Shubin v. Surchin

McNally, J. (dissenting).

Plaintiff seeks a declaration of his rights under two stockholders’ agreements concerning defendant Approved Business Machines Co., Inc. (“ Approved”). Defendants have been enjoined pendente lite from holding a special meeting of directors of Approved or affirmatively acting in contravention of an agreement dated April 8, 1965. Defendants appeal from the grant of said injunction and the denial of their motion for summary judgment.

Approved was organized in June, 1959. Its sole stockholders are plaintiff and defendant Hyman Surchin (‘1 Hyman ”). Each owns 50 shares. The certificate of incorporation provides for not less than 3 nor more than 7 directors. The by-laws provide for four directors and a quorum of “ a majority of the whole number of directors.”

Upon the organization of Approved, plaintiff, his nominee, Annie Lehrer, defendant Hyman and his nominee defendant, Samuel Surchin, became directors; plaintiff became secretary and treasurer and Hyman president. Annie Lehrer died in 1965. The resulting vacancy has not been filled.

*457The agreement of April 8,1965 provides in part:

“1. Control'. The parties agree to vote at stockholders’ and directors’ meetings so as to provide the following:
“ (a) A Board of Directors consisting of all the stockholders, Hyman Snrchin and Meyer Shubin, both of whom shall be necessary to constitute a quorum for the transaction of business at any meetings of the Board of Directors; and that no action of the Board shall be valid unless approved by Hyman Surchin and Meyer Shubin thereof.
‘‘ (b) That all meetings of stockholders, the presence in person or by proxy of Hyman Surchin and Meyer Shubin shall be necessary to constitute a quorum ; and no action shall be valid unless approved by Hyman Surchin and Meyer Shubin or their proxies.
“(c) That the directors will ratify and adopt this Agreement and file a copy thereof with the minutes of the Corporation.
“(d) Corporation checks are to be honored under the signatures of Hyman Surchin and or Meyer Shubin.
“ (e) Ho change shall be made in the Certificate of Incorporation or in any of the By-Laws thereof without the consent of Hyman Surchin and Meyer Shubin. ’ ’

There are differences between plaintiff and Hyman relative to the affairs of Approved. Consequent thereon defendants Surchin requested and Hyman, as president, called a special meeting of the board of directors to be held July 19, 1966, for the presentation of the following matters:

“ 1. The election of a vice-president, assistant secretary and treasurer.
“2. To consider the existing resolution relating to the signing of checks on behalf of the corporation.
“3. To pass upon the conduct of Meyer Shubin, an employee and officer of the corporation, and his fitness to continue as an officer and employee of the corporation.
“4. Such other business as may come before the board of directors for consideration.
‘ ‘ Please be further advised that the constitution of a quorum of directors will be determined by Section 707 of the Business Corporation Law and that the provisions contained in the agreement dated April 8,1965, paragraph í-a thereof, between Hyman Surchin and Meyer Shubin to the effect that the presence of Hyman Surchin and Meyer Shubin shall be necessary to constitute a quorum for the transaction of business at any meetings of the board of directors and that no action of the board shall be valid unless approved by Hyman Surchin and Meyer Shubin shall be disregarded as in contravention of Sections 707; 708 and *458709 of the Business Corporation Law, illegal and of no force and effect.”

On plaintiff’s application, the proposed special meeting of the board of directors was stayed on July 19,1966, pending a motion for an injunction pendente lite. The affidavit in support of the order to show cause containing the stay was made by plaintiff’s attorney. It affirmed plaintiff,’s inability to attend because of Ms then presence in California and the unavailability of travel facilities to New York, the place of the meeting, because of an airline strike. The affidavit further alleged the proposed action at the scheduled meeting was in disregard of the agreement of April 8, 1965.

Implicit in said agreement is the obligation on the part of plaintiff and Hyman, respectively, to vote his shares of stock for the other as director of Approved. Defendants do not propose any action affecting plaintiff as director.

Defendants seek to remove plaintiff as an officer. The by-laws provide an officer ‘1 may be removed at any special meeting of the Board called for that purpose at which a majority of the Directors are present.” The agreement to vote for the plaintiff as director does not preclude his removal for cause. (Matter of Burkin [Katz], 1 N Y 2d 570, 572.)

Insofar as the agreement requires the presence of both plaintiff and Hyman to constitute a quorum for the transaction of business at any meeting of the- board of directors, it is invalid to the extent that it requires more than a majority. (Business Corporation Law, § 707; former § 27 of General Corporation Law; Benintendi v. Kenton Hotel, 294 N. Y. 112.) A quorum in excess of a majority may be imposed solely by the certificate of incorporation. (Business Corporation Law, § 707; former § 9 of Stock Corporation Law; Matter of Faehndrich, 2 N Y 2d 468, 473; Model, Roland & Co. v. Industrial Acoustics Co., 16 N Y 2d 703.) The agreement herein expressly precludes any change in the certificate of incorporation without the consent of plaintiff and Hyman and his consent may not be compelled. (Benintendi v. Kenton Hotel, supra, p. 120.) The agreement, therefore, does not operate to preclude the proposed special meeting of the board of directors nor its consideration of the matters set forth in the notice thereof.

Plaintiff also seeks to enforce an oral agreement made prior to the organization of Approved. This agreement is that plaintiff and Hyman would vote their stock for one nominee of each as director and elect Hyman president and the plaintiff secretary and treasurer of Approved. The oral agreement is not susceptible of proof because it merged with the written agreement of *459April 8,1965, and its proof would violate the parol evidence rule. (Mitchill v. Lath, 247 N. Y. 377; Fogelson v. Rackfay Gonstr. Co., 300 N. Y. 334; Laskey v. Rubel Corp., 303 N. Y. 69.)

The written agreement deals with ‘ ‘ control ’ ’ of Approved. It precludes any action on the part of stockholders and the board of directors without the consent of both plaintiff and Hyman. The oral agreement requires the election of the nominee of each to the board despite the opposition of the other. The oral agreement conflicts with and contradicts the requirement of unanimity for action provided in the written agreement and, therefore, may not be established. (Mitchill v. Lath, supra, p. 381.)

The alleged oral agreement has been assumed. However, the record fails to establish it. Purporting to have been made prior to the organization of Approved in 1959, it was first advanced as a basis for any claim on the service of the amended complaint in September, 1966. Plaintiff’s telegraphic demand, dated July 16, 1966, for a special meeting of stockholders to elect his nominee as director is grounded on the written agreement; plaintiff and his attorney at the special meeting of stockholders on July 27, 1966, similarly based their demands; the original complaint relied solely on the written agreement. Plaintiff’s affidavit in opposition to defendants’ motion for summary judgment does not factually set forth the alleged oral agreement. Instead, plaintiff adverts to testimony of Hyman during his examination before trial to the effect that equal representation of plaintiff and Hyman on the board of directors was voted in 1959 by ‘ ‘ oral arrangement ’ ’ between plaintiff and Hyman. The consensus preliminary to the election of plaintiff’s nominee as director in 1959 is not the equivalent of an executory agreement to so vote thereafter. Apart from the said testimony of Hyman, plaintiff fails to set forth evidence of the alleged oral agreement. Plaintiff has failed to show facts sufficient to require a trial on his causes of action grounded on the oral agreement.

The orders should be reversed. Judgment should be entered declaring the written agreement invalid insofar as it requires more than a majority to constitute a quorum for a business meeting of the board of directors or stockholders, and otherwise dismissing the amended complaint.

Eager, J. P., Capozzoli and MoGivern, JJ., concur with Bastow, J.; McNally, J., dissents in opinion.

Orders entered on September 7, 1966 and October 26, 1966 affirmed, with $50 costs and disbursements to the respondent.