Cone's Ex'rs v. Russell

• Decision Date: 15 May 1891
• Citation: 21 A. 847,48 N.J.E. 208
• Parties: CONE'S EX'RS v. RUSSELL et al.
• Court: New Jersey Court of Chancery

21 A. 847

48 N.J.E. 208

CONE'S EX'RS

v. RUSSELL et al.

Court of Chancery of New Jersey.

May 15, 1891.

(Syllabus by the Court.)

In equity. On order to show cause why injunction should not issue. Heard on bill, answer, and affidavits.

William E. Potter and Thomas E. French, for complainants.

Grey & Grey, for defendants.

PITNEY, V. C. The complainants, Lorenzo H. Cone and Rebecca C. Cone, executors, etc., of Jonathan Cone, deceased, by their bill ask that the defendants, William F. Russell and Charles H. Mason, be enjoined from voting at any stockholders' meeting of the Upper Delaware River Transportation Company by virtue of a certain power of attorney or proxy, irrevocable, executed by complainants to defendants, authorizing and empowering them to vote upon 477 shares of the stock of said corporation belonging to the complainants as executors; and praying that said power of attorney or proxy, and a certain agreement between the parties, presently to be set out, may be decreed to be null and void, and delivered up to be canceled. The agreement in question is as follows: "This agreement, made this 29th day of March, Anno Domini 1889, between Rebecca Cone and Lorenzo H. Cone, executors of the will of Capt'n Jonathan Cone, deceased, and said Rebecca Cone and Lorenzo H. Cone, of Philadelphia, Pennsylvania, in their own right, of the first part, and William F. Russell and Charles H. Mason, trading as Russell and Mason, of the same place, of the second part, witnesseth: Whereas, said party of the second part have become the owners of a block of seventy-five (75) shares of the capital stock of the Upper Delaware River Transportation Company, purchased by them by the request of said party of the first part, and upon an understanding and agreement had with said party of the first part that the said stock so purchased should be used, with the stock owned or controlled by said party of the first part, for the purpose of securing and maintaining the control of said company, and of effectuating the agreement hereinafter set forth: Now, this agreement witnesseth that said parties of the first part and second part, in consideration of the premises, of the sum of one dollar by each of said parties paid to the oilier, and of certain other valuable considerations interchanged between said parties, do hereby, for themselves, their and each of their heirs, executors, administrators, and assigns, covenant and agree, each with the other, severally, and not jointly, as follows: (1) That the said party of the first part will, immediately upon the execution of this agreement, execute and deliver to said party of the second part a power of attorney, irrevocable, authorizing said party of the second part, or the survivor of them, to vote at all elections, and upon all questions that may arise requiring a stock vote, for and in the name and behalf of said parties of the first part, upon all stock of said the Upper Delaware River Transportation Company held by them, or standing in their name, or in the name of either of them, individually, or as executors as aforesaid, or in the name of the estate of Jonathan Cone, or of J. Cone, and within three years from the date of said letter of attorney renew the same so that the same shall he kept alive, and said representation shall continue uninterruptedly, for a period of five years from and after the date hereof. (2) That said party of the second part, and the survivor of them, shall, from time to time, vote said stock, at their or his discretion, for the promotion of the best interest of said company, and that they and he shall and will vote said stock and use said power so as to elect or secure the election of directors of said the Upper Delaware River Transportation Company who shall and will elect and appoint said Lorenzo H. Cone as manager and member of the board of directors of said company, from time to time, and as often as may be necessary to secure to said Lorenzo H. Cone the said office of manager for the period of five years from the date hereof, at a salary of twenty-five hundred dollars ($2,500.00) per year; he, said Cone, faithfully discharging the duties of said office for said period. (3) That neither of said several parties hereto shall for the period of five years from the date hereof sell, offer for sale, or suffer or permit to be sold the said stock of the Upper Delaware River Transportation Company owned by or standing in the name of them, or either or any of them, whether as individuals, or as executors as aforesaid, or in the names of the estate of Jonathan Cone, or of I. Cone, without obtaining the previous written consent of the other parties to this agreement. (4) And because of the extreme difficulty of ascertaining or determining by judicial inquiry the measure of damage or the amount of compensation which either party would be entitled to have or claim from the other by reason of the breach of, or of the failure to perform, any of the covenants and agreements aforesaid, it is hereby expressly covenanted and agreed by and between the said several parties hereto that in case of any breach of, or of the failure to perform, any of the covenants and agreements herein contained, the person or persons so committing such breach, or so failing to perform, shall pay to the other parties to this agreement the sum of twelve thousand five hundred dollars ($12,500.00) as a compensation and satisfaction for such breach or failure, which said sum, as is hereby agreed, shall be, and be considered to be, liquidated damages settled by this contract, and not as a penalty. In witness whereof said several parties hereto have interchangeably set their hands and seals the day and year aforesaid. Rebecca C. Conk, [L. S.] Lorenzo H. Cone, [L. S.] Executors of the Estate of Jonathan Cone, Dec'd. Rebecca C. Cone. [L. S.] Lorenzo H. Cone, [L. S.] William F. Russell, [L. S.] Charles H. Mason, [L. S.] Russell & Mason, [L. S.] Sealed and delivered in presence of——. Alteration from six hundred & fifty-four (654) shares to seventy-five (75) shares on eleventh line first page of this agreement before signing."

At the date of this instrument the complainants were the owners, as executors, of 477 shares of the stock mentioned, and the complainant Lorenzo H. Cone was the owner of 96 shares, and shortly afterwards became the owner of 10 additional shares thereof, which became subject to the contract, and added to those already owned by the defendants constituted a majority of the stock of the corporation. The power of attorney and proxy was duly executed by the complainants as executors, and also one by L. H. Cone individually; and at the annual meeting of April, 1889. the defendants, by their use, elected themselves and some of their employes directors, and thereby secured a majority of the board. The new board elected the defendant Russell president, with a salary of $1,500 a year; the defendant Mason treasurer, with a like salary; and one Beek, a clerk of the defendants, secretary of the company, with a salary of $500 a year; and appointed L. H. Cone manager thereof, with a salary of $2,500 a year. At the same annual meeting a majority of voices of the stockholders voted in favor of a motion to limit the total expenditure for salaries of officers to $1,000 per year, but the vote by shares given by the defendants refused to sustain the motion. From that date to this the affairs of the corporation have been managed by the defendants, with the actual ownership of 80 out of 1,300 shares of its stock. As might have been expected, differences soon arose between the parties, resulting in three bills in this court prior to the one underlying the present motion. Complainants base their rights to the relief now sought upon three grounds: First. They say they were induced to enter into the agreement and execute the proxies by a fraud practiced upon them by the defendants, the particulars of which are set out in the bill. Ex parte affidavits on both sides, bearing on the question of fraud or no fraud, have been read. I deem it worth while to say, on this point, only that I think the fraud is not made out with sufficient certainty and clearness, and with sufficient weight of evidence, to warrant interposition by interlocutory injunction. The second ground taken by the complainants is that the contract in question is against public policy, and tends to work a fraud on the other stockholders, and is void upon that ground. And the third ground is that the complainants, executors and trustees, had no right to depute their trust to others, as is done by this agreement, and that on that account also it should be decreed void.

The theory upon which the capital of numerous persons is associated in various proportions, in the shape of a trading corporation, to be managed by a committee of the stockholders, is that such committee shall truly represent and be subject to the will of the majority in interest of the stockholders. The security of the small stockholders is found in the natural disposition...