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contractplaintiffdefendantequitytrustrescission
contractplaintiffdefendant

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Globe Woolen Co. v. Utica Gas & Electric Co., 224 N.Y. 483, 121 N.E. 378

Facts

The Globe Woolen Company owned two mills in Utica and sought to replace its antiquated steam power with electricity. John F. Maynard, the company's president and a director of the defendant, negotiated contracts for electric supply with the defendant, which were ratified by the defendant's executive committee. However, the contracts proved to be financially disastrous for the defendant, leading to a rescission notice after significant losses were incurred.

The plaintiff is the owner of two mills in the city of Utica. One is for the manufacture of worsteds, and the other for that of woolens. The defendant generates and sells electricity for light and power.

Issue

Whether the contracts between the Globe Woolen Company and the Utica Gas & Electric Company were voidable due to the dominating influence of a common director.

We think the evidence supports the conclusion that the contracts are voidable at the election of the defendant.

Rule

A contract may be voidable if it is established that a trustee or director exerted undue influence over the transaction, compromising the fairness and equity of the agreement.

A dominating influence may be exerted in other ways than by a vote.

Analysis

The court found that Maynard's dual role as president of the plaintiff and director of the defendant created a conflict of interest that compromised the fairness of the contracts. The evidence indicated that Maynard had a dominating influence over the negotiations, and the contracts lacked equitable terms, leading to significant losses for the defendant.

There was an influence here, dominating, perhaps, and surely potent and persuasive, which was exerted by Mr. Maynard from the beginning to the end.

Conclusion

The court affirmed the annulment of the contracts, holding that they were voidable due to the undue influence exerted by Maynard, and required the defendant to reimburse the plaintiff for installation costs.

The judgment should be affirmed, with costs.

Who won?

Utica Gas & Electric Company prevailed because the court found that the contracts were voidable due to the undue influence of a common director, which compromised their fairness.

The referee annulled them absolutely. The Appellate Division imposed the condition that the defendant reimburse the plaintiff for the cost of installation.

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