and justice may appear to said Supreme Court to require.” Rev., p. 184, § 44.

The stockholders of a corporation have an interest in th.e election of directors, who shall be the managers and agents of the corporation,in the transaction of its business. Inhabitants and tax-payers in a municipal corporation, in virtue of the interest they have in the municipal government, have a standing in court to test the legality of an election of officers of the municipal government. State, ex rel. Richards, v. Hammer, 13 Vroom 435; State, ex rel. Mitchell, v. Tolan, 4 Id. 195. By a parity of reason, stockholders in a private corporation, in virtue of their interest in the management of its affairs, have such an interest as will give them a standing in court to test the regularity of an election of directors, and the legality of the acts of inspectors of the election in receiving or rejecting votes and declaring the result. They are parties aggrieved, within the meaning of the statute.

This application was properly made by Alden, Leve and Prince, as stockholders. It also has the approval .of McDonald and Jenkins, whose exclusion from office is complained of.

McDonald was the owner of one hundred and fifty shares of stock standing in his name. His right to one vote for each share, and to cast his votes by proxy, is undisputed. Rev.,, p. 183, § 36. He resided in Toronto, Canada, and executed the power of attorney there, and sent it to Alden. He also,, by letter, directed Alden to vote for himself (McDonald) and Jenkins as directors. The power,of attorney was subscribed by a subscribing witness, but was not acknowledged or proved' by him. Inspectors of election cannot reject a vote offered by proxy because the written proxy was not acknowledged or proved. If the proxy is regular in form, and apparently the act of the stockholder, the inspectors should receive the vote. In re Cecil, 36 How. Pr. 477. Indeed, the votes on McDonald’s stock were not rejected by the inspectors on the ground that the proxy was witnessed by a subscribing witness, and was not verified by his affidavit. They testify that they were led to doubt the genuineness of the paper from the fact that a blank was left in it for the day and month of its date, and from the appearance of the paper and the manner in which it was offered.

A stockholder who desires to exercise his right to vote on his stock by proxy, is undoubtedly bound to furnish his agent with such written evidence of the latter’s right to act for him as will reasonably assure the inspectors that the agent is acting by the authority of his principal. But the power of attorney need not be in any prescribed form, nor be executed with any particular formality. It is sufficient that it appear on its face to confer the requisite authority, and that it be free from all reasonable grounds of suspicion of its genuineness and authenticity; and the court, in reviewing the proceedings at an election, must be satisfied that the inspectors had reasonable grounds for rejecting the proxy.

It is clear that this proxy related to the election of March 22d, 1882. It was so understood by the inspectors. There-does not appear to have been any circumstance connected with the offer of the proxy, justly calculated to excite suspicion. Alden was a stockholder, and on that day was elected a director. The inspectors could easily have satisfied themselves of his identity and of his respectability. He appears to have acted in entire good faith. He exhibited to the stockholders then present, McDonald’s letter of instruction, and informed the inspectors that he had such a letter. They did not call for the production of the letter. They, simply required him to prove the execution of the proxy, and that he was not prepared to do. Before the inspectors rejected the proxy, they were bound to resort to all reasonable means of satisfying themselves of its authenticity. We think that the inspectors were not justified in rejecting the proxy, either by circumstances under which it was produced, or because of the blank in it for the day and month of its execution. The most solemn and formal instruments, such as deeds of conveyance, are sometimes executed with similar blanks; and the courts have never regarded such omissions as evidence that they were forged or fabricated.

If the votes on the McDonald stock be counted, McDonald and Jenkins had more votes than either L. M. Ferris, Jr., or R. M. Ferris. But it is contended that the election of one of these persons last named must be sustained on the ground that Jenkins was ineligible to the office of director. The effect of the ineligibility of a candidate for office, upon the result, depends entirely on the motive of the electors in casting their votes for him. Votes cast for a candidate who is disqualified for the office, will not be thrown away, so as to make the election fall on a candidate having a minority of votes, unless the electors casting such votes had knowledge of the fact on which the disqualification of the candidate for whom they voted, rested, and also knew that the latter was, for that-reason, disabled by law from holding the office. Regina v. Coaks, 3 E. & B. 248 ; Regina v. Tewkesbury, L. R., 3 Q. B. 628; Drinkwater v. Deakin, L. R., 9 C. P. 626; Etherington v. Wilson, L. R., 20 Eq. 606. If Jenkins was disqualified for the office of director, the fact of his disqualification was unknown to the stockholders who voted for him. The election of both L. M. Eerris, Jr., and R. M. Eerris must be set aside, without regard to the question of the ineligibility of one of the opposing candidates.

The power of the court, in this proceeding, to put in office the persons wh,o would have been elected if all the legal votes tendered had been received and counted, as well as to put out the intruders, I think is clear. The Supreme Court of New York, under a statute like ours, set aside an election of directors chosen by votes on stock belonging to the company, and declared the other persons elected who had a majority of the votes, excluding those illegally cast. Ex parte Desdoity, 1 Wend. 98. In a later case, the same court, where the votes illegally rejected would have elected other persons, set aside the election only, and refused to declare the directors elected who would have been successful if the rejected votes had been counted. In re Long Island R. R. Co., 19 Wend. 37. In the case last referred to, seventeen hundred shares of the stock were not represented at the election, though the holders were qualified, and the holders of upwards of eleven thousand shares were disqualified, by reason of transfers within the thirty days. The court properly refused to consider, as a finality in any way an election held under such circumstances, and ordered a new election; and it is not made entirely clear by the opinion that the court adopted the course of ordering another election, from any want of power to declare the persons elected who would have been elected if the votes illegally rejected had been received, or were constrained to do so by the circumstances under which the election was held. In Downing v. Potts, 3 Zab. 66, the capital stock of ■ the company was four thousand shares. At the election, the successful ticket received only fifteen hundred and ninety-three votes that were legal, and the unsuccessful party received forty-six votes. The number of votes illegally rejected was,eighteen hundred and ninety-four. The holders of four hundred and sixty-seven shares of stock did not vote at the election. The unsuccessful ticket would not have had the votes of a majority of all the stock, if the votes rejected had been counted in its favor. Even in that event, as between the two contending parties, enough stock was unrepresented at the election to have changed the result. The court ordered a new election, without discussing its power to allow the votes illegally rejected, and thereupon to declare the result.

The language of the statute, on this subject, seems to me to be too clear to admit of a doubt. Any person who may be aggrieved by, or may complain “ of any election, or of any proceeding, act or matter in or touching the same,” may make application to the court; and. the court is required “ to proceed forthwith, and in a summary way, to hear the affidavits, proofs and allegations of the parties, or otherwise inquire into the matter or causes of complaint, and thereupon establish the election so complained of, or to order a new election, or make such order and give such relief in the premises as right and justice may appear to the said Supreme Court to require.” The jurisdiction given to the court is over the election and over every proceeding, act or matter in or touching the same, that is complained of; and the power is given in the alternative, either to establish the election or to order a new election, or to make such order and give such relief in the premises as right and justice may require. A construction which restricts the power of the court simply to establishing the election or ordering a new election, involves the rejection of an important member of the sentence, expressed in the disjunctive, and plainly declaring that, the court shall grant other relief than ordering a new election, if right and justice shall require it. This power is conferred on the court, which has, inherent in its jurisdiction, control, by means of the prerogative writs of quo warranto and mandamus, over elections held by private corporations; and the power is to be exercised in a summary manner. ' In many cases where, at an election for directors, legal votes have been rejected, which, if received, would have elected the contestants, the only relief which would do complete justice would be to repair the wrong by putting the contestants in office. A new election might occasion vexatious delay, and possibly embarrassments in the affairs of the company, besides affording opportunity to those in office to increase the capital stock under recent legislation, and thus increase the number of voters, and obtain an unfair advantage at the new election, if one should be ordered. The act was designed to enable the court, in its discretion, to make such an order as would put parties in office who would have been there if the election had been properly conducted, if such relief appears to the court to be such as right and justice require.

In the case now before us, the election was regularly conducted in all respects, except in the rejection of the votes cast under the McDonald proxy. The whole number of shares-of the company’s stock was five hundred and ninety-three,, and the holders of five hundred and thirty-seven of these shares were represented at the election. Including the one hundred and fifty shares of the McDonald stock, McDonald and Jenkins received three hundred votes, being more than a majority of all the stock issued. The corporation was organized' as a navigation company. Its business is, to a large extent, transacted during the summer season, and the affidavits show that it is necessary to the welfare of the company that its directors be allowed to organize speedily, and elect officers for the ensuing year, and make arrangements for carrying on the business of the company. In view of the interests of stockholders, as well as the rights of those who should have been declared to be elected, the case is one in which the court, in ousting the intruders, should put in office those who would have been elected if the votes had been legally canvassed, provided they are qualified to hold the office.

The qualification of the unsuccessful candidates to hold the' office has place in this controversy only as it may affect the order which shall be made. If they are disqualified for the office, the court will only set aside the election and order a new election.

McDonald’s qualification for the office of director is undisputed. There can be no valid objection to instating him in office. Jenkins’ qualification is denied'on the ground that he was not, at the time of the election, a bona fide holder of any of the stock of the company.

Section 47 of the Corporation act provides that no person shall be elected a director of a corporation issuing stock, unless he shall, at the time of the election, be a bona fide holder of some of its stock; and by section 48, a director who shall cease to be a bona fide holder of the stock, shall thereupon cease to be a director. Rev., p. 185. On the company’s books, Jenkins appeared to be the owner of ten shares of the stock, and a certificate for them had been issued in his name.

The general rule is, that the books of a corporation are the evidencé of the persons who are entitled to the rights and privileges of stockholders in the management of the affairs of the corporation. With the single exception that stock really belonging to the corporation cannot, at any election for its directors, be voted upon directly or indirectly, (Rev., p. 184, § 43; McNeely v. Woodruff, 1 Green 352, 360,) the books of the corporation are the only evidence of who are the stockholders, and as such, are entitled to vote at elections. Downing v. Potts, 3 Zab. 66. Neither the inspector nor other stockholders can dispute the right to vote of one who appears by the company’s books to be the holder of stock legally issued. In Pender v. Lushington, 6 Ch. Div. 70, the articles of association provided that every member should be entitled to one vote for every ten shares, but should not be entitled to more than one hundred votes in all, and that no member should vote at any general meeting unless he had been possessed of his shares for three months previously thereto. It was held that the register of shareholders was the only evidence by which the right to vote could be ascertained, and that no votes of shareholders appearing on the register and properly qualified, should be rejected on the ground that their shares had been transferred to them by other shareholders, for the purpose of increasing their own voting power, or with an object alleged to be adverse to the interests of the company, or on the ground that the holders were not beneficial owners of the shares. So, also, it is held that a person has a right to vote on stock standing in his name as trustee for another, or on stock which he has pledged or hypothecated, if it be in his own name, on the company’s books, and that inspectors of the election, in determining the qualifications of voters, have no authority to inquire whether the stockholder, who appears by the books to be a stockholder, is or not the real owner of the stock standing in his name. They must take the company’s books as conclusive evidence cf the qualification to vote. Ex parte Willcocks, 7 Cow. 402; People v. Kipp, 4 Id. 382, n.; People v. Tibbets, Id. 358; In re Barker, 6 Wend. 509; In re Wheeler, 2 Abb. Prac. (N. S.) 361; In re Cecil, 36 How. 477; Boone on Corp., § 69.

But,' with respect to the qualifications of a director, the company’s books are not conclusive. A person may be qualified to be a director whose vote cannot be received at the election. He may be a bona fide holder of stock at that time, ■and yet be disqualified from voting on it by reason of the transfer to him not being entered on the books. He may appear as a stockholder on the books, and still, for reasons ■aliunde, be disqualified for the office of director. The question of the competency of a person for the directorship is one exclusively of judicial cognizance, over which the inspectors of the election have no jurisdiction. They have no means of making the necessary investigation on the subject, and no power to reject a competent vote because cast for a person who, in their judgment, is disqualified for the office. Whether a vote given for a disqualified candidate is so completely thrown away as to be entirely void, is a mixed question, made up of the fact of disqualification, and knowledge by the voter of the legal effect of the disqualification; and a decision by the inspectors to reject a vote on such grounds, if they had competent means of investigation, would, in all probability, lead to an erroneous result. Regina v. Tewkesbury, supra, will illustrate. Blizzard was a candidate for mayor, and also the returning officer, and consequently was disqualified for election to the office. He had a majority of the votes. The Court of Queen’s Bench ousted him from the office, but refused to instate his competitor. A decision by the inspectors, on the question of disqualification, though correct in fact, if followed up by rejecting the proffered votes, would necessarily have led to a wrong result. Inspectors, in conducting an election, are required to determine the admissibility of the votes that may be offered, but have no power to pass upon the eligibility of the persons for whom they are proposed to be cast. The question of eligibility is one that can be raised only in the courts.

Independent of the statute, a person might be a director of a corporation without being a stockholder. The statute is guardedly expressed. It prescribes as the qualification of a director, that he shall be a bona fide holder of stock. A stockholder majr have purchased stock with a view of becoming a director, or have obtained it by gift, or he may hold it upo.n a trust, and be qualified to be a director. If the stock was legally issued, and is not the property of the corporation,, and the legal title is in him, he' is, prima facie, capable of being a director, and his right to be a director, in virtue of his legal title to such stock, can be impeached only by showing that title was put in him colorably, with a view to qualify him'to be a director for some dishonest purpose, in furtherance of some fraudulent scheme touching the organization or control of the company, or to carry into effect some fraudulent arrangement with the company, such as was disclosed in JDe Buvigne’s Case, 5 Ch. JDiv. 807, 322. In Bartholomew v. Bentley, 1 Ohio St. 37, the whole organization of the company was a fraud, and stock was issued gratuitously to certain persons, to qualify them as directors, to carry the fraud into execution.

The proof in relation to the stock held by Jenkins is that the stock was legally issued. He subscribed for the stock and paid for it with money belonging to his wife, intend* ing it as an investment for her, and to have the stock certificate in her name. By inadvertence, the certificate was made out in his name, and he returned it to the treasurer of the company, to have a new certificate made out, in the name of his wife. On account of the resignation of the treasurer, the change was not made. Jenkins testified that he afterwards learned that the affairs of the company were not in a prosperous condition, and resolved that it was not proper to saddle the stock on his wife, and that he consequently transferred the cost of it from her account to his own; and it appears that he applied to the treasurer, after the resignation of the latter, for a return of the certificate, informing him that he had decided to make no change in it. The stock remained in Jenkins’ name, on the company’s books. His name appeared on the list of stockholders prepared for the election of March 22d, and his vote upon this stock was received at that election without objection. He was then a bona fide holder of the stock, within the meaning of the statute, and qualified to be elected as director.

A rule should be entered, setting aside the election of L. M. Ferris, Jr., and R. M. Ferris, and ordering the admission of D. M. McDonald and E. M. Jenkins as directors.