Clark v. Dodge
Court of Appeals of New York
199 N.E 641 (N.Y. 1936)
Clark (plaintiff) owned 25 percent of each of two corporations; Dodge (defendant), who held a secret formula critical to the businesses, owned the rest. The parties agreed that Dodge would continue as a director and disclose the formula's use to Clark's son, and that Dodge would ensure Clark received a set share of net income as director's salary and dividends, so long as Dodge remained satisfied with the son's competence. Clark alleged Dodge breached this agreement, and Dodge demurred, arguing the agreement improperly restricted the directors' discretion.
Whether a contract between directors who are the sole shareholders in a corporation is invalid because it hampers the directors' discretion.