Essex Universal Corporation v. Herbert J. Yates

CLARK, Circuit Judge

(concurring in the result).

Since Barnes v. Brown, 80 N.Y. 527 , teaches us that not all contracts like the one before us are necessarily illegal, summary judgment seems definitely improper and the action should be remanded for trial. But particularly in view of our lack of knowledge of corporate realities and the current standards of business morality, I should prefer to avoid too precise instructions to the district court in the hope that if the action again comes before us the record will be generally more instructive on this important issue than it now is. I share all the doubts *580 and questions stated by my brothers in their opinions and perhaps have some additional ones of my own. My concern is lest we may be announcing abstract moral principles which have little validity in daily business practice other than to excuse a defaulting vendor from performance of his contract of sale. * Thus for fear of a possible occasional contract inimical to general stockholder interest we may be condemning out of hand what are more often normal and even desirable business relationships. As at present advised I would think that the best we can do is to consider each case on its own facts and with the normal presumption that he who asserts illegality must prove it.

I add that while New York law may render unlawful an agreement for the naked transfer of corporate office, see McClure v. Law, 161 N.Y. 78 , 55 N.E. 388 , the record before us does not present such a situation and there is no ground for declaring the present agreement void on its face. Surely an otherwise unlawful sale of office should not become lawful simply on the simultaneous transfer of a few shares of stock. But such formalistic niceties are not involved here, and in any event such an approach would raise factual questions to be resolved only by trial. Further I am constrained to point out that I do not believe a district court determination as to whether or not “working control” was transferred to the vendee can or should affect the outcome of this case. The contract provides for transfer of 28.3 per cent of the outstanding stock and effective control of the board of directors, and there is no evidence at this stage that the vendor’s power to transfer control of the board was to be secured unlawfully, as, for example, by bribe or duress. Surely in the normal course of events a management which has behind it 28.3 per cent of the stock has working control, absent perhaps a pitched proxy battle which might unseat it. But the court cannot foresee such an unlikely event or predict its outcome; thus it is difficult to see what further evidence on the question of control could be adduced. My conclusion that there is no reason to declare this contract illegal on its face would remain unaffected by any hypothetical findings on “control.” It seems that we are all agreed on the need of a remand for trial, though we disagree as to the scope of such remand. Since our decision returns the case to the jurisdiction of the trial court, with nothing settled beyond that, the trial judge will have to decide initially at least how extensive that trial is to be. For my part I believe it incumbent on the judge to explore all issues which the pleadings may eventually raise.

The validity of this excuse is the only question presented in this action; thus possible claims under the rule of Perlman v. Feldmann, 2 Cir., 219 F.2d 173 , 50 A.L.R.2d 1134 , certiorari denied Feldmann v. Perlman, 349 U.S. 952 , 75 S.Ct. 880 , 99 L.Ed. 1277 , and other similar issues are not involved.