TATE EX. REL. EVERETT TRUST & SAVINGS BANK v. PACIFIC WAXED PAPER CO., ET. AL. 152 P.

2d
707, 159 ALR 297 (1945) (LANZON)

Doctrine: The general rule is that a proxy given by a stockholder to vote his corporate stock at a meeting of
stockholders of a corporation is revocable by him even though the proxy by its terms is expressly made irrevocable.
The exceptions are: (1) Where the authority or power is coupled with an interest; and (2) Where the authority is given
as part of a security or is necessary to effectuate such a security. It is a power coupled with interest is it is a power or
authority to do an act, accompanied by or connected with an interest in the subject or things itself upon which the
power is to be exercised, the power and interest being united in the same person. The authority is given as part of a
security or is necessary to effectuate such a security if the interest of the agent is something more than an interest yet
something less than an estate. This is to protect the money and advanced or obligations incurred by the agent.

FACTS: Jordan was the owner of all the capital stock of the Paine-Mitchell, Engle on the other hand was the owner
of preferred and common stock of Pacific Waxed Paper Company(PACIFIC WAXED). Paine-Mitchell was also an
owner of common stock of Pacific Waxed. All stocks of Pacific Waxed had voting power, and the combined shares
of Engle and Paine-Mitchell were more than a majority of all the issued stock. On 1931, Engle and Paine-Mitchell
entered into an agreement wherein both promise that before one sells or transfers any part or portion of the stock then
owned and held by each other, the person selling or transferring shall notify the other party of the intention to sell or
transfer, and also give the other party 15 days an exclusive right and option to purchase the stock proposed to be sold
or transferred. The agreement was to be in force for 25 years. On 1932, Engle, Paine-Mitchell and Jordan entered into
another agreement where they recited the fact that Jordan owned all of the stocks of Paine-Mitchell. The contract also
assured continuity of the present co-operation between them even after the death of either Engle or Jordan.

They agreed further that in the event of Engle’s death, If Paine-Mitchell is still an owner of any of the stock of Pacific
waxed, then they should be entitled to vote on any stock owned by Engle in Pacific waxed at all meetings as long as
Paine-Mitchell continued to be the owner of the stock in Pacific waxed it owned at the time of death of Engle. It was
also agreed that it should be deemed as an irrevocable proxy of Engle’s heirs and Legal representative to Paine-
Mitchell, with full power of substitution to vote on the Engle stock at all meetings. The same agreement provided that
in the event of Jordan’s death, that Engle should have the same voting right as to the stock of Pacific Waxed owned
by Paine Mitchell and Jordan or either of them and such will constitute as a similar irrevocable proxy. In 1942, Jordan
died testate, in his will he named Everett Trust Savings Bank as administrator and Executor. Everett caused Paine-
Mitchell to voluntarily dissolve, and as a result Paine-Mitchell’s stock in Pacific Waxed was transferred to Everett.
Everett sought to vote using Paine-Mitchells stock at a stockholders meeting of Pacific Waxed but was denied because
of the proxy held by Engle. Everett then filed a suit seeking to secure a writ of mandamus commanding Pacific Waxed
to transfer on its books certain shares of its corporate stock formerly owned by Paine-Mitchell, and to issue to Everett,
shares in lieu of the said stocks and to recognize Everett’s right to vote on the stocks in all stockholder meetings of
Pacific Waxed. The trial court dismissed the action. Hence the appeal

ISSUE: WON the proxy to vote exercised by Engle on the stock of Pacific Waxed, Owned by Paine-Mitchell was
revocable

HELD: No, the option and proxy agreements were both based upon a valid consideration. The proxy agreement
provided that the proxy should be irrevocable. The agreements did not violate any rule of public policy. Their purposes
were lawful and beneficial to the parties to them, and no sufficient reason has been given why the intention of the
parties as expressed should not be carried out.

The general rule is that a proxy given by a stockholder to vote is corporate stock at a stockholders meeting of a
corporation is revocable by him even though the proxy by its terms is expressly made irrevocable.
- The exceptions are: 1.) Where the authority or power is coupled with an interest 2.) where the authority is given
as part of a security or is necessary to effectuate such a security

It is clear that from the proxy agreement and the facts that the parties intended that the Paine-Mitchell stock should be
used in conjunction with the stock owned by Engle so that the policies of Pacific Waxed could be controlled. It was
agreed that the proxy should exist and continue until such time as Engle should sell or transfer the stock owned by
him at the time of the death of Jordan. The control of the affairs of the corporation was of importance to Engle, and
by such control his own stock interest in the corporation was made more.
To make this possible, the parties executed the option and proxy agreement which provided the mutual proxy was to
be considered as irrevocable. This is a much broader and more far-reaching arrangement than will be found in the
ordinary proxy given to vote stock at a stockholder’s meeting at which the proxy holder does no more than act as the
agent of the owner of the stock for a specific purpose. In this situation, Engle was more than a mere agent. In voting
the stock he served his own purpose in maintain control of the corporation. This voting of stock for these purpose was
the subject of the agency. Engle acquired an interest in the subject matter of the power given to him and this interest
was coupled with power. The power to vote the stock was necessary in order to make Engle’s control of the corporation
secure. The interest of Engle was something more than being permitted to vote on the stock owned by Paine-Mitchell
Thus there being an interest coupled with power in the proxy it now falls under the first exception thus making the
proxy irrevocable.
 CAMPBELL v. LEOW’S INC. 134 A. 2d 852 (1957) (ABRIGO)
PONENTE: SEITZ, Chancellor DATE. September 19, 1957

DOCTRINE:
Stockholders have the inherent right between annual meetings to fill newly created directorships. Matters for
stockholder consideration need not be conducted with the formality of judicial proceedings. Directors that are to be
ousted for cause have the right to be heard and present their side to the stockholders before the vote to oust them
occurs. As in this case, the court invalidated proxy votes for removal where the company deliberately only allowed
their side to be heard.

FACTS:
Two factions have been fighting for control of Loew's. One faction is headed by Joseph Tomlinson (hereafter
"Tomlinson faction") while the other is headed by the President of Loew's, Joseph Vogel (hereafter "Vogel faction").
At the annual meeting of stockholders last February a compromise was reached by which each nominated six directors
and they in turn nominated a thirteenth or neutral director. But the battle had only begun. Passing by much of the
controversy, we come to the July 17-18 period of this year when two of the six Vogel directors and the thirteenth or
neutral director resigned. A quorum is seven.

On the 19th of July the Tomlinson faction asked that a directors' meeting be called for July 30 to consider, inter alia,
the problem of filling director vacancies. On the eve of this meeting one of the Tomlinson directors resigned. This left
five Tomlinson directors and four Vogel directors in office. Only the five Tomlinson directors attended the July 30
meeting. They purported to fill two of the director vacancies and to take other action. This Court has now ruled that
for want of a quorum the two directors were not validly elected and the subsequent action taken at that meeting was
invalid.

Meanwhile, in his capacity as president, Vogel sent out a notice calling a stockholders’ meeting for the following
purposes:
· Fill director vacancies.
· Amend the by-laws, increase the number of board from 13 to 19, increase quorum from 7 to 10, and elect 6
additional directors.
· Remove directors Meyer and Tomlinson and fill such vacancies.

Then, Vogel sent out a “proxy statement” soliciting stockholder support for the meeting. Campbell, a member of
Tomlinson's faction, filed this action for preliminary injunction to prevent the stockholders’ meeting.

a) to require the individual defendants to account for money they have caused the corporation to pay for solicitation
of proxies on their behalf in connection with a stockholders' meeting called by Vogel, the president, for September
12.

(b) to restrain the defendants, their officers and agents from using the corporate funds in the solicitation of proxies by
two of the individual defendants (Vogel and Killion) and their associates and from using or allowing corporate officials
or employees to solicit proxies for the individual defendants or anyone associated with them.

(c) to have the Court enjoin the holding of a stockholders' meeting called for September 12, 1957, on the ground that
it was illegally called.

ISSUE: Whether or not the proxy statement is valid.

HELD:
No.
The director has a due process right to defend himself even though the stockholders have the inherent right to
remove him.

Campbell’s argument:
That the stockholders can vote to remove a director for cause only after such director has been given adequate notice
of charges of grave impropriety and afforded an opportunity to be heard.
Court’s Ruling:
Court agrees. If the proceedings preliminary to submitting the matter of removal for cause to the stockholders appear
to be legal and if the charges are legally sufficient on their face, the Court should ordinarily not intervene. The
sufficiency of the evidence would be a matter for evaluation in later proceedings. But where the procedure adopted to
remove a director for cause is invalid on its face, a stockholder can attack such matters before the meeting. When the
stockholders attempt to remove a director for cause, there must be the service of specific charges, adequate notice and
full opportunity of meeting the accusation.

Campbell’s argument:
The proceedings are infirm because no specific charges have been served upon the two directors sought to be ousted;
and that the notice of the special meeting fails to contain a specific statement of the charges; that the proxy statement
which accompanied the notice also failed to notify the stockholders of the specific charges; and that it does not inform
the stockholders that the accused must be afforded an opportunity to meet the accusations before a vote is taken.

Court’s Ruling:
Court disagrees. Matters for stockholder consideration need not be conducted with the same formality as judicial
proceedings. The proxy statement specifically recites that the 2 directors are sought to be removed for the reasons
stated in the president's accompanying letter. Both directors involved received copies of the letter. Under the
circumstances, the two directors involved were served with notice of the charges against them. It is true, as plaintiff
says, that the notice and the proxy statement failed to contain a specific statement of charges. But as indicated, the
accompanying letter was sufficient compliance with the notice requirement. The material sent out need not advise the
stockholders that the accused must be afforded an opportunity to defend the charges before the stockholders voted.
Such an opportunity had to be afforded as a matter of law and the failure to so advise them did not affect the necessity
for compliance with the law. Thus, no prejudice is shown.

Campbell’s argument:
Charges against the 2 directors do not constitute cause as a matter of law. (The charges are as follows: that the directors
desired to take over control of the corporation, and that the directors engaged in a calculated plan of harassment to the
detriment of the corporation)

Court’s Ruling:
Court disagrees. The charge is sufficient. A charge that the directors desired to take over control of the corporation is
not a reason for their ouster. Standing alone, it is a perfectly legitimate objective which is a part of the very fabric of
corporate existence. Nor is a charge of lack of cooperation a legally sufficient basis for removal for cause. However,
the other charge in this case is that these directors, in effect, engaged in a calculated plan of harassment to the detriment
of the corporation. Certainly a director may examine books, ask questions, etc., in the discharge of his duty, but a
point can be reached when his actions exceed the call of duty and become deliberately obstructive. In such a situation,
if his actions constitute a real burden on the corporation then the stockholders are entitled to relief. The charges in this
area made by the Vogel letter are legally sufficient to justify the stockholders in voting to remove such directors. The
charge of a planned scheme of harassment as detailed in the letter constitutes a justifiable legal basis for removing a
director.

Campbell’s argument:
The directors have not been given a reasonable opportunity to be heard by the stockholders on the charges
made.

Court’s Ruling:
Court agrees. The corporate defendant freely admits that it has flatly refused to give the five Tomlinson
directors or the plaintiff a stockholders' list. By this action the corporation through the Vogel group has
deliberately refused to afford the directors in question an adequate opportunity to be heard by the stockholders
on the charges made. This is contrary to the legal requirements which must be met before a director can be
removed for cause. At the oral argument the defendant's attorney offered to mail any material which might be
presented by the Tomlinson faction. Nonetheless, this falls far short of meeting the requirements of the law.
While the directors involved or some other group could mail a letter to the stockholders and ask for a proxy,
which would revoke the earlier proxy, this procedure does not comport with the legal requirement that the
directors in question must be afforded an opportunity to be heard before the shareholders vote. Thus, the proxy
solicited by the Vogel group, which is based upon unilateral presentation of the facts by those in control of the
corporate facilities, must be declared invalid insofar as they purport to give authority to vote for the removal
of the directors for cause.
 MCQUADE V. STONEHAM, ET. AL. 189 N.E. 234 (1934) CA-NY (ANDAL)
PETITIONER vs. RESPONDENT
PONENTE: DATE.

DOCTRINE: Shareholders can not form an agreement to control the decisions traditionally vested in the judgment of
the directors of a company.

FACTS:
 The parties enter into an agreement to secure the control of National Exhibition Company, also called the
Baseball Club.
 The National Exhibition Company was one of Stoneham’s enterprises, which used the New York polo
grounds for its home games.
 McGraw was the manager of the Giants.
 McQuade was at the time the contract was entered into a city magistrate. He resigned on December 8, 1930.
 Defendant Stoneham became the owner of 1306 shares or a majority of the stock of National Exhibition
 Company. Plaintiff McQuade and Defendant McGraw each purchased 70 shares of his stock
 McQuade paid Stoneham $50,338.10 for the stock he purchased. As a part of the transaction, the agreement
in question was entered into.
 In pursuance of this contract, Stoneham became president and McGraw vice president of the corporation.
McQuade became the treasurer.
In their agreement, it was stated that defendants must use their best efforts to keep each of the parties
in their respective positions.
 May 2, 1928 – Stoneham and McGraw refrained from voting, McQuade voted for himself, and the other four
board of directors voted for Bondy as treasurer.
 Defendants did not keep their agreement with McQuade to use their best efforts to continue him as treasurer.
He was dropped with their entire consent.
 At the next stockholders’ meeting McQuade was dropped as a director The cause for dropping him was the
falling out of friends.

ISSUE:
W/N the agreement between the parties (particularly to keep McQuade as treasurer) is valid.

HELD:
NO
Shareholders should not be able to usurp the decision-making normally left to the directors, and the directors should
be beholden to the corporation and not the shareholders.
Although, evidence indicated that Stoneham may have exercised bad faith in that plaintiff was competent in his
position and was ousted over personal disagreements, the director’s intentions are irrelevant because the court does
not want to put directors in a position wherein they would have to defend future decisions.
Plaintiff was also ineligible for employment with NEC because he was a City Magistrate.

DISPOSITIVE PORTION: