Harvey v. Linville Imp. Co

• Decision Date: 14 April 1896
• Court: North Carolina Supreme Court
• Parties: HARVEY. v. LINVILLE IMP. CO.

24 S.E. 489

118 N.C. 693

HARVEY.

v.LINVILLE IMP. CO.

Supreme Court of North Carolina.

April 14, 1896.

Corporations—Agreement to Pool Stock— Public Policy.

An agreement between stockholders holding a majority of the shares to pool their stock by transferring it to trustees, and authorizing them to vote all such stock at corporate meetings, and to pledge it as collateral for loans, is void, as against public policy.

Appeal from superior court, Caldwell county; Timberlake, Judge.

Action by W. S. Harvey, trustee, against the Linville Improvement Company and others for an injunction and other relief. Prom an order denying the writ, plaintiff appeals. Reversed.

The pooling agreement between the stockholders of the defendant company was as follows:

"Whereas, the Linville Improvement Company is indebted to various persons in large sums of money, and is now in the hands of a receiver, appointed by a decree of the superior court of the county of Mitchell in the state of North Carolina; and whereas, the undersigned, who are stockholders, and some of whom are also creditors, of the said company, are desirous to extricate the company from its present financial embarrassment, pay off its debts, and enable it to resume its operations: Now, therefore, we, the undersigned, stockholders of the Linville Improvement Company, have agreed, and do hereby agree, with each other as follows: That for the purpose herein set forth, we will pool all of the stock of the said company owned by us, respectively, and will transfer the same to John P. Divine, T. B. Lenoir, and Hugh MacRae, to be held by them and their successors upon the trusts and for the purposes herein declared. The said trustees shall give proper receipts for the stock so transferred to them. The said trustees shall have power to vote the said stock so transferred to them in all meetings of the stockholders of said company, to borrow money to pay off and discharge the present indebtedness of the company, and to pledge the stock so held by them, or any part of it, as collateral security for the money so borrowed. If any vacancy among the said trustees shall occur at any time, the same shall be filled by the votes of the holders of the majority of the stock represented in the agreement. And the holders of the majority of such stock shall have the right, whenever they see proper to do so, to instruct the said trustees how to vote upon matters arising or to arise in any meeting of the stockholders of said company. Any one or two of the said trustees may vote the entire stock so transferred to them in any meeting of the stockholders of said company, being so duly authorized in writing by the other or others. Any one or more of the said trustees, or of their successors herein, may at any time be removed, and their places filled, by a vote of the majority of the stock herein represented. All stockholders shall at once pay up all unpaid subscriptions owing to the company on the stock held by them. A meeting of the stockholders executing this agreement may be called by the trustees at any time upon—— days' notice, and shall be called by them upon like notice at any time, upon request of any three or more of the stockholders executing this agreement; and in all such meetings, a majority of the said stock being present inperson, or by proxy, shall be a quorum; and any action taken by them shall be binding on all. This agreement shall be void if not executed by holders of the majority of all the stock of said company, but, when so executed, it shall be enforced and binding upon all who sign it for the period of five years from the date hereof, unless it be sooner determined and put an end to by a vote of the holders of two-thirds of the stock represented herein. Upon the determination of this agreement, the trustees shall transfer to each of u...