Contract, Construction, Validity. Bills and Notes, Validity. Corporation, Officers and agents.
The decision in Moss v. Copelof, 231 Mass. 513, that a provision in an agreement between three persons, constituting all the directors of a Massachusetts corporation, that, upon one of them severing all active connection with the corporation, he should "be credited with an amount equivalent to one month's salary, namely: Six hundred (600) dollars, which shall be applied on account of his indebtedness to said . . . Company for unpaid stock subscription," did not mean that the $600 was to be paid to the retiring director but that it should be credited on his account with the corporation, affirmed.
In an action upon a promissory note given by two of the three directors of a Massachusetts corporation to the third director as part of an agreement made upon the third director severing his active connection with the corporation, the defendants answered that the note was made pursuant to an alleged agreement, and it appeared that the agreement also provided that the plaintiff should receive the equivalent of one month's salary, $600, which should "be applied on account of his indebtedness to" the corporation "for unpaid stock subscription." The stock had been issued to the plaintiff for his promissory note for $3,500, upon which he still owed more than $650. The agreement was made among the directors who, in so doing, intended to act as partners and not as directors and had in view their personal rights and obligations and not those of the corporation. At the time of the making of the agreement terminating the plaintiff's active connection with the corporation, the plaintiff was in its employ but there was no agreement in force that the employment should be continued and the corporation was not indebted to the plaintiff. Held, that
(1) Requests for rulings based on the assumption that the plaintiff had a contract with the corporation for continuous employment properly were refused;
(2) Requests for rulings in effect that, if the plaintiff in good faith believed he had an agreement for continuous employment by the corporation, his termination of the employment at the request of the other two directors was a sufficient consideration to the company for crediting him with $600, properly were refused;
(3) The giving of $600 to the plaintiff by the corporation was illegal, regardless of the purpose for which it was to be applied;
(4) Evidence tending to show that other stockholders of the corporation obtained their stock by issuing notes therefor in violation of St. 1903, c. 437, § 14, was immaterial;
(5) The note in suit being issued as part of an invalid agreement, it was proper to refuse to rule that there should be a finding for the plaintiff.
De COURCY, J.
This action, brought to recover on three promissory notes made by the defendants pursuant to a written agreement between the parties, was recently before this court; and the essential facts are set forth in the opinion, 231 Mass. 513. At the second trial in the Superior Court the judge, sitting without a jury, found for the defendants and filed a memorandum of findings. The case is now here on the plaintiff's exceptions to the denial of requests for rulings and to the exclusion of certain evidence.
The plaintiff and the defendants were the only directors, but not the only stockholders, in the M. . C. Skirt Company, a Massachusetts corporation. Differences as to the management arose between them, which resulted in the agreement of December 19, 1916, by which the plaintiff terminated his participation in the business. The second paragraph of the agreement provided: "Upon said termination said party of the second part shall be credited with an amount equivalent to one month's salary, namely: Six hundred (600) dollars, which shall be applied on account of his indebtedness to said M. C. Skirt Company for unpaid stock subscription." The plaintiff's seventh and eighth requests in effect were, that by the true interpretation of this paragraph the $600 was to be paid by the defendants, and that they were to cause the plaintiff to be credited therewith on the books of the company. This same contention was urged at the previous argument; but the court decided otherwise. As was said in the opinion ( 231 Mass. 513, 517): " The provision made by the article is that the plaintiff 'shall be credited' with $600 not that he shall be paid $600. That means 'credited' by the corporation." The trial judge rightly adopted this interpretation.
Construing the agreement as providing for payments from the treasury of the corporation, the plaintiff's requests numbered 13, 16, 18, 20 and 35 are based on the assumption that the plaintiff had a contract with the corporation to work for it to May 9, 1917, or indefinitely at his will, and that the agreement to terminate his employment was ample consideration moving to the corporation for such payments by the company. The trial judge, however, has found "There was no formal directors' or stockholders' meeting indicating a corporate agreement with the plaintiff that he should continue during 1917 in the employ of the corporation, and no evidence from which I could find that the defendants made such an agreement as directors outside of a meeting." This and the other findings that "the corporation was not indebted to the plaintiff on January 1, 1917," and that the corporation "was not under contractual obligations" to him, render these requests immaterial.
Requests numbered 15, 19 and 21 are, in effect, that if the plaintiff in good faith believed he had an agreement to work for the corporation, his termination of the employment at the request of the defendants was sufficient consideration to the company for crediting him with $600. See Blount v. Wheeler, 199 Mass. 330, 336. But, as the judge found, ". . . they were intending to act as partners in the various negotiations and agreements, and not as directors, and had in view their personal rights and obligations and not those of the corporation." Further, in order to bind the property of the corporation, it must appear that from its standpoint the parties acted honestly and in good faith; and in effect the finding of the trial court is to the contrary.
The requests numbered 28, 32 and 33 are based on the claim that the plaintiff's stock was illegally issued for his note (see St. 1903, c. 437, § 14); that any "credit" on account thereof would not constitute payment, and could not be enforced against the corporation. As to this it suffices to say that it was illegal to give the $600 to the plaintiff regardless of the purpose for which it was to be applied. And as matter of fact the plaintiff from the beginning has acted on the assumption that the stock was legally issued to him. See Soghomonian v. Garabedian, 231 Mass. 445.
Request numbered 27 need not be discussed, in view of the evidence and findings. The offer to prove that all the other stockholders except the defendants and one Bergson, obtained their stock by issuing notes was rightly excluded, not being material in the present case. The request numbered 26 could not have been given even if the evidence were admitted. Presumably these other stockholders were acting as such in good faith. The legality of the agreement of December 19, 1916, was not dependant on their consent. Palmbaum v. Magulsky, 217 Mass. 306.
Finally the first request was denied rightly. The effect of the agreement, in pursuance of which the notes in suit were issued, was to obligate the M. C. Skirt Company "to pay to the plaintiff from its funds an amount which the company did not owe him, at a time when it was not under contractual obligations to him." The $600 was to be applied on account of the plaintiff's indebtedness for unpaid stock subscriptions, in violation of St. 1903, c. 437, § 14. The further illegality of the sixth clause of the agreement need not be considered. Moss v. Copelof, supra. Exceptions overruled.