Recent NJ Cases Involving Shareholder Agreements Offer Much Guidance to Counsel and Clients – Part 2 of 2

HNWShareholder Rights Litigation

Facts of the Case

This case involved a closely-held corporation with four equal shareholders, in which three of the shareholders ceased paying salary to the fourth.  There was a dispute whether the fourth shareholder was fired or voluntarily quit, but there was no dispute that he was no longer working in the corporation.  The shareholder agreement did not address the right of continued employment of the fourth shareholder – one of the other shareholders did have an employment agreement.  However, the shareholder agreement did provide for the payment of base salaries of the shareholders “in amounts determined by unanimous consent of the shareholders.”  It was undisputed that the salary of the plaintiff had been set at $8000 per month, that he had been paid that amount for a period of about two years, and that he had not consented to a change or cessation of the payments.  A jury found breach of contract and awarded damages.  The trial court reversed the verdict and gave plaintiff nothing.

Outcome of Case on Appeal

The Court of Appeals affirmed the trial court decision because there was no evidence of an agreement to pay the plaintiff the same amount indefinitely whether he worked or not.  The court held:  “To form a binding contract, the minds of the parties must meet with respect to the subject matter of the agreement and all its essential terms (see my page on meeting of the minds under contract law:  The parties’ agreement must comprise all the terms that the parties intend to be bound by.”  The court held that the “simple fact that a party has consistently done something in the past does not, standing alone, demonstrate an agreement to continue performing the same act in the future.”

To discuss your NJ shareholder matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholder Attorney

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