Walter Brown and Others, Appellants, v. Byron M. Britton and Others, Respondents

Walter Brown and Others, Appellants, v. Byron M. Britton and Others, Respondents. Contract between stockholders restricting the sale of their stock—specific performance thereof not decreed — a provision imposing a perpetual restraint on the sale is void — where the contract has terminated by lapse of time, and no damage has resulted from its breach, the case will not be considered on its merits—judgment not reversed, because costs are allowed in the unwise exercise of discretion. The enforcement of the specific performance of a contract respecting personal property is a matter resting in the discretion of the court, and it is only in exceptional cases that it will be decreed by a court of equity. The majority stockholders of a corporation entered into an .agreement under seal which, after binding each of the subscribers to designate some one of their number to act as his proxy in case he should be unable to be present at an election of trustees, provided “ this .proxy shall be irrevocable for the period of three years from the date of the execution thereof, and we do hereby promise and agree, each for himself, that w-e will not sell, assign or transfer any of the stock herein represented within the period above named, except with the written consent and approval of all the other stockholders whose names are hereto subscribed. It is further agreed that if any of the parties to this agreement desire to sell their stock they shall give the preference to the other1 parties to this agreement before selling to any other party.” In an action brought by a portion of the subscribers to compel, by means of an injunction, the specific performance of the contract by one of their number, who had sold his stock in violation of the terms of the agreement, to a person having knowledge of its terms, it was Held, that the three-year limitation mentioned in the contract was designed to apply to each of its provisions, including the last one relating to the sale of the stock, which was not intended to be unlimited in the period of its operation That ¿s the contract had ceased to be binding before the case was tried and decided, and as no pecuniary damage or substantial injury had resulted to the plaintiffs because of its violation, the court, on these grounds, would refuse to enforce by injunction the specific performance of the contract, and would not consider the case upon the merits. Semble, that if the period of operation of such provision was unlimited it would be void as against public.policy as imposing a perpetual restraint on the power of alienation of the stock. Semble, that the agreement did not operate to deprive the subscribers of their right to dispose of their stock to any person, nor prevent the purchaser from obtaining a good title thereto, notwithstanding the fact that he was aware of the existence of the agreement, and that the sale to him was made in violation of its provisions. The fact that a referee has exercised unwisely his discretionary power as to awarding costs held not to be an adequate reason for reversing a judgment. Appeal by the plaintiffs, Walter Brown and others, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Onondaga on the 30th day of April, 1898, upon the report of a referee dismissing the complaint upon the merits and adjudging that the defendant Barker recover from the plaintiffs the sum of $531.25 costs. In 1875 the Thousand Island Camp Meeting Association was duly incorporated pursuant to chapter 117 of the Laws of 1853 and the acts amendatory thereof, and in 1879, by chapter 4 of the Laws of that year, the name of the corporation was duly changed to the “ Thousand Island Park Association.” The association owns a tract of land consisting of about 800 acres on Wellesley island in the St. Lawrence river which is laid out into public streets, parks and building lots. The tract also embraces a farm and shore and water rights which are valuable for the erection of private docks and boat houses. Upon this park the association has constructed and maintained a hotel with accommodations for about 250 guests; a large boarding house; a building which is devoted to stores, markets and other like purposes ; a chapel capable of seating 600 people and a tabernacle with a seating capacity of from 2,500 to 3,000 persons. In addition to the buildings already specified there are 500 or 600 private cottages for the use of people who make the park their summer home, a laundry building, school house, a steam engine house and plant, an electric lighting plant, a reservoir and water supply system, a sewer system, a public dock and a building used for the purpose of a summer institute, the object of the association being to establish and maintain a place of summer resort or residence where no intoxicating liquors are sold, no gambling or objectionable sports permitted, and where “ Sunday should be observed in accordance with the ideas and beliefs of Christian people.” The capital stock of the association is $50,000, divided into 5,000' shares of the par value of $10 each. On the 9tli of November, 1894, certain of the stockholders of the association, among whom were the plaintiffs and the defendants Britton, Gurnee and Sears, entered into a written agreement under their hands and seals, of which the following is a copy, viz.: “Know all men by these presents, that we, the holders and owners of the majority of the capital stock of The Thousand Island Park Association, actuated by a sincei'e desire to promote the best interests of all the lot and stockholders of the said association, and with a view to establishing its business management on a sound financial basis, and believing that these ends can be best accomplished by mutual co-operation and combined action ; “ Do hereby agree that in case any one of us shall be unable to-be present and vote personally at any meeting of stockholders for the election of trustees, then in that event we do severally bind ourselves to appoint some one of the undersigned as our attorney ■and agent to vote as our proxy at the said election, according to the number of votes we would each be entitled to vote if then and there personally present. • “ This proxy shall be irrevocable for the period of three years from the date of the execution thereof, and we do hereby promise and agree, each for himself, that we will not sell, assign or transfer any of the stock herein represented within the period above named, except with the written consent and approval of all the other stockholders whose names are hereto subscribed. “ It is further agreed that if any of the parties to this agreement desire to sell their stock they shall give the preference to the other parties to this agreement before selling to any other party. “ In witness whereof we have hereunto set our hands and seals this 9th day of November, A. D., 1894, at Watertown, N. Y.” This agreement was the third of a series or succession of agreements entered into by the majority stockholders of the association of similar import, the first of which was dated December 4, 1888, and the second October 20, 1891. On the 15th day of August, 1896, another agreement was executed by such of the stockholders as are plaintiffs in this action, which provided in substance, among other things, that none of the parties thereto would, for a period of ten years, sell or give any proxy on their stock to any one not a party to the agreement; that for the like period certain of the signers should be continued as trustees of the corporation, and that any stock purchased thereafter by any of the parties to such agreement should become subject to the provisions thereof. This agreement was likewise under seal. Thereafter, and on the 8th day of July, 1897, the defendant Barber, acting for and in the interests of the defendants Daniel W. Gridley and Helen M. Gridley, through the agency of the defendant Kinnet, purchased of the defendant Britton 50 shares of the capital stock of the Thousand Island Park Association, for which he paid to him the sum of $600 in cash. Thereafter, and on the 9th day of July, 1897, the defendant Barker, in like manner, }purchased of the defendant Gurnee 191-f shares of such capital stock, in payment for which Barker gave his promissory note payable in one year, with interest at the rate of five per cent, and in like manner, on the 10th day of July, 1897, Barker purchased of the defendant Sears his capital stock,consisting of 370 shares, for which he paid him $300 in money, and gave him three several promissory notes payable in one year from date, with interest thereon at the rate of five per cent, one of such notes being for $1,000, and the other two for $1,200 each. • Prior to the sale by the defendants Britton, Gurnee and Sears of their respective shares of stock to the defendant Barker, as hereinbefore mentioned, neither of them offered to sell his stock to the plaintiffs, or any of them; nor did they, or either of them, obtain from the other parties to the agreement of November 9, 1894, a written consent or approval of sucli sale, and in each instance the stock was sold and purchased with full knowledge on the part of the defendants Barker, Kinney, Daniel W. Gridley and Helen M. Gridley of the terms and conditions of such agreement, and that Britton, Gurnee and Sears were parties thereto. Thereafter, and prior to the commencement of this action, the plaintiffs offered to purchase of the defendants Britton, Gurnee and Sears their respective holdings of stock and to pay therefor the par value thereof, or whatever sum above par they, or either of them, had been in good faith offered for such stock, which offer was duly declined; whereupon this action, which relates more particularly to the Britton stock, was commenced, Gurnee and Sears being made parties defendant for the reason that they refused to join as plaintiffs, and at the same time two other actions were commenced against Gurnee and Sears, respectively, in each of which actions the other defendants in this action were also made parties defendant. Edwin Nottingham, for the appellants. Louis L. Waters, for the respondents Gridley. H. E. Morse, for the respondent Barker. [MAJORITY — Adams, J.:] Adams, J.: This action, which was commenced August 28,1897, was brought to enforce the specific performance by the defendant Britton of the agreement of November 9,1894, by means of an injunction restraining him from selling and transferring his fifty shares of stock in the Thousand Island Park Association, and the defendant Barker from purchasing the same; and the aid of a court of equity is invoked upon the usual ground of irreparable injury for which the law furnishes no adequate remedy. The injury which the plaintiffs allege as liable to result from the sale and purchase of the stock in question is, in substance, that it will deprive them, as majority stockholders, of the privilege of controlling and directing the affairs of the association along the lines upon which the same was organized, and has thus far been conducted, inasmuch as such stock was, as it is claimed, purchased in the interests of the Thousand Island Steamboat Company and the New York Central and Hudson River Railroad Company, with the design of enabling those corporations to obtain control of the association and to convert the park into a resort for Sunday excursions, thereby prejudicing the financial, moral and religious interests of the association and interfering with the privacy and comfort of its stockholders and lot owners. Much evidence was given during the course of the trial which tended to sustain this contention, but the defendants Gridley, who, as has been staged, were the real purchasers of the stock in question, not only disclaimed -any such intention, but they furnished considerable proof tending to corroborate their declaration that, in the event of their becoming owners of the majority of the stock of the association, its present policy would undergo no material change; and the learned referee has found that the sale of the stock formerly owned by Britton, Gurnee and Sears still left the plaintiffs in possession and control of a majority of the stock; that this fact was demonstrated at the last annual election of the officers, which ■occurred pending the trial of the action, when the plaintiffs elected ■a board of trustees or directors of- their own selection; that the plaintiffs have not suffered and are not liable to suffer any pecuniary loss ■or damage by the sale and transfer of such stock, and that the purchase thereof by the defendants Gridley will not prove prejudicial to the financial, moral and religious interests of the association or ■of the plaintiffs as stockholders thereof. While the evidence relied upon to sustain the several facts thus found is to some extent controverted, we are unable to say that it does not possess any probative force; and consequently within the rule established by repeated adjudications we do not feel at liberty, in the circumstances of this case, to disturb the findings of the learned referee. (Irlbacker v. Roth, 25 App. Div. 290, and cases there cited.) Accepting, therefore, the facts thus found as the facts of the case, it becomes relevant at this stage of our inquiry to suggest that the agreement which lies at the foundation of the plaintiff’s cause of action was executory in its character, and although its design was evidently to prevent any of the majority stockholders from making such a disposition of their stock as might result in the transference of the balance of power to other parties, it did not operate to deprive them of the right to dispose of their stock as an incident to ownership. Neither did it prevent a purchaser from obtaining a good title, although he was aware at the time of his purchase of the nature of the agreement and that the sale to him was made in violation of its provisions. The only effect of such a violation was to give to the plaintiffs “ such remedy as the law affords upon the breach of a contract by either party, which in ordinary cases is an action for damages.” (Matter of Argus Co. v. Manning, 138 N. Y. 557, 572.) With this much conceded, as we assume it will be, and having in mind the general rule that the enforcement of specific performance of a contract respecting personal property is a matter resting in the discretion of the court; that only in exceptional cases is it decreed by a court of equity (Johnson v. Brooks, 93 N. Y. 337; Matter of Argus Co. v. Manning, supra); and that such a performance ought not to be enforced by injunction where the injury liable to result from its non-enforcement is not actual and material (Morgan v. City of Binghamton, 102 N. Y. 500 ; Genet v. D. & H. C. Co., 122 id. 505), it would seem as though the conclusion of the learned referee, that this action ought not to be maintained, might be adopted without further comment. Nevertheless, it is perhaps desirable, under the circumstances, that some consideration should be given to the plaintiffs’ contention respecting the force and effect of the agreement of November 9, 1894. If we correctly apprehend the plaintiffs’ position it is that by the terms of this agreement the parties thereto bound themselves in the event that they, or either of them, could not be present at any meeting of the association, to designate some one of their number to act as attorney or proxy; that such designation was irrevocable for a period of three years from the date of the agreement; that for the same period of time none of the parties to the agreement would sell, assign or transfer any of his stock, except with the written consent or approval of all the other stockholders who joined in its execution, and that if at any time any of the parties wished to sell their stock they would, before selling, give the preference to the other parties to the agreement, the contention being that the last-named condition was independent of those which preceded it and was unlimited as to time in its operation. If it were possible to give to the instrument the construction thus contended for, a serious question might arise as to whether it was not designed to operate as a perpetual restraint upon the right of alienation in such a manner as to render it void as against public policy ; for the obvious and only object of such an agreement is to effect a combination of interests by means of which the power of certain members to control and direct the affairs and policy of the corporation to which they belong may be perpetuated indefinitely. In this particular instance a right thus reserved might not work any harm, but it is pernicious in principle, and like every other agreement which is designed directly or indirectly to hamper and restrain that right which is incidental to all ownership of property, namely, the right of alienation, it is one upon which the courts are not inclined to look with favor. (Fisher v. Bush, 35 Hun, 641.) It is true that, as a rule, those who have the largest interests in a corporation are entitled to control its affairs, and where a combination to effect such a result is entered into for a fixed, definite and reasonable period of time, as was the case in Hey v. Dolphin (92 Hun, 230), it is not necessarily obnoxious to the rule which condemns as illegal all contracts in restraint of alienation. But when such restraint is for an indefinite period of time a very different situation presents itself. However, it will not be profitable to dwell longer upon this feature of the case, for two reasons, the first of which is, that it is perfectly obvious, upon the face of the instrument itself, that the limitation of three years was designed to apply to each and every one of its provisions; and, in the second place, the plaintiffs have given it that construction by executing a new agreement on the 15th day of August, 1896, containing substantially the same provisions as did the one of November 9, 1894, but changing the time of its operation from three to ten years. Divested, then, of all extraneous considerations, the case at bar resolves itself into about this situation : The defendant Britton, in violation of the provisions of a legal contract, has sold fifty shares of association stock to the defendant Barker, who purchased the same on account of his co-defendants Gridley. No pecuniary damage and no substantial injury has resulted to the plaintiffs by reason of such breach, but, nevertheless, they have invoked the aid of a court of equity to enforce by injunction the specific performance of a contract which, before the case was tried and decided, ceased to have any binding force as to the members who had violated its provisions. In these circumstances, we think, the case ought not to be considered upon its merits, for the reasons that the questions involved have become abstract in their nature owing to the lapse of time. (Williams v. Montgomery, 148 N. Y. 519 ; People ex rel. Geer v. Com. Council of City of Troy, 82 id. 575; Grow v. Garlock, 29 Hun, 598.) In the case first cited the court, while recognizing and reiterating the rule just adverted to, did not regard it as applicable, for the reason that the complaint in that action was dismissed upon the ground that it did not state facts sufficient to constitute a cause of action, inasmuch as the contract sued upon was one apparently against public policy, and, hence, not enforcible. In that case, as in this, there was a preliminary injunction, and the judgment of dismissal left the plaintiff defenseless in an action upon the undertaking given by him as a condition of obtaining his injunction. It, therefore, became of practical importance to determine whether or not the contract in question was void for the reason stated, and it was held upon appeal that it was not. In that case, also, as in this, it appeared that the time for specific performance had expired. This was one of the grounds upon which the complaint was dismissed, and the Court of Appeals was careful to say that had it been the only ground the judgment of the trial court would have been undisturbed. In the present case the learned referee holds that the agreement in question is not void as against public policy, and places his decision upon the ground that the agreement made November 9, 1894, had ceased to be of any binding force and effect, as well as upon the further ground that a court of equity will not decree specific performance, by injunction or otherwise, where no actual injury is sustained by the plaintiffs in consequence of the failure to perform the 'same on the part of the defendants. In both of these conclusions, as has already been sufficiently indicated, we are quite disposed to sustain the learned referee, and the only remaining question, therefore, relates to the defendants’ right to costs. Whatever might be our own disposition as to the awarding of costs, were that question an original one in this court, their .imposition at the trial was purely a matter of discretion with the referee; and even if it he assumed that he exercised liis discretionary power unwisely, that would not necessarily be regarded as an adequate reason for reversing the judgment and granting a new trial. (Williams v. Montgomery, supra.) The foregoing views necessarily lead to an affirmance of the judgment appealed from. All concurred, except Follbtt, J., not sitting. Judgment affirmed, with costs.