Miller v. Vanderlip

Upon this appeal the issue is whether the allegations of the complaint are sufficient to state a cause of action. We are not now concerned with the proof of the allegations or the proof of damages which must await a trial.

Two causes of action are alleged. The first for breach of contract, and the second apparently for conspiracy to breach the same contract. Since the second cause of action cannot stand if the first falls, we come to the allegations contained in the first cause of action. These are as follows:

Plaintiff, a man of considerable experience in designing, manufacturing and selling automobiles, was asked by certain unnamed stockholders of the Reo Motor Car Company, a Michigan corporation, to interest outstanding businessmen in the rehabilitation of the company, which had been operating at a loss for some time. Plaintiff succeeded in interesting six such persons who, for convenience, will be referred to as the defendants although two of their number are now deceased and it is their executors who have been joined as parties defendant. The plan evolved by the parties to restore prosperity to the Reo Company contemplated the hiring of competent business managers by the company. The managers were to be engaged at comparatively small salaries, but in order to induce them to accept positions with Reo, they were to be given options on shares of stock which up to that time had remained unissued. On January 28, 1937, plaintiff and defendants, none of whom is alleged in the complaint to be either a stockholder or a director of Reo, entered into an agreement among themselves to organize a stockholders' committee which would seek to bring about an increase in the number of directors on the company's board, and thereafter the parties were to urge upon the new board, the adoption of the plan referred to above. The parties agreed to carry out the object of their agreement "insofar as within their power lay."

The complaint alleges that it was agreed that the best interests of the company called for the adoption of the plan and the election of plaintiff as president and general manager for a term of three years at an annual salary of $9,000 plus options at a given price on 38,000 unissued shares. It was further agreed that plaintiff should advance a substantial sum to defray the expenses of the stockholders' committee and should devote his efforts to bringing about the desired increase in the number of directors. The committee was organized, plaintiff advanced to it the sum of $3,000 and devoted his efforts as agreed. As a result of the work of the committee and of plaintiff, the board was increased from five to nine members, and the stockholders elected a board which was satisfactory both to the committee and to the parties to this action. Defendants, however, failed to take the next step called for by the agreement, to wit, to advocate before the new board the adoption of the plan and of plaintiff's election as president and general manager. In consequence of the defendants' failure to perform their agreement, plaintiff has received no offer of employment and no options upon the company's unissued stock. It is also alleged that "had the defendants * * * caused to be submitted to said Board of Directors the plan * * * and in good faith advocated its adoption, the said plan would have been approved and adopted by said Board of Directors acting for the best interest of said corporation."

These are the allegations which it is said do not state a cause of action because (1) the agreement sued upon is illegal, and (2) the agreement, even if legal, is too vague and illusory and hence does not amount to a contract upon which an action may be maintained. We take up first, whether the agreement was unenforceable on account of illegality.

Respondents rely upon cases which establish the well-settled doctrine that directors of a corporation may not be divested of their discretion in the management of the company's affairs. (Manson v. Curtis, 223 N.Y. 313; Fells v. Katz, 256 N.Y. 67; McQuade v. Stoneham, 263 N.Y. 323; but cf. Clark v.Dodge, 269 N.Y. 410.) We are of course limited to the allegations in the complaint and may not speculate in regard to matters not contained therein. Nowhere in the complaint is it alleged that any of the defendants were directors of the Reo Motor Car Company at the time when the agreement was to be completed by the defendants' advocacy of the plan. Hence, the principle relied upon does not govern the situation and the complaint may not be deemed to allege an illegal agreement upon this score. While the directors owe a duty to all of the stockholders to act only according to their best judgment, there is no reason why any stockholder, or any outsider for that matter, may not urge upon the board considerations in favor of or opposed to a proposed course of action in the interest of the company. It cannot successfully be contended that directors must act without the advantage of taking into consideration the views and information furnished by others. To listen to the arguments advanced by others is not to abandon discretion or judgment in the premises, but merely to weigh as many factors as possible.

It is to be noted that nowhere in the complaint is it alleged that the defendants have been stockholders of the Reo Motor Car Company at any time. The position of the defendants, therefore, is that of the advocate who undertakes to present the view of another. Whether such an agreement is lawful under all circumstances need not now be decided, for it is further alleged that the defendants undertook to urge the plan in question in the belief that its adoption would be for the best interest of the company. In the case at bar there is only the very narrow question as to whether men of standing in the business world may undertake to urge a given line of advice upon a company in which they have no interest, and to urge a course of action from which no apparent profit will accrue to the advocates.

But even if it were to be assumed that the defendants were stockholders, and even if it were to be assumed that the defendants would profit as a result of the adoption of the plan, would it necessarily follow that the agreement is illegal? There is nothing in the complaint from which it may be inferred that the profits which would flow to the proponents of the rehabilitation plan would not equally flow to all the other stockholders, except for the fact that the plaintiff would obtain the emoluments of an office, which obviously cannot accrue to more than one or, at most, to a very limited number. In this connection it is to be noted that not even the benefits which would accrue to the plaintiff would be obtained at the expense of any of the other stockholders. The complaint alleges that the compensation which would have been paid to plaintiff would have been a fair and just remuneration for his services to the company. In no sense, therefore, would any one group of stockholders be the recipients of an advantage at the expense of the others.

The only possible objection upon this phase, therefore, is that the agreement is necessarily bad because certain stockholders bound themselves to exercise their judgment in a given way in advance of the time when they would be called upon to exercise that judgment in the course of their activities as stockholders. A similar question was raised in Brightman v. Bates (175 Mass. 105) where it was argued that an agreement was illegal because it bound some of the stockholders to surrender their voting rights to a committee which was to name the board of directors at each annual meeting for three years. "It is as legitimate for a majority of stockholders to combine as for other people. The fact that they expect ``gain and advantage' * * * to accrue to them, does not make the combination unlawful. That expectation and intent would have that effect only if the gain was to be at the expense of the corporation, or in some way was intended to work a wrong to the other stockholders * * *. It is suggested that this was an unlawful attempt by the contracting parties to deprive themselves in advance of their deliberative power and duty as stockholders, and to submit themselves to the dictation of five men who in the future might not even be members of the corporation. * * * The question before us is not whether it would be possible to carry out the contract in a way which would have made the contract bad if specified in it, but whether it was impossible to carry out the contract in a way which might lawfully have been specified in advance. We put the question in this form because there is no doubt that the subscribers [stockholders] might actually have done the things stipulated without giving anyone a right to complain. That is to say, they might have held their stock and voted the previous understanding according to the advice of the committee, as long as they chose. The question is what they might contract to do; * * * We know nothing in the policy of our law to prevent a majority of stockholders from transferring their stock to a trustee with unrestricted power to vote upon it. [Cas. cit.] Supposing that the committee had been trustees, what would the syndicate agreement have amounted to then? Merely an agreement by each of the trustees to vote as they should jointly agree to vote, and an agreement by the subscribers not to demand back their shares for three years. The latter term certainly is not illegal, whether valid or not. * * * As to the arrangement for the trustees uniting to elect their candidates, the decisions of other states show that such arrangements have been upheld, and we do not think that it needs argument to prove that they are lawful. If stockholders want to make their power felt, they must unite. There is no reason why a majority should not agree to keep together. [Cit. cas.]" (Per HOLMES, Ch. J., at pp. 110-111.)

A further point of illegality is said to be found in the failure of the complaint to allege that the plaintiff, at the time of the agreement, was, or, in the contemplation of the agreement, was to become, a director of the corporation and hence eligible for election as president. (Stock Corporation Law, § 60; Cons. Laws, ch. 59.) The answer to this is two-fold. First, The Reo Motor Car Company is a Michigan corporation and we may not indulge in a presumption that the statutory law of Michigan is the same as of this State. And second, even if plaintiff were ineligible to assume the post of president of the company, he would still remain eligible for the post of general manager. The agreement, therefore, may be said to call for an illegal act not in the sense that it sought to induce another to violate a legal duty or to subvert the legal rights of another, but only in the sense that it sought to accomplish that which was impossible of attainment. The fact that plaintiff might not be eligible to be both president and general manager is no excuse for the failure of the defendants to urge the selection of plaintiff for the position of general manager, albeit in that event the remuneration of plaintiff probably would not have been the same as if he had occupied both positions. Thus if for a valid consideration "A" makes two promises to "B," and one of the two promises calls for an impossible performance, there is no reason why "A" should not be called upon to perform in so far as he is able to do so.

The point is also made that plaintiff was to be engaged for a term of three years, whereas section 60 of the New York Stock Corporation Law provides that "The directors may require any such officer [including president], * * * to give security for the faithful performance of his duties, and may remove him at pleasure." Even if it be assumed, but without deciding, that plaintiff could not have been engaged for the full term of three years, the answer is the same as in regard to plaintiff's ineligibility for the position of president.

Whether the agreement is illusory.

It is said that there is no specific allegation of a promise on the part of the defendants to urge the new board of directors to adopt the rehabilitation plan. We do not so read the complaint. On the contrary, the complaint may be fairly said to allege such a promise on the part of defendants. It is next contended that even if the defendants did so undertake, the plaintiff fails properly to allege that the defendants could control the action of the board of directors or that the plaintiff was eligible for the positions to which he aspired. So far as concerns the plaintiff's ability to perform, there is due allegation that he was at all times ready, able and willing to perform the agreement on his part. Even if this allegation were deemed insufficient, there is no objection apparent to plaintiff's qualifications for the office of general manager.

That the defendants did not control the board of directors is not pertinent to the cause of action alleged in the complaint. The plaintiff's grievance is not simply his failure to receive from the company the offer of employment and its attendant emoluments, but the failure of the defendants to keep their promise to urge plaintiff's employment upon the members of the board. The extent of plaintiff's damages will, of course, depend upon the proof adduced in support of the allegations, and it is now unnecessary to determine, as was said herein at the outset, the manner in which plaintiff will be able to establish the damages he has suffered. It is sufficient that the right to have another person advocate one's own advancement is a right of some value. It may not be assumed that another person's advocacy of one's cause is a thing of value only when the advocate is a professional lawyer and not when the other person is a man distinguished in the world of business or possessing other special qualifications. The promise of defendants, therefore, was a promise of some value and it must be assumed that by their promise the defendants agreed to perform in accordance with their abilities and in good faith. (Wood v. Duff-Gordon, 222 N.Y. 88. )

The first alleged cause of action, therefore, is sufficient.

The second cause of action is only against some of the defendants named in the first cause of action, plus one person not so named. Although the plaintiff may have a cause of action for interference with his contract rights, on the part of the person not named in the first cause of action, plaintiff himself apparently does not so construe the second cause of action. Instead, when fairly read and as construed by plaintiff, the second cause of action seeks to restate as a conspiracy that which amounts to nothing more than the breach of contract alleged in the first cause of action. The second cause of action adds nothing by way of legal liability, and only seeks to explain the possible motives of defendants for their failure to perform the agreement sued upon in the first cause of action. Since plaintiff's cause of action for breach of contract is his entire grievance against the defendants he may not split his causes of action based upon a single grievance and, therefore, the second cause is bad and should be dismissed.

The judgment of the Appellate Division, in so far as it dismisses the first cause of action, should be reversed, and the motion to dismiss such cause of action denied, with costs in this court and in the Appellate Division; otherwise the judgment of the Appellate Division should be affirmed.