87 N.Y.S. 285 | N.Y. App. Div. | 1904
Lead Opinion
There was a former appeal in this case from an interlocutory judgment entered therein in favor of the plaintiff and against the defendants, and lipón such appeal the judgment was reversed (78 App. Div. 151). In the "opinion there written the substance of the pleadings forming the issue between the parties was stated, and also the principal contracts relied upon by the parties were set out in full in their pleadings, and considered by the court in making disposition of the appeal. It is not necessary, therefore, that the issues be stated herein in detail, or that the contracts be again set out in full. The issues upon the trial, save in one respect Avhicli is not controlling in the disposition of this appeal, are the same as they were before. The contracts relied upon which determine the ■rights of the parties are the same, and Ave have noAV to consider whether the construction placed upon the principal contract by the learned court below is correct, and whether the effect given to the •¡testimony nan be sustained. In this view, it becomes necessary to call attention to the exact relations which existed between the plaintiff and the defendants at the time of the inception of the enterprise, resulting in the claims that are made in this action.
At the instance and request of the defendants, the plaintiff procured options on 10,100 shares of stock, being a controlling interest in the G-oodson Type Casting and Setting" Machine (Company, a corporation organized under the laws of the State of Minnesota. When the plaintiff entered upon the business of procuring options upon this stock, it was Avitli the understanding between himself and the defendants that he was to give his services in connection therewith free of charge, and the defendants were to furnish the money to pay for the stock 'when the options should be" obtained. This agreement was oral, Avas carried out, the plaintiff obtained the options, and the defendants paid therefor at the rate of ten and eleven dollars a share for the stock so obtained. In February, 1899,
“ 10,100 shares in the pool. 5,100 H. & G-. 5,000 250 Chas. L. Spier. 4,750 at 22 1/2—about $106,875. O'; K. H. O. K. S.
“ H. & G, receive $106,000.
“ Spier receives 250 shares of stock in the pool.
“How, if we sell the stock above 22 L/2, Hr. Spier will be entitled to receive the difference between 22 1/2 and 27, to be taken in stock at 22 1/2 per share. If we sell at over 27, then profits to be equally divided between Garrison, Spier & Hyde.”
This conversation and the preparation of this writing by the defendant Hyde are undisputed. It is to be observed that by the provisions of this writing the 10,100 shares of stock were to be pooled, and of these shares in the pool the plaintiff’s interest was 250 shares. The unit of value for this stock was fixed at twenty-two dollars and fifty cents per share, which sum was first to be accounted for to the pool. If the pool stock upon a sale sold for twenty-seven dollars, then the plaintiff was entitled to receive the difference between such sums upon his shares'. If the stock sold above twenty-seven dollars, then the .profits upon the whole were to be equally divided between the plaintiff and the defendants. It is evident from this arrangement that Spier’s direct interest in the pool at that time was in the 250 shares of stock, coupled with a contingent interest in the whole; the defendants’ interest was in the remainder, subject to plaintiff’s contingent interest. Under this arrangement, therefore, the plaintiff’s interest was in a specified number of shares of stock. He owned those shares for the services which he rendered, and the defendants owned the remaining shares of the pool stock for the money which they advanced or which was
Whether it became a technical partnership as a matter of law, or whether it constituted a mere joint venture is not of consequence. The respective interests were settled. Such interests were placed in a common pool} to be’used and disposed of for the benefit of all, and the legal rules applying to such an agreement are precisely the same as are those which apply to a partnership in technical sense, and rights are to be enforced upon the same principles. (King v. Barnes, 109 N. Y. 267; Marston v. Gould, 69 id. 220.) Such relation is fiduciary in character, and the most scrupulous good faith in dealing is required at the hands of the party who has been invested with the power to deal with the property, and in equity he may be called upon to account for the property so held. He .becomes.a trustee for his associates in interest, is their agent in the transaction and is not only bound to account for the property and
In process of development it was concluded by the parties that the 10,100 shares of stock could be used to better advantage by the formation of a new corporation, which should enter into a contract with the Minnesota corporation and take over, so far as possible, its stock and holdings. The capital stock of the Minnesota corporation was 20,000 shares. The 10,100 shares, upon which the plaintiff held options, were, therefore, the controlling interest. The defendants, however, after the agreement heretofore mentioned, did not own a controlling interest of such corporation. Plaintiff’s holding was absolutely' essential to the carrying out of the scheme to form a new corporation, which they would be able to control in its creation, and in dealing with the Minnesota corporation, and thereby be enabled to dictate the terms upon which such corporation should be formed, so far as the statute of the State of Hew Jersey permitted. It is, therefore, plain that the plaintiff was an essential factor in the success of such scheme, and the'shares allotted to him were necessary to go into the common pool in order to make it a success. The defendants recognized this condition, and, therefore, made the proposition to the plaintiff, contained in the letter,, called the contract of March 27,1899. This contract superseded the prior arrangement in February, and, undoubtedly, whatever rights the plaintiff now has, which may be enforced by action, are to be determined by a construction of this contract. The contract itself, how
It must be borne in mind, in considering the contract, that plaintiff was the owner of 250 shares of stock, and that he had. a contingent interest in the remainder of the shares owned by the defendants. This interest made him a necessary party to the reorganization, and it was so recognized by the defendant Hyde, for ■ after reciting an intention, if the patents proved satisfactory, to form a corporation, he states: “We should like to have your assistance.” And again: “ If you join us ” a provision would be made \for profits. It cannot be questioned but that this contract provides for the placing of the 10,100 shares of stock then owned by the pool. The agreement so recites, and that such stock was to be charged for at the rate of twenty-two dollars and seventy-five cents per share, which was an advance of twenty-five cents a share over the agreement made in February. It then expressed the hope to have the stock underwritten or sold, and, if such expectation were realized,1 to reserve a part of the money from such source as working capital and to defray expenses. If the plaintiff joined in this proposal the contract provided that the profits upon the 10,100 shares, if pooled, would be estimated as the net sum realized upon the sale of the stock, after deducting the twenty-two dollars and seventy-five cents per share and expenses, and “ after deducting further whatever sum of money those depositing stock in the pool may desire to reserve,”
It does not follow from this view, however, that the plaintiff is necessarily entitled to the judgment which has been rendered. It is conceded that on May eighth, after the contract between Talbot J. Taylor & Co.
It is said, however, that the representations, even if made by the defendant Hyde, were of future expectations and not of present facts, and that in any event the representations as to the value of the pooled interests were mere matter of opinion and could not by any possibility have been ascertained. The Taylor contract was a fact presently existing. The terms and provisions of that contract were the basis in respect of which the defendants were dealing. Each of them knew that if this contract was fulfilled approximately what they would obtain. It provided in express terms for the capital stock of the corporation, its issuance to the defendant Hyde what should be set apart for working capital and how it should be provided. The number of shares of stock was known, and the parties were adjusting their relation and rights in respect of its existence. It was quite true that the corporation had not been formed, and also true that the contract with Taylor & Co. was conditional, but the contract with the plaintiff was based upon the conditions which appeared in the Taylor contract, and those conditions were known and their future fulfillment was not a matter to which the representations related. For if the existing contract was not
The-judgment should, therefore, be modified asr expressed in this opinion, and as modified affirmed; no costs of this.appeal allowed to either party.
O’Beien and McLaughlin, JJ., concurred;. Yan Beunt, P. J\, concurred in result; Ingeaham, J., dissented.
The substance of this contract is set out in the dissenting opinion of Ingraham, J., post, page 483.— [Rep.
Dissenting Opinion
(dissenting)":
I do not concur in the affirmance - of this judgment I. do not consider it at all necessary to determine the relation that" existed between the parties- to this action prior to the execution of the agreement of March twenty-seventh, but as. I understand it, under the prior agreement, if-: the stock in the pool was divided, the defendants were to receive 5,100 shares, the plaintiff- 250 shares, and the balance of the stock in the pool-was to be sold, the defendants-to receive from the proceeds of that, stock one hundred and six thousand dollars.- If the-4,750 shares of stock sold above' twenty-two dollars and=fifty cents-per share, the plaintiff was to receive, the difference between twenty-two dollars and fifty cents and twenty-seven dollarsin stock at twenty-two dollars and-fifty cents -per share. If the stock sold for more than twenty-seven dollars a. share, the amount realized over twenty-two dollars and fifty cents per share was to be divided between Garrison, Spier and Hyde. As I look at it, there was no partnership or joint adventure by which the defendants became trustees for1 tile plaintiff. The plaintiff never became the owner of any stock. He had an agreement with the defendants by which he was: to receive 250 shares of stock in the event that the arrangement was carried out, and a certain further sum in the event that' profits were realized, as compensation for the services that he had rendered, in relation to the transaction. The complaint alleges that prior to the execution of the agreement of' February 24, 1899, Hyde had purchased 10,100 shares of stock of the Goodson Type
By the contract of March twenty-seventh an entirely different disposition of this stock was contemplated, which was inconsistent with the arrangement of February twenty-fourth and which abrogated that agreement. The agreement of March twénty-seventh, instead of a sale of this stock, provided for the organization of a new company, and that the 10.,100 shares of stock of the Type Casting and Setting Company then owned by Hyde were to be exchanged for an equal number of shares of stock in the new sompany. There was thus to be substituted in the possession of Hyde 10,100 shares of stock of the new company in place of stock of the old company that Hyde then owned; and the plaintiff necessarily^ by joining in this understanding, relinquished all right that he had in profits that might be realized from the sale of the old company’s stock. His right was limited by the. agreement that he then made with Hyde. The new agreement provided that Hyde, expected to place the 10,100 shares, of stock of the new company in a pool, the stock to be charged to the pool at the rate of twenty-two dollars and seventy-five cents per share, and that he expected to have this stock underwritten or sold; that á part of the ' money to be realized on that sale was to be paid to the company to
Now it seems, to me that this arrangement was entirely clear. Hyde and his associates had purchased the 10,100 shares of stock, paying therefor $106,000. They were to transfer that stock to the new company, and were to receive from the new company an equal number of shares of its capital stock. These 10,100 shares of the stock of the new company were to be placed in a pool and, when sold, from the proceeds Hyde was to receive an amount equal to $22.75 per share for the 10,100 shares. There was also to be deducted from the amount realized upon the sale of the stock the expenses and such a sum as should be paid to the company for its working capital, and the balance was to be considered as the profits in which the plaintiff was entitled to share. It was then provided that, as a consideration for the services rendered by the plaintiff, Hyde would be willing to “ set aside for your benefit as full compensation for your services 15% of whatever net profits estimated on the above basis may be found to have been realized from the sale of the pooled stock after the entire 10,100 shares have been pooled and sold; ” and “ it is understood, however, that this 15% interest relates only and applies solely to the 10,100 shares of stock of the new company and to the net profits, if any, to be derived from the sale thereof on the basis as above stated.”
By this agreement the plaintiff was limited to the fifteen per cent of the net profits upon the 10,100 shares of stock of the new company to be issued in exchange for old stock owned by Hyde. To this the plaintiff agreed, and it is this agreement that plaintiff asks to enforce. Hyde proceeded to carry out this arrangement, and negotiations were commenced with a firm of bankers for a sale of the stock of the new company when organized. Those negotiations finally resulted in a contract between Hyde and the bankers, Talbot J. Taylor & Co. That agreement recites that Hyde and his
It does not seem to be disputed that if the -new agreement of May 8, 1899, is binding upon the plaintiff, this action cannot be maintained, and the right of the plaintiff to require all accounting from Hyde under the original agreement of March twenty-seventh depends upon whether or not the agreement of May eighth was properly abrogated. The defendant Hyde, who was corroborated by the defendant Harrison, denied having made the representations claimed by the plaintiff; but the court having found that such representations were made, we must assume that Hyde did make the representations testified to by the plaintiff; and the question first presented is whether those representations were proved to be false so that a contract based upon them was fraudulent as against the plaintiff.
To determine whether or not those representations were false, it is necessary to determine just what interest the plaintiff had at the time of his interview with Hyde which resulted in this agreement of May eighth. By the contract with Taylor & Co., Hyde was to get for the 10,100 shares of stock of the old company and the payment to the new company of $374,000 in cash, 10,100 shares of preferred stock and 10,100 shares of common stock in the new company. This sum of money, I assume, would be the working capital which, under the letter of March twenty-seventh, was t"o be paid to the new company and deducted from the proceeds of the sale of the stock of the new company which was to be issued to Hyde in lieu of the 10,100 shares of stock of the old company. The agreement with Taylor ■& Oo. was not absolute, but depended entirely upon an examination of the patents and machinery proving satisfactory to Taylor & Oo. Hyde was entitled to receive for the stock of the old company $22.75 per share, amounting to $229,725. He was required to pay in cash to the new company $374,000. Taylor & Go. had agreed to pay for 20,000 shares of stock (10,000 of preferred, 10,000 of common), if things were satisfactory, $750,000 on or before November 1, 1899. Hyde had agreed to purchase the remaining stock in the old company, for which he was to receive stock in the new company at the rate of one share of preferred and
• It is clear that under this agreement there could be no profits ascertained until the expiration of the year from the date of the Taylor agreement. "Whether there would be any profit at all. depended, first, upon whether or not Taylor & Co. would carry out their contract which was contingent upon the patents and machinery, being satisfactory to them, and then upon the price at which the stock that Hyde retained could be sold after the expiration of the ■ year, so that at the time of the conversation between Hyde and the plaintiff there were no profits upon the undertaking to which the plaintiff was entitled. The new company was not then organized, as the date of its organization was May 31, 1899. The plaintiff testified that at that time he knew that Hyde was ■ negotiating with Taylor & Co. for the sale of some of the stock of the new company, such negotiations having been discussed between the plaintiff and Hyde in a general way, and the plaintiff knew that representatives of Taylor & Co. were frequently at the office of the company, and the plaintiff familiarized himself, so far as he could, with what was ■going on between them and Hyde. The plaintiff also' knew that Hyde had employed Mr. E. H. Dickerson, a patent attorney, and had made an agreement with him by which, for services rendered, Dickerson was to have twenty per cent of the net profits of the transaction and knew that the new company had not been formed. The plaintiff, with this knowledge, after the -agreement with Taylor & Co. had been executed,- saw Hyde, and the plaintiff testified that Hyde said to him, “ How, Spier, T want you to accept ten per cent instead of fifteen.” This the plaintiff objected to,- when some discussion followed, and Hyde then said, “Well, the profits of the pool are only about 2,475 shares and your percentage of that would be about 361vand a fraction,” and then Hyde offered the plaintiff 375 shares, which the plaintiff accepted on Hyde’s representation that the profits of the pool were only about 2,475 shares. Spier also testified that Hyde said that Taylor & Co. had made other exactions in regard to the shares, of stock that they were to purchase, and that this was the basis for the statement that the pool profits would be 2,475 shares of the stock.
It-is -clear to me that, accepting this whole -conversation as -testified to by the plaintiff as true, there is no representation made as to the existence of profits, but -a mere- statement -of what it was contemplated would be the profits, if the agreement with Taylor •& Co. was carried out, -and that the plaintiff could have understood nothing else from -the statement that was made by Hyde. But i-f it be assumed -that Hyde did state that the profits of the pool at that time were only about 2,áfo shares there is no - evidence that 'this .statement was false. It-is -clear that it was here intended -that the profits would be S,4/£5 -shares of the. preferred and :2,á75--of ¡the common stock, of -which plaintiff would be entitled to Í50 shares of -each. What Hyde was to receive from -the transaction of the Id,1-0.0 ¡shares of stock of the told company and what, as I understand, he did
Judgment modified as directed in opinion, and as modified affirmed, without costs of appeal.