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McQuade v. Stoneham
Court of Appeals of New York
263 N.Y. 323, 189 N.E. 234 (N.Y. 1934)
Stoneham (defendant) was the majority owner of National Exhibition Company (NEC). McGraw (defendant) and McQuade (plaintiff) each bought 70 shares of Stoneham’s stock. As part of the purchase, the three entered into a contract that provided that the parties would “use their best endeavors” to make sure that each would remain directors of NEC. Stoneham became president of the board, McGraw vice-president, and McQuade treasurer. Stoneham selected and controlled the other four directors. McQuade and Stoneham began quarreling about the corporate treasury. At a board meeting at which the position of treasurer was up for election, Stoneham and McGraw did not vote, McQuade voted for himself, and the four other directors voted for a Leo Bondy to succeed McQuade; McQuade thus lost his position as treasurer. At the next board meeting, the board dropped McQuade as a director. McQuade's removal was due to personal conflict with Stoneham, not for any misconduct by McQuade. McQuade brought suit for breach of contract, alleging that Stoneham and McGraw did not use their best efforts to keep him on as a director. The defendants claimed that the contract was void because the duty to act in the best interests of the corporation superseded the contract.The lower courts did not reinstate McQuade as treasurer but did award him damages for the breach.
Rule of Law
Holding and Reasoning (Pound, C.J.)
Concurrence (Lehman, J.)
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