Watson v. Gugino

• Court: New York Court of Appeals Court of Appeals
• Writing for the Court: VANN
• Citation: Watson v. Gugino, 204 N.Y. 535 (N.Y. 1912)
• Decision Date: 08 March 1912
• Parties: HENRY W. WATSON, Respondent, v. CARMELO GUGINO, Appellant.

204 N.Y. 535

98 N.E. 18

WATSON

v.GUGINO.

Court of Appeals of New York.

March 8, 1912.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by Henry W. Watson against Carmelo Gugino. From an order of the Appellate Division (140 App. Div. 33,124 N. Y. Supp. 321), reversing a judgment of nonsuit, defendant appeals. Reversed, and judgment of the Trial Term affirmed.

This action was brought to recover damages from the defendant on account of his alleged breach of a contract made by him with the plaintiff. Upon the trial, it appeared that for some time prior to October, 1904, the firm of Gugino Bros., composed of Carmelo and Natale Gugino, was engaged in the manufacture and sale of macaroni in the city of Buffalo. They had a plant, machinery, and stock worth about $10,000, of which Carmelo owned two-thirds and Natale one-third. About the 20th of October, 1904, Carmelo, who was an expert manufacturer of macaroni, familiar with the business and acquainted with the customers, induced the plaintiff, who knew nothing about the manufacture, business, or customers, to purchase the interest of Natale, and he did so, paying therefor the sum of $3,400 in cash. On the same day that the money was paid, Carmelo and the plaintiff entered into an agreement of which the following is a copy, the purely formal parts being omitted:

‘The said parties above named have agreed and by these presents do agree to form and organize a corporation under and pursuant to the laws of the state of New York, to carry on and conduct the business heretofore conducted by Gugino Brothers, and to that end and purpose the said Carmelo Gugino hereby agrees to put into said corporation, all of his interest and property now owned by him in said co-partnership of Gugino Brothers, and the sum of eight hundred dollars ($800) in cash; and the said Henry W. Watson hereby agrees to put into said corporation all the property this day sold to him by Natale Gugino, being said Natale Gugino's interest in said co-partnership business of Gugino Brothers, and also to put into said corporation the sum of four hundred dollars ($400.00). And the said Carmelo Gugino, in the consideration of the forming and organizing of said corporation, hereby covenants that the title to all the property used in the said co-partnership business of Gugino Brothers is free and clear of any lien or incumbrance, and that the machinery used in the plant of Gugino Brothers is in perfect running order and in good repair.

‘The said parties further agree that upon the organization of said corporation, sixty-five shares of the stock therein shall and will be issued to Carmelo Gugino and he is to be president and manager thereof, one share of stock in said corporation to be issued to Antonio Gugino and he is to be vice president of said corporation, one share of stock to be issued to Henry W. Watson, who is to be the secretary and treasurer of said corporation, and the remaining thirty-three shares of stock is to be issued to Hiram R. Watson.

‘The said Carmelo Gugino further agrees to devote his whole time and attention to the said corporation business, and is to receive the weekly salary of twenty dollars ($20.00) and the said Henry W. Watson is to receive a weekly salary of fifteen dollars ($15.00) and also to devote his entire time, and the said Antonio Gugino is to receive the weekly salary of ten dollars ($10.00) and it is further agreed that the said Henry W. Watson shall have entire charge of the office work and all checks of said corporation to be signed by treasurer and countersigned by the president.

‘The said Carmelo Gugino hereby gives said Henry W. Watson an option on sixteen shares of stock in said corporation and the said Carmelo Gugino hereby agrees to sell unto the said Henry W. Watson sixteen shares of stock at one hundred dollars per share, at any time within six months, upon demand, and in the event of such transfer of stock, an inventory is to be had and proportionate dividends apportioned at date of transfer, before said transfer.

‘Carmelo Gugino further agrees that if by reason of illness or other cause of which said Carmelo Gugino does not now know, which would necessitate his giving up business, said Carmelo Gugino agrees to provide a person fully as competent as he is, and who is acceptable to said Henry W. Watson, to take his place .’

Within a few days after the agreement was executed, the parties organized a corporation under the name of ‘the Gugino Macaroni Company,’ each transferred his interest in the firm assets to the corporation, and each paid thereto the amount agreed upon. Officers were elected and stock issued in accordance with the terms of the agreement. The directors were the three officers, who were also the incorporators. The corporation accepted the property transferred and the money paid to it, and forthwith employed the parties and paid them the salaries agreed upon. For a short time, Carmelo attended to his duties, the enterprise prospered, and the company made money. Evidence was given tending to show that after a few months had passed Carmelo left the business, at first temporarily, under the pretext of sickness, and then permanently. He ceased to be either an officer or director. He substituted his brother Natale in his place as manager, and not only abandoned the business absolutely, but organized a rival corporation, which undersold the Gugino Company and took away its customers. In February, 1906, it was forced out of business, and its assets were sold at a sacrifice.

The plaintiff, alleging that he lost the greater part of his investment through the failure of the defendant ‘to devote his whole time and attention to the said corporation business,’ as provided in the contract, brought this action to recover $3,400 as damages for the breach of said covenant. While fraud in making the contract is suggested, but not distinctly alleged in the complaint, no evidence was given in support of that theory. On the trial, at the close of the evidence for the plaintiff, the defendant moved to dismiss the complaint substantially on the grounds, among others, that the cause of action, if any, did not belong to the plaintiff, but to the corporation, and that no period was specified in the contract during...