Mcquade v. Stoneham

263 N.Y. 323, 189 N.E. 234 (1934)

Facts

The action was brought to compel specific performance of an agreement between the parties, entered into to secure control of National Exhibition Co., (Giants). McGraw was manager of Giants and McQuade was at the time of the contract a city magistrate. Stoneham (D) became the owner of 1,306 shares. P and McGraw each purchased 70 shares of his stick. P paid D $50,338.10 for the stock he purchased. As a part of the transaction, the parties entered into the agreement that is in question here. In pursuance of this contract, D became a president and McGraw a vice-president of the corporation. P became a treasurer. The agreement also provided that no salaries would be raised if it infringed on the rights of minority stockholders. The agreement was to continue as long as one party had 1,166 shares and the other two had 70 each. In 1925, P's salary was increased to $10,000 a year. He continued to act until he was succeeded in 1928. The board consisted of seven people; four of them were selected and controlled by D. Ds did not keep their agreement with P to use their best efforts to continue him as a treasurer. At the next meeting, P was dropped as director. It is undisputed that the reasons for that action were the constant disagreements between P and D, but none of them was related to the corporate business. P sued to enforce the contract. Ds claim that the contract in suit was void because the directors held their office charged with the duty to act for the corporation according to their best judgment and that any contract which compels a director to vote to keep any particular person in office and at a stated salary is illegal.