Pitney, V. C.
The complainants advance three propositions — First. That the original contract, by which a minority of stock was given the perpetual right to elect a majority of the directors, and thus control the affairs of the company, was contrary to public policy and, for that reason, void. Second. That, conceding the contract to be valid and binding between the original parties so long as only eighty-three per cent, of the stock was issued, it nevertheless became nugatory and void as against the holders of the seventeen per cent, of new stock as soon as that was issued. Third. That in any view of the case the holders of the majority of the fifty-odd thousand shares of trust certificates once issued to Thomas have the right to dictate to the trustee the names of [183]*183the four directors, which, by the agreements, were to be nominated by Thomas.
The last proposition was not seriously disputed by counsel for the defendant, as, indeed, I think it could not be. The agreements provided for trust certificates to be issued by the trustees, and they were made transferable on the books of the company by the trustee, and a provision was made for the issuing of new trust certificates in place of any assigned and surrendered. Trust certificates were issued accordingly, and of these, nearly all those issued to Thomas have come to complainants’ hands, and with such possession and ownership, the right to nominate the directors. This point was directly ruled, after full discussion and consideration, in the cases of Bostwick v. Chapman and Starbuck v. The Mercantile Trust Co., known as the “Shepaug Voting Trust Cases,” reported in 60 Conn. 576; see pp. 580, 587; 84 Atl. Rep. 34 (at pp. 39, 40). There, as here, a large majority of the stock of a corporation was standing in the name of a trustee, in pursuance of an agreement entered into by the original owners of the stock, to the effect that the trustee should vote upon it as directed by three certain persons named. Trust certificates were issued, as here, which were negotiable, and a majority of them came into the hands of the complainants. Upon a bill filed in equity by them, the court enjoined the trustee from voting except as directed by the holders of the trust certificates, and also that the stock should be distributed by the trustee among the holders of the trust certificates.
In the course of its opinion the court uses this language, in which I fully concur:
“ It is the policy of our law that an untrammeled power to vote shall be incident to the ownership of the stock, and a contract by which the real owner’s power is hampered by a provision therein that he shall vote just as somebody else dictates, is objectionable. I think it against the policy of our law for a stockholder to contract that his stock shall be voted just as some one who has no beneficial interest or title in or to the stock, directs, saving to himself simply the title, the right to dividends, and perhaps the right to cast the vote directed, willing or [184]*184unwilling, whether it be for his interest, for the interest of other stockholders, or for the interest of the corporation or otherwise. This I conceive to be against the policy of the law, whether the power so to vote be for five years or for all time. It is the policy of our law that ownership of stock shall control the property and the management of the corporation, and this cannot be accomplished — and this good policy is defeated — if stockholders are permitted to surrender all their discretion and will in the important matter of voting, and suffer themselves to be mere passive instruments in the hands of some agent who has no interest in the stock, equitable or legal, and no interest in the general prosperity of the corporation.
“And this is not entirely for the protection of the stockholder himself, but to compel a compliance with the duty which each stockholder owes his fellow-stockholder, to so use such power and means as the law and his ownership of stock give him, that the general interest of stockholders shall be protected, and the general welfare of the corporation sustained, and its business conducted by its agents, managers and officers, so far as may.be, upon prudent and honest business principles, and with just as little temptation to and opportunity for fraud, and the seeking of individual gains at the sacrifice of the general welfare, as is possible. This, I take it, is the duty that one stockholder in a corporation owes to his fellow-stockholder, and he cannot be allowed to disburden himself of it in this way. He may shirk it, perhaps, by refusing to attend stockholders’ meetings or by declining to vote when called upon, but the law will not allow him to strip himself of the power to perform his duty. To this extent, at least, a stockholder stands in a fiduciary relation to his fellow-stockholders.”
To the same effect is Griffith v. Jewett, 15 Week. L. B. 419, decided by the superior court of Cincinnati. There, as here, the holders of a majority of trust certificates, which, by the contract, were to be voted according to the directions of certain individuals, demanded of the trustee to vote as they should direct, and the court uses this language: “ If such demand be not complied with, the party holding the entire beneficial interest in the stock [185]*185cannot cast the vote thereof, while it may be voted upon by one having no interest in it or in the company; and so it may come to pass that the ownership of a majority of the stock of a company may be vested in one set of persons, and the control of the company irrevocably vested in others. It seems clear that such a state of affairs would be intolerable, and is not contemplated by the law, the universal policy of which is that the control of-stock companies shall be and remain with the owners of the stock. The right to vote is an' incident of the ownership of stock and cannot exist apart from it. The owners of these trust certificates are, in our opinion, the equitable owners of the shares of stock which they represent, and, being such, the incidental right to vote upon the stock necessarily pertains to them. They may permit the trustees, as holders of the legal title, to vote in their stead if they choose, but when they elect to exercise the power themselves, the law will not permit the trustees to refuse it to them.”
The general principle is thus stated by Mr. Beach in his treatise on Corporations § 806 :
“ On general principles the right to vote on stock cannot be separated from the 'ownership in such sense that the elective franchise shall be in one man and the entire beneficial interest in another, nor to any extent unless the circumstances take the case out of the general rule. It matters not that the end is beneficial and the motive good, because it is not always possible to ascertain objects and motives, and if such a severance were permissible it might be abused.”
And see what was said in Cone v. Russell, 3 Dick. Ch. Rep. 208 (at pp. 212, 214).
In the case in hand, the beneficial ownership is in the holders of the trust certificates, and'the trustee must vote as they direct.
As to the two other positions above stated, the weakness of the first position lies in the fact that the voting trust was a part of the original contract between the original parties, and was made for a proper purpose and for a good consideration.
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Pitney, V. C.
The complainants advance three propositions — First. That the original contract, by which a minority of stock was given the perpetual right to elect a majority of the directors, and thus control the affairs of the company, was contrary to public policy and, for that reason, void. Second. That, conceding the contract to be valid and binding between the original parties so long as only eighty-three per cent, of the stock was issued, it nevertheless became nugatory and void as against the holders of the seventeen per cent, of new stock as soon as that was issued. Third. That in any view of the case the holders of the majority of the fifty-odd thousand shares of trust certificates once issued to Thomas have the right to dictate to the trustee the names of [183]*183the four directors, which, by the agreements, were to be nominated by Thomas.
The last proposition was not seriously disputed by counsel for the defendant, as, indeed, I think it could not be. The agreements provided for trust certificates to be issued by the trustees, and they were made transferable on the books of the company by the trustee, and a provision was made for the issuing of new trust certificates in place of any assigned and surrendered. Trust certificates were issued accordingly, and of these, nearly all those issued to Thomas have come to complainants’ hands, and with such possession and ownership, the right to nominate the directors. This point was directly ruled, after full discussion and consideration, in the cases of Bostwick v. Chapman and Starbuck v. The Mercantile Trust Co., known as the “Shepaug Voting Trust Cases,” reported in 60 Conn. 576; see pp. 580, 587; 84 Atl. Rep. 34 (at pp. 39, 40). There, as here, a large majority of the stock of a corporation was standing in the name of a trustee, in pursuance of an agreement entered into by the original owners of the stock, to the effect that the trustee should vote upon it as directed by three certain persons named. Trust certificates were issued, as here, which were negotiable, and a majority of them came into the hands of the complainants. Upon a bill filed in equity by them, the court enjoined the trustee from voting except as directed by the holders of the trust certificates, and also that the stock should be distributed by the trustee among the holders of the trust certificates.
In the course of its opinion the court uses this language, in which I fully concur:
“ It is the policy of our law that an untrammeled power to vote shall be incident to the ownership of the stock, and a contract by which the real owner’s power is hampered by a provision therein that he shall vote just as somebody else dictates, is objectionable. I think it against the policy of our law for a stockholder to contract that his stock shall be voted just as some one who has no beneficial interest or title in or to the stock, directs, saving to himself simply the title, the right to dividends, and perhaps the right to cast the vote directed, willing or [184]*184unwilling, whether it be for his interest, for the interest of other stockholders, or for the interest of the corporation or otherwise. This I conceive to be against the policy of the law, whether the power so to vote be for five years or for all time. It is the policy of our law that ownership of stock shall control the property and the management of the corporation, and this cannot be accomplished — and this good policy is defeated — if stockholders are permitted to surrender all their discretion and will in the important matter of voting, and suffer themselves to be mere passive instruments in the hands of some agent who has no interest in the stock, equitable or legal, and no interest in the general prosperity of the corporation.
“And this is not entirely for the protection of the stockholder himself, but to compel a compliance with the duty which each stockholder owes his fellow-stockholder, to so use such power and means as the law and his ownership of stock give him, that the general interest of stockholders shall be protected, and the general welfare of the corporation sustained, and its business conducted by its agents, managers and officers, so far as may.be, upon prudent and honest business principles, and with just as little temptation to and opportunity for fraud, and the seeking of individual gains at the sacrifice of the general welfare, as is possible. This, I take it, is the duty that one stockholder in a corporation owes to his fellow-stockholder, and he cannot be allowed to disburden himself of it in this way. He may shirk it, perhaps, by refusing to attend stockholders’ meetings or by declining to vote when called upon, but the law will not allow him to strip himself of the power to perform his duty. To this extent, at least, a stockholder stands in a fiduciary relation to his fellow-stockholders.”
To the same effect is Griffith v. Jewett, 15 Week. L. B. 419, decided by the superior court of Cincinnati. There, as here, the holders of a majority of trust certificates, which, by the contract, were to be voted according to the directions of certain individuals, demanded of the trustee to vote as they should direct, and the court uses this language: “ If such demand be not complied with, the party holding the entire beneficial interest in the stock [185]*185cannot cast the vote thereof, while it may be voted upon by one having no interest in it or in the company; and so it may come to pass that the ownership of a majority of the stock of a company may be vested in one set of persons, and the control of the company irrevocably vested in others. It seems clear that such a state of affairs would be intolerable, and is not contemplated by the law, the universal policy of which is that the control of-stock companies shall be and remain with the owners of the stock. The right to vote is an' incident of the ownership of stock and cannot exist apart from it. The owners of these trust certificates are, in our opinion, the equitable owners of the shares of stock which they represent, and, being such, the incidental right to vote upon the stock necessarily pertains to them. They may permit the trustees, as holders of the legal title, to vote in their stead if they choose, but when they elect to exercise the power themselves, the law will not permit the trustees to refuse it to them.”
The general principle is thus stated by Mr. Beach in his treatise on Corporations § 806 :
“ On general principles the right to vote on stock cannot be separated from the 'ownership in such sense that the elective franchise shall be in one man and the entire beneficial interest in another, nor to any extent unless the circumstances take the case out of the general rule. It matters not that the end is beneficial and the motive good, because it is not always possible to ascertain objects and motives, and if such a severance were permissible it might be abused.”
And see what was said in Cone v. Russell, 3 Dick. Ch. Rep. 208 (at pp. 212, 214).
In the case in hand, the beneficial ownership is in the holders of the trust certificates, and'the trustee must vote as they direct.
As to the two other positions above stated, the weakness of the first position lies in the fact that the voting trust was a part of the original contract between the original parties, and was made for a proper purpose and for a good consideration. The consideration for it was the advancement of the cash by the seven promoters, and the substance of the agreement was that, while the seven should have the control of the management of [186]*186the enterprise, the owner of the patent should have the majority of the profits, in the proportion of fifty-five to twenty-eight. So Jong as each retained his original ^interest, and no other rights intervened, I see no difficulty in holding such contract valid and its enforcement proper and practicable. I see nothing in it contrary to public policy.
The difficulty and weakness of defendants’ position in regard to it arises out of the machinery adopted by the parties to carry through their scheme. They organized a stock company with all its inherent characteristics, some of which have been stated above, and although they put the stock issued to each in the name of the trustee to hold in trust for them, they still issued trust certificates to each and made them assignable and transa., ferable; and an inseparable incident of those certificates is that the trustee must vote as the cestui que trust, who is the real owner, shall direct.
Now to see how the scheme will work out in practice, let us suppose the seven promoters, or any of them, shall transfer their trust certificates, or any of them, to strangers, or shall disagree among themselves. • How shall the votes be cast, and for what candidates ? "Whose direction shall the trustee take ? And this suggests a still further and greater difficulty, and it is this: How shall the trustee distinguish between the different trust certificates, after they have been once surrendered, and new certificates issued? How can he know what certificates shall represent the parties of the one part to the contract in question and which the party to the other part ? How shall he choose from out of the different holders of trust certificates the proper persons to nominate the majority and those to nominate the minority of the directors? For it seems clear enough that new oertificales.._when issued, are freed in the hands of their holders from any burden in equity which attached" to"them in the hands of the former owner. If 'tRTanswer to these questions results in the destruction of the ingenious scheme of these gentlemen, such result will be owing to their desire to adopt the machinery of a stock company and thereby avoid personal liability for their contracts. They must take the burdens with the benefits of such organization.
[187]*187But I do not find it necessary to answer these questions, or to determine whether the transfer of certificates in this case has gone so far as of itself to end the contest, since I have come to the conclusion that the second position taken by the complainants is sound. The contracts in question were not made a part of the certificate of organization or incorporated into the bylaws. Nor, in my judgment, did they, or could they, be fastened upon, or in anywise affect, the seventeen thousand shares of stock issued directly to the complainants. And I think this is so, whether the complainants had or had not notice of these contracts, since they did not enter into or form part of the contract between the company and the complainants as holders of the new stock. As such holders they were entitled to have the other shares of stock in the company stand upon an equal footing, and to have the affairs of the company managed by a board of directors elected according to law, by a majority of all the stockholders. Unless, as the holders of the new issue of stock, they had such right, they would be deprived of a valuable right belonging to their stock, viz., the right to combine with other stockholders to elect a majority of the directors. In fact, they would be deprived of all voice in the management of the company and of the right which each stockholder has to the benefit of the fundamental and salutary rule that the best interests of the minority are found in a rule by the majority. In my judgment, the issuing of this stock was a waiver and abandonment by the directors, who united in issuing it, of their rights under the contract in question.
The futility of the notice of these contracts alleged to have been given to complainants before they subscribed for the seventeen thousand shares of stock will appear when we consider the effect of a transfer of them to new parties. Such new parties ' would not be charged with such notice, and their rights would be undisputed. Should relief be denied the complainants in the present action it would be but a postponement of the time when this voting trust must end.
I will advise a decree fdr complainants.