Court Opinion

ID: 8068162
Source: CourtListenerOpinion
Date Created: 2022-09-09 11:09:25.836587+00
Date Added: 2024-06-11T16:38:13.306866
License: Public Domain

DAVY, J.
(dissenting). The principal question in this case is whether the contract which is made a part of the complaint is void as against public policy. The effect of the contract was to control the plaintiff as a stockholder and an officer of the bank, in retaining the old board of directors in office during the period of five years. The plaintiff occupied a position of trust and confidence, which required him to look only to the best interests of the corporation; but this contract placed him under obligation to vote to retain the old board of directors in office, even though it was for the best interests of the corporation to elect new directors. The defendants, in consideration of the plaintiff purchasing the 50 shares of stock, and using his influence to keep the old board of directors in office, agreed to elect him' cashier of said bank for five years. A stockholder who acts with others in a matter of common interest to all has no right to secure to himself any particular profit or advantage over his associates by any secret ■or undisclosed agreement. Adams v. Outhouse, 45 N. Y. 322, 323; Bliss v. Matteson, 45 N. Y. 22. It would be a fraud upon the other ■stockholders of the corporation. The defendants had no power to control the business of the corporation, or to enter into a contract binding the plaintiff to exercise his influence to retain the services •of the old board of directors. It appears upon the face of this agreement that it must have been made for the private advantage and benefit ■of the parties thereto. The defendants were evidently attempting to get control of .the corporation to shape its policy and control its business. The facts are similar in many respects to the case of Guernsey *965v. Cook, 120 Mass. 501. It was there held that a contract by which a stockholder in a corporation, in consideration of the purchase of a part of his stock at a price named, agreed to secure to the purchaser the office of treasurer of the corporation, with a fixed salary, and, in case of his removal, to repurchase the stock, was void as against public policy, and was a fraud on the other members of the corporation, in the absence of evidence that the transaction was not for a private benefit of the shareholder, or that it was consented to by the other members of the corporation. It was plainly the intent of the parties to this contract to place it beyond the power of the corporation for five years to change its directors, and to take from the directors the power to appoint or elect any other cashier than the plaintiff, even though he should prove unfaithful to his trust. The power to appoint and remove officers of the corporation rests with the directors, and this power cannot be taken away by a contract made by any of the stockholders. The stockholders have but few functions. All contracts of a corporation are usually made by or under the direction of the board of directors. They have the exclusive power to make corporate contracts. They appoint or elect the officers of the bank, and they can act only as a board duly notified and assembled. The members of the board cannot individually, outside of the meeting, make any contract that will bind the corporation, unless the contract is subsequently ratified by the board of directors. Courts do not permit stockholders or directors to trade or barter away the offices of a corporation for their own private advantage, and, when such contracts are attempted to be enforced, courts have uniformly held that they were void as against public policy. Fennessy v. Ross, 5 App. Div. 342, 39 N. Y. Supp. 323; Id., 90 Hun, 293, 35 N. Y. Supp. 868; Barnes v. Brown, 80 N. Y. 537; Bliss v. Matteson, 45 N. Y. 22; Barr v. Railroad Co., 125 N. Y. 274, 26 N. E. 145. The rule laid down in Fennessy v. Ross, 90 Hun, 298, 35 N. Y. Supp. 868, is applicable to this case. The court held that contracts entered into by directors and officers of a corporation for the purpose of trading upon, or attempting to barter away, the interests of a corporation, for their private advantage, are void as against public policy. The same case came before the appellate division (5 App. Div. 344, 39 N. Y. Supp. 323) upon an appeal from an interlocutory judgment sustaining a demurrer to and dismissing the amended complaint. The court says:
“We are unable to see that there is any real difference between the ease as it stood upon the original complaint and as it now stands upon this amended complaint. It still remains that the plaintiff was bartering away the offices of the companies and a representation in their board of directors. It was not only a contract by which the plaintiff, as part of the consideration for the money he was to receive for his shares, agreed to make the purchaser a general manager and the vice president of the corporation, but he also agreed to keep him there at a compensation of $1,500 for the first year, and at a larger compensation afterwards.”
The court held that this contract was void as against public policy, and was a fraud on the other members of the corporation.
If stockholders are dissatisfied with any of the officers of the bank, their remedy is to induce the directors to elect other officers in the manner and at the time provided by the charter. No stockholder has *966a right to employ officers or interfere with the management of a banking corporation, nor can the board of directors be controlled by any stockholder in the exercise of discretionary powers conferred upon them by the charter. The affairs of a bank must necessarily be under the exclusive control of its directors, and they are required to perform the duties thereof in such a way as to promote the best interests of the stockholders. Cassidy v. Uhlmann, 170 N. Y. 516, 63 N. E. 554. In Smith v. Hurd, 12 Metc. (Mass.) 371, 385, 46 Am. Dec. 690, the relations of stockholders to a banking corporation are stated by Chief Justice Shaw with his usual clearness and precision. He said:
“Individual members of a corporation, whether they should all join, or each ■act severally, have no right or power to intermeddle with the property or concerns of the bank, or call any officer, agent, or servant to account, or discharge them from any liability.”
The power to employ the cashier and the other officers of the bank rested solely with the board of directors. The agreement, therefore, was unauthorized by the bank, and was invalid, as contrary to public policy.
While it is true that the objection raised by the defendant that the -contract is illegal comes with no good grace from him, it is not allowed to prevail against him on the ground that he is in the right, but for the public good, and also for the reason that the court will' not lend its aid to either party to enforce a contract that is void as against public policy.
The demurrer to the complaint should be sustained, with costs.
WILLIAMS, J., concurred.