Brightman v. Bates , 175 Mass. 105 ( 1900 )

Holmes, C. J.

These are actions'upon a covenant executed by the defendants. The covenant recites that 1,360 shares of the stock of the Union Street Railway Company in New Bedford have been or are about to be purchased by a syndicate, under an agreement of September 4,1894, that the plaintiff has been largely instrumental in organizing the' syndicate, and' that “ he considers that for his services therein in case the syndicate is formed, and the aforesaid shares purchased, he should receive for his compensation ” a certain amount of stock. These recitals are followed by several covenants on the part of the defendants, and one other to give the plaintiff, in stock of the company at $169 a share, a commission of $4 a share “ upon the number of shares of said stock we sell to said syndicate, less the number of shares we have severally subscribed as members of said syndicate,” and certain other deductions, in case the compensation was not got from the syndicate. The judge before whom the case was tried found for the plaintiff, and the case is here upon a report of requests for rulings which in various forms raise the question whether such a finding can be justified in law.

Before going further we will dispose of one or two objections which were not the main ground of defence and were not much pressed. The covenant was delivered to the plaintiff, and properly might be found, if not ruled to be made to him. Beyond acceptance of the delivery to him no other acceptance or notice of acceptance was necessary. The contract is intelligible. We cannot say that the judge was not warranted in finding that whatever efforts to get the compensation from the syndicate were necessary before coming on the defendants had been made. The 1,360 shares were subscribed for, and although some of the subscriptions were upon stipulations, that does not affect the case, because all the stock was taken and paid for before the action was brought. We pass to the principal defence.

The syndicate referred to was formed under another written agreement, whereby the subscribers recite their desire to become members of it to the end that control of the railway company and advantage to them may be gained, agree to take the shares set against their names at $169 a share, and further agree after the purchase to enter into a pooling contract whereby all the syndicate stock “ shall be voted at each annual meeting for a period of not less than three years, for such Board of Directors as shall be named ” by a committee of five of the subscribers, with power to a majority of them to fill any vacancy in the committee. It is said that this agreement was illegal, and that the covenant sued upon was so directly aimed at helping to bring the unlawful arrangement about that it must fall with the other. Barnes v. Smith, 159 Mass. 344, 347. Gibbs v. Consolidated Gas Co. 130 U. S. 396.

With regard to this contention it is to be observed in the first place that the syndicate agreement is dated September 4, and the covenant is dated September 22, and, as we have said, recites that the shares “ have been, or are about to be ” purchased. That is, the sale is treated as already certain. Although one or two subscriptions seem to have been signed a day or two later, we do not perceive why the judge may not have found that the services all had been rendered at the date of the covenant, and in view of the defendants’ testimony that they never heard of those services before September 22, why he may not have found that the covenant was a voluntary, one, the legality of which would not be affected by the nature of the executed transaction which happened to furnish a motive for making it. Gray v. Mathias, 5 Ves. 286.

Without deciding whether, if the covenant was dependent upon the rendering of further services, it was so closely connected with the syndicate agreement as to fall if the latter cannot be sustained, we pass to the question whether the latter agreement is unlawful on its face, bearing in mind that unless it is unlawful on its face it has the advantage of a finding in favor of the plaintiff. In dealing with this question it does not need to be said that combination of common interests is necessary, and constantly is taking place. It is as legitimate for a majority of stockholders to combine as for other people. The fact that they expect “ gain and advantage ” — in the words of the syndicate agreement — to accrue to them, does not make the combination unlawful. That expectation and intent would have that effect only if the gain was to be at the expense of the corporation, or in some way was intended to work a wrong to the other stockholders. No such intent appears, and although it is impossible not to view such an arrangement with suspicion, it is also impossible to let suspicion take the place of proof.

The only serious ground of objection is the agreement that the stock “ shall be voted at each annual meeting ” for three years, for a board of directors named by the committee. It is suggested that this was an unlawful attempt by the contracting parties to deprive themselves in advance of their deliberative power and duty as stockholders, and to submit themselves to the dictation of five men who in the future might not be even members of the corporation. Perhaps the notion upon which these suggestions are founded has been pressed somewhat further than would be warranted by more far-seeing views, but we have no occasion to discuss it in this broad form. The question before us is not whether it would be possible to carry out the contract in a way which would have made the contract bad if specified in it, but whether it was impossible to carry out the contract in a way which might lawfully have been specified in advance. We put the question in this form because there is no doubt that the subscribers might actually have done the things stipulated without giving any one a right,to complain. That is to say, they might have held their stock and voted by previous understanding according to the advice of the committee, as long as they chose. The question is what they might contract to do; for this is supposed to be a case where a contract to do lawful acts is unlawful.

The syndicate agreement does not specify how it is to be carried out. It contemplates the making of another contract. As the later contract is to be a pooling contract, it was possible, if not probable, that one element of the arrangement would be that the title to the stock should be given to a trustee, and this happened in fact. During the three years the stock seems to have been held by a bank. The stock was transferred to it, and was not transferred to the members of the syndicate. But it would have been possible, consistently with the terms of the syndicate agreement, that the committee who were to name the board of directors themselves should be the trustees. In that case the trustees, of course, would have voted on the stock. They, not their cestuis que trust, would have been the stockholders for the time being. We know nothing in the policy of our law to prevent a majority of stockholders from transferring their stock to a trustee 'with unrestricted power to vote upon it. Brown v. Pacific Mail Steamship Co. 5 Blatchf. 525, 527. See Greene v. Nash, 85 Maine, 148.

Supposing that the committee had been trustees, what would the syndicate agreement have amounted to then? Merely an agreement by each of the trustees to vote as they should jointly agree to vote, and an agreement by the subscribers not to demand back their shares for three years. The latter term certainly is not illegal, whether valid or not. A stockholder has a right to put his shares in trust, whatever his motive.. If the trust is an active one he cannpt terminate it at will, and the attempt to cut himself off by contract, instead of by the imposition of duties, from ending it, certainly is not enough to poison the covenant with the-plaintiff. See Williams v. Montgomery, 148 N. Y. 519, 525. It might be held that the duty of voting incident to the legal title made such a trust an active one in all cases. As to the arrangement for the trustees uniting to elect their candidates, the decisions of other States show that such arrangements have been upheld, and we do not think that it needs argument to prove that they are lawful. If stockholders want to make their power felt, they must unite. There is no reason "why a majority should not agree to keep together. Faulds v. Yates, 57 Ill. 416. Smith v. San Francisco & North Pacific Railway, 115 Cal. 584. Havemeyer v. Havemeyer, 11 Jones & Spen. 506, 512, 513. Affirmed, according to Beach, Corporations, § 304, n. 6, and Fisher v. Bush, 35 Hun, 641, in 86 N. Y. 618. See Brown v. Pacific Mail Steamship Co. 5 Blatchf. 525, 527.

We have considered such decisions elsewhere as have been called to our attention or found by us. Few of them are by courts, of final resort. Nothing that we have found in them satisfies us that the judge below was not warranted in finding for the plaintiff. Judgment for the plaintiff.