112 N.Y.S. 721 | N.Y. App. Div. | 1908
Lead Opinion
The appellants and Alphons Jacobson and Max Hessberg, who were originally joined as defendants but died pending the action, •composed the copartnership firm of Knauth, Nachod & Knhne, which conducted the business of bankers in the city of New York ;and in Leipzig, Germany. The plaintiff is a foreign corporation. It was incorporated, under the laws of New Jersey on the 12th. day ■of April,. 1899, with an authorized capital stock of 5,000 shares, •c'onsisting of 500 shares of preferred stock of the par value of :$50,000, and 4,500 shares of common stock of the' par value of :$450,000. By an amended certificate of incorporation, which was •duly filed in the office of.the Secretary of State of New Jersey on the 11th day of July, 1901, and was duly authorized at a meeting
The principal issues in the case are (1) whether the alleged subscription agreement was an executed or an executory contract; (2) whether the subscription was absolute or conditional, it being claimed by the defendants that they merely agreed to enter into an agreement to subscribe for the stock and that they were to be obligated together with certain underwriters to take only the balance of the issue of preferred stock which they were unable to otherwise dispose of to bankers in various parts of the country, as contemplated by the parties; (3) whether the subscription agreement, if made, was not canceled by mutual consent, and (4) whether the plaintiff is not estopped from now enforcing the subscription-agreement as to the balance. The claim of the plaintiff on these points, as shown by the allegations of the complaint, is that “ on or about the 4th day of June, 1901, the defendants duly subscribed for and agreed with plaintiff to take one thousand (1,000) shares of the plaintiff’s preferred capital stock, and then and there agreed to pay to this plaintiff the sum of one hundred (100) dollars per share for said stock, or the sum of one hundred thousand dollars.” Plaintiff further alleges'that it performed the subscription agreement on its part and issued to the defendants “ between the 4th day of June, 1901, and the 6th day of January, 1904, said one thousand (1,000) shares of said preferred capital stock of plaintiff,” and demanded payment of the $100,000, no part of which, excepting the sum of $71,200, has been paid, and judgment is demanded for the balance, being $28,800, together with interest thereon from the date of the tender of the stock, besides costs. The allegations in the complaint with respect to the incorporation of the plaintiff and the amount, nature and increase of its capital stock were admitted, but the other
The learned counsel for the appellants contend that the theory upon which the case was tried in behalf of the plaintiff was the same as that presented by -its pleading, namely, that, the subscription agreement was. an executed contract, which is not sustained by the proof, and that the recovery cannot be sustained now upon the theory that defendants entered into a contract to subscribe and pay for the stock in the future, which is the theory upon which the learned counsel for the respondent seeks. to hold the judgment,, claiming that it is the theory iipon which the case was.-tried.
The plaintiff was promoted by one Edwin Groodall, who held certain patents granted by the United States upon money orders, drafts and checks. Twelve days after the incorporation of the plaintiff G-oodall assigned these patents to it, and in consideration therefor 4,490 shares of the common capital stock were issued to him. . The remaining 10 shares of the common stock were sold at par, and the proceeds of $1,000 was the only money that came in
In April, 1901, when defendants were induced by Goodall to aid in financing plaintiff, it was indebted, principally to its president, for moneys advanced in the sum of $6,520. It had made every ■effort, but had been unable down to that time to commence business ; but through the assistance of defendants it was enabled to pay its obligations and start business October 1, 1901, with a fair working capital. Goodall became one of the first directors of the plaintiff, and he became its first treasurer, and so 'continued until the 18th day of September, 1906, when he resigned; but he was not ■one of the incorporators, doubtless for the reason that he intended to sell his patents to the company. He remains, so far as the record shows, very largely interested in the plaintiff. The plaintiff was organized for the purpose of conducting with banks the business of selling money orders upon substantially the same basis as express companies carry on similar business. The prospectus it issued describes the business which it contemplated doing .as follows: “This association is designed to supply the banks of the country with a convenient and simple medium for transmission of small sums of money. Its purpose is to aid the banks in reclaiming a feature of their business which has drifted into -other channels, namely, the selling -and buying of money orders.” The money orders to be issued were to be payable at any bank, but to be finally redeemed by plaintiff in Mew York. Goodall was instrumental in inducing the defendants, to investigate the merits ■of the proposed business, and they decided to become interested in the plan provided that certain conditions which they deemed ■essential to the success of the enterprise were complied with.. These were, according to the undisputed evidence, that the common stock of the plaintiff be reduced to $290,000, and the preferred ■stock be increased to $100,000, and that it be a seven per cent •accumulative non-voting stock, redeemable after five years, and that
- and seven individuals as parties of the second part. It recites that plaintiff was about to issue preferred stock of the par value of $100,00.0, and to reduce its common stock to $200,000, and that the subscribers had agreed “ to and with each other to underwrite said issue of preferred stock.” The defendants agreed with the under
At the meeting of the stockholders held on the 25th day of May, 1901, pursuant to a resolution adopted by the board of directors on the 19th day of April, 1901, which was duly called and of which all stockholders had due notice, and at which the common stock was reduced and the preferred stock increased, the by-laws of the plaintiff were amended so as to provide that a quorum of the board of directors should consist of not less than seven members, and by providing for an executive committee to consist of the president and six other directors, to be appointed by him “ by and with the approval of a quorum' of the board of directors present at any meeting,” and that the executive committee should meet at such times as the president shall designate “ and shall exercise all the powers of the board of directors when the same is not in session.” The amended by-laws also provided that the executive committee should keep regular minutes of its proceedings in a book to be provided for that purpose, which should always be open to the inspection of any of the directors. At this time a new board of directors, consisting of twenty-three members, was also elected, many of whom were bankers residing in various places throughout the country, which rendered frequent meetings of the board 'impracticable. More than two-thirds of the common stock was voted at this meeting. At the meeting of the board held on the 4th day of'June, 1901, the minutes of the meeting of the stockholders held on the 25th day of May, 1901, including their action in amending the by-laws, were read and approved. At that meeting defendant ■ Kuhne having been elected a director was elected president of plaintiff.
Goodall also testified that at a meeting of the board of directors on the fourth day of June thereafter, at which eight members were present and Kuhne presided, he had a conversation with Kuhne
Vice-president Wicker testified that he heard the defendant Kuhne approve the statement read at that meeting by Goodall “ to the effect that if a certain thing was. done with the stock he
The defendant Kuline and one Sager, an employee of the defendants, who at their instance became a director and secretary of plaintiff, were the only other witnesses who gave evidence concerning the proceedings of June fourth. They testified in substance that the offer of the defendants announced by Goodall was not to subscribe for the stock themselves but to guarantee for themselves and the underwriters that they would take the balance of the issue of preferred stock which plaintiff with the assistance of the defendants was unable to place with other banks and bankers. The defendant Kuhne testified that his attention was drawn to the plaintiff’s scheme
Kuhne' also testified that in the discussion at the meeting of the board on June fourth, the members of the board manifested a desire to have the stock distributed among banks as widely as
Ho attempt was made to offset this claim against plaintiff’s liability to defendants on any of these accounts, and no account- or record was produced in which this claim or any part of the alleged subscription was charged to defendants. It was essential to the success of the business which the plaintiff was organized to conduct that its stock should be placed with banks and banking houses throughout the country in small amounts. This would more certainly insure its success than if the stock were sold in bulk to the defendants as claimed. A sale in bulk would give the plaintiff money, but not business, and it could best get business from those interested through ownership of the stock. This was expressly assumed by the court throughout the. trial, ■ without objection, and was so stated in the charge, without exception. The learned counsel for the appellants contends that great weight should be attached to this, and that it tends to sustain their claim that it was not the intention of the parties that the defendants should forthwith subscribe for and take the entire issue of preferred stock at par. Defendant Kuhne accounts for the failure to execute a formal subscription agreement upon the ground that it was understood that
The execution of the voting trust agreement, which was one of the conditions imposed by the defendants, was authorized by the executive committee on the 12th day of July, 1901. Defendant Kuhne was given full power with respect thereto, and on the 18th day of July, 1901, he reported to the executive committee that such an agreement had been negotiated with the Oolonial Trust Company, which was to act as depository of the stock. The agreement, however, was not actually executed until the 1st day of October, 1901. By that agreement the defendant Kuhne and two other members of the plaintiff’s executive committee were made the trus
Prior to the 30th day of September, 1901, 712 shares of the preferred stock had been issued, sold and paid for, on which $71,200 was realized. On that day there was a meeting of the executive committee, at which the president, and Vice-president Wicker, Stumpf and Goodall were present, and the minutes show the following: “ Mr. Kuhne reported on the preferred stock and the advisability of $25,000 being returned to the treasury of the company. On motion, it was resolved to refer the matter to counsel and Mr. Kuhne for action.” These minutes were approved at the next meeting
At a meeting of the executive committee, held on the 14th day of May, 1903, which is the next record of the matter, the following action was taken:
“ Referring to the resolution passed on September 30, 1901, in reference to returning to the treasury $25,000 preferred stock, and the unanimous expression at that time that said stock should, be returned to the treasury, and this, action being confirmed by the committee at that time appointed, on motion duly made by Mr. C. M. Wicker and seconded by Mr. Edwin Good all it was unanimously resolved that $25,000 of the preferred stock be not for the present issued, but that the same be retained in the treasury of the company as treasury preferred stock.”
It was shown that defendant Kuhne at this meeting offered the following for adoption:
“ Referring t.o the resolution passed on September 30, 1901, in reference to returning to the Treasury $32,500 Preferred Stock and the unanimous expression at that time that said stock should be so converted to the Treasury and this action being confirmed by the Committee at that time appointed.”
Some significance appears to be attached to the difference in the
When Kuhne resigned as president of the plaintiff, the defendants returned the 50 shares of the common stock theretofore allotted to them. It also appears that 475 shares of the new issue of the common stock were issued to the defendant Kuhne, probably as compensation for his services; and when he resigned as president he likewise returned that. The only profit or charge that the defendants were to secure by the underwriting agreement or on the alleged subscription for the stock, as they understood and executed it, was their proportionate share of the new issue of common stock pursuant to the underwriting agreement, which provided that each subscriber should receive in common stock thirty per cent of his subscription to the preferred stock. Stress is laid by the learned counsel for the respondent on the fact that the distribution of the common stock under the underwriting agreement is inconsistent with the cancellation of it, and that it could not be deemed canceled without the return of all of the common stock issued to subscribers. It appears, however, that the defendants returned all that was issued to them, and their rights, as between them and the plaintiff, are not affected by the question as to whether the other stock so issued was returned. Moreover, it was the apportionment of the stock between the underwriters,-long after subscriptions had ceased, without demanding that the balance be taken, which is significant as indicating an intention to abandon or rescind the further execution of the alleged subscription agreement. The action, therefore, more than two years later was apparently in accord with what might be expected from the acquiescence of both parties in not issuing or negotiating further stock in the meantime. On the 11th day of December, 1903, a special meeting- of the board of directors was held, with the newly-elected president in the chair. The question of calling on defendants to take the balance of the preferred stock was brought up and discussed, and it was decided to issue the same and to tender the defendants a certificate for 288 shares and to demand the face value thereof. Kuhne was not present at- this meeting, but he was notified thereof by telephone and he requested an adjournment until the following day, which was accorded. On
There is no credible evidence in the record of any disagreement between the trustees and officers of the plaintiff concerning its management during the period that the defendant Kuhne was president. All of the record evidence and all testimony which is not improbable as tending to impeach the record evidence, tends to show that, whatever the original contract between the defendants and plaintiff was with respect to the subscription—.which was left in doubt on conflicting evidence — the practical construction of the parties throughout this entire period was that the defendants had not obligated themselves to take the entire issue- of preferred stock in the first instance.' Although- Goodall' testifies that he repeatedly demanded the whole amount of the defendants upon the theory that they were primarily liable therefor, which testimony
I deem it unnecessary to consider the other interesting questions presented by the record, which have been argued at length by the learned counsel for the respective parties, for I think a new trial should be granted on the ground that the verdict is against the' weight of the evidence.
It follows that the order and judgment should be reversed and a new trial granted, with costs to the appellants to abide the event.
Clarke and Houghton, JJ., concurred; Scott, J., concurred in result.
Concurrence Opinion
The complaint alleges that plaintiff was a corporation organized under the laws of the State of - New Jersey with a preferred stock of the par value of $50,000 and common stock of the par value of $450,000; that on the 25th of May, 1901, the preferred stock was increased so that its par value was $100,000, and'the common stock was reduced so that its par value was $200,000, and that on or about' . the 4th of June, 1901, “ the defendants duly subscribed for and agreed with plaintiff to take one thousand (1,000) shares of the plaintiff’s preferred capital stock, and then and there agreed to pay to this plaintiff the sum of one hundred (100) dollars per share for said stock or the sum of one hundred thousand dollars.” There is no allegation of a sale of the stock by plaintiff to defendants, and the complaint would seem to be based on a subscription for capital which had not been issued rather than a sale of stock by a corporation which had in some way acquired a portion of its stock. From the evidence it appeared that all of the. common stock except one share, viz., common stock of the par value of $449,000, was issued to one Edward Goodall for certain patents which he assigned to the company and under which it was to transact its business. There is no evidence that I can find that, at the time -of the agreement alleged
The evidence that the common stock that had been issued had been returned to the plaintiff who had retained some of the common stock as what was called treasury stock, does not show that the plaintiff had, on June 4, 1901, power to issue more than 500 shares of preferred stock. But, assuming that there was evidence that the plaintiff had authority to issue 1,000 shares of preferred stock, I concur with Mr. Justice Laughlin that the finding that there even was an unqualified subscription of the whole of the 1,000 shares of the preferred stock by the defendants is against the weight of the evidence, and I, therefore, concur in the - reversal of the judgment.
Judgment and order reversed and new trial ordered, costs to appellants to abide event.