Court Opinion

ID: 6855517
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:41:43.721327+00
Date Added: 2024-06-11T16:05:09.062789
License: Public Domain

AUGUSTUS N. HAND,
Circuit Judge (dissenting).
I agree with the rest of the court that the contract of employment entered into between the Boxy Theatres Corporation and Samuel L. Rothafel on July 31, 1925, was the sole basis of the former’s right to use the name “Roxy” for its theatre. But I do not think that the contract of January 29, 1931, can reasonably be construed to have only the limited operation which the opinion of the court attributes to it.
The agreement of January 29, 1931, provides in part:
“For and in consideration of the sum of five dollars ($5.00) by each of the parties to the other in hand paid, receipt whereof is hereby mutually acknowledged, and of the mutual rescission to the extent herein provided of the agreement hereinafter referred to as Schedule A, and of the mutual covenants herein contained, the parties agree as follows:
“First: The agreement between Corporation and Rothafel, dated July 31st, 1925, a copy of which is annexed hereto as Schedule A, and made a part hereof, shall, on March 29th, 1931, be cancelled and terminated, and the rights of both parties thereunder, insofar as they are still executory, shall cease after said date, as if said March 29th, 1931 had been the date of expiration originally provided for herein.
“Second: The parties agree to deliver, and each acknowledges receipt of a general release executed and delivered simultaneously herewith, running from each to the other, from all claims and things to and including the date hereof, except the obligations of this agreement, and any compensation and profits that may be due and owing by the Corporation to Rothafel, under the agreement Schedule A.
“Third: Rothafel hereby permits Corporation to continue the use of the name ‘Roxy’ on the theatre located on the northeast corner of Fiftieth Street and Seventh Avenue, in the Borough of Manhattan, City, County and State of New York, for the period between March 29th, 1931, and September 11th, 1932, but no longer. Rothafel waives his right to compensation for said use provided:
“(a) That the Corporation, beginning with September 12th, 1932, forever discontinues the use of said name ‘Roxy’ on the thea-tre, or in connection with its musical presentations, or in its corporate name, or in any manner or connection whatsoever. * * *
“In the event of a breach by Corporation of any of the foregoing requirements, Rotha-fel shall be entitled to compensation for said use, in accordance with the provisions in this respect contained in the contract annexed hereto, as Schedule A, but said compensation for any elapsed period shall be payable within ten (10) days after demand therefor by Rothafel, and Rothafel shall also be entitled to enforce any other rights and remedies against the Corporation that he may have, both in law and in equity, by reason of said breach.”
This contract is drawn, as it says, to rescind the contract of employment “to the extent herein provided.” What the precise extent of the rescission is appears from the first clause of the agreement, which provides that the rights of both parties under the contract of employment are terminated “insofar as they are still executory.” The force of this clause is strengthened by the provision in the second clause whereby the parties grant each other releases from all obligations except those which arise out of the contract of cancellation itself, and matured debts of the corporation to Rothafel for services already rendered by him. The third clause embodies the affirmative rights and obligations created by the contract of cancellation itself, which are that Rothafel grants the corporation free use of the name “Roxy” for a fixed period, on condition that the latter abides by the cancellation contract and ceases to exercise its rights under the terminated contract of employment. Following this clause there is a sentence expressing the rights which shall accrue to Rothafel in the event that the corporation fails to fulfill these requirements.
It is perfectly true that the contract nowhere contains any direct statement of a covenant by the corporation to discontinue calling its theatre the “Roxy.” In so far as construction of this contract is concerned, the nub of the appellant’s argument is that, in the absence of any such express negative covenant, the appellant is entitled to continue using the name “Roxy,” provided that it pays the “compensation” stipulated in the sentence following the third clause. Macloon v. Vita*329graph (C. C. A.) 30 F.(2d) 634, is relied upon as establishing that this court will not, in general, infer a negative covenant where none is expressed. That principle I think in no way affects the present ease. Its application is to eases where one party seeks to restrain another from doing acts which, apart from any contract, the latter would have a perfect right to do, and where the contract itself contains no express agreement by the latter to refrain from such acts. But here all members of the court are agreed that the appellant has no right, independent of these contracts, to use the name “Roxy,” and that “the employment contract was the only source of the corporation’s rights” in this particular. The right of the corporation to continue to use, and the duty of Rothafel to continue to allow the corporation to use, the name “Roxy” were executory rights and obligations under the contract of 1925, even though these particular rights and obligations might persist beyond the period of Rothafel’s actual employment. By the first clause of the agreement of 1931 those rights and obligations were terminated. How, then, was there any occasion for expressing, or is there now any necessity for implying, an express negative covenant by the corporation to refrain from doing what it no longer has any shadow of a right to do?
The third clause in no way militates against this conclusion. It gives the appellant the right to continue to use the name for a fixed period. But that this is a right which arises not from any continuation of the earlier contract, but purely from the contract of 1931 itself, is clear not only from the provisions of the second clause already referred to, but by the very language of the grant: “Rothafel hereby permits, * * * ” etc. Furthermore, the contract of 1931 p.ermits use of Rothafel’s name during a period subsequent to the termination of the contract of 1925.
The final sentence (immediately preceding the witness clause) expressly recognizes the contractual duty of the corporation to abide by the contract of cancellation which terminates its rights under the earlier contract. This sentence imposes a new duty on the corporation in the event of a “breach” by it of any of the requirements listed under the third clause. The mere fact that a part of the contract of 1925 is incorporated by reference in no way suggests that this is the sole right which Rothafel has in the event of a breach; indeed, the contrary expressly appears at the end of the sentence where Rotha-fel reserves “any other rights and remedies against the Corporation that he may have, both in law and in equity, by reason of said breach.”
In view of the foregoing circumstances, I think that the District Judge correctly held that “the cancellation contract of January 27, 1931, wholly terminated the right of the defendant to call its theatre the Roxy — save only, as specified in the cancellation contract itself, for the period from March 29, 1931, to September 11, 1932.” And I think, as he does, that “it would be twisting words out of their ordinary sense to construe paragraphs 1 and 3 of the cancellation contract or the contract in its entirety in any other way.”
I do not find the appellant’s argument that the contract, so construed, is ultra vires because not authorized by the board of directors convincing. The resolution passed by the board authorized the officers of the corporation “to execute on behalf of this Corporation an agreement with Mr. S. L. Rotha-fel amending the present agreement with Mr. Rothafel, so that the same shall terminate on March 29, 1931, and neither party shall be under any obligation to the other thereafter, with the right of this Corporation to use the name 'Roxy’ in connection with the theatre up to and including September 11,1932, without any compensation to Mr. Rothafel therefor. * * * ”
I am unable to appreciate how the officers could be authorized to “terminate” the contract on March 29,1931, so that “neither party shall be under any obligation to the other” and still be without authority to cancel and rescind the contract as of that date. How can either party cease to “be under any obligations to the other thereafter” unless the contract is wholly terminated? Certainly the obligation Rothafel was under to permit the use of his name, and the duty of the corporation to pay for that use, were personal obligations. How could the corporation acquire the right to free use of Rothafel’s name for a fixed period without surrendering the right to continue using his name, the termination of which right all parties knew Roth-afel to be bargaining for? The contract of 1931 seems to me to be carefully drawn within the limits authorized by the board of directors.
Nor do I think there is any merit in the appellant’s contention that this contract as construed by the court below is ultra vires under section 20 of the New York Stock Corporation Law (Consol. Laws, c. 59). That section states that:
“A stock corporation * • * with the *330consent of the holders of record of two-thirds of its outstanding shares entitled to vote thereon may sell and convey its property, rights, privileges and franchises, or any interest therein or any part thereof. * * * Before such sale or conveyance shall be made such consent shall be obtained at a meeting of the stockholders called pursuant to section, forty-five.”
Despite the categorical language of this statute, it is well settled that it does not apply to transactions in the ordinary course of business of a corporation. Epstein v. Gosseen, 235 App. Div. 33, 256 N. Y. S. 49; see Matter of Timmis, 200 N. Y. 177, at pages 181, 182, 93 N. E. 522. Certainly a theatre is acting in the regular course of its business when it contracts for the services of theatrical producers and acquires and disposes of the right to use the names and good will of such persons. In so far as section 20 requires a vote of stockholders, it was designed to cover cases where a sale constitutes a “practical dissolution” of a corporation, or where the sale “changes the character of the business of the vendor corporation.” See Matter of Pulton, 257 N. Y. 487, at pages 492, 494, 178 N. E. 766, 768, 79 A. L. R. 608. A change in the theatre’s name will neither constitute a dissolution of the appéllant corporation nor radically alter the nature of its business. •
For the foregoing reasons I think that the order of the District Court was correct and should be affirmed.