236 Pa. Super. 8 | Pa. Super. Ct. | 1975
Opinion by
This appeal is taken from an order dismissing appellant’s counterclaim on the grounds that it was barred by the Statute of Frauds contained in Article 8 of the Uniform Commercial Code, dealing with investment securities.
The plaintiffs-appellees are two firms engaged, inter alia, in the business of underwriting the sale of secu
“The feasibility of the financing and the estimated offering price set forth below will depend, of course, on our further investigation of the Company . . . the absence of any material adverse change in the Company’s condition or prospects (financial or otherwise), and the continuing existence of favorable market conditions in general and our ability to obtain indications of interest from prospective dealers and customers. This letter summarizes and evidences our discussions to date, although our mutual rights and obligations remain to be defined in an underwriting agreement (the ‘Underwriting Agreement’) into which this letter and all prior discussions shall merge.”
. . This letter is intended to be only a summary of the proposed transaction contemplated hereby and the Underwriting Agreement and related documents and instruments which will be executed by parties will contain the usual warranties, representations, market-outs and indemnities. Accordingly, this letter shall be construed only as a letter of intent and shall not be legally binding upon the Company or us; provided, however, that you and we shall immediately be legally bound by paragraphs S and J.” (Emphasis added.)2
“. . . subsequent to June 6,1972, the plaintiffs and the defendant orally agreed to increase the number of shares to be purchased by the defendant for the purpose of the public offering from 180,000 shares of defendant’s common stock to 360,000' shares of such stock and that, on or about July 28, 1972, the plaintiffs and the defendant entered into an oral agreement whereby plaintiffs agreed to become legally bound to unconditionally purchase 360,000 shares of the common stock of U. S. Investment Corporation at $10.00 per share for the purpose of offering same to the public at that price in consideration of the defendant paying for an additional and special audit to . . . confirm defendant’s earnings for the six month period ending June 30, 1972.”
The counterclaim alleges that the underwriters refused to proceed with the offering unless the price of purchase and resale to the public was reduced to $8.00 per share. Allegedly, this breach occurred on November 13, 1972, one day prior to the filing of the Registration Statement
On August 8, 1974, the underwriters filed preliminary objections to the defendant’s counterclaim, alleging that “ [u] nder the Pennsylvania Statute of Frauds, ... a contract for the sale of securities is not enforceable by way of action or defense unless there is some writing signed by the party against whom enforcement is sought.
In an attempt to avoid the bar of the statute of frauds, appellant makes six claims, only four of which need be discussed in depth.
Appellant next argues that because the counterclaim does not seek specific performance, it can recover for the reasonable value of the services it performed in reliance upon the underwriters’ inducement. In effect, the company is requesting relief on a theory of quantum meruit. Again, the company is attempting to avoid its own theory of the case, which is to recover damages for breach of contract. The one case cited by appellant, Kessler v. M. J. Greene Co., Inc., 39 D. & C. 2d 717 (1966) (Opinion by Price, J.), was properly distinguished by the court below.
In Kessler, plaintiff originally filed a suit in equity, alleging that defendant-company had orally agreed to grant him an option to purchase 7,500 shares of its stock, if plaintiff procured a broker to handle its public offering. The suit asked for specific performance and $2,000 damages, the reasonable value of accounting and preregistration services performed by plaintiff. Preliminary objections were sustained insofar as the complaint asked for specific performance. The request for damages was transferred to the law side of the court. Subsequently, plaintiff sued to recover $15,000, the alleged reasonable value of the services performed by plaintiff in obtaining a broker for defendant. Again, the company filed preliminary objections. The court concluded that plaintiff could maintain its suit: “ ‘In applying the statute of frauds, the case is one where the parties made an express contract, but the law prevents its enforcement. If the defendant expressly promised to convey Blackacre, the law does not infer a promise on his part to repay an
Quantum meruit, therefore, is predicated on the existence of an unjust enrichment. It would be unfair to allow one party to an unenforceable contract to accept the performance of the other party and receive a material benefit without assuming any obligation. Thus, the law allows the plaintiff to recover the reasonable value of the services he performed and the expenses he incurred. In applying these principles to the facts of Kessler, the court correctly permitted the plaintiff to proceed to trial because he had alleged that his procurement of a broker was reasonably worth $15,000. See also Redditt v. Horn, 361 Pa. 533, 64 A. 2d 809 (1949), where the Court dismissed preliminary objections because the plaintiff alleged that he had designed apartment buildings and supervised their construction but had not received any compensation because the oral contract was unenforceable.
In the instant case, appellant claims that “[w]hen the Company procured an additional six month audit for the Underwriters, the Underwriters did receive and accept a material benefit. . . . With the additional audit, the Underwriters had a more concrete basis with which to rate the probable success of a public issue of Company stock in the most current market conditions.” The allegation of material benefit, however, is completely disproved by the allegations forming the basis of the counterclaim. Appellant claims that the underwriters agreed
Appellant also contends that the oral contract alleged in its counterclaim is not barred by the statute of frauds because it is a contract of employment rather than a contract for the sale of securities: “. . . the Pennsylvania statute of frauds dealing with the sale of securities has been held inapplicable to contracts of employment. . . . It is Pennsylvania’s view that transfers of securities pursuant to an employment contract simply are not sales.” Hiller v. The Franklin Mint, Inc., 485 F. 2d 48, 51 (3d Cir. 1973). See also Baldassarre v. Rare Metals Derivatives, Inc., 444 Pa. 100, 282 A. 2d 262 (1971). Appellant’s conclusion is obviously a correct statement of the law of Pennsylvania. The difficulty with appellant’s argument, however, is that the facts alleged in the counterclaim simply cannot support the conclusion that the oral contract was one of employment.
In Hiller, the complaint alleged that the defendant-company orally agreed to pay plaintiff a “finder’s fee” if plaintiff were able to locate a source of additional funds for the company. The fee was alleged to be an option to purchase 5,000 shares of the company’s stock at $30 per share. Plaintiff did find a brokerage house willing to
Similarly, Baldassarre v. Rare Metals Derivatives, Inc., supra, provides no support for appellant’s argument. There, the complaint alleges that the defendant-company orally agreed to hire plaintiffs at a salary of $13,000 per year plus 5% of the company’s stock. The Court held that the complaint was not barred by the statute of frauds. Unlike the instant case, however, the plaintiffs in Bald-assarre were not required to make payment in order to receive the stock; according to the complaint, the transfer was viewed as pure compensation for services rendered. In the present case, the underwriters, according to the counterclaim, were required to tender payment of $3,-600,000 before they could receive the stock. This hardly amounts to an allegation of an employer-employee relationship.
Finally, appellant argues that because the Uniform Commercial Code does not define “sale of securities,” the definitions found in the Securities Act of 1933
Because appellant has failed to remove the oral contract from the purview of the statute of frauds, the lower court properly granted appellees’ preliminary objections and dismissed appellant’s counterclaim.
The order of the lower court is affirmed.
Jacobs, J., concurs in the result.
. Act of April 6, 1953, P.L. 3, §8-319, elf. July 1, 1954; reenacted October 2, 1959, P.L. 1023, §8, eff. Jan. 1, 1960; 12 A P.S. §8-319.
. Paragraph 3 provides that the Company will pay all expenses incurred in connection with the preparation and printing'of the registration statement and the prospectus, the underwriting
Paragraph 4 provides that the Company will reimburse the underwriters for the cost of complying with the securities laws of such states as the underwriters request, including legal fees. Further, Paragraph 4 provides that should the offering be abandoned, the Company will reimburse the underwriters for other fees of their counsel.
. See note 1, supra. Section 8-319 reads in relevant part: “A contract for the sale of securities is not enforceable by way of action or defense unless (a) there is some writing signed by the party against whom enforcement is sought . . . sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price . . .”
. Appellant contends that the statute of frauds is improperly raised by preliminary objections because §8-319 (d) provides that a contract for the sale of securities is enforceable if “the party against whom enforcement is sought admits in his pleadings, testimony or otherwise in court that a contract was made for sale of a stated quantity of described securities at a defined or stated price.” (Emphasis added). Appellant argues, therefore, that it is premature to dismiss its counterclaim prior to trial, because the underwriters may admit at a later stage that the oral contract actually existed. Although not stated in these terms, appellant is arguing that the underwriters erroneously invoked Rule 1017 (b) (4). Pa.R.C.P. Rule 1017(b) (4) states that “preliminary objections are available to any party and are limited to (4) a demurrer, which may include the bar of a nonwaivable statute of limitations or frauds which bars or destroys the right of action and the applicability of which appears on the face of the complaint or counterclaim . . .” (Emphasis added). The statute of limitations contained in §8-319 is waivable by virtue of subsection (d). There
The second argument which can be dealt with summarily is that the underwriters have waived the requirement of a writing because they fraudulently induced appellant to undergo the expense of an additional six-month audit. The lower court held that the record contained no evidence to support an allegation of fraud. Moreover, it is obvious that the crux of appellant’s counterclaim is the existence of an oral contract which was allegedly breached. The counterclaim clearly seeks damages for breach of contract, not for fraud. This claim is dismissed as without merit.
. Securities Act of 1933, May 27, 1933, c.38, Title I, §2, 48 Stat. 74; June 6, 1934, c. 404, Title II, §201, 48 Stat. 905; Aug. 10, 1954, c. 667, Title I, §§1-4, 68 Stat. 683; June 25, 1959, P.L. 86-70, §12(a), 73 Stat. 143; July 12, 1960, P.L. 86-624, §7(a), 74 Stat. 412; Dec. 14, 1970, P.L. 91-547, §27(a), 84 Stat. 1433.