Abercrombie v. Davies - 130 A.2d 338 (Del. 1957)

Rule:

Voting trusts derive their validity solely from Del. Code Ann. tit. 8, § 218. The test of validity is the rule of the statute. When the field was entered by the legislature it was fully occupied and no place was left for other voting trusts. The statute lays down for voting trusts "the law of their life"; compliance with its provisions is mandatory. Voting trusts not so complying are illegal.

Facts:

Appellee shareholders and agents entered into an Agents’ Agreement to achieve effective control of the board and thus, control of corporate policy. The Agreement transferred voting control of the stock of the six stockholders to the eight Agents for a period of ten years. Under the Agreement, the Agents were to be, as far as possible, identical with the directors. The agreement of seven of the eight was required to vote the stock and elaborate provisions were added for the choice of an arbitrator to resolve disagreements. Appellant shareholders and company brought an action against the appellees to invalidate the Agreement. Both parties sought review of the lower court judgment that found the agreement to be a pooling agreement rather than a voting trust.

Issue:

Was the agreement between the appellee shareholders and agents an invalid voting trust? 

Answer:

Yes.

Conclusion:

The court reversed that part of the lower court judgment that held the agreement between appellees to be a pooling agreement because it found that the agreement was clearly an invalid voting trust due to the fact that the agreement did not satisfy Del. Code Ann. tit. 8, § 218. The court determined that § 218 was not fully complied with in that the shares were not transferred on the books and a copy of appellees' agreement was not filed with appellant company. The court held that the effect of appellees' failure to comply with § 218 was that a secret voting trust was created and it was statutorily forbidden.