Zion v. Kurtz case brief

Zion v. Kurtz case brief summary

50 N.Y.2d 92

SYNOPSIS: Cross-appeals from the Appellate Division of the Supreme Court in the First Judicial Department (New York), which denied in part plaintiffs' motion for summary judgment in plaintiffs' action alleging that defendants violated a stockholders' agreement.

FACTS: 

-Plaintiffs filed an action for declaratory and injunctive relief, asking that interest and escrow agreements executed without plaintiff principal shareholder's consent be declared in violation of the stockholders' agreement and annulled, and that the formation of subsidiaries be declared in violation of the agreement and that they be dissolved. 

HOLDING:
-On appeal, the court held that when all of the stockholders of a corporation agree that no business or activities of the corporation shall be conducted without the consent of a minority stockholder, the agreement is, as between the original parties to it, enforceable even though all formal steps required by the statute have not been taken.

ANALYSIS: 

-The agreement made by the defendants was violated when the corporation entered into two agreements without the minority stockholder's consent but was not violated by the formation of two subsidiaries, the minority stockholder's consent having been obtained.

RULES:

-When all of the stockholders of a Delaware corporation agree that, except as specified in their agreement, no "business or activities" of the corporation shall be conducted without the consent of a minority stockholder, the agreement is, as between the original parties to it, enforceable even though all formal steps required by statute have not been taken.
-Del. Corp. Law § 141(a) provides that the business and affairs of a corporation organized under that law shall be managed by a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation
-A written agreement between the holders of a majority of a corporation's stock is not invalid, as between the parties to the agreement, on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors or on the ground that it is an attempt by the parties to the agreement or by the stockholders of the corporation to treat the corporation as if it were a partnership.

OUTCOME: 

The court affirmed in part the denial of plaintiffs' motion for summary judgment in plaintiffs' action alleging defendants violated a stockholders' agreement, since the provision proscribing corporate action without the consent of a minority stockholder was not against public policy and was enforceable.

NOTES:

-NY case, held that a shareholders agreement of a Delaware corporation which was only lawful for a close corporation filing a special certificate was nevertheless valid because corporation was closed.
-Three judges dissented on ground the statute was exclusive and should be followed. Which result is better?
-This case was essentially overruled by Nixon v. Blackwell

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