Palmbaum v. Magulsky

217 Mass. 306 | Mass. | 1914

Crosby, J.

This is an action of contract upon a promissory note executed and delivered by the defendant to the plaintiff for money advanced by him (the plaintiff) to the defendant, with which he (the defendant) purchased certain shares of stock in a corporation known as the American Biscuit Company, in which the plaintiff and one Hoffman were also shareholders. The stock so purchased by the defendant was held by the plaintiff by assignment to secure the payment of the note.

It appeared at the trial that about two years after the note was given the defendant agreed with the plaintiff, in consideration of the plaintiff’s promise to surrender the note, to attend a stockholders’ meeting of the corporation and vote with the plaintiff to dispose of all the assets of the corporation which, according to the report, amounted to several thousand dollars. Among other defenses in his answer and amended answer, the defendant alleged that he had performed his part of the foregoing agreement. The exceptions set forth substantially all the evidence introduced at the trial, from which it appears that the defendant is liable upon the note, unless his performance of the agreement is a valid defense.

The defendant testified to the making of the agreement and that he had carried out his part thereof, and offered other evidence to the same effect. There was no evidence that the only other stockholder, Hoffman, assented to the agreement or had any knowledge of it. The plaintiff, when asked by the defendant for the note, said that it was in the hands of his attorney, and, when asked again for it, said that it was lost.

At the close of the evidence the plaintiff asked the judge to make nine rulings, the sixth, seventh, eighth and ninth of which were given. The second request was waived. The third was cov*308ered substantially by the ninth, which was given. The fourth and fifth requests could not have been given in the form presented.

The judge instructed the jury that the agreement, if proved, constituted a defense to the action, to which the plaintiff excepted.

In our opinion the judge should have ruled that the agreement was not a defense, and should have instructed the jury to return a verdict for the plaintiff in accordance with his first request.

It is the duty of a stockholder of a corporation, in attendance at meetings of the stockholders, to act fairly and in good faith. He is not justified in entering into any agreement to vote so as to perpetrate a fraud upon another stockholder. The defendant’s vote to dispose of all the assets of the corporation was in consideration of the surrender of-the note to him by the plaintiff. This was illegal, and the agreement was void as against public policy.

As was said by Colt, J., in Guernsey v. Cook, 120 Mass. 501, 502: “It was the purpose and effect of the contract to influence the defendant, in the decision of a question affecting the private rights of others, by considerations foreign to those rights. The promisee was placed under direct inducement to disregard his duties to other members of the corporation, who had a right to demand his disinterested action in the selection of suitable officers. He was in a relation of trust and confidence, which required him to look only to the best interest of the whole, uninfluenced by private gain. The contract operated as a fraud upon his associates.” The contract in the case now before us operated as a fraud upon Hoffman.

Where an agreement is made which is either contrary to public policy or fraudulent as to third parties, it will not be enforced, although in the particular instance no injury may have resulted. Gibbs v. Smith, 115 Mass. 592.

In the case of Woodruff v. Wentworth, 133 Mass. 309, this court held that the agreement of a stockholder in a private business corporation, to vote for a certain person as manager, and to vote to increase the salaries of the officers including that of the manager, was void as against public policy, unless it was consented to by all the stockholders of the corporation.

In the case at bar the agreement of the defendant to vote to dispose of all the assets of the corporation without the knowledge *309or assent of Hoffman was a corrupt bargain and unlawful, and cannot be availed of by him as a defense to the note. See West v. Camden, 135 U. S. 507; Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 198, 199; North-West Transportation Co., Ltd. v. Beatty, 12 App. Cas. 589; Costello v. London General Omnibus Co. 107 L. T. R. 575.

The exceptions should be sustained; and, as substantially all the evidence in the case is before us and as it appears therefrom that there was no defense to the note, judgment should be entered for the plaintiff under St. 1909, c. 236.

So ordered. .