Manson v. Curtis

• Decision Date: 23 April 1918
• Citation: 223 N.Y. 313,119 N.E. 559
• Parties: MANSON v. CURTIS.
• Court: New York Court of Appeals Court of Appeals

223 N.Y. 313

119 N.E. 559

MANSON

v.CURTIS.

Court of Appeals of New York.

April 23, 1918.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Philip Manson against F. Kingsbury Curtis. From a judgment of the Appellate Division (171 App. Div. 954,155 N. Y. Supp. 1123), affirming a judgment of the Special Term which overruled demurrers to defenses contained in the answer, and dismissed the complaint on the merits, plaintiff appeals. Judgment affirmed.

Charles Blandy and Frederick A. Card, both of New York City, for appellant.

Howard Taylor, of New York City, for respondent.

COLLIN, J.

The action is to recover the damages arising to the plaintiff by reason of the acts of the defendant. The Special Term decided, under demurrers of the plaintiff to certain defenses alleged in the answer, that the complaint did not state facts sufficient to constitute a cause of action, and should be dismissed. The consequent judgment was affirmed by the Appellate Division.

The deferminative allegations of the complaint are: In November, 1911, there existed a domestic corporation, the Bermuda-Atlantic Steamship Company. It was formed in December, 1910, as the successor of a corporation with the same name. The corporate business was operating a steamship, the Oceana, between the city of New York and the islands of Bermuda. The plaintiff had through 1911 controlled and managed the corporate business, which had been highly successful and profitable. The total outstanding shares of the capital stock were of the aggregate amount of $186,000, of which each of the plaintiff and the defendant owned in the amount of $55,000, Abel I. Culver owned in the amount of $40,000, and eight others, who became stockholders at the solicitation of the plaintiff, who ‘was able to control same for voting purposes,’ owned in the amount of $36,000. The plaintiff was a director. The defendant was a director, a lawyer, and the general counsel to the corporation, and at all the times involved had full knowledge of the corporate affairs and financial condition. An agreement, known to the defendant, existed between the plaintiff and Culver that they would act as a unit in the management of the corporate affairs, ‘to the end that such policy as the plaintiff might in his good judgment promulgate in the conduct and management of the said company's affairs would be acquiesced in and followed by said Culver’; that neither would dispose of any of his shares without first giving to the other a first option to buy all or any part of the shares, and that if occasion arose Culver would vote his shares as the plaintiff voted his. The defendant requested plaintiff's permission to purchase Culver's shares, which, added to those held by the defendant, would constitute the defendant the holder of more than one-half of the outstanding shares. The plaintiff and defendant thereupon agreed, for a good and valuable consideration, as follows:

‘(1) That for one year thereafter there should be no change in the business management of the business of the corporation to that theretofore carried out by plaintiff, and that the management thereof should continue in the same manner that it had in the past, and that plaintiff should continue as general manager of the corporation and shape its policy.

‘(2) That any president of the corporation to be thereafter elected should be only a nominal head as president, and be no more active in conducting the affairs of the corporation than the then president, Abel I. Culver, had been, and that such president should not change, alter, molest, or interfere with plaintiff's methods of managing the corporate business affairs nor interfere with plaintiff as such general manager for said one year.

‘(3) That out of defendant's stockholdings he would sell to the plaintiff and plaintiff would buy 20 shares or $2,000 thereof at par value after defendant had acquired Culver's said stock.

‘(4) That the defendant and the plaintiff should each name three directors of the corporation for immediate future election (making six) and that a seventh director to be elected should be a disinterested party to be mutually agreed upon by plaintiff and defendant with whom should be deposited, and who should be the custodian of $10,000 of stock, $5,000 thereof to be carved out of the plaintiff's holdings and $5,000 out of the defendant's holdings, said $10,000 of stock to be used and voted on by such disinterested person at stockholders' meetings according to his judgment.

‘(5) That the said defendant would loan to the company such fund as it immediately required to pay the expense of certain overhauling and repair charges for work which was then about to be made on the steamer Oceana, the total cost of which work was estimated at approximately twelve thousand dollars ($12,000).

‘(6) The plaintiff on his part agreed to act as general manager of the corporation for one year and to conduct and manage the practical business end of the corporation according to his best ability, and to shape its policy, as he had in the past, and to purchase 20 shares of defendant's total holdings and pay defendant $2,000 therefor, and that plaintiff would name three directors of said corporation for immediate future election, and that he would cooperate with defendant in the selection of a seventh or disinterested person to be a seventh director, and carve out of this plaintiff's total holdings of stock $5,000 thereof for deposit with such disinterested person for voting purposes.’

It was upon the express condition that the agreement be executed, and, in consideration of it, executed and delivered, that the plaintiff consented to the sale which was made by Culver of his shares to the defendant.

The obligations of the plaintiff under the agreement were performed by him, in so far as performance was permitted. The defendant violated the agreement, in that he refused to sell the 20 shares of the stock to plaintiff. He, through his control of dummy directors elected by his majority votes, placed all control and management of the corporate affairs in charge of a person unfit and other than plaintiff. He refused to carve out of his stockholdings $5,000 in amount for use by a disinterested party for voting purposes or to co-operate with the plaintiff in the designation of a disinterested party. The business and affairs of the corporation were consequently negligently and inefficiently carried on in particulars alleged, with the result that in June, 1912, the corporation was adjudicated a bankrupt. The defendant when making the agreement did not intend to carry it out, and intended to use his voting power in so injuring the corporate business and reducing the value of the stock that he could purchase it at a nominal price, and then sell the steamship at a large price to parties with whom he was, when the agreement was made, secretly negotiating the sale. When the agreement was made the shares of plaintiff had a market value of the sum of $215,000, and by reason of the acts of the defendant became valueless; the corporation was indebted to the plaintiff for moneys advanced in the sum of $19,582.53 and interest, which said moneys were never paid to plaintiff. Judgment in the sum of $234,582.53 is demanded.

[1] Four affirmative defenses were demurred to, and are: That the agreement was illegal and void; that it was to sell or was a sale of choses in action of the value of $50 or upwards, and no writing was signed, nor was there part payment by defendant; that it was not to be performed within one year, and was not in writing and subscribed by the defendant; that a contract existed under which the plaintiff was regularly and lawfully deposed as general manager. Upon the trial of the issue of law thus raised, the Special Term, applying the rule that a demurrer to an affirmative defense enables the defendant to question the sufficiency of the complaint (Pollitz v. Wabash R. R. Co., 207 N. Y. 113, 100 N. E. 721;Baxter v. McDonnell, 154 N. Y. 432, 48 N. E. 816), adjudged the complaint insufficient.

[2][3] The primal question is, Is the agreement of November, 1911, illegal and void? It does not constitute a voting trust agreement, because under it each party retains the voting power of the shares owned or to be owned by him. The right of voting is with the legal and beneficial ownership. A voting trust agreement accumulates in the hands of a person or persons shares of several owners, in trust for the purpose of voting them, in order, through the selection and election of directors, to control the corporate business and affairs. The agreement does not constitute a proxy or reciprocal proxies because it does not make either party the agent of the other. A proxy is an authority by one, having the right to do a certain thing, to another to do it. The statutes regulating voting trust agreements and the use of proxies (General Corporation Law [Consol. Laws, c. 23] §§ 23, 25, 26, 27), are therefore not applicable to the agreement.

[4] It is not illegal or against public policy for two or more stockholders owning the majority of the shares of stock to unite upon a course of corporate policy or action, or upon the officers whom they will elect. An ordinary agreement, among a minority in number, but a majority in shares, for the purpose of obtaining control of the corporation by the election of particular persons as directors is not illegal. Shareholders have the right to combine their interests and voting powers to secure such control of the corporation and the adoption of and adhesion by it to a specific policy and course of business. Agreements upon a sufficient consideration between them, of such intendment and effect, are valid and binding, if they do not contravene any express charter or statutory provision or contemplate any fraud, oppression, or wrong against other stockholders or other illegal object. Venner v. Chicago City Ry. Co., 258 Ill....