McQuade v. Stoneham
189 N.E 234 (N.Y. 1934)


PROCEDURE: Defendants appealed from the judgment of the Appellate Division of the Supreme Court in the First Judicial Department (New York), which affirmed a ruling in favor of the plaintiff to reinstate him as treasurer of a corporation.

FACTS: Stoneham (D) owned the majority of stock in the National Exhibition Company. McQuad (P), a city magistrate, purchased some stock in the company. As a part of the stock purchase, Stoneham (D) and McQuade (P) entered into an agreement that provided that the parties would elect Stoneham (D) and dcQuade (P) to the board of directors and to employ McQuade (P) as the corporation's treasurer. After several years, McQuade was replaced as treasurer and voted off the board of directors. Stoneham (D) acquiesced in McQuadc3's (P) removal and did not try to ensure that McQuade (P) continued on the board or was employed as treasurer. McQuade (P) was not removed for any misfeasance or malfeasance, but because he antagonized Stoneham (D). McQuade (P) sought specific performance of the agreement to employ him as treasurer. The lower court denied McQuade's (P) request but awarded him damages for wrongful discharge.

ISSUE: May stockholders, by agreement amongst themselves, abrogate their independent judgment as directors? May a contract which precludes the board of directors from changing officers, salaries, or policies or retaining individuals in office, except by consent of the contracting parties be binding on the parties?


RULE: Contract precluding directors at risk of incurring legal liability, from changing officers, salaries, or policies, or retaining individuals in office except by consent of contracting parties was void

HOLDING: The court held that the plaintiff could not continue to serve as treasurer of a corporation because, as a city magistrate, he was prohibited from attempting to make the management of a business an outside activity. As a city magistrate, the plaintiff was obligated to the duties of his office. Furthermore, the court reversed and dismissed the plaintiff's cause of action because he could not continue as treasurer of a corporation due to the fact that he was also serving as a city magistrate. Plaintiff was strictly prohibited by law from serving as a corporate officer.