Schwartz v. United Merchants & Manufacturers, Inc.
72 F.2d 256
2d Cir.
1934
Check Treatment

SCHWARTZ v. UNITED MERCHANTS & MANUFACTURERS, Inc.

No. 437.

Circuit Court of Appeals, Second Circuit

July 9, 1934.

72 F.2d 256

tained and paid, by determining the value of the papers against which the lien extended, saying: “The sole question for determination is whether or not the books, records, documents, etc. upon which Mr. Davison has a lien have any value to the estate in bankruptcy.” These papers were surrendered to the appellee by virtue of the consent order above referred to which were turned over “without prejudice to the rights, claim and lien thereon” to the appellant. Had appellant insisted on the full measure of his rights, he need not have surrendered the papers until he was amply protected by bond or surety to the full amount of his lien.

;
;
. He could insist upon and, in fact he did receive, the court‘s protection to the same extent by consenting that an order be entered turning over the papers without prejudice, which means that, when the amount thereof was ascertained, it would be paid without further consideration. Since the amount is not now in question, the value of the papers to the estate would seem to be of no importance and is immaterial. When appellant released and surrendered the papers under these conditions and considerations, he rightfully could do so, accepting the protection contained in the terms of the consent order.

We defined an attorney‘s retaining lien in

. It was there stated: “The general lien for the balance of an entire amount extending to papers and documents of a client * * * depended wholly upon possession and gave the right to retain such papers until the bill was paid, where attorneys came into possession of the proceeds of the judgment lawfully in the course of professional employment. * * *”

In

it was said that “The leverage which the possession of the papers affords depends upon how embarrassing to the client the possession of them by the attorney is. If the client is given the right to inspect the papers or to compel their production while the lien continues, it certainly impairs the value of the lien, as it diminishes the embarrassment caused by the attorney‘s retention of them, and might make them valueless to the attorney, and the lien nugatory.”

But the order below must be affirmed, for we are unable to direct the lower court to order payment of this lien, for the order appealed from respecting the lien is interlocutory. We rule that part of the order disallowing the expert witness’ fees as costs be affirmed.

Complaint is made of the failure to charge the cost of stenographic minutes to the appellees. This also seems to have been held for further consideration by the court below, for no order is made in reference thereto. The matter of interest on the amount of the lien also complained of has likewise been reserved by the court below until the further consideration of the motion to confirm upon the incoming of the referee‘s report.

Order affirmed.

SWAN, Circuit Judge.

As to so much of the order as is interlocutory, the appeal should be dismissed. I concur as to affirmance of so much of the order as disallowed the expert‘s fee as costs.

MANTON, Circuit Judge, dissenting.

Sutta & Frankel, of New York City (Emil Weitzner, of New York City, of counsel), for appellant.

Thornton Alexander, of Boston, Mass. (James H. Halpin and Kenneth M. Spence, both of New York City, of counsel), for appellee.

Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Circuit Judge.

The action was for breach by the defendant, a corporation, of a contract between itself and the plaintiff. The defendant held a majority of the shares of two other companies, the Ashland Corporation and the United Rayon Mills, and apparently controlled their affairs; they were textile mills, the defendant was a holding company. The plaintiff had been made the selling agent of the Ashland Corporation, discharging his duties through a company called the Cayuga Silk Corporation which he had organized with one, Holden. The defendant‘s president, Loring, and its vice-president, Jewett, thought it would be advantageous to substitute another contract in the place of this, and long negotiations went on between them and their lawyer, Alexander, on the one hand, and the plaintiff and his lawyer, Frankel, on the other. Various drafts of a proposed contract were submitted and amended, but finally a form was agreed upon which the plaintiff signed and caused to be transmitted to Loring. As the case comes up, we may assume arguendo that Loring also signed it, and told the plaintiff that he could pick it up at any time when he called at Loring‘s office. A draft of it was in evidence, and as the case turns upon it, we must state it with a little detail. The parties agree to form a company with a capital of $5,000 of which the plaintiff is to contribute $2,250 and the defendant $2,750; this company is to issue 100 non-par shares, of which the defendant is to receive 65 (Class A), and the plaintiff 45 (Class B); each class to elect two directors. The defendant “agrees and warrants that it will cause the Ashland Corporation to enter into an agreement” by which the new corporation shall become for two years the exclusive selling agent for the Ashland company and for that part of the product of the Rayon Mill which is sold exclusively by the Ashland company. Commissions are fixed on the sales, and the new corporation‘s operating expenses are in any case to be guaranteed by the Ashland company. In addition the Ashland company is to pay a graduated percentage of the joint profits of itself and the Rayon company; 25% of the first $100,000, 30% of the next $50,000, 35% of the second $50,000, and 40% of all profits above $200,000. The defendant warrants that such an agreement has been approved by the directors of the Ashland company, and that its president is authorized to make such a contract. The defendant agrees to vote its A shares in the new company to give the plaintiff a salary of $38,000 for two years, and to elect him president; it guarantees the performance of this contract of employment; the new company is to take over a lease of one of the plaintiff‘s companies and its fixtures at their book value. The defendant repudiated the transaction, insisting that it had not made any contract, and the plaintiff sued. He alleged that Loring‘s admissions to him established the execution and delivery; that, as president, Loring had prima facie authority to make such a contract; and that if there were no written contract, there was an equivalent oral one. The defendant denied each of these positions and in addition alleged that the contract if ever made, had been rescinded. At the close of the plaintiff‘s case the judge dismissed the complaint and this appeal followed.

There is no evidence of any sort that the directors of the defendant had ever heard of Loring‘s and Jewett‘s negotiations with the plaintiff; certainly none that they knew that he meant to close on anything like the written draft upon which the plaintiff relies. Such a contract was by no means matter of course in any business, even assuming that the employment of an exclusive selling agent for a textile mill is a routine affair; itself a hardy assumption, for which there is not the least evidence in the record. Indeed this was not even a contract by a mill to employ its own exclusive selling agent; the defendant, by virtue of its holdings in two subsidiaries proposed to impose a selling agent upon them. It is true that the contract recites that the directors of the Ashland company have already so resolved, and this is an admission against the defendant, if we suppose the contract to have been signed and delivered; but nothing of the sort appears as to the Rayon Mill. The exceptional character of this contract did not however stop there; for the defendant reserved more than half the profits of the agency to itself. Though a majority shareholder in the new company it was to contribute nothing to the services, so far as appears, but a trifling capital and a guarantee of the salary to the real selling agent, the plaintiff. For this it might get more than fifteen per cent. of the earnings of the subsidiaries. We need not hold that this made it inevitably unlawful without the assent of the subsidiaries’ minority shareholders; but certainly it was not a customary or usual transaction, even if the employment of an exclusive selling agent is such, or the employment of a selling agent for a subsidiary.

The law as to the prima facie authority of a president or other general officer of a corporation is not very clear. Unquestionably there has been a tendency of late to imply greater authority and to throw upon the corporation the duty of showing that in fact the directors have not authorized the particular powers exercised. The Court of Appeals of New York has indeed twice said without limitation that a president presumptively has any powers which the directors have authority to give him or could ratify,

;
; though the decisions cited do not support so far reaching a doctrine. In
, it appeared that the president had full charge of the business and the case really does not stand for the rule. In
, our decision was to the contrary; but in
, we accepted the presumption without limitation, though it appears from the later report of the same case
, that it was unnecessary to the decision. How far it was part of our ruling in
, is not clear. In the last three cases we were professing to follow New York law, and the Court of Appeals has more recently twice expressly decided that there were limitations on the doctrine.
;
, affirmed on opinion below,
. How far a similar ruling was involved in
;
, and in
;
, it is impossible to say, for the Court of Appeals did not write; but at least the opinions below assumed that not all contracts which the directors may authorize are presumptively within the president‘s authority. In
, although
, was quoted, the presumption was limited to “such ordinary contracts as custom and the necessities of business would justify or require.” The contract there at bar was not an unusual one; nor was that before the court in
, where the intimation was not justified that Pound, J., had intended in
, to adopt the unlimited form. The citation of
, in
, shows that the president‘s authority does not in this regard differ from that of any other officer.

We conclude therefore that there is no absolute rule in New York that any contract which the president of a company may make, however out of the ordinary, throws upon the company the duty of showing that he was unauthorized. It is true that whatever powers are usual in the business may be assumed to have been granted; but the presumption stops there, as much in the case of a president as of any other officer, though naturally in degree they may greatly differ. If so, it seems to us apparent that if any contract needed the express authority of the directors it was this. Not only did it commit the subsidiaries to an exclusive selling agent of the holding company‘s choosing for two years, a thing most vital to their welfare; but on its face it was a violation of the defendant‘s obligation to the minority shareholders of those companies, whose earnings were to be diverted to the defendant upon an insufficient consideration.

;
;
. Surely it would be a curious doctrine which assumed without evidence that a president might bind his cor- poration to such a questionable undertaking, which might involve it in litigation, if indeed it was valid at all. No desire to free plaintiffs from being obliged to fish in their enemies’ water ought so far to fly in the face of probability; nothing could justify such a procedure except the express shifting of the duty of going forward upon the party holding the negative.

Judgment affirmed.

MANTON, Circuit Judge, dissents in separate opinion.

MANTON, Circuit Judge (dissenting).

On the statement of facts recited in Judge HAND‘S opinion, a jury question was presented as to whether a contract was made and whether or no there was a breach of such contract. Such a contract, made as stated, presumptively had the authority of its maker, the corporation appellee.

;
. When the case of
was before us on the second appeal
we said:

“This brings us to the question of Robertson‘s authority to sign the letter of August 31, 1916. Klingelsmith, the vice president, after a conversation with Green on the subject, sent him up to Robertson‘s office on the same day with the draft lease ‘to fix the matter up.’ At least so Green testified; Klingelsmith merely saying that he had referred the matter to Robertson. Klingelsmith had certainly charge of the whole negotiation, and Henry Ford, the president, and Edsell Ford, the secretary, were also conversant with it. This established a prima facie authority in the managing officers to authorize Robertson to do what he did.”

The facts there are very much like those at bar. There was nothing ultra vires in the action of the appellee in making the contract. The contract warranted that the agreement had been approved by the directors of the Ashland Corporation and that its president was authorized to make such a contract. The contract was beneficial to the appellee corporation and was made by the president within the apparent scope of his authority.

;
. If the jury found the contract existed and was breached, there should be a recovery.

I dissent.