Court of Appeals of Arizona, First Division, Department B
Rehearing Denied Oct. 20, 1969. Review Denied Nov. 18, 1969.
[10 Ariz.App. 382] Hill & Savoy, by John E. Savoy, Stockton & Hing, and William J. Knudsen, Phoenix, for appellant.
Snell & Wilmer, by Burr Sutter, Phoenix, for appellees.
The ubiquitous appeal from a judgment granting a motion for summary judgment is presented to this court to determine whether any material fact issue was raised in the Superior Court which would preclude the granting of such a motion.
Plaintiff-appellant ROBERT ONG HING, an attorney at law, filed suit in Superior Court of Maricopa County, against Defendants-appellees, ARIZONA HARNESS RACEWAY, INC., an Arizona corporation, and JAMES J. DUNNIGAN, JAMES J. DUNNIGAN, JR., JAMES G. WELLS, WILLARD W. WARD and BURR SUTTER, the individual defendants comprising the Board of Directors of Defendant corporation.
The Superior Court of Maricopa County granted summary judgments to Defendants on all counts of Plaintiff's complaint except for that portion of Count II praying for reimbursement for legal services rendered to Defendant corporation prior to Plaintiff's termination as counsel. Counsel have stipulated that the portion of Count II referred to above be continued pending a determination of the other matters on appeal.
In a ruling on a motion for summary judgment, the Court must view the facts in evidence most favorable to the party opposing the motion and give such party the benefit of all favorable inferences that may be drawn from the evidence. Hersey v. Salt River Valley Water Users' Association, 10 Ariz.App. 321, 458 P.2d 525 (Sept. 15, 1969). It appears, however, that most of the facts presented here are not in dispute and we are called upon to determine whether the legal conclusions drawn therefrom negate any material fact issue.
Plaintiff was employed in early May, 1961, by the original incorporators of Arizona Harness Raceway, Inc. to perform legal services in the formation, organization and incorporation of Defendant corporation. Pursuant to that employment, Plaintiff rendered the necessary legal services which culminated in the issuance of articles of incorporation to Defendant corporation on June 7, 1961. Prior to the issuance of articles of incorporation the two original incorporators entered into a pre-incorporation agreement, dated June 5, 1961, the pertinent portions of which provided that Plaintiff was to be granted an option to purchase a block of stock of Defendant corporation at par and was to be retained by Defendant corporation as general counsel at a reasonable retainer to be agreed upon between the corporation and Plaintiff.
The first meeting of incorporators was held on June 13, 1961, at which time Willard W. Ward and H. B. Pixley, the original incorporators, named five persons to serve as directors of the corporation, namely Ward, Pixley, the Plaintiff, Stan Adams and L. S. Shawler. By-laws were adopted at a meeting of the Board of Directors on June 14, 1961, and on June 15, 1961, the five directors adopted a resolution,[10 Ariz.App. 383]
the material portion of which provided:
'RESOLVED: That the corporation be authorized to issue in trust 240,000 shares of common stock for the benefit of H. B. Pixley, 240,000 shares of common stock for the benefit of Willard W. Ward and 120,000 shares of common stock for the benefit of Robert Ong Hing. The beneficiaries will be permitted to vote the shares, but no share will be distributed by the trustee to said beneficiary until the sum of $1.10 per share is paid to said trustee. Upon the failure to release said shares by the payment of said price of $1.10 per share within 10 years, the trust shall be terminated and the shares returned to the corporation.'
It is agreed by counsel that this resolution granting Plaintiff a stock option was in lieu of payment to him for legal services in forming the Defendant corporation. The authorized capital stock of Defendant corporation at this time was three million shares.
At the June 13, 1961, Board of Directors Meeting, the corporation was authorized to enter into ten-year employment agreements with Pixley, Ward and the Plaintiff. On October 19, 1961, pursuant to this resolution, an employment agreement was executed by the Plaintiff and Defendant corporation employing Plaintiff as assistant secretary of the corporation for a period of ten years, at a salary of $50.00 per month. The agreement further provided 'it is hereby agreed that no specific services are required of (Plaintiff) for the above salary, but (Plaintiff) will, upon request of (Corporation) be custodian of the minute book of the corporation'.
Plaintiff, after formation of the corporation, continued to act as its legal counsel until January, 1963.
Following the corporation's coming into existence, control thereof passed to Defendant, JAMES J. DUNNIGAN, who obtained assignments of the Ward and Pixley stock options. On May 27, 1963, a new Board of Directors of Defendant corporation rescinded the stock opitions granted by the resolution of June 15, 1961, and further rescinded the contract of employment of Plaintiff as assistant secretary. This action was ratified by the stockholders on August 3, 1963. It appears that Plaintiff was never paid any monies under his contract of employment as assistant secretary, nor was he paid for his services as attorney for the corporation following its formation. Additional facts will be supplied as they are deemed necessary.
The issues presented to this court arising out of the trial court's granting of motion for summary judgment are as follows:
1. Is a resolution granting to directors a stock option valid where the directors voting on the resolution are personally interested therein and are necessary to constitute a quorum of the Board? Further was the stock option void as being granted without consideration and in violation of Article XIV, Section 6 of the Arizona Constitution A.R.S.? (Count I of Plaintiff's complaint).
2. Was the agreement to retain Plaintiff as legal counsel of the corporation and was his employment as assistant secretary void for lack of consideration and the personal interest of a director? (Count II of Plaintiff's complaint).
3. Are corporate directors, acting as such, individually liable for inducing a breach of a corporate contract? ...