386
THE GREEN BAG
own successors. It also authorized them to raise a security fund by the sale of $200,000 profit-sharing capital, and the question litigated was whether or not the purchasers of this capital, the so-called "stockholders," were members o" the cor poration, and entitled to a share in its man agement. It was held that they were not. There was no question of fraud or abuse of power. The charter in this case clearly recognized the trust imposed upon the members, who, as such, had no financial interest in the company, and were selected and to be selected as chosen trustees of the business and funds of the institution. The Equitable in its origin had the clever appearance of closely imitating this plan, with the addition that the distinguished and responsible members themselves subscribed to the security fund, and incidentally that their control was represented by the stock issued therefor, which they of course could transfer to desirable successors, necessarily for cash, as it represented a gilt -edge seven per cent lien on the accumulations of the company. The initial and continued suc cess of this company was undoubtedly due to the great names that as stockholders stood sponsor for its inception, and have since as dummy directors stood sponsor for its abuses. This arrangement entirely ignored the essentially trust character of the control vested in the stock. It resulted, as all such arrangements must have a tendency to result, in the accumulation of the stock in one hand, that of the highest bidder, and he can bid highest who is the least scrupu lous in the use he intends to make of the power. But disregarding or ignoring these considerations, the statute law is silent, and its permission has been assumed to effect just such arrangements, including that of the Equitable Life, whose proposed charter was approved, as required in the statute, by -the state comptroller. Conceding their legality, what are the nature and consequences of the legal status
created, and what are the effective remedies of B, the common stockholder, the Policy holder or "member," if the holder of the stock control is guilty of fraud and a gross abuse of the powers incident to the voting stock?
The case is distinguished in kind and precedent from the well - recognized trust relationship of the directors of a corporation. Is it not also as clearly distinguishable from the actual property control ordinarily inci dent to the ownership of the majority stock of a corporation? As judicially recognized in many decisions, the stock of a corpora tion is nothing more or less than the owner ship of its franchise, capital, surplus, and profits, divided into shares, and the right to vote is the presumed incident of such ownership and of the stock representing the same.1 This right to vote is the ordinary control of ownership, surviving the change in character from that of joint ownership to ownership of stock in the corporation.1 But in the cases we are considering, a device is resorted to, and welded into the very being of the corporate entity, for the express purpose of taking from the owner ship the right of control, and vesting this right in those possessing either a lien with out ownership or a share in the ownership so small as to be in legal intent and effect a mere peg on which to hang this right of control. And this right, separated from the true ownership, is made divisible and transferable, by being vested in a restricted "stock" having exclusive voting power. The control so acquired is clearly some thing other than a mere incident of majority ownership. The cases we are considering thus fall into a class by themselves, never perhaps recognized in the precedents of corporation law. To determine their legal nature and the rules of law and equity by which they should be governed, recourse 1 Burrall v. Bushwick R. R. Co., 75 N. Y. 211 216. People v. Colcman, 126 N. Y. 433. 2 See Taylor on Corp., 5th ed. sec. 559!).
