Stott v. Stott

The defense to this action, brought to recover on defendant's promissory note, is based upon the claim that the defendant, at the solicitation of plaintiff, "agreed as a stockholder to vote in favor of a loan from the Stott Realty Company to the David Stott Flour Mills in the sum of $150,000," in which corporations both plaintiff and defendant were stockholders, in consideration of "plaintiff's promise to cancel and deliver" to defendant the promissory note in question; that he did so vote, and that plaintiff, although requested to do so, has failed to deliver the note to him.

The stockholders of a corporation have a community of interest in the property owned by it. They can perform valid acts only when lawfully assembled in their representative capacity. When so acting, every stockholder has the right to assume that every other stockholder is exercising an independent and honest judgment on the questions presented, and that none of them has been influenced by a consideration paid to him for voting in a particular manner. As was said inWest v. Camden, 135 U.S. 507, 521 (10 Sup. Ct. 838), it was the right of the other stockholders "to have the defendant's judgment, as an officer of the company, exercised with a sole regard to the interests of the company." A number of stockholders, before a meeting, may agree to combine together to favor any particular policy or lawful action to be considered thereat, and, if they own a majority of the stock, the minority may not, ordinarily, question their right to do so.

But the question here presented is whether one stockholder, in order to obtain a vote of the majority of the stock, may, by the payment of a cash consideration to another, secure the vote of his stock in the manner desired by him. If the defendant believed that the action sought by the plaintiff was in the interest of the corporation, he should have assented to it. He apparently did not so consider it. His vote, cast as plaintiff desired, must be treated as influenced solely by the consideration he claims he was to receive therefor. In my opinion, if the contract, as claimed by him, was entered into, it was against public policy, and void.

In 2 Thompson on Corporations (3d Ed.), § 995, the right of stockholders to combine in a voting trust is considered at length. The following from Smith v. Railway Co., 115 Cal. 584 (47 P. 582, 35 L.R.A. 309, 56 Am. St. Rep. 119), is quoted with approval:

"The stockholder cannot separate the voting power from his stock by selling his right to vote for a consideration personal to himself alone, any more than he could agree for the same consideration to cast the vote himself, and an agreement with others to appoint a proxy upon the same considerations would be equally invalid."

"A corporation holds its property in trust for its stockholders. The stockholders have a joint interest in the same property and in the same title. Community of interest in a common property or title imposes a community of duty and a mutual obligation to do nothing to impair either. It creates such a fiducial relation as makes it inequitable for any of those who thus share in the common property to do anything to or with it for their own profit, to the detriment of others who have the same rights." Wheeler v. Abilene Nat'l Bank Bldg. Co., 89 C.C.A. 477, 479 (159 Fed. 391, 393, 16 L.R.A. [N. S.] 892, 14 Ann. Cas. 917).

The following decisions of this court, while not directly in point, are indicative of the rule which should be applied in this case:

"An agreement by two of the three stockholders of a corporation, who are also directors, that, in consideration of the purchase of stock, the vendee shall be employed as business manager for two years, and if at the end of that time he wishes to retire from the corporation they will repurchase his stock at a stated price, is void as against public policy, unless assented to by the other stockholder." Wilbur v. Stoepel (syllabus), 82 Mich. 344 (21 Am. St. Rep. 568).

"The execution of a contract between four of the directors and stockholders of several corporations, holding a majority of the stock in each, without the consent of other stockholders, for purposes of personal gain, containing provisions for the continued employment of one of the contracting parties as manager at a fixed salary, and determining the business policy, of the several corporations, is contrary of public policy, and may not be enforced specifically." Scripps v. Sweeney (syllabus),160 Mich. 148.

The judgment is affirmed.

CLARK, C.J., and McDONALD, NORTH, FEAD, WIEST, and BUTZEL, JJ., concurred with SHARPE, J.