Villar v. Kernan - 1997 ME 132, 695 A.2d 1221

Rule:

Me. Rev. Stat. Ann. tit. 13, § 618 provides that no written agreement, whether contained in the articles of incorporation or bylaws or in a written side agreement, and which relates to any phase of the affairs of the corporation, including, but not limited to, the following: management of the business of the corporation; declaration and payment of dividends or division of profits; or who shall be officers or directors, or both, of the corporation; or voting requirements, including requirements for unanimous voting of shareholders or directors; or employment of shareholders by the corporation; or arbitration of issues as to which the stockholders are deadlocked in voting power or as to which the directors are deadlocked and the shareholders are unable to break the deadlock; or which purports to treat the affairs of the corporation as if it were a partnership and the shareholders as if they were partners, shall be deemed invalid because the agreement contains any such provision, or because it limits or restricts the powers or discretion of the directors of the corporation, or because it transfers to one or more shareholders, or to one or more persons or corporations to be selected by him or them all or part of the management of the corporation, if the conditions in Me. Rev. Stat. Ann. tit. 13-A, § 618(1)(G)(A), (B) are satisfied. 

Facts:

Two parties entered into an oral agreement that prohibited their receipt of salaries from the corporation. Defendant shareholder later began to receive an automatic payment under a consulting agreement. Plaintiff shareholder brought an action against defendant based on the oral prohibition of salaries. 

Issue:

Does Maine law, including but not limited to 13-A M.R.S.A. § 618, preclude an action for breach of an oral contract between two shareholders of a closely held corporation prohibiting their receipt of salaries from the corporation?

Answer:

Yes.

Conclusion:

The court held that Me. Rev. Stat. Ann. tit. 13, § 618 provided that written agreements between shareholders were enforceable even if they related to a phase of affairs of the corporation, such as the management of the corporation, payment of dividends, or employment of shareholders, restricted director discretion, or transferred management duties as shareholders, as long as such agreements satisfied certain conditions. The court also held that because the agreement must rely on that statute for its validity and fell within the validating provision, it had to meet the section's specifications and therefore had to be in writing to be enforceable.