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Law School Case Brief

Lehrman v. Cohen - 222 A.2d 800 (Del. 1966)

Rule:

The tests for determining the existence of a voting trust are as follows: the voting rights of the stock are separated from the other attributes of ownership; the voting rights granted are intended to be irrevocable for a definite period of time; and, the principal purpose of the grant of voting rights is to acquire voting control of the corporation. 

Facts:

In hopes of avoiding disruption of company business, Jacob Lehrman and defendants agreed to transfer ownership of stock in the business. The agreement included establishment of a fifth directorship to obviate the risk of deadlock that the equal division of voting power between defendants' stock and Lehrman’s stock perpetuated. To implement the agreement, Giant Food Inc.’s certificate of incorporation was amended to create a third class of voting stock entitled to elect the fifth director. Lehrman claimed that the creation, issuance, and voting rights given in the share of this new stock was illegal, that it separated the attributes of ownership, and that it was a disguised trust contrary to the Voting Rights Statute, Del. Code Ann. tit. 8, § 218.

Issue:

Was the stock arrangement between the parties in effect a voting trust, and thus illegal under the Voting Trust Statute, Del. Code Ann. tit. 8, § 218?

Answer:

No

Conclusion:

Applying the Abercrombie test, the court concluded that there was no disguised trust, and the new class of voting stock did not illegally alter the attributes of the originally-issued stock. The voting powers and participating rights of the new class of stockholders were made legal through specification in the company's certificate of incorporation.

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