Schreiber v. Carney

Jet Capital Corporation owned 35% of Texas International Airlines, Inc. and had veto power over a proposed merger between Texas International and another company. Jet claimed that it would veto the proposed merger unless it could exercise warrants it held in Texas International. However, Jet need cash to finance the exercising of the warrants and suggested that Texas International provide the necessary funds. Texas International and Jet proposed the financing and the board approved. As a condition to the approval and based on an awareness of impropriety, the company's required a majority of shares voted by stockholders other than Jet and Texas International. The plaintiff brought suit alleging that Texas International's loan constituted vote buying, as Texas International's loan removed Jet's opposition to the proposed merger.

". . . [A]n agreement relating to voting must be considered and voting agreements in whatever form, therefore, should not be considered to be illegal per se unless the object or purpose is to defraud or in some way disenfranchise the other stockholders. This is not to say, however, that vote-buying accomplished for some laudible purpose is automatically free from challenge. Because vote-buying is so easily susceptible of abuse it must be viewed as a voidable transaction subject to a test for intrinsic fairness." The court concluded that because (1) the intent was not to defraud or disenfranchise the other shareholders and (2) that the the loan agreement was voidable and thus subject to shareholder approval and was subsequently ratified by a fully informed majority of the independent stockholders, the transaction was valid.

The Voting System