Citation. 264 N.Y. 460, 191 N.E. 514 (1934)
Brief Fact Summary. Plaintiff, Francis McQuade, brought this action against Defendants, Charles Stoneham et al., to be reinstated as the treasurer of the National Exhibition Company (NEC).
Synopsis of Rule of Law. Shareholders can not form an agreement to control the decisions traditionally vested in the judgment of the directors of a company.
Facts. In 1919, Plaintiff and Defendant John McGraw each purchased 70 shares of NEC stock from the majority 1,306 shares that Stoneham owned. NEC was the company that owned the New York Giants. At the time of purchase, the parties agreed to do everything in their power to keep Stoneham as president, McGraw as vice-president and Plaintiff as treasurer. Plaintiff and Stoneham had a number of conflicts concerning the operations of NEC, and in 1928, the 7-member board of directors of NEC voted in a new treasurer (McGraw and Stoneham abstained from the vote). Plaintiff was not removed for any misconduct or ineptitude, but rather for his conflicts with Stoneham. Plaintiff brought this action to be reinstated as treasurer, and he cited the agreement that he entered with McGraw and Stoneham that provided for each of them to use their “best endeavors” to keep each other in their respective positions. Defendant argued that the agreement was invalid because it granted authority to shareho
lders for a decision that is normally left to the judgment of directors. The lower court moved to reinstate Plaintiff.
Issue. The issue is whether the shareholder agreement between Plaintiff and Defendants to use their best efforts to keep each of the parties in their respective positions is valid.