McQuade v. Stoneham
Court of Appeals of New York
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. There were seven directors in all, the other four of which were selected by and under the control of Stoneham. At a board meeting to elect directors, Stoneham and McGraw did not vote, McQuade voted for himself, and the four other directors voted for a Leo Bondy to succeed McQuade. McQuade brought suit for breach of contract because Stoneham and McGraw allegedly 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 The defendants claimed that the contract was void because the duty to act in the best interests of the corporation superseded the contract.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 awarded McQuade damages for the breach.
Rule of Law
Holding and Reasoning (Pound, C.J.)
Concurrence (Lehman, J.)
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