Wilson v. McClenny

Supreme Court of North Carolina · 1964 · Corporations

136 S.E.2d 569 (N.C. 1964)

Updated August 22, 2026

Corporationspreincorporation agreementshareholders' agreementvoting agreementelection of directorscorporate officerspublic policynovation

Facts

Before incorporation, plaintiff and defendants entered a written agreement intended to operate as a shareholders' agreement after incorporation. They agreed to use their influence and stock votes to secure each other's election as directors and to secure plaintiff's election by the directors as president for five years at a beginning salary of $10,000 with possible increases. After the corporation was formed, plaintiff accepted only a one-year employment contract as president because the directors would not give him a longer term. Defendants later withdrew support for plaintiff, asserting among other things that his alcoholism caused him to neglect corporate business, and the corporation did not renew his employment.

Issue

Was the preincorporation agreement void as against public policy, or otherwise discharged by novation, waiver, or estoppel, so that defendants were entitled to nonsuit on plaintiff's contract claim? Separately, could defendants, as stockholders and directors, be liable in tort for inducing the corporation not to renew plaintiff's employment contract?

Rule

A written shareholder or promoter agreement to vote stock in a specified manner, including for the election of directors and corporate officers, is not invalid as against public policy if it is otherwise lawful and is not inspired by fraud, prejudice to other stockholders, illegality, oppression, or private benefit to the promisor. A novation requires a prior valid obligation, agreement of all parties to a new contract, extinguishment of the old obligation, and a valid new contract, with intent to substitute the new obligation for the old. Any agreement to employ or continue employing an individual is impliedly terminable for cause. Corporate directors or stockholders have a qualified privilege to induce the corporation not to enter or renew a contract with a third party if they act in good faith to protect corporate interests and use no improper means.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Raleigh, three founders of Blue Heron Analytics, Inc. signed a written agreement before filing incorporation papers. They promised to vote their shares together to elect all three to the board and to support Dana Ruiz for election by the board as chief executive for four years at a stated salary. After the company launched, one founder refused to support Dana and argued the agreement was void because it limited future board discretion.

How should a court most likely rule on the validity of the agreement between the founders?

Explanation. The majority recognized that written shareholder or promoter agreements to vote stock in a specified way, including agreements concerning election of directors and officers, are not invalid as against public policy merely because they affect management. Such agreements are valid if otherwise lawful and not inspired by fraud, illegality, oppression, prejudice to other shareholders, or private benefit to the promisor.