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CitedBy(31)

Thiscasehasbeencitedbytheseopinions:

OccidentalSav.&LoanAss'nv.Venco(1980)
OBSTETRICIANSGYNECOLOGISTSv.BlueCross(1985)
Yanowv.TealIndustries,Inc.(1979)
Cunninghamv.KartridgPakCo.(1983)
SedcoIntern.,SAv.Cory(1981)

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Thisopinioncites:

Greenv.VictorTalkingMacH.Co.,24F.2d378(2dCir.1928)
WabashRy.Co.v.AmericanRefrigeratorTransitCo.,7F.2d...
Batorv.UnitedSausageCo.,138Conn.18(Conn.1951)
Ruplingerv.Ruplinger,48N.W.2d73(Neb.1951)

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EKBuckRetailStoresv.Harkert,62N.W.2d288(Neb.1954)
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NebraskaSupremeCourt
Filed:January15th,1954

PrecedentialStatus:Precedential

Citations:62N.W.2d288,157Neb.867

DocketNumber:33356

Panel:PeterE.Boslaugh,EdwardF.Carter,ElwoodB.Chappell,FrederickW.Messmore,RobertG.Simmons,
AdolphE.Wenke,JohnW.Yeager

Judges:Simmons,C.J.,andCarter,Messmore,Yeager,Chappell,Wenke,andBoslaugh

62N.W.2d288(1954)
157Neb.867

E.K.BUCKRETAILSTORESetal.
v.
HARKERTetal.
No.33356.

SupremeCourtofNebraska.

January15,1954.

*292Hotz&Hotz,RobertM.Kane,WilliamF.Dalton,Omaha,forappellants.

Kennedy,Holland,DeLacy&Svoboda,Omaha,forappellees.

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BeforeSIMMONS,C.J.,andCARTER,MESSMORE,YEAGER,CHAPPELL,WENKE,andBOSLAUGH,
JJ.

CARTER,Justice.

ThisisasuitforadeclaratoryjudgmentbroughtbyE.K.BuckRetailStores,acorporation,andEarlK.Buck
againstWalterE.HarkertandMercedesC.Harkert,andHarkertHouses,acorporation,totestthevalidityofa
corporationcontrolagreemententeredintobythepartiesintheircapacitiesasstockholdersinHarkertHouses.
Thetrialcourtdisposedoftheissuesraisedbyholdingtwoseparatetrialsandenteringtwodecrees.Thefirst
decreewasenteredonOctober29,1951,inwhichitwasdeterminedthattheagreementwasinallrespectsvalid,
thedefendants,Harkertwererestrainedfromviolatingsaidagreement,thedefendantsHarkertwereorderedto
performinaccordancewiththetermsoftheagreement,theprayeroftheplaintiffsforadeclarationthatthe
corporateelectionofJanuary16,1950,wasinvalidwasdenied,andallclaimsofthedefendants,includingthose
fordamages,weredenied.AsecondagreementbetweenthepartiesbearingdateofJuly7,1938,similarin
nature,wasalsoheldvalid.Thecourtgrantedpermissiontoplaintiffstoseekfurtherreliefindamagesbasedon
thejudgmentanddecree,andretainedjurisdictionofthecaseforthispurpose.Theseconddecreewasentered
onJanuary14,1953,inwhichitwasdeterminedthatplaintiffswereentitledtojudgmentagainstthedefendants
Harkertintheamountof$33,612andthatdefendants'motionsforjudgmentnotwithstandingthefindingsofthe
courtshouldbeoverruled.OnFebruary3,1953,allmotionsforanewtrialwereseverallyoverruled.Thiswasa
finalorderastothedecreeofOctober29,1951,andthatofJanuary14,1953.ThedefendantsHarkerthave
appealedfromthisorder.Inordertosimplifythedispositionoftheissuesweshalldealfirstwiththoseinvolved
inthefirsttrialwhichresultedinthedecreeofOctober29,1951.

TherecordshowsthatWalterE.Harkert,hereafterreferredtoasHarkert,wasonandbeforethelatterpartof
1937thesoleownerofachainofrestaurantsorhamburgerstands.Hisfinancesbecameimpairedintheperiod
priortheretototheextentthathewascompelledtoseekfinancialaidfromsourcesotherthanbanking
institutions.Heengagedinaplanofsellingthefixturesandequipmentatadesignatedeatinghouseorstandto
theinvestorforcashandenteringintoanagreementtobuythefixturesandequipmentbackattheendof5years
forahigherprice,paymenttobemadeinmonthlyinstallmentsoverthe5yearperiod.Severalofthesesaleand
repurchaseagreementshadbeenenteredintobeforeHarkertbecameacquaintedwithEarlK.Buck,hereafter
referredtoasBuck.HarkertandBuckbecameacquainted,withtheresultthatBuckenteredintofourpurchase
andresaleagreementswithHarkertpriortotheincorporationoftheHarkertrestaurants.Inthelatterpartof1937
Harkertwasdesirousofimprovinghisfinancialstructure,andbroachedthesubjecttoBuck.Buckadvised
HarkerttoconsultwithBuck'slawyerwithreferencetothematter.Theincorporationofthe*293Harkert
interestsunderthenameofHarkertHousesresulted,undoubtedlywiththeexpectationthatBuckwouldbe
interestedinadvancingmoremoneyinthefurtheranceofhisinterestsandthoseofthenewcorporation.An
auditorcalculatedthenetworthofthebusinessasthistimetobe$47,504.38.Thisfigurewasadmittedlyarrived
atbynottreatingthepaymentsonrepurchaseagreements,whichbecameduemorethan1yearthereafter,asa
liabilityinhiscalculationofthenetworthofHarkert.Thesedeferredpaymentsamountedto$41,042and,if
deductedasaliability,wouldhavefixedHarkert'snetworthat$6,462.38,exclusiveofgoodwillandthevalue
ofthebusinessasagoingconcern.AllofthisBuckknewandnocontentionismadethathewasmisledthereby.

FromthispointonweshallrefertotheE.K.BuckRetailStores,Buck,andDevor,asBuck,theirinterestsbeing
identicalsofarasthislitigationisconcerned.TheevidenceshowsthatHarkertatthistimewasobligatedon
repurchaseagreementsandotherformsofindebtednessinthesumof$44,750topersonsotherthanBuck.
HarkertwasindebtedtoBuckinthegrossfaceamountof$55,650.AnagreementwasmadewherebyBuck
wouldcancelthisgrossamountof$55,650andpay$53,625incashintothebusinessforwhichhewasto
receiveasaconsiderationtherefor40percentofthestockofHarkertHousesandequalrepresentationonthe
boardofdirectorsofthecorporation.FiguringthegrossamountoftheindebtednessofHarkerttoBuckatits
thenpresentvalue,itappearsthatBuckactuallyinvestedatotalof$90,725inHarkertHouses.Theevidence
showsthatBuckpaidinthe$53,625,$44,750ofwhichwasusedtopaytheassumedobligationsofHarkertby
HarkertHouses,and$8,875waspaidtoHarkertasapartofthestocktransaction,allwiththefullknowledgeof
Buck.

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Ashereinbeforeindicated,Buckandthoseforwhomheactedweretoreceive40percentofthestockofthe
companyandequalcontrolontheboardofdirectorsoftheHarkertHouses.Thepertinentpartofthecontractso
providingstates:"ThatthenumberofthemembersoftheBoardofDirectorsofHarkertHousesbereducedfrom
five,asitnowis,tothenumberoffour,andthatthesaidfourmembersofthenewBoardshallconsistofsaid
WalterE.Harkert,MercedesC.Harkert,hiswife,EarlK.BuckandRodneyB.Devor,andthatthenumberof
membersofsaidBoardofDirectorsshallbemaintainedatfourinnumber,ofwhichatalltimestwothereof
shallbesuchpersonsasshallbenominatedordesignatedbythesaidWalterE.Harkertorhisheirs,
representativesorlegatees,andtheothertwothereofshallbesuchpersonsasshallbenominatedordesignated
bythesaidpartyofthesecondpart.Anditisfurthermutuallyagreedbetweenthepartiesthatatallstockholders'
meetingsofthesaidHarkertHousesheldforthepurposeofelectionofdirectorsordirector(incaseofvacancy
ontheBoardofDirectors),thatallofthesaidsharesofstockofpartiesofthefirstpartandalsoofpartyofthe
secondpartandalsoanyadditionalsharesofstockoftheHarkertHouseswhichmaybesubsequentlyacquired
bythesaidpartiesoreitherofthem,shallbevotedinsuchmannerandforsuchpersonorpersonsaswillkeep
andmaintaintheBoardofDirectorsfourinnumber,ofwhichtwothereofshallbesuchpersonsasshallbe
nominatedordesignatedbysaidWalterE.Harkertorhisheirs,representativesorlegatees,andtwothereofshall
besuchpersonsasshallbenominatedordesignatedbythesaidpartyofthesecondpart."

ItiscontendedbythedefendantsthattheforegoingportionoftheagreementviolatesArticleXII,section5,of
theConstitution,andsection21135,R.S.1943,and,inadditionthereto,contravenesthepublicpolicyofthe
stateandisvoidforthatreason.Itwillbenotedthatthestatutewasenactedpursuanttothementioned
constitutionalprovisionandthatthetwoaresimilarinsofarastheirsubstanceisconcerned.Theywilltherefore
beconsideredtogether.

ThepertinentpartofArticleXII,section5,oftheConstitution,isasfollows:"TheLegislatureshallprovideby
lawthatinall*294electionsfordirectorsormanagersofincorporatedcompanieseverystockholdershallhave
therighttovoteinpersonorproxyforthenumberofsharesownedbyhim,forasmanypersonsasthereare
directorsormanagerstobeelectedortocumulatesaidsharesandgiveonecandidateasmanyvotesasthe
numberofdirectorsmultipliedbythenumberofhissharesshallequal,ortodistributethemuponthesame
principleamongasmanycandidatesasheshallthinkfit,andsuchdirectorsormanagersshallnotbeelectedin
anyothermanner***."

ThecontracthereinvolvedwasenteredintoonMay23,1938,byWalterE.HarkertandMercedesC.Harkertas
partiesofthefirstpartandtheE.K.BuckRetailStoresasthepartyofthesecondpart.Onthedateofthe
agreementHarkertwastheownerof2,637sharesofstockinHarkertHousesandMercedesC.Harkertwasthe
ownerof300shares.TheE.K.BuckRetailStoresbecametheownerof1,198sharesonthedaythecontract
wasmadeandBuckandRodneyP.Devorbecametheownersofoneshareeach.Harkertretained1,437shares
andMercedesC.Harkertretained300shares.Therewereanumberofsharesofstockheldbypersonsnot
signatorytotheagreementafterthecompletionofthestocktransaction.Thecontractwasbetweenthepartiesas
stockholders.Theyinvolvednoactiononthepartofthecorporation.Sofarastherecordshows,theboardof
directors,officers,orstockholdersassuchhadnoknowledgeofthetransaction.TheE.K.BuckRetailStores
wasacorporationoperatingachainofshoestoresandwasnot,consequently,acompetitorofHarkertHousesin
therestaurantbusiness.

InconsideringthemeaningofArticleXII,section5,oftheConstitution,andsection21135,R.S.1943,itis
propertoconsidertheevilandmischiefattemptedtoberemedied,theobjectssoughttobeaccomplished,the
scopeoftheremedyitstermsapply,andgiveitsuchaninterpretationasappearsbestcalculatedtoeffectuatethe
designoftheconstitutionalandlegislativeprovisions.Itiscleartousthatthepurposeoftheconstitutional
provisionandstatuteenactedpursuanttheretowastoprovideforcumulativevotingintheelectionofdirectors
ormanagersofincorporatedcompaniesinordertosecuretominoritystockholdersagreaterrepresentationin
themanagementofthecorporation'sbusiness.Inordertodothisitwasnecessarythatthelawstatethenumber
ofvotestowhicheachstockholderwasentitledandtoinsureagainstaninvoluntarylossoftherightconferred.
Intheaccomplishmentofthelatter,theConstitutionprovidesthat"suchdirectorsormanagersshallnotbe
electedinanyothermanner".Thelatterprohibition,asweviewit,operatestopreventacorporationbyits
articlesofincorporation,bylaws,oranyactofitsdirectorsorstockholdersfromdeprivingastockholderofthe

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righttovotehisstockinthemannerspecifiedintheConstitutionandstatute.Butsuchprovisiondoesnot
purporttolimittherightofthestockholdertocontractwithreferencetohisstock.Itgrantshimarightor
privilegewhichhemayormaynotexerciseasheseesfit,butitisoneofwhichthecorporationoranyagency
thereofcannotdeprivehim.Neithertheconstitutionalprovisionnorthestatutepurportstolimittherightofthe
stockholdertocontractwithotherstockholderswithrespecttosuchright.Thenatureoftherightgrantedbythe
ConstitutionandstatuteappearstohavebeenconciselystatedinTomlinv.TheFarmers'&Merchants'Bank,52
Mo.App.430,whereinthecourtsaid:"Therightisoneguaranteedbythelaw,constitutionalandstatutory,itis
personaltothestockholder,itcanbeexercisedornotbysuchstockholderashemayhimselfelect.***It,
therefore,cannotbetakenfromhimbyaresolutionorbylawadoptedbyamajorityofshareholders."

InStateexrel.Frankv.Swanger,190Mo.561,89S.W.872,876,2L.R.A.,N.S.,121,thecourtindealingwitha
similarprovisionsaid:"TheobjectandpurposesofthisprovisioninourConstitutioniswellunderstood,andhas
beenjudiciallyexpoundedonseveraloccasions.Itspurpose*295wastointroducetheprincipleofcumulative
systemofvotinginelectionsofstockholderssoastosecuretotheminorityofstockholdersavoiceinthe
managementoftheaffairsofthecompanyinproportiontothenumberoftheirshares,***.Aconstructionhas
nowherebeengiventosection6,art.12,withinourknowledgeorresearch,soastoconstituteitaprohibitionor
restrictionontherightofstockholderstomaketheircontractswhichviolatenoruleofthecommonlaw,and
whichaffectnorights,excepttheirown."

Theresultnecessarilyhingesuponthemeaningtobegiventothewords"andsuchdirectorsormanagersshall
notbeelectedinanyothermanner".ItwillbenotedthatArticleXII,section5,oftheConstitutionprovidesthat
everystockholdershallhavetherighttovoteinpersonorproxyfordirectorsormanagersonastockownership
basisforasmanyastherearedirectorstobeelected,andhemaycumulatehisvoteanddistributeitamongthe
candidatesasheseesfit.Thenfollowstheprovisionthatdirectorsshallbeelectedinnoothermanner.

Wethinkthemeaningoftheconstitutionalprovisionisclear.Itspurposeistoprovideforcumulativevotingin
theaccomplishmentofwhichitwasnecessarytofixthevotingpowerofthesharesofstock.Inmanystates
cumulativevotingispermissive,itcouldbeproperlyincludedinthearticlesofincorporation,ornot,asthe
incorporatorsmightdetermine.Theclause"andsuchdirectorsormanagersshallnotbeelectedinanyother
manner"wasplacedinArticleXII,section5,oftheConstitution,tomakeitmandatorythateverycorporation
withinthepurviewoftheconstitutionalprovisionshouldpermitcumulativevoting.

Itiscontendedthattheprovisionintendedmuchmorethanthatfromitsplain,unambiguouslanguage,thatit
meantalsothatanyagreementbetweenstockholders,eventhoughaccompaniedbyavaluableconsideration,
wasvoidedbytheprovisionthatsuchdirectorsshallnotbeelectedinanyothermanner.Wepointoutthatthe
electionsofdirectorsaftertheagreementofMay23,1938,wereheldinaccordancewiththemethodprescribed
inArticleXII,section5,oftheConstitution.Forthatmatter,theelectionsheldafterthebreachoftheagreement
likewisewereheldinthemannerprescribed.Itwillbenotedthateachshareofstockwasgivenonevote,the
righttocumulatewasnotdeniedand,foraughttherecordshows,thevotingpowerofthestockwasinnoway
reduced.Itisasserted,however,thatanagreementbetweenstockholdersastohowstockshallbevotedatthe
electionofdirectorsipsofactochangesthemannerofelectionprescribedbytheConstitution.Tosoholdwould
havetheeffectofinvalidatingexistingstatutesrelatingtovotingtrustsandallotherformsofvotingcombines
byamajorityofthestocktocontrolthemanagementofthecorporation,whichwererecognizedatcommonlaw.
TheConstitutionsoconstruedwouldbesuperiortoanystatuteinconflicttherewith.Wedonotthinktheframers
oftheConstitutionhadanysuchintentionand,iftheyhad,adequatelanguagecouldeasilyhavebeenfoundto
haveexpresslysoprovided.ItwasclearlythepurposeofArticleXII,section5,oftheConstitution,tosecureto
minoritystockholdersavoiceinthemanagementoftheaffairsofthecorporationinproportiontothenumberof
theirshares.Wecanfindnothinginthissectionwhichpurportstochangethethenexistingrightsofa
stockholdertocontractwithanotherstockholderwithreferencetohowheshouldvotehisstock.

Elaboratebriefshavebeenfiledbythepartiesdealingwiththeissuesofthiscase.Todiscussallofthecases
citedandthedistinctionsdrawnbythepartieswouldundulyextendthisopinion.Ontheconstitutionalissue,
however,thedefendantsrelymainlyupontwocasesuponwhichwewillventuretocomment.Thesecasesare

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Peopleexrel.ArkansasValleySugarBeet&IrrigatedLandCo.v.Burke,72Colo.486,212P.837,30A.L.R.
1085,andBrooksv.Stateexrel.Richards,3Boyce,Del.,1,79A.790,51L.R.A.,N.S.,1126.

*296IntheBurkecaseitappearsthatthewaterstoragecompany,desiringtobuildanirrigatingandstorage
systemofitsown,enteredintoanagreementwiththereceiveroftheoldcanalcompanyforthejointuseofa
partofitsexistingcanal.Anewcanalcompanywasorganizedandtheoldcanalcompanystockholderswereto
receivestockinthenewcompany.Forthepurposeofgivingrepresentationtothestoragecompany,inthe
problemsinvolvedinmaintainingandoperatingthatpartofthecanaljointlyused,thecontractforthejointuse
ofthecanalprovidedalsothatthestockholdersofthenewcanalcompanywouldannuallyvoteforandelectas
twoofitsfivedirectorstwostockholdersoftheirownnumbertobedesignatedbythestoragecompany.Thetwo
corporationswererivalandcompetitivecompanieswhoserightsandinterestswereantagonisticandadverseto
therightsandinterestsoftheirowncorporation.Therightofthestoragecompanywasnotcontingentonits
beingastockholder.Itappearsplaintousthatthereceiverwasactingforthecorporationandallofthe
stockholdersthereof.Ifthisbetrue,theprovisionfortheelectionofthetwostockholdersnominatedbythe
storagecompanytobedirectorsconstitutedacorporatelimitationonthepowerofstockholderstovote
cumulativelyorotherwiseforalldirectorstobeelected.Suchaholdingwould,ofcourse,beinlinewithour
interpretationofArticleXII,section5,oftheNebraskaConstitution,theconstitutionalprovisionoftheColorado
Constitutionbeingidenticalwithoursforallpracticalpurposes.Inthedecision,however,theColoradocourt
wentfurtherandheldthatthewords[72Colo.486,212P.841]"Andsuchdirectors,trusteesormanagersshall
notbeelectedinanyotherway"meantmorethantheestablishmentofacumulativemethodofvoting.Thecourt
said:"Thelanguageisplainandunambiguous.Itisnotsusceptibleofconstruction.Itinterpretsitself.Itisan
absolute,unequivocalcommandthatthedirectorsshallnotbeelectedinanyotherwaythanthewayorways
whichthesectionitselfspecificallyprovides.Thesentencewasnotintendedtoestablishcumulativevoting.That
objecthadbeenaccomplishedbypreviousprovisionsofthesection.Theinhibitionisnomoreapplicableor
appropriatetocumulativevotingthantovotingbyastockholderofallhissharesforasmanydirectorsasareto
beelectedthatis,twomethodsofvotingcumulativeandnoncumulativeareprovided,andthenominatingand
electingbyeithermethodisthesame."Thecourtheldthecontractviodonitsfaceforthereasonssetoutinthe
opinionatconsiderablelength.Thecourtdidnotsay,asthedefendantsherecontend,thatallagreements
betweenstockholdersrelatingtothevotingofstockwerevoid.Itdidsay:"Suchbeingourconclusion,itis
unnecessarytodeterminewhetherallseparationsofvotingpowerfrombeneficialownership,allirrevocable
powersofattorneyforthevotingofthestock,orallvotingtrustagreements,areinvalid."Wethinkthatthe
Coloradocourtmeantthatthecanalcompanyviolatedtheconstitutionalprovisionwhenitattemptedtolimitthe
rightofitsstockholderstoelectitsdirectors,bythecumulativemethodorotherwise,whenitcontractedwith
referencetheretowiththestoragecompanyinthemannerinwhichitdid.Butitwasnotacasewheretwo
stockholderscontractedforaconsiderationwithreferencetothevotingoftheirstock.Iftheholdingofthe
Coloradocourthastheeffectthatthedefendantsclaimforit,wehavenohesitancyinsayingthatitisnot
sustainedbythebetterreasoning.

IntheBrookscasetheDelawarecourtwascalledupontodeterminetherightoftheownersofpreferredshares
ofstocktovoteattheelectionofdirectors.TheconstitutionalprovisionwassimilartoArticleXII,section5,of
theNebraskaConstitution.Thearticlesofincorporationofthecompanyinvolvedpurportedtodeprivethe
ownersofpreferredstockoftherighttovotefordirectors.Astatuteenactedsubsequenttotheadoptionofthe
*297constitutionalprovisionauthorizedsuchaprovisioninthearticlesofincorporation.Thecourtheldthatthe
holdersofthepreferredstockwereentitledtovotetheirstockundertheconstitutionalprovision.Itwillbenoted
thattheprohibitionoftheconstitutionalprovisionoperatedagainstthecorporationprovidingrestrictivemethods
ofelectingdirectors.Wefindnothingintheopiniontouchingupontherightofstockholderstocontractwith
eachotherwithreferencetohowtheywillvotetheirstock.Wethinkthedefendantsclaimtoomuchforthe
BurkeandBrookscases.

ItisnextcontendedthattheagreementofMay23,1938,wasvoidasbeingagainstpublicpolicy.Itisclaimed
thatthepublicpolicyofthisstateisderivedfromArticleXII,section5,oftheConstitution,andthe
implementingstatutetowhichwehavereferred.Ourdiscussionofthevalidityoftheagreementasthe
constitutionalprovisionrelatestoittendstodissolvethisissue.If,aswehavesaid,controlagreementsbetween
stockholdersarenotipsofactovoidbecauseoftheconstitutionalprovision,certainlynopublicpolicycanbe
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gleanedtherefromwhichwouldvoidtheagreement.Noothersourceofpublicpolicyisassertedotherthanthe
constitutionalprovisionandtheimplementingstatute.Wedesiretomakeitclear,however,thatinholdingthat
theconstitutionalprovisiondoesnotofitselfvoidstockcontrolagreementsbetweenstockholders,itdoesnot
meanthatallsuchagreementsarevalid.Thevalidityofthecontractunderthelaw,afterdeterminingthe
irrelevancyoftheconstitutionalprovision,willbesubsequentlydealtwithherein.

Underthestatutorylawofthisstate,acorporationistobemanagedbyaboardofdirectorselectedbythe
stockholders.Section21111,R.S.1943.Thecontracthereinvolveddoesnotviolatethatprovision.The
stockholderselectthedirectorsbythetermsofthecontract,andthepowerofthedirectorstomanageHarkert
Housesisnotinfringed."Itisnotinviolationofanyruleorprincipleoflawnorcontrarytopublicpolicyfor
stockholderswhoownamajorityofthestockofacorporationtocauseitsaffairstobemanagedinsuchwayas
theymaythinkbestcalculatedtofurthertheendsofthecorporation,anditisnotagainstpublicpolicyor
unlawfulperseforstockholderstoagreeorcombinefortheelectionofdirectorsorotherofficers,soasto
secureorretaincontrolofthecorporation,atleastwheretheobjectistocarryoutaparticularpolicywithaview
topromotethebestinterestsofallofthestockholders,andtheagreementisfairtoallthestockholdersalike,and
tothecorporation.Itis`thegeneralinherentright,resultingfromtheownershipofstockinacorporation,to
exercisetheelectivepowersuchownershipconfers,andtoexerciseitwiselyorunwisely,alone,orpursuantto
anagreementwithotherstockholders.'***Accordingly,ithasbeenheldthatstockholderswhoownamajority
ofthestockofacorporationmayelectthemselvesdirectorsorappointthemselvesitsagents,orformandcarry
intoeffectpoliciesofmanagementasfreelyasifthebusinessweretheirown,andsolongastheyacthonestly,
anddonotdevotethecorporateassetsorbusinesstotheirownprivategainortotheprejudiceofother
stockholders,noonecanquestiontheiracts,whicharepurelyintravires.***Ifacontrolandvotingagreement
amongstockholdersaimsatsecurityofcontrolwithoutfraudonthecorporationorothersanddoesnotsever
stockownershipfromstockcontrol,itisnotillegal.***Inlikemanneracontractbytheownersofmorethan
onehalfofthesharesofstockofacorporationtoelectthedirectorsofthecorporationsoastosecurethe
managementofitsproperty,toballotamongthemselvesfordirectorsandofficersiftheycouldnotagree,tocast
theirvoteasaunitasthemajorityshoulddecide,soastocontroltheelection,andnottobuyorsellstockexcept
fortheirjointbenefit,isnotdishonest,violativeoftherightsofothers,orincontraventionofpublicpolicy,so
longasnofraudiscommittedorwrongdonetootherstockholders.***Hostilitytowardssuchagreementsand
combinations*298seemstobelessening,orperhapsisbecomingmorediscriminatingbetweengoodandbad
ends.Suchagreementsaredistinctfromvotingtrusts,andarenotcontrolledbythesameprinciples.The
stockholdersnecessarilycombineinthemajoritywhichpassesthevote,whethertheydosobyprevious
agreementornotanddoingitbypreviousagreementisnotofitselfinvalid.Accordingtotheweightof
authority,thevalidityandlegalityofsuchcombinationsandagreementsdependratherupontheobjectsthereby
soughttobeattainedandtheactswhicharedoneunderthem,andtheothercircumstances,andanagreement
maybeavalidcontrolagreementbutinvalidbecauseofsomeothercauseoreffect.***Theconsiderationfora
votingagreementmayconsistinthepurchaseofstockonthefaithofthepromiseofotherstoenterintothe
agreement."5Fletcher,CyclopediaCorporations,2064,p.249.This,wethink,statesthegenerallawdealing
withthesubjectofstockholderscontrolagreements.

TheevidencedisclosesthatpriortotheagreementofMay23,1938,thedefendantsHarkertwerefinancially
involvedtotheextentthatfinancialassistancewasdesired,ifnotnecessary.Harkerthadsoldallofhis
restaurantsforcashandtakenbackrepurchaseagreementscallingforlargemonthlypaymentsovera5year
period.Therewereotherobligationsthathadtobemet.HeapproachedBuckforthepurposeofinterestinghim
inprovidingfreshmoneyforthebusiness.BuckdemandedthatHarkert'sbusinessbeincorporatedasone
conditionprecedenttofinancialaidbyhim.Thebusinesswasincorporatedandtheissuanceof4,000sharesof
stockattheparvalueof$100pershareauthorized.BuckofferedtocancelHarkert'sobligationstohimandpay
$53,625intothebusinessinconsiderationofthetransferof50percentofthestocktohim.Harkertwas
unwillingtosell50percentofthestockonthisbasisandofferedBuck40percentofthestockand50percentof
thecontrolofthebusiness.Thisarrangementwasagreedupon.Wepointoutthatthewrittenagreementprovided
thattheboardofdirectorswastobereducedfromfivetofourinnumberandmaintainedatthatnumber.This
portionofthecontractinitselfpreventedHarkertfromelectingmorethantwodirectorsifBuckexercisedthe
righttocumulatehisvote.Buttheagreementwentfurtherandprovidedthateachshouldvoteforthetwo
nomineesoftheotherfordirectorssolongasBuckwasastockholder.TheevidenceisclearthatBuckcancelled
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theindebtednessofHarkertHousestohimandpaidthe$53,625incashonthestrengthofthecontrol
agreement.Withoutithewouldnothaveagreedtothetermsoffered.Wepointout,also,thattheagreementin
nomannerattemptedtocontroltheactionofdirectorsaftertheywereelected.Theclaimthattheagreement
sterilizedtheboardofdirectorsisbasedontheassumptionthatthedirectorsnominatedbyBuckwouldalways
votetogether.Thisisprobablyapracticalresult,althoughnotonedictatedbytheagreement.Ourstatute
requiresacorporationtohaveaboardofdirectorsofthreeormore.Section21111,R.S.1943.Inotherwords,a
boardcontaininganevennumberofdirectorsisauthorizedbystatute.Itwouldnotbeunusualforsuchaboard
tosplitevenlyonsomematterspertainingtocorporatepolicyandtherebycreateasituationsimilartotheone
beforeus.Suchasituation,initself,cannotbesaidtobeillegal.Thequestionbeforeusiswhetherthecontract
makesitunlawfulbecauseofitsterms.

Itisthecontentionofthedefendantsthatalthoughastockholdermayvoteashepleases,publicpolicyforbids
theenforcementofacontractbywhichastockholderundertakestobargainawayhisrighttovotefordirectors
accordingtohisbestjudgment,andintheinterestofthecorporation.Theycontendthathehasnorightto
disablehimselfbycontractfromperformingthisduty.Defendantscitethefollowingcasesinsupportofthis
proposition:Haldemanv.Haldeman,176Ky.635,197S.W.376Jacksonv.Hooper,76N.J.Eq.592,75A.568,
27L.R.A.,N.S.,658Nickolopoulosv.Sarantis,102N.J.Eq.585,141A.792Mansonv.Curtis,223N.Y.313,
119N.E.559,Ann.Cas.1918E247*299Benintendiv.KentonHotel,Inc.,294N.Y.112,60N.E.2d829,159
A.L.R.280Seitzv.Michel,148Minn.80,181N.W.102,12A.L.R.1060andSmithv.CaliforniaThorn
Cordage,Inc.,129Cal.App.93,18P.2d393.

Theplaintiffsassertthatnopublicpolicyisviolatedinthemakingofanagreementbetweenamajorityanda
minoritystockholdertocausethevotingrightsinthecorporationtobeequalwhenitisbeneficialtothe
corporationforthepurposeofbringingfreshmoneyintothebusinessandinjuresnooneexceptthemajority
stockholderinvoluntarilygivingupapartofhisvotingrights.Thefollowingcasesarecitedinsupportofthis
statement:Trefethenv.Amazeen,93N.H.110,36A.2d266RinglingBros.Barnum&BaileyCombined
Showsv.Ringling,29Del.Ch.610,53A.2d441Thompsonv.J.D.ThompsonCarnationCo.,279Ill.54,116
N.E.648,Ann.Cas.1917E,591Batorv.UnitedSausageCo.,138Conn.18,81A.2d442Hartv.Bell,222
Minn.69,23N.W.2d375,24N.W.2d41WabashRy.Co.v.AmericanRefrigeratorTransitCo.,8Cir.,7F.2d
335,certioraridenied270U.S.643,46S.Ct.208,70L.Ed.776andHockingValleyRy.Co.v.ToledoTerminal
R.R.Co.,99OhioSt.35,122N.E.35.

Anindividualdiscussionofeachcasecitedbythepartiesisnotpractical.Therearecertainfundamentals
pertainingtocorporatecontrolrunningthroughallthecasesciteduponwhichtherecanbelittleornodispute.
Amongthemarethefollowing:AcorporationisacreatureoftheLegislature,andstatutesandapplicablelaw
prevailoverprivateagreementsbetweenstockholders.Thepropertyofacorporationbelongstothe
stockholders,butthepossessionandmanagementthereofisinthehandsofthedirectors.Anagreement
purportingtocontroltheactionsofdirectorsaftertheyareelected,inhandlingtheordinarybusinessofthe
corporation,isordinarilyvoid.Apartnershipmaynotdisguiseitselfasacorporationandanyagreement
purportingtodosois,generallyspeaking,void.Thelawimposesthebusinessmanagementofthecorporation
onitsdirectors,whorepresentallthestockholdersandcreditors,andtheycannotenterintoagreementsamong
themselvesorwithstockholdersbywhichtheypurporttoabdicatetheirindependentjudgment.Stockholdersare
powerlessinthisstatetoalterorreducethevotingpowerofanyshareofstock.Asageneralrule,stockholders
cannotactinrelationtotheordinarybusinessofthecorporation,norcontrolthejudgmentofdirectorsinthe
performanceoftheirduties.Aboardofdirectorsactsthroughitsmajorityandanagreementprovidingotherwise
violatestheintendmentsofthestatutes.Theseparationofvotingrightsfromstockownershipisfrownedupon
andwillbesustainedonlywhenauthorizedbylaw,orwhenitisfreefromfraudofanykind.Manyofthecases
citedbythedefendantsinvolveoneormoreviolationsoftheforegoinganddonotdecidetheissueunder
discussion.Itmustbeconceded,however,thatthepositionofdefendantsdoeshavesupportintheauthorities
citedbythem.

Butwethinkthecorrectruleisthatstockholderscontrolagreementsarevalidwhereitisforthebenefitofthe
corporation,whereitworksnofrauduponcreditorsorotherstockholders,andwhereitviolatesnostatuteor

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recognizedpublicpolicy."Theproprietyoftheobjectvalidatesthemeans,andmustaffirmativelyappear."Cone
v.Russell&Mason,48N.J.Eq.208,21A.847,850.

Itisnothereestablishedthatthecontractworkedafrauduponthecorporation,creditors,stockholders,orany
otherperson.Consequently,thefollowingcasessustainthevalidityofthecontractonthepointunderdiscussion.

Trefethenv.Amazeen,supra[93N.H.110,36A.2d267],isacaseinwhichtheagreementbetweenstockholders
wasforthepurposeofsecuringadditionalworkingcapitalforthecorporationandprovidedthatthemajority
stockholderwouldwaivehisrighttovotecertainsharessolongaseitheroftheothertwocontracting
stockholders*300wouldownstockinthecorporation,sothatthesetwowouldbeabletovoteatleast50
percentofthevotingstock.Thecaseisverysimilaronitsfactstothecaseatbar.Thecourtinsustainingthe
agreementsaid:"Thevalidityofacontractbetweenstockholdersistobedeterminedbytheeffectsofits
provisions.InBowditchv.JacksonCo.,76N.H.351,82A.1014,L.R.A.1917A,1174,thisCourtuphelda
stockholders'agreementforavotingtrustapplyingasatesttheconclusionsthattherewasnowrongtothe
corporation,nospecialbenefittothepartiestothecontractandnoturningoverofmanagementtostrangers.The
Courtdidnotleaveoutofconsiderationotherstockholdersindividuallyandcreditors.***Ifweapplythe
abovesuggestedteststothisagreement,itisclearthatitisvalid.Holdenreceivednospecialbenefithisonly
benefitwasthegeneraloneofallstockholdersderivedfromacorporationwithgreaterworkingcapital.There
wasnoinjurytocorporation,stockholdersorcreditorsfromtheadditionofnewfunds.Theonlydetrimentwas
tothepartiestothecontractandsuchastheythemselvescontemplatedinthemakingofit,namely,thepaying
outofmoneybytwoofthepartiesandthelossofvotingrightsagreedtobythethirdparty.Therewasno
transferofcontrolofcorporatemanagement,whetherforgoodorill,tooutsiders.Thecontractmerelycalledfor
lessvotingpoweronthepartofanassentingstockholderandrelativelygreatervotingpoweronthepartofother
stockholdersforadefiniteperiod.Theeffectofthisuponotherinterestsnoonecansay.`Itisnotinviolationof
anyruleorprincipleoflawnorcontrarytopublicpolicyforstockholderswhoownamajorityofthestockofa
corporationtocauseitsaffairstobemanagedinsuchawayastheymaythinkbestcalculatedtofurthertheends
ofthecorporation,***.'Astockholders'agreementreasonablyintendedtobebeneficialtoacorporationand
injurioustonoonesaveforthecontemplateddetrimenttothecontractingpartiesisvalid.Violationofthe
presentagreementbythedefendanttrusteewouldcauseirreparableinjurytotheplaintiffandheiswithout
adequateremedyatlaw."

InRinglingBros.Barnum&BaileyCombinedShowsv.Ringling,supra[29Del.Ch.610,53A.2d447],the
courthadbeforeitthequestionofthevalidityofanagreementbetweentwostockholderstovotetogetherfora
certainslateofdirectors.For3yearsthetwostockholdersvotedtogetherandelectedfiveofsevendirectors.The
thirdstockholderbycumulatinghisvoteelectedtheothertwo.Thetwocontractingstockholders,EdithRingling
andAubreyRinglingHaley,eachowned315sharesofstockandthethirdstockholder,JohnRinglingNorth,
owned370shares.Atthe1946annualstockholdersmeetingMrs.Haleyvotedcontrarytotheagreementand
maintainedthattheagreementwasinvalid,oratleastrevocable.Hercontentionwasbasedontheproposition
thattherecanbenoagreement,oranydevicewhatsoever,bywhichthevotingpowerofstockofaDelaware
corporationmaybeirrevocablyseparatedfromtheownershipofthestockexceptbyanagreementwhich
compliedwithsection18oftheCorporationLaw(votingtruststatute),andexceptbyaproxycoupledwithan
interest.Itwasconcededthatthevotingtruststatutewaswithoutapplication.Inholdingtheagreementvalidthe
courtsaid:"Butthestatutedoesnotpurporttodealwithagreementswherebyshareholdersattempttobindeach
otherastohowtheyshallvotetheirshares.Variousformsofsuchpoolingagreements,astheyaresometimes
called,havebeenheldvalidandhavebeendistinguishedfromvotingtrusts.***Wethinktheparticular
agreementbeforeusdoesnotviolateSection18orconstituteanattemptedevasionofitsrequirements,andis
notillegalforanyotherreason.Generallyspeaking,ashareholdermayexercisewideliberalityofjudgmentin
thematterofvoting,anditisnotobjectionablethathismotivesmaybeforpersonalprofit,ordeterminedby
whimsorcaprice,solongasheviolatesnodutyowedhisfellowshareholders.***Theownership*301of
votingstockimposesnolegaldutytovoteatall.Agroupofshareholdersmay,withoutimpropriety,votetheir
respectivesharessoastoobtainadvantagesofconcertedaction.Theymaylawfullycontractwitheachotherto
voteinthefutureinsuchwayasthey,oramajorityoftheirgroup,fromtimetotimedetermine.***
Reasonableprovisionsforcasesoffailureofthegrouptoreachadeterminationbecauseofanevendivisionin
theirranksseemunobjectionable.Theprovisionhereforsubmissiontothearbitratorisplainlydesignedasa
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deadlockbreakingmeasure,andthearbitrator'sdecisioncannotbeenforcedunlessatleastoneoftheparties
(entitledtocastonehalfoftheircombinedvotes)iswillingthatitbeenforced.Wefindtheprovision
reasonable.Itdoesnotappearthattheagreementenablesthepartiestotakeanyunlawfuladvantageofthe
outsideshareholder,orofanyotherperson.Itoffendsnoruleoflaworpublicpolicyofthisstateofwhichwe
areaware."

InThompsonv.J.D.ThompsonCarnationCo.,supra[279Ill.54,116N.E.649],anagreementwasenteredinto
betweenstockholderstovotetheirstockforeachfordirectorsandfornootherperson.TheIllinoiscourtin
upholdingtheagreementsaid:"Itdoesnotdivest,orattempttodivest,J.M.Thompsonofhiscontrolor
ownershipofhisstock,orhisrighttovotethesame,exceptthatbythefirstclauseitisprovidedthattheparties
tothesameshallvotetheirstockforeachotherfordirectorsandfornootherpersonorpersons.Contractsofthis
character,bywhichtheownersofamajorityofthestockinacorporationagreetovoteforcertainpersonsfor
directorssoastosecuretothemselvesthecontrolandmanagementofthecorporation,arenotillegalorvoidso
longasnofraudiscommittedonthecorporationorwrongdonetotheotherstockholders.***Weheldinthe
casecitedthattheownersofstockmightlawfullycontractwitheachothernottobuyorsellstockexceptfor
theirjointbenefit,andthatsuchcontractsarenotdishonest,violativeoftherightsofothers,orincontravention
ofthepublicpolicyofthisstate.Sofarastheevidenceshows,nofraudwaspracticedorintendedtobepracticed
bythecontractinquestion,andinouropinion,insofarasitsvalidityisassailedonthesegrounds,itmustbe
sustainedasavalidexerciseoftherightofcontract."

InHartv.Bell,supra[222Minn.69,23N.W.2d377],thecourtsaid:"RomigandC.W.HartrequestedBellto
lendadditionalmoneytoSportsAfield,butheflatlyrefusedunlesshewerepermittedtoacquireenough
commonstocktogivehimabsoluteandpermanentcontrol.***Thetrialcourtbyitsfindings,whichareall
reasonablysustainedbytheevidence,determinedalltheseissuesinfavorofdefendants,andspecificallyfound
thatBellhad,inallhiscorporateactivitiesandtransactions,actedingoodfaithandtothebestadvantageand
interestofSportsAfieldanditsstockholders.***Itisnottheprovinceofcourtstoemasculatethelibertyof
contractbyenablingpartiestoescapetheircontractualobligationsonthepretextofpublicpolicyunlessthe
preservationofthepublicwelfareimperativelysodemands.***`thepowerofcourtstodeclareacontractvoid
forbeingincontraventionofsoundpublicpolicyisaverydelicateandundefinedpower,and,likethepowerto
declareastatuteunconstitutional,shouldbeexercisedonlyincasesfreefromdoubt.'Colev.BrownHurley
HardwareCo.,139Iowa487,491,117N.W.746,748,18L.R.A.,N.S.,1161,16Ann.Cas.846.Quotedwith
approvalinHollisterv.Ulvi,199Minn.269,280,271N.W.493,498,499.***Thepracticalconductofa
modernbusinesscorporationcompelsafrankrecognitionthat`anagreementbyanumberofstockholdersto
combinetheirvotesinordertoeffectuateaparticularpolicyisnotofitselfunlawfulintheabsenceofevidence
ofanintenttodefraudtheotherstockholdersortosecureaprivatebenefitattheexpenseofthecorporationor
theotherstockholders.'66U.S.L.Rev.(1932),pp.562,566.Illegalityperseisnolongertheinevitable
consequenceofeveryagreement*302byamajorityofthestockholderswithoutregardtoitspurposeoreffect."

ThecaseofMansonv.Curtis,supra[223N.Y.313,119N.E.561],citedbythedefendants,isaleadingcaseon
thesubjectbeforeus.Inthatcasetheagreementbetweenstockholderswasheldtobevoidbecauseitoperatedto
forceanabdicationbythedirectorsofthecontrolofthebusinessaffairsofthecorporation.Butitdoesnothold
thatstockcontrolagreementsarevoidperseasisevidencedbythefollowingfromtheopinionofthecourtin
thatcase:"Itisnotillegaloragainstpublicpolicyfortwoormorestockholdersowningthemajorityofthe
sharesofstocktouniteuponacourseofcorporatepolicyoraction,orupontheofficerswhomtheywillelect.
Anordinaryagreement,amongaminorityinnumber,butamajorityinshares,forthepurposeofobtaining
controlofthecorporationbytheelectionofparticularpersonsasdirectorsisnotillegal.Shareholdershavethe
righttocombinetheirinterestsandvotingpowerstosecuresuchcontrolofthecorporationandtheadoptionof
andadhesionbyittoaspecificpolicyandcourseofbusiness.Agreementsuponasufficientconsideration
betweenthem,ofsuchintendmentandeffect,arevalidandbinding,iftheydonotcontraveneanyexpress
charterorstatutoryprovisionorcontemplateanyfraud,oppression,orwrongagainstotherstockholdersorother
illegalobject."

InasimilarcasethecourtsaidinInreFeinson'sEstate,196Misc.590,92N.Y.S.2d87,90:"Itisnowwell
establishedthatstockholdersofacorporationmayvalidlyagreetoelectspecifiedpersonsasdirectors.Clarkv.

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Dodge,269N.Y.410,199N.E.641Kasselv.EmpireTinwareCo.,178A.D.176,164N.Y.S.1033Matterof
Block'sWill,186Misc.945,949,60N.Y.S.2d639,642.Moreover,thecompleteownersofacorporationmay,
byagreementamongthemselves,controltheexerciseofpoweranddiscretionbythedirectorsofthe
corporation,providedthattheinterestsofcreditorsofthecorporationarenotprejudicedandthepublicpolicyof
theStateisnotoffended.***Eventhoughacontractmightimpingesomewhatupontheprovisionsofsection
27,GeneralCorporationLaw,thereisnoreasonforholdingitillegaliftheenforcementofit`damages
nobodynoteven,inanyperceptibledegree,thepublic.'Clarkv.Dodge,supra,269N.Y.page415,199N.E.page
642."

Weconcludethatstockholderscontrolagreementsarenotinvalidperse.Iftheyarebasedonasufficient
considerationbetweenthecontractingstockholderstheyarevalidandbindingiftheydonotcontraveneany
expressconstitutionalorstatutoryprovisionorcontemplateanyfraud,oppression,orwrongagainstcreditorsor
otherstockholders,orotherillegalobject.Wheresuchasituationappearsitisnotillegaloragainstpublicpolicy
fortwoormorestockholdersowningthemajorityofthesharesofstocktouniteuponacourseofcorporate
policy,orupontheofficers,includingdirectors,whomtheywillelect.

Thedefendantscontend,however,thatevenifthestockcontrolagreementsaregenerallyvalidunder
circumstanceshereshown,theoneatbarisinvalidforthereasonthattheagreementwhichprovidesthattwoof
atotaloffourdirectorsshallbenominatedbytheownersof40percentofthestockandelectedbythe
contractingstockholderssolongasthecontractingparty(Buck)shallbeastockholder,isvoidasbeingagainst
publicpolicy.Whilethecasesheretoforecitedindicatethatsuchaprovisionintheagreementdoesnot
invalidatethecontractunderthecircumstances,additionalcasesarecitedonthisspecificpoint.Thatthereisa
divisionofauthorityonthispointcannotbequestioned.Wepointoutoncemorethattheagreementdoesnot
placeBuck,theownerof40percentofthestock,incontrolofthecorporation.Itdoesgivehimavetopower
overquestionsofcorporatepolicy.ItisplainthatBuckwouldnothavecancelledthegrossindebtednessof
$55,650andpaidinthe$53,625infreshmoneywithoutthestockcontrolagreementbeingmade.Itmustbe
assumedthatthepurposeoftheagreement*303wastopreventthecorporationfromgettingintofinancial
distressbyacontinuanceofthecorporatepolicywhichbroughtaboutthenecessityforitsreorganizationatthe
timeBuckbecameastockholder.ItappearsplainthatBuckwasinsistentuponthecorporationnotspreading
itselftoothinintheenlargementofitsbusiness.ThedifficultiesofHarkertandBuckaroseafter11yearsof
successfuloperationsontheverypolicywhichBucksoughttohavemaintainedwhenhebroughtthegross
amountof$109,275intothebusinessbythepurchaseof40percentofthestock.DefendantsrelyuponMorelv.
Hoge,130Ga.625,61S.E.487,16L.R.A.,N.S.,1136Odmanv.Oleson,319Mass.24,64N.E.2d439Luthy
v.Ream,270Ill.170,110N.E.373,Ann.Cas.1917B,368andcasesofsimilarimporttosupporttheirposition.
Wethinkthemorereasonableandmoremodernruleistothecontrary.

Stockholderscontrolagreementswhichpurporttosupersedethepowersofthedirectorsofacorporationin
handlingitsordinarybusinessaffairsareheldordinarilytobeinviolationofstatutesplacingthepowerof
managementinthedirectors.Thecreationofadummyboardofdirectors,or,inthelanguageofsomeofthe
cases,asterilizedboardofdirectors,byastockholdercontrolagreement,isusuallyheldtobevoid.Butthemere
factthataboardofdirectorsoffourmembersiscreatedwiththeunderstandingthateachshallnominatetwo,is
notofitselfunlawful.Thevalidityofsuchacontractisdeterminedbythenatureoftherestrictionsplacedupon
theboardincarryingouttheirdutytoexercisetheirbestjudgmentinmanagingtheaffairsofthecorporation.
Wherethecontrolagreementleavesthedirectorsfreetoactafterbeingselected,wefailtoseewherethereisa
violationofanylaworestablishedruleofpublicpolicy.Themerefactthataboardiscreatedwhichmaysplit
evenlyonamatterofcorporatepolicyisnotabasisforvoidingthecontract.Intheinstantcasethedirectors
werefreetomanagetheordinarybusinessaffairsofthecorporationwithoutcontractualrestraint.Itisnota
dummyorsterilizedboardwithintheordinarymeaningofthoseterms.ThefollowingfromClarkv.Dodge,269
N.Y.410,199N.E.641,643,seemstostatetheapplicablerule:"ExceptforthebroaddictaintheMcQuade
opinion[McQuadev.Stoneham,263N.Y.323,189N.E.234],wethinktherecanbenodoubtthatthe
agreementhereinquestionwaslegalandthatthecomplaintstatesacauseofaction.Therewasnoattemptto
sterilizetheboardofdirectors,asintheMansonandMcQuadecases.TheonlyrestrictionsonDodgewere(a)
thatasastockholderheshouldvoteforClarkasadirectoraperfectlylegalcontract(b)thatasdirectorhe
shouldcontinueClarkasgeneralmanager,solongasheprovedfaithful,efficient,andcompetentanagreement
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whichcouldharmnobody(c)thatClarkshouldalwaysreceiveassalaryordividendsonefourthofthe`net
income.'Forthepurposesofthismotion,itisonlyjusttoconstruethatphraseasmeaningwhateverwasleftfor
distributionafterthedirectorshadingoodfaithsetasidewhatevertheydeemedwise(d)thatnosalariesto
otherofficersshouldbepaid,unreasonableinamountorincommensuratewithservicesrenderedabeneficialand
notaharmfulagreement.Iftherewasanyinvasionofthepowersofthedirectorateunderthatagreement,itisso
slightastobenegligibleandcertainlythereisnodamagesufferedbyorthreatenedtoanybody.Thebroad
statementsintheMcQuadeopinion,applicabletothefactsthere,shouldbeconfinedtothosefacts."

DefendantsnextassertthatthecontrolagreementisvoidbecauseoftheprovisionthatHarkertberetainedas
presidentforanindefiniteperiodatafixedsalary.Onthisquestiontheauthoritiesagainappeartobeinconflict,
dependinginmostcasesonthenatureoftheagreement.Butwedonotfeelthatwearecalledupontodecideit
inthiscase.ThedefendantHarkertforsome11yearsparticipatedincarryingoutthispartoftheagreementby
acceptingthebenefitsitgavehim.ItwasaprovisionforthebenefitofHarkertandnotofBuck.Afterreaping
thebenefitsfor11yearshenowseekstoinvalidatethe*304agreementbecauseoftheallegedinvalidityofa
provisionmadeforhisbenefit.Thishecannotdo.Ithardlyrequiresacitationofauthoritytoholdthatonewho
hasreceivedthebenefitoftheprovisionforaperiodof11yearsmaynotnowquestionthevalidityofthe
provisionasabasisforinvalidatingthecontrolagreementtowhichheisavoluntaryparty.Heisestoppedfrom
questioningitsvalidity.Undersuchcircumstancesthereisnomerittothedefendants'contentiononthispoint.

ItisalsocontendedthatthecontrolagreementisvoidbecauseitwastoremainineffectsolongasBuckretained
anystockinthecorporation.Wethinknot.ThepurposeoftheagreementwastogiveBucksuchprotection
againstmismanagementastoinducehimtobringneededmoneyintothecorporation.Itisreasonablethatsuch
protectionshouldbeaffordedsolongasheisastockholder.Itisnotacontractwhichbindsthepartiesin
perpetuity,asdefendantsallege.Itisdefiniteastothetermofitsexistence.Therulewascorrectlyappliedin
Trefethenv.Amazeen,supra[93N.H.110,36A.2d267],whereinthecourtsaid:"Briefly,thepresent
stockholders'agreementwasforthepurposeofsecuringadditionalworkingcapitalforthecorporationand
providedthatMr.Holdenwouldwaivehisrighttovotecertainsharessolongaseitheroftheothertwo
contractingstockholdersshouldownstockinthecompany,sothatthesetwowouldbeabletovoteatleast50%
ofthevotingstock.***Thecontractmerelycalledforlessvotingpoweronthepartofanassenting
stockholderandrelativelygreatervotingpoweronthepartofotherstockholdersforadefiniteperiod."

ItisurgedthatthesaleandrepurchaseagreementsmadebyHarkertandBuckpriorto1938wereusurious.We
donotdeemitnecessarytodeterminethatquestionbecauseofthenatureoftheconsiderationrecitedinthe
stockholderscontrolagreement.Theagreementinpartprovided:"That,whereas,saidpartyofthesecondpart
hasthisdaypurchasedfromHarkertHouses,acorporationofDouglasCounty,Nebraska,andWalterE.Harkert,
Presidentofsaidcorporation,1200sharesofstockofsaidHarkertHousesoftheparvalueof$120,000as
evidencedbyCertificateNo.39for1198sharesissuedtothepartyofthesecondpartandoneshareissuedto
EarlK.Buck,Presidentofpartyofthesecondpart,andoneshareissuedtoRodneyB.Devor,Treasurerofparty
ofthesecondpart,andhaspaidthereforthesumof$53,625incashandhascanceledandsatisfiednotesofsaid
HarkertHouses,maker,andofsaidWalterE.Harkert,maker,whichhaveheretoforebeenassumedbythesaid
HarkertHouses,inthetotalgrossfacesumof$55,650***."Noattemptwasmadetocalculatethenetamount
dueBuckfromHarkertHousesinthecontract,nortofixtheactualvalueofthestocksoldtoBuck.Thestated
considerationwasthatBuckwouldpay$53,625incashandcanceltheindebtednessofHarkertHousestohimin
the"totalgrossfacesumof$55,650."Whatsoeverthenetamountofthetotalgrossfacesumof$55,650may
havebeen,playednopartinthetransaction.Asamatteroflaw,theconsiderationfixedbytheagreementis
controllingandthenetamountdueisimmaterialtotheissue.Defendantsareinnopositiontoassertthatthe
"deals"madepriortotheincorporationofHarkertHouseswereusurious.

Weconcludethatthestockholderscontrolagreementswerevalidunderthecircumstanceshereshownandthat
thedeclaratoryjudgmententeredonOctober29,1951,wascorrectinsoholding.

InitsdecreeofOctober29,1951,thetrialcourt,afterholdingthattherewasabreachofavalidcontractonthe
partofthedefendants,authorizedtheplaintiffstoinstituteancillaryproceedingstorecoversuchdamages,ifany,

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resultingfromthebreachofcontract.Jurisdictiontoentertainsuchfurtherapplicationandtorendercomplete
reliefindamageswasthereinspecificallyretained.

Plaintiffsthereafterfiledasupplementalpetitionsettingforththedamagestheyareallegedtohavesustained.
Thenatureof*305suchdamagesaresummarizedinplaintiffs'briefandforthepurposesofthequestiontobe
considered,theywillbeaccepted.Itisclaimedthatthefollowingitemswouldnothavebeenexpendedifthe
stockholderscontrolagreementhadnotbeenbreachedbyHarkertandhisassociatesand,plaintiffsbeingthe
ownersof40percentofthestockofthecorporationareentitledtoapersonaljudgmentfor40percentofthe
lossessustained.Theitemsofdamage,brieflystated,are:Attorneyfeespaidbythecorporationinthislitigation,
$4,000accountantfeespaidbythecorporationinthissuit,$930.25excessiveexpendituresattheAthleticClub
location,$18,085.32excessivesalarypaidtoFitzgerald,Schwentker,andClaraHarkert,$5,264.52proceedsof
corporatebondsusedinpurchaseofFarnamStreetbuilding,$25,000proceedsofcorporatebondsusedin
establishmentoftherestaurantinLincoln,$37,000expenditureofcorporateearningsinpayingoffthe
mortgageontheFarnamStreetbuilding,$25,000expenditureofcorporatefundsonLincolnrestaurantoverand
abovethatderivedfromthesaleofbonds,$15,639.60andrentpaidonlocationleasedandnotusedbythe
corporation,fromJunetoDecember1951,$2,100.Thetotaloftheseitemsis$133,019.69,40percentofwhich
is$53,207.87forwhichplaintiffssoughtjudgment.Inadditiontotheforegoing,defendantsarechargedwith
wasteandmismanagementofthecorporatebusiness,therebycausingthenetprofitforthefirst6monthsin1951
tobeonly$25,009asagainst$41,766.04and$47,519.73forthesameperiodsin1950and1949,respectively.
ThedefendantWalterE.Harkertischargedwithusingfundsofthecorporationintheamountof$2,185forthe
purchaseofanautomobileforhisownuseandinmakingloansofcorporatefundstohisfriendsandrelativesin
theamountof$2,890whichhavebeenoutstandingandunpaidfor2years.Plaintiffsallegethattheyhavebeen
damagedbythebreachofthestockholderscontrolagreementonthepartofthedefendantsinanamountnotless
that$100,000.AtrialwashadontheissuesthuspresentedwhichresultedinthedecreeofJanuary14,1953,
awardingplaintiffsajudgmentagainstthedefendantsHarkertintheamountof$33,612.

ThedefendantsassertthatplaintiffshadnopersonalcauseofactionagainstthedefendantsHarkertandthatthe
damagesalleged,ifproved,runinfavorofthecorporation.Inotherwords,thecontentionofthedefendantsis
thatanyactiontorecoverthedamagesallegedmustbebroughtinthenameofthecorporation,eitherbythe
corporationitselfor,uponitsrefusalorfailuretodoso,byastockholderinarepresentativeaction.The
plaintiffscontendthattheactionispersonaltothembecauseofthestockholderscontrolagreementwhichwas
enteredintobetweenE.K.BuckRetailStoresandthedefendantsHarkert,personally,asstockholders.

ThegeneralruleisstatedinRuplingerv.Ruplinger,154Neb.394,48N.W.2d73,75,asfollows:"Astockholder
maynotbringanactioninhisownnametorecoverforwrongsdonetothecorporationoritsproperty.Sucha
causeofactionisinthecorporationandnotthestockholders.Therightofastockholdertosueisderivativeinits
natureandcanbebroughtonlyinarepresentativecapacityforthecorporation."

Wepointoutthateveryitemofdamageclaimed,ifthedefendantsareliabletherefor,isawrongcommitted
againstthecorporationoritsproperty.Thedamagesallegedeitherdepletecorporatefunds,convertpropertyof
thecorporationintounauthorizedinvestments,ortend,becauseofineptmanagement,toreducethevalueofthe
stockofallstockholders.Suchdamagesordinarilyfallwithinthegeneralruleandcreateacauseofactiononthe
partofthecorporationorarepresentativesuitbyastockholder.Itisthecontentionoftheplaintiffsthatthe
stockholderscontrolagreementcallsforadifferentresultinthepresentcausethatraisestheprecisequestionto
bedecided.

InSmithv.Bramwell,146Or.611,31P.2d647,648,thecourtafterrecognizingthegeneralrulestated:
"Appellantrecognizestheruleasabovestated,butasserts*306thatithasnoapplicationtotheparticularfacts
involvedinthiscase.Plaintiffcontendsthathisactionisbaseduponaviolationofthevotingtrustagreement
andthat,byvirtueofsuchcontractualrelationship,hemaymaintaintheactioninhisownbehalfeventhough
therewasadirectdamagetothecorporation.***Wecannotagreethattheinstantactionispredicatedupona
breachofthevotingtrustagreement.Someofthedefendantswerenotpartiestothistrustagreement.When
confrontedatthecommencementofthetrialbytheobjectiontotheintroductionofanytestimonyforthereason
thatthecomplaintfailedtoallegeacauseofaction,theplaintiffundertooktobringhimselfwithintheexception

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1/21/2017 EKBuckRetailStoresv.Harkert,62N.W.2d288,157Neb.867CourtListener.com

tothegeneralrule,relativetoactionsbystockholdersagainstofficersofacorporation,byshowingacontractual
relationshipunderthevotingtrustagreement.But,aswehaveendeavoredtoshow,abreachofthisvoting
agreementdidnotconferupontheplaintiffarighttoanindividualanddirectaction,asdistinguishedfroma
derivativeone,asanylosssustainedbyplaintiffbyreasonofthebreachwas,underthefactsalleged,commonto
allstockholders."

InGreenv.VictorTalkingMachineCo.,2Cir.,24F.2d378,382,59A.L.R.1091,thecourtsaid:"Nordoesthe
allegationofacontractualdutytoplaintiff'stestatoraidher.Ifitbeassumedthattheallegationsofthecomplaint
aresufficienttochargeacontractualdutyowingbydefendanttothePearsallCompany,despitethe
indefinitenessofthetermsofsuchacontract,anddespitethefactthatitwasmadewithashareholder,notwith
thecorporation,neverthelessabreachofthatdutywouldgivearightofactiontothecorporation,nottoits
shareholders."

TolikeeffectisWellsv.Dane,101Me.67,63A.324,325,whichstates:"Theplaintiffwasnotthecorporation,
notwithstandingheownedandcontrolledamajorityofitsstock.Hedidnotownorcontrolitspropertyormake
orcancelitscontractswiththedefendantDane.***Hewasinjuredthesameaseveryothershareholder
becauseofandthroughtheinjurytothecorporationpropertyandrights.Therewasnospecialinjurytothe
plaintiffdifferentfromthattoallothershareholders,norwerehisindividualrightsinjuredoutsideoftheinjury
sufferedbythecollectiveentity,thecorporation.`Ashareholdercannotsueindividuallyfordamagescausedby
wrongfulactsimpairingthevalueofhissharesthroughaninvasionofthecorporateorcollectiverights.'
Morawetz,Pri.Corp.236a.Insuchcases,iftheregularofficersofthecorporationareunableorunwillingto
takethenecessarystepstoprotectthecorporatepropertyandinterests,ashareholdermayproceedinequityon
behalfofhimselfandotherstockholdersandthecompany.Atlaw,however,thecorporationitselfrepresenting
allthoserightscanalonerecoverforsuchinjury.Anyotherrulewouldadmitofasmanysuitsagainstthe
wrongdoerastherewerestockholdersinthecorporation.***Theremaybecasesofinjuriestotheindividual
rightsoftheshareholderwherehe,andnotthecorporation,mustseekredresssuch,forinstance,asthelevying
ofanunlawfultaxonsharesheldbytheindividualstockholder,mutilationordestructionofhiscertificate,or
circulatingfalseandscandalousreports,orissuingspuriouscertificatesthuscreatinguncertaintyastothetitleor
validityofexistingshares.Inallsuchcases,however,thewrongfulactaffectsthesharesdirectly.Theyare
readilydistinguishedfromthecaseatbarwheretheplaintiffclaimshissharesweredepreciatedbywrongfulacts
makingpossibletheissueof600sharesofstockwithoutpaymenttherefor.Suchawrongbeingprimarilyagainst
thecorporation,theredressforitmustbesoughtbythecorporation."

Othercasestothesameeffectare:CommonwealthofMassachusettsv.Davis,140Tex.398,168S.W.2d216
CoronadoDevelopmentCorp.v.Millikin,175Misc.1,22N.Y.S.2d670andLikenv.Shaffer,D.C.,64F.Supp.
432.

TheplaintiffsrelyuponthecaseofRitchiev.McMullen,6Cir.,79F.522,533,whereinthecourtsaid:"Butwe
areof*307opinionthatthisprinciplehasnoapplicationwherethewrongfulactsarenotonlywrongsagainst
thecorporation,butarealsoviolationsbythewrongdoerofadutyarisingfromcontractorotherwise,andowing
directlybyhimtothestockholders."Othercasescitedare:InreAuditore'sWill,249N.Y.335,164N.E.242,62
A.L.R.551R.G.Dun&Co.v.Shipp,127Tex.80,91S.W.2d330Meyersonv.FranklinKnittingMills,185
A.D.458,172N.Y.S.773andKeatingv.Hammerstein,125Misc.334,209N.Y.S.769.

Itistruethatthelinedrawnbythecasesdeterminingwhenastockholdermayormaynotsueinpersonisnot
toowelldefined.Atleastthereasoningcontainedinthemdoesnotuniformlypointtothesameresult.Thebetter
ruleseemstobethatastockholdermaysuepersonally,asdistinguishedbysuitinarepresentativecapacity,
whenhehassustainedalossseparateanddistinctfromthatofotherstockholders.Theentryofthepartiesinto
thestockholderscontrolagreementdidnotoperatetoconferuponplaintiffstherighttoanindividualdirect
actionthatdidnotexistbefore.Wepointoutthatthecontrolagreementisupheldonthetheorythatitwasfor
thebenefitofthecorporationandallstockholdersalike.Ifithadoperatedtobestowspecialprivilegesuponone
orbothofthestockholdersattheexpenseofstockholdersnotapartytotheagreement,thevalidityofthe
agreementwouldappeardoubtful.Plaintiffsassertnocauseofactionpeculiarlytheirownasdistinguishedfrom
otherstockholders.Thecontrolagreementpurportsonlytoestablishabusinesspolicyforthecorporation,the

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continuanceofwhichisassuredbythecontractualrightofBucktonominatetwoofthedirectors.Theplaintiffs,
therefore,findthemselvesinasituationwheretheymustchoosebetweentwocoursesofaction,sustainthe
controlagreementandseektheirremedyfordamagesbyarepresentativesuitor,ontheotherhand,assert
specialrightsappurtenanttotheirsharesofstockandhavenocauseofactionatallfordamagesresultingtoall
stockholders.Plaintiffsclearlychosethewrongremedyunderthefactspresented.

Toholdthatplaintiffscouldsuepersonallyinthepresentcasewouldauthorizeasuitbyeachstockholderand
resultinamultiplicityofsuits.Thedamagesallegedaretothecorporationwhichisownedbyallthe
stockholders.Itfollowsthatarightofastockholdertosueunderthefactspleadedisderivativeonly.The
recovery,ifany,wouldbeinfavorofthecorporationand,indirectlytoallstockholders.Thesupplemental
petitionsetsforththedamagesallegedtobeduetothebreachofthecontrolagreementbythedefendants.
Plaintiffspraythat40percentthereof,basedontheirownershipof40percentofthestockofthecorporation,
indicatingthatplaintiffsrecognizethatthedamagesresultedtoallstockholders,shallbeawardedtothem
personally.Inotherwords,foradirectinjurytothestockofastockholder,notcommontoallstockholdersas
such,plaintiffsmaypursueapersonalaction.Theplaintiffsdonotcomewithinthisruleinthecaseatbar.When
theinjuryistothecollectiverightsofstockholdersandthecorporatepropertyhasbeenaugmentedby
restitution,theplaintiffs,whohavesufferedasoneofthese,willbefullyindemnified.Ifastockholderis
permittedtobringanactionpersonallytorecoverhisproportionateshareofthedamagessufferedbythe
corporation,asubsequentrecoverybyorforthecorporationwouldbeequivalenttoadoublerecoverybyhim.
Topermitsuchanactionbythestockholderindividuallycouldpossiblyinjuretherightsofcreditorsandtaxing
authorities.Thereasoningofthecasesthatastockholdercannotsuepersonallyfordamageswhereonlyhis
derivativeorcorporaterightshavebeeninfringed,appearsunassailable.Wehold,forthereasonsstated,that
plaintiffshaveneitherallegednorprovedanyrighttodamagesforwhichtheycouldsuepersonallyintheir
capacityasstockholders.Thejudgmentintheamountof$33,612,bearingdateofJanuary14,1953,istherefore
reversedandthe*308pleadingdesignatedasanancillaryandsupplementalpetitionisdismissed.

Forthereasonshereinstated,thedecreeofOctober29,1951,isaffirmed,andthedecreeofJanuary14,1953,is
reversedandthepleadingdesignatedanancillaryandsupplementalpetitionisdismissed.

AffirmedinPart,andinPartReversedandDismissed.

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