183 Misc. 189 | N.Y. Sup. Ct. | 1944
This is a special proceeding under section 25 of the General Corporation Law to declare null and void the attempted election of respondent, Bickerson, as Chairman of the Board of Directors of Unexcelled Manufacturing Company, Inc., in the place and stead of petitioner.
Petitioner was elected Chairman of the Board of Directors for a period of one year at a meeting of the board held on or about April 8, 1944. A by-law adopted by the stockholders on March 18, 1941, provided that “ the Board of Directors may remove at their pleasure any officer with the exception of the Chairman of the Board or the President.” (Italics supplied.) At a meeting of the hoard of directors held on July 28, 1944,
Petitioner’s removal concededly without cause, as far as the record now before the court shows, was clearly a violation of the by-law adopted by the stockholders on March 18,1941. Bespondent maintains that the removal was, however, proper under the amended by-laws adopted at the directors’ meetings of July 28th and August 4th. Under section 1 of article VII of the by-laws, as it read at the time of said directors’ meetings, the by-laws were subject to amendment, repeal, or alteration, in whole or in part, “ by a majority vote of the Board of Directors or by a majority vote of the entire outstanding stock.” If this language be interpreted literally the directors had the power to eliminate the restriction imposed by the stockholders upon the right which the directors would otherwise have had to remove the Chairman of the Board without cause. It is difficult, however, to believe that it was the intention of the stockholders to permit the directors to amend the stockholders’ by-laws as to matters limiting the directors’ own powers. “ Authority given to the board of directors to alter or amend bylaws of the corporation must be so construed as to restrict them from altering or annuling a bylaw imposing a limitation on their powers.” (13 Am. Jur.,Corporations, § 153, p. 285; Stevens et al. v. Davison, 18 Gratt. [Va.] 819.) In the cited case the sixth by-law provide'd that no franchise contract should be made except with the approval of a majority of the stock
There remains for consideration respondent’s contention that the stockholders’ by-law was invalid insofar as it purported to prohibit the directors from removing the Chairman of the Board without cause. Section 60 of the Stock Corporation Law provides that directors may remove “ at pleasure ” officers appointed or elected by them. The statute clearly authorizes directors to remove corporate officers without cause. (See Bussing v. Lowell Film Productions, Inc:, 233 App. Div. 493, 494, affd. 259 N. Y. 593; In Re Paramount Publix Corporation, 90 F. 2d 441, 444.) In this respect, there is a distinction between officers and directors for there is no similar statutory provision relating to the removal of directors. Matter of Korff (198 App. Div. 553), which applied the same rule to officers as governs the removability of directors, must be considered in the light of the fact that the statutory provision that directors might remove officers at their “ pleasure ” was not called to the court’s attention in the briefs submitted to it. Examination of the record
Does it follow that the stockholders had no legal right to adopt a by-law which, in effect, provided that the directors could not remove the Chairman of the Board without cause? In McQuade v. Stoneham (263 N. Y. 323) three stockholders entered into an agreement that they would use their best efforts to continue themselves as directors and officers of the company at specified salaries, which were not to be changed, as long as any of the parties continued to own the shares of stock held by him at the time of the agreement. This agreement was held illegal. Chief Judge Pound, writing for the court, said (p. 328-329): “ Although it has been held that an agreement among stockholders whereby it is attempted to divest the directors of their power to discharge an unfaithful employee of the corporation is illegal as against public policy (Fells v. Katz, supra), it must be equally true that the stockholders may not, by agreement among themselves, control the directors in the exercise of the judgment vested in them by virtue of their office to elect officers and fix salaries. Their motives may not be questioned so long as their acts are legal. The bad faith or the improper motives of the parties does not change the rule. (Manson v. Curtis, 223 N. Y. 313, 324.) Directors may not by agreements entered into as stockholders abrogate their independent judgment. (Creed v. Copps, 103 Vt. 164; 71 A. L. R., Annotated, p. 1287.) ”
It is to be noted that the stockholders’ by-law in the case at bar did not attempt to curtail the power of the board of directors to remove an unfaithful officer, i. e., an officer for whose removal there was cause. The by-law in question sought merely to prevent the directors from removing the Chairman of the Board without■ cause.
In Clark v. Dodge (269 N. Y. 410) a stockholders’ agreement was held legal though it obligated the' parties, as directors, to continue one of them as general manager as long as he should be faithful, efficient and competent ”. Recognizing that section 27 of the General Corporation Law entrusting the management of the business of corporations to their directors, was the statutory norm, Judge Crouch, writing for a unanimous court; ashed (p. 415): “ Áre we committed by the McQuade casé to the doctriné that there may be no variation, however
If an agreement that directors are to continue a person as officer as long as he shall be faithful, efficient and competent is legal and valid, it must follow that a by-law that directors are not to remove a person from office without cause is likewise legal and valid as an equally harmless and slight infringement upon the provisions of section 27 of the General Corporation Law and section 60 of the Stock Corporation Law. The agreement to continue the plaintiff in the Clark case (supra) in office as long as he should be faithful, efficient and competent in effect prohibited the directors from removing him at their pleasure and thus is legally equivalent to 'the by-law in the. case at bar which forbids the directors from removing the Chairman of the Board without cause.
The court accordingly holds- that petitioner’s removal as Chairman of the Board was illegal because effected without cause in violation of the by-law requiring cause for his removal adopted by the stockholders, and never validly amended by the directors..
The motion is. granted to the extent of declaring that petitioner is the Chairman of the Board and that Bickerson’s election as Chairman was illegal/ null and void.
Settle order.