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Keywords

contractbreach of contractbailarbitrator
defendantwillarbitrator

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Ringling Bros.-Barnum & Bailey Combined Shows v. Ringling, 29 Del.Ch. 610, 53 A.2d 441

Facts

Edith Conway Ringling filed a suit against Ringling Brothers-Barnum & Bailey Circus and others to challenge the validity of the 1946 annual stockholders' meeting. The meeting was attended by three stockholders, including Mrs. Ringling and Mrs. Haley, who had a prior agreement regarding the voting of their shares. Disagreements arose over how to vote, particularly concerning an adjournment and the election of directors, leading to the court's involvement to determine the legality of the meeting and the election results.

The parties will be referred to by their designations in the court below. The Court of Chancery was called upon to review an attempted election of directors at the 1946 annual stockholders meeting of the corporate defendant.

Issue

The main legal issues were whether the stockholders' meeting was valid and whether the agreement between Mrs. Ringling and Mrs. Haley regarding the voting of shares was enforceable.

The pivotal questions concern an agreement between two of the three present stockholders, and particularly the effect of this agreement with relation to the exercise of voting rights by these two stockholders.

Rule

The court applied principles regarding stockholder agreements and the validity of voting rights, determining that agreements to vote in a certain manner can be valid if they do not violate public policy or statutory requirements.

The Vice Chancellor determined that the agreement to vote in accordance with the direction of Mr. Loos was valid as a ‘stock pooling agreement’ with lawful objects and purposes, and that it was not in violation of any public policy of this state.

Analysis

The court analyzed the agreement between Mrs. Ringling and Mrs. Haley, concluding that it constituted a valid stock pooling agreement. The court held that the arbitrator's decision regarding the voting of shares was binding, and that failure to comply with this decision constituted a breach of contract. The court emphasized that the agreement aimed to facilitate joint action in voting and did not violate any laws or public policy.

The agreement does not describe the undertaking of each party with respect to a decision of the arbitrator other than to provide that it ‘shall be binding upon the parties’. It seems to us that this language, considered with relation to its context and the situations to which it is applicable, means that each party promised the other to exercise her own voting rights in accordance with the arbitrator's decision.

Conclusion

The court concluded that the election of directors at the 1946 meeting was invalid due to the improper voting of shares and ordered a new election to be held, recognizing the binding nature of the agreement between the stockholders.

We find the provision reasonable. It does not appear that the agreement enables the parties to take any unlawful advantage of the outside shareholder, or of any other person. It offends no rule of law or public policy of this state of which we are aware.

Who won?

Edith Conway Ringling prevailed in the case because the court found that the election was invalid and that her rights as a stockholder were violated by the improper voting of shares.

The Vice Chancellor decided that no valid meeting of stockholders had been held and that a meeting should be held before a master to be appointed by the Court of Chancery pursuant to Section 31.

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