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Richards v. Ernst Wiener Co.

Supreme Court of New York, Appellate Division

June 2, 1911

JAMES N. RICHARDS, Respondent,
v.
ERNST WIENER COMPANY, Appellant.

Page 354

APPEAL by the defendant, the Ernst Wiener Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 25th day of November, 1910, upon the verdict of a jury, and also from an order entered in said clerk's office on the 8th day of December, 1910, denying the defendant's motion for a new trial made upon the minutes.

COUNSEL

J. Woolsey Shepard, for the appellant.

Nathan D. Stern, for the respondent.

SCOTT, J.:

Defendant appeals from a judgment and order denying a motion for a new trial in an action for damages for non-fulfillment of a contract.

In October, 1908, plaintiff and defendant entered into a contract to the following effect:

Plaintiff subscribed for 100 shares of defendant's preferred stock at the price of $10,000, of which he agreed to pay $3,000 immediately, not less than $5,000 within six months, and the balance within nine months. In consideration of this subscription defendant agreed to employ plaintiff in its business and to pay him a certain salary and commissions. If the plaintiff should fail to pay the second installment the defendant reserved the option to discharge him 'and if in this case you should not want to have the first installment paid by you considered as the purchase price in full for 30 shares of our preferred stock, then we shall repurchase these 30 shares of stock from you at par within 6 months thereafter.' It was further provided that if at any time during the first six months, or at the end

Page 355

thereof, plaintiff should discontinue his services of his own account, and fail to pay the $5,000, 'then the first installment of $3,000 paid in by you shall be considered as the purchase price in full for 30 shares of our preferred stock without any obligation on our part to repurchase same.' Plaintiff did not pay in the second installment of $5,000 and his services were discontinued on August 14, 1909, whether by his act or that of defendant being in dispute, and plaintiff now seeks to recover back the $3,000 he has paid, offering to return the thirty shares of stock.

The first defense is that plaintiff discharged himself. Upon this question the jury found in his favor upon conflicting evidence. The weight of the evidence accords with the verdict, and it is thereby established that plaintiff was discharged by defendant on August 14, 1909. According to the terms of the contract, if it is enforcible, plaintiff thereby became entitled a his option, which he exercised, to a return of the $3,000 paid by him, or, as the conntract has it, to the 'repurchase' of the thirty shares of stock. The second defense, and the one which presents a serious question, is based upon section 664 of the Penal Law (formerly section 594 of the Penal Code), which reads as follows: 'A director of a stock corporation, who concurs in any vote or act of the directors of such corporation, or any of them, by which it is intended: * * * 5. To apply any portion of the funds of such corporation, except surplus profits, directly or indirectly, to the purchase of shares of its own stock, is guilty of a misdemeanor.' The argument, of course, is that a contract which calls upon a party to perform an illegal act is itself illegal and void and cannot be enforced. There is no fault to be found with this rule, the only question being whether it applies to the present case. It will be observed that the statute does not forbid a corporation to purchase its own stock, nor does it forbid it to enter into a contract to do so. What it does forbid is the consummation of such a contract by making the purchase otherwise than out of surplus. It was, therefore, perfectly legal and competent for the defendant to agree to repurchase the stock from plaintiff, provided, and this is a proviso which the statute reads into the contract, that said defendant should have when the time came a surplus

Page 356

out of which the purchase could lawfully be made. The law will not presume, unless forced to do so, that a person intends to do an illegal act. It will not, therefore, presume that the parties intended to make an illegal contract. The contract itself, therefore, was perfectly legal, subject to certain limitations upon its enforcibility. If, when the time came, defendant had a sufficient surplus the contract could be enforced. If it had not, the contract could not be enforced. In defending against plaintiff's attempt to enforce it the burden rested upon defendant to show that it would be illegal to do so, for there is no presumption one way or the other as to the existence of a surplus. The defendant assumed this ...


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