153 Conn. 527 (1966) | Cited 39 times | Supreme Court of Connecticut | March 16, 1966

This action was brought by the plaintiffto recover damages for breach of contract,alleged to have been caused by the defendant'srefusal to make payments to him under a writtenagreement entered into between the parties underdate of November 4, 1960.

The terms of this agreement provided that thedefendant pay the plaintiff $20,000 during theyear ending September 30, 1961, and thereafter,$15,000 a year for the remainder of the plaintiff'slife. The plaintiff agreed to hold himself availablefor consultation and advice with the company and itsofficers and not to engage in or be employed by anybusiness enterprise, directly or indirectly, which is

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     engaged in any line of business in competitionwith the company within the states of Connecticut,New York, Pennsylvania, Ohio, Indiana, Illinois,Michigan, California or Washington, or in any ofthe areas abroad in which the company doesbusiness. The defendant made payments inaccordance with the terms of the agreement forapproximately two and one-half years, followingwhich, after the plaintiff refused to consent to amodification of the agreement, the defendantdiscontinued further payments. The plaintiff theninitiated the present action to recover paymentsdue under the agreement. The defendant, by way ofspecial defenses, alleged that the agreement wasinvalid and unenforceable, claiming in effect (1)inadequate consideration because the contract wasbased on past services, (2) it was manifestlyunfair to the defendant, (3) it was procuredthrough undue influence, (4) it was a lifetimeemployment contract not authorized or ratified bythe shareholders, and (5) the board of directorshad no authority to enter into it. The issues weretried to the court, which concluded that theagreement was legally unenforceable. Judgment wasrendered for the defendant, and the plaintiff tookthe present appeal.

The facts necessary to a disposition of thequestion involved are undisputed. The plaintiffwas employed by the defendant from 1912 untilNovember of 1961, progressively holding thepositions of order clerk, traffic manager,salesman, sales manager, president, and chairmanof the board. He was president of the company from1941 to 1958 and a member of the board ofdirectors from 1941 until 1961. From 1958 untilhis retirement in November, 1961, he served aschairman of the board of directors.

[153 Conn. 530]

The agreement in suit was approved by the boardof directors at a special meeting held onNovember 4, 1960. The plaintiff attended thismeeting in his capacity as chairman of the boardbut did not vote on the proposed agreement orpreside at the meeting. The company's six otherdirectors, who had previously discussed theagreement among themselves on an informal basis,were all in attendance at the meeting and votedunanimously to approve the agreement. None ofthose voting were under the plaintiff's control ordirection, as in Sarner v. Fox Hill, Inc.,151 Conn. 437, 440, 199 A.2d 6. The plaintiff took nopart in the consideration of the terms of theagreement, either prior to or during this meeting,and was unaware of the existence of the proposedagreement prior to the meeting. After its approvalby the board, the agreement was signed by theplaintiff and by the company acting through itspresident. Regular payments were made to the plaintiffuntil April, 1963, at which time the companyrepudiated the agreement and discontinued payments.

The trial court concluded that there was noconsideration for the agreement on the part of theplaintiff and that the directors did not haveauthority to enter into the agreement. Inaddition, although the finding is not specific onthis point, the court has included facts in someparagraphs of the finding which might be taken toindicate that it favored the special defense thatthe contract was manifestly unfair to the defendant.These three points will be discussed separately.


We first pass to the question of consideration.The doctrine of consideration is of course

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     fundamental in the law of contracts, the general rulebeing that in the absence of consideration anexecutory promise is unenforceable. In definingthe elements of the rule, we have stated thatconsideration consists of "a benefit to the partypromising, or a loss or detriment to the party towhom the promise is made." Finlay v. Swirsky,103 Conn. 624, 631, 131 A. 420; Barnum v. Barnum,8 Conn. 469, 471. An exchange of promises issufficient consideration to support a contract.Taft Realty Corporation v. Yorkhaven Enterprises,Inc., 146 Conn. 338, 342, 150 A.2d 597; KayPetroleum Corporation v. Piergrossi, 137 Conn. 620,622, 79 A.2d 829.

The recited consideration in the present caseconsists of the plaintiff's promise to holdhimself available for consultation with thedefendant in connection with the defendant'sbusiness and to avoid serving any enterprise incompetition with the defendant within a designatedarea. In essence, what the defendant bargainedfor, as contained in the terms of the writtenagreement, was the exclusive right to theplaintiff's knowledge and experience in his chosenfield for the remainder of his life.

Absent other infirmities, "bargains . . . movedupon calculated considerations, and, whether providentor improvident, are entitled nevertheless tothe sanctions of the law." United States v. UnitedShoe Machinery Co., 247 U.S. 32, 66, 38 S.Ct. 473,62 L.Ed. 968. The defendant cannot now be heard toclaim, for its own benefit, that the actual undertakingof the parties was other than that whichappears in their written agreement. Lakitsch v.Brand, 99 Conn. 388, 393, 121 A. 865. Even thoughit might prefer to have the court decide the plaineffect of this agreement to be contrary to theexpressed intention set forth in the contract between

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     the parties, it is not within the power of thecourt to make a new or different contract. NewOrleans v. New Orleans Water Works Co., 142 U.S. 79,91, 12 S.Ct. 142, 35 L.Ed. 943; SandFiltration Corporation v. Cowardin, 213 U.S. 360,364, 29 S.Ct. 509, 53 L.Ed. 833; 17 Am.Jur.2d 627,Contracts, 242; 4 Williston, Contracts (3d Ed.)610. The plain implication of the contract must befollowed in accordance with the intention of theparties. Sturtevant v. Sturtevant, 146 Conn. 644,647, 648, 153 A.2d 828; Molyneux v. Twin FallsCanal Co., 54 Idaho 619, 626, 35 P.2d 651.

Under the facts of this case, the recitedconsideration constituted a benefit to thedefendant, as well as a detriment to theplaintiff, and was therefore sufficientconsideration under the general rule set out inFinlay v. Swirsky, supra. An exclusive right tothe counseling of the plaintiff, who had hadalmost fifty years of experience in thedefendant's business, including some twenty yearsin positions of ultimate responsibility, and whosecapacities are unchallenged, cannot reasonably beheld to be valueless. Exactly what value might beplaced on such a right is of course irrelevant tothis issue. The doctrine of consideration does notrequire or imply an equal exchange between thecontracting parties. "That which is bargained-forby the promisor and given in exchange for thepromise by the promisee is not made insufficientas a consideration by the fact that its value inthe market is not equal to that which is promised.Consideration in fact bargained for is notrequired to be adequate in the sense of equalityin value." 1 Corbin, Contracts 127; see Clark v.Sigourney, 17 Conn. 511, 517. The general rule isthat, in the absence of fraud or otherunconscionable circumstances, a contract will

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     not be rendered unenforceable at the behest of oneof the contracting parties merely because of aninadequacy of consideration. 1 Williston,Contracts (3d Ed.) 115; 17 Am.Jur.2d, Contracts, 102.The courts> do not unmake bargains unwisely made.1The contractual obligation of the defendant in thepresent case, whether wise or unwise, wassupported by consideration, in the form of theplaintiff's promises to give advice and not tocompete with the defendant, and that obligationcannot now be avoided on this ground.

One additional aspect of the issue of considerationneeds discussion. The defendant has claimedthat the agreement was motivated by a desire tocompensate the plaintiff during his retirementyears for his past services to the company.Judging from certain language in the preamble tothe agreement referring to the company's custom ofpaying pensions to its retired personnel, this wasundoubtedly true in part. The general rule is thatpast services will not constitute a sufficientconsideration for an executory promise ofcompensation for those services. Moore v. KeystoneMacaroni Mfg. Co., 370 Pa. 172, 177, 87 A.2d 295;see 1A Corbin, Contracts 235. It is wellestablished, however, that if two considerationsare given for a promise, only one of which islegally sufficient, the promise is nonethelessenforceable. 1 Corbin, Contracts 126; 1 Williston,Contracts (3d Ed.) 134. Since the agreementcontained promises by the plaintiff which we haveheld to constitute sufficient consideration, the fact

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     that there was additional consideration, notlegally sufficient to support the agreement,cannot excuse the defendant from performance.


The special defense that the contract was manifestlyunfair to the corporation uses the wordscontained in General Statutes 33-323, having to dowith corporate transactions with directors andothers This section of the Stock Corporation Actbecame effective on January 1, 1961, after thedate of this agreement, and is thereforeinapplicable to this case. While this section isspecifically referred to by both parties in theirbriefs, the only relevant rule is that containedin Massoth v. Central Bus Corporation, 104 Conn. 683,689, 134 A. 236, and similar cases, to theeffect that a director of a corporation has theburden of showing that any personal dealing withthe corporation is fair, in good faith and foradequate consideration. Under this rule aninterested party may show that the contract isvoidable. Sisk v. Jordan Co., 94 Conn. 384, 389,109 A. 181, 519. The trial court did notspecifically find or conclude that the contractwas manifestly unfair, as claimed in the specialdefense, but its reference in the memorandum ofdecision to the cases cited above suggestsreliance on the commonlaw rule, which is pointlessunless applied to the particular case tried.

It is true, as the defendant' claims, that thedealings of a director with the corporation aresubjected to rigorous scrutiny and must be shownto be in good faith and contain inherent fairnessto the corporation. "The essence of the test is whetheror not under all the circumstances the transactioncarries the earmarks of an arm's length bargain."

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     Pepper v. Litton, 308 U.S. 295, 306, 60 S.Ct. 238,84 L.Ed. 281; see Ransome Concrete Machinery Co.v. Moody, 282 F. 29, 34 (2d Cir.); Klopot v.Northrup, 131 Conn. 14, 20, 37 A.2d 700; Sisk v.Jordan Co., supra, 389, 390; Rocky Mountain PowderCo. v. Hamlin, 73 Nev. 87, 91, 310 P.2d 404; 3Fletcher, Corporations (Perm. Ed. Rev.) 913, p.358. The consideration passing from the directorto the corporation must adequately compensate thecorporation for the benefits received by thedirector under the agreement. Klopot v. Northrup,supra, 20; Massoth v. Central Bus Corporation,supra, 689.

While it was found by the trial court that someof the directors were long time friends of theplaintiff, that he had hired one director in 1937who later became president of the company when theplaintiff retired, and that the directors had hada long intimate business association with theplaintiff, nowhere in the finding did the trialcourt find or conclude that the transaction wasthe result of bad faith, dishonesty or unfairness.From a review of the subordinate facts, it isclear that the plaintiff's experience was apotentially valuable asset to the defendant, or toany other company engaged in a similar business,and that the annual payments to be made to theplaintiff were in a reasonable amount. The burdenof showing that the agreement was fair was thusmet by the plaintiff. There was no evidence thatthe agreement was a product of collusion betweenthe plaintiff and the other members' of the boardor that it was anything other than an arm's lengthtransaction initiated by, and in the best interestsof, the corporation. The claim that the agreement wasunfair or lacking in adequate consideration cannottherefore be supported by the facts as found.

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The trial court concluded that the defendant'sboard of directors did not have authority to enterinto the agreement in question. Under chapter 590of the General Statutes, in effect at the timethis agreement was adopted, the management of acorporation was vested by statute in its board ofdirectors. General Statutes 33-46 (repealed,effective January 1, 1961, by Public Acts 1959,No. 618, 137);2 Greenberg v. Harrison, 143 Conn. 519,523, 124 A.2d 216. The bylaws of thedefendant corporation, consistent with 33-46,state that the property and affairs of thecorporation shall be managed by its board ofdirectors. See General Statutes 33-16 (repealed,effective January 1, 1961, by Public Acts 1959,No. 618, 137). "It is fundamental to the conceptof a corporation that its affairs are to becontrolled by a board of directors elected by amajority of the shareholders." Krall v. Krall,141 Conn. 325, 334, 106 A.2d 165; see Greenberg v.Harrison, supra; 19 Am.Jur.2d 575, Corporations,1145; cf. Taft Realty Corporation v. YorkhavenEnterprises, Inc., 146 Conn. 338, 341, 342,150 A.2d 597. As a general proposition, therefore, thedirectors had authority to enter into agreementson behalf of the corporation. See 6 Fletcher,Corporations (Perm. Ed. Rev.) 2564. Unless somespecific infirmity can be shown in regard to thedirectors' adoption of the agreement in question,the validity of that agreement must be presumed.

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The trial court, in its finding and itsmemorandum of decision, refers to severalalternative grounds for holding that thisparticular agreement was beyond the powers of theboard of directors. Two of these grounds areconcerned with the substance of the agreement andtwo involve questions of proper corporate procedures.

The first of the substantive grounds consists ofthe conclusion that the directors had no authorityto make a gratuitous award to the plaintiff. Sincewe have already determined that there wassufficient consideration as a matter of law tosupport the agreement, its characterization by thetrial court as a gratuity cannot be sustained.Therefore, without otherwise considering themerits of this argument, we hold that theagreement is not invalid on the ground that itconstituted a gratuitous award beyond the powersof the board of directors.

The second question involving the substance ofthe contract is whether or not the directors hadauthority to enter into an agreement providing forlifetime payments to the plaintiff. There is someauthority for the proposition that directors haveno power to hire an employee on a lifetime basis.2 Fletcher, Corporations (Perm. Ed. Rev.) 514, p.571, and cases cited. Such cases are generallybased on the theory that a board of directors, inselecting the management personnel of the corporation,should not be allowed to hamstring, futureboards in the overall supervision of theenterprise and the implementation of changingcorporate policy. In the present case, however,the agreement between the parties did notcontemplate that the plaintiff would undertakespecific managerial duties. On the contrary, itcontemplated the plaintiff's retirement fromactive employment with the defendant, in

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     conjunction with a continuing relationshipbetween the parties, on an independent contractorbasis, under which the plaintiff would beobligated to give advice to, and not to competewith, his former employer. Agreements of thiskind, if otherwise valid, are generally held aproper exercise of corporate powers.3 Stover v.The Gamewell Fire Alarm Telegraph Co., 164 A.D. 155,159, 149 N.Y.S. 650; Rosen v. GuaranteedSanitation, Inc., 32 Misc.2d 698, 701,225 N.Y.S.2d 382; see Good v. Modern Globe, Inc.,346 Mich. 602, 610, 78 N.W.2d 199; 5 Williston,Contracts (Rev. Ed.) 1652, p. 4648. The presentcase must be distinguished from the situationwhere the individual becomes an officer or anemployee under the contract. The problemspresented by such a situation are quite differentfrom those raised by the agreement underconsideration. See, e.g., Baltimore & O.R. Co. v.Foar, 84 F.2d 67 (7th Cir.); Heaman v. E. N.Rowell Co., 261 N.Y. 229, 185 N.E. 83; 19Am.Jur.2d 458, Corporations, 982. Here theplaintiff became an independent consultant subjectto a restrictive covenant.

Under the facts of this case the contract couldnot continue for an unreasonable length of time inview of the plaintiff's age-over seventy at thetime of its execution and over seventy-four at thetime of trial. Lifetime certainly means a limitedperiod of time under these circumstances.

Two matters of corporate procedure remain to bediscussed. The first concerns the trial court'sfinding that the directors were not given formalnotice of the November 4, 1960, meeting. All of the

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     directors attended this meeting, and none of themobjected to a lack of notice. Under these circumstances,there can be no reasonable basis for holdingthat the business transacted at the meetingwas invalid. 2 Fletcher, Corporations (Perm. Ed.Rev.) 411; 19 Am.Jur.2d 567, Corporations, 1135;see General Statutes 33-308 (effective January 1,1961). The second raises the question whether ornot the directors were required to obtain authorizationfrom the shareholders to enter into thisagreement. No statutory provision required thedirectors to submit this agreement to theshareholders, nor has any such provision in thecertificate of incorporation or in the bylaws beencalled to our attention. Without a specific legalrequirement that the directors obtain shareholderapproval of a contract, the adoption of thecontract falls within the general managerialpowers of the directors or the duly authorizedofficers of the corporation. The agreement in suitis not invalid for want of shareholder approval.

On review of the issues presented, therefore, wehold that the agreement was supported by consideration,was fair to the defendant and was a proper exerciseof corporate powers by the board of directors.

There is error, the judgment is set aside andthe case is remanded with direction to render judgmentfor the plaintiff in accordance with this opinion.

In this opinion the other judges concurred.

1. The defendant apparently thought that itsagreement was an unwise bargain, but a bargainnevertheless, for its president wrote theplaintiff in April, 1963, suggesting that theannual payments be reduced to $7500 andstipulating that "[a]ll other conditions willremain the same."

2. General Statutes 33-46 provided: "The propertyand affairs of each corporation shall be managedby three or more directors. . . ." GeneralStatutes 33-313, which became effective on January1, 1961, states: "(a) Subject to any provisionspertaining thereto contained in the certificate ofincorporation, the business, property and affairsof a corporation shall be managed by its board ofdirectors."

3. If the agreement is a sham, however, orwholly lacking in consideration, or otherwiseunconscionable, it may be set aside by the

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