112 Misc. 717 | N.Y. Sup. Ct. | 1918
The purpose of this action is to procure an adjudication that a certain contract made by the defendants on July 16, 1906, to purchase all the right, title and interest of one James P= McQuaide in 1,250 shares of stock of the National Conduit and Cable Company, although in form for the sole benefit of the defendants, was in reality for the joint benefit of the
For a considerable number of years prior to April 1,1903, the plaintiff and the defendants and one James P. McQuaide were the owners of the entire capital stock of the National Conduit and Cable Company, a domestic corporation. The capital stock of said corporation was divided into 5,000 shares of the par value of $100 each, and each of the parties above named owned one-fourth of such capital stock, or 1,250 shares.
On April 1, 1903, McQuaide, who was at that time receiving a salary of $10,000 a year as treasurer of the corporation, finding himself in financial difficulties, entered into a trust agreement in writing with the defendant Perot, whereby he transferred to said defendant as trustee his 1,250 shares of stock in the corporation, and the right to receive the dividends thereon, and whereby Perot, as trustee, agreed to pay certain debts of McQuaide aggregating $26,173.15, and to pay to McQuaide’s'wife for the benefit of herself and children the sum of $6,400 per annum, and to pay the balance of the dividends on the stock, if any, to McQuaide or his appointees. About the same time, McQuaide was compelled to resign his position as treasurer of the company, but continued to draw his salary until July, 1906.
On July 16, 1906, McQuaide entered into a further agreement in writing with the defendants, whereby he agreed to sell to the defendants the 1,250 shares of stock above mentioned, subject to the trust theretofore created in favor of his wife and children, upon condition that said defendants pay certain of his debts aggregating $26,171.14, and pay him the sum of $10,000 per year, in equal monthly installments, for a period of five years from the date, of the agreement, and also pay $250,000 in cash on July 16, 1911. At
At the date of the original trust agreement of 1903, McQuaide executed a formal transfer of his 1,250 shares of stock, to the defendant Perot, and at the same time a new certificate for said shares of stock was issued to Perot as trustee, and Perot continued to hold the legal title to said shares as trustee after the agreement of July 16, 1906, and until April 16, 1917. On the date last mentioned all the stock of the corporation, together with the stock of certain subsidiary corporations owned by the plaintiff and the defendants was sold and transferred to one Hugh K. Pritchett for the sum of $8,000,000 in cash.
McQuaide died some time in the year 1916, the exact date not appearing from the evidence. The final payments under the contract for purchase of the stock were made out of the proceeds of the sale to Pritchett.
Notwithstanding the fact that the written agreement of July 16, 1906, provided on its face for a sale of the McQuaide stock to the defendants Perot and
In support of his contention that there was an agreement between himself and the defendants that the McQuaide stock should be purchased for their joint benefit the plaintiff testified in regard to a conversation which he claims he had with the defendant Jackson in the company’s office, just before July, 1906, as follows : "I came in one day, and Mr. Jackson told me that Mr. McQuaide was down in the street trying to sell his stock. And he said, ‘ Don’t you think the Company better purchase it? ’ ‘ Well,’ I said, ‘ I suppose so; I don’t know.’ Then he says1, ‘ You know we don’t want any outsiders coming in.’ He said, ' I think it would be a good thing for the Company to purchase it.’ I said, 'All right.’ ” He also testified that three or four days later Jackson came in again and said that the company had purchased McQuaide’s stock for $250,000, and the payment of McQuaide’s debts and $10,000 cash, and that he replied "All right.” The plaintiff’s testimony as to these conversations is contradicted by the defendants, who deny absolutely that any such conversations ever took place, but a careful consideration of all the evidence in the case,
The defendants attempt to explain the payment of $833.33 per month or $10,000 a year to Perot as trustee in several different ways. Their first explanation has reference to certain resolutions alleged to have been adopted by stockholders and directors of the company at a meeting held on March 11, 1907. The resolution alleged to have been adopted by the stockholders on that date, together with the preamble thereto, reads as follows: “ The Secretary announced that all the right, title and interest of James P. McQuaide in and to twelve hundred fifty (1250) shares of capital stock of the Company had been sold, transferred and conveyed to Edward S. Perot and George J. Jackson; and it was further announced that one of the objects of this purchase was directly to benefit the Company by securing the payment of many of Mr. McQuaide’s obligations, and having it generally understood that he was in no way any longer connected with the Company, and it having been the policy of the Company at various times in the past to pay the owner of the said shares Ten thousand ($10,000) dollars per year as salary, on motion, duly made and seconded, it was unanimously resolved that the Board of Directors of the Company be and they hereby are authorized to pay to Edward S. Perot and George J. Jackson, the present owners of the stock formerly owned by James P. McQuaide, each the sum of $5,000 annually.” The resolution alleged to have been adopted by the directors on the same date reads as follows: “ Resolved that the Company pay to Edward S. Perot and George J. Jackson, as purchasers of the stock of the Company, formerly owned by James P. McQuaide Five thousand ($5,000) dollars each annually in accordance with the resolu
It will be observed that the preamble to the first resolution states that one of the objects of the purchase of the McQuaide stock was directly to benefit the company by securing the payment of many of McQuaide 7s obligations and having it generally understood that he was no longer connected with the company. At the same time when the agreement to purchase was made, McQuaide was indebted to the company in the sum of $19,838.25, as shown by the schedule of his debts annexed to the agreement, while his total indebtedness to other creditors amounted to about $6,300. I do not see how the payment of McQuaide’s debts could be said to benefit the corporation if the corporation itself was to be required to pay them, without receiving anything in return. Neither can I understand how a private contract for the sale of McQuaide’s stock to the defendants could have any effect on the general or public understanding regarding McQuaide’s connection with the company. Finally it should be borne in mind that while McQuaide’s total indebtedness was only about $26,000, the resolutions provided for the payment by the corporation of the sum of $10,000 a year for an indefinite period, and the payments actually made to Perot as trustee continued for more than ten years and aggregated over $100,000. For reasons hereinafter stated, I have concluded that the plaintiff never consented to these alleged resolutions in the form in which they now appear in the minute book of the corporation, but whether he so consented or not, it is at least clear that the resolutions themselves afford no adequate explanation of the payments which were made to Perot as trustee, and which he in turn applied to the purchase of the stock.
Another explanation offered by the defendants is that after McQuaide’s retirement as treasurer of the company the performance of his duties as treasurer
Upon consideration of all of the evidence in the case I have concluded that the real situation in regard to the purchase of the McQuaide stock was as follows: At the time when the agreement for the purchase of the stock was being negotiated between McQuaide and the defendants, the latter realized that the annual dividend on the stock, amounting to $15,000, would not be sufficient to finance the purchase, and that it would be necessary to resort, for the purpose, to the salary of $10,000 a year which the corporation had theretofore been paying to McQuaide. To secure the plain
The defendants may have felt, with some reason, that the success of the corporation was due more to their efforts than to the efforts of the plaintiff, and may have believed that by reason of this fact they were entitled to all of the profits arising from the purchase of the McQuaide stock. Their belief in that regard, however, cannot alter the legal situation arising from the appropriation of the corporate funds to such purchase. Inasmuch as they represented to the plaintiff that the stock was to be purchased for the joint benefit of all, and as the purchase was in fact so largely financed by the corporation, I conclude that the only way in which justice can be arrived at between the parties is by rendering an interlocutory judgment in favor of the plaintiff for an accounting. On such accounting the exact amount contributed by the defendants to the purchase of the stock can be determined, and they will, of course, be entitled to credit for that amount. Further proof can also be taken as to whether the Hastings Home Company and the National Brass and Copper Tube Company had such independent existence as to justify any division or apportionment of the amount paid by Pritchett for the stock of those corporations and the National Conduit and Cable Company, a point which is not entirely clear upon the present evidence.
Ordered accordingly.