Smith v. S.F. & N.P. Railway Company

Supreme Court of California · 1897 · Corporations

48 P. 1106 (Cal. 1897)

Updated August 22, 2026

CorporationsCorporate electionsStockholder votingProxiesbona fide stockholderregistered holderdummy stockholderproxy

Facts

At the 1896 annual election for directors of the San Francisco & North Pacific Railway Company, votes tendered on shares standing in the names of Gundecker, Wagner, and Smith were rejected. Gundecker and Wagner's shares stood on the books for more than ten days before the election, but defendants alleged they were merely dummies for Ladenburg, Thalman & Co., placed on the books so the real owners could avoid stockholder liability. Smith's own shares were rejected because he, Foster, and Markham had entered an agreement after jointly purchasing a large block of stock that the shares would be voted as a unit for five years, with the vote determined by ballot among them; Foster and Markham cast Smith's shares under that agreement while Smith attempted to vote differently. If the rejected votes had been counted for plaintiff's side, Smith rather than Lilienthal would have been elected director.

Issue

Under Civil Code section 312, may persons whose names appear on the corporate stock books vote if they are merely dummy holders with no real interest in the stock? Also, may a stockholder disregard a prior voting agreement that lawfully authorizes jointly purchased stock to be voted as a unit through the determination of the majority of the contracting parties?

Rule

Civil Code section 312 requires that a voter at a corporate election be both registered in his own name on the stock books for at least ten days and be a bona fide stockholder at the time of the election. A person who has never had any interest in the stock and is merely a dummy for the real owner, especially where registration was made to let the real owner avoid statutory stockholder liability, is not a bona fide stockholder and may not vote. A stock-voting agreement may operate as a proxy if its terms authorize others to determine and cast the vote, and when such an agreement is supported by valuable consideration and aimed at a lawful corporate purpose, it is valid, not against public policy, and not revocable at the mere pleasure of one party.

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Redwood Quarry Rail, a California corporation based in Sacramento, held its annual director election. Ten days before the election, 3,000 shares were transferred on the books into the name of Nolan Pierce, but evidence showed Pierce had never paid for, possessed, or claimed any interest in the shares and that the transfer was arranged by the true owner, Bay Crest Trading, solely to avoid statutory stockholder liability.

If Pierce tenders a vote for those shares, how should the election inspectors rule?

Explanation. The governing rule requires the voter to be both registered on the books for at least ten days and a bona fide stockholder at the time of the election. The majority opinion permits inquiry into the character of the holder’s title and excludes a registered holder who has never had any interest in the stock and is only a dummy for the real owner, especially when the registration was arranged to avoid stockholder liability.