30 N.J.Eq. 702 (N.J.Err. & App. 1879), Gardner v. Butler

Citation:30 N.J.Eq. 702
Party Name:JOHN R. GARDNER and others, appellants, v. HENRY V. BUTLER and others, respondents.
Attorney:Mr. George De Forest Lord, of New York city, and Mr. Cortlandt Parker, for appellants. Mr. T. N. McCarter and Mr. F. T. Frelinghuysen, for respondents. Mr. Geo. De Forest Lord, for appellants. Mr. Thos. N. McCarter, for respondents.
Court:Supreme Court of New Jersey

Page 702

30 N.J.Eq. 702 (N.J.Err. & App. 1879)

JOHN R. GARDNER and others, appellants,


HENRY V. BUTLER and others, respondents.

Court of Errors and Appeals of New Jersey.

March Term, 1879

1. A director of a corporation cannot make with himself, or for his own benefit, a contract which will bind the company. The contract may be repudiated by the company, at the instance of a stockholder.

2. If directors are employed in the business of the company, and agree to pay themselves a stipulated sum, the agreement is void, and no recovery can be based upon such contract, but for such services as they render they can recover upon the quantum meruit.

Mr. George De Forest Lord, of New York city, and Mr. Cortlandt Parker, for appellants.

Mr. T. N. McCarter and Mr. F. T. Frelinghuysen, for respondents.

On appeal from a decree of the chancellor, founded on the following opinion:


It appears, from the pleadings and evidence in the cause, that for many years previous to the 31st of August, 1852, Henry V. Butler, of Paterson, and Robert L. Taylor, of the city of New York, his brother-in-law, had been in business together in the manufacture and sale of paper, under the firm of H. V. Butler & Co. They entered into articles of copartnership on or about the day above mentioned, by which, after reciting their copartnership together up to that time, they entered into copartnership with each other in the same business, and under the same firm, for five years from the 1st of July, 1852. The articles provided, among other things, that they should be equally interested in the profits and losses, and that Butler should have the general management, direction and control of the business, subject, at all times, to the superintendence and inspection of Taylor, who might, at any time, at his option, exercise joint power in relation to the business, and that during all the time that Butler should have and take the management and control, he was to be entitled to and to receive a salary of $5,000 per annum, payable quarter-yearly, which should be charged to and borne by the copartnership; and he was thereby bound to devote his whole time and attention, and give his entire exertions to the advancement of the business. The business was carried on under these articles until the 1st of June, 1858, when the parties entered into a new agreement, with similar provisions, for a continuance of the copartnership for five years from that time. In 1862 they obtained an act of incorporation from the legislature of this state, by which they and the survivor of them, and their or his associates, their successors and assigns, were constituted a body politic and corporate, by the name of " The Ivanhoe Manufacturing Company," to carry on the same business. By the act it was provided that the capital stock should be $450,000, with liberty to increase it to $600,000, the shares to be $100 each. The company was not organized under this act until after a supplement had been passed, reducing the amount of the capital stock to $300,000, with liberty to increase it to $600,000. The company was organized in March, 1866. The supplement was passed in February of that year. By agreement between Butler and Taylor, the former was entitled to subscribe for, and hold twenty shares of the stock of the company more than the latter. It was intended by both thus to give Butler & Co. the control of the management of the company. He subscribed for fifteen hundred and five shares, Taylor for fourteen hundred and ninety shares, Aaron S. Pennington and E. Boudinot Colt for two shares each, and Andrew Derrom for one share. The five shares subscribed for by Messrs. Pennington, Colt and Derrom were paid for by Mr. Butler. Those gentlemen, with Messrs. Butler and Taylor, were named in the act as the first directors of the company. On the organization of the company, at the first meeting of the board of directors, Mr. Henry V. Butler was elected president. The powers of the president were then defined by resolution to be-- to manage and conduct all the manufacturing, mercantile and other business of the corporation, as in his judgment should appear to be for the best interest of the stockholders, and to appoint all such superintendents, managers and employes as he might deem proper, and at such salaries as he might deem proper, for conducting the business. On the 12th of July, 1867, the company issued one thousand additional shares of the capital stock, of which Butler and Taylor each took one-half. From the time of the organization of the company the business of buying material for manufacturing paper for its use, and selling its manufactured paper, was transacted by Henry V. Butler. It appears that Taylor never took any active part in the business, either before or after the incorporation. For all his services to the company, Mr. Butler, up to the time of Mr. Taylor's failure in business, drew (but without special authority to do so), as president, the same compensation, $5,000, which he had received from the firm of H. V. Butler & Co. On or about the 24th of October, 1867, Mr. Taylor failed in business, and on that day he made an assignment of all his property for the equal benefit of his creditors, accordingly, to the complainants. At a meeting of the board of directors of the company, held on the 23d of January, 1868, Mr. Butler stated that he had taken his son, Henry V. Butler, Jr., into copartnership with him in the paper commission business, in the city of New York, under the firm of H. V. Butler & Son, and proposed thereafter to transact the business of the company for such commissions as might be deemed fair and just; that he had consulted with gentlemen of experience in the city of New York, and in accordance with their views, proposed to make all the purchases, disbursements and sales for the company, for a commission of six per cent. on the gross amount of sales, the arrangement to begin on the 1st of February then next, and to continue for three years. The proposition was then accepted by a unanimous vote of the board. At a meeting of the board held on the 25th of May, 1868, it was resolved that from and after the 1st day of January, 1868, the salary of the president should be at the rate of $6,000 a year, and that the charge of $5,000 a year previous to that time be approved. Under the arrangement made at the meeting of January 23d, 1868, the firm of H. V. Butler & Son purchased the materials and made the disbursements and sales up to the 1st of April, 1871, receiving therefor the stipulated commission of six per cent. on the amount of the gross sales. On the 29th of March, 1871, at a meeting of the board of directors then held, Mr. Butler, the president, communicated to the board, that a new firm had been formed (the firm of H. V. Butler & Son having been dissolved) for the transaction of the paper commission business in New York, under the name of H. V. Butler, Jr. & Co., and that that firm had submitted a proposition to make all the purchases, disbursements and sales for the company at a commission of six per cent. on the gross amount of the sales only. That proposition was then accepted and an arrangement made under it for one year. The firm of H. V. Butler, Jr. & Co. was composed of Henry V. Butler, Jr. & A. Gibbs Campbell, as general partners, and Henry V. Butler, Sr. was special partner therein. All of them were directors of the company, and the resolution was carried by their votes. Indeed, but one other director was present, E. Boudinot Colt. The bill in this cause was filed on the 20th of May, 1871. It prays that the arrangement for the payment of salaries to Henry V. Butler as president, and to Henry V. Butler, Jr., as superintendent of machinery of the company (he received $1,500 a year for that service), and the arrangements whereby the commissions were paid, may be set aside as fraudulent as against the complainants; that an account may be taken of the transactions of the company, and especially of the money paid for the salaries and commissions; that the defendant may be restrained from paying those salaries or commissions to Henry V. Butler or Henry V. Butler, Jr., or to any one else for their use or otherwise, and from making any contract for the sale of goods or purchase of materials on commission, and that the complainants, as assignees of Taylor, may have the benefit of the account, and may receive whatever is due them as stockholders. By an amendment to the bill, a prayer for a receiver, on the ground of the insolvency of the company, was added.

The defendants have all answered. Since the filing of the bill, Henry V. Butler has died.

That Henry V. Butler and Robert L. Taylor were copartners together in the paper business for many years; that the former had the entire management of the business, the latter giving to it, practically, no attention; that the two were the owners of all the stock of the corporation which succeeded the copartnership, and that it was agreed between them that in the corporation the former should have a majority of the stock to give him the control of its management, there is no question. After the organization of the company, and up to the time of Mr. Taylor's failure in business, and his consequent assignment of his property for the benefit of his creditors, Mr. Butler seems to have continued to superintend the business and to negotiate and conduct the sales and purchases therein, at the same compensation which he received for the same or like services under the copartnership. After the failure of Mr. Taylor he appears to have been unwilling to give his services to the business at the same rate of compensation as before, or rather, he seems to have been unwilling to render the same amount of service for the compensation which he received. His reason for it appears to have been that...

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