Wood v. Manchester Fire Insurance

The demurrer to the complaint presents serious obstacles to any recovery by the plaintiff upon a claim for an unpaid balance of $9,000, part of the consideration of the sale of the influence of the plaintiff, as president, director, and stockholder of the American Fire Insurance Company to the defendant, the Manchester Fire Insurance Company, which is a foreign corporation. The defendant was desirous of acquiring the stock, control, business, and good will of the American Fire Insurance Company, and found it necessary to secure the direct participation of the plaintiff to accomplish that result. By various propositions made in August, 1897, on behalf of defendant, it secured prior to 1898 all but $10,000 or $15,000 of the stock of the American Company, which was capitalized at $400,-000, the resignation of the executive officers and directors of the American Company, and the complete control of that organization. The propositions which were accepted and acted upon by the plaintiff required the passage over to the defendant of the majority of the stock, the wiping out of the old board of directors, and the resignation of the plaintiff as president of the American Company. In consideration of the success of the scheme proposed, each stockholder was to have $100 per share for his stock on the transfer of his certificate. The plaintiff was to retain an official connection with the American Company, as vice president, at a salary of $6,000, at least

It is unnecessary to cite the cases referred to in the brief of counsel for the plaintiff to show that shareholders have the right to sell their stock, and at any stockholders’ meeting to vote and act in the interest and protection of their own pecuniary requirements. There is no doubt that the plaintiff, as stockholder of the American Company, might barter his share away, and even obtain a greater sum than that offered to any other stockholder. He might even do so if he was aware that the purchaser was acting in the contemplated acquisition of a controlling interest in the company to which he belonged. But when a stockholder accepts the trusteeship of a corporation, ánd becomes director and president, the freedom of his right of action as a stockholder is fettered by the lines of his trust duty. It is a voluntary thing for him to assume such a position, but, once accepted, paramount duties flow from the responsibility which he takes. As president and director, it is his duty to make the company prosperous, so that it will not only increase the value of its acquisitions for the benefit of the stockholders, but also will continually gain in protective power to guard the interests of the insuring public, who deal with the corporation on the faith of its ability to carry out its obligations, continue existence as a company, and meet the executory contracts for the future. The sale of a corporation organized and permitted to exist for the purpose of making insurance is presumptively an act of felo de se. It needs exceptional and extraordinary circumstances to justify such action, outside of the privileges given by statute to voluntarily dissolve or consolidate. When, therefore, the trustees of a corporation, for their own pecuniary benefit, even though that benefit may be shared by others interested to a smaller relative-degree, seek to gain pecuniary advantage by the sale of the corporation and of their own trust duties to other persons, the act is one which cannot be sustained by the law. It is not a sufficient answer that the foreign corporation was engaged in the same business, and could carry out the contracts of the American Company. The purpose of the purchasing company was to absorb the other, so that its vitality should' either cease entirely, or that it could-be used as a tender in the work and increase of the larger company. I therefore regard the contract as invalid in law, and not capable of enforcement as an executory

There is still another objection to a recovery. I do not find that the defendant company ever promised to pay the plaintiff this sum of $9,000. It simply consented, in view of its approaching interest in the American Company, to allow the American Company to vote the honorarium to the plaintiff. The only theory upon which the plaintiff can seek to charge the defendant company is that now, being in full possession and control of the American Company under the agreement referred to, it had the power, and it was its duty, to fulfill that agreement, in all its scope and purpose, and that the directors of the American Company, being the creatures or servants of the defendant company, could, at the will and caprice of the latter company, vote to pay the remaining balance. This theory is hardly sufficient, and its suggestion again illustrates the illegal character of the arrangement made, so far as it is here involved. The plaintiff can only claim that the defendant company should pay a reward to him for services in the complete absorption by the defendant company of the American Company, and the transfer of the trust positions in the American Company to others selected by the defendant company, which result could not have been accomplished but for that reward which was the object and motive of the plaintiff in the destruction of the primary objects of the organization and existence of his own company. Judgment for defendant on demurrer, with costs.

Judgment for defendant, with costs.