148 Minn. 80 | Minn. | 1921
Defendant moved for judgment on the pleadings. The motion was granted and plaintiff appeals from the judgment.
Though not separately pleaded as such, the complaint embraces two causes of action. With respect to the first, it alleges that the parties were partners from 1891 to 1892, when they organized a Minnesota corporation called the Union Brass and Metal Manufacturing Company to take over their business. In February, 1914, plaintiff owned 469 shares of its stock; defendant, 1,344 shares; and there were eight other stockholders owning 78 shares. Defendant was p-residént and plaintiff secre
Thereafter plaintiff and defendant were instrumental in organizing four more Minnesota corporations, viz.: the Central Supply Company; Elite Laundry Company; Capitol Steam Laundry, and Banner Laundry Company. In each of these corporations, defendant was a majority and plaintiff a minority stockholder, and in each a small number of shares were divided among employees. The agreement made when the brass company was organized was extended to each of the other corporations when they were organized. Hp to February 14, 1914, plaintiff gave all his time and energy to the development of the business of the corporations. On that day, at the annual meeting of the stockholders, defendant, holding a majority of the stock, voted it for stockholders other than plaintiff as directors, thus ousting him from the management of the corporations, and also caused his discharge as manager, assistant manager or employee of the coiporations, and has ever since continued to repudiate the contract between them. Plaintiff’s services to the several corporations would have been reasonably worth $10,000 per annum. By depriving him of employment and office, defendant has damaged plaintiff in the sum of $50,000.
With respect to the second cause of action, the complaint alleges that
Defendant answered and plaintiff replied. Then followed the motion for judgment. After it was granted, plaintiff moved to amend his complaint by alleging that the stockholders of the several corporations had notice of the terms of his contract with defendant; acquiesced therein; accepted its benefits and were estopped from questioning its validity. Affidavits were read in support of and in opposition to the motion, which was denied.
“The law never contemplated that persons engaged in business as partners may incorporate with intent to obtain the advantages and immunities of a corporate form and then, Proteus-like, become at will a copartnership or a corporation, as the exigencies or purposes of their joint enterprise may from time to time require. The policy of the law is to the contrary. * * * They cannot be partners inter sese and a corporation as to the rest of the world. * * * Hpon grounds of
We approve of this doctrine. It is in line with the decision rendered in Beyer v. Woolpert, 99 Minn. 475, 109 N. W. 1116, where this court ■held that the grant of the franchise to be a corporation is an exercise of the sovereign power of the state'; that it creates a contract between the state and the corporation and its members, and that the franchise cannot be surrendered and its obligations repudiated without the consent of the state. Of course a copartnership may be formed to acquire and hold stock in a corporation. Such was not the purpose of the parties to this contract. They were individual stockholders in the corporations; they did not take the stock as copartners. To the world they appeared to be engaged in conducting five separate business enterprises, as the managing officers of as many corporations. They have had a falling out over the election of officers and plaintiff, who was ousted from office, proposes to show that, by virtue of a private understanding with defendant, each corporation was really a disguised copartnership. ‘ The case is unique. None like it has been called to our attention. The learned trial court remarked that the mere statement of the proposition upon which plaintiff must rely in order to recover ought to be sufficient to show that the contract is contrary to public policy.
Plaintiff asserts that, if the contract was- contrary to public policy, defendant is in no position to question its validity because he recognized and acted on it for more than 20 years. A contract, void because contrary to public policy, cannot be thus validated. Neither party is estopped from questioning it because the other has parted with property or rendered services in reliance upon it. Colby v. Title Ins. & Trust Co. 160 Cal. 632, 117 Pac. 913, 35 L.R.A.(N.S.) 813, Ann. Cas. 1913A, 515; Brown v. First Nat. Bank of Columbus, 137 Ind. 655, 37 N. E. 158, 24 L.R.A. 206; Bay v. Davidson, 133 Iowa, 688, 111 N. W. 25, 9 L.R.A.(N.S.) 1014, 119 Am. St. 650; Tate v. Commercial Bldg. Assn. 97 Va. 74, 33 S. E. 382, 45 L.R.A. 243, 75 Am. St. 770; Reed v. Johnson, 27 Wash. 42, 67 Pac. 381, 57 L.R.A. 404; Handy v. St. Paul Globe Pub. Co. 41 Minn. 188, 42 N. W. 872, 4 L.R.A. 466, 16 Am. St. 695; 13 C. J. 506; 6 R. C. L. 819.
There is nearly as much authority condemning all such combinations and private arrangements as.contrary to public policy. We express no opinion as to whether every combination or “gentlemen’s” agreement among the principal stockholders should be held to be unenforceable if the parties choose to repudiate it. What we have to say on the subject is limited strictly to the facts as they .appear from the complaint.
' It is alleged that defendant “guaranteed” that as long as plaintiff lived he would be furnished with employment by the corporations, provided he was able to render services to them, and further that he should share in the management of the corporations as long as he lived. We are of the opinion that such an agreement is against public policy, and that the failure to perform it gives rise to no right of action. In order to perform it defendant would always have to hold enough stock to control the corporate elections, and was bound to vote the stock for plaintiff as a director and secure the election of other directors who would vote 'to retain him in the service of the corporations in some managerial capacity. Defendant would no longer be free to exercise his judgment with sole regard to the interests of the corporation and the entire body of its stockholders. Stockholders 'are entitled to the exercise of the free and honest judgment of the directors upon conditions as they arise and bear upon the interests of the corporation. A director may not bargain away in advance the judgment the law contemplates he shall exercise at subsequent official meetings of the board. If the contract is valid, defendant could only vote in one way without subjecting himself to an action for damages. That fact would necessarily influence him in easting his vote. There were other stockholders and they had the right to have defendant exercise his independent judgment in casting his vote. The fact that they are not parties to the action and do not appear to be complaining is of no consequence,' for, if the contract is against public policy, a court will not lend its aid to its enforcement at the suit of either party to it. Public policy cannot be contravened by any arrangement or agreement of
The views we have expressed are in accordance with the decided weight of authority. West v. Camden, 135 U. S. 507, 10 Sup. Ct. 838, 34 L. ed. 254; Guernsey v. Cook, 120 Mass. 501; Shepaug Voting Trust Cases, 60 Conn. 576, 24 Atl. 32; Luthy v. Ream, 270 Ill. 170, 110 N. E. 373, Ann. Cas. 1917B, 368; Scripps v. Sweeney, 160 Mich. 148, 125 N. W. 72; Rush v. Aunspaugh, 179 Ala. 542, 60 South. 802; Jones v. Williams, 139 Mo. 1, 39 S. W. 486, 40 S. W. 353, 37 L.R.A. 682, 61 Am. St. 436; Gage v. Fisher, 5 N. D. 297, 65 N. W. 809, 31 L.R.A. 557. They are also in accord with what was said in Dickson v. Kittson, 75 Minn. 168, 77 N. W. 820, 74 Am. St. 447, and in Van Slyke v. Andrews, 136 Minn. 316, 178 N. W. 959, although the facts in those cases were quite different from those in the case at bar. There is nothing in McMullan v. Dickinson Co. 63 Minn. 405, 65 N. W. 661, 663, sanctioning á contrary doctrine.
In his affidavit, on which the motion to amend was based, he stated that there was no difference in the facts there set forth and those alleged in the complaint. If such was the case, the amendment added nothing to the pleading and he was not prejudiced by the denial of his motion.
There are different expressions in the books which appear to justify plaintiff’s contention that, if all the stockholders had consented to the making of the alleged contract, it would not be open to the objection noted in the second division of this opinion. But the objection first considered could not be’ overcome by showing that such consent was given. The contract would be no less objectionable because all the stockholders had agreed that the corporate form in which the business was conducted should merely be a cloak for a copartnership. The state has not consented to the arrangement. A court will not directly enforce a contract or recognize it by awarding damages for its breach if it is con
x It is urged that a stockholder ought to have an individual right of action for the wrongful diversion of corporate funds, when the purpose of the managing officer in diverting the funds is to render his stock unsalable. The wrong is done when the funds are improperly expended. Such funds do not belong to the stockholders, but to the corporation. The wrong done results in injury to the stockholders collectively. Money which might have been distributed among them as dividends has been wasted. The value of all the stock has been diminished. The injury to
It is a matter of no consequence that the misconduct is charged against the defendant as an individual and not as an officer, or that the wrongful acts alleged were done with the specific intent and fraudulent design of injuring plaintiff. Wells v. Dane, supra. We do not mean to say that under no circumstances can a stockholder sue an officer for an injury to himself. If the injury is solely to him, no doubt he may sue in his own right.
We are of the opinion that each of the orders made by the learned trial court was right, and hence the judgment appealed from is affirmed.