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Law School Case Brief

Clark v. Dodge - 269 N.Y. 410, 199 N.E. 641 (1936)

Rule:

Where the parties to the action are the complete owners of the corporation, there is no reason why the exercise of the power and discretion of the directors cannot be controlled by valid agreement between themselves, provided that the interests of creditors are not affected.

 

Facts:

Plaintiff and individual defendant owned all of the stock of the defendant corporations. A written agreement existed between them under which both parties agreed to exercise voting rights in an effort to maintain benefits from the corporation's success. Litigation ensued in which plaintiff shareholder sued defendant for not exercising his voting power in keeping plaintiff in an officer role. As a result, plaintiff sought reinstatement. The trial court denied defendant's motion to dismiss, and the appellate court reversed the ruling claiming the voting agreement was invalid.

Issue:

Was the voting agreement between plaintiff and defendant valid?

Answer:

Yes.

Conclusion:

The Court held that the voting agreement between plaintiff and defendant was valid since it did not impair any exercise of judgment among the board of directors. If there was any invasion of the powers of the directorate under that agreement, it was so slight as to be negligible; and certainly there was no damage suffered by or threatened to any body. Hence, the Court reversed the judgment of the appellate court.

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