Opinion
November Term, 1902.
L. Laflin Kellogg, for the appellants.
Charles E. Rushmore, for the respondent.
The appellants all contend that their demurrers should be sustained upon the grounds (1) that there was no consideration between the plaintiff and the De Laval Company; (2) that the stockholders of the De Laval Company could not bind it by the contract, and (3) that the contract is void under the Statute of Frauds. The appellants other than the De Laval Company also urge that, at all events, they are not proper or necessary parties and that no cause of action is alleged against any of them. While it is alleged that the contract originally was with the Aktiebolaget Company, it is manifest that it was not intended to allege it as a contract with that company as a business corporation but in its capacity as a stockholder of the De Laval Company. It should be borne in mind that, with the exception of the small percentage of the stock of the De Laval Company which the plaintiff owned, and that which he had an option to purchase with a similar option over to the Aktiebolaget Company which was exercised, the latter company owned all the stock of the De Laval Company. It thus appears that the contract was made between two parties who owned or controlled all the stock of this corporation. The agreement was for the benefit of the Aktiebolaget Company in its capacity as such stockholder. Doubtless it was not competent for the stockholders of the De Laval Company to agree that the management and control of its affairs should be vested in one of their number to the exclusion of the board of directors, nor is such the fair purport of the agreement as alleged in the complaint. The services which the plaintiff was to render the De Laval Company as attorney or otherwise were presumably to be rendered with the consent of, and in co-operation with, the board of directors. It is alleged that the services were in fact rendered and that from them great financial benefit accrued to the company. Therefore the services must have been accepted by the company. The plaintiff may have advised and assisted the board of directors, and the latter may have had such confidence in his judgment that they acted on his recommendations; or they may have legally devolved on him the business management of the corporation such as might be delegated. The contract was also for the benefit of the De Laval Company, and through the efforts of the plaintiff that company was extricated from its apparently hopeless condition of insolvency. It was not, therefore, a stranger to the contract, and in accepting the contract it did not undertake to answer for the debt or default of the other company. All that the plaintiff agreed, with the Aktiebolaget Company as a stockholder of the De Laval Company, to do, he has fully performed, presumably with the acquiescence and approval of the directors of the De Laval Company, for without their consent and approval his services could have been of no benefit to the company. Although it is not so specifically alleged, this is the natural and reasonable inference from the allegations contained in the complaint, and the fact might, we think, be proved thereunder.
After the rendition of the services, by unanimous vote of all the stockholders of the De Laval Company, the agreement under which the plaintiff performed the services, which was somewhat indefinite in so far as it related to "a substantial interest in all the future earnings" of the company, was made clear and definite by the resolution in effect declaring that the "substantial interest" should be "five per cent of such surplus cash or net earnings" available for the payment of dividends.
The appellants also claim that it was not competent for the stockholders, even by a unanimous vote, to bind the corporation to the payment of these dividends. Even if that be so, the board of directors, by acting on the resolution and paying five per cent of the net profits to the plaintiff annually for several years in accordance therewith, ratified and adopted the action of the stockholders. It is, therefore, unnecessary to decide whether either the stockholders or the board of directors, without the consent or approval of the other, could make the contract or authorize such payment. It is not apparent, however, that the corporation, as such, has any interest in these surplus earnings, nor would it seem that its creditors or the public are interested therein. The contract only purports to deal with legitimate dividends. Upon dividends being declared, instead of their being distributed to the stockholders in proportion to their holdings, the stockholders, who alone are entitled thereto, have agreed that the board of directors shall first deduct five per cent for the plaintiff on account of these services which they recognize as having placed the corporation on a dividend-paying basis.
The Statute of Frauds has no application. The contract has been fully performed by the plaintiff, and while it was not performed within one year it does not necessarily follow that it could not have been performed within that time. Nothing remains to be done under the contract now but to make the payments of the five per cent of the net income going to the stockholders which they have authorized the directors to turn over to the plaintiff. The resolution of the stockholders was merely authority to the directors to fulfill a contract made by the stockholders with reference to the payment of dividends that might be thereafter declared in their favor. In effect it was an assignment pro tanto of their right to dividends. The contract was no longer executory at the time the stockholders passed the resolution, and, even if it had been within the statute originally, the statute ceased to apply upon performance by the plaintiff and the adoption of the resolution by the stockholders which, in thus authorizing payments to the plaintiff for all future time covered by the contract, constituted a performance on their part.
No personal claim is made against the Aktiebolaget Company or the individual defendants, but a decree is sought which will affect them as stockholders of the De Laval Company and may limit and restrict their rights with reference to the sale and transfer of their stock to prevent its passing into the hands of an innocent purchaser who might not be bound by the agreement. They are, therefore, not only proper, but necessary parties.
It follows that the interlocutory judgment should be affirmed, with costs, with leave to defendants to withdraw demurrers and answer upon payment of costs in this court and in the court below.
VAN BRUNT, P.J., PATTERSON, INGRAHAM and HATCH, JJ., concurred.
Judgment affirmed, with costs, with leave to defendants to withdraw demurrers and answer on payment of costs in this court and in the court below.