Case Name: GLEN FLEMING, RECEIVER VS H. E. GROFFMAN
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 1918
Citations: 1 Pelt. 51
Docket Number: NO. 7255
Parties: GLEN FLEMING, RECEIVER VS H. E. GROFFMAN.
Judges: 
Reporter: Peltier's decisions, Court of Appeal, Parish of Orleans (Peltier)
Volume: 1
Pages: 51–57

Head Matter:
NO. 7255.
GLEN FLEMING, RECEIVER VS H. E. GROFFMAN.
STATE OF LOUISIANA COURT OF APPEAL PARISH OF ORLEANS.

Opinion:
OPIHIOH.
St. Paul/ Judge.
fil/t/usfx.e^i Plaintiff, who la the Receiver of a defendant oorportalon, brings this aotion upon a oontraot of indemnity, the nature of whioh will hereafter appear.
The defenses are 1. Want of Consideration: 2. That the condition on whioh same wan given has not happened, 0. That the parties for whose benefit same was given, have suffered no loss.
The faots are these: The corporation was organised with the objeot in view of giving a fair or exposition, and Its stock was subsorlbed for that purpose. On December 26th, 1910, the Board of Directors (of whioh defendant was a member) held a meeting, at whioh the following took plaoe:
"Meeting was called to order by President Hobbs, who read a letter from Mr. /G»u*nan outlining the proposition under whioh he would aooept employment with the Association.
"A reaplutlan was offered by Mr. Moore, seoonded by nr. Hartwell, and carried, that;
"Whereas the letter containing a# proposition of Hr. Herbert Kaufman has been presented to us, and carefully considered, and believing that said oontraot is advantagious to the Exposition Eonp any.
"Therefore be it sesolved, that the Exposition Company, enter into said oontraot with Mr, Herbert Kaufman, 'and hereby authorise the President to sign said letter In aooeptanoe thereof on behalf of the exposition company, and to attaoh a oopy of this resolution thereto.
"Ur. Cave stated that he was not in favor of the preposition and voted no. *
At xne same meeting, after the transaction of some routine
business, and before adjournment, the following aotion was taken;
"Resolution was offered by Mr. Wexler, seoonded by Mr. Beetaan, and unanimously carried, xhat in order to guarantee' all subscribers to the Exposition Co. against á possible loss whlol they might sustain in the event no exposition is given, the Board would make an effort to seoure sufficient names to the guárante» to oover Mr. Kaufman's expenses for six months in case there is no exposition held. If the exposition project is oarrled out these gentlemen to be reimbursed for any money the: may have spent in this guarantee.
Mr. Wexler, Mr. Hartwell, Mr. Preeman, Mr. Beekman. Hr. Groffman, and Mr. Grünewald, pledged themselves for #500 *aoh on this guarantee. Mr. Asohaffenberg, Mr. Mr. Pfaff. Mr. Moore and Mr. pave, pledged themselves for #300 aaoh, Mr. Smith pledged himself for #100.
On the day following the meeting of the Directors, or within a few days thereafter, the following dduument was executed;
"Appreciating the servooes of Hr. Herbert Kaufman as organisation manager and advisor to the Exposition Co. and his peculiar fitness for the work to be undertaken, the Board of Directors at a meeting held on Friday December 86th, unanimously accepted his proposition for the continuance of his services at a compensation of $12,500 for a period os six months, and for an additional $12,500 for a further period of six months provided the Exposition be given, of ./hioh the Board has no doubt.
"In order to guarantee the subscribers to the exposition against the possible loss thioh they might sustain in the event no exposition is given, the undersigned each for himself and not for the others, guarantee to the Exposition Company the amount set opposite their respective names; and in the event that it should be decided at the expiration of six months from January 1st 1914, not to hold an exposition in the City of Hew Orleans, each of us hereby agrees to pay the amount set opposite our respective names to the Exposition Co in full satisfaction of the guarantee herein given.
(Signed)
Ben Beekman, 12/27/13 $600 Sol Wexler 12/27/13 500 0. A. Hartwell 12/27/13 600 H. B. Sroffman 12/29/13 500 John J. Cannon 12/29/13 600 Theo Smnewald 12/29/13 500 Tal llers 12/29/13 600 Lawrence Jabacher 12/30/13 600 Thomas J. Treeman--------— 500
This document tgus executed was dellwered to the Exposition Company, and placed among its arohives, where it was found by the Receiver.
On Hay 23rd, 1914, the Board of Directors met in special session and the following aotion was taken;
"The matter of cancelling the contract with Hr. Herbert Kaufman was taken up and opinion from the Attorneys read.
"The following resolution was proposed by Hr Casanas, seconded by Hr Aschaffenberg and unanimously carried;
"Resolved, that it being utterly impossible and Impractical to hold fiiSMí eh exposition in the City of Hew Orleans as contemplated in the letter of Hr Herbert Kaufman to this Board, of date December 23rd 1913, under which letter, and in in consideration of the holding of suoh an exposition this Board signed a contract with the said Kaufman for a period of one year, with the privileg. of rescinding same at the termination of six months if suoh exposition was abandoned, a resolution to that effect having been adopted on December 24th 1913, it is the desire of this Board now to abrogate the said contract with the said Kaufman in so far a. the six months beginning June 24th 1911, are ooncemed, for the reason above stated, and the action of this Board on December 24th 1913, in so far as the said six months are concerned, is now annulled and avdided."
The candor of counsel relieves us from the necessity of pointing out motive whloh induced the defendant and his associates to execute this document. Xrom the brief of defendant we quota as follows; t
"four Honors oan readily see why the directors of the Exposition Company undertook to sign the document which they did. They had entered into a contract with Ifr Kaufman by which they agreed to pay him at the prinoely rate of $22,000 per annum* They felt that this was perhaps, if not beyond, at least straining their authority as directors, and so as to relieve themselves from any possible eventual criticism by the stockholders, a certain number of them, without receiving any consideration whatever, signed the document on which this suit is founded, agreeing to Pay $200 each to protect the stockholders against any possible loss."
And the very olear and full recitals of the petition show us the exact situation of the corporation's affairs.
Xrom this petition we quote as follows;
"Now your petitioner further represents that the Southern States Xair and Pan American Exposition Company is hopelessly insolvent.
q"fhat in order to pay the debts of said Company it is neoessary that your petitioner in hia official capacity should oolleot all the outstanding debts and obligations due to the Said Company, including that still due by the defendant herein, and also the due and unpaid subsoriptions to the capital stock of said Company; all of which, if oCllooted, will still leave said Company insolvent."
1.
ye are of opinion that the document sued upon was given upon sufficient consideration. Defendant had just approved in a in flduolary capacity the expenditure of money which dthera had an equitable interest. He acknowledged that his act might have been subject to adverse oritioism. He e cecuted a document intended to disarm that oritioism, and placed it in the hands of the Corporation, the trustee for those others. He meant that on finding it they should porbear to oritioise and forbear to test judicially the legality of his aotion, and should rely exclusively upon his bond; and he left them free to accept it as long as it was not withdrawn.
11
We are likewise of opinion that the condition on whioh the obligation was given has happened. Adhering to the letter of an instrument somewhat unskillfully drawn up, defendant insists that the condition upon whioh the bond was given was that it should be decided within six months that no exposition whatever be given. By every technical rule of oostruction, this, ééjtéiHHHHHt interpretation must be rejeoted. ¡Chus, the instrument was drawn by defendant and must be construed against him where ambiguos. And éiééétt again, defendant and his associates had it in their power not to decide within six months and thus ahnul the bond; but the bond must be saved if possible.
But it is perfectly clear that what defendant and his associates had in mind was an exposition according to the plans of Kaufman. Ihey realized that if such an exposition failed, then the salary paid Kaufinan might be a dear loss to stockholders, and it was this loss they meant to reimburse. A condition in a contract must be Interpreted according to the same rules of common sense which should prevail in the interpretation of the main obligation, and hence the meaning thereof must be drawn from the whole instrument and not from a single clausa.
111.
We think however that the obligation herein assumed was intended solely for the benefit of stockholders and not for the benefit of creditors; that it was intended to indemnify the former for any loss which they might spstaln by reason of the salaries paid to Kaufinan, but was never intended to inure to the benefit of any others. She resolution of Deoember 26th, and the bond which followed it both deolare explicitly that the purpose thereof is, "In order to guarantee the subscribers to the exposition against any possible loss whioh they might sustain in the event no exposition was given."
And we likewise think that the subscribers have not suffered the loss whioh the directors had in mind when they undertook to bind themselves. lor although the resolution and gaurantee both speak of "any possible loss whioh the subscribers might sustain in the event no exposition is given," yet from the body of the one and the preamble to the other, it is perfectly clear that they had in mind only the "expens###, i.e. salary of lir Kaufman. In other words they did not intend to gaurantee the success of lir Kaufman's plans, of which the subscribers must necessarily soon become aware and approve or disapprove for themselves; but they did mean that the subscribers should not in addition to bearing any loss resulting from the weakness of Kaufman's plans, be called upon to pay the large salary of which they might possibly not be aware.
Bow the event shows that they were not, are not, and cannot, be oalled upon to pay this salary, as the paying out of this salary has affeoted the creditors alone and made not one whit of difference to the stockholders.
For suppose that instead of merely ¿raaranteeing the reimburse» ment of this salary the directors had paid it out of their own pockets; or that when Kaufman was sent off they bad promptly paid # In to the corporation the amount of their guarantee: or that Kaufman himself on leaving had reimbursed the corporation the full •mount paid him. This would hav« been all that the most exacting stockholder could have asked. And yet the only effect thereof would have been to leave $12,000 more for the creditors, and it would have # profited the stockholders nothing, since the corporation is "hopelessly insolvent." and would still be insolvent if this whole amount and all stock subscriptions were collected in full.
Bearing in mind then that these directors had no intention to guarantee the suaoesa of Kaufman's plans, and no intention to guarantee the debts of the corporation: that had their guarantee been fulfilled to the letter or even anticipated, the stockholders would have gained nothing and stood no better off than they stand now: bearing this in mind, we are clearly of opinion that the Keoelver is entitled to collect these amounts neither for the benefit of the creditors who are without rights upon the instrument, nor for the benefit of the stockholders who hare not suffered aay loss which the defendant agreed to make whole.
New Orleans La, March 1918.
The Judgment appealed from was for defendant, and we find it oorreot.
Judgment Affirmed.