Case Name: Mosier et al. v. Parry
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1899-06-13
Citations: 60 Ohio St. 388
Docket Number: 
Parties: Mosier et al. v. Parry.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 60
Pages: 388–406

Head Matter:
Mosier et al. v. Parry.
Construction of contract — Vendor contracts to sell property to vendees who agree to form corporation — Corporation not formed — Contract treated as between individuals entering into it — Not co-partners — Contract law.
1. Where the language of a contract is of doubtful import, it is proper to ascertain the circumstances which surrounded the parties at the time it was made, the object intended to he accomplished, and the construction which the acts of the parties show they gave to their agreement, in order to give proper construction to the words they have used in the instrument, and to determine its legal effect.
2. Where one who is the owner of certain tools and machinery connected with a stone quarry, located upon lands in his possession in which he has an interest as purchaser, enters into a contract with a number of others whereby the parties agree to form a corporation to operate the quarry and such owner, as party of the second part, agrees to sell his property rights and interests at a stipulated price, and take his pay therefor partly in cash and partly in stock of the corporation to be organized, and the property and rights are there upon turned over to the parties of the first part, who retain possession and operate such quarry, and such corporation is not in fact organized, but the effort to organize it is abandoned, the contract will be treated not as one between the vendor and a corporation, but between the individuals who entered into it.
3. Whether or not the parties to such contract would, as to strangers, be regarded as sustaining the relation of co-partners, such relation will not be held to exist between such vendor and the other parties to the contract.
4. If otherwise the vendor be entitled to maintain an action at law against them for the purchase price of the property and rights so sold and delivered, the form of the contract will not prevent such action.
(Decided June 13, 1899.)
Error to the Circuit Court of Richland county.
Leonard L. Parry, defendant in error, brought action in the court of common pleas of Richland county against A. M. Mosier, M. D. Harter, L. F. Harrington, B. F. Platt, W. L. Leonard, M. B. Bushnell, George W. Snyder, and W. A. Van Frank, as partners doing business under the firm name of the Mansfield Improvement Company, and individually, to recover for an alleged breach by them of a contract, a copy of which is as follows:
“Memorandum of an agreement made this twenty-first day of September, A. D. 1893, by and between the following named persons: A. M. Mosier, M. D. Harter, L. F. Harrington, B. F. Platt, ~W. L. Leonard, M. B. Bushnell, George W. Snyder and W. A. Van Frank, individually and as a partnership doing business under the name of The Mansfield Improvement Company, and A. J. Twitchell and L. L. Parry, witnesseth:
“That whereas the said parties hereto desire to organize a joint stock company to be incorporated under the laws of the state, to be located and have its principal place of business at Mansfield, in said state of Ohio, to be known as The Mansfield Stone and Sand Company, said company to be organized for the purpose of conducting the business of quarrying and selling stone and sand, also of working deposits of shale and selling the same.
“Said incorporated company is to be organized with a capital stock of $50,000; fifty per cent, of each dollar of stock is to be paid up.
“Said incorporated cbmpany is to be organized as soon as possible, and the business for which it is organized is to be pushed forward as rapidly as possible until said company is put upon a working basis.
“It is hereby agreed by and between all parties hereto thair the twelve acre tract of land now occupied by L. L. Parry, lying in the southeast quarter of section 15, township 21, range 18, together with all the developments and improvements made thereon by the said Parry, shall be conveyed to said corporation by deed in fee simple.
The said L. L. Parry shall be allowed and paid for his interest therein as follows: The sum of six thousand dollars, which is to be paid by said company to be formed to said L. L. Parry, which he agrees to dispose of as follows, to wit:
Said $6,000 to be divided into two sums, $3,600 thereof, which said Parry is owing on said land, to said Improvement Company; said new company shall pay as follows: $1,400 cash down; the remaining $2,200 it is expected the members of said Improvement Company will take in stock of said company to be formed, and George W. Snyder, M. B. Bushnell, B. F. Platt and W. L. Leonard hereby agree to accept their portions thereof in stock, the interest of the other members of said Improvement Company in said $2,200 to be paid in stock or money as may be hereafter determined. The balance of said $6,000, to wit, the sum of $2,400, said new company is to pay in capital stock, to wit, the sum of $4,800 in the capital stock of said company, which said Parry hereby agrees to dispose of as follows, to wit: To turn the same over to the several members of the said Mansfield Improvement Company, in consideration that they make no charge of interest against said sum of $3,600 owing said Improvement Company from said Parry.
Further, that the said L. L. Parry is to be employed by said corporation to be formed as superintendent at a salary of sixty dollars per month for the first six months, said employment to date from the time when said property is turned over by said Parry to said company.
It is further agreed by the parties hereto that the said L. L. Parry is to receive and to be paid as a compensation for the work done on said tract of land, and the development already made by him thereon, the sum of $6,000 in the capital stock of said new corporation to be formed.
Further, that the said L. L. Parry is to receive and be paid for all machinery and tools owned or used by him belonging to said quarry as per an itemized list thereof hereto attached marked exhibit “A,” the sum of three thousand dollars, to be paid in cash; provided, however, that the said Parry shall pay or cause to be paid all debts or claims owing thereon, or liens or claims against the same or any part of them, or if not so paid said company shall have the right to pay the same and deduct the amount so paid from said amount to be paid Parry as aforesaid, and pay him the balance thereof. The said incorporated company to be formed is to pay to B. F. Platt and Charlotte Spice the sum of one thousand dollars as consideration for right of way for switch or railroad track across the lands of said Platt and Spice, as contracted for by said L. L. Parry with said Platt.
Said company is also to pay to A. J. Twitchell, W. L. Leonard and L. L. Parry the sum of one thousand dollars as consideration for damages to lots owned by them abutting on the north side of Vine street in the city of Mansfield, occasioned by the running- of said proposed switch or railroad track along the north line of said street, or in lieu thereof said corporation shall have the option of ■the purchase of said lots at the agreed price of $3,142.00 with interest from the date of this agreement.
It is understood and agreed that this contract shall not invalidate the contract for the purchase of land by said Parry from the said Mansfield Improvement Company until said proposed company is fully organized and the consideration herein stipulated for are paid according to the terms thereof, and when so paid and performed said Parry shall immediately turn over to said company all property herein stipulated to be sold by him. And the making- of this contract shall not be considered in any way as an admission of the validity or invalidity of said contract between said Parry and said improvement company and shall not in any event be taken and considered as 'such.
It is further stipulated and agreed between all parties hereto that each and every person hereto shall give his utmost personal attention to the immediate formation of said proposed corporation and perfecting the organization of the same, and for this purpose each person of this agreement pledges his hearty co-operation. It is understood and agreed by all parties hereto that said company shall be fully organized within thirty days from the date of this agreement.
In testimony whereof said parties have hereunto set their hands on this twenty-first day of September, A. D. 1893.
Mansfield Improvement Company,
By W. L. Leonard, Trustee.
A. M. Mosier.
Michael D. Harter.
L. F. Harrington.
B. F. Platt.
W. L. Leonard.
M. B. Bushnell.
Geo. W. Snyder.
A. J. Twitchell.
Leonard L. Parry.
~W. A. Van Frank.”
In his petition plaintiff averred that he was, at the making of the contract, possessed of the tract of land described therein, and had opened and was working a valuable stone quarry thereon, and had made contracts with divers parties for a right of way for a switch from the main track of N. Y., P. & O. railway to said quarry; also the owner of a large quantity of tools and machinery used in and about said quarry. All of which property rights, contracts and developments defendants were desirous of being possessed of. and to effect that purpose entered into said contract. And, in consideration of plaintiff selling and transferring to defendants said land, they agreed to pay him $6,000, Hie sum of $3,600 to be paid to the Mansfield Improvement Company, in payment of that amount due from plaintiff to said company on the purchase price of the land, and the balance, $2,400 to be paid in the capital stock of The Mansfield Stone and Sand Company, which stock plaintiff agreed to transfer to the said Mansfield Improvement Company,'in consideration that the company should charge no interest on the $3,600 aforesaid.
And in consideration of the work done by plaintiff on the stone quarry, and the development thereof by him and his property rights, the defendants agreed to issue to him $6,000 of the capital stock of said Mansfield Stone and Sand Company, said stock to be paid up, and to pay him the further sum of $3,000 in cash.
Said stocks have never been issued. Plaintiff has done all he is required to do under the contract and has at all times been ready and willing, and has frequently urged the defendants to comply with the terms of the contract and to carry the same into effect. But the defendants have wholly failed, neglected and refused to pay plaintiff said moneys and stocks as in said contract provided.
Wherefore, plaintiff prays judgment against defendants for $3,000 and interest from September 21, 1893; also that an account be taken of the value of said $6,000 of the capital stock, and that he be paid the full value thereof, and for all other proper relief.
The defendants, by their answer, admitted the making of the contract, but denied all other allegations of the petition.
At the trial, plaintiff, after offering some testimony tending to prove his claim, offered to show that the property in question was taken posses sion. of by the Mansfield Improvement Company and parties defendant in the .ease, and that they ever since have held said property as their own, but the court refused to permit the introduction of said testimony, and, construing the contract to be one with a corporation not yet in existence and therefore void, directed a verdict for defendant. The circuit court held that the trial court erred in rejecting the evidence offered regarding the defendants’ taking possession of the property, and in so directing the jury, and, construing the contract to be one between promoters, and that de-, fendants were individually liable, reversed the judgment of the common pleas.
Cummings <& McBride, for plaintiffs in error.
A study of this contract shows conclusively that this defendant in error intended to look to the proposed corporation as his paymaster and never intended to look to the promoters individually. He was a promoter himself. He entered into the scheme to form this corporation. He was one of the signers of the contract. He entered into the work of creating a something that was to be his paymaster when formed. In all cases where the question of liability of promoters is held and discussed the contract was with- a stranger; but in the case at bar it is made with one of - their own number, who is and was fully cognizant of all the facts and knew with whom he was contracting and to whom he must look for his pay, if he received any. In every sentence in the contract where pay is mentioned, the new company is expressly named as paymaster. His signing of this contract signified his acceptance of its terms and his acceptance of the new company as paymaster. He expressly says that he looks to the new company and not to the promoters individually for his pay.
The question of the liability of promoters is an open one in Ohio, and we must then be governed by the text writers and decisions of other states. Clark on Corporations, 112, 113; Carmody v. Powers, 60 Mich., 26; 16 Am. Law Rev., 281.
This party says as plainly as language can express it that he agrees to look to some other fund for his pay. The contract that he signs says that his paymaster is the new company. He certainly will not be permitted to repudiate his own contract so far as his interest is concerned and insist on its enforcement so far as the other parties to it are concerned. The law compels him to be consistent. He cannot blow “ hot and cold.” Beach on Contracts, Vol. 2, section 1031; Kelner v. Baxter, L. R. 2, C. P., 174; Melhado v. Posto, Algre & C. R. Co. L. R. 9, C. P., 503; Kerridge v. Hesse, 9 Car. & P. P., 200; Landman v. Entwistle, 7 Ex., 632; 21 L. J. Ex., 208.
When persons accept a contract which they then believe and intend to be with a corporation, the members or stockholders of the supposed corporation cannot be held liable, as partners or otherwise, without giving to the contract an effect which no one supposed or intended it to have when made. Pittsburgh Mining Co. v. Spooner, 17 Am. St., note 162; Planters’ Bank v. Padgett, 69 Ga., 159; Merchants’ Bank v. Stone, 38 Mich., 779; Blanchard v. Caull, 44 Cal., 440.
The petition in this ease is based upon nothing more than an offer to contract. It is distinctly stated in the contract that it is proposed to form a corporation. When the company is formed it will do certain things. It is making an offer to perform something in the future whenever it has a legal existence. It never secured a legal existence, therefore the contract is void for want of mutuality. D. W. V. & X. T. Co. v. Coy, 13 Ohio St., 84.
The circuit court in deciding this case did what the Supreme Court said it could not do, look at the purpose of the party.
In the case at bar the court can only inquire whether the defendants have incurred a legal obligation. This is to be determined from the contract. Who did Parry intend to be his paymaster? Phillips Academy v. Davis, 6 Am. Dec., 162.
These authorities dispose of the question of mutuality of the contract.
Could the defendant in error maintain this action in the court below? We claim he could not. Parry and Twitchell are both parties of the second part. There is no averment in the petition that one has assigned to the other.
Sections 4993, 5005, 5006 and 5007 of the Revised Statutes 'of Ohio provide who must be joined as plaintiffs. Bastges v. O'Neill, 13 Ohio St., 72; Ballard v. Collier, 8 Ohio St., 43; Masters v. Freeman, 17 Ohio St., 323.
Promoter can not sue a promoter.
In the case at bar, the contract says, that all parties hereto are desirous of forming a corporation. This makes every one who signed the contract a promoter.
It is a familiar proposition of law that one partner can not maintain an action at law against one or more or all of his co-partners for anything due him on account of the partnership business. The remedy is in equity. Thompson on Corp., Vol. 1, section429; Thompson on'Corp., Vol. 3, section2969.
These parties to this contract all being desirous of forming a corporation, are each and all promoters. That being the case, this action, under the authorities above cited, can not be maintained.
It was the duty of the court to construe this contract. It would have been error to submit the construction to jury. Monnett v. Monnett, 46 Ohio St., 30.
Contracts are construed by the intention of the parties gathered from the whole contract. McCoy v. Bixbee, 6 Ohio, 310; Kelley v. Mills, 8 Ohio, 325; Stein v. Prairie Rose, 17 Ohio St., 471.
Each expression should receive the obvious meaning which the context and whole instrument require to make each consistent with the whole and carry out the object of the parties. Railroad Co. v. Railroad Co., 44 Ohio St., 287.
In constructing a contract the situation and relation of tbe parties, the object sought to be obtained, and the subject matter, are indispensable aids to gathering the intention. Chamberlain v. Painesville & Hudson R. R., 15 Ohio St., 225.
The petition does not allege that Parry was the owner of anything, but that he was in possession of certain described real estate. Garner v. McCullough, 48 Mo., 318; Lewis v. White, 16 Ohio St., 444; Pomeroy on Remedies, 597, 603.
W. S. Kerr and Twitchell & Hartman, for defendant in error.
. The first important consideration and the feature which completely refutes the argument of counsel for plaintiff in error, is that the contract itself provides that it is between the parties hereto and excludes any idea that the stipulations were between the parties and a company to be formed.
There is then no warrant for the statement of counsel that Parry looked to some other fund for payment. So far as we can learn from the contract, he looked to the parties hereto and to none other.
Plaintiff’s in error were promoters of the new corporation, and it becomes important, therefore, to ascertain the legal rule of liability as to persons standing in such relation.
The question is a new one in this state. The case cited by counsel, viz: The D. W. V. & X. T. Co. v. Coy, 13 Ohio St., 84, decides no issue in this case.
The rule as to the liability of persons contemplating the formation of a corporation, with reference to matters relating to such corporation when formed, is laid down in Carmody v. Powers, 60 Mich., 26; 26 N. W., 801. This decision is especially valuable as a precedent for the reason . that 'the facts on which it is based are almost identical with those in the case at bar. Hersey v. Tulley (Colo. App.) 44 Pac., 854.
In some of the cases cited, the promoters are held liable as partners. But in the majority of cases the liability is said to rest on the law of agency; the promoters being held agents of an undisclosed principal; Accordingly, persons dealing with them may, on the incorporation of the company and its ratification of the contracts made in its behalf, elect to have their remedy either against the individuals, or against the corporation. Roberts Mfg. Co. v. Schlick, (Minn.), 64 N. W., 826.
Even though the contract is made in behalf of the proposed corporation, and the corporation is afterward formed and ratifies the contract of its promoters, yet the latter are primarily liable, and the creditor may elect to have his remedy against either. Kelner v. Baxter, L. R. 2 C. P., 174 (cited Beach, Corp., 159); Queen City Furniture Co. v. Crawford, (Mo.) 30 S. W., 163; Martin v. Fewell, 79 Mo., 401; Johnson v. Corser, 34 Minn., 355; Huslett v. Worthspoon, 2 Rich. Eq., 395; Beach on Private Corporations, section 159.
The rule is similarly stated by other text-book writers. Clark on Corp., section 47; Cook on Stock and Stockholders, 1 ed., section 233; Spelling on Private Corp., section 838; Wait, Insolv. Corp., section 71.
Prom a study of these authorities it would seem to be the undoubted rule of law, that, in order that a promoter may relieve himself from liability on a contract entered into prior to the organization of the company, three things must concur:
1. The contract must have been made in behalf of the proposed corporation.
2. The corporation must have been formed and have ratified the contract of its promoters.
3. The creditor, after such ratification, must have agreed to look to the corporation for the performance of his contract.
If a single one of these elements be lacking, then the promoters would be liable personally.
In the case at bar none of these elements are present. The contract was not made in behalf of the proposed corporation, The Mansfield Stone and Sand Co., and, as the latter never came into existence, it follows, of course, that Parry could never have agceed to look to it for the performance of his contract.
In the case of Hersey v. Tulley, 44 Pac., 854, the plaintiff was distinctly and explicitly informed that the work was to be done for the proposed cor poration, and he charged it on his books to the proposed corporation, and yet it was held that the promoters were personally liable.
It is further held that even where the plaintiff agreed to look to the corporation alone, the latter must have assumed the liability, in order to relieve the promoters. Beach on Corp., section 159; citing Whitewell v. Warner, 20 Vt., 425.
But the contract in the case at bar does not purport to be signed in behalf of the proposed corporation but is signed by the promoters, as individuals and as a partnership. ,
Suppose The Mansfield Stone and Sand Co., had actually been formed, and the money and stocks mentioned in the contract duly tendered Parry, and, thereupon Parry had refused to fulfill his part of the engagement. Who would have been the proper plaintiff in an action to enforce this contract against him?
The answer to this question will be found in the cases of Penn Match Co. v. Hapgood, 141 Mass., 145; 7 N. E., 22; Abbott v. Hapgood, 150 Mass., 248 ; 22 N. E., 907.
It is argued that Parry was a promoter himself, and that he entered into the scheme to form this corporation along with the other signers of the contract. This claim rests entirely on a single sentence of a contract: “The parties hereto desire to organize a joint stock company, etc.’: McCoy v. Bixbee, 6 Ohio, 313; Railroad Co. v. Railroad Co., 44 Ohio St., 287.

Opinion:
Spear, J.
The courts below regarded the case as turning upon the construction of the contract. If it were a contract between Parry and a corpora tion, anticipated but not yet in existence, there ®ould be no recovery. If, on the other hand, it were a contract between individuals, there might be, if the testimony warranted it; and that is the principal question argued here. '
It seems to be conceded, at least it is to us apparent, that the contract is confusing, and that, unless light may be thrown upon its meaning by surrounding circumstances, the intention of the parties in several important respects, will remain in doubt. But, reading the instrument in the light of the situation of the parties at the time and of the object to be accomplished, we may be aided in reaching a satisfactory construction. How> then, were the parties situated, and what did they undertake to do? Prior to the making of the contract Parry had purchased of the Mansfield Improvement Company, (a partnership composed of the plaintiffs in error) a tract of land on which he had developed a stone quarry. He had also bought and placed on the ground a quantity of quarrying* machinery, and had contracted for a right of way for a railroad switch leading to the quarry. He had possession under a contract of purchase. A deed had been executed by the trustees of the company and placed in the hands of a third person. But the company obtained possession of the deed, and when, afterwards, a tender of money and securities was made by Parry, in accordance with the terms of the contract, and the deed demanded, it was refused. Subsequently, plaintiffs in error, desiring to repurchase the property, together with the improvements and machinery owned by Parry, and form a corporation for its management, induced this contract to be executed. The property mentioned in the contract was turned over by Parry to the plaintiffs in error, and they have since remained in the possession of it. Some steps were taken looking to the formation of the contemplated corporation, but the organization was not perfected and so never had legal existence.
The contention of plaintiffs in error is that the contract, so far as payment was concerned, was one between Parry and the anticipated corporation, and that he never intended to look to the promoters individually. The contract itself hardly justifies this conclusion. It purports to be between the plaintiffs in error, individually, and as a partnership, and A. J. Twitehell and L. L. Parry. After a provision agreeing to form an incorporated company, "it is agreed by and between all the parties hereto" that the land and improvements shall be conveyed to the corporation. It then provides that Parry shall be allowed and paid for his interest in the property $6,000. This is to be paid by the new company, but it does not purport to be the agreement of the new company; it is in terms the agreement of the parties. j^Then "it is further agreed by the parties hereto" that Parry is to receive and be paid, as compensation for work and development already made, $6,000 in the capital stock of the new corporation, and for machinery and tools owned and used by him belonging to the quarry, the sum of $3,000, etc.: all the stipulations are, and purport to be, by the parties. Nor is the construction contended for aided by the conduct of the parties. Parry turned over the property, improvements and machinery to the plaintiffs. in error and they accepted, and have continued to occupy and use the same, a course of conduct not consistent with the idea of reliance by Parry on the new corporation for his pay. In the light of all the surroundings and of the conduct of the parties, we think the language of this instrument imports a contract between the parties, and not a contract assuming to bind a corporation yet to be formed, and that, as treated by the parties, it means that plaintiffs in error assumed responsibility for the payment of the consideration for the property which they accepted and have retained, and that Parry relied upon that assumption. Upon the face of the paper, it is true, the obligation for payment of compensation, and for the formation of the new company, appear to rest upon Parry as well as upon the others. But, in essence, and reality, they were adversary parties. Parry had something of value to sell; the others wished to possess themselves of it. He agreed to sell at a stipulated price, and all agreed that he should be paid in a certain manner, to-wit: by money and corporate stock through an agency to be created, viz: a corporation. They had the power and ability to form and perfect such corporate agency; Parry did not. They failed to create the agency, and thus violated their contract. How different does it leave the parties than if there had been no stipulation for a new company? We confess we see no difference in essence. They now propose having thus failed to do what their agreement required, to hold on to Parry's property without making him any compensation whatever. The position smacks of fraud; at least a court of justice can hardly be expected to sanction it. And looking at this instrument from the standpoint of the parties when it was made, and giving due effect to the purpose of each, and treating. the transaction as the parties treated it by their conduct be fore as well as after the making of the paper, and continuously to the time of trial, it seems but just to hold that the plaintiffs in error accepted the interest and property rights of Parry with the obligation imposed as to the payment of the stated compensation, and should not now be permitted to interpose the thin film of an unorganized corporation between themselves and the performance of that obligation.
But it is further claimed that this action cannot be maintained because, the purpose of forming a corporation having been abandoned,' these parties, Parry included, became partners, and one partner cannot sue co-partners at law. No such question séems to have been made directly by pleading, nor in any way in the trial court; but if it had been so made we do not see how it could have been maintained. The proposition of law is correct, and, as to outside parties, perhaps might have application here. But looking this contract through and through, and construing it in the light of the situation, it cannot reasonably be concluded that Parry understood, or ought to have understood,that, in any event, he was forming a co-partnership with the plaintiffs in error. His position as vendor excluded the idea that he desired to take in a number - of partners in the management of the business, and the fact of yielding to plaintiffs in error absolute and exclusive possession of the property is wholly inconsistent with any idea of retaining a joint interest as co-partner.
It is insisted also that Parry cannot maintain this action alone; that he and Twitch ell are both parties of the second part, and there is no averment that one has assigned to the other. This proposition overlooks the fact that Twitchell has no interest in the property which Parry contracted to sell, and which plaintiffs in error have possession of. His presence as plaintiff, therefore, was not necessary and would have been a misjoinder.
Other propositions of error are urged. W e do not think any well taken. The judgment of the circuit court reversing that of the common pleas will be
Affi/t'mecL.