it is not necessary that resignations of directors be accepted in order to become effective.1 Persons owning a majority of stock have a right to elect directors. It is a fundamental principle in corporation law that a majority of stockholders shall control the policy and regulate the business affairs of the corporation, and to this each stockholder impliedly agrees when he acquires stock in the corporation.3 However, in order to insure minority representation on the board, cumulative voting for directors is permitted in a large number of the States. Where such right to cumulate votes is mandatory such right cannot be taken away by by-law.5 The fact that a corporation begins business with an insufficient number of directors does not invalidate debts contracted by them, nor deprive it of its corporate rights and privileges unless some action is taken by the State to that end. Failure to elect a board of directors annually does not work dissolution. The old board will hold over by implication of law. This is a rule not only established by statute in a large number of the States, but is a well established rule of corporation law in the absence of such statutes. In the election of directors a majority vote of all present is sufficient, provided a majority of the stock is represented at the meeting. Vacancies in the board of directors cannot be filled by the remaining directors, but must be filled by the stockholders, unless such power is expressly granted by statute.10 Even where the right to fill vacancies is given to the remaining directors it is probably true that there must be present at the meeting a majority of the whole number of directors prescribed by the charter, and that such vacancy be filled by a majority vote thereof.11 Unless regulated by statute or by-laws, the board of directors may fix any place within the domiciliary State at which annual 1 Pres., etc. of Manhattan Co. v. Kaldenberg, 165 N. Y. 1; 58 N. E. 790; Briggs v. Spaulding, 141 U. S. 155. 2 Faulds v. Yates, 57 Ill. 416. 8 Wheeler v. Company, 143 Ill. 197; 32 N. E. 420. 4 See Part III. Table 9, page 579. 5 Tomlin v. Bank, 52 Mo. Ap. 430; Wright v. Company, 67 Cal. 532; 8 Pac. 70. 7 Hunter v. Company, 26 La. Ann. 13. 8 Chamberlain v. D. S. Works, 103 Mich. 124; 61 N. W. 532; Moses v. Tompkins, 84 Ala. 613; 4 So. 763. 9 Eggleston v. Doolittle, 33 Conn. 402. 10 Moses v. Tompkins, 84 Ala. 613; 4 So. 763; Kearney v. Andrews, 10 N. J. Eq. 70. 11 Moses v. Tompkins, 84 Ala. 613; 4 So. 763; Nathan v. Tompkins, 82 Ala. 6 Fargason v. Company, 78 Miss. 65; 437; 2 So. 747. 27 So. 877. meetings for the election of directors may be held. Where there are mandatory provisions in the charter, statute, or by-laws as to place of holding annual meetings these must be followed. Where the certificate of incorporation is required to fix the number of directors, such number cannot be changed except by amendment thereof.8 In connection with the general subject of election of directors the question not infrequently arises as to the validity of the so-called "voting trusts" now becoming so common in this country. The prevailing and it is believed the true rule on this subject is set forth in Clowes v. Miller, where it was held that in the absence of any improper motive such trusts are valid. It is, in the absence of such improper motives, merely a convenient method of voting by proxy. It In the absence of statute, charter provision, or valid by-law to the contrary, holders of preferred stock have the same rights in the election of directors as belong to the holders of common stock. has been held that stockholders may in voting for directors change their vote while the election is in progress. Mandamus is the proper remedy to compel canvassing of votes at election of directors to determine whether or not such election was valid.8 In some of the States there are certain statutory officers known as "Inspectors of Election," who must be chosen preliminary to the election of the board of directors. These inspectors should be chosen in the mode provided in the by-laws. Inspectors have no power, express or implied, to pass upon the eligibility of directors.10 The failure to have the inspectors sworn before acting as such will not invalidate an election. In the absence of statutory provision 1 Corbett v. Woodward, 5 Saw. 403; Commonwealth v. Smith, 45 Pa. St. 59; Pratt v. Company, 35 Conn. 365; Duke v. Taylor, 37 Fla. 64; 19 Sou. 172; Hilles v. Parish, 14 N. J. Eq. 380; Arms v. Conant, 36 Vt. 744; Hodgson v. Company, 46 Minn. 454; 49 N. W. 197. 2 McDaniel v. Company, 22 Vt. 274. See Matter of Griffin Iron Co., 63 N. J. L. 168; 41 Atl. 931. 460 N. J. Eq. 179; 47 Atl. 345. 5 See also Faulds v. Yates, 57 Ill. 416; Moses v. Scott, 84 Ala. 608; 4 So. 742; O. & M. Ry. Co. v. State, 49 O. St. 668; 32 N. E. 933; Mobile, etc. Ry. Co. v. Nicholas, 98 Ala. 92; 12 So. 723. 6 Mackintosh v. R. R. Co., 32 Fed. 350; 54 Fed. 582; Lockhart v. Van Alstyne, 31 Mich. 76; Miller v. Ratterman, 47 O. St. 141; 24 N. E. 496. 7 State v. McGains, 64 Mo. Ap. 225. 8 State v. McGains, 64 Mo. Ap. 225. 9 In re Excelsior Fire Ins. Co., 16 Abb. Pr. 8; People v. Company, 55 Barb. 344; In re Lighthall Mfg. Co., 47 Hun, 258; State v. Merchant, 37 O. St. 251; Commonwealth v. Woelper, 3 S. & R. (Pa.) 29. 10 In re St. Lawrence Steamboat Co., 44 N. J. L. 529. 11 In re M. & H. Ry. Co., 19 Wend. (N. Y.) 135. or regulation by by-laws providing otherwise, the power to appoint inspectors of election lies with the stockholders alone.1 § 91. Power to hold Meetings for the Election of Directors without the Domiciliary State. The general rule unquestionably is that in the absence of statute or unanimous consent of all the stockholders no election of directors by the stockholders can be legal, so as to make them directors de jure, when had at a meeting called without the limits of the State under whose laws the corporation is created.2 Twelve of the Commonwealths have statutes expressly authorizing the holding of stockholders' meetings without the domiciliary State. In any event, it seems to be now well settled that where all the stockholders meet without the State and transact business thereat, even though such business be the annual election of directors, the stockholders present at such meeting are estopped to question the validity of the proceedings had thereat.* An excellent method of validating any action taken by stockholders at meetings held without the domiciliary State is to have subsequent action taken by the stockholders at a meeting called within the State ratifying what has been previously done by them without the State. This, it has been held, cures all previous defects. § 92. Voting by Proxy. At common law, voting of stockholders at annual meetings or special meetings was required to be done in person. In the absence of statute, charter provision, or valid by-law giving stockholders this right, the same rule would apply at the present day.7 1 State v. Merchant, 37 O. St. 251. 2 Harding v. American Glucose Co., 182 Ill. 551; 55 N. E. 577. See Hodgson v. Company, 46 Minn. 454; 49 N. W. 197; Freeman v. Company, 38 Me. 343; Smith v. Silver Valley Min. Co., 64 Md. 85; 20 Atl. 1032; Aspinwall et al. v. Ohio & M. R. R. Co., 20 Ind. 492; W. H. & H. Mining Co. v. King, 45 Ga. 34; Hiles v. Parrish, 24 N. J. Eq. 380; Arms v. Connant, 36 Vt. 750; Bellows v. Todd, 39 Iowa, 209; Franco-Texas Land Co. v. Laigle, 59 Tex. 339; Mack v. De Bardelben, etc. Co., 90 Ala. 396; 8 So. 150; Duke v. Taylor, 37 Fla. 64; 19 So. 172; Camp v. Byrne, 41 Mo. 525; Mitchell v. Vt. Copper Min. Co., 40 N. Y. Sup. Ct. 406; Galveston, etc. Ry. Co. v. Cowdrey, 11 Wall. 459; 20 Law Ed. 199. The principle of estoppel may be applied here. Handley v. Stutz, 139 U. S. 417; 11 Sup. Ct. 530. 3 See Part III. Table 11, page 581. 4 T. M. Co. v. Goodhue, 18 N. Car. 981; Handley v. Stutz, 139 U. S. 417; 11 Sup. Ct. 530. 5 G. I. & E. Co. v. Toler, 80 Md. 278; 30 Atl. 657. 6 Perry v. Company, 93 Ala. 364; 9 So. Rep. 217. 7 Phillips v. Wickham, 1 Paige (N. Y.), 590; Taylor v. Griswold, 14 N. J. L. 222; P. H. S. Bank v. Superior Court, 104 Cal. 649; 38 Pac. 452; State v. Tudor, 5 Day, 329; People v. Crossley, 69 Ill. 195; Perry v. Company, 93 Ala. 364; 9 So. 217. Owing to the unquestioned right of a corporation to adopt a valid by-law permitting voting by proxy, even in the absence of a statute authorizing it, the question has ceased to be one of any great practical importance in the country to-day. Besides this, statutes exist in all of the States and Territories, except Arizona and Georgia, expressly authorizing the voting of stock by proxy. It should be observed, however, that where the right to vote by proxy is given by statute without restriction it cannot be qualified by by-law.1 Proxies may be issued in blank and lawfully filled in by the holder.2 It has been held that stockholders cannot give an irrevocable proxy to secure the payment of a debt. It is against the settled rules governing the control of corporations that an irrevocable power of attorney which directs the vote on stock, should be vested in a person who has no interest in the stock or is not a representative of a person interested therein.1 The foregoing suggests the question as to whether or not voting trusts, so common at the present time, are valid. A "voting trust" may be defined to be an agreement of stockholders to give any designated trustee the right to vote at his discretion through stockholders for a given period of time. It may be said that such voting trust is valid where neither the purposes nor the means used contravene any constitutional or statutory provision or well-recognized principles of public policy, and are within the scope of the powers of the contracting parties.5 § 93. First Directors' Meeting. The principal business to be transacted at the first meeting of the board of directors of a corporation is (1) the election of the officers provided for in the by-laws; (2) the carrying into effect the resolutions passed at the organization meeting of the stockholders, if any, looking to the payment of the stock in property, or, in lieu thereof, the 1 Bank v. Superior Court, 104 Cal. 649; 38 Pac. 452. 2 Matter of White, 45 Hun, 580; Matter of Townsend, 46 N. Y. St. Rep. 135. Kreisel v. Distilling Co., 61 N. J. Eq. 5 ; 47 Atl. 471; Brightman v. Bates, 175 Mass. 105; 55 N. E. 809; Moses v. Scott, 84 Ala. 608; 4 So. 742; Clowes v. Miller, 60 N. J. Eq. 179; 47 Atl. 345; Sullivan v. 8 Matter of Germicide Co., 65 Hun, Parkes (N. Y.), 69 Ap. Div. 221; 74 N. Y. 606; 20 N. Y. Sup. 495. Sup. 786; Freon v. Company, 42 O. St. 4 Clowes v. Miller, 60 N. J. Eq. 179; 30. See however Shepaug Voting Trust 47 Atl. 345. 5 M. & O. R. v. Nichols, 98 Ala. 92; 12 So. 723; Smith v. Company, 115 Cal. 584; Case, 60 Conn. 553; 24 Atl. 32; Harvey v. Company, 118 N. C. 693; 24 S. E. 489. passage of a resolution by the board of directors ordering an assessment, either in whole or in part, upon the par value of the capital stock. The general rule appears to be that unless the governing statute or a by-law of the corporation expressly provides that directors' meetings should be held within the domiciliary State, that such meetings may be held without the limits of such State if desired.1 Some courts, however, apparently distinguish in this regard between meetings of the board of directors for the election of officers and those meetings merely called for the transaction of routine business. Such courts hold that meetings of the first class must be held within the domiciliary State, while the others may be held without such State if desired.2 In nearly half of the States statutes exist authorizing the holding of directors' meetings without the State. It is unquestionably true that where incorporators can perform constituent acts outside of the domiciliary State directors can elect officers in like manner.1 When calling the directors together for their first meeting, the mode of notice provided for in the by-laws must be given. In the absence thereof personal notice must be given, or a waiver of notice must be had from each of the directors.5 It is hardly necessary to state in this connection that no director can lawfully delegate power to act for him to another person.6 At common law a majority of the directors present and voting at a meeting was necessary to constitute a quorum of the full board. In some few of the States, notably Oregon, statutory provisions exist permitting less than a majority of the board of directors to constitute a quorum. Provisions in statutes and bylaws requiring the election of directors to be held on a specified date are ordinarily construed to be merely directory. The general rule is that a majority of the directors constitute a quorum 1 Thompson v. Company, 58 Miss. 423; Lead Co. v. Reinhard, 114 Mo. 218; 21 S. W. 488; Bassett v. Mining Co., 15 Nev. 293; Parsons v. Lent, 34 N. J. Eq. 67; Hanna v. Company, 23 O. St. 622. 2 Smith v. Mining Co., 64 Md. 85; 20 Atl. 1032; G. I. & E. Co. v. Toler, 80 Md. 278; 30 Atl. 651. 8 See Part III. Table 12, page 582. Ohio, etc. R. R. Co. v. McPherson, 35 Mo. 13. 5 Bank v. McCarthy, 55 Ark. 473; 18 Perry v. Company, 93 Ala. 364; 9 Blackwell v. State, 36 Ark. 178. 8 Beardsley v. Johnson, 121 N. Y. 224; 24 N. E. 380. |
