[7 NJSuper Page 362] This action was brought by plaintiffs in the former Court of Chancery for the dissolution of Evening Journal Association, publisher of a newspaper known as the Jersey Journal, pursuant to what is sometimes called the Deadlocked Corporation Statute, R.S. 14:13-15. The association and the holders of one half of its stock have filed counterclaims in which it is alleged that while plaintiffs are holders of record of one-half of the issued stock nevertheless some part thereof is in fact and in equity held in trust for the association. At the time the plaintiff Post-Standard Company acquired title to half of the issued stock of the association from Walter M. Dear and members of his family,
it entered into an agreement with him regarding his continuance in the employ of the association for a period of two years, and it is contended by defendants that the salary, or part of it, paid to him by the association during such period, was not for services rendered to the association but, to use the language of the defendants, "a guise or device" for the expenditure of the association's funds to satisfy deferred installments of the purchase price. Defendants ask that a determination be made of the fair and reasonable money value of the services rendered by Walter M. Dear and that the excess of the salary paid above such value be adjudged to have been in payment of stock sold to the Post-Standard Company, and that a trust be impressed in favor of the association on so many of its shares as were thus paid for with its funds and that such shares be held as treasury stock.
At the pretrial conference it was agreed that proofs would be taken first on the counterclaims for the obvious reason that a determination thereof favorable to defendants would be dispositive of the main action. Such proofs have been taken and briefs have been submitted.
Off and on during a period of ten years, Samuel I. Newhouse, one of the plaintiffs and the publisher of a chain of newspapers, discussed with Walter M. Dear the purchase of the Jersey Journal in its entirety or of the half interest of the latter and his family, but without reaching an agreement until November 15, 1945. During the five years prior to this date, Mr. Dear negotiated also with his nephew J. Albert Dear for the sale to the latter of a half interest in the association, but these negotiations terminated without agreement in October, 1945. In their respective dealings with Walter Dear the initiative was always taken by Newhouse and Albert Dear.
On November 15, 1945, at a meeting in New York City attended also by Charles Goldman, Newhouse's attorney, Walter Dear agreed to sell a one-half interest in the association to Newhouse for $450,000 with the closing to be held in about a week -- the date to depend on the return from Florida of former Judge Robert Carey, Mr. Dear's attorney. The testimony of these three participants in the meeting is to the effect
that there was a definite agreement of sale for 1,050 shares of stock in Evening Journal Association for $450,000 cash, that the details and mechanics of concluding the transaction would await the return of Judge Carey. It also appears that at this conference Walter Dear declared that he wanted to sell his interest and retire from the paper and that no effort was made at that time by Newhouse to induce him to remain in the employ of the association. The 1,050 shares which were the subject of the sale were on this date registered on the association's books as follows: Walter M. Dear 675 shares, Maud F. Dear 160 shares, Katharine A. Dear 119 shares, Ida A. Dear 81 shares, Eleanor D. Phillips 15 shares. On November 21, 1945, certificates for these shares were delivered to the Post-Standard Company and shortly thereafter the association in exchange therefor issued certificates of stock as follows: Post-Standard Company 1,048 shares, Samuel I. Newhouse, 1 share, Norman N. Newhouse 1 share. There was no change in the registration of these 1,050 shares at the time of the institution of this action.
In November and December, 1945, the other 1,050 shares of the company were registered on the association's books as follows: J. Albert Dear 1,049 shares, Joseph A. Dear 1 share; on the institution of this action, as follows: Dear Publication and Radio, Inc., 1,048 shares, J. Albert Dear 1 share; Cyrene B. Dear 1 share.
On November 19, 1945, Walter Dear and Judge Carey met with Mr. Goldman at his office in New York City and discussed closing mechanics, and the protection of the purchaser against undisclosed debts, pending law suits and the like. No mention was made of any agreement concerning the continuance of Walter Dear in the employ of the association. It was then arranged to close the transaction at Judge Carey's office in Jersey City on the afternoon of November 21st.
On this latter date, Ernest L. Owen, then Vice-President and Treasurer of the Post-Standard Company, Mr. Goldman, Walter Dear and Judge Carey sat down to close the transaction. Time was consumed in pleasantries and in drafting two agreements between Post-Standard Company and Walter Dear [7 NJSuper Page 365] which are marked exhibits R 2 and R 3; in the former he agreed not to engage in the newspaper publishing business during the next ten years and in the latter he covenanted at length with respect to the financial condition of the association, its stock, property, obligations and so forth. Mr. Newhouse came to Judge Carey's office long after the start of the meeting and at a time when considerable detail had been disposed of. It was then, for the first time, that the matter of Walter Dear's remaining with the Jersey Journal was discussed. The fact was that for many years the stock of the association had been evenly divided between the families of Walter Dear and his brother, former Judge Joseph A. Dear. For a long time these two men divided the management of the paper between them. In more recent years, the former brought his daughter Katharine A. Dear into the management and the latter brought in his son J. Albert Dear. These four were the directors of the association on November 21, 1945. Mr. Newhouse stated that his organization had no one to act for it in the management of the Jersey Journal and asked Walter Dear if he would not remain in the same capacity at the same salary for a term of ten years. Mr. Newhouse referred to Mr. Dear's long connection with the paper, his high standing in the newspaper industry and the stabilizing influence his remaining would have on employee relations and the like. After Mr. Dear referred to his desire to retire, he expressed a willingness to remain for a short time until things adjusted themselves. Finally he agreed to remain for two years, and, as he put it, to round out fifty years with the paper, but only if Mr. Newhouse obtained his nephew Albert's consent. This for the reason that their relations of late had not been happy and the latter would most likely be disappointed that he had not acquired the stock interest of his uncle. At this point Katharine A. Dear was sent for, informed of her father's decision and asked if she would also remain with the paper. She was surprised but she agreed. It was then that the agreement, known as exhibit R 1, was drawn. Shortly after this, Mr. Newhouse left and the agreements were signed by Mr. Owen on behalf of the Post-Standard
Company. When the papers were executed, the parties went to the office of the Trust Officer of the Trust Company of New Jersey where the stock was delivered and the purchase price of $450,000 was paid in full.
Inasmuch as great importance was attached to the agreement, exhibit R 1, it is set forth below from the beginning to the testimonium clause, except for the elimination of paragraphs 1 (b), 2 and 3 which relate to the qualification and service of Walter Dear and his daughter as directors. Since they did not thereafter act as directors, and successors were elected a month later, these parts may be omitted here.
"THIS AGREEMENT, made this 21st day of November, 1945, between THE POST STANDARD COMPANY, a corporation of the State of New York, having its principal office in the City of Syracuse, State of New York, party of the first part, WALTER M. DEAR, now residing at 34 Bentley Avenue, in the City of Jersey City, County of Hudson and State of New Jersey, party of the second part, and KATHARINE A. DEAR, now residing at 34 Bentley Avenue, in the City of Jersey City, County of Hudson and State of New Jersey, party of the third part,
"WHEREAS, simultaneously with the execution of this agreement, the party of the first part did acquire from the parties of the second and third parts and from other parties, certain shares of the capital stock of The Evening Journal Association, a corporation organized under the laws of the State of New Jersey, hereinafter called the Corporation,
"NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, it is agreed by and between the parties hereto as follows:
"1. The party of the first part agrees to and with the party of the second part as follows:
"(a) that the party of the second part shall continue to occupy his official position, relationship and employment as treasurer and general business manager of the Corporation for a period of two (2) years from the date hereof, at the same salary as at present being drawn and received by the party of the second part from the corporation and the party of the first part shall act in the exercise of its stock right or stock control so as to enable the party of the second part to perform all the proper functions and duties as such treasurer and general manager.
"4. The party of the second part hereby agrees that by virtue and consideration of his continued employment as hereinabove provided, he will consult with the designated representatives of the party of the first part in all matters pertaining to the policy of the corporation,
the fixing of salaries of officers of the corporation, and the employment of executives of the corporation, and any and all kindred matters.
"5. This agreement shall be binding upon and shall enure to the benefit of the parties hereto and the successors and assigns of the party of the first part, and the personal representatives of each of the parties of the second and third parts."
On Thanksgiving Day, November 22, 1945, Walter Dear informed his nephew Albert Dear of the sale and arranged for a luncheon conference on the following day at the Hotel Plaza in New York, which was attended by them, Mr. Newhouse, Mrs. Albert Dear and Mr. John McMaster. There is a dispute as to whether Mr. McMaster was present as attorney for Albert Dear or for the association. The luncheon was a stormy one. Mr. and Mrs. Albert Dear were openly hostile to Walter Dear. Mrs. Dear testified that she had plenty to say and in response to a question, as to what she had said and to whom, she answered: "Uncle Walter. I told him he was a traitor to the family for selling out, not telling us about it, especially when we had expected that he would sell to us and I think I called him a modern Esau." The disappointment and resentment of Albert Dear and his wife is understandable when it is remembered that his grandfather was one of the founders of the paper and that they had sons who were following in his footsteps. At any rate, Mr. Newhouse got the meeting back to its original purpose which was to plan for the future. The question of Walter Dear's remaining with the association came up and Albert Dear expressed vigorous opposition. Newhouse testified that he stated Walter Dear had signed a two-year contract subject to his nephew's approval. Albert Dear said that having sold out, he should get out. Mr. Newhouse urged his retention on two grounds, his own inability to serve because of other business obligations and Walter Dear's value to the paper especially in the transition period following the sale of the half interest. Albert Dear urged Newhouse to take Walter Dear's place and if he was unwilling then to name someone else. It is clear that Walter Dear's retention was obnoxious to his nephew who was willing to agree to any one but his uncle. There then followed a discussion as to what would happen if, because of
Albert Dear's opposition, Walter Dear should refuse to stay. The by-laws of the association were referred to and it will be noted that they contained many provisions which had their genesis in the equal division of the stock ownership. It was pointed out by Newhouse that if Walter Dear and his daughter resigned, the association would lack a board of directors, a treasurer and a secretary, and that a situation might readily develop which would require one party or the other to seek a dissolution of the association. Newhouse also suggested that a meeting be held shortly with all the employees of the paper, at which they would be advised that Walter Dear had sold his interest in the paper but that he would continue as theretofore in the management and that there would be no change in the policy of the paper. This meeting would also serve to introduce Newhouse to the employees. This plan was agreed to and a cocktail party was held on the following Sunday, November 25th, at which Walter Dear made the announcement outlined above. It may be noted here that Albert Dear denied that he was informed at the luncheon that a contract had been signed by Walter Dear to continue with the paper for two years. He testified also that when he left the luncheon he was not convinced that Walter Dear should be retained. But the fact is that it was then agreed to hold the cocktail party at which Walter Dear would take the part mentioned above, and the latter did in fact make such announcement. It seems clear that there was some understanding that he would be retained. I am persuaded that the matter of Walter Dear remaining for a two-year period as set forth in Exhibit R 1 was ...