E.K. Buck Retail Stores v Harkert AUTHOR: Magsino, Patricia Marie C.

157 Neb. 867 (Neb. 1954) NOTES:

TOPIC: Pooling and voting agreements
PONENTE: Carter, J.
FACTS:
Walter Harkert was the sole owner of chain of restaurants of hamburger stands, his finances were low
and so he engaged in the selling of fixtures and entering into agreements to buy the fixtures and
equipment back at the end of 5 years for a higher price, payment to be made in monthly installments for
a period of 5 years
Harkert then became acquainted with Earl Buck who he entered into 4 purchase and resale agreements
with
Harkert Houses was incorporated with the expectation that Buck would be interested in advancing more
money for his interests and the new corporations
Sometime in 1937, Harkert and Buck entered into a Stockholders Control Agreement, this contract
provided that Buck would cancel Harkerts debt ($55, 650) in exchange for 40% of stocks in Harkert
Houses, and although Buck only holds 40% of the stocks he may nominate 2 out of the 4 Board of
Directors of the Corporation
Because of Bucks financial support, Harkert Houses survived
Harkert now does not want to honor the contract because he contends that voting for the Board of
Directors should be based on the shares owned in the corporation and not based on the Stockholders
Control Agreement
Harkert contends that the agreement is in violation of Art. XII, Sec. 5 of the Constitution which provides:
o The Legislature shall provide by law that in all elections for directors or managers of
incorporatedcompanieseverystockholdershallhavetherighttovoteinpersonorproxyforthe
numberofsharesownedbyhim,forasmanypersonsastherearedirectorsormanagerstobe
elected or to cumulate said shares and give one candidate as many votes as the number of
directorsmultipliedbythenumberofhissharesshallequal,ortodistributethemuponthesame
principleamongasmanycandidatesasheshallthinkfit,andsuchdirectorsormanagersshall
notbeelectedinanyothermanner;
Twodecrees(judgments)wererenderedaftertrialontheissuespresented
o 1ST DECREE:TheStockholdersControlAgreementwasvalid,andHarkertisrestrainedfrom
violatingtheagreement
o 2NDDECREE:Sameas1stdecree,theagreementwasvalidandHarkertisorderedtopay$33,
612
HarkertisnowappealingbeforetheCourt

ISSUE(S):

Is the Stockholders Control Agreement valid?

HELD:
YES. The Court held that the Stockholders Agreement is valid.

RATIO:

Although the constitutional provision provides that directors may not be elected in any other manner, the
Court held that the Stockholders Control Agreement did not ipso fact change the manner of election
prescribed by the Constitution
It was held that the purposeofArticleXII,section5,oftheConstitutionistosecuretominoritystockholders
avoiceinthemanagementoftheaffairsofthecorporationinproportiontothenumberoftheirshare
ItwasalsoheldthattheConstitutionalprovisionspurposewastoprovideforcumulativevotinginthe
 accomplishmentofwhichitwasnecessarytofixthevotingpowerofthesharesofstocks
TheCourtfindsnothinginthesectionwhichchangesthethenexistingrightsofastockholdertocontractwith
anotherstockholderwithreferencetohowheshouldvotehisstock
Quoted from the decision:
o Weconcludethatstockholderscontrolagreementsarenotinvalidperse.Iftheyarebasedona
sufficientconsiderationbetweenthecontractingstockholderstheyarevalidandbindingiftheydo
not contravene any express constitutional or statutory provision or contemplate any fraud,
oppression,orwrongagainstcreditorsorotherstockholders,orotherillegalobject.Wheresucha
situationappearsitisnotillegaloragainstpublicpolicyfortwoormorestockholdersowningthe
majorityofthesharesofstocktouniteuponacourseofcorporatepolicy,orupontheofficers,
includingdirectors,whomtheywillelect.
CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):