Funkhouser v. Capps

• Citation: 174 S.W. 897
• Decision Date: 30 January 1915
• Docket Number: (No. 8082.)<SMALL><SUP>†</SUP></SMALL&gt
• Parties: FUNKHOUSER v. CAPPS.
• Court: Court of Appeals of Texas

174 S.W. 897

FUNKHOUSER v. CAPPS.

(No. 8082.)^†

Court of Civil Appeals of Texas. Ft. Worth.

January 30, 1915.

Rehearing Denied March 6, 1915.

Appeal from District Court, Tarrant County; J. W. Swayne, Judge.

Action by W. J. Funkhouser against William Capps. From a judgment for defendant, plaintiff appeals. Affirmed.

Lattimore, Cummings, Doyle & Bouldin, of Ft. Worth, for appellant. Capps, Cantey, Hanger & Short, Wm. L. Evans, and David B. Trammell, all of Ft. Worth, for appellee.

CONNER, C. J.

Appellant complains of a judgment against him upon the following contract:

                         "Ft. Worth, Texas. July 5, 1912
                

"Mr. Wm. Capps, Ft. Worth, Texas — Dear Sir: In keeping with my conversation with you to-day, I beg to submit the following proposition:

"I agree to pool my stock in the Record Co. with that of yours and Mr. Armstrong under the following conditions:

"(1) I must be convinced that by including my stock there will be represented more than 50% of the outstanding stock of the Record Company.

"(2) In the event the control of the Record Company is secured in this way, Mr. McCaleb, or some one else to be determined upon in the editorial department and myself, shall jointly have the editorial and business management of the paper and in the event of our failure at any time to agree upon any material point pertaining to the editorial or business management of the paper; then you are to constitute a third party, and we three together will settle all such differences.

"(3) To guarantee my stock interest in the Record Company, you agree that if at any time my services should become unsatisfactory or I should desire to sever my connection with the company, to pay me upon demand, three times the par value for the twenty (20) shares of Record Co. stock which I now hold, and the amount paid by me, plus earned and unpaid dividends for any additional stock which I may have acquired.

"(4) In the event of a sale of the controlling interest in the Record Co. which includes our stock, I am to receive one-fifth (1/5) of the proceeds of such sale after deducting for the stock held by you, Mr. Armstrong and myself at the price of two dollars and fifty cents ($2.50) for each dollar of par value thus represented.

"The acceptance of this proposition by you acknowledges it as a contract as binding upon each of us as though written in strictly legal form and technically correct.

"Respectfully submitted, W. J. Funkhouser.

"Accepted: Wm. Capps."

Appellant sued for the enforcement of the terms of the third paragraph of the contract, alleging, in substance, that he had severed his connection as business manager of the Record Company (a corporation), and that the defendant, Capps, refused to accept and pay for the plaintiff's stock, as agreed upon in said paragraph of the contract. Appellee Capps defended on the ground that the contract was void as against public policy, and the court so rendered its judgment.

We are of the opinion that the contract made the basis of the plaintiff's suit plainly manifests that one of its purposes was to place the control and management of the affairs of the Record Company in three individuals, to wit, W. H. Funkhouser, McCaleb (or some other person to be selected in his place), and the defendant, Capps. Another purpose as plainly manifested was to place the plaintiff, Funkhouser, into a lucrative position with the Record Company. We think neither of these purposes can be upheld. Article 1154, Vernon's Sayles' Tex. Civ. Stat., provides that:

"The directors or trustees shall choose one of their number president, and shall appoint a secretary and treasurer and such other officers as they may deem necessary for the corporation."

Article 1159 provides that:

"The directors or trustees shall have the general management of the affairs of the corporation," etc.

And any agreement having for its end a defeat of the control and management of a corporation as prescribed in the wisdom of the Legislature must be condemned. By the terms of the contract the appellant was not only to secure a position, but in such position he, together with Mr. McCaleb and Capps, were to secure and assume the absolute editorial and business management of a great newspaper, irrespective of the qualifications of either party for the office, or of the rights, opinions, or desires of any other stockholder or director. As if to place this intention beyond doubt, the closing sentence of the second paragraph provides that if there be a material difference at any time between the plaintiff and McCaleb, then the defendant was to constitute a third party and "we three together will settle all such differences." The Legislature as we have seen, has wisely seen fit to require the management of the affairs of a corporation to be submitted to directors or trustees selected by the stockholders, and the contract otherwise providing, cannot be approved. In the other respect the contract must be held invalid. As said in 2 Cook on Corporations (7th Ed.) § 622a, p. 1837:

"A contract in regard to elections in private corporations is not legal if it provides that a lucrative corporate position shall be given to one or more of the parties to the contract. Thus an agreement of a large stockholder holding a majority of the stock that, upon the purchase and absorption of plaintiff's business by the corporation, the plaintiff should be engaged for a term of years as vice president and general manager of the corporation at a specified salary is contrary to public policy and is void."

We deem it unnecessary to swell our opinion with a quotation of other authorities on this point. We think it sufficient to say that the rule stated in the quotation from Cook is well supported. See Withers v. Edmonds, 26 Tex. Civ. App. 189, 62 S. W. 795, which is very closely in point. See, also, Guernsey v. Cook, 120 Mass. 501; Gage v. Fisher, 5 N. D. 297, 65 N. W. 809, 31 L. R. A. 557; Scripps v. Sweeney, 160 Mich. 148, 125 N. W. 72, and authorities cited in these cases.

Appellant urges, however, that we should disregard the invalid parts of the contract to which we have referred, and establish the particular paragraph upon which he sues, to wit, paragraph 3, alleged to constitute the agreement for the purchase of appellant's stock. It is true that standing alone this paragraph might constitute a sufficient contract to support the action, and it is a rule of law that whenever the unlawful part of the contract can be separated from the rest, the unlawful part will be rejected and the remainder established. Haswell v. Blake, 90 S. W. 1125; St. L., I. M. So. Ry. Co. v. Matthews, 64 Ark. 398, 42 S. W. 902, 39 L. R. A. 467. We, however, do not feel prepared to hold that the paragraph of the contract declared upon is so separated from and independent of the other paragraphs of the contract as to authorize the adoption of the rule invoked. This rule can in no case be enforced where the consideration which enters into the valid portion is tainted with the invalidity of the consideration upon which the invalid parts of the contract are founded. In the language of Mr. Parsons (1 Parsons on Contracts, 457):

"If any part of a consideration is illegal, the whole consideration is void, because public policy will not permit a party to enforce a promise which he has obtained by an illegal act, or an illegal promise, although he may have connected with this act or promise one which is legal."

Again, as said in the case of Bishop v. Palmer, 146 Mass. 469, 16 N. E. 299, 4 Am. St. Rep. 339:

"The law visits a contract founded on such a...