Lorillard v. . Clyde

Andrews, J. We think the complaint discloses a good cause of action. The presumption is in favor of the legality of contracts. The law does not assume an intention to violate the law, nor will an agreement be adjudged to be illegal, where it is capable of a construction which will uphold it, and make it valid. The scheme of the agreement of June 14, 1874, is plain. The plaintiff Lorillard, and the firm of Wm. P. Clyde & Co. were competitors in the transportation business by' water, between New York and Philadelphia, and each party owned vessels, employed in the business. The agreement provides for a consolidation of this business and property, and for a corporate management. To this end, the parties agree to form a corporation under the laws of this State, with a capital of $300,000, to be represented by specified vessels to be contributed by the parties respectively, at a valuation fixed, and amounting in the aggregate to the capital. The agreement provides for equalizing the contribution of capital as between the parties, and that each shall receive one-half of the capital stock. It further provides that Wm. P. Clyde & Co., shall have the management of the business, and receive the usual commission (which is specified), on the freights earned ; and in consideration that Wm. P. Clyde & Co. shall have the management of the business, the firm, agree to guarantee to Lorillard, a dividend of not less than seven per cent per annum for seven years. It is provided that dividends, when earned, shall be declared and paid quarterly; that the management shall be in good faith and as economical as possible, consistent with the interests of the business, and that no change in the management shall be made, inconsistent with the terms of the' agreement, without the assent of a majority of the shares of stock of the corporation. It is averred in the complaint, that in pursuance of the agreement, a corporation was duly organized under the laws *388 of this State; that the plaintiff transferred to the company, his steamers and business, and has fully performed the agreement on his part, and has received the stock provided therein ; that Wm. P. Clyde & Co. have had the exclusive management and control of the business, and that no dividends have been declared or paid. The action is brought against the survivors of the firm of Wm. P. Clyde & Co., on the guaranty, to recover a sum equal to seven per cent per annum on their stock, for the two years from July 1, 1876. It is claimed that the agreement is illegal, because it provides that the parties thereto, consisting of five persons only, shall form a corporation, whereas the statute contemplates that at least seven persons shall unite, in order to form a corporation. But the allegation that a corporation was duly organized under the laws of this State, pursuant to the agreement, imports that the requisite number of persons, united for that purpose. It must be assumed that the corporation was regularly. organized. It was unnecessary for the plaintiff to show in his complaint, the precise steps taken to accomplish that result. It is further claimed that the agreement is illegal, because it provides that property shall be taken to represent the whole capital, at a valuation fixed by the parties. We have not been referred to- any statute which prohibits the organization of a corporation of the character of the one contemplated by this agreement, on the basis of chattel property contributed by the corporators. It cannot be assumed that the transaction was not bona fide, or that the valuation put on the vessels was fictitious, or extravagant. The value of the stock would depend on the value of the property and business. The parties fixing the valuation were the only parties in interest, and we know of no principle of public policy, which condemns an agreement between parties about to form a corporation, because by the arrangement, the capital stock is to be represented by property which- they severally contribute, at a valuation agreed upon between- themselves. If it had appeared, that the organization of the corporation in this way, was a device to defraud the puh *389 lie, by putting valueless stock on the market, having an apparent basis only, a different question would be presented. It is also claimed, that the stipulation in the contract vesting the management of the corporation in Wm. P. Clyde & Co., is against public policy, and renders the contract illegal, because it is an attempt to provide in advance for the control of the corporate affairs, and withdraw it from the trustees and stockholders, to whom it properly belongs. But it is to be observed, that the agreement was between the parties, who were to contribute the entire capital. There is no hint in the agreement, that improper management was contemplated; on the contrary, the agreement provides that the affairs of the corporation shall be managed in good faith, and with economy. The commissions to be paid are, as stated, the usual commissions. I can see no objection on the score of public policy, to an agreement between parties about to form a corporation, agreeing upon the general plan, upon which it is to be organized and conducted, so long as nothing is provided for inconsistent with the provisions of the statute, or immoral in itself. An agreement providing for the details of management made in advance, might not be binding upon the trustees of the corporation when organized, but such an agreement is not illegal. In this case, as the complaint shows, the agreement upon which the guaranty was predicated, has been carried out. Wm. P. Clyde & Co., have had the management of the corporate business. There has been no failure of consideration for their promise. On demurrer, all reasonable intendments are indulged, in support of the pleading demurred to. The complaint here is in some respects indefinite and uncertain, but the remedy for these defects, is by motion, and not by demurrer. We think the complaint states a good cause of action, and that the judgment should be reversed, with liberty to the defendants to answer on payment of costs. All concur. Judgment reversed.