
    Railway Co. et. al v. State ex rel.
    
      Corporations — How stockholders may vote stock — May be done by appointing trustee for that purpose — When such appointment does not create a voting trust — Election of directors— Validity of.
    
    1. Stockholders may place their stock in the hands of a depositary with direction to vote it as directed by a committee appointed by themselves, and subject to their control.
    2. The validity of the election of a director of a company does not depend upon what he may contemplate doing when elected.
    (Decided Dec. 20, 1892.)
    
      Ereor to the Circuit Court of Hamilton county.
    The suit below was a proceeding in quo warranto on the relation of the prosecuting attorney of the county against The Ohio & Mississippi Railway Co„ and James H. Smith, Edwards Whitaker and Edward H. R. Green, and sought to oust the company from the right and franchise of recognizing Smith, Whitaker and Green as directors of the company, — the averments being in substance that at an election for directors of the company, duly held on October 17, 1891, Sterritt McKim, Julius S. Walsh and D. Fahnestock were duly elected directors of the company for specified terms, by more than a majority of all the shares of stock, and all the bonds entitled to vote at said election, and were qualified to act as such.
    It is then averred, that notwithstanding the premises, “the defendant, The Ohio & Mississippi Railway Co., acting by a majority of its directors, including said James H. Smith, Edwards Whitaker and Edward Howland Robinson Green, and by its other officers and agents, has refused and still refuse in any manner to recognize said McKirn, Walsh and Fahnestock as directors of said company, or to permit them to act as such, although they and each of them have been at all times and still are duly qualified, ready, willing and desirous of performing all and singular the duties of their said offices; but on the contrary said company, acting by a majority of its directors, and by its other officers and agents, persists in recognizing and permitting said James H. Smith, Edwards Whitaker and Edward Howland Robinson Green, to act as directors in the place and stead of those so elected as aforesaid, in order to unlawfully perpetuate said directors, and said Smith, Whitaker and Green, and the officers and agents of said company chosen by them, in the management and control of the property and business of said company, in defiance of the wishes of said majority of stockholders who own and hold $19,000,000, face value of the stock of said company, out of a total of $24,000,000, face value, and intends and proposes to and will continue so to do during the term for which said McKim, Walsh and Fahnestock were so elected. ”
    
      The company answered; and its answer, after the same had been amended, was adopted by Smith, Whitaker and Green as their answer. The relator demurred; the demurred was sustained; and the defendants not desiring to plead further, a judgment was rendered ousting the company from continuing to permit or claiming the right to permit Smith, Whitaker and Green to act as its directors, and from preventing McELim, Walsh and Fahnestock from doing so during the'period for which they were elected. And also adjudged that Smith, Whitaker and Green be ousted from acting as directors of the company. The judgment was affirmed on error by the circuit court; and error is prosecuted in this court to reverse the judgment of both the lower courts.
    The questions arise upon the sufficiency of the answer, which, with the amendment and exhibits, reads as follows:
    ANSWER,
    
      “First Defense — This defendant, for its first defense to the action, says:
    “That, prior to October 8th, 1891, the holders of a majority of its capital stock surrendered their respective certificates of shares unto Messrs. Brown, Shipley & Co., of Eon-don, England, a firm doing business under that name, under an agreement in writing, a true copy of which is hereto attached, and made part hereof, marked Exhibit “A.” Upon the deposit of said certificates, the person making such deposit received from said Brown, Shipley & Co., a certificate for a corresponding number of shares, a copy of which is hereto attached, marked Exhibit “B,” and made part hereof.
    “Defendant further says, that prior to said annual meeting, the said Brown, Shipley & Co., duly surrendered all of the said certificates, so surrendered to them by said stockholders, and were themselves duly registered lipón the defendant’s books as apparent owners of said stock, and the registry continued unchanged until the date of said annual election, to-wit, November 19th 1891, and thereafter, and said Brown, Shipley & Co., have never held any stock or bonds in defendant company, other than the stock acquired as aforesaid.
    
      “ Defendant further says, that the committee referred to in the said agreement, set forth in Exhibit “A.” was composed of five persons, two -of whom were not, and are not, shareholders in the defendant, and by virtue of the said agreement, the said committee was authorized to cast the vote of the shares registered in the name of Brown, Shipley & Co., said Brown, Shipley & Co., having no interest in any of said stock, and having no right to vote the same except upon the direction of the said committee, acting by a majority of a quorum of its members, three constituting a quorum.
    “Defendant further says, that at the said annual election for 1891, certain persons appeared, claiming to hold the proxy of Brown, Shipley & Co., to vote the shares registered in their name, and presented a paper purporting to give them such power, and bearing a signature which purported to be that of Brown, Shipley & Co., and said persons tendered the vote of said shares, -which was objected to by certain shareholders duly registered and entitled to vote at said election, but said objection was over-ruled by the inspectors of election, and said vote received and counted by them in favor of said McKim, Walsh and Fahnestock; and the defendant says that no other vote was cast for said persons save one, and said vote of Brown, Shipley & Co., was so cast by the direction of said committee.
    “ Defendant further says, that said Smith, Whitaker and Green then were, and still are stockholders in defendant company, and entitled to hold the office of director therein, and at said election each of them received a large majority of'all the votes cast other than said vote of Brown, Shipley & Co., and defendant’s officers and directors being advised of the nature of the voting trust imposed upon Messrs. Brown, Shipley & Co., took the advice of counsel, and being advised that the said trust was wholly illegal and void, and having confidence in the opinion so given to them, declined to recognize the title of the said McKim, Walsh and Fahnestock to the office of director, and recognized the title of' Messrs. Smith, Whitaker and Green, who were duly elected if the vote cast in the name of Brown, Shipley & Co., was illegal.
    
      “ Second Defense — This defendant, for a second defense to the action, says: That it here repeats all the allegations of the first defense, and, in addition- thereto, alleges as follows:
    “That a large part of its stock was and is held in England, and that the said English shareholders formed the said committee, and created the said voting trust in Brown, Shiplejr & Co., and that, while the shareholders who entered into the said agreement supposed that its objects were only those set forth in the statements of ‘ conditions and purposes of deposit, ’ hereto annexed as ‘ Exhibit A, ’ a secret negotiation was opened between the said committee, or certain members thereof, and a representative of The Baltimore & Ohio Railroad Company, a corporation organized under the laws of Maryland, and owning and operating a line of railroad leading from Parkersbttrg, West Virginia, eastward, and controlling The Baltimore & Ohio Southwestern Railroad, a railroad leading from Parkersburg, West Virginia, to Cincinnati, Ohio, which said representative was also a director of this defendant, which negotiations resulted in an agreement between the said committee and The Baltimore & Ohio Railroad Company, acting by its said representative, whereby the entire capital stock of this defendant was to be delivered to a company to be called a ‘control company’ in the said agreement, which said control company was to become the owner thereof, and was to issue its own certificates in lieu thereof, and was to issue to the said Baltimore & Ohio Railroad Company $8,800,000 of stock in said control company, which said stock was to enjoy the power of voting at elections of said control company, to the exclusion of all other stock of said company, thus conferring upon the said Baltimore & Ohio Railroad Company the absolute control of the defendant company.
    “Upon the completion of said negotiations between the said committee and said individual director of this defendant, acting as above stated, for The Baltimore & Ohio Railroad Company, said English stockholders were called together in meeting in Eondon, and assented thereto, their said assent being procured by misrepresentations then and there made to them in reference to the physical condition of the defendant’s road, and the financial condition of the defendant company. It was a part of the said agreement that the said Baltimore & Ohio Railroad Company should have immediate control of the said Ohio & Mississippi Railroad, and the said committee, on October 14, 1891, issued its order to the president of this defendant to the effect that the defendant’s road should from said date be operated as a part of the system of railroad owned or operated by The Baltimore & Ohio Railroad Company. It was also a part of the agreement between the said committee and the said representative of The Baltimore & Ohio Railroad Company that at the said election of October, 1891, three persons, to be designated by the said The Baltimore & Ohio Railroad Company, should be elected by the vote of said committee as members of the board of directors of the defendant; and the said Baltimore & Ohio Railroad Company, by its said representative, designated said McKim, Walsh and Fahnestock, as persons to be so elected at said election, and said vote was tendered in pursuance of the said agreement.
    “This defendant states that it was advised by counsel that said agreement was, in all its parts, illegal and void, and that it was its duty to disregard the orders, and actions of said committee; and this defendant was further advised that said voting-trust was wholly illegal, and that it would be its duty to disregard any vote cast by it, and acting upon said advice, it refused to admit the said McKim, Walsh and Fahn-stock to membership in its board, and recognized and admitted the three candidates, who received all of the votes cast at said meeting of November 19, 1891, except those cast for said McKim, Walsh and Fahnestock, to wit; James H. Smith, Edwards Whitaker and Edward H. R. Green,
    “ And this defendant now alleges that said voting-trust was, and is, illegal and void, and that the attempt of the said committee to elect the said McKim, Walsh and Fahnestock, was part of a scheme to turn the control of the defendant’s property over to The Baltimore & Ohio Railroad Company, in defiance of the laws of this state, and in violation of the rights and interests of the stockholders of this defendant.
    
      “Wherefore this defendant prays to be 'hence'dismissed' with its costs.”
    “Exhibit ‘A.’
    
      “Form of Deposit of Common Shares, No. —.
    “Messrs. Brown, Shipley & Co., Founders’ Court, Eoth-bury, Eondon, E. C., Depositary for the Committee of the Shareholders of The Ohio & Mississippi Railway Company.
    
      “Shareholders’ Committee-. — Sir James J. Allport, Mr. John Morris, Mr. Joseph Price, Captain Francis Pavy, Mr. W. H. Beeman.
    “The holder of the under mentioned shares hereby deposits the same with the above mentioned committee, to be exchanged for certificates to bearer, issued by Messrs. Brown, Shipley & Co., on behalf of the committee, and for the purposes and subject to the conditions indorsed on such certificates, and also indorsed hereon. The holder of the shares to sign here, on'leaving the same for deposit:
    
      Name [in full).
    Signature.
    Address.
    Date.
    “ The certificate must be listed in numerical order, and lodged with Messrs. Brown, Shipley & Co., on behalf of the committee, on any day (except Saturdays) between 10 and 3 o’clock.
    
      
    
    Left by...
    .Shares, @ 6d. per share= £.
    “ N. B. — The power of attorney at the back of the share certificates must be duly executed in favor of Brown, Shipley & Co., of London.
    
      INDORSEMENT ON EXHIBIT “A.”
    
      Conditions and Purposes of Deposit, as indorsed upon the Certificate issued on behalf of the Committee.
    
    “1. This deposit is made for the purpose of authorizing the committee named upon the face hereof to arrange certain differences now existing between the preferred and common shareholders in reference to the cumulative rights of the preferred shareholders to certain dividends, and to readjust the affairs of the company generally in such manner as may seem to them best in the interests of the shareholders of the company.
    “2. By the deposit of the shares with Messrs. Brown, Bhipley & Co., of Eondon, or with Messrs. Brown, Bros. & Co., of New York, they or their assigns, (hereinafter called the depositary), or the committee, are vested with the same powers, in all respects, as to voting and otherwise, as if the committee or the depositary were the absolute owners and holders thereof; but no vote in respect of such shares shall be cast by the depositary, at any meeting of the shareholders, except in accordance with the previous instructions of the committee.
    “3. The genuineness of the shares deposited, in respect of which this certificate is issued, can not be guaranteed, and the committee reserve to themselves the right to call in this certificate upon returning to the holder thereof the shares so deposited by him in case the genuineness of such shares is disputed or doubtful.
    “4. .All proceedings of the committee — three of whom shall be a quorum — shall in case of difference be decided by a majority of the votes of the members of the committee present at a meeting.
    “5. In case of any vacancy occurring in the committee, the remaining members thereof are authorized from time to time to fill up such vacancy, and the person or persons so selected shall have the same powers as if he or they had been original members of the committee. Any member of the committee absent abroad or through illness may, with the consent of the other members of the committee, appoint a substitute, who shall represent 'him, and be able to exercise all his functions as a member of the committee during such absence.
    “6. No scheme of arrangement or readjustment agreed upon by the committee is to become binding until sanctioned by a vote of a majority of each class of certificate holders present at a meeting of each such class called by the committee for the purpose of considering the same; but when so sanctioned the committee shall be irrevocably empowered to carry out the same, when and in the manner they think best, and all the certificate holders of each class shall be definitely bound thereby.
    “7. Meetings of the certificate holders shall be convened and held upon such notice, and at such time and place, and generally in such manner and subject to such regulations as to voting (either in person or by proxy), and otherwise, as shall seem best to the committee.
    “8. Each member of the committee is'responsible only for the bona fide exercise of his judgment on the matters dealt with by the committee.
    “9. The depositary and the committee will re'cognize the bearer of this certificate as' the absolute owner of the shares thereon specified, and in case of the declaration and payment of any dividend upon such shares, the same shall be paid to the bearer of this certificate, and his receipt therefor shall be a full discharge to the payers thereof, notwithstanding any notice that they may have of the right, title, interest or claim of any person to, or in such shares or moneys. The committee shall give notice of their intention to distribute any such dividend, by advertisement, to be inserted twice in The Times, and at least one other Eondon daily paper.
    “10. A charge upon these shares at the rate of 6d. per share is to be paid to the depositary on deposit of the' shares to the order of the said committee for the the purpose of defraying the expenses of such a deposit, and of said committee, and must be paid by the holder of this certificate at the time of making such deposit.”
    
      Exhibit “B.”
    No. of Certificate, 18,544. 10 Shares.
    The Ohio & Mississippi Railway Company.
    Messrs. Brown, Shipley & Co,
    
      Certificate for Deposit of the Shares of the Common Stock of The Ohio & Mississippi Railway Company deposited tinder the conditions endorsed hereon.
    
    Committee: — Sir James J. Allport, Mr. John Morris, Mr. Joseph Price, Capt. Francis Pavy, Mr. W. H. Beeman.
    Certificate for Ten Shares for One Hundred Dollars each.
    Messrs. Brown, Shipley & Co. hereby certify that they have received one certificate of ten shares of the common stock of The Ohio & Mississippi Railway, of one hundred dollars each, which certificate is deposited subject to the conditions endorsed hereon, to which the holder hereof assents and is bound by the provisions thereof. The interest represented herein is transferable on the delivery of this certificate, subject to the terms and conditions endorsed thereon, and the bearer of this certificate is entitled to all rights arising from the deposit of such shares. The deposited securities have been carefully examined, but no responsibility for genuineness is undertaken by the issue of this certificate.
    Dated-189 — .
    “Amendment to second defense:
    “The defendant, The Ohio & Mississippi Railway Company, now comes, and for amendment to the second defense of its answer heretofore filed herein, and as a part of said defense, further says:
    “That for many years, to-wit: more than ten, prior to 1891, and throughout said year, a large majority of the stock of this defendant was owned and held in England, and prior to the time when any of said stock was deposited with said Brown, Shipley & Co., to-wit: November 6, 1890, the holders of a large amount of the preferred stock agreed with the holders of a large amount of the common stock, that a committee, consisting of two representatives of the preferred and two representatives of the common stockholders, with a fifth one as a neutral member, be appointed, with power to call in the shares of both classes, and issue, or cause to be issued, certificates against the same, with a view to bringing about an arrangement between the two •classes of shares, and in connection therewith to readjust the affairs of the defendant generally in such manner as should seem best, such arrangement to become binding when approved by a vote of a majority of each class of certificate holders.
    “Pursuant of said agreement between said two classes of certificate holders, the said Mr. John Morris and Mr. Joseph Price were appointed by-the preferred shareholders as representatives of the preferred shareholders, and Capt. Francis Pavy and Mr. Beeman by the common shareholders as representatives of the common shareholders, and Sir James J. Allport, was appointed by said preferred and common shareholders jointly as the fifth member.
    “The defendant further avers that the total amount of its preferred stock was and is about $4,035,000, and of its common stock about $20,000,000, and that the party holding the proxy of Brown, Shipley & Co. cast, as such proxy, 147,760 votes, and of said 147,760 shares so voted, 29,538 were preferred stock owned by preferred shareholders, and four-fifths, to-wit; 118,222 shares were common stock owned by common shareholders, and by said arrangement said preferred stock, representing 29,538 shares, voted by said committee, exercised the same power as said common stock, to-wit; said 118,222 shares.
    “Defendant further states that meetings of the shareholders who had deposited their stock with Brown, Shipley & Co., were called by said committee pursuant to said agreement, set out as Exhibit ‘A’ to this answer, on October 14, 1891, in Uondon, England, to consider the scheme hereinbe-fore referred to, and at said meeting on October 14, 1891, said scheme was approved by said stockholders. There were' separate meetings of preferred and common holders, and a resolution was introduced and carried by a vote of a majority of each class of certificate holders preset at each meeting, that the report of the committee setting out the plan for the reorganization of defendant be received and adopted. It was further resolved at said meetings at said time:
    “‘That the committee, with power to add to their number, be requested to continue their services in arranging and carrying out the details of the proposed plan with such modifications as they may think fit, and either with or without further reference to the shareholders, as the committee in their judgment and discretion may think best.’
    “Said meetings were adjourned at 12 o’clock, noon, on October 14, 1891, and said committee and said Brown Ship-ley & Co. thereafter acted in pursuance of the supposed authority on that day and theretofore given them, as stated in this answer.
    “Defendant states that when the transfers were made on its books from the original holders of said shares to Brown, Shipley & Co., it had no knowledge or advice of, the contract relations between said holders and Brown, Shipley & Co., or of the title of Brown, Shipley & Co., but the certificates were presented to its transfer agent in the usual way, and the transfer was made in the regular course of business without inquiry or knowledge as to its propriety-or legality.
    “And the defendant avers that said Smith, Whitaker, and Green each qualified as director and entered upon the discharge of his duty as hereinbefore stated.
    “Wherefore defendant prays that the petition of the plaintiff may be dismissed, and for such order as may be proper.”
    Since the commencement of the proceeding, it has been dismissed on behalf of the railway company; and is now prosecuted on behalf of the respondents below, Smith, Whitaker and Green.
    1. It is claimed as a first defense, that the arrangement whereby a large majority of the stockholders of The Ohio & Mississippi Railway Company placed their stock in the hands of Brown, Shipley & Co., to be held and voted as. provided in the conditions endorsed on the instrument acknowledging the receipt of the stock, constituted, “a voting trust,” and is therefore void as against public policy.
    2. That this arrangement was part of a plan to place the road in the hands of The Baltimore & Ohio Railroad Company, by the formation of a company in which that company should have a controlling interest.
    
      Ramsey, Maxivell & Ramsey, and Edward Barton, for plaintiff in error.
    
      Harmon, Colston, Goldsmith & Hoadley, Paxton & War-rington, and John C. Schwartz, for defendant in error.
   By the Court.

It does not appear that the ownership of the stock and its voting power were separated by the agreement under which the “shareholders committee” was appointed and the stock deposited with the depositary therein named, Brown, Shipley & Co.; and that agreement does not, therefore, constitute what is known as “a voting trust.” It was at most a convenient method by which distant and widely separated shareholders, became enabled indirectly to participate in the control and management of the company, and from which each could recede at any time and demand the return of his stock without violating any term of the agreement. The depositary is a proxy required to vote the stock as directed by the committee; and he and the committee both derived their power from the shareholders by the same instrument, and, in the end, effectuate their wishes. Such an arrangement differs widely from an agreement whereby the stock is placed in the hands of trustees who are invested with the power of voting it as their interests may dictate, irrespective of the wishes or direction of the owners. Such an agreement, as the latter, would be void as against the policy of our corporation law.

In .respect to the matter set up in the second defense, it is sufficient to say, that what a director'may contemplate doing when elected, cannot affect the validity of his election, if he is otherwise eligible to the place. When such agreement is made and entered into, it will be time enough to consider it, and pass upon the power of the company to make it. The power of the company to become a party to such an agreement has not been challenged by the state,. unless we regard the answer of the company, adopted by Smith, Whitaker and Green, as in the nature of a cross-petition in quo warranto-, which would not only be anomalous but without any authority of law. Quo warranto can be maintained only in the name of the state.

Judgment affirmed.  