Case Name: Raymond S. Perrin, Respondent, v. H. Bridgman Smith, Appellant, Impleaded with Dorris Whipple and Philip S. Smith, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1909-12-10
Citations: 135 A.D. 127
Docket Number: 
Parties: Raymond S. Perrin, Respondent, v. H. Bridgman Smith, Appellant, Impleaded with Dorris Whipple and Philip S. Smith, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 135
Pages: 127–132

Head Matter:
Raymond S. Perrin, Respondent, v. H. Bridgman Smith, Appellant, Impleaded with Dorris Whipple and Philip S. Smith, Defendants.
First Department,
December 10, 1909.
Equity — specific performance — agreement to form corporation — injunction denied — judgment on pleadings — complaint in equity warranting recovery at law.
A court of equity will not compel the specific performance of an agreement to form a corporation or compel that corporation, when formed, to elect certain persons as officers at a fixed salary.
Nor does a suit in equity lie to compel the specific performance of an oral contract to issue to plaintiff a certain proportion of the stock of a non-existent corporation, in consideration of services rendered in promoting a patent.
Nor will an injunction issue to prevent defendants from forming a corporation in violation of an agreement to form another corporation in which the plaintiff, in consideration of services rendered, was to be a stockholder and officer, as the latter agreement cannot be specifically enforced.
An injunction to restrain the breach of a contract is a negative specific enforcement of the contract, and will not issue unless the contract be one of a class that can be affirmatively specifically enforced.
Although a complaint in equity will be dismissed on demurrer if it. fail to state an equitable cause of action, yet after answer it will not be dismissed on a motion for judgment on the pleadings if it state a legal Cause of action, no matter what the prayer for relief.
Thus, it will not be dismissed if the facts alleged state an action at law for damages, although there is no request for a money judgment, but merely for the relief to which the plaintiff may be entitled, in addition to equitable relief.
Appeal by the defendant, H. Bridgman Smith, from an order of the Supreme Court, made at the Hew York Special Term and entered in the office of the clerk of the county of Hew York on'the 7th day of September, 1909.
George W. Alger of counsel [A. Wheeler Palmer with him on the brief], Alger & Simpson, attorneys, for the appellant.
Gilbert Ray Hawes of counsel [Irving Goldberg with him on the brief], for the respondent.

Opinion:
Clarke, J.:
Appeal from an order denying a motion 'by. the defendant H. Bridgman Smith for judgment upon the pleadings upon the ground that the complaint does not state facts sufficient to constitute a cause of action as against said defendant.
The complaint alleges that the defendant Whipple invented or discovered a certain- valuable chemical compound and process for insulating underground electrical cables and for other purposes and in January, 1909, informed plaintiff of his said invention and requested him to secure a person or persons who would be willing to furnish the necessary capital to organize a corporation for the purpose of manufacturing and marketing the products thereof; that said Whipple agreed that in case plaintiff was successful in securing such person or persons, that plaintiff should receive such compensation for his said services as might, be mutually agreed upon between such persons and Whipple and plaintiff; that thereafter plaintiff actively interested himself, and carried on negotiations with various persons, and as a result finally succeeded in inducing the defendant Smith to agree to furnish the necessary capital to manufacture and market said products; that thereafter, .on the 24th of February 1909, an agreement in writing was entered into between plaintiff, Whipple and Smith, wherein the compensation of plaintiff for the services which he had so rendered was agreed upon. A copy of that agreement was annexed to the complaint. It recites: " Whereas the. party of the first part .[Whipple] has made certain discoveries relating to oil insulation for electric pables and varnishes, apparently of material commercial value, and has associated the party of the second part [Perrin] with him to further the marketing thereof, and the party of the third part [Smith] is willing to form and finance a company to manufacture and market same if he finds to his satisfaction after investigation that said discoveries are valuable commercially. - Now, therefore, this agreement witnessetli, that in consideration of these presents, and of $1 paid by each of the parties hereto to each of the others, receipt of which is hereby acknowledged, the parties hereto jointly and severally covenant and agree as follows: I. The party of the third part [Smith], within thirty days from date, is to investigate the commercial valúe of said discoveries,'without expense to the other parties hereto, and if same is satisfactory, is so to notify said other parties within said thirty days, and to forthwith incorporate a company to manufacture and sell the products made pursuant to said discoveries, with which company the parties hereto shall be associated as herein indicated. II. The capital stock of said company is to be issued for said discoveries, and to be $100,000, of 1,000 shares of - the par value of $100 each, of which the party of the first part [Whipple] is to receive 200 shares, the party'of the second part [Perrin] 200 shares, the party of the third part [Smith] 600 shares, for which he is to pay the company $40,000 as is needed by it for capital and in installing its plant to supply its business." It was further provided that the company was to have five directors, and immediately on its organization pay Whipple $2,000 for his said discoveries, which were to be written out in detail and placed in a safety deposit box in the name of the company. The company was to engage Whipple as its consulting engineer and chemist at a salary of $3,000 for the first year, payable in monthly installments, which salary was to be annually increased,- if- the business warranted, at the rate of $1,000 a year until the same amounted to $10,000 yearly. Perrin was " to be president of the company, which will agree to pay him a salary of $5,000 yearly, to be increased as the business of the company warrants, and the said parties agree to accept said positions on the basis herein expressed." Smith was to be the treasurer. " All obligations hereunder shall terminate thirty, days from date' unless favorable action be taken as above indicated."
The complaint proceeds, that within thirty days from the date of said written agreement Smith notified plaintiff and Whipple of his satisfaction with said invention and discovery and promised and agreed to forthwith incorporate a company to manufacture and sell the products thereof, pursuant to the terms and conditions set forth in the agreement; that prior to the expiration of the thirty days mentioned, favorable action was taken thereunder by the parties thereto, but although plaintiff has made due demand therefor, Smith has not incorporated a company pursuant to the terms and conditions set forth in the agreement, but in violation thereof has refused and still refuses so to do, although plaintiff has at all times been ready and willing, and is now ready and willing, to perform the terms and conditions on his part to be performed; Upon information and belief, that in or.der to deprive plaintiff of the compensation for his said services as agreed.upon in said'written agreement, and in order to deprive .hitó of the benefits which would accrue to him thereunder, defendants have conspired to and are about to organize a corporation for the purpose of manufacturing and marketing the products of said invention and discoyery, which corporation will be composed of said defendant Whipple and other persons acting in Iris behalf and 'other persons acting in behalf of Smith, and with which corporation the plaintiff herein will not be associated, either-as president or otherwise, and from which plaintiff has been entirely excluded, so that he will not secure the shares of stock and salary reserved to him in said agreement; that great pecuniary loss will arise unless the defendants are compelled to organize the corporation .in accordance with said written agreement; that plaintiff has ho adequate' remedy at law to recover damages, as the value of the 2.00 shares .of stock of the corporation to be organized thereunder is extremely uncertain and the shares have no present market value, as said corporation is not and will not be in existence ; and the plaintiff demands, first, that the defendants specifically perform the said written agreement, and forthwith incorporate a corporation pursuant to the terms thereof and issue or transfer to plaintiff the shares of stock therein mentioned; second, that said defendants and each of them, and all persons acting for them or in tileir. behalf, be perpetually enjoined and restrained from organizing any corporation or forming any firm or combination to manufacture and- market the products of said invention or discovery of said Whipple, except under the terms and conditions se.t forth in said written agreement; and, third, that plaintiff have such other and further relief in the premises as to the court may seem-just. . .
lío equitable cause of action has been set forth in' the complaint, lío court could compel the specific performance of a contract to form a corporation and compel that corporation, after it was formed, to elect certain specific persons as 'officers thereof at a fixed salary. So far as the provisions in regard to the stock are concerned, in Clements v. Sherwood-Dunn (108 App. Div. 327; affd., 187 N. Y. 521), an action in equity to procure, a specific performance of an alleged oral contract by which the plaintiff claimed that the defend-? ants had agreed to deliver to him certain shares, of stock of a cor poration, in consideration of services rendered, by him in promoting the company, this court reversed a judgment in favor of the plaintiff upon the ground that it was not one of . equitable cognizance. The corporation in that case was in existence and had stock. How can a court compel a non-existent corporation to issue and distribute nonexistent stock in a specified manner? .An injunction will riot lie to prevent the formation of a corporation' except under the terms of the writtén agreement, there being no negative covenants to enforce as in Standard Fashion Co. v. Siegel-Cooper Co. (157 N. Y. 60).
• The injunction here prayed is in aid of specific performance, and as that may not be had, there is no ground for an injunction. In Fox v. Fitzpatrick (190 N. Y. 259) Judge Vann said: "-The equitable remedy of injunction by judgment, as distinguished from an injunction by order pendente lite, depends upon the incompleteness, and inadequacy of the legal remedy. If issued to restrain the breach of a contract it is ' a negative specific enforcement of that contract'and jurisdiction does not, attach unless 'the contract is one of a class which will be affirmatively specifically enforced.' "
The plaintiff did not' furnish" brains to the enterprise; he did not discover or invent or patent or develop or have anything to do with the article which was the basis of the whole agreement. He was a mere promoter who brought an inventor and a capitalist .together. There may have been a breach of contract, but that did not authorize an equitable' .action for specific performance or an incidental injunction.
It is the rule that where a complaint is framed in equity and upon demurrer it has been decided that no equitable cause of action is stated, the complaint may be dismissed. (Cody v. First National Bank, 63 App. Div. 199; Black v. Vanderbilt, 70 id. 16; Kelly v. Downing, 42 N. Y. 71.) But the-same cases hold that when an answer had been put in, the complaint should not be dismissed if a cause of action was stated, no matter what relief was prayed. In the case, at bar there is an answer and there are issues of fact raised; plaintiff has asked for such other and further relief as he may be entitled to.
The plaintiff has stated facts sufficient to constitute an action at law for damages for breach of contract. Although he has framed his complaint in equity and has -not alleged the amount of said damages or asked for a money judgment, it would have been, error to have dismissed the complaint.
For these" reasons the order appealed from should be affirmed, with costs and disbursements to the- respondent.
Ingraham, McLaughlin, Houghton and Scott, JJ., concurred.
Order affirmed,' with ten dollars costs and disbursements.