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SEC. 12. The board of directors elects yearly after the meeting of the stockholders a chairman and vice-chairman.

The calling of a meeting of the board of directors, of which a record is to be kept, lies in the hands of the chairman, or, in case of inability to act, of the vice-chairman. On the motion of a member of the executive committee, or of 2 members of the board of directors, the chairman is required to call a meeting within 3 days.

The members of the executive committee must attend the sessions of the board of directors when requested by the chairman.

SEC. 13. A quorum of the board of directors consists of 3 or more members, among whom the chairman or vice-chairman must be present. Actions are taken by absolute majority. In case of equal division, the vote of the presiding officer determines, except in regard to elections, as to which the decisions shall be reached by lot. In pressing cases the chairman may secure a vote by means of writing or the telegraph.

SEC. 14. Each member of the board of directors must deposit 10 shares of the company as a security with the board of directors during his period of office. The board of directors receives, in addition to the payment of its expenses, the amount named in section 22 as compensation for its services, and determines within itself regarding the division thereof. The publication and the carrying out of the resolutions of the board of directors, as well as of all its directions, is the duty of the chairman or vice-chairman.

SEC. 15. The board of directors is to supervise the executive in its conduct of business in all branches of the administration, and for that purpose is to keep itself informed as to the condition of the affairs of the company.

It can, at any time, require reports regarding the condition of affairs from the executive committee, and may itself, through an individual member to be designated by it, inspect the books and papers of the company and its treasury, as well as inspect its holdings of effects, wares, and supplies.

The board of directors must examine the yearly accounts, the balance sheets, and the proposals regarding the division of profits and the expenditure of the reserve funds, and on this subject yearly make a report to the general meeting of the stockholders.

The executive committee must yearly summon the regular stockholders' meeting, as well as an extraordinary meeting in case the calling thereof is necessary in the interest of the company, or in case it is demanded either by the executive committee or by stockholders whose shares together amount to one-twentieth of the capital, with a statement of the object and the reasons for calling the meeting,

In addition the board of directors has whatever powers are granted to it by the provisions of the law or of the present articles.

C. Stockholders' meeting. SEC. 16. The regular stockholders' meeting takes place during the first 6 months of the business year in Nuremberg, and is called by the board of directors through a single publication in the official journals named by the company. (See Title VI.) Between the day of the notice and the meeting at least 18 days must intervene.

In the notice the purpose of the general meeting (order of business) shall be stated.

In the same way the summoning of a special meeting of the stockholders takes place.

No resolution may finally be taken regarding subjects which are not indicated upon the order of business, or concerning which notice has not been given at least 1 week before the day of the meeting. This does not apply to a motion made in a general meeting regarding the appointment of auditors (Revisoren) or regarding the summoning of an extraordinary meeting.

Sec. 17. Every shareholder is entitled take part in the general meeting. Shareholders who wish to take part in the general meeting must deposit their shares, without the dividend coupons, or the certificates of deposit covering them at least 3 days before the general meeting, the day of the meeting as well as that of the deposit not being counted, at the places designated by the board of directors or with a notary, and the shares so deposited shall remain until the close of the general meeting.

SEC. 18. Every shareholder has one voice in the general meeeting. The voting right of a shareholder may be exercised by his proxy legally chosen or provided with the written power of attorney of the stockholder. The members of the board of directors present in the stockholders' meeting decide regarding the recognition of proxies which are not authenticated by a court officer or notary, as well as regarding any other matters relating to the right to vote.

Sec. 19. The stockholders' meeting decides(1) Regarding the decrease or increase of the share capital; (2) Regarding all changes in the constitution and by-laws; (3) Regarding the merger or the dissolution of the company; (4) Regarding the alteration or the extension of the objects of the undertaking; (5) It elects the board of directors;

(6) It receives the report of the management on its business, together with the account of profit and loss and the balance sheet and the auditing report of the board of directors; it orders regarding the balance and the division of profits and discharges the management and the executive committee from responsibility for past acts;

(7) It appoints auditors for the examination of the balance sheet.

The subjects numbered 5 and 6 constitute the regular order of business of the annual meeting of the stockholders.

Action regarding the balance sheet shall be postponed if this is ordered by a simple majority or, if requested, by a minority whose shares constitute one-tenth of the capital; on the request of such minority, however, only if designated features of the balance sheet are lacking.

Action regarding subjects numbered 1 to 4 above can be taken only by a majority of three-fourths of the capital stock voting on the subject.

In all other cases the stockholders' meeting acts by simple majority.

All votes take place by written ballot unless another method of voting is unamimously agreed to. In case of equal division, motions are regarded as defeated except in regard to elections. Equal division in case of elections is decided by lot.

SEC. 20. The chairman or vice-chairman of the board of directors presides at the stockholders' meeting, or in the inability of either to act, one of the members of the board of directors, to be selected by the members of the board present. If none of these persons appears or is prepared to act at the opening of the meeting, the oldest stockholder present opens it and the meeting then selects the presiding officer.

The presiding officer may determine the order of the subjects to be considered, even modifying the published order.

The stockholders' meeting elects from among members present two tellers.

A duly authenticated report of the actions of the stockholders' meeting has to be made, which must in every case be signed by the presiding officer and the two tellers. A list of the stockholders present or represented by proxy must be appended, with their residence and with the amount of stock represented by each,

TITLE IV.Balance sheet, division of profits and reserves. SEC. 21. The business year of the company begins on the 1st of July and ends on the 30th of June of each year. An inventory and balance sheet has to be prepared on the 30th of June of each year.

The general provisions of sections 40, 261, and 262 of the commercial code of May 10, 1897, apply to the preparation of the balance sheet.

The board of directors determines, in conjunction with the executive committee, whether an amount corresponding to the depreciation of establishments and articles which are intended for the permanent conduct of the company's business, of the cost of purchase or construction, or of the book value already standing at less than this cost, is to be written off, or whether a renewal fund corresponding to the amount of depreciation shall be established, or whether an existing renewal fund shall be increased. The executive committee must present the balance sheet and the account of profit and loss for the past business year, as well as a report showing the status of the property and the condition of the company, to the board of directors each year not later than the end of September. These documents, as well as the auditing report of the board of directors, must be exhibited for the inspection of shareholders at the office of the company at least 2 weeks before the day of the annual meeting.

SEC. 22. From the net profit shown by an approved balance sheet are to be assigned

(1) Five per cent to the regular reserve fund as long as it does not exceed 10 per cent of the share capital; (2) for the extraordinary reserve fund an amount to be determined by the board of directors; (3) 4 per cent upon the share capital; (4) after providing for the regular and extraordinary reserve fund, as well as after the deduction of any other special funds approved by the general meeting, and after the division of 4 per cent dividends upon the share capital, the remaining amount is to be assigned

(a) Ten per cent to the board of directors as a premium or bonus;

(b) Ten per cent, according to the determination of the board of directors, to the executive committee, the officers, and the employees of the company;

(c) The remainder stands at the disposition of the general meeting, which determines regarding its division upon the motion of the board of directors.

SEC. 23. The board of directors determines regarding the expenditure of the extraordinary reserve fund, in so far as the stockholders' meeting has not expressly reserved to itself the disposition when providing for it.

So long as the general meeting does not direct otherwise, the ordinary and extraordinary reserve fund is turned without interest into the current fund, but without affecting its establishment on the books.

TITLE V.-Liquidation.

In case of the dissolution of the company through liquidation, or through combination with another company, the stockholders' meeting, which orders the liquidation, determines the methods of carrying it out and elects the receivers.

For the rest the provisions of the commercial code of May 10, 1897, apply.

TITLE VI.- Official notices.

All notices of the company must be published in the Deutschen Reichsanzeiger, Frankfurtur Zeitung, Frankischen Kurier.

APPENDIX V.

LEADING DECISION REGARDING THE VALIDITY OF A COMBINA

TION CONTRACT,1

41. Associations of tradespeople for the bringing about and maintaining adequate prices for the products of their industries. Are the restrictions to which the members submit on account of the rules and regulations of the association concerning their industries consistent with the principle of freedom of industry; and can the fines for the nonperformance of the contract be claimed through the court? Have the members the right to go out of the association at any time against the rules of the latter?

(VI Civil senate, decision of February 1897, I. S. B. (defendant), v. The Combination of the Saxon Pulp Manufacturers, plaintiff (Compl.), Rep. VI., 307–396. 1. General court of justice (Dresden). 2. Court of appeal.)

In March, 1893, a great number of firms which produce in Saxony white pulp formed the “Saxon Combination of Pulp Manufacturers" with the object “of preventing in future the ruinous competition among themselves and obtaining an adequate price for their product.” In order to realize this aim the members pledged, under penalty of a fine, to sell their product exclusively through a joint selling agency. The combination was formed to continue until October 31, 1895.

The combination, maintaining that the defendant became a member of the combination, but contrary to the rules repeatedly sold his product in the years 1894-95 directly to the paper manufacturers without the mediation of the joint selling agency, demanded the payment of the fine which the defendant incurred by the nonperformance of the contract.

The court of first instance denied the claim because it held that the combination had not legal standing to bring the claim; the court of appeals, on the contrary, convicted the defendant on the charge made. Upon revision of the case the verdict of the court of appeals was reversed, and the case was referred to the court of the gecond instance for another trial and decision; the arguments of the defendant, however, that he could at any time, at his will, leave the combination because the whole contract on which the combination was constructed had no legal force, and the fines which were included in this contract could not be claimed, were declared to be without foundation.

For the reasons: The senate, in revising the case, denied the claim in the first place on the basis that the contract of March 22, 1893, to which the defendant later agreed, as the lower court has established, is lacking legal force because it conflicts with the principle of the freedom of industry. This argument, however, can not be considered to be proved. The combination now presenting the claim is formed, as is clearly expressed in the rules, and also not disputed by the parties concerned, with

1 Entscheidungen des Reichsgerichts in Civilsachen, Band 38, S. 155.

the object of preventing in future a ruinous competition among the Saxon pulp manufacturers, and inaking possible the attainment of higher prices than can be obtained in the state of unlimited competition. As to the question whether a combination pursuing such aims violates the principle of industry laid at the foundation of industrial regulation, there come into consideration two points of view: One, whether through combinations of tradespeople which endeavor to obtain certain minimum prices is counteracted, in an inadmissible way, the intention of the lawgiver in so far as the latter wishes to promote the interests of the community through freedom of industry; further, whether through contracts of this nature individual freedom is narrowed in some manner conflicting with the aim of the legislator.

The first of these two questions was repeatedly answered in the affirmative, especially outside of Germany. Comp. Pohle, Die Kartelle in the Preussischen Jahrbüchern, vol. 85, pp. 407, etc.; further, in the treatises published in the Schriften des Vereins für Sozialpolitik, vol. 60, part 2; Des syndicats entre industriels, etc., en France, by Claudio Jannet, pp. 20, etc.; Kartelle in Russland, by Jollos, pp. 43, etc.; Industrielle Unternehmerverbände in den Vereinigten Staaten, by Levy von Halle, pp. 112, etc. On the other hand, however, the following has to be taken into account. When in a branch of industry the prices of a product fall too low, and the successful conducting of the industry is endangered or made impossible, the crisis setting in as the result of such a state of affairs is detrimental, not only to individuals, but also to society as a whole; and it is, therefore, in the interests of the community that improperly low prices should not exist in a certain branch of industry for a long time. The legislative bodies have often, and up to recent times, attempted to obtain higher prices for certain products by the introduction of protective tariffs. Therefore it can not be simply and generally considered as contrary to the interests of the community when entrepreneurs interested in a certain branch of industry unite with the object of preventing or moderating the mutual underselling, and, as a result of the latter, the fall of prices of their products. On the contrary, when prices are for a long time actually so low that financial ruin threatens the enterpreneurs, their combination appears to be not merely a legitimate means of self-preservation, but also a measure serving the interests of the community. The formation of syndicates and cartels of the kind here discussed is, also, on many sides determined as a means particularly suited to render great service for the adequate progress of the whole economic life of society in so far as it prevents uneconomical working at a loss, overproduction, and the catastrophies, connected with it. Comp. Kleinwächter, Die Kartelle, pp. 160, etc.; Brentano, Über die Ursachen der heutigen socialen Noth, especially pp. 23, etc.; Steinman Bucher in Schmoller's Jahrbuch für Gesetzgebung, vol. 15, pp. 451, etc.; Mauck, Ein Weltmonopol in Petroleum, pp. 7, etc.; Seeman, Die Monopolisierung des Petroleumhandels, pp. 3, etc., and others.

In conformity with this it has already been declared more than once, by German and other courts, that it does not antagonize the principle of freedom of industry (in so far as the latter has to guard the interests of the community against the self-interest of individuals) when people carrying on the same business unite for the purpose, pursued in good faith, of keeping alive a certain branch of industry by protecting themselves against the depreciation of their products and other damages resulting from mutual underselling.

Compare decisions of the first civil senate of the supreme court of June 25, 1890, in the decision of the supreme court in civil senate, vol. 28, p. 238, etc.; of the Bavarian supreme court of April 7, 1888, in Seuffert's Archiv, vol. 44, No. 13; of Dresden court of appeal of September 19, 1893, in Saxon Archiv, vol. 4, p. 303, etc. Compare also the Italian decision communicated by Kohler in his work Aus den Patent und Industrierechte, I. Teil, pp. 85, 86. Agreements of the kind here mentioned consequently can be objectionable only when they interfere with the interests of society, which are protected by freedom of industry-only when in certain cases doubts appear on the ground of particular circumstances, namely, when their clear aim is to bring about an actual monopoly and usurious exploitation of the consumers, or when such consequences actually come about through the combinations and arrangements which take place.

As to the second of the two questions above mentioned, the regulation of the industrial law (according to which everybody is guaranteed the individual right to carry on any business to his liking, in so far as the law prescribes or allows exceptions and limitations) is not to be interpreted that no one can subject himself by a contract to whatever limitation as to where and how to carry on a business. That this is not the meaning of section 1, industrial law, was recognized by the imperial court in repeated decisions, by affirmative answers to the question whether the so-called suppression of competition is consistent with law, adding that through such contracts the industrial freedlom of the individual is to be restricted, but not taken away forever, wholly or in part.

Comp. Seuffert, Archiv, vol. 35, No. 196, decisions of the R. G. (imperial court), in Civil Senate, vol. 31, pp. 98, etc. Compare, besides, the decision of the former Prussian supreme court of justice in the collection of decisions of the same, vol. 80, p. 1, etc. (Seuffert, Archiv, vol. 34, No. 105); decision of the R. O. H. G. (imperial supreme commercial court), vol. 12, pp. 29, etc. (Seuffert, Archiv, vol. 32, No. 310).

The restrictions to which the defendant submitted in the given case by agreeing to the contract of March 22, 1893, neither as regards their extent nor the time for which they were agreed to are so far-reaching that ey could be considered as violating the principle just mentioned—the divesting of the defendant in any unallowable manner of his industrial freedom.

Besides the question discussed hitherto, whether the contract on which the suit is based is consistent with law, it is still to be investigated whether legal protection should be denied to this contract, although it is not to be considered invalid. Under the condition of the present case it may be left undecided whether suit can be brought to compel the observance in the future of the restrictions agreed upon. Comp. Kohler in Archiv für Bürgerliches Recht, vol. 5, pp. 218, etc.; Aschrott in Braun's Archiv für Soziale Gesetzgebung, vol. 2, p. 383.

As there is here only a fine demanded for the violation of the contract made in the past, there is only to be discussed whether in combinations of tradespeople (to which the plaintiff combination belongs) is to be considered legal the imposing of possible fines which the members agree to, with the object of making more certain the fulfillment of their obligations.

This question left undecided by the I Civil Senate of the imperial court in the above-cited decision of June 25, 1890, vol. 28, p. 244, and affirmatively answered in the other German decisions, in the given case was also affirmatively decided by the supreme court. It is therefore accepted as certain by the imperial court that nothing can be found in the Saxon law against the legal standing of the demand. The fact that the lower court of justice has not based its opinion more in detail can not give rise to objection against the disputed decision, as no objection arose in the direction indicated in the lower courts.

But the denial of legal protection to the claim could be deduced from the revisable legal norms (Rechtsnormen) only under the assumption that the prescription given in section 152 of the industrial law for the agreements mentioned there that neither complaint nor protest should come to pass from them, finds a corresponding application to the contract of the kind here discussed. Such assumption, however, appears not justified.

At the time of the issue of the industrial law of 1869, combinations of tradespeople for regulating their production and maintaining prices were not of such frequent and wide occurrence as now.

Comp. Grossman, Über Industrielle Kartelle; Steinman-Bucher, Wesen und Bedeutung der gewerblichen Kartelle, in Schmollers Jahrbuch für Gesetzgebung, vol. 15, pp. 237, etc., 451, etc.; further, the above mentioned Schriften des Vereins für Sozialpolitik, vol. 60, Part I (Germany) and Part II (foreign countries); Cohn in Braun's Archiv für soziale Gesetzgebung, vol. 8, pp. 396, etc.; Pohle in den preussischen Jahrbüchern, vol. 85, pp. 407, etc.

Such combinations were not by any means entirely unknown before; they were even more than once the object of legislation. Compare the papers above adduced by Claudio Jannet, Jollos, Levy v. Halle, das österreichische Strafgesetzbuch of May 27, 1852, sections 479, 480; also the Prussian Allgemeine Landrecht II, 8, section 199. Many combinations of the kind here discussed arose, especially in Germany, at the time when the project of the industrial law was proposed and discussed. Compare Schönlank in his treatise mentioned above, in the first place, pp. 494, 495; Wurst in Schriften des Vereins für Sozialpolitik, vol. 60, Part I, pp. 137, etc. (Die Kartelle der deutschen Salinen).

It can not be assumed that these combinations remained unknown to the legislative bodies; when, however, the industrial law does not contain any provision concerning such combinations and agreements, while the denial of legal protection for the agreements considered in section 152 is particularly expressed, it must be inferred from this that it was not desirable to introduce a similar regulation concerning the combinations discussed here; that they must consequently be judged exclusively according to the common civil law, and suits could be brought on the ground of these agreements in so far as there are no general principles of jurisprudence in their way.

The defendant further attacked the disputed decision on the ground that his plea that he withdrew from the plaintiff combination before the sale which is charged to him as violation of the contract received no consideration.

The defendant informed, as is undisputable, the chairman of the committee of the combination in a letter of December 1, 1894, that he could not belong longer to the association, and finds himself compelled, from January 1 and onward, to deliver his

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