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Hazlitt A. Cuppy v. Artemas Ward, Ideal Cocoa & Chocolate Co. et al. Charles E. Atkinson, William B. Nesbitt, William H. Muth and George M. Clarke directors, who, at the instigation of Ward, met and elected Charles E. Akinson president in place of the plaintiff, Cornelius E. Ward treasurer, and William H. Muth general manager of the company in place of the plaintiff. He (Ward) has removed the office of the company from Lititz, Pennsylvania, to New York City, so as to make the books and records of the company inaccessible to the plaintiff, who is required by the provisions of said agreement to render services to said company at Lititz, Pennsylvania. The plaintiff was appointed and continued as factory manager, but was limited to the performance of such duties as might be assigned to him by the president of the company. The president and directors have neglected and refused to assign any duties to him, and have refused to allow him to take any part in the management of the company or of the factory. They have instructed the employees of the company to disregard the directions given by him. In June 25, 1918, the drectors of the company passed a resolution that he should perform only such duties as were designated by the secretary of the company; that he should have no power to engage or discharge employees, or make any change in the manufacturing process of the company without the permission of the secretary, and that he should make no changes in the arrangement or equipment of the factory without like permission, nor should he purchase, sell, or finance any of the affairs of the company. At the same meeting, they voted large salaries to the defendant officers, which have been increased, so that at present the president receives a salary of $15,000.00 per annum, the vice-president $12,000.00, the general manager $6,000.00, the treasurer $12,000.00, and the secretary $12,000.00, making a total of $57,000.00 per annum.
All the duties of these officers were previously performed under the management of the plaintiff for his salary of $10,000.00 and $2,000.00 additional paid to another officer.
It is further alleged in the bill that the directors and officers elected as aforesaid are wholly inexperienced and unskilful in the business of the company; that they have already made numerous and costly errors in its management; that they have added greatly to the expense of operating said company by unnecessary salaries to the officers and the increase of salaries to other employees, and in the purchase of machinery without any need therefor; that they have, through lack of experience, discarded valuable and useful machinery, and, through their inexperience, will further waste the assets of the company. They have destroyed the value of the Puritan Company, under which the goods of the Ideal Company have been sold, which company was acquired at considerable expense by the Ideal Company, and which was of great value to it.
The plaintiff and Artemas Ward, one of the defendants, the parties to the agreement, own all of the capital stock of said Ideal Company which has been issued.
The agreement between Ward and Cuppy constitutes them partners. In Section 6, Clause 1, of the Uniform Partnership Act of Pennsylvania of March 26, 1915, P. L. 18, a partnership is defined to be Hazlitt A. Cuppy v. Artemas Ward, Ideal Cocoa & Chocolate Co. et al. an association of two or more persons to carry on as co-owners a business for profit.”
In the agreement, they provide for their purchase of the stock of the Ideal Company and how the money was to be furnished for that purpose and repaid to them out of the profits of the enterprise ; how the stock was to be held and finally disposed of between them, and how the product of the factory was to be sold by the Puritan Company. By its terms, Cuppy was to devote all his time to the business of the company and to have the management of the factory, and Ward was to expend the money for advertising, which Cuppy allowed for that purpose. It is true that provision is made as to what should be done in case they should not succeed in purchasing all the stock of the company; but the effect of that provision need not be considered, as they did purchase all the outstanding stock, and Cuppy has been prevented by Ward from obtaining the 157 unissued shares.
The agreement clearly associated Ward and Cuppy together for the purpose of carrying on a business for profit, and consequently made them partners. Their joint enterprise was to be promoted and carried on in the form of a corporation, but this did not change their relation to each other. An agreement of partnership is entirely legal, though involving the management of a corporation: Lorillard v. Clyde, 86 N. Y. 384. The fact that, between themselves, they owned all the stock alone made them substantially partners as between themselves in a Court of Equity: Goss v. Goss, 147 App. Div. 689 N. Y.
There can be no doubt that Cuppy could restrain his partner, Ward, by a bill in equity from interfering with his rights and interest in the partnership business in the way he alleges in the bill they are being interfered with. In Elliott on Contracts, page 4908, note 55, it is said : " Indeed, generally speaking, it may be said that nothing is considered as so loudly calling for the interference of the Court between partners as the improper exclusion of one of them by the others from taking part in the management of the partnership business. It need, however, hardly be observed that it is perfectly competent for partners to agree that the management of the partnership affairs shall be confided to one or more of their number exclusively of the others; and that, where such an agreement is entered into, it is not competent for those who have agreed to take no part in the management to transact the partnership business without the consent of the other partners." See Lindley on Partnerships, 362. In Miller v. Boyle, 89 Fed. Rep. 143, the Court said: “Relief by injunction is a proper and appropriate remedy here. The exclusion of a partner from his rightful share in the profits or management of the business, and from his right to inspect the books and to be informed of the state of the accounts, is ground for an injunction : Bates, Partn., Sec. 991; Marble Co. v. Ripley, 10 Wall., 339, 351." See, also, McCabe v. Sinclair, 66 N. J. Eq. 24.
But the interference here complained of has been done by the Ideal Cocoa & Chocolate Company, a corporation, and the question arises whether we have jurisdiction to prevent such interference by a corporation.
Hazlitt A. Cuppy v. Artemas Ward, Ideal Cocoa & Chocolate Co. et al.
While we are dealing with a corporation, we must remember that its entire capital stock is owned by two individuals who acquired and hold it by mutual agreement, making provision for the management of that business in such a manner as to constitute what has frequently been called an incorporated partnership. No rights of other stockholders are involved, for there are no other stockholders. No obligations of directors or stockholders other than the immediate parties are involved, nor are any rights of creditors concerned.
It has been said, by Justice Shearn, in 187 App. Div., N. Y. 625, that where two stockholders own all the stock of a corporation and occupy to each other substantially the relation of partners, Courts will look to the merits rather than the form and regard their relation in the corporation as that of partners: Goss v. Goss, 147 App. Div. 689, N. Y., affirmed in 207 N. Y. 742.
In King v. Barnes, 109 N. Y. 267, it is decided that an agreement to engage in a joint enterprise by organizing a corporation is legal and in the nature of a partnership, and is to be enforced upon principles applying to partnership transactions. The corporation and its officers are proper parties in an action to enforce such a contract.
In Bletz v. Garrison, 254 Pa. 145, it is decided that there is no material difference between an agreement to organize a new corporation and one to obtain control of one already organized.
In Carney v. Penn Realty Co., 174 App. Div. 86, N. Y., it was decided that two principals, who were the sole owners of the stock of the corporation, occupied substantially the relation of partners, and that such corporate owners were not limited in control by a board of directors who must neces
cessarily be their representatives. It is true the corporation has a separate entity, but it is merely the instrument through which the plaintiff and Ward, the only stockholders, agreed with one another to carry on the business of manufacturing cocoa and chocolate, and the directors, other than Ward and the plaintiff, are the mere representatives of Ward; so that there is no insuperable difficulty in the fiction of corporate entity that will prevent a Court of Equity from doing justice between the parties.
In Marble v. Ripley, 10 Wall. 339, the Court said: “Any unauthorized attempt by one to oust the other from the position and rights assigned to him by the contract was, therefore, not only a breach of their agreement, but a fraud upon the relation which they have assumed to each other. Such a wrong it is the province of a Court of Equity to prevent. A Chancellor will interfere by injunction to restrain one partner from violating the rights of his co-partner, even when the dissolution of the partnership is not necessarily contemplated.”
Where two parties organize a corporation to carry on a business, neither party is entitled to obtain an advantage over the other by reason of their having formed a corporation to conduct their partnership business: Cleveland-Cliffs Iron Co. v. Artic Iron Company, 261 Fed. Rep. 15. The Courts will regard the substance of the transaction, rather than be blinded or deceived by mere forms of law, and, consequently, will act in a proper case as though no corporation existed : Chicago Co. v. Minneapolis Civic Assoc., 247 U. S. 490.
Hazlitt A. Cuppy v. Artemas Ward, Ideal Cocoa & Chocolate Co. et al.
In Quaid v. Rathowsky, 183 App. Div. 428, N. Y., it is said: “While the courts of law strictly observe the fiction of corporate entity, there has been for years a growing indisposition to permit corporate entity to be employed either as an instrumentality as a cloak for fraud or for successful evasion of the law." Corporate entity must not be permitted to distort or hide the truth: Seymour v. Spring, 144 N. Y. 333; Anthony v. American Glucose Co., 146 N. Y. 407.
This case was before the Courts of New York State, and the demurrer was there sustained by a divided Court. The principal reason given for their conclusion was that they did not have jurisdiction to interfere with the internal management of a corporation of Pennsylvania, even though the corporation was the mere instrument through which the object of the partnership was being carried out: Cuppy v. Ward, 187 App. Div. 625, N. Y., affirmed by the Court of Appeals of New York in 227 N. Y. 51.
From these authorities, we conclude that we have jurisdiction to prevent the Ideal Cocoa & Chocolate Company from continuing to interfere with, and depriving the plaintiff of, the rights, interest and property which he is entitled to under his agreement with Ward of March 8, 1911, as it has done and is continuing to do. This is part of the relief he asks for in his bill. As Cuppy and Ward own all of its stock, the company is but a quasi-partnership as between them, and Ward, with a majority of the stock in his name, cannot use the company as an instrument to defeat the plaintiff in his rights and to deprive him of the property and rights which he agreed he should have. The bill, in our opinion, therefore, contains a good cause of action against the Ideal Cocoa & Chocolate Company.
In our opinion of the contract, we do not think it necessary to decide whether the Ideal Cocoa & Chocolate Company adopted the contract between Ward and Cuppy of March 8, 1911. It is not a question of the company's liability to either of the parties to the contract. The company is only the instrument through which the business of the partners, Ward and Cuppy, is being carried on. No one except them is interested in it. It practically is Ward and Cuppy, and when it is being improperly used by either against the other, it should be restrained from so doing.
The third reason contained in the demurrer is that, upon the face of the bill, it appears that any remedy which the plaintiff is entitled to against any of the defendants is at law. We do not think there is any merit in this contention. If the action was by Cuppy to obtain damages for having been discharged as manager of the company, he would have an adequate legal remedy; but his action here is for much more than that. The business belongs to Ward and him. It is being interfered with by Ward, contrary to the agreement made between them on March 8, 1911. The business is very valuable, with large assets. These are being extravagantly expended and wasted. The business is being injured by their conduct of it, arising largely through their inexperience. He is being deprived of the control of the corporation, which the purchase of the entire capital stock of the company and the Hazlitt A. Cuppy v. Artemas Ward, Ideal Cocoa & Chocolate Co. et al. payment of the money advanced by the parties out of the earnings of the company would give him. He is deprived of this by the refusal of Ward to permit the Ideal Company to issue the 157 shares of stock that remain in the treasury and the transfer to him of two per cent of the entire capital stock of the company by Ward. On this subject, in his dissenting opinion in Cuppy v. Ward, 187 App. Div. 625, N. Y., Justice Shearn says: “None of these elements would be compensated for if plaintiff merely recovered back his investment and damages for the deprivation of his salary. But while those various and clearly apparent elements of damage exist, they are so speculative and uncertain in their nature as to be incapable of ascertainment at law. If they were merely difficult of ascertainment, it would be a different matter, but, being impossible of ascertainment, and the wrong being a continuing one, the right to resort to the equity side of the Court seems to be clear.” This, we think, clearly shows that the plaintiff has no adequate remedy at law.
The other reasons contained in the demurrer, in our opinion, are of no merit, and do not require consideration.
We are satisfied that this demurrer should be dismissed, and therefore we dismiss it, and order the defendant to answer the bill. Demurrer dismissed.
Note.—This case was subsequently discontinued.
Court of Common Pleas of Lancaster County
Weber v. Gibney.
Excessive verdict-Damages. Where in an action to recover damages for injury to the wall of the plaintiff's house adjoining that of the defendant, the jury were instructed that the measure of damages recoverable, if any, was the cost of replacement, and the amount of damages actually proven was $21, the cost of repapering, but the verdict was for $250, the verdict should be reduced to $21 and interest.
Rules for new trial and for judgment for defendant n.
John A. Nauman, for rules.
The verdict in this case ought not, in my judgment, to be sustained. I believe it is against the law and the charge of the court. The actual damages proven consisted of the re-papering of a wall, at a cost of $21.00, whereas the verdict of the jury was for $250.00.
The suit was brought to recover damages for injury to the wall of plaintiff's house, and, incidentally, it was alleged there were damage and injury by interference with the enjoyment and occupation of the plaintiff's premises by herself and her family. The house was contin