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Fleischer v. James Drug Stores Inc.

Decided: March 21, 1950.


Stein, J.s.c.


This suit is for specific performance, discovery and accounting and for damages. Heretofore the matter came before a Vice-Chancellor in the former Court of Chancery where the complaint was dismissed. On appeal from that decree the Supreme Court reversed the decree (Fleischer v. James Drug Stores , 1 N.J. 138), and remanded the cause for further proceedings not inconsistent with its opinion.

The matter is now before me on final hearing. Plaintiff on September 21, 1939, purchased from the defendant Max Edlin his retail pharmacy located at 261 Franklin Avenue, in Nutley, which he has ever since conducted as a retail drug store. On April 15, 1940, plaintiff made written application

for membership in James Drug Stores, Inc., a paragraph of which application reads as follows:

"It is distinctly understood, that if I am accepted as a member of the J.D.S., I shall have the privilege of resigning at any time in the future, providing I forward my resignation to you in writing, subject to 60 days notice, and further providing that I have paid up for my service including the 60 days period, for which 60 day period it shall be discretionary upon you to serve me or not, and also that the right is reserved by you to cancel such membership if, in your judgment and after being notified, according to the rules and regulations so set forth, I do not properly cooperate in carrying out the said Plan."

James Drug Stores, Inc., was created to serve the common trade interests of retail druggists who wished to join the enterprise. By his application plaintiff sought to be and was accepted as a member and so became affiliated with the corporation as a "James Cut-Rate Retail Druggist" for the furtherance of the common plan of the corporation, and agreed to buy James merchandise in sufficient quantities to be recognized as a James Cut-Rate Drug Store, and such other merchandise which James Drug Stores, Inc., would make available to him for that purpose and to dispose of the same and not continue any other competitive line or agency plan carried by him. Plaintiff also agreed to become a stockholder of the corporation, "at its option," subject to the corporation's right to "repurchase" the stock "at the termination of" his "membership for any reason whatsoever and at the price originally paid or credited" to him for the stock.

Plaintiff's application was approved by the directors of the corporation and he was required by signs and window transfers as may be authorized by "J.D.S." or such other means as may be approved to establish and identify his place of business as a "J.D.S." store. "Co-operation" was required of him as a member in the carrying out of "buying, advertising and merchandising programs, * * * as well as featuring such merchandise at prices fixed" by the corporation's directors from time to time, in order "to create demand and acceptance for such merchandise by the public." The membership

agreement provided that in the event of the conviction of a member of crime, or if he became "guilty of conduct which in the opinion of the directors is detrimental to the reputation or principles of the J.D.S., or adverse to the objects of the said Plan, and if such conduct is not corrected after notice to the member, the membership may, at the option of the Board, be cancelled according to such rules set down by them, or by their by-laws or resolutions." Lack of co-operation in carrying out the "Plan" was by the contract a specific ground for cancellation of membership, in which event all "rebates, surcharges, overcharges or profits," accrued but not yet declared were forfeited. Plaintiff's right of membership was not assignable by him without the consent of the directors.

On April 15, 1940, his application for membership was accepted and plaintiff purchased six shares of the capital stock of the corporation at $25 a share. He also acquired another forty-four shares by the application of refunds and other payments at the same price, so that he now holds a total of fifty shares of stock. Nine stock certificates issued to the plaintiff were put in evidence. On the reverse side of each certificate appear excerpts from the by-laws of the corporation which read:

"Section 2. -- Par. 'c' -- To grant all stockholders merchandising, buying, advertising and supervising privileges upon such terms as the Board of Directors may determine from time to time, on the express condition, however, that such merchandising privileges, as aforesaid, may be revoked by a majority vote of all the members of the Board of Directors at any regular or special meeting of the said Board, whenever such revocation may be deemed to the best interest of the company."

"Par. 'g' -- The holding of stock shall not in itself, therefore, entitle the stockholders to purchasing, advertising, supervising and merchandising or other privileges of this company, since the Board of Directors may grant or withhold such privileges in its discretion, but such privileges, if granted, shall be upon the conditions set forth in these By-Laws."

At the end of the excerpts plaintiff affixed his signature. Following the excerpts appears a copy of Article IX, which gives J.D.S. a lien in ...

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