Board of SMB Workers (BOD) v.

Tan (SH) (1959)

[GTA: originally SHs v. BOD and EC]

1) 11 and 12 January (for 1957)- election of

a) BOD members of SMB Workers Savings and Loan Association,
Inc.
b) 3 members of the Election Committee

2) 17 Jan 57- John de Castillo et al. (who are they? Stockholders?),

commenced a suit (CFI Manila) to declare null and void:
a) election of the BOD members of the SMB Workers Savings
and Loan Association, Inc. and
b) members of the Election Committee

3) CFI: a) 11 and 12 January election null and void

b) Defendants to call for and hold another election in
accordance with the constitution and by-laws of the association and
Corporation Law

3) 26 March- in compliance with the CFI judgment, (original) Election

Committee set the meeting of association members for 28 March
(5:30pm) to elect the new members of the board of directors

4) 27 March- Plaintiffs filed Ex-Parte Motion alleging (4

contentions):

a) Election Committee that called meeting of the association

members is composed of the same members that had
conducted and supervised the election of the BOD members
declared null and void by the Court

b) election to be conducted and supervised by the said

Committee violates the association Constitution and B-Ls
providing for 5 days notice to members before the election
since the notice was posted and sent out only on 26 March,
and the election would be held on 28 March, or 2 days after
notice

c) the notice that beginning 26 March any member could secure

his ballot and proxy from the office of the association is in
violation of section 5, article III of the Constitution and B-Ls,
 w/c prohibits voting by proxy in the election of BOD
members.

d) Defendants did not show that arrangement is being made "to

guarantee that the election will be held in accordance with the
constitution and by-laws and by the law."

Prayer: Court appoint its representative or representatives to

EC to supervise and conduct the election ordered by it

5) Court Order (27 March):

a) cancelled the election scheduled for 28 March

b) constituted and appointed a committee of 3 (Mr.

Viernes as Chairman and rep of Court and 1 rep each
from Plaintiffs and Defendants) to call, conduct and
supervise the election of the BOD members for 1957

c) committee is vested with the sole and exclusive power

and authority to call conduct and supervise the election
of BOD members for 1957

6) Defendants filed before SC a “Petition for Certiorari” to annul and

set aside the order assailed, and a “Writ of PI” to restrain the respondent
court from enforcing its order of 27 March 1957

HELD 1: (Based on the Association C and B-L) Notice of a special

meeting of members should be given at least 5 days before the date of
the meeting. It appears that the notice was posted on 26 March and the
election was set for 28 March. Therefore, the 5 days previous notice
required would not be complied with.

HELD 2: As regards the creation of a committee of three vested with

the authority to call, conduct and supervise the election, and the
appointment thereto of Mr. Viernes as chairman and representative of the
court and one representative each from the parties, the Court in the
exercise of its equity jurisdiction may appoint such committee, it having
been shown that the Election Committee (provided for in section 7
of B-Ls) that conducted the election annulled by the respondent court if
allowed to act as such may jeopardize the rights of the respondents.

(Logan) Johnston (BOD-elect) v. (Louis) Johnston (BOD-old) (CA

1965) [GTA: new BOD-elect v. old BOD]
1) Appellants [Logan, (his W) Irene and (his M) Felisa J] and Appellees
are shareholders of JOHNSTON LUMBER CO. (a family stock corporation)
in Zamboanga City.

2) C had 2,462 Shares

3) Logan J had 1,242 shares owned or as proxy

a) 305 shares- personal
b) 320 - proxy of mother’s (Felisa J)
c) 5 - proxy of wife’s (Irene J)
d) 305 - endorsed Certificate of Stocks of Solis
e) 307 - administrator of late father (Albert J)

4) (2) April 1963 Annual SH’s Meeting- Logan requested that

the shares covered by endorsed Certificate of Stocks of Solis
be registered and listed in the C Books for voting purposes

5) Presiding Chair (Pres. Louis J) denied the request. He also informed

Logan that he could not anymore vote his late father’s 307 shares as
administrator since the administration case had already been terminated

6) Logan and his wife walked out of the SH meeting.

7) May ‘63- Logan wrote to Pres. Louis that a meeting of SHs be

called on June

8) 20 July ’63-Special SH’s Meeting

Ponce et al. (BOD) v. Encarnacion and Gapol (largest SH) (1953)
[GTA: originally largest SH v. BOD]

1) (1949) At a meeting duly called, the ff were agreed:

a) voluntary dissolution of DAGUHOY ENTERPRISES, INC.
b) appointment of Respondent Potenciano Gapol (largest SH) as
receiver

2) To this end, a “Petition for Voluntary Dissolution” was drafted and

sent to and signed by Petitioner Ponce (BOD Chairman?).

3) Instead of filing the Petition, Respondent SH Gapol changed his

mind and filed a Complaint in CFI Manila to compel Petitioners Ponce et
al. to (inter alia) render an accounting of the corporate funds and assets.

4) 3 Jan 52- Respondent Gapol filed a Petition praying for an Order

directing him to call a SH’s Meeting and to preside in it (in accordance w/
then Sec. 26 of CL).

5) 5 Jan- Court (2 days after Petition filed): granted Order as

prayed for (w/o notice to Petitioners Ponce et al. and other BOD
members)

6) 27 Feb- Petitioners Ponce et al. only knew of the Court Order

when a Bank refused to recognize the new BODs elected and returned the
check drawn upon it by new BODs

ISSUE: WON the court may issue the said Order?

HELD 1: YES, the Court can issue the Order!

Respondent Court was satisfied that there was a showing of “good

cause” for authorizing Respondent Gapol to call a SH’s Meeting to elect
the BODs as required and provided for in the B-L because the BOD
Chairman called upon to do so had failed, neglected or refused to
perform his duty.

HELD 2: Petitioners have no right to continue as Directors of the C

unless re-elected by the SHs in a meeting called for that purpose every
even year. They had no right to a hold-over brought about by the
failure to perform the duty incumbent upon one of them.
DETECTIVE & PROTECTIVE BUREAU, (C) INC. v. Cloribel et al.
(Managing D) (1968)

1) C (DETECTIVE & PROTECTIVE BUREAU, INC.) filed a Complaint

against its Managing Director (Alberto).

2) Alberto was MD from ‘52- 14 Jan ‘64.

3) 14 Jan 63 (what kind of meeting? SH’s Meeting)- SHs in the

meeting removed Alberto as MD and elected someone in his stead (De la
Rosa)

4) De la Rosa is not a SH.

5) June ‘63- Alberto illegally seized and took control of all the assets
and books of C from the accountant-cashier, concealed them illegally and
refused to allow any member of the C to see and examine these.

6) Alberto refused to vacate his office and deliver the assets and books
to De la Rosa and also continued to perform unauthorized acts for and in
behalf of the C.

7) C filed a “Complaint w/ PI” against Alberto before CFI.

“PI” to restrain Alberto from exercising the functions of MD and from
disbursing and disposing C funds.

8) CFI: granted PI

9) Alberto filed a Counter-bond

10) CFI: lifted PI

11) C filed “Petition for Certiorari” before SC contending that:

“Alberto had arrogated to himself the powers of the BOD of the C

because he refused to vacate the office and surrender the same to de la
Rosa who had been elected MD by the BOD (? Or SHs) to succeed him”

12) Alberto comment: De la Rosa could not be elected MD because

he did not own any stock in the C.
HELD1: There is in the record no showing that de la Rosa owned a
share of stock in the C. If he did not own any share of stock, certainly
he could not be a D pursuant to the mandatory provision of CL.

HELD2: If he could not be a D, then he could also not be a MD

pursuant to the B-Ls.

“The manager shall be elected by the BOD from among its

members.”

HELD 3: If the MD-elect was not qualified to become MD, respondent

Alberto could not be compelled to vacate his office and cede the same
to the MD-elect because the B-Ls provide that:

“Ds shall serve until the election and qualification of their duly
qualified successor.”

Gokongwei (SH) v. SEC and BOD (1979)

[GTA: originally SH v. BOD]

SEC CASE 1 (’61, ’76, Feb ’77)

1) March ‘61-SHs adopted a Resolution giving the BOD authority to
amend the B-L

2) Aug ’72- Universal Robina Corp. began acquiring shares in SMC

Up to Sept ‘76

3) Oct 72- CFC began acquiring shares in SMC

Up to Sept ‘76

4) March ’76 Annual Stockholders' Meeting - Gokongwei was not

able to secure a seat in the SMC BOD

5) Sept ‘76- BOD amended the B-Ls disqualifying a competitor from

nomination or election to the BOD of SMC (to prevent Gokongwei from
being elected)

6) Oct ‘76- Gokongwei filed before SEC a “Petition for Declaration of

Nullity of Amended B-Ls” against majority of members of BOD and SMC
 a) (COA1) the 2/3 should have been computed on the basis
of the capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization, the BOD
acted w/o authority and in usurpation of the power of SHs

b) (COA2) the authority granted in 1961 had already been

exercised in 1962 and 1963, after w/c the authority of the
BOD ceased.

c) (COA3) the membership of the BOD had changed since

the authority was given in 1961, there being 6 new directors

d) (COA4) prior to the questioned amendment, petitioner

had all the qualifications to be a director of respondent
corporation, being a substantial stockholder thereof; that as a
stockholder, petitioner had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in
the election of directors; and that in amending the by-laws,
respondents purposely provided for petitioner's
disqualification and deprived him of his vested right as afore-
mentioned, hence the amended by-laws are null and void

7) Dec ’76- SMC issued a Notice of special stockholders' meeting for

the purpose of "ratification and confirmation of the amendment to the B-
Ls"

8) Feb ’77- in a special meeting held specially for that purpose, the
Amended B-Ls were Ratified by more than 80% of the stockholders of
record

9) SMC COMMENT: the disputed amended B-Ls were adopted by the

SMC BOD as a measure of self-defense to protect the corporation from
the clear and present danger that the election of a business competitor to
the Board may cause upon the corporation and the other stockholders
"irreparable prejudice."

ISSUE 1: WON SMC could, as a measure of self-protection, disqualify a

competitor from nomination and election to its Board of Directors?

HELD 1: YES, C has the power to provide for the qualifications of its
Directors!
 In this jurisdiction, under section 21 of the Corporation Law, a
corporation may prescribe in its B-Ls "the qualifications, duties and
compensation of directors, officers and employees". This must necessarily
refer to a qualification in addition to that specified by section 30 of the
Corporation Law, which provides that "every director must own in his
right at least one share of the capital stock of the stock corporation of
which he is a director.

It cannot be said, therefore, that petitioner has a vested right to be

elected director, in the face of the fact that the law at the time such right
as stockholder was acquired contained the prescription that the corporate
charter and the by-law shall be subject to amendment, alteration and
modification.

RATIO:

1) Any person "who buys stock in a corporation does so with the

knowledge that its affairs are dominated by a majority of the stockholders
and that he impliedly contracts that the will of the majority shall govern
in all matters within the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law." To this extent, therefore, the
stockholder may be considered to have "parted with his personal right or
privilege to regulate the disposition of his property which he has invested
in the capital stock of the corporation, and surrendered it to the will of the
majority of his fellow incorporators.

HELD 2: Upheld amendment.

SEC CASE 2 (’48, 72, Jan 77)

1) 1948- SMC made a foreign investment in the Hong Kong

Brewery and Distillery (a beer manufacturing company in Hong Kong)

SMC purchased a beer brewery in Hong Kong for the

manufacture and marketing of San Miguel beer there.

2) May ’72 Annual Stockholders' Meeting - all foreign investments

and operations of San Miguel Corporation were ratified by the
stockholders.

3) Jan ’77- Gokongwei filed before SEC a Petition seeking to have

private respondents Andres M. Soriano, Jr. and Jose M. Soriano, and SMC
declared guilty of violating Corporation Law, and ordered to account for
such investments and to answer for damages because:

SMC has been investing corporate funds in other corporations and

businesses outside of the primary purpose clause of the corporation
(in violation of section 17-1/2 of the Corporation Law)

4) Before May ’77 Annual Stockholders' Meeting- Respondents issued

notices of the annual (May ’77) stockholders' meeting, including in the
Agenda thereof, the following:

"6. Reaffirmation of the authorization to the Board of Directors by

the stockholders at the meeting on March 20, 1972 to invest
corporate funds in other companies or businesses or for purposes
other than the main purpose for which the Corporation has been
organized, and ratification of the investments thereafter made
pursuant thereto." (supplied)

5) May ’77 Annual Stockholders' Meeting- all foreign investments

and operations of San Miguel Corporation were ratified by the
stockholders

HELD 3: As stated by Respondent corporation, the purchase of beer

manufacturing facilities by SMC was an investment in the same business
stated as its main purpose in its Articles of Incorporation, which is to
manufacture and market beer. It appears that the original investment was
made in 1947-1948, when SMC, then San Miguel Brewery, Inc.,
purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery,
Ltd.) for the manufacture and marketing of San Miguel beer thereat.
Restructuring of the investment was made in 1970-1971 thru the
organization of SMI in Bermuda as a tax free reorganization.

Assuming arguendo that the Board of Directors of SMC had no

authority to make the assailed investment, there is no question that a
corporation, like an individual, may ratify and thereby render binding
upon it the originally unauthorized acts of its officers or other agents. This
is true because the questioned investment is neither contrary to law,
morals, public order or public policy. It is a corporate transaction or
contract which is within the corporate powers, but which is defective from
a purported failure to observe in its execution the requirement of the law
that the investment must be authorized by the affirmative vote of the
stockholders holding two-thirds of the voting power.
 Besides, the investment was for the purchase of beer
manufacturing and marketing facilities which is apparently relevant to the
corporate purpose. The mere fact that respondent corporation submitted
the assailed investment to the stockholders for ratification at the annual
meeting of May 10, 1977 cannot be construed as an admission that
respondent corporation had committed an ultra vires act, considering the
common practice of corporations of periodically submitting for the
ratification of their stockholders the acts of their directors, officers and
managers.

RATIO: This requirement is for the benefit of the stockholders. The

stockholders for whose benefit the requirement was enacted may,
therefore, ratify the investment and its ratification by said stockholders
obliterates any defect which it may have had at the outset. "Mere ultra
vires acts", said this Court in Pirovano, "or those which are not illegal and
void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders."
Roxas (member of Voting Trust) v. de la Rosa (1926)
[GTA: originally a BOD member and a simple SH v. Voting Trust]

1) BINALBAGAN ESTATE, INC. is a C having its principal plant in

Negros Occidental where it is engaged in the manufacture of raw sugar
from canes, grown upon farms accessible to its central.

2) July ’24- majority shareholders of BINALBAGAN ESTATE, INC.

formed a Voting Trust composed of 3 members (Laguda, Monteblanco,
and Fisher, as trustees).

a) the shareholders undertook to assign their shares to the

trustees on the books of the company.

b) the trustees were authorized to represent and vote the shares

pertaining to their constituents

c) total number of outstanding shares of the corporation is

somewhat over 5,500, while the number of shares controlled
by the voting trust is less than 3,000 (majority but less than
2/3).

3) Feb ’26 General Annual Meeting of the Shareholders-

a) Mr. Heilbronn appeared as representative of the voting trust,
his authority being recognized by the holders of all the other
shares present at this meeting.

b) Mr. Heilbronn (by virtue of controlling the majority of the

shares) was able to nominate and elect a BODs to his own
liking, without opposition from the minority.

4) At the present time the Petitioners Roxas, Echaus, and Lacson

presumably constitute membership of voting trust.

5) Although the BODs of BINALBAGAN ESTATE, INC. were elected

by the representative of the voting trust, the present trustees are
apparently desirous of ousting said officers, w/o awaiting the
termination of their official term at the expiration of one year
from the date of their election.
6) Aug ’26- Petitioners (members of the voting trust) caused the
secretary of the BINALBAGAN ESTATE, INC. to issue to the shareholders a
notice calling for a special general meeting of shareholders on Aug

a) for the election of the BOD

b) for the amendment of the B-L, and
c) for any other business that can be dealt with in said meeting

7) a few days after said notice was issued- Coruña (as member of the
existing BOD) and Ledesma (as a simple shareholder) instituted before
CFI Neg Occ a civil action against the trustees and the BINALBAGAN
ESTATE, INC. for the purpose of enjoining the meeting contemplated in
the notice above-mentioned

8) CFI: issued restraining order

9) Petitioners file before SC a Petition contending that the making of

this order was beyond the legitimate powers of the respondent judge

HELD: Respondent judge acted w/n his legitimate powers in making

the order against which relief is sought.

Under the law the directors of a corporation can only be

removed from office by a vote of the stockholders representing at least
2/3 of the subscribed capital stock entitled to vote (Act No. 1459, sec.
34); while vacancies in the board, when they exist, can be filled by
mere majority vote (Act No. 1459, sec. 25). Moreover, the law requires
that when action is to be taken at a special meeting to remove the
directors, such purpose shall be indicated in the call (Act No. 1459, sec.
34).

While the voting trust controls a majority of the stock, it

does not have a clear 2/3 majority. It was therefore impolitic for the
petitioners, in forcing the call for the meeting of August 16, to come out
frankly and say in the notice that one of the purposes of the meeting was
to remove the directors of the corporation from office. Instead, the call
was limited to the election of the board of directors, it being the evident
intention of the voting trust to elect a new board as if the directorate had
been then vacant.
 But the complaint in the civil action directly asserts that the
members of the present directorate were regularly elected at the general
annual meeting held in February, 1926. If that assertion be true, the
proposal to elect another directorate, as per the call of August 2, if
carried into effect, would result in the election of a rival set of directors,
who would probably need the assistance of judgment of court in an
independent action of quo warranto to get them installed into office, even
supposing that their title to the office could be maintained. That the trial
judge had jurisdiction to forestall that step and enjoin the contemplated
election is a matter about which there cannot be the slightest doubt.

RATIO: The law contemplates and intends that there shall be one set
of directors at a time and that new directors shall be elected only as
vacancies occur in the directorate by death, resignation, removal, or
otherwise.

Angeles (minority SHs) v. Santos (BOD majority) (1937)

[GTA: originally minority SHs v. BOD majority]
1) Plaintiffs and Defendants are all SHs and members of BOD of the
PARANAQUE RICE MILL INC. a corporation organized for the purpose of
operating a rice mill in Parañaque, Rizal.

2) Sept ’32- Minority SHs (Angeles, de Lara and Bernabe) for and in
behalf of the corporation, PARANAQUE RICE MILL INC. filed a complaint
against a majority of the BODs. They allege, inter alia, that:

(a) Feb ’32 (extra-ordinary meeting)- SHs appointed an

Investigation Committee (where Plaintiff de Lara was chairman and
SHs Tomas, Bernabe were members) to investigate and determine
the properties, operations, and losses of the corporation as shown
in the auditor's report corresponding to the year, 1931, but
Defendants (particularly President Santos) denied access to the
properties, books and records of the corporation which 'were in
their possession;

(b) Defendant Santos, in violation of the by-laws of the corporation,

had taken possession of the books, vouchers, and corporate records
as well as of the funds and income of the PARANAQUE RICE MILL
INC., Inc., all of which, according to the by-laws, should be under
the exclusive control and possession of the secretary-treasurer, the
plaintiff Aguedo Bernabe;

(c) Defendant Santos, had appropriated to his own benefit

properties, funds, and income of the corporation in the sum of
P10,000,

(d) Defendant Santos, for the purpose of illegally controlling the

affairs of the corporation, refused to sign and issue the
corresponding certificate of stock for the 600 fully paid-up shares of
the plaintiff, Higinio Angeles, of the total value of P15,000

(e) that notwithstanding written requests made in

conformity with the B-Ls of C of 3 members of the BOD who
are holders of > 1/3 of the subscribed capital stock of the
corporation, the Defendant Santos as president of the
corporation refused to call a meeting of the board of
directors and of the stockholders;

(f) that in violation of the B-Ls of C, the Defendants who constitute

the majority of BOD refused to hold ordinary monthly meetings of
the board since March, 1932;
 (g) Defendant Santos as president of the corporation, in connivance
with his co-defendants, was disposing of the properties and records
of the corporation without authority from the board of directors or
the stockholders of the corporation and without making any report
of his acts to the said board of directors or to any other officer of
the corporation, and that, to prevent any interference with or
examination of his arbitrary acts, he arbitrarily suspended plaintiff
Jose de Lara from the office of general manager to which office the
latter had been lawfully elected by the stockholders

Prayed that:
a) C be placed under receivership

b) order Santos to render account

c) BOD be removed

d) SHs be called to elect new BOD

HELD 1: There is ample evidence in the present case to show that the
defendants have been guilty of breach of trust as directors of the
corporation and the lower court so found.

It is well settled in this jurisdiction that where corporate directors

are guilty of a breach of trust-not of mere error of judgment or abuse of
discretion- an intra-corporate remedy is futile or useless, a stockholder
may institute a suit in behalf of himself and other stockholders and for
the benefit of the corporation, to bring about a redress of the wrong
inflicted directly upon the corporation and indirectly upon the
stockholders.

RATIO:
1) The board of directors of a corporation is a creation of the
stockholders and controls and directs the affairs of the corporation by
delegation of the stockholders. But the board of directors, or the majority
thereof, in drawing to themselves the powers of the corporation, occupies
a position of trusteeship in relation to the minority of the stock in the
sense that the board should exercise good faith, care and diligence in the
administration of the affairs of the corporation and should protect not
only the interests of the majority but also those of the Minority of the
stock.

2) Where a majority of the board of directors wastes or dissipates the

funds of the corporation or fraudulently disposes of its properties, or
performs ultra vires acts, the court, in the exercise of its equity
jurisdiction, and upon showing that intracorporate remedy is unavailing,
will entertain a suit filed by the minority members of the board of
directors, for and in behalf of the corporation, to prevent waste and
dissipation and the commission of illegal acts and otherwise redress the
injuries of the minority stockholders against the wrongdoing of the
majority.

3) The action in such a case is said to be brought derivatively in behalf

of the corporation to protect the rights of the minority stockholders
thereof.

HELD 2: In the present case, however, the properties and assets of the
corporation being amply protected by the appointment of a receiver and
in view of the statutory provisions above referred to, we are of the
opinion that the removal of the directors is, under the circumstances,
unnecessary and unwarranted. The seventh assignment of error is,
therefore, sustained.

HELD 3: We, therefore, find no error in the decision of the lower court
ordering the issuance of a certificate for 600 shares of stock of the total
par value of P15,000 to Higinio Angeles.
Campbell v. LOEW’S INC. (Delaware Case)
0) LOEW’S BOD has 13 Ds
1) 2 Factions have been fighting for control of LOEW’S
a) Pres. Vogel’s Faction
b) Tomlinson’s Faction

2) Feb Annual Stockholder’s Meeting- a compromise was reached by

w/c each faction nominated 6 Ds and they in turn nominated a 13th or
neutral D.

3) July 17-18:
a) 2 Vogel Directors resigned
b) neutral D resigned

4) July 19- Tomlinson faction asked that a D’s Meeting be called for
July 30 to consider the problem of filling the Director vacancies

5) Eve of July 30- 1 Tomlinson D resigned

5b) Since the Vogel faction will not attend the Directors’ meetings, or at
least will not attend directors’ meetings at which matters may possibly be
considered to which they do not desire to have considered, it follows that
the Tomlinson faction is unable to muster a quorum of the B and is thus
unable to take action on behalf of the B.

6) July 29- Pres. Vogel sent out a Notice calling a SH’s Meeting for
Sept 12 for the ff purposes:
a) fill director vacancies

b) amend B-L
i. to increase BOD from 13 to 19
ii.to increase the quorum from 7 to 10

c) to elect 6 additional Ds
 d) to remove Meyer and Tomlinson as Ds and to fill such
vacancies

7) Another notice for a Sept. 12 SH’s Meeting as well as a Proxy

Statement went out over the signature of Pres. Vogel. It was
accompanied by a letter from Pres. Vogel soliciting SH’s support for the
matters noticed in the call of the meeting, and particularly seeking to fill
the vacancies and newly created directorships w/ “his” nominees.

PART 1

ISSUE 1: WON the Pres. has the authority to call a special meeting of
SHs upon policy matters w/c have not been defined by the BOD?

Plaintiff LT 1: Pres. Had no authority in fact to call a special meeting

of SHs to act upon policy matters w/c have not been defined by the BOD.

Defense 1: B-L specifically authorizes the action taken.

HELD 1: Though the purposes for w/c the Pres. called the meeting
were not in furtherance of the routine business of the C, NEVERTHELESS
the SHs, by permitting the quoted B-L to stand, have given the Pres. the
power to state there broad purposes in his call.

Section 7 of Article I of B-L “Special meetings of the SHs for any

purpose or purposes, other than those regulated by statute, may be
called by the Pres.”

I do not believe the call of the SH’s meeting for the purposes
mentioned is action of the character w/c would impinge upon the power
given the directors by the statute. A B-Ls giving the Pres the power to
submit matters for SH action presumably only embraced matters w/c are
appropriate for SH action. So construed, the B-L do not impinge upon the
statutory right and duty of the board to manage the business of the C.
___________

LT 2: Pres. has no authority, w/o Board approval, to propose an

amendment of the B-Ls to enlarge the BOD.

HELD 2: Admittedly, this would be a most radical change in this

corporate management. Indeed, it may well involve the determination of
control. However, as I have already indicated, the wording of the B-Ls
authorizes such action.
____________

LT 3: Pres had no power to call SH’s meeting to fill vacancies on the

board since Section 2, Article V of B-L provides that the SHs or the
remaining Ds may fill vacancies, by implication, precludes the Pres from
calling a SH’s meeting for that purpose, that provision being intended for
SH use only at the initiative of the SHs.

HELD 3: B-L permit the Pres to call a meeting for any purpose. This is
broad and all-embracing language and must include the power to call a
meeting to fill vacancies. The fact that the SHs may on their initiative
have the right to call a meeting for that purpose does not seem to be a
sufficient reason for implying that the Pres is hereby deprived of that
power.
Under the B-Ls, the Pres has the power to call a meeting to fill
vacancies on the BOD.

HELD 4: SHs of LOEW’S do have the right between annual meetings to

elect Ds to fill newly created directorships.

__________
LT 5: SHs of a Delaware C have no power to remove Ds from office even
for cause and thus the call for that purpose is invalid.

HELD 5: The charge of a “planned scheme of harassment” as detailed

in Vogel’s notice to the SHs constitutes a justifiable legal basis for
removing a director.

HELD 9 (only contrary holding to the Defendant): Procedural

sequence here adopted for soliciting proxies seeking authority to vote on
the removal of 2 Ds is contrary to law. The result is that the proxy
solicited by the Vogel group, w/c is based upon unilateral presentation of
the facts by those in control of the C facilities, must be declared invalid
insofar as they purport to give authority to vote for the removal of the Ds
for cause.

When Vogel, as president, caused the notice of meeting to be sent,

he accompanied it with a letter requesting proxies granting authority to
vote for the removal of the 2 named Ds. It is true that the proxy form
also provided a space for the SH to vote against such removal. However,
only the Vogel accusations accompanied the request for a proxy. Thus,
while the SH could vote for or against removal, he would be voting with
only one viewpoint presented. This violates every sense of equity and fair
play in the removal for cause situation.

PART 2

Plaintiff seeks a PI restraining Defendant from using C funds, employees

and facilities for solicitation of proxies for the Vogel group and from voting
proxies so solicited based on the LT:

By calling the meeting and by using C funds and facilities,

Vogel and his group are usurping the authority of the BOD

The Pres. is in effect using his corporate authority and the

corporate resources to deny the will of the BOD and to maintain
himself in office.

HELD 1: Vogel, as president, has no legal standing to make ‘his’

faction the exclusive voice of LOEW’S in the forthcoming election.

HELD 2: The Vogel group should be enjoined from voting any proxies
unless and until the Tomlinson board members are given a reasonable
period to solicit proxies after a SH’s lists is made available to them w/o
expense by the C.

HELD 3: Request for PI denied. Vogel group is entitled to expend

reasonable sums of C funds in the solicitation of proxies.

It is apparent that the Vogel group is entitled to solicit proxies, not

as representing the majority of the B, but as representing those who have
been and are now responsible for corporate policy and administration.

Whereas, the Tomlinson group, while not management in the sense

that it is able to, on its own to take effective director action, is
representative of the majority of the incumbent directors and is entitled
to so represent to the SHs if it decides to solicit proxies.

LT: Vogel group should be enjoined from voting any proxies obtained as a
result of the material sent out by Vogel. Vogel’s letter to th SHs, the
proxy statement and the form of proxy deceived and misled the SHs into
believing that the matters noticed for consideration by the SHs were
proposed by the company or its management, whereas the Vogel group is
not authorized to speak as “management”.

HELD 4: Proxies were not misleading although a full narration of the

facts should have been given. Plaintiff’s request that the Vogel group be
enjoined form voting any proxies solicited under the material sent out by
Vogel will be denied.

LT: Plaintiff seeks a mandatory injunction to compel the individual

Defendants (4 Vogel directors) to attend the D’s meeting.

HELD 5: I cannot find that the fact that the so-called Vogel directors
did not attend D’s meetings called to take action which would give an
opposing faction an absolute majority of the Board-solely because of
director resignations- is such a beach of their fiduciary duty that they
should be judicially compelled to attend board meetings. This is
particularly so where SH action is in the offing to fill the board.
In Re Giant Portland Cement Co. (1941, Delaware Case)
0) 24 Feb- SH’s meeting

1) 9 seats in the BOD

2) 2 Tickets were nominated

a) “Management” Ticket
b) “Opposition” Ticket (winners)

3) 4 of the persons nominated for D were on both tickets and were

therefore unquestionably elected

4) 5 of the nominees of the “Opposition” Ticket were also declared

elected by the inspectors conducting the election

5) their pluralities were small

a) the 5th placer (Craigmyle)-his plurality was 611 votes
b) the plurality of the other 4 was only 91 votes

6) Petitioners are SHs

7) Petitioners LT:
Not only claim that numerous votes cast on certain shares
should not be counted for the “Opposition” ticket, declared elected,
but also claim that certain other votes cast for the “Management”
ticket were improperly rejected by the inspectors and should be
counted.

8) By a resolution of the BOD the stock transfer books of the C were

closed from Feb 4th to Feb 24th (20 days prior to the SH’s meeting)

9) During that period, no stock was transferred on the C records.

10) Certain shares were however sold by record owners, and the stock
certificate were duly assigned and delivered to the purchasers prior to the
SH’s meeting

11) Of the shares claimed to have been improperly counted, 5472 were
cast and counted for the “Opposition” Ticket on which the 5 th placer
(Craigmyle) and his associates were nominees, and all of whom were
elected.
12) 1384 shares in the same category were however voted and counted
for the “Management” Ticket.

13) This makes a difference of 4088 votes, in favor of the winning

ticket, w/c Petitioners claim were improperly counted while the plurality of
the 5th placer was only 611 votes.

ISSUE: WON the 5 nominees of the “Management” Ticket, or any of

them were legally elected by a considerable plurality?

HELD 1: The persons on whose proxies the SHs’ meeting was held,
were SHs of record w/n the provision of the statute, though they were not
real beneficial or equitable owners of that stock.

RATIO
1) As between the transferor and the unrecorded transferee to the
stock certificates, the legal title, apparently, passes to the latter. Practical
reasons may, perhaps, justify that rule. But a very different rule applies
between the C and the mere unrecorded assignee of the certificate of
stock. That is because limited contract restrictions, relating to stock
transfers, are for the benefit of the C, and to enable it to ascertain from
its records, who its members or stockholders are.

2) So far as the C is concerned, until such a B-L is complied with, the

record owner must, therefore, be regarded as the real owner of the stock,
with the consequent general right to vote it by proxy, or otherwise.

3) When considered from a legal standpoint, there is no privity of

contract between the mere holder of the certificate and the C, and he is
not a real member of that organization until the transfer is recorded.

HELD 2: All the persons nominated on the “Opposition” ticket were

legally elected directors of the defendant C.

State ex rel EVERETT TRUST & SAVINGS BANKS v. PACIFIC

WAXED PAPER CO. et al. (1942)

1) Jordan was the owner of ALL the capital stocks of PAINE-MITCHELL

CO.

2) PAINE-MITCHELL CO, in return, was the owner of common stocks in

PACIFIC WAXED PAPER CO. while Jordan also owned 1 preferred share in
PACIFIC WAXED PAPER CO.
3) Engle was also the owner of common shares and preferred shares
in PACIFIC WAXED PAPER CO.

4) All of the stock in PACIFIC WAXED PAPER CO. have voting power.

5) The combined shares of Engle and PAINE-MITCHELL CO. were more

than a majority of all of the issued shares.

6) Engle, Jordan and PAINE-MITCHELL CO. entered into a written

agreement wherein:

In the event of the death of Jordan, Engle will have the same voting
right as to the stock of PACIFIC WAXED PAPER CO. and Jordan, or either
of them and contained a similar irrevocable proxy provision in favor of
Engle binding upon the successors, heirs and legal representatives,
respectively of PAINE-MITCHELL CO. and Jordan.

7) Jordan died testate

8) In his will, Jordan named EVERETT TRUST & SAVINGS BANK as

executor.

9) Executor caused the PAINE-MITCHELL CO. to be voluntarily

dissolved.

10) Due to the voluntary dissolution, the stock owned by Jordan

in PACIFIC WAXED PAPER CO. was transferred to Executor.

11) Executor sought to vote on transferred stocks at the SH’s

meeting of PACIFIC WAXED PAPER CO.

12) PACIFIC WAXED PAPER CO. denied the Executor’s right to

vote on the transferred stocks because of the proxy held by Engle.

ISSUE: WON the proxy to vote the stock (in PACIFIC WAXED PAPER
CO.) owned by the PAINE-MITCHELL and Jordan was REVOCABLE?

HELD: IRREVOCABLE! The voluntary dissolution of the PAINE-

MICTHELL CO. did not affect the proxy agreement so far as the rights of
Engle were concerned.

It is clear from the proxy agreement and the facts of the case that
the parties intended that the Paine-Mitchell Co. stock should be used in
conjunction with the stock owned by Engle so that the policies of the
respondent could thus be controlled.

In the situation before us, Engle was more than a mere agent. In
voting the stock, he served purposes of his own in maintaining control of
the C by the choice of directors and the determination of its policies and
business affairs. This voting of the stock for these purposes was the
subject matter of the agency. Engle acquired an interest in the subject
matter of the power given to him and this interest was coupled with such
power. The power to vote the stock was necessary in order to
make Engle’s control of the C secure.

a) The option and proxy agreements were both based on a

valid consideration (w/c is?).

b) The proxy agreement provided that the proxy should be

irrevocable.

c) The agreements did not violate any rule of public policy.

d) Their purposes were lawful and beneficial to the parties

to them and no sufficient reason has been given why
the intention of the parties as expressed in them,
should not be carried out.

RATIO: When a C is dissolved by its voluntary act, the C remains

bound by its outstanding executory contracts.

Alejandrino v. De Leon (1943)

1) Alejandrino and the Respondents are SHs of PAMPANGA SUGAR
DEVELOPMENT CO., INC. (PASUDECO).

2) Alejandrino owns 112 shares.

3) July ’43 SH’s Meeting for BOD election-

a) Alejandrino received only 14,305 votes

b) 9 Respondents (who were proclaimed elected) each received
more than 19,000 votes (1st placer received 19,907 votes)
4) During the said election, Alejandrino held proxies given to him by
18 other SHs of PASUDECO representing an aggregate of 6,084 shares
by w/c proxies the said SHs revoked any and all proxies theretofore given
by them to any other persons.

5) Before the voting- Alejandrino offered to register and vote said

proxies, but the Chairman and the secretary of the meeting refused to
register them and likewise refused to permit him to vote the said shares.

6) The reason for rejecting the proxies and the votes offered by
Alejandrino:

18 SHs who gave the proxies in question had previously executed

contracts of pledge in favor of PAMBUL, INC. wherein it was
stipulated “that during the existence of the pledge, the
pledgor grants irrevocably in favor of the President of the
pledgee, or whoever shall be acting in his place, the right to
vote the shares pledged in any meeting of the PASUDECO.”

4) Alejandrino filed a “Quo Warranto Proceeding” to annul the election

of all or any one of the Respondents as members of the PASUDECO BOD
contending that:

4.a) The clause of the contracts of pledge in favor of PAMBUL, INC.

is null and void as contrary to good morals and pubic policy.

4.b) (MAIN CONTENTION) PAMBUL was organized by the

controlling SHs of PASUDECO as a scheme to perpetuate their
monopoly of the directorship and executive positions of the
latter C by loaning its money to its stockholders at as low a
rate of 7% per annum on the security of their shares of stock,
the amount of the loans being as high as 90% of the par
value of the shares, thereby inducing said SHs to avail
themselves of the loan and thereby enabling the management
of PASUDECO thru PAMBUL, to secure sufficient proxies for
their purpose; and as a result of the irrevocable proxies the
pledgor-SHs could do nothing even if they should wish to
make use of their right to vote when and if management
should commit corporate abuses, excesses and mistakes.

4.c) On account of the intimate relation bet PASUDECO and

PAMBUL, and as a result of the irrevocable proxies contained
in the latter’s form of pledge agreements, for some years now
 only 2 families w/c own scarcely 30% of the outstanding
capital stock of PASUDECO have practically monopolized the
directorship and executive positions in said C and at the same
time perpetuated their nominees in said positions.

ISSUE 1: WON the said contracts of pledge are against public policy.
HELD1: NO, the contracts of pledge are valid! If it is not against
good morals or public policy for a person to loan money on shares
of stock, we discern no reason whatsoever why it should be
considered immoral or violative of public policy for him to
demand, as part of the consideration for the loan, the right to
protect his investment by exercising the right to vote the stock or
, in other words, to manage the property delivered to him as
security, so long as the loan is unpaid.

RATIO: The right of a SH to vote his shares is inherent in and

incidental to his ownership of the stock, just as with the ownership of any
other kind of property goes the right to manage and control it. It is but a
private right of property. There is nothing sacrosanct and inalienable in it.
If the owner can dispose of the property itself, it is apparent that he can
also dispose of the right to manage it.

Abercombie v. Davies (1957 Delaware Case)

1) Abercombie, SUNRAY, PHILLIPS, Davies, SIGNAL, HANCOCK,
GLOBE, LARIO, ASHLAND, DEEP ROCK and ALLIED (later acquired by
ASHLAND) are organizers of AMERICAN INDEPENDENT OIL COMPANY.

2) PHILLIPS was the largest single SH (holding 1/3 of the stocks)

3) The organization agreement provided that:

a) BOD should consists of 1 D for each 5,000 shares held
b) Ds be elected by cumulative voting (what is that?)
c) in effect, SH has been permitted to name the D or Ds to
represent on the B his/her interest

4) Davies represents his own interest and is the President of the C.

5) At all times, the number of directors has been 15.

6) No 1 SH holds a majority of stock, and no 1 SH is represented by

more than 4 Ds.
Note: obviously, smooth functioning of the B was dependent either upon
substantial harmony among the interests represented on it or upon an
effective coalition of the interests of a majority

7) March ’50- 6 SHs (Davies, ASHLAND, GLOBE, LARIO, HANCOCK

and SIGNAL) took steps to form a coalition (these 6 SHs hold about 54.5
% of the shares and were represented on the BOD by 8 of 15 Ds) by
entering into an agreement wherein:

a) it was executed between 8 individuals designated as “Agents”

(they were Ds at the time) and the 6 SHs

b) it transfers voting control of the stocks of the 6 SHs to the 8

Agents for a period of 10 years (subject to termination by 7 of
the Agents)

c) The Agents are to be, as far as possible, identical w/ the

directors.

d) Agreement of 7 of the 8 is required to vote the stock

e) elaborate provisions are added for the choice of an arbitrator

8) Agreement lasted Dec ’54 (at w/c time the Agreement was not
adhered to)

9) Suit was filed by 3 SHs who were not part of the agreement
(Abercombie, PHILLIPS and SUNRAY) against the other Shareholders and
the Agents contending that:

Agreement is invalid on its face. In substance, though

not in form, it is a voting trust, and that it is void because it
does not comply with the provisions of the Delaware voting
trust statute.

10) Answer: it is not, and was not intended to be, a voting trust, and is
a mere pooling agreement of the kind recognized as legal in Delaware by
the decision in Ringling.

ISSUE: WON the Agreement was a Voting Trust?

HELD 1: YES, a Voting Trust.
1) The voting rights of the pooled stock have been divorced from
the beneficial ownership, which is retained by the SHs
2) The voting rights have been transferred to fiduciaries
denominated Agents
3) The transfer of such rights is, through the medium of
irrevocable proxies, effective for a period of 10 years
4) All voting rights in respect of al the stock are pooled in the
Agents as a group, through the device of the proxies running
to the agents jointly and severally, and no SH retains the right
to vote his or its shares
5) That on its face the agreement has for its principal object
voting control of American

HELD 2: Agent’s Agreement is void as an illegal voting trust. The

voting trust did not comply with the requirements that the shares be
transferred on the books and that a copy of the agreement shall be filed
in the C’s principal office in Delaware. The effect was to create a secret
voting trust.

RATIO: The provision respecting the filing is a provision obviously for

the benefit of all stockholders and of all beneficiaries of the trust, who are
entitled to know, where voting control of a C resides.

Everett, et al. v. ASIA BANKING CORP., et al. (1926)

1) Plaintiffs Everett, Clifford, Teal and Robinson were the principal
stockholders (owning a total of 4,478 shares) of TEAL & COMPANY
(COMPANY) while defendant Barclay was the only other stockholder,
owning 1 share.

2) Business of TEAL & COMPANY consisted mainly in the

merchandising of automobiles, trucks, tractors, spare parts and
accessories, and the repairing thereof.

3) 29th Dec ’22- TEAL & COMPANY was solvent and in the
enjoyment of a large, growing, and lucrative business and in the
possession of a valuable reputation and good-will.

4) Since its organization (in May, 1919) TEAL & COMPANY had done its
banking business and financing almost exclusively thru and with ASIA
BANKING CORP. (BANK)
5) By reason of such continued relations the officers of TEAL &
COMPANY had acquired trust and confidence in the integrity and good
intentions of ASIA BANKING CORP. and its officers and the other
defendants in their friendliness to themselves and the COMPANY.

6) 29 Dec ’22- COMPANY had a debt of P750T to the BANK.

7) The debt was secured by mortgage on the COMPANY’S:

a) personal property

b) improvements upon the real estate occupied by the COMPANY

(the real estate was held under a 99 years lease upon very
favorable terms and which lease was a valuable asset and
constantly increasing in value)

c) BANK held acceptances, warehouse receipts or pledges for

such other indebtedness, as was not covered by the last
mentioned mortgage, which said security was ample to cover
the amount of the indebtedness.

8) Toward the end of the year 1922- the BANK (through its manager
the defendant Mullen) represented to the COMPANY and its managers
that for the protection both of the BANK and the COMPANY it was
advisable for them both that:

a) the BANK should temporarily obtain control of the

management and affairs of the COMPANY so that the affairs
of the COMPANY could be conducted by the BANK W/O
interference or hindrance from outside,

b) hence, it would be necessary for the COMPANY’S stockholders

to place their shares therein in a Voting Trust to be held by
the BANK or one of its officers for the benefit of the COMPANY

c) BANK represented that if this were done the BANK would then
finance the COMPANY under its own supervision

d) BANK represented that if and when the same were successful

and the COMPANY be in a position to resume independent
 operation, the said trust would be terminated and the stock
returned to its true owners,

e) BANK represented that at any time the BANK decided to

discontinue operation under the said trust, then the stock
would also be returned.

9) BANK and Mullen further represented that in order to protect the

mutual interests of the BANK and the COMPANY it was necessary to carry
into effect the said proposed voting trust w/o the knowledge of the
creditors above named and thereby place the BANK in an advantageous
position with regard to them.

10) Relying upon the previous friendly relations between the BANK and
the COMPANY and between the individual defendants and these plaintiffs
and relying upon the promise and representations of the defendants,
Plaintiffs were induced to sign and did sign and deliver to the BANK
simultaneously a so-called 'Voting Trust Agreement,' executed by Plaintiff
stockholders and a 'Memorandum of Agreement' executed by the
COMPANY, both dated and executed and delivered the 29th day of
December, 1922, the two forming one document.

11) Upon their reliance on the good faith and good-will of the
defendants, Plaintiffs were- induced to sign the 'Memorandum of
Agreement,' and 'Voting Trust Agreement,' Exhibit A, understanding from
the defendants that

a) the same were intended for the protection of all parties

thereto from outside creditors,

b) but that they were not intended to be enforced according to

the letter thereof, and

c) that they did not contain the true agreement between the
Bank and the Company which was to finance the Company
without interference from the above named creditors,

d) to hold the voting trust as a protection to the bank as against

the said creditors and for its own advances, and

e) the further agreement that in case the Bank did not operate
under the said voting trust because of the disapproval by its
New York headquarters of such action, or for any other cause,
 the said trust would be cancelled and the stock in and control
of the Company returned to its true owners.

12) ACT 1. Shortly after the execution and delivery of the ‘voting
trust’ and ‘memorandum of agreement’, defendant Mullen, caused and
procured, by virtue of the powers delegated in the said voting trust, the
displacement and removal from the BOD of the COMPANY of each and
every person who was at the time of the execution of the said voting trust
a stockholder in the Company and the substitution in their places as such
directors, of the above named persons defendant, or of other persons at
the time employees and servants of the Bank, that thereafter and at no
subsequent time did the said trustee allow or permit to act as a Director
of the Company any person who was in fact a stockholder in the
Company; that no one of the so-called directors so placed in ostensible
office, at any time has ever purchased from any stockholder of the
Company a single share of the capital stock thereof, or paid to any
stockholder or the Company any money or consideration whatsoever for
the stock by virtue of the assumed ownership of which he has assumed to
be a director of the Company, and that at all time since, the Company has
been exclusively controlled and managed by the said defendants none of
whom had any legal or equitable right to a voice in the control or
management thereof.

13) ACT 2. The new directors proceeded to remove from office the
Secretary of the Company, and to discharge from employment all of the
old responsible managers and foremen in the office and shops who were
loyal to the Company and to these plaintiffs as the stockholders thereof
and to displace them substitute for them creatures of their own choosing
whose interest consisted wholly in pleasing themselves and the Bank, and
who were wholly foreign to the stockholders, these plaintiffs who were
and are the real owners of the Company.

14) ACT 3. Thereafter, Defendants conducted the business of the

Company without consulting the stockholders thereof and denied to the
stockholders any knowledge or information as to their actions, or the
business of the Company, and at all times thereafter carried on the
business and management in all respects as if they and the Bank were
the real stockholders and owners thereof and in utter and entire disregard
of the rights and interests of these plaintiffs who were and are the real
owners.

15) ACT 4. Said individual defendants, as such pretended

stockholders and directors as aforesaid, from time to time gave new
mortgages upon the properties of the Company to the Bank as it from
time to time required and without regard to the interest of the Company
and looking solely to the advantage of the Bank whose employees and
henchmen all of them were and are.

16) ACT 5. Said individual defendants and or the Bank by

agreement among themselves or because the individual defendants as
employees were coerced by the Bank, the said defendants gave pledges
and mortgages from the Company to the Bank and entered into contracts
as directed by the Bank, and permitted the Bank to foreclose the same
and to sell the property of the Company at such times and in such
manners as to be solely to the interests of the Bank or of themselves, and
wholly without regard to the best interests of the Company itself in
disregard to the duties and obligations of a trustee, and permitted the
Bank to bring suit or suits against the Company, in which the Company
was not represented by anyone having its interest at heart and in which
by reason of the above set forth relation of the Company to the Bank, the
Bank in truth occupied the position of both plaintiff and defendant and
tricked and deluded the courts into giving judgments in which the rights
of the real parties were concealed and unknown to the courts.

17) Defendants, Mullen, Barclay, Mears and McIntosh, made, executed

and filed in the Bureau of Commerce and Industry of the Philippine
Islands, articles of incorporation of a corporation called the Philippine
Motors Corporation.

18) ACT 6. That after the incorporation of PMC, the Bank turned
over to the Philippine Motors Corporation all of the business and assets of
the company of every name nature and description and with the
connivance and consent of the individual defendants acting in their double
capacity as directors of both corporations, permitted and assisted the said
Philippine Motors Corporation to enter and possess itself of the premises
and good will of the Company and to continue and carry on the said
business for the sole benefit of the new corporation and to collect the
debts owing to the Company and convert the advantages, profits and
proceeds thereof to itself.

19) And that at all times since the said Philippine Motors Corporation
has continued to conduct and advantage itself of the business of the
Company to the disregard of and detriment to the rights of these plaintiffs
and to their damage.
20) Plaintiffs pray that the Defendants be ordered at once to cancel the
said Voting trust and to return to these plaintiffs their shares of the stock
of Teal & Company, taken under said trust and to return to them all the
books and records of every kind and nature of said Teal & Company, and
to regain to these defendants their pretended positions in and control of
Teal & Company.

21) Defendants demurred on the grounds

(a) Complaint is ambiguous, unintelligible and uncertain
(b) Plaintiffs have not the legal capacity to bring this action
(c) Complaint does not state facts sufficient to constitute a cause
of action, and
(d) that there is a defect or misjoinder of parties defendant.

LC: a) sustained the demurrer on all 4 grounds;

b) Teal & Company should have been joined as a party plaintiff
c) as far as the Philippine Motors Corporation is concerned, the
plaintiffs, not being stockholders in that corporation, had no
legal right to proceed against it in this case

HELD: Plaintiffs state a good cause of action for equitable relief and
their complaint is not in any respect fatally defective. The judgment of the
court below is therefore reversed, the defendants' demurrer is overruled,
and it is ordered that the defendants answer the complaint within ten
days from the return of the record to the Court of First Instance.

The conclusion of the court below that the plaintiffs, not being
stockholders in the Philippine Motors Corporation, had no legal right to
proceed against that corporation in the manner suggested in the
complaint evidently rest upon a misconception of the character of the
action. In this proceeding it was necessary for the plaintiffs to set forth in
full the history of the various transactions which eventually led to the
alleged loss of their property and, in making a full disclosure, references
to the Philippine Motors Corporation appear to have been inevitable. It is
to be noted that the plaintiffs seek no judgment against the corporation
itself at this stage of the proceedings.
 The court below also erred in holding that the investigation of the
transactions referred to in the complaint is not within the province of the
courts, but should be conducted by some other agency. That discovery,
such as that demanded in the present action, is one of the functions of a
court of equity is so well established as to require no discussion.

Mackin et al. v. NICOLLET HOTEL, INC., et al. (1928 US case)

1) Defendant Dixon was the owner of a leasehold interest in a tract of
land in Minneapolis City upon w/c stood what was known as the old
Nicollet Hotel.

2) NICOLLET HOTEL, INC. (a Delaware C) was organized at the

instance of a group of men interested in the commercial welfare of
Minneapolis, for the purpose of adding to the hotel accommodation of
that city.

3) Arrangements were made to have Dixon take 2,500 shares of

common stock for his lease and to erect a new Nicollet Hotel upon this
property.

4) The cost of the hotel was to be about $3M to be raised by the sale
of $1.8M of 1st mortgage bonds and $1.25M of preferred stock.

5) MINNESOTA LOAN & TRUST COMPANY, WELLS-DICKEY TRUST

COMPANY accepted the application of the NICOLLET HOTEL, INC. for a
loan of $1.8M, to be secured 1st by mortgage bonds and a trust deed
covering the hotel property.

6) In the application for loan, the ff statement was made:

“The borrower agrees that a voting trust agreement covering

all of the common stock of the borrower will be executed in the
form and on the terms and conditions satisfactory to you, and your
acceptance of this application is conditional upon the execution of
such agreement.”
7) 3 March ’23- a voting trust agreement was made with 3
persons (Zonne, Dixon and Chapman) as voting trustees. The trust
agreement partly states that:

“In consideration of the premises, and the benefits to be

derived by the undersigned stockholders in said corporation from
the purchase by third persons of the preferred stock of said
corporation and of said bonds of said corporation.”

“Under the trust agreement, the trust shall continue for 10

years or until all outstanding preferred stock shall be retired, and, if
it shall not be retired before the expiration of 10 years, then the
trust shall be continued in 2-year periods for an additional term of
10 years.”

8) Plaintiff (Mackin) and the intervener (Cooper) are the owners of the
trust certificates representing 80 shares and 1,520 shares, respectively,
of the common stock held by the defendant trustees. Their claim is that
the voting trust is VOID, that the trustees and those appointed by them
have mismanaged the C and have caused large losses; that in the event
of a SH’s meeting, the trustees will vote the common stock; and that the
Plaintiff has been denied the right to inspect the books.

(SUM) They are denied their rights as common stockholders

because of this trust agreement, that they do not approve of the
management, and they ask the court to declare the agreement void and
to appoint a receiver until they and the rest of the beneficial owners of
the common stock can organize and elect a BOD of their own to take over
and manage the hotel property.

ISSUE: WON the voting trust executed on 3 March ’23 (whereby the
SHS of the no par value common stocks of the NICOLLET HOTEL, INC,
agreed that said stock shall be voted by 3 designated trustees for at least
a period of 10 years)?

HELD: VALID. There is no invalidating circumstance. There is no

want of consideration or fraud alleged or shown. The voting power in the
3 trustees is coupled with an interest because 1 of the trustees is a
substantial owner of common stock of the C (Dixon), and all are charged
with the duty of protecting and conserving the property for the benefit of
those who became purchasers of preferred stock and bonds upon the
strength of the trust agreement itself. The purpose of the agreement was
and is legitimate and wholesome. The plan was originally conceived as a
matter of civic pride by enterprising citizens of Minneapolis to have an
outstanding hostelry commensurate with the generally progressive
character of the city.

All other things aside, it would be a manifest injustice to the large

number of holders of bonds and preferred stocks, not parties to the suit,
to adjudge and hold illegal a TA upon the strength of which they had
invested their money in the enterprise. A consideration of this phase of
the questions alone should sustain the TA here

Also, it appears that both the plaintiff and the intervener here
became purchasers of the trust certificates after the creation of the TA
and thereby presumably had full knowledge of the limitation of their
rights which went with such holdings at the time of purchase.

NIDC v. Aquino (1988)

1) Batjak, (Basic Agricultural Traders Jointly Administered Kasamahan)
is a Filipino-American corporation organized under the laws of the
Philippines, primarily engaged in the manufacture of coconut oil and copra
cake for export.

2) 1965- Batjak's financial condition deteriorated to the point of

bankruptcy. As of that year, Batjak's indebtedness to some private banks
and to the PNB amounted to P11.9M.

3) As security for the payment of its obligations and advances against

shipments, Batjak mortgaged its 3 coco-processing oil mills in:

a) Davao City
b) Misamis Occidental and
c) Leyte

to Manilabank, Republic Bank (RB), and PCIB, respectively.

4) In need for additional operating capital to place the three (3) coco-
processing mills at their optimum capacity and maximum efficiency and
to settle, pay or otherwise liquidate pending financial obligations with the
different private banks, Batjak applied to PNB for additional financial
assistance.

5) On 5 October 1965, a Financial Agreement was submitted by PNB to

Batjak for acceptance. The Financial Agreement reads:
 "We are pleased to advise that our Board of Directors approved for
you the following:

1) That NIDC shall invest P6,722,500.00 in the form of preferred

shares of stocks at 9% cumulative, participating and convertible
within 5 years at par into common stocks to liquidate your accounts
with the Republic Bank, Manufacturers Bank & Trust Company and
the PCIB which, however, shall be applied to the latter three (3)
banks accounts with the Loans & Discounts Dept. NIDC shall match
your P10 million subscription by an additional investment of
P3,277,500 within a period of one to two years at NIDC's option;

5) That a voting trust agreement for five (5) years over 60% of the
outstanding paid up and subscribed shares shall be executed by
your stockholders in favor of NIDC;”

6) Batjak accepted the terms and conditions of the Financial

Agreement. Under said Agreement:

a) NIDC would, as it actually did, invest P6,722,500.00 in

Batjak in the form of preferred shares of stock
convertible within five (5) years at par into common
stock,

b) to liquidate Batjak's obligations to Republic Bank (RB),

Manufacturers Bank and Trust Company (MBTC) and
Philippine Commercial & Industrial Bank (PCIB), and

c) the balance of the investment was to be applied to

Batiak's past due account of P5 million with the PNB.

7) Oct ’65- a Voting Trust Agreement was executed in favor of NIDC

by the stockholders representing 60% of the outstanding paid-up and
subscribed shares of Batjak. This agreement was for a period of five (5)
years and, upon its expiration, was to be subject to negotiation between
the parties. (see VTA in the case)

8) July ’67- forced by the insolvency of Batjak, PNB instituted

extrajudicial foreclosure proceedings against the oil mills of
Batjak located in Leyte and Misamis Occidental.

The properties were sold to PNB as the highest bidder.

1 year after- final Certificates of Sale were issued by the
provincial sheriffs of Leyte and Misamis Occidental for the (2) oil
mills in favor of PNB, after Batjak failed to exercise its right to
redeem the foreclosed properties within the allowable 1 year
period of redemption.

Subsequently, PNB transferred the ownership of the (2) oil mills

to NIDC which, as aforestated, was a wholly-owned PNB
subsidiary.

9) As regards the oil mill located at Davao City, the same was
similarly foreclosed extrajudicial by NIDC. It was sold to NIDC as
the highest bidder. After Batjak failed to redeem the property,
NIDC consolidated its ownership of the oil mill.

10) 5 years after execution of VTA (31 Aug 70)- Batjak

(represented by majority stockholders) through Atty. Amado
Duran (Batjak legal counsel) wrote a letter to NIDC inquiring if
the latter was still interested in negotiating the renewal of the
VTA.

11) 22 Sept 1970- Batjak legal counsel wrote another letter to

NIDC informing the latter that Batjak would now safely assume
that NIDC was no longer interested in the renewal of said VTA
and, in view thereof, requested for the turn-over and transfer of
all Batjak assets, properties, management and operations.

12) NIDC replied, confirming the fact that it had no intention

whatsoever to comply with the demands of Batjak.

13) (ACTION1) 24 Feb 1971- Batjak filed a special civil

action for mandamus with preliminary injunction against herein
petitioners

Batjak premises its right to the possession of the three (3)

oil mills on the Voting Trust Agreement, claiming that under
said agreement, NIDC was constituted as trustee of the
assets, management and operations of Batjak, that due to
the expiration of the Voting Trust Agreement, on 26 October
1970, NEDC should turn over the assets of the three (3) oil
mills to Batjak.

14) (ACTION 2) RECEIVERSHIP

 HELD:

As borne out by the records of the case, PNB acquired

ownership of two (2) of the three (3) oil mills by virtue of
mortgage foreclosure sales. NIDC acquired ownership of the third
oil, mill also under a mortgage foreclosure sale. Certificates of
title were issued to PNB and NIDC after the lapse of the one (1)
year redemption period. Subsequently, PNB transferred the
ownership of the two (2) oil mills to NIDC.

There can be no doubt, therefore, that NIDC not only has

possession of, but also title to the three (3) oil mills formerly
owned by-Batjak. The interest of Batjak over the three (3) oil
mills ceased upon the issuance of the certificates of title to PNB
and NIDC confirming their ownership over the said properties.
More so, where Batiak does not impugn the validity of the
foreclosure Proceedings. Neither Batjak nor its stockholders have
instituted any legal proceedings to annul the mortgage
foreclosure sales aforementioned.

Under the provision of the VTA, what was to be returned by

NIDC as trustee to Batjak's stockholders, upon the termination of
the agreement, are the certificates of shares of stock belonging to
Batjak's stockholders, not the properties or assets of Batjak itself
which were never delivered, in the first place to NIDC, under the
terms of said Voting Trust Agreement.

The relevant provisions of the Voting Trust Agreement,

particularly paragraph 4 & No. 1 thereof, are hereby reproduced:

"NOW THEREFORE, the undersigned stockholders, in

consideration of the premises and of the mutual covenants
and agreements herein contained and to carry out, the
foregoing purposes in order to vest in the TRUSTEE the
voting rights of the shares of stock held by the undersigned
in the CORPORATION as hereinafter stated it is mutually
agreed as follows:

"I. PERIOD OF DESIGNATION-For a period of five (5) years

from and after date hereof, without power of revocation on
the part of the SUBSCRIBERS, the TRUSTEE designated in the
 manner herein provided is hereby made, constituted and
appointed as a VOTING TRUSTEE to act for and in the name
of the SUBSCRIBERS, it being understood, however, that this
Voting Trust Agreement shall, upon its expiration be subject
to a re-negotiation between the parties, as may be
warranted by the balance and attending circumstance of the
loan investment of the TRUSTEE or otherwise in the
CORPORATION.
and No. 3 thereof reads:

"3. VOTING POWER OF TRUSTEE-The TRUSTEE and its

successors in trust, if any, shall have the power and it shall
be its duty to vote the shares of the undersigned subject
hereof and covered by this Agreement at all annual,
adjourned and special meetings of the CORPORATION on all
questions, motions, resolutions and matters including the
election of directors and all such matters on which the
stockholders, by virtue of the by-laws of the CORPORATION
and of the existing legislations are entitled to vote, which
may be voted upon at any and all said meetings and shall
also have the power to execute and acknowledge any
agreements or documents that may be necessary in its
opinion to express the consent or assent of all or any of the
stockholders of the CORPORATION with respect to any
matter or thing to which any consent or assent of the
stockholders may be necessary, proper or convenient."

From the foregoing provisions, it is clear that what was

assigned to NIDC was the power to vote the shares of stock of the
stockholders of Batjak, representing 60% of Batjak's outstanding
shares, and who are the signatories to the agreement. The power
entrusted to NIDC also included the authority to execute any
agreement or document that may be necessary to express the
consent or assent to any matter, by the stockholders.

Nowhere in the said provisions or in any other part of the

Voting Trust Agreement is mention made of any transfer or
assignment to NIDC of Batjak's assets, operations, and
management. NIDC was constituted as trustee only of the voting
rights of 60% of the paid-up and outstanding shares of stock in
Batjak. This is confirmed by paragraph No. 9 of the same Voting
Trust Agreement, thus:
 "9. TERMINATION-Upon termination of this Agreement as
heretofore provided, the certificates delivered to the
TRUSTEE by virtue hereof shall be returned and delivered to
the undersigned stockholders as the absolute owners
thereof, upon surrender of their respective voting trust
certificates, and the duties of the TRUSTEE shall cease and
terminate."

Under the aforecited provision, what was to be returned by

NIDC as trustee to Batjak's stockholders, upon the termination of
the agreement, are the certificates of shares of stock belonging to
Batjak's stockholders, not the properties or assets of Batjak itself
which were never delivered, in the first place to NIDC, under the
terms of said Voting Trust Agreement.

Edith Ringling v. RINGLING BROS.-BARNUM & BAILEY COMBINED

SHOWS, INC. (Delaware case, 1946)
1) 1000 shares of authorized and issued common stock of the
defendant RINGLING BROS.-BARNUM & BAILEY COMBINED SHOW, INC.
were owned or controlled as follows:

a) Edith Conway Ringling (petitioner)- 315 shares

b) Aubrey B. Haley (defendant)- 315 shares
c) John Ringling North (defendant)- 370 shares

2) The shares of stock which possessed cumulative voting rights were

all registered in the individual names of the parties set forth above or in
their names in a representative capacity.

3) It is undisputed that these parties were the beneficial owners of the

number of shares recited.

4) The other defendants are named because they constitute the

remaining persons whose title to office is brought into question by this
proceeding.

5) RINGLING BROS.-BARNUM & BAILEY COMBINED SHOW, INC.

certificate of incorporation provides for a BOD of 7 and its B-L require the
holding of the annual SHs’ meeting at the C’s offices in NY, or such places
as should be designated in the notice of meeting.

6) the defendant C is involved in the circus business.

7) All the SHs and all the other persons involved in this litigation are
intimately connected with the affairs of the C.

8) 15 Sept ’41- Petitioner (Edith Conway Ringling) and defendant

(Audrey B. Haley-Ringling) executed a written “Memorandum of
Agreement” providing that:

“2) In exercising any voting rights to which either party may

be entitled by virtue of ownership of stock or voting
trust certificates held by them in either of said
corporations each party will consult and confer with the
other and the parties will act jointly in exercising such
voting rights in accordance with such agreement as
they may reach with respect to any matter calling for
the exercise of such voting rights.

4) Each of the parties hereto will enter into and execute

such VTA or As they may deem advisable and as they
may be advised by counsel are appropriate to effectuate
the purposes and objects of this A

5) This A shall be in effect from the date hereof and shall

continue in effect for a period of 10 years unless sooner
terminated by mutual agreement in writing by the
parties thereto.

7) This A shall be binding upon and inure to the benefit of

the heirs, executors, administrators and assigns of the
parties hereto respectively.”

9) Loos (acting as arbitrator) pursuant to the A, upon the request of

the Petitioner’s representative and upon a showing that the parties were
unable to agree as to how their shares should be voted, directed that the
shares held by the parties to the A should be voted by their holders in a
particular manner.

10) When Haley (as proxy for Mrs. Haley) refused to follow the
instructions given by Loos that the stock be voted for an adjournment and
the meeting continued, the arbitrator Loos then directed that the stock of
the 2 parties should be voted for 5 named nominees for directors.

11) Haley, as proxy for his wife, contrary to the instructions of Loos,
voted all his wife’s shares for the election of Aubrey Haley and James
Haley.
12) Petitioner filed a suit to contest the validity of the election of Ds and
officers of defendant C.

13) Defense 1: said document was only “an agreement to agree” which
means that there exists no legally enforceable obligation

HELD: The Agreement is sufficiently definite in terms of the duties

and obligations imposed on the parties to be legally enforceable on the
state of facts here presented.

Defense 2: The Agreement is invalid as an attempted delegation of

irrevocable control and voting rights in a manner which is against the
public policy of the state.

ISSUE 2: WON the Agreement was a VTA?

HELD 2: NOT a VTA. The SHs under the Agreement vote their own
stock at all times which is the antithesis of a VT because the latter has for
its chief characteristic the severance of the voting rights from the other
attributes of ownership.

Voting trustees have continuous voting control for the period

of time stipulated in the agreement of trust. While here, the right of the
arbitrator to direct the vote is limited to those particular cases where a
SH’s vote is called for and the parties cannot agree.

The agreement is actually a variation of the well-known stock

pooling agreement and as such is distinguished from a VT.

HELD 3: The stock held under the A should have been voted pursuant
to the direction of the arbitrator Loos to the parties or their
representatives.

HELD 4: Since Petitioner’s rights in this respect were properly

preserved at the SHs’ meeting, the meeting was a nullity to the extent
that it failed to give effect to the provisions of the A. (??)

However, it is preferable to hold new lection rather than

attempt to reconstruct the contested meeting. In this way, the parties will
be acting with explicit knowledge of their rights.
E.K. BUCK RETAIL STORES v. HARKERT HOUSES (1954)
1) Walter Harkert (Harkert) was on and before the latter part of 1937
the sole owner of a chain of restaurants or hamburger stands.

2) Harkert experienced financial problems so that he entered into 4

‘purchase and resale agreements’ with Earl Buck.

3) 1937- HARKERT HOUSES was incorporated.

4) An agreement was made wherein Buck would cancel Harkert’s debt

and pay $53T in cash into HARKERT HOUSES in return for 40% of its
stocks. Contract also stipulates that:

“That the number of the members of the BOD of HARKERT

HOUSES be reduced from 5, as it now is, to the number 4, and that
the said four members of the new B shall consist of said (Walter
Harkert, his wife, Earl Buck and Rodney Devor), and that the
number of members of the BOD shall be maintained at 4, which at
all times 2 thereof shall be such persons as shall be nominated or
designated by Walter Harkert or his heirs, representatives or
legatees, and the other 2 shall be such persons as shall be
nominated or designated by the party of the second part. And it is
further mutually agreed between the parties of the first part and
also of party of the second part xxx shall be voted in such manner.”

5) E.K. BUCK RETAIL STORES, Earl Buck filed a Suit for Declaratory
Judgment against Walter Harkert, his wife and HARKERT HOUSES to test
the validity of a C control agreement entered into by the parties in their
capacities as SHs in HARKERT HOUSES.

6) Defense 1: Agreement violates Nebraska constitution which

guarantees the right to cumulative voting and ends with a clause:

“and such directors and managers shall not be elected in any other
manner”

HELD 1: The said clause operates to prevent a C by its articles of

incorporation or B-Ls or any of its Ds or SHs fom depriving a SH of the
right to vote his stock in the manner specified in the C and statute. But
such provision does not purport to limit the right or privilege which he
may or may not exercise as he sees fit, but it is one of which the
corporation or any agency thereof cannot deprive him.
7) Defense 2: an agreement between SHs as to how stock shall be
voted at the election of directors ipso facto changes the manner of
election prescribed by the Constitution

HELD 2: To so hold would have the effect of invalidating existing

statutes relating to vote trusts and all other forms of voting combines by
a majority of the stock to control the management of the C, which were
recognized at common law.

HELD 3: SHs’ control agreements are valid where it is for the benefit of
the C, where it works no fraud upon creditors or other SHs, and where it
violates no statute or recognized public policy.

It is not here established that the contract worked a fraud upon the
C, creditors, SHs, or any other person.

HELD 4: We conclude that SHs control agreements are not

invalid per se. If they are based on a sufficient consideration between
the contracting SHs they are valid and binding if they do not contravene
any express Constitutional or statutory provision or contemplate any
fraud, oppression, or wrong against creditors or other SHs, or other illegal
object. Where such a situation appears, it is not illegal or against public
policy for 2 or more SHs owning a majority of the shares of stock to unite
upon a course of corporate policy, or upon the officers, including
directors, whom they will elect.

DEFENSE 3: Even if the SHs’ CA are generally valid under

circumstances here shown, the one at bar is invalid for the reason that
the Agreement which provides that 2 of a total of 4 Ds shall be nominated
by the owners of 40% of the stock (Buck) and elected by the contracting
SHs so long as the contracting party (Buck) shall be a SH, is void as being
against public policy.

HELD 5: The Agreement does not place Buck (the owner of 40% of the
stock) in control of the C. It does give him a veto power over questions of
corporate policy. It is plain that Buck would not have cancelled the gross
indebtedness of Harkert and paid in fresh money w/o the SCA being
made. It must be assumed that the purpose of the A was to prevent the C
from getting into financial distress by a continuance of the C-policy which
brought about the necessity for its reorganization at the time Buck upon
the C not spreading itself too thin in the enlargement of its business.
Clark (25% SH) v. Dodge (75% SH) et al. (NY case, 1936)
1) The 2 Corporate defendants are NJ C manufacturing medicinal
preparations by secret formulae.

2) Clark owned 25% while Dodge owned 75% of the stock of each C.

3) Dodge took no active parting the business, although he was a D,

and thru ownership of their qualifying shares, controlled the others Ds of
both Cs.

4) He was the President of BELL & COMPANY, INC. and nominally GM

of HOLLINGS-SMITH COMPANY, INC.

5) Clark was a D and held offices of treasurer and GM of BELL &

COMPANY, INC. and also had charge of the major portion of the business
of HOLLINGS-SMITH COMPANY, INC.

6) Clark alone knew the formulae and methods of manufacture of the

medicinal preparations.

7) Feb. ’21- Dodge and Clark and the sole owners of the stock of
both Cs, entered into a written A under seal, which after reciting the
stock ownership of both parties, the desire of Dodge that Clark should
continue in the efficient management and control of the business of BELL
& COMPANY, INC., so long as he should ‘remain faithful, efficient and
competent to so manage and control the said business;” and his further
desire that Clark should not be the sole custodian of a specified formula
but should share his knowledge thereof and of the method of
manufacture with a son of Dodge, provided in substance as follows:

That Dodge during his lifetime and, after his death, a Trustee to be
appointed by his will, would so vote his stock and so vote as a D that the
plaintiff:
a) should continue to be a D of BELL & COMPANY
b) should continue as its GM so long as he should be ‘faithful,
efficient and competent;”
c) should during his life receive ¼ of the net income of the Cs
either by way of salary or dividends;
d) that no unreasonable or incommensurate salaries should be paid
to other officers or agents which would so reduce the net income
as materially to affect Clark’s profit
8) Clark filed an action for specific performance against Dodge
alleging:

Breach of the agreement by Dodge in that he failed to use his stock

control to continue Clark as a D and as GM, and has prevented Clark from
receiving his proportion of the income, while taking his own, by causing
the employment of incompetent persons at excessive salaries, and
otherwise.

Prayer: reinstatement as D and GM and an accounting by Dodge

and by the Cs for waste and for the proportion of net income due Clark.

ISSUE: WON the A is illegal as against public policy?

HELD: A LEGAL! The A was legal and the complaint states a cause of
action. There was no attempt to sterilize the BOD. The only restrictions on
Dodge were:

a) that as a SH he should vote for Clark as a D- perfectly

legal contract;

b) that as D he should continue Clark as GM, so long he

proved faithful, efficient and competent-an agreement
re ¼ of the “net income”- for purposes of this motion, it
is only just to construe that phrase as meaning
whatever was left for distribution after the Ds had in
good faith set aside whatever they deemed wise;

c) that no salaries to other officers should be paid,

unreasonable in amount or incommensurate with
services rendered- a beneficial and not a harmful A

If there was an invasion of the powers of the directorate

under the A, it is so slight as to be negligible; and certainly there is no
damage suffered by or threatened to anybody.

RATIO: If the enforcement of a particular contract damages nobody-

not even, in any perceptible degree, the public- one sees no reason for
holding it illegal, even though it impinges slightly upon the broad
provision the NY General Corporation Law.

Where the Ds are the sole SHs, there seems to be no

objection to enforcing an agreement among them to vote for certain
people as officers.
Campos: Although the GR, as we have seen, is that the pooling or
voting agreements cannot limit the discretion of the directors, the
principle has not been applied strictly to close corporations, as illustrated
by the Clark case. This variation in favor of close corporations is
incorporated into Section 100 of the Code.

The Clark case also illustrates that the remedy of specific

performance is available in case of violation of a VA.

Gottschalk et al. v. AVALON REALTY CO. et al. (Wisconsin Case,

1946)
1) AVALON REALTY CO. has a provision in its AOI wherein it authorizes
the holders of the first and second preferred stock to vote whenever
default should exist in the payment of dividends after 2 July 1951.
2) Respondent LT: The preferred stock is entitled to vote unless the
right is expressly denied, and that it is not expressly denied by the
language in question

ISSUE: WON the provision constitute a denial of the right to vote

prior to that time?

HELD: YES, IT DENIES THE RIGHT TO VOTE PRIOR TO THAT TIME.

The Corporate articles deny to the first and second preferred

SHs the right to vote prior to the happening of the specified
contingencies.

The provision that such stock may vote upon the happening of such
contingencies clearly implies that it may not until the contingencies
happen.

We agree that unless a denial is clearly manifested, it should not be

given effect, but where, as here, it is clear, it should be given effect even
though it is not express.

RATIO: Such a denial of the right to vote by preferred stocks may

exist expressly or by necessary implication. A denial may exist under an
express provision even though the denial may not be expressed (duh??).
Such is the situation in this case.

SHERMAN & ELLIS, INC. (Managing C) v. INDIANA MUTUAL

CASUALTY CO. (US CA case, 1930)
1) INDIANA MUTUAL CASUALTY CO. is a company engaged in the
business of writing casualty insurance and adjusting the losses growing
out of such insurance.

2) SHERMAN & ELLIS is an Illinois C that transacted a large business in

casualty insurance.

3) INDIANA MUTUAL entered into a Management Contract w/

SHERMAN & ELLIS for a period of 20-years. The MC provides that:

“That for and during the period of 20 years from the date
hereof, [SHERMAN & ELLIS, INC. (Managing C)] will supply xxx the
 underwriting and executive management xxx in the person of
its president, Frank Ellis, or such other of its officers as it may from
time to time designate”

“….during said 20 year period” the CASUALTY CO. shall elect

the officer furnished by SHERMAN & ELLIS, INC. (Managing C) for
its underwriting manager who “shall have general supervision and
charge of the underwriting affairs of the C.”

4) INDIANA MUTUAL CASUALTY CO. terminated its Management

Contract after some difficulties had arisen between SHERMAN & ELLIS
and the Indiana State Department and after an unsuccessful attempt has
been made by the state to have a receiver appointed for the CASUALTY
CO.

5) SHERMAN & ELLIS filed an Action for Specific Performance w/

Damages against the CASUALTY CO. to enforce the contract.
6) Defense: The agreement is void as against public policy, and
therefore its breach created no liability on the part of the CASUALTY CO.

ISSUE: WON the MC is void?

HELD: MC IS VOID. Such an agreement negatives the thought that

SHERMAN & ELLIS (Managing C) was merely the soliciting agent of the
CASUALTY CO. It contemplated the substitution of the Managing C for the
officer of the CASUALTY CO.

What was the CASUALTY CO. business? To write casualty insurance

and adjust the losses growing out of such insurance. If there existed a
conflict of opinion between the Board and SHERMAN & ELLIS (Managing
C), whose voice under this contract would control? Obviously SHERMAN &
ELLIS’s.

The length of time (20 years) during which the agreement was to
operate likewise indicated that not only managerial powers, were
delegated, but the entire policy of the CASUALTY CO. business was to be
fixed and determined by SHERMAN & ELLIS (Managing C).

Hence, the CASUALTY CO. was to be merely an instrumentality

through w/c SHERMAN & ELLIS (Managing C) was to conduct a casualty
insurance business in the state of Indiana.
Benintendi v. KENTON HOTEL (NY case, 1945)
1) 2 Men who owned (in unequal amounts) all the stocks of a domestic
business C, made an agreement to vote for, and later did vote for and
adopt at a SHs’ Meeting, B-Ls of the C, providing:

“1) That no action shall be taken by the SHs except by

unanimous vote of al of them; xxx

2) That the directors of the C should be the 3 persons receiving,

at the annual SHs’ Meeting, the unanimous vote of all the SHs;

3) That no action should be taken by the directors except by

unanimous vote of all of them;

4) That the B-Ls should not be amended except by unanimous

vote of all the SHs.

2) Minority SHs brought this suit to have those B-Ls adjudged valid
and to enjoin, the other SHs from doing anything inconsistent therewith.

HELD 1 (no.1): The B-L which requires unanimous action of SHs to pass
any resolution or take any action of any kind, is equally obnoxious to he
statutory scheme of stock C management.

The legislature has decided that a vote of a majority of

the shares, or half of them in case of a deadlock, is sufficient to force a
dissolution. Yet under the B-Ls of this C, the minority SH could prevent
dissolution until such time as he should decide to vote for it.

RATIO 1: This state has decreed that every stock C chartered by it

must have a representative government, with voting conducted
conformably to the statutes, and the power of decision lodged in certain
fractions, always more than half of the stock. That whole concept is
destroyed when the SHs, by agreement, B-L or certificates of
incorporation provision as to unanimous action, give the minority interest
an absolute, permanent, all-inclusive power of veto.

HELD 2 (no.2): The device is intrinsically unlawful because it

contravenes an essential part of the State policy, as expressed in the
Stock C Law. A requirement, wherever found, that there shall be no
election of Ds at all unless every single vote be cast for the same
nominees, is in direct opposition to the statutory rule- that the receipt of
plurality of the votes entitles a nominee to election.
HELD 3 (no.3): The B-L numbered 3 above makes it impossible for the
Ds to act on any matter except by unanimous vote of all of them. Such a
B–L is almost as a matter of law, unworkable and unenforcible since
“prima facie in all acts done by a C, the major number must bind the
lesser, or else differences could never be determined.

There never was a legislative intent so to change the common-law

rule as to quorum as to authorize a B-L like the one under scrutiny. A B-L
requiring for every action of the B not only be a unanimous vote of a
quorum of the Ds, but of all the Ds, sets up a scheme of management
utterly inconsistent with the General Corporation Law.

RATIO 3: The very idea f a ‘quorum’ is that, when that required number
of persons goes into session as a body, the votes of a majority thereof are
sufficient of binding action.

HELD 4 (no. 4) (only valid portion): The 4th B-L requiring all SHs to
amend the B-L is not specifically or impliedly authorized or forbidden by
any NY statute. Nor does in involve any public policy or interest.

The state has an interest in seeing to it that such ‘private laws’ or

B-Ls as the C adopts are not inconsistent with the public law and not such
as will turn the C into some other kind of entity.

But once proper B-Ls have been adopted, the matter of amending
them is no concern of the State.