Robertson v. First National Bk. Of Twin Falls
Citation | 35 Idaho 363 |
Parties | Thomas M. Robertson, Appellant, v. First National Bank Of Twin Falls, A Corporation, And H. W. Cowling, Respondents. |
Decision Date | 22 April 1922 |
Court | United States State Supreme Court of Idaho |
(District Court No. 3337.) THOMAS M. ROBERTSON, Appellant, v. FIRST NATIONAL BANK OF TWIN FALLS, a Corporation, and A. L HOUGHTELIN, and H. W. COWLING, Respondents. (District Court No. 3377.) H. W. COWLING, Respondent, v. TWIN FALLS HOTEL COMPANY, a Corporation, and THOMAS M. ROBERTSON, Secretary Appellants. (District Court No. 3443.)
CORPORATIONS-POOLING AGREEMENT-SALE OF STOCK-CONTROL BY MAJORITY-HONESTY AND GOOD FAITH.
1. A combination of the holders of a majority of the stock of a corporation to control the corporation is not necessarily unlawful.
2. A pooling agreement providing that the holders of a majority of the stock in the pool may determine at what price and upon what terms all the stock in the pool shall be sold does not permit a member of the pool to acquire a majority of such pooled stock and force a sale to himself of all the stock in the pool at less than its reasonable value and against the wishes of the owner of a minority of such pooled stock.
3. In a pooling contract such as is involved in these actions the members of the pool owe to one another the duty of acting honestly and in good faith in carrying out the terms of such contract.
APPEAL from the District Court of the Fourth Judicial District, for Twin Falls County. Hon. H. F. Ensign, Judge.
No. 3337-Affirmed. Nos. 3377 and 3443-Reversed.
Jas. R. Bothwell, W. Orr Chapman and Richards & Haga, for Appellants.
The so-called pooling agreement is against public policy, in that its actuating and stated purpose is to acquire control of the corporation. (7 R. C. L., sec. 362; Wheeler v. Abilene Nat. Bank Bldg. Co., 159 F. 391, 89 C. C. A. 477; 14 Ann. Cas. 917, and note, 16 L. R. A., N. S., 892; Koehler v. St. Mary's Brewing Co., 228 Pa. St. 648, 139 Am. St. 1024, 77 A. 1016.)
In disposing of corporate assets majority stockholders are in the position of trustees, whose sales to themselves, even though fair, are voidable at the election of the cestuis que trustent. (7 R. C. L., sec. 286; Mason v. Pewabic Min. Co., 133 U.S. 50, 10 S.Ct. 224, 33 L.Ed. 524; Chicago Hansom Cab Co. v. Yerkes, 141 Ill. 320, 33 Am. St. 315, 30 N.E. 667.)
In making sales of corporate property by exercising their power to control the affairs of the corporation, the majority stockholders must act in the interest of all of the stockholders. (7 R. C. L., sec. 287; Wheeler v. Abilene Nat. Bank Bldg. Co., 159 F. 391, 14 Ann. Cas. 917, 89 C. C. A. 477, 16 L. R. A., N. S., 892; Sparrow v. E. Bennett & Sons, 142 Mich. 441, 105 N.W. 881, 10 L. R. A., N. S., 725.)
A voting agreement, where the arrangement is made for the sole benefit of the parties to the agreement and not for the general welfare of the corporation and all of its stockholders, is ordinarily held invalid. (7 R. C. L., secs. 329-331; Clarke v. Central R. R. & Bkg. Co. of Georgia, 50 F. 338, 15 L. R. A. 683; Morel v. Hoge, 130 Ga. 625, 14 Ann. Cas. 935, 61 S.E. 487, 16 L. R. A., N. S., 1136; Gage v. Fisher, 5 N.D. 297, 65 N.W. 809, 31 L. R. A. 557.)
It seems that an agreement to pool stock and vote it as a unit for a certain length of time, without power to withdraw from the agreement, and without any consideration in connection with the purchase of the stock, falls within the prohibition of the law, as being against public policy. (1 Thompson on Corporations, secs. 898-904, incl.; 3 Fletcher's Cyc. Corp., sec. 1711; 14 C. J., sec. 1422.)
Specific performance will not lie to compel transfer of the stock under the agreement. (Gage v. Fisher, 5 N.D. 297, 65 N.W. 809, 31 L. R. A. 557; 3 Fletcher's Cyc. Corp., sec. 7321; Ryan v. McLane, 91 Md. 175, 80 Am. St. 438, 46 A. 340, 50 L. R. A. 501.) Walters, Hodgin & Bailey and R. P. Parry, for Respondents.
The "pool" agreement is not void as against public policy. (10 Cyc. 341; Smith v. San Francisco etc. Ry. Co., 115 Cal. 584, 56 Am. St. 119, 47 P. 582, 35 L. R. A. 309; Boyer v. Nesbitt, 227 Pa. St. 398, 136 Am. St. 890, 76 A. 103; Windsor v. Commonwealth Coal Co., 63 Wash. 62, 114 P. 908, 33 L. R. A., N. S., 63; Clark v. Foster, 98 Wash. 241, 167 P. 908; Bowditch v. Jackson Co., 76 N.H. 351, Ann. Cas. 1913A, 366, 82 A. 1014, L. R. A. 1917A, 1174; Thompson v. J. D. Thompson Carnation Co., 279 Ill. 54, Ann. Cas. 1917E, 591, 116 N.E. 648; Ramsey v. W. M. Welch Co., 163 Iowa, 324, 144 N.W. 323; Brightman v. Bates, 175 Mass. 105, 55 N.E. 809; Weber v. Della Mountain Min. Co., 14 Idaho 404, 94 P. 441; Hey v. Dolphin, 92 Hun, 230, 36 N.Y.S. 627; Faulds v. Yates, 57 Ill. 416, 11 Am. Rep. 24; Borland v. Prindle etc. Co., 144 F. 713; Havemeyer v.
Havemeyer, 43 N.Y. Super. Ct. 506; Williams v. Montgomery, 148 N.Y. 519, 43 N.E. 57; note, 16 L. R. A., N. S., 1140, and cases cited.)
The "pool" agreement is supported by a sufficient consideration. (Carnagie Trust Co. v. Security Life Ins. Co., 111 Va. 1, 21 Ann. Cas. 1287, 68 S.E. 412, 31 L. R. A., N. S., 1186; American Agricultural Chemical Co. v. Kennedy etc., 103 Va. 171, 48 S.E. 868; Smith v. San Francisco etc. R. Co., 115 Cal. 584, 56 Am. St. 119, 47 P. 582, 35 L. R. A. 309; Warren v. Pim, 66 N. J. Eq. 353, 59 A. 773.)
Whether or not specific performance of the "pool" agreement would lie is no test of its validity in this action. (Pomeroy, 3d ed., par. 1401; 25 R. C. L. 206.)
After the "pool" agreement was made and the stock deposited in escrow, the members thereof could not withdraw their stock. (16 Cyc. 569, 570; McDonald v. Huff, 77 Cal. 279, 19 P. 499; Doran v. Bunker Hill etc. Min. Co., 23 Cal.App. 644, 139 P. 93; Fitzgerald v. Allen, 240 Ill. 80, 88 N.E. 240; Gammon v. Bunnell, 22 Utah, 421, 64 P. 958; Tharaldson v. Everts, 87 Minn. 168, 91 N.W. 467; Gaston v. City of Portland, 16 Or. 255, 19 P. 127.)
A bill in equity will lie to compel the transfer of stock on the books of the corporation. (6 Fletcher on Corporations, 6387; Ellsworth v. National Home & Town Bldrs., 33 Cal.App. 1, 164 P. 14.)
-The three actions above mentioned were consolidated for trial in the district court of Twin Falls county and are brought here on appeal under a stipulation of the parties that the three actions shall be heard and determined in this court on the record made in the consolidated trial. All of these actions grow out of the following contract:
named, at such price as the said A. L. Houghtelin may find necessary, not to exceed one hundred and fifty dollars per share.
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