
    WOODRUFF v. DUBUQUE & SIOUX CITY R. R. CO.
    
      U. S. Circuit Court, Southern District of New York ;
    February, 1887.
    1. Foreign corporation; election.1 An injunction to restrain the inspectors of the election in an Iowa corporation from allowing votes by proxy in tho absence of a State statute authorizing it;—denied , on the ground that an illegal election should not be anticipated ; and that the remedy, if any should be necessary, might be after-wards sought. 
    
    2. Corporation; stockholders' common deposit of stock, with proxies.'] Transfers of stock, made by stockholders, to a depositary, suggested by the directors of the corporation for the purpose of enabling such directors to control the affairs of the company or dispose of all stock so deposited for the equal benefit of the depositors (negotiable receipts being issued in exchange), and conditions (other than the power to sell) not to become binding until a majority shall have been deposited, since they amount to a power not coupled with an interest, are, until sale effected, revocable by the depositor.
    3. The same ; stoclcltolder's objection against vote on stock deposited by others.] Whether such a transaction creates a trust for the corporation, in such sense that one stockholder may enjoin the directors from voting on stock deposited by other stockholders, depends on whether what is done is done with corporate funds for the corporation ; for, if so, the stock being held for the company, could not be voted upon. If held for the depositors, respectively, one depositor has no equity to enjoin the depositary from voting on stock deposited by another.
    Motion for injunction.
    Edward C. Woodruff filed his bill against the Dubuque & Sioux City Railroad Company, an Iowa corporation, and Droxel, Morgan & Co., bankers in the city of New York, upon the following grounds :
    The defendant railroad company is a corporation of Iowa, and its railroad is situated in that State. The articles of incorporation provide that the capital stock shall be $6,000,000, divided into shares of $100 each; that the affairs of the company shall be managed by a board of nine directors, and that no person shall be elected a director who is not the bona fide holder of $10,000 of stock ; that an election shall be held on the second Monday in February in each year, at which four and five directors shall be alternately elected, to hold their offices for two years, and may fill vacancies. The complainant is the owner of two hundred shares of the stock, evidenced by Xos. B. 223 and 224, dated December 17,1885, and issued to him. In view of exigencies likely to arise in the affairs of the company, the directors caused circular letters, dated July 1,1886, and signed by the president, to be issued to the stockholders, setting forth the circumstances, and enclosing powers of attorney to the board of directors or a lawful majority of them, authorizing them to sell or lease the property of the company, and to execute necessary contracts and conveyances therefore, and to vote upon the stock of the stockholders addressed at any meeting called for the purpose of carrying, into effect the premises, which the stockholders were requested to sign and return. Many stockholders did sign and return-them.
    On December 13, 1886, a committee of the board of director's and the president addressed a letter to the defendants, Drexel, Morgan & Co., requesting them to receive stocks from the stockholders with power to transfer the same and to issue negotiable receipts for it, such deposits to be made for the purpose of enabling the board of directors to dispose of the property and effects of the company in any way they may deem best; or to dispose of all stock deposited for the equal benefit of all such stock at a price not less than par; or to execute a lease of the railroad and property on a basis to yield not less than four per cent, dividends to the stock, and to vote for such persons to constitute the board of directors as they may think desirable at the coming election ; the conditions, other than the power to sell stock, not to become binding until a majority should have been deposited ;—and enclosed a form of agreement to these conditions to be signed by the stockholders. And a circular letter of the president to the.stockholders.requesting them to deposit their stock accordingly, was sent to the stockholders, with a copy of the letter to Drexel, Morgan & Co.
    A majority of the stock has been deposited in pursuance of this arrangement. The orator, complainant, lias deposited his certificate B. No. 224, and kept certificate B. No. 223. A meeting of the stockholders for the election of directors, of whom by the articles of incorporation, four are to be elected,' has been called to be held at Dubuque. The orator lias withdrawn his assent to the conditions of the letter to Drexel. Morgan & Co., has revoked, so far as revokablc, all powers of attorney and proxies to vote for him on the one hundred shares of stock deposited by him, and has requested a re-delivery of the stock, which has not been done.
    ' This bill is brought setting out these matters at large; and alleging, on information and belief, that these things are done at the expense of the corporation, by the directors, for the purpose of continuing themselves in office ; and praying, among other tilings, for a provisional injunction restraining the corporation and its officers and directors and Drexel, Morgan & Co., from voting or permitting to be voted upon the orator’s one hundred shares of stock deposited, and from voting or permitting to be voted upon any of the other stock deposited with Drexel, Morgan & Co., in pursuance of" these arrangements.
    The defendants answered the hill, and denied that any of these things have been or are being done by or at the expense of the corporation, or otherwise than as stockholders devising and carrying out measures for their mutual benefit and protection in their interests in the corporation.
    The motion for a preliminary injunction was heard upon, the bill and answer.
    
      
      Clarence A. Seward, for the motion:
    I. The common law controls in the State of Iowa, unless expressly modified by that State, or by Federal law (Act of Cong. of June 12, 1838; Holmes v. Merritt, Morris (Iowa), 82; O’Ferrall v. Simplot, 4 Iowa, 381; State v. Twogood, 7 Id. 252).- And the common law forbids voting by proxy. The only case in which proxy voting is allowed in the common law is to the Peers of England, ánd by virtue of a special commission from the King (Ang. & A. on Corp. 128). That right, however, of British Peers was abolished by standing orders in March, 1868. In Phillips v. Wickham, 1 Paige, 589, 599, Chancellor Walworth said : “ The right of voting by proxy is not a general law, and the party who claims it must show especial authority for that purpose” (Cushing's Law and Practice of Legislative Assemblies, 705; Harben v. Phillips, 48 L. T. R. N. S. 334; Craig v. First Presbyterian Church, 88 Penn. St. 42, 47; Taylor v. Griswold, 14 N. J. Law Rep. 222, 226.)
    II. The State of Iowa has not permitted, or enabled, the Dubuque and Sioux City board of directors to make a bylaw authorizing a shareowner to vote bv proxy for the election of directors ; or, if the State of Iowa has empowered that body corporate to establish such a by-law, the power has not been legally exercised by the company (Ruggles v. Illinois, 108 U. S. 526 ; 6 Gray, 596 ; 5 Cowen, 462; Ang. & A. on Corp. c. 10, 11th ed. § 327; The Morton Gravel Road Co. v. Wysong, 51 Ind. 4; Kent v. Quicksilver Mining Co., 78 N. Y. 159; 1 Lord Raym. 113; 4 Burr, 2204; Railway Co. v. Allerton, 18 Wall. 233).
    III. If the by-law of the Dubuque and Sioux City Company, be valid, which declares that “ each person, owning one or more shares in his own right, shall be entitled to vote, either in person, or by proxy duly authorized in writing,” even then the law of Iowa forbids a board of directors to be directly or indirectly the recipient of a proxy given by its own stockholders, and to vote the same at an annual election of directors, as has been attempted in the present case. If a majority of the shareowners of the Dubuque and Sioux City Company, either acting individually or in concert, had sold their shares to the company, they could not, while owned by the company, have been voted on at an annual meeting for the election of directors (See authorities already cited). An assignment and conveyance of the shares to the board of directors (eo nomine) would have been, in law, an assignment and conveyance to the company. Nor if the shares had been thus assigned and convoyed to the board of directors, and the company, could the board have lawfully transferred the shares, on the books of the company, to “Drexel, Morgan & Co., Trustees,” in order to enable the trustees to vote on the shares as “ the board might deem desirable,” if such voting were the object of the transfer (Exp. Holmes, 5 Cow. 426; Exp. Wilcocks, 7 Id. 401; Brewster v. Hartley, 37 Cal. 15 ; Case of Barker, 6 Wend. 509 ; American Railway Frog Co. v. Haven, 101 Mass. 398; State v. Smith, 48 Vt. 266 ; Vail v. Hamilton, 20 Hun, 355).
    IV. “ Drexel, Morgan & Co., Trustees,” stand in the stock-books of the Dubuque and Sioux City Company, as the recorded owner of shares, and by the trust arrangement set forth in the agreement of December 13, 1886 the property in the shares is thereby separated from the right of voting thereon at the next election. Of the property therein, the depositors of the shares are cestuis que tmst, but of the right of voting the Dubuque and Sioux City Company is the cestui que trust, (a.) If the by-laws of the Dubuque and Sioux City Company have validity, then by the 10th by-law “ each person holding one or more shares, in his own right, shall be entitled to vote either in person or by proxy, duly authorized in writing.” The phrase “ in his own right,” must be taken as excluding “each person holding one or more shares” in the right of some one else. The phrase “ in his own right,” is unusual in by-laws of that character, and must be interpreted according to its legal significance. Does the phrase “ in his own right,” exclude one recorded on the stock-book as holding in trust ” ? A certifícate of stock containing the words 11 in trust,” or other equivalent words, is held by the courts to be constructive notice of a trust to all who deal in cortiticates and to put them upon inquiry respecting the right of the trustee to dispose of the stock (Budd v. Munroe, 18 Hun, 316 ; Sprague v. Cocheco M’f’g. Co., 10 Blatchf. 173; Gaston v. American Bank, 29 N. J. 98. It is elementary knowledge that a share in a railway company is not in a legal sense money, or a debt, or a negotiable security, but is a chose in action. A shareowner in the Dubuque and Sioux City Company lias no right or interest, in any specific property of that company; lie has a right to have his interest in the company protected against flagrant mismanagement by its officers, and against their acts which are clearly ultra vires. Unless by application to the judicial power, the only right of control by a shareowner over the property of the company is snch as the shareowner may exercise through the election of its directors. He has a right to such dividends as may be declared by the directors, and on dissolution of the company ho has a right to that share of the property which may belong to him after paying the debts of the company. He also has a right to transfer his shares to some one else, according to the reasonable rales prescribed by the company. Ordinarily the person in whose name the shares stand upon the stock-book of a corporation is, as to the corporation, a shareowner, and is entitled to vote for directors, and also entitled to declared dividends. So also one has, ordinarily, a right to vote on shares standing in his name as trustee for another. But it will be observed that the bydaw we are considering, declares that one entitled to vote in the Dubuque and Sioux City Company must be a “ person holding one or more shares in his own right.” That Drexel, Morgan & Co. hold the certificates of the, shares standing in their names on the stock-hook is not denied. But do they hold them in the sense of this rule in their u own right/’ or in the right of somebody else? (b.) The trust will not be denied. What is its nature ? The agreement of December 13, 1886, and the other authenticated documents recited by the complainant in his bill, place it beyond controversy that the Dubuque and Sioux City Company, by its board of directors, and by ' its president, solicited the shareowners by circular letters to deposit their shares with Drexel, Morgan & Co., as the agent of the Dubuque and Sioux City Company, and for these purposes: 1. To sell the property in the shares for not less than one hundred dollars, and, if sold, to pay the money without deduction, or abatement, to the depositor, or, if not sold, to return to the depositor an equal number of shares on or before July 1st, 1887. 2. To enable the Dubuque and Sioux City Company (a conveyance, or assignment, of a right to a board of directors, is a conveyance or an assignment to the corporation) to vote the shares thus deposited as they may “ think desirable.” There was, by the terms of the agreement of December 13th, 1886, an attempted severance of the right of property in the shares, including right to dividends, from the right to vote on those shares. Of the former, the depositors are the cestuis que trust, but of the latter the Dubuque and Sioux City Company is the cestui que trust. A dividend on the Dubuque and Sioux City Company shares having been declared in December, 1886, payable in January, 1887, the trustees, Drexel, Morgan & Co., have, since the shares have been placed with'them in trust, paid the dividend to the depositors. Under this trust, it cannot be affirmed, in law, that Drexel, Morgan & Co. hold in their “ own right ” the certificates of shares deposited with them, excepting to sell the shares at a fixed price and pay the proceeds to the depositor, or to return an equal number of shares to the depositors on or before July 1st, 1887, and to enable the Dubuque and Sioux City Company to vote on those shares at the next annual meeting, as the board- of- directors “ may think desirable.” Is such a holding by Drexel, Morgan & Co. a holding in their “ own right ” within the meaning of the tentli by-law? Under the agreement of .December 13th, 188G, the Dubuque and Sioux City Company lias, through its board of directors, and through Drexel, Morgan & Co., done what is, in effect, a borrowing of shareowners’ certificates of a majority of the shares, accompanied by an agency to vote upon the shares at the- next shareowners’ meeting, and also accompanied by the privilege of taking the shares at a price not less than par, or returning the shares to the* several depositors. Stripped of the flimsy cover, the transaction, in its relation to voting the deposited shares at the' next shareowners’ meeting, is, in law, not- otherwise than if: 1. The Dubuque and Sioux City Company had bought the shares with company funds, which shares stood in the name of the company on its stock-book ; or, 2. Having purchased the shares with company funds, had placed the certificates in the hands of Drexel, Morgan & Co., and transferred the shares to the name of that firm on the stock book • of the company, in order, by evading the law, to enable the Dubuque and Sioux City Company to control the vote thereon; or, 3. Had borrowed, with company funds, the" shares, or purchased proxies thereon, from the owners of the shares, in order to enable the present board of directors to continue the power and management of the company in themselves. See Griffith v. Jewett, and Hafer v. N. Y. Lake Erie & W. R. R. Co. (below stated, pp. 454, 45J).
    V. It was unlawful for the board of directors, and the president of the Dubuque and Sioux City "Company to use the circular letters in order to induce the shareowners to deposit their shares with Drexel, Morgan & Co., and to confer on the board of directors the control of the votina* power in those shares at the next annual meeting. It was unlawful to use the funds of the Dubuque and Sioux City Company to prepare, or circulate, those circular letters, or to pay for proxies, or to pay Drexel, Morgan & Co., or any one else, expenses or disbursements made by them under the agreement of December 13,1886 (Studdert v. Grosvenor, L. R. Chan. Dec. 1, 1886, Vol. 33, p. 528).
    
      VI. Equity having jurisdiction of the person may administer any appropriate relief either within or beyond the forum (Gardner v. Ogden, 22 N. Y. 327 ; Massie v. Watts, 6 Cranch, 148 ; Muller v. Dows, 94 U. S. 444), and such relief extends to enjoining specific votes at elections (Brown v. Pacific Co., 5 Blatchf. 525; Campbell v. Poultney, 6 S. & 1. (Md.) 74; Webb v. Ridgely, 38 Md. 364; Fraser v. Whalley, 2 Hen. & M.10), and the fact that the corporation is a foreign one does not defeat the jurisdiction (Spofford v. Texas, 50 How. Pr. 522; Atlantic v. Baltimore, 46 Super. Ct. 377; Direct Cable Co. v. Dominion Co., 84 N. Y. 153).
    VII. The motives of a plaintiff in instituting a suit are not properly a subject of judicial inquiry. The only relevant question is: Has he the legal position which he claims ? (Stevens v. Rutland, 29 Vt. 545; Forrest v. Manchester, 4 De Gex F. & J. 126, 131; Bloxam v. Metropolitan, L. R. 3 Ch. App. 337; Salisbury v. Metropolitan, L. J. 38 Ch. 249, 251; Robson v. Dodds, L. R. 8 Eq. 301, 308; Fooks v. South, 1 Sm. & G. 142, 166 ; Fielder v. London, 1 H. & M. 489, 493 : Fraser v. Whalley, 2 H. & M. 10, 30; Ramsey v. Erie, 8 Abb. Pr. N. S. 174, 179 ; Pond v. Vermont, 12 Blatchf. 280, 293; Dinsmore v. Central R. Co., 19 Fed. Rep. 153 ; Green's Brice (2 ed.) 652; Cotheal v. Brouwer, 5 N. Y. 562, 566; Sheridan v. Mayor, 68 Id. 30).
    VIII. If the act complained of will be an illegal one when committed the court will enjoin it, irrespective of any other question, at the suit of a single shareholder and without the allegation of any other ground of complaint than the illegality (Green's Brice [2 ed.] 652 ; Natusch v. Irving, Gow on Part. 576, and eases cited under last point). The absence of the other stockholders or of the non-resident members of Drexol, Morgan & Co. does not affect, the jurisdiction (U. S. R. S. § 727; Rule 47; Brown v. Pacific Co., 5 Blatchf. 525 ; Code, § 1946 ; Poertner v. Russel, 33 Wisc. 193, 203 ; Sickles v. Borden, 4 Blatchf. 14.)
    
      John F. Dillon and John E. Parsons, for defendants.
    
      
       See also Mining Co. v. Field, 64 Md. 151; 25 Am. L. Reg. 280.
    
   Wheeler, J.

After stating the facts.] It is argued that this scheme is intended to be carried out by voting upon _ large amounts of this stock by proxy, and that the right to so vote can exist only by express statute, and that there is no such statute in Iowa. It is not, however, deemed to be necessary to examine or pass upon that claim as a ground for this motion. The election is to be held in Iowa, under the laws of that State. It is to be presumed that the officers conducting the election will be recognized and be governed by those laws. If they do not give heed to those laws as they are, or as they are claimed to be by the orator, he can, doubtless, object and test the validity of what is done to- the contrary by appropriate proceedings. This would seem to be a better course than for this court to undertake to determine in advance what should there be determined and what, for aught that appears, will there be properly and satisfactorily determined..

The next question raised by the motion is whether the orator has the right to control the vote upon his own stock deposited with Drexcl, Morgan & Co. lie has not sold his stock himself, lie has deposited it with them with authority to sell it, but they have not sold it. Ho therefore remains the legal owner. They .have no interest in the stock coupled with the authority to sell; therefore there is no apparent reason why that authority is not revocable. The deposit was made to enable the. board of directors to dispose of the property of the company, or of all of the stock deposited at a price not less than par, as well as to vote for directors. The directors do not appear to have acquired any vested right to the stock by the deposit sufficient to prevent revocation of the authority to vote. It did not become theirs by , the deposit. They were authorized to sell in a certain way, and if they had sold the sale would be good, but not having sold the title remains as before. It remains, in effect, his, with the right to control the vote upon it, which apparently cannot be granted away separately from its ownership (Griffith v. Jewett. 15 Weekly Law Bulletin and Ohio Journal, 419). [See p. 457 of this volume.]

The remaining- question is as to the right of the orator to have defendants, Droxel, Morgan and Co., or the directors prevented from voting upon the stock of others deposited. It is urged for the orator that the transaction creates a trust for the corporation itself. Whether it does or does not depends upon whether what is done in this behalf is done with corporate funds for the corporation. The bill charges that it is so done. The answer denies this, and in this respect it is directly responsive to the bill. By the law an answer so responsive is evidence which must be overcome by evidence. It is said that the orator waived an answer under oath, as the rules in equity provide may be done. This is not understood to take away the right to answer under oath, and when a defendant does so answer the effect of the answer, as evidence, would appear to rest upon the law of the subject, which the rulers of court do not appear to attempt to change. The answer, must, therefore, in this respect, for the purposes of this motion, be taken to be true. If the stock was procured for the company, the defendants do not claim that it could be held for the company and still be voted upon (Studdert v. Grosvenor, 33 L. R. Chan., 528).

As it is not so held, but is held for the other depositors of it as that, deposited by the orator is held for him, the question is as to the right of the orator to control voting upon it as so hold. It is not understood that there is any law of Iowa to prevent directors from voting for others by virtue of proxies if any one can so vote. The other depositors may prefer to have the directors vote or control the vote upon their stock according to the arrangement. If so, that appears to be their right. If any of the stock has been sold the purchasers may prefer the same thing. An injunction against it in behalf of the orator would take away from them their right in this respect and to that extent confer it upon him. As the case is now made t,o appear and is understood, this cannot properly be done.

Motion granted as to the one hundred shares deposited by the orator and. denied as to the residue.

Note oh Stock Trusts for the Cohtrol of Oorporatiohs.

The mystery which in the minds of some obscures this subject is a business mystery not a legal mystery. Each of the legal principles which have rendered these combinations possible is easily comprehended and generally familiar. Nearlyall of them have long been recognized and frequently separately applied. The modern spirit of organization has recently discerned the results that can he worked out through the combination of these familiar principles,' and the secrecy which has attended the operation of the device is a matter of business policy simply.

Previously, efforts to secure concert of action among corporations have been principally made either,

1. By one corporation taking stock in another ;

2. By one leasing the property of another;

3. By contracts between the boards of directors, having one or more common members,

These involve, in one form or another, embarrassments arising out of the limits of the powers of corporations and their' directors,'and out of the fiduciary relation of directors to stockholders, and the incapacity of a director in two boards to .sanction a contract between them.

The fact that stockholders have not hitherto been regarded .as holding any fiduciary relation to each other or to their com- = .pany has led to the invention of these trusts of stock for the -control of corporations.

A Trust," so called, is a device to secure concert of action -.among a number of corporations of similar interests, by separating the voting power and the ownership of the stock, in’ -each.one, to a sufficient extent to concentrate the voting power of a majority of the slock in each corporation, in the hands of .a single committee or association whose policy will therefore .animate all the boards pf directors (or who may even put the .same- persons into the several boards) so that the corporate action of all.may he identical without contract. Under this arrangement ¡it is'intended that the beneficial interest in the ■ stock, -minus the voting power, shall rest where it was before ; .and.the pecuniary value of the stock may be enhanced by the •termination of all competition between the corporations thus brought under one control; and by the consequent advantage ;gáined by the combined corporations in their competition with corporations and Individuals in the same business, but not in rtlae combination.

A brief survey of the legal principles upon which this -device rests will lead us to a clearer comprehension of the -question now likely frequently to be litigated.

1. Characteristic features of corporate organization.] In ;:a partnership each member is agent of- all the others, and has, for all ordinary purposes of the business all the powers that any ■or all have. It makes no difference in (he legal principle that he is in the minority on any question. His power as a partner is not impaired thereby. But if the firm become incorporated Ms power to act for the body ceases, and, as a member, ho can only cast a vote toward the election of a board to whose hams all the ordinary powers of the body are transferred. Half the stock, plus one share, can elect the whole board ; and half the stock, minus one share gives no right either of control or of voice in the board. Hence the entire control for the year is secured by simply securing the voting power of a major part of the stock.

The directors tb us elected, however, are trustees of a franchise granted by the State. They cannot convey away the corporate power to any external body, nor bind the corporation by executory contracts to exercise corporate powers in a manner inconsistent with the property rights of the stockholders. Hence all attempts to secure a concert of action among- corporations by executory agreements between their boards of directors arc of uncertain duration, as is constantly seen in the pooling arrangements between carrier companies.

2. The corporate combination by a “ Trust” needs no corporate act.] If the power to elect the board in each of several corporations is secured, and lodged in one hand, no -contract between the several boards is necessary. The members of the board that should not act in concert with the prescribed policy would simply be dropped at the next election, and others subservient to that policy take their places.. Each board thus elected goes forward in the pursuit of the concerted policy without assuming to bind its corporation by any agreement to do so.

Each corporation is thus left in a legal sense free, and does not enter into any contract in restriction of its franchise; and it is conceived that the conduct of neither board can be impeached on an allegation that it has entered into any executory obligation in the' nature of a combination or consolidation or an usurpation of power.

3. Alleged justification of the object of “Trusts.”] The remaining ground upon which the conduct of such a board might be attacked is the question whether it is faithful to its trust in administering the affairs of the corporation for the benefit of the stockholders.

The security of its position in this respect is regarded as .assurer] by the fact that the object of the concert of action is the enhancement of the value of the stock ; and that the proprietorship of that value remains where it was before, the owners having parted with their right to vote for the purpose of enhancing the security of their property and their prospects of dividends. The mischiefs felt or feared from these Trusts, are not so commonly in any injury to the interests of stockholders, as in the aggrandizement of corporate power resulting from this concert of action.

4. Legal theory of the “ Tmst.”] The means by which this separation of the voting power from the pecuniary value of-the stock is effected is the device called the “trust.”

It depends on the legal principle that the Statute of Trusts, which forbids one person to hold the legal title to property in trust for another, except for specified purposes, 'does not in the form in which it exists in this State, and I believe elsewhere, apply to personal property; and stock in a corporation, even though it be a land company, is personal ' property. It is essential to the purpose in view that a majority of the stock in each of the corporations to bo within the combination, be assigned to one man or a committee, association, or syndicate, who will take the legal title, and the power to vote, but will hold the stock in all respects except the voting power (and any other expressly excepted), as trustees for the original owners. For this purpose it is not necessary to apply to the corporation. The corporation as such may possibly know nothing about it. If the owners of half the stock, plus one share, will transfer their stock to those trustees, the corporation will find itself at the next election, in the charmed circle of the combination, simply by the election of a board of trustees who are going to do just as'the boards of other corporations in the circle do.

Practically, more than a mere majority of the stock may be required ; for as one object of the combination is to enhance the value of the stock, it may be undesirable to bring any corporation into the circle if any considerable number of its stockholders will not surrender their stock ; but the legal principle does not require the assent of a majority.

5. ' Function of the trustees.] The “ Trustees ” to whom the stock in numerous corporations is' thus entrusted, issue to the stockholders from whom they receive it, “ Trust certificates,” which represent the pecuniary value of the stock minus the voting power. The trustees do not represent the corporations; do not usually enter into any contract with the corporations,' nor do they necessarily have any communication with them. The trustees are only stockholders. In legal theory they have no other power over the corporations than to wait till election day in each and voto. But this power, since it consists of a majority in a large number of corporations, is enough in itself.' to infuso a common purpose into all the boards elected ; and it is not strange if in some cases the trust so far departs from the' legal theory of tho organization as to “run” the corporations more or less directly.

Tho remarkable power which such combinations wield both in enhancing the business of the companies thus securing tho benefits of common experience and concert of action, and in crushing out one after another-, competitors not in tho combination, has invited public attention to the questions which are involved in the legal theory of such conbinations, and tho circumstances under which in each caso they are attempted.

The state of the authorities seems to present several questions, among which the chief are,

1. Bo stockholders in the same corporation sustain a relation to each other which forbids a majority from combining with stockholders of other companies, to secure concert of. action, if it be secured without direct contract between the corporations ?

2. Bo such rules of law as forbid corporations to form direct combination by contract with each other, render unlawful, combinations of stockholders in different corporations to effect the samo result, by electing such boards of direction so as to secure concert of action without contract ?

3. Is the assumption by the unincorporated trustees of stock, of the power to issue in exchange, certificates, negotiable or otherwise, representing the ownership of the stock minus the power to vote, an usurpation of a corporate franchise ?

' 4. Can the evils which aire assigned as the ground for invoking the jpolícy of the law against such trusts for the control of corporations, he remedied or restrained, without fore-l going the just advantages of this new and powerful form of organization ás a means of economy and efficiency and soundness in management ?

' The principles thus far affirmed by the courts (and with singular harmony) may be concisely stated thus

1. A stockholder cannot irrevocably divest himself of the power to vote on his stock; and his agreement to that end does not bind him. The law will not hold him in damages for a breach, of it, and equity will enforce his revocation of it.

2. A combination of stockholders, to commit their powers oí voting to a single hand, is not illegal per se, but amounts only to the giving of so many proxies.

■ 3. Stockholders not in the combination cannot have relief against'it, unless its object be illegal.»

4. If the object be illegal, as for instance to confer the power to dictate the vote, upon another corporation which could not directly hold the stock and cast the vote, the contract is illegal, and any stockholder may enjoin the execution of it.

Notes of Cases.

. The principal cases recently decided, hearing on the rules of law involved, which the reader may like to notice in connection with those in the text, are as follows : 
      
       The right to vote at meetings of the stockholders of a corporation, " upon shares held on a trust for the benefit of the corporation, is suspended while they are so held. American Railway F. Co. v. Haven, 101 Mass. 398.
     
      
       One railroad company cannot purchase shares of stock in another railroad company, especially where the purchase is for the purpose of ■controlling or absorbing the latter. Cook on Stochh. § 315, b.; citing Central R. R. Co. v. Collins, 40 Geo. 582; Hazelhurst v. Savannah, &c. R. R. Co , 43 Id. 13; Elkins v. Camden & Atl. R. R. Co., 36 N. J. Eq. 5, and other cases, in some of which a dissenting stockholder of the controlled road was allowed an injunction.
      See also Sumner v. Marcy, 3 Woodb. & M. 105 ; Green's Brice's Ultra Vires, 2 ed. 92, note ; Greenhood on Pub. Pol. 670.
      
        Morawetz says (p. 212), that the sale of the property of one corporation to another in consideration of a transfer of shares in the latter company to the shareholders of the former is clearly.not impliedly authorized. A transaction of this description would, in effect, amount to a consolidation of the two companies [Citing Re Empire Ass. Co., L. R. 4 Eq. 341 ; Clinch v. Financial Co., L. R. 4 Ch. 117; McCurdy v. Meyers, 44 Pa. St. 535 ; Bird v. Birds, &c. Co., L. R. 9 Ch. 358 ; Frothingham v. Barney, 6 Hun, 366], and he adds that a corporation may sell out its assets, and receive in payment, stock in another com-puny having a fixed money value, and convertible into cash at any time. The stock received under these circumstances is taken in lieu of money. It may be distributed in specie among those shareholders who are willing to accept it, hut should be converted into cash, and the proceeds distributed among those who do not consent to the arrangement. [Citing Treadwell v. Salisbury Mfg. Co., 73 Mass. (7 Gray), 393.]
      Whittendon Mills v. Upton, 76 Mass. (10 Gray), 582, holds that a manufacturing corporation cannot enter into a partnership with an individual.
      But such a corporation may take another manufacturing corporation’s shares in payment of a debt. Howe v. Boston Carpet Co., 82 Mass. (16 Gray), 493.
      This restriction on thus securing control docs not prevent a controlling stockholder in one road from becoming the controlling stockholder in another. Cook on Stockh. § 315 b. pr. 325, note ; citing Havemeyer v. Havemeyer, 43 Super. Ct. (J. & S.) 506; 45 Id. 464 (aff’d, without opin. in 86 N. Y. 618); O’Brien v. Brietenbach, 1 Hilt. 304.
      But the right to hold such controlling interests in different com-: panics is conceded to be subject to remedies in a court of equity if the rights of associates in either are prejudiced by a breach, of duty or of trust in the exercise of such control.
      In Pratt v. Jewett, 75 Mass. (9 Gray) 34, it was.held'not-reasonahlecause for dissolution of a manufacturing company that o.ne person owns the majority of the stock, and for many years has controlled.the elections and managed the company, without regard to the .wishes and’in-, terests of the petitioners, and so as to result in a loss.
     
      
       Por recent cases on the power of one corporation to take by lease the franchise or property of another, see Gere v. N. Y. Central R. R. Co., 19 Abb. N. C. 193 ; Thomas v. Railroad Co., 101 U. S. 71 ;. Mills v. Central R. R. Co., 41 N. J. 1; 25 Am. L. Reg. 610 ; Penn. Co. v. St. Louis R. R. Co., Id. 550; 116 U. S. 472.
     
      
       As to contracts between hoards having common members, see Metropolitan Elevated R R. Co. v. Manhattan R. R. Co., 14 Abb. N. C. 103, and note, and cases there cited.
      As to legitimate combinations of producers, purveyors, and laborers, &c., to fix a minimum price, Marsh v. Russell, 66 N. Y. 288 ; rev’g 2 Lans. 340; Shrainka a Schaninghausen, 8 Mo. App. 522; Benedict v. Western Un. Tel. Co., 9 Abb. N. C. 214, 221; Master Stevedores Asso. 
        v. Walsh, 2 Daly, 1; and see Old Dominion S. S. Co. v. McKenna, 18 Abb. N. C. 262; Greenhood on Pub. Pol. 648, 654.
      Validity of pooling contracts. Greenhood on Pub. Pol. 660.
     