266 F. 811 | 2d Cir. | 1920
(after stating the facts as above). The task presented by this appeal is to ascertain the relation of the parties to each other, and when the same was assumed; the law applicable to any relation compatible with the evidence is not doubtful. One kind of relation is fixed by the pleadings; and we agree with the trial court that plaintiffs, whether original or intervening, have not sued for damages caused by fraudulent representations, nor sought to rescind a contract. The “Syndicate agreement” is assumed or asserted to- be valid; plaintiffs intend to keep what they got under it, but that document made Megargel their trustee, who has, however, while otherwise executing his fiduciary duties, (1) deceived them in respect of the price to him of .the syndicate stock, and (2) made a secret profit out 'of such deception. Therefore the bill calls him to account for his stewardship.
“Syndicate” is also a word of business and not of legal art. It signifies an organization “formed for some temporary purpose” (Palmer, Private Companies and Syndicates), and came into English use contemporaneously with “promoter.” Mr. Palmer" points out that such unions for speculation were frequently registered under the Companies Act of 1862, without share capital, in order to limit liability. Of the use of the word, and of registration, Erlanger v. New Sombrero, etc., Co., L. R. 3 App. Cas. 1218, is a well-known and rather early instance.
The “temporary purpose” of this syndicate was that common at present and in the United States — to pool securities, under an agreement to fake them at a price, if the public could not be persuaded to relieve the joint adventurers by paying a higher price. Between a man who forms or “promotes” such a business venture, and one who gets shareholders for a new corporation by any of the means shown in a long line of reported cases, wc perceive no legal difference whatever, and indeed identity of function between a syndicate former and a company promoter has been assumed in the most recent decisions. Heckscher v. Edenborn, supra; Sim v. Edenborn, 242 U. S. 131, 37 Sup. Ct. 36, 61 L. Ed. 199.
[S] That defendant did not disclose is admitted, but we may go further and hold, without analyzing the agreement phrase by phrase, that the document contains an apparatus of words which diverts attention from the thought of vendor's profit, and creates by suggestion the belief, so far as this particular lot of 100,000 shares is concerned, that defendant was coming into the syndicate on an equality with all others, but hoped to make money by other purchases of stock. Such a document especially invites application of the rule that a writing is to be interpreted in the sense in which the maker knew or had reason to know if would be understood by the party to whom he tendered it. Ryan v. Ohmer, 244 Fed. 34, 156 C. C. A. 459; Moran v. Standard Oil Co., 211 N. Y. 196, 105 N. E. 217. Therefore we hold that defendant ex industria concealed his expected profit at a time — i. e., August 17, 1917 — when he asked to be the trustee for every party plaintiff in this action.
This is all true, not because the thing sold belonged to the promoter, but because such ownership stood the test of good faith. The time of acquisition has been considered; and in Highway, etc., Co. v. Ellis, 7 Ont. L. R. 504 (a case much pressed on us by defendant), the court declined -to hold a promoter because it had not been shown that “at or before” the date of purchase the promoter had invited the public to come in.
Time here, merely as time, is not of the essence, and we think it clearly shown that the object of the contract was to give a coating of legality to a preconceived intent (1) immediately to sell to the syndicate at a profit of 100 per cent., and (2) to conceal the profit from the syndicators. The profit plainly depended on successful concealment; the trusteeship was sought to get the profit. Under such facts, the whole transaction must be regarded as unitary, and defendant held as a fiduciary ab initio, because he agreed to take stock only to pass it along to himself as trustee. Since liability grows out of duties equitably imposed by a voluntarily assumed relation, it may be said generally that one who seeks or creates an agency or trusteeship or any fiduciary position, for the purpose and with the intent of secretly profiting therefrom, is not acting in good faith, and from the time he forms the intent occupies such a position “that any profits resulting
So far as it affects the present appellants, the decree appealed from is reversed, and the cause remanded for further proceedings not inconsistent with this opinion. Appellants are entitled to an accounting, upon which the defendant musí be surcharged with $3.50 in respect of each share accounted for.
The appealing plaintiffs and appealing interveners will each recover one bill of costs in this cour i,. No direction is given as to the costs of the District Court.