Case ID: ny-st-rep_27/html/0659-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Vann, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Theodore Berdell et al., Resp’ts and App’lts, v. Harry Allen et al., App’lts and Resp’ts.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed November 26, 1889.)
    
    Contract—Construction of—Account stated—Mat be vacated for fraud—“ Profits.”
    Defendants, a firm of brokers, became agents for the sale of certain stock owned by plaintiffs, and among other things were to divide equally all “profits” on sales above five dollars a share, and by a subsequent agreement were to deduct all expenses and commissions. They employed Reynolds to sell stock in England, which he did through one Abbott. Held, that the contract was one of agency only; that Reynolds was agent of defendant; that his compensation was not an expense, but all that was paid to Abbott should be allowed to defendants as expenses before dividing the net receipts with plaintiffs.
    Gross-appeals from a judgment of the general term of the superior court of the city of New York, modifying, and affirming as modified, a final judgment entered upon the report of a referee pursuant to an interlocutory judgment entered upon the decision of the court at special term.
    This action was brought to set aside an agreement stating and settling certain accounts between the parties, upon the ground of fraud alleged to have been practiced by the defendants, and to restate such account.
    The trial court found that on the 3rd of October, 1881, the plaintiffs, who then owned 105,700 shares of the capital stock of the La Plata Mining & Smelting Company, entered into a written agreement with the defendants, who were co-partners, doing business as bankers and brokers in the city of New York, whereby they agreed to give them “ a call,” or option on said-shares at five dollars per share, 15,000 shares to be called by December 10, 1881; 10,000 by January 10; 10,000 by February 10 ; 30,000 by March 10, and the balance by June 10, 1882.
    It was further provided that in case either of the calls should not be made, all net sales by the defendants, who- owned some shares themselves, should “be for pool account, that to say, eighty-five per cent, for account of” plaintiffs, “ and fifteen per cent, for account of” defendants, who were to divide equally with the plaintiffs all profits received on sales above five dollars per share. The defendants agreed to act as agents for the sale of the shares, to use their best efforts to place them and to bear all of the expenses incidental thereto. The rest of the agreement was in these words: “ The all profits mentioned above are considered to mean the net proceeds received by Allen and Stead over and above five dollars per share, from the amount of money actually received by ” them. Shortly after this contract was made the defendants agreed in writing with one Beynolds to give him one-half of their interest therein, and that all profits derived either directly or indirectly therefrom should be divided in equal proportions between him and them. Reynolds agreed to go to England and devote his time to placing the shares and to make no contract to sell without the consent of the defendants, whom he was to keep constantly informed as to all negotiations. On the 19th of November, 1881, said contract of October 3d was amended so as to provide “that in consideration of defendants agreeing to take 15,000 firm,” that is to buy them outright, payable with their notes at sixty days, they should “ have the option of calling 20,000 shares additional on or before February 19, 1882, at $5.50 per share, and 20,000 shares additional on or before March 19, 1882, at six dollars per share, and all the balance of the shares to be called in accordance with the said contract of October 3d, 1881.” It also provided that “ the division of profits between the parties on the balance of shares should ” be on the basis of the average price of all the sales made. By this re-arrangement 55,000 shares were placed at a, fixed price, and the plaintiffs had no interests in the profits that might be made upon a resale thereof, leaving 50,700 shares to be sold in which they were interested in the profits. The amended contract also provided that the defendants should not sell any of their own stock before March 16, 1882, unless 55,000 shares should have been called before that time.
    On the 6th of December, 1881, said Reynolds entered into an agreement with one Abbott, of London, witnessed by two separate instruments, each dated that day, by one of which it was provided that Abbott should purchase 15,000 shares of the stock at one pound fifteen shillings per share, and should be entitled, without being bound, to purchase 20,000 shares by February 16, at one pound ten shillings per share; 30,000 by March 16, at one pound eighteen shillings; 20,000 by April 16; 20,000 by May 16, and the remaining 15,000 by June 16, 1882, at the price last named. The second part of the agreement provided that the net profits, if any 'realized upon the shares purchased pursuant to the first part, after the payment of all expenses, should be divided between Abbott and Reynolds in the proportion of three-fourths to the former and one-fourth to the latter. The terms of this agreement were at once communicated by Mr. Reynolds to the defendants, who approved of the same and adopted it as made for themselves and Eeynolds under the agreement between them. Before any sales were made the plaintiffs deposited their stock with the London agency of a Birmingham bank, with directions to deliver to the defendants upon payment of twenty-one shillings per share, except that as to one block of 20,000 shares, delivery was to be made upon payment of twenty-three shillings, and as to another block of like number, upon the payment of twenty-five shillings per share. Said amounts in shillings, English money, were fixed upon as convenient and approximate substitutes for for said sums of five dollars, five dollars and fifty cents and six dollars mentioned in the agreement of November 19, 1881.
    Between November 22, 1881, and March 1, 1882, said Abbott sold 35,000 shares and paid to said Reynolds the proceeds, with certain dividends added, and with certain expenses deducted. This block of 35,000 shares consisted of 15,000 purchased by defendants pursuant to the agreement of November 19, and paid for by their notes at five dollars per share, and of 20,000 purchased by defendants prior to the sale thereof by Abbott, at $5.50 per share. The payments for all sales to the arbitrary amounts named were made to said banicing agency, except that payment was made directly to the plaintiffs for the 15,000 shares last mentioned.
    March 9, 1882, the agreement between the parties was further modified so as to provide that the number of shares to be called by defendants by March 19, 1882, should be only 15,000; by April 19,17,500; and by May 19,17,500; “ that in respect of the 15,000 shares which are to be called on or before March 19, 1882, and in respect to 5,000 shares of the 17,500 which are to be called on or before April 19, 1882, the price to be received by ” the plaintiffs “shall be $5.00 per share, with a division of one-half the profits received by the ” defendants “ on said 20,000 shares, between the price of $5.00 and the price at which such shares are sold, after deducting all expenses and commissions.” “ That in respect of all subsequent calls of shares made * • * * the price * * * shall be $5.00 per share and the average price at which all the shares shall be sold, after deducting all expenses and commissions.”
    Between February 13 and November 1, 1882, said Abbott sold 69.550 more shares and paid the proceeds, plus dividends but minus expenses, to said Beynolds, who, himself, sold the remaining 1,150 shares and received the proceeds. During these transactions Reynolds acted “ as the agent' of the defendants as jointly interested with them under ” his contract, and was treated by them as their agent, and not as the agent of the plaintiffs. Abbott acted under the agreement between him and Reynolds as a broker, having great facilities in the London market, where all sales were made, and transacted the business in consideration of the payment to him by Beynolds of three-fourths of the profits “ above the price of twenty-five shillings per share ” upon the 15,000 shares first sold by him; thirty shillings per share upon the 20,000 next sold by him, and thirty-five shillings upon the remainder.
    Out of the sums paid over by Abbott to Beynolds as the proceeds of sales in the first instance, the former paid back to the latter three-fourths of the said profits.
    Prior to January 30, 1883, the defendants had received from Beynolds an account of said sale and knew for what amount the 104.550 shares disposed of by Abbott had been sold and on that day they stated an account and sent it to Beynolds in which they charged him with £4,902 and 3s., “ as being one-half of the one-fourth retained by him of the profits received upon the sales of said 104,550 shares above the specified prices of twenty-five, thirty and thirty-five shillings per share.”
    In various written communications to Beynolds between May 1, 1882, and February 14, 1883, they stated the division of profits arising upon the sales of said stock as follows, viz: Upon the [shares which they had bought from plaintiffs one-half to themselves and one-half to Reynolds and upon the remainder, one-half to the plaintiff, one-fourth .to Reynolds and one-fourth to themselves.
    On February 14,1888, the defendants knew that all of the stock in question had been sold and the prices that it brought and on that day when asked for an account of the sales they stated to the plaintiffs that the total sales for which they had accounts were 105,000 shares for $756,787.50, but said that they would furnish a detailed statement thereafter. The defendants thereupon prepared a memorandum of settlement in accordance with said statement and presented it for acceptance to the plaintiffs who upon the faith of the statement signed the same.
    The court further found that such statement as to the total sales was false and was known by the defendants to be false and that it was made by them with the fraudulent intention of inducing the plaintiffs to accept and sign the memorandum of settlement. In fact the defendants at the date of the settlement had accounts showing that 105,700 shares had been sold for about $890,980.19, after deducting the payments made by Reynolds to Abbott, or at an average price of $8.42 per share, and after deducting $5.00 per share leaving an average profit of $3.42 on each share.
    Before the commencement of this action the plaintiffs from time to time asked the defendants for the detailed statement which they had promised to furnish, but after renewing their promise to do so they finally refused.
    The court found, as conclusions of law, that the agreement of settlement should be vacated and set aside, upon the ground that it was fraudulently obtained; that the account should be restated according to the rights of the respective parties, and that the defendants should have no right to charge to the plaintiffs, as an expense, the amount which Reynolds retained for his compensation under his contract, but that all that was paid to Abbott under his contracts, should be allowed to the defendants as expenses.
    An interlocutory judgment was entered accordingly, which also appointed a referee, and directed judgment in favor of the plaintiffs for the amount that the referee should find due them.
    In accordance with the principles of the interlocutory decree, the referee reported a balance of $47,006.91, including interest, against the defendants, and final judgment was entered in favor of the plaintiffs for that amount. The defendants appealed to the general term from every part of the judgment, and the plaintiffs appealed from the allowance of the Abbott deduction as part of the expenses.
    The general term modified the judgment by deducting therefrom the sum of $1,143.50 with interest thereon from February 14, 1883, on account of certain expenses for traveling and cablegrams, and affirmed -it as thus modified.
    The defendants now appeal from the judgment of affirmance, except as to the modification, while the plaintiffs appeal from said modification and from the affirmance of the allowance to defendants of the amount paid to Abbott.
    
      Edward M. Shepard, for pl’ffs; James L. Bishop, for def’ts.
    
      
       Affirming 3 N. Y. State Rep., 523.
    
   Vann, J.

The main object of these appeals is to determine the proper basis for the division of the so-called “ profits ” between the parties. The plaintiffs claim that neither the amount retained by Reynolds, nor the sum paid to Abbott should be deducted before such division is made, while the defendants contend that the “ profits ” are the residue after deducting both of those sums. The courts have thus far sustained the position of neither party, but have included the sum going to Reynolds, and excluded the sum going to Abbott, before making a division. The question involves a construction of the contract, as amended on two occasions, aided,- in so far as the meaning is doubtful, by a view of the surrounding circumstances, including the facts known to both parties when it was executed.

By the original contract of October 3d, 1881, the defendants specifically agreed to act as agents for the sale of the shares of stock in question, to use their best efforts to place the same and to bear all of the expenses incidental thereto. The earlier provision relating to ‘'a call,” suggests the relation of vendor and vendee, but there could not be both a sale and an agency, because, if the defendants bought the property of the plaintiffs, they could not act as agents of the plaintiffs for the sale of property which belonged to themselves. If there was a sale there could not be an agency, and if there was an agency there could not be a sale. We think that the contract, considered as a whole, was one of agency only, and that the part relating to a call was simply for the protection and security of the defendants, to enable them to receive the compensation agreed upon, which was a share of the “ profits,” as they were termed, to be realized upon a sale for more than the arbitrary sum named as going to the plaintiffs. Whatever the legal relation of the parties may have been, however, the defendants were bound to divide equally with the plaintiffs “ the net proceeds received over and above five dollars per share from the amount of money actually received by ” them.

The amendment of November 19 throws no light upon the method of dividing the profits, but by a further amendment on March 9 all expenses and commissions were to be deducted, and there was to be an equal division of the profits accruing to the defendants personally. The substantial part of the controversy turns on the meaning of the word “ personally,” as thus used. The defendants now insist that it excludes the entire sum retained by Reynolds, amounting to over $100,000, although this position is not suggested in their answer. The name of Reynolds does not appear in any of the contracts between the parties. He was not the agent of the plaintiffs, nor the agent of the parties jointly, but was the assignee of one-half of defendants’ share in the profits, which he was to earn by doing that which the defendants had agreed to do. He thus became their substitute or agent In their answer and in a sworn account produced upon the trial, they speak of him as their agent, and in their letters to him they call him their confidential agent and request him not to furnish information to the plaintiffs in regard to this business. Hence, whatever came to him came to the defendants, so far as the plaintiffs are concerned.

Moreover, it is to be observed that the expression in question is-used in connection with the statement that the profits to be divided consist of the difference between the price of five dollars per-share and the average price at which all the shares shall be sold. Was it not this difference which accrued to the defendants personally, and could they deprive the plaintiffs of any portion of it by assigning a part of their part to Reynolds ? As suggested by the learned trial judge, was it competent for them to entrust to a substitute the work which they undertook to do, and yet claim both the amount paid to him and the whole interest secured to-themselves? Could they use their agency for their personal benefit at the expense of their principals? The last clause of the contract of March 9 provides that the average sales mean the average price received, indicating that the defendants were not to-be liable for the amount of sales, but for the amount paid, or the money received by them personally. What came to their agent in a legal sense came to them personally; that is, it came under their personal control. It did not accrue to them personally any the less because they assigned a share to their agent. It accrued to them before they could pay it to him.

The expression used in the contract of October 3 is, “the amount of money actually received,” while in one part of the agreement of March 9 it is “the profits received,” and in another part of the same instrument, “ the profits which may accrue * * * personally.” Considering the context, and all the circumstances under which the words are used, there does not seem to be any material difference in the meaning of the three forms of expression. This was apparently the understanding of the defendants themselves, not only when the sales were made and the proceeds thereof received, but even until a comparatively recent period.

As the findings of fact made by the trial judge were supported by evidence, and have been confirmed by the general term, they are not open to review in this court, but must be accepted as final for the purpose of this appeal. Code Civ. Pro., § 1337; In the Matter of Ross, 87 N. Y., 514. Furthermore, as the trial was before the court without a jury, it will be presumed, in support of the judgment, that such additional facts were found and considered, although not written out in the formal decision, as, having the support of sufficient evidence appearing in the record, tend to sustain the findings formally made. Armstrong v. Du Bois, 90 N. Y., 95; Meyer v. Lathrop, 73 id., 315, 321; Hays v. Miller, 70 id., 112, 116; Sheldon v. Sherman, 42 id., 484, 489. This presumption is of some importance in view of the question now under consideration.

The defendants testified that before the contract of March 9 was-executed, they proposed to the plaintiffs that the Reynolds’ deductions should be charged as an expense of the business; that the plaintiffs assented to the proposition, and that the contract was-drawn accordingly. The plaintiffs denied this, and there was evidence tending to corroborate the denial, some of which appeared in certain letters written by the defendants to Reynolds. The plaintiffs also testified that while they knew that the defendants had made some arrangement with Reynolds by which they were to divide some of their profits with him, yet they knew nothing about the details, and did not know what share he was to have. If the plaintiffs assented to said proposal, or even if they knew the share that Reynolds was to have in the profits, the defendants claim that the fact has an important bearing in determining the meaning of the expression relating to a division of the profits accruing to Allen and Stead personally, and that it indirectly refers to Reynolds by way of distinction or exclusion.

The trial court found that the settlement between the parties was fraudulent because the defendants represented that the total sales for which they had accounts amounted to $756,787.50, instead of $890,930.19, as was the fact. As the difference was in substance simply the amount of the Reynolds deductions, it is to be presumed, upon applying the principle already mentioned, that the court found for the plaintiffs upon the question of fact above pointed out It follows that the contract is to be construed in the light of plaintiffs’ ignorance, not their knowledge, of Reynolds’ share in the profits. It is not probable that they understood the' contract to include, as part of' the expenses, an amount unknown to themselves, but which they knew was known to the defendants. But what did the defendants understand the contract to mean, as shown by their practical construction of it while the business was going on, and before the day of settlement ? In a letter to Reynolds, dated May 17, 1882, they said: “ Inasmuch as 5250 pounds is due Berdell and Witherell on the original contract, being one-half of the profits, we suppose you must have considered that a settlement should not be made with Berdell and Witherell until the final closing of the accounts. The fact, nevertheless, is that the only moneys to which you are entitled are one-quarter of the profits, to wit, 2625 pounds, a like amount being due us, and the balance we are accountable for to Berdell and Witherell. * * * Cable our one-half of your and our joint-profits, to wit, 2625 pounds. We are obliged to settle with Berdell at once for his half profits under agreement.”

Under date of June 1, 1882, they wrote him as follows: “ The amount that Berdell and Witherell would have been entitled to' would have been half of the difference between 21 shillings and 32s. 6d. on 40,000 shares; or, in other words, they would have been entitled to 5s. 9d. per share, leaving 5s. 9d. per share to be divided between you and ourselves.”

On the 30th of January, 1883, referring to some of their own stock that Reynolds was selling under the same agreement, they said: “ You would be entitled to one-half the difference on the 20,000 shares,” but in the same letter, referring to the stock of the plaintiffs, they added: “And in respect to all the other shares, you would be entitled to one-quarter of the difference.”

According to these letters, the defendants understood the contract precisely as the plaintiffs did, so far as the Reynolds deduction is concerned, and as the courts have thus far- construed it. They do not appear to have openly interpreted it in any other way, even on the occasion of the settlement, when they prepared Sl statement showing the amount of the sales to have been much larger than they represented to the plaintiffs, and which contained the Reynolds deduction, but instead of showing that statement to the plaintiffs they gave them one in which no such deduction appeared. The suppression of the former statement, however, is no more significant than the fact that the latter, which was the basis of the settlement, showed an over-payment to the plaintiffs of some thousands of dollars, provided the construction now contended for by the defendants is correct. It is also significant that they never mentioned to Reynolds any such change in the contract as they now claim was made.

We do not think that the parties intended by their arrangement of March 9 to make any change in respect to the compensation of the defendants for selling the stock as the agents of 'the plaintiffs, except to authorize the deduction of all expenses and commissions. Reynolds was not a broker and he sold none of the stock to speak of. His compensation was not an expense, any more than that of the defendants themselves. From what has "been said, it is obvious that he was not entitled to commissions. His relations to the parties and to the agreement between them, as well as his compensation, did not rest upon a brokerage contract. On the other hand, Abbott was a broker and sold substantially all of the stock, and may be said to have received an interest in lieu of brokerage. The term commissions, therefore, would be properly applicable to him. As said by the learned general term: “ Whether there was a sale of the stock to Abbott, or whether Abbott was paid a commission of one-half the amount realized over the price fixed in the agreement with him, is not material In neither case would -defendants be chargeable with the amount paid to him.”

If this reasoning is sound, it disposes of the chief' ground of contention upon either side and sustains the action of the lower courts, leaving for consideration a few details of the account as stated by the referee, that are challenged by the defendants.

We think that the allowance to them of $1,109, for the expenses of Mr. Allen in Europe, and of $34.50 for cablegrams, was properly made by the general term for the reasons stated in its opinion.

After a careful examination of the other items, we think that they were correctly disposed of by the referee, and that the judgment should be affirmed, but as both parties appealed, without costs in this court to either.

All concur.