Court Opinion

ID: 7934379
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:07:56.186008+00
Date Added: 2024-06-11T16:33:29.020639
License: Public Domain

Long, J.
I concur in the result reached by Mr. Justice Sherwood in this case. I am not, however, entirely satisfied with many of the reasons he gives for his conclusions.
It clearly appears that the defendants were never members of the. Diamond Match Company, and never held a dollar of its stock, except by way of security for the loan of their credit to complainant. In 1879 D. M. Richardson was the head of a corporation, organized under the laws of this State, having a capital of $75,000, consisting of 3,000 shares at $25 each; but such was its financial *662condition that for more than sixteen months prior to July 3, 1879, its doors were closed, and all operations suspended. In these straits complainant called upon defendant Buhl, and induced him, in conjunction with General Alger, on that date to indorse the commercial paper of' the corporation to the amount of $50,000, and to become security on his government bond in the sum of $80,000. In order to be secured, defendants took 1,800 shares of the capital stock of the corporation, with a right to vote it at stockholders’ meetings, to receive-dividends thereon, paying one-sixth part of such dividends, to complainant, and, at the expiration of three years, if all the obligations to defendants were paid, the whole of the stock held by defendants was to be transferred to-complainant. Defendants, after this arrangement was made, gave their attention to the business, and it. was carried on till December 24, 1880, under that arrangement. During this time, under the management of the-defendants from July 3, 1879, to December 24, 188®, a. period of a little over seventeen months, this corporation, whose doors had been closed for the prior sixteen months, had earned nearly $30,000.
On November 22, 1880, complainant made a written proposition to the defendants to modify and change, in a. great measure, the agreement of' July 3, 1879, which was agreed to by the defendants, after some additions were made at the instance of Gen. Alger. This proposition, and the amendment thereto, are set out in full in the-opinion f Mr. Justice Sherwood, and need not be-stated here. This new arrangement was not yet signed by the parties, and on December 27' 1880, the parties met, and a contract was formulated, with certain other additions, which the parties finally all assented to and signed.
It appears that before this contract was finally agreed *663upon and executed, and on December 3, 1880, the Diamond Match Company was organized under the laws of the state of Connecticut, and complainant desired to transfer the property and business of the Richardson Match Company to that, and to take its stock in payment therefor. In order to do this complainant was compelled to take one-half as much stock in the new company as his properties and business were placed at in the new company, and to pay cash therefor, The property and business were placed in the new company at §190,000, in shares of the new company's common stock, and complainant took §95,000 of the preferred shares. In order to raise this amount of money complainant again called, upon the defendants to indorse notes to that amount, less the net earnings of the Richardson Match Company since July 3, 1879. The defendants agreed to advance to complainant the dividends belonging to them arising from the business of the Eichardson Match Company, to be used in taking up the notes indorsed by them, and to take the, notes of the complainant therefor, payable March 1, 1883, with interest at 7 per cent., and it was provided that all notes given to defendants by complainant to make up the §95,000 should draw interest at 7 per cent;
The Connecticut Mutual Life Insurance- Company held a mortgage of §28,200 on the properties of the Richardson Match Company. It was provided in the contract that, upon a transfer of these properties over to the Diamond Match Company, complainant should deposit with it §40,000 of the common stock to secure the payment of this mortgage, and that complainant should take all the balance of the stock, both common and preferred, in his own name, and at once indorse it over to defendant Buhl, to secure the defendants upon their indorsements, and their interest in the profits of the Diamond *664Match Company. The contract also provided that, if these notes were not paid by March 1, 1883, defendants might sell these shares of stock at public auction, after thirty days’ published notice, to meet such payments, interest, and expenses.
The rights and interests of the parties were then fixed by the contract in the following terms:
“It is expressly understood that said second parties are to receive one-half (each one-quarter), after deducting the payments for interest as above stated, of the net earnings of said stock, and not merely one-half the dividends; and in settlement with said first party, he is to pay them, in addition to one-half the dividends declared, the one-half of any surplus or reserved fund which, if divided, would pertain to said stock; and on such settlement no loss that may be charged on account of the purchase and sale by said Diamond Match Company of other match factories shall be taken into account; and, if such settlement is made at the end of a half year, the earnings of the whole year shall be averaged so that the said second parties shall receive the full half of the earnings of said stock for the whole year: Provided, that on such settlement the second parties shall estimate such earnings from the trial balance or books of said Diamond Match Company, and shall make such allowances as to them shall seem just and equitable for loss and shrinkage in values of said Diamond Match Company, and shall take into consideration. improvements that have been made out of the earnings thereof.”
This contract was executed on December 88, 1880, and the Richardson Match Company’s properties and business transferred to the Diamond Match Company, and the stock transferred to Mr. Buhl, as the contract provided.
It is conceded that since the making of this contract the notes signed by defendants have been paid from dividends received from the Diamond Match Company. The whole contention, therefore, arises upon the construction of this portion of the contract referring to net profits, and the interest of defendants thereunder.
*665It appearB that in the organization of the Diamond Match Company the various parties put in their plants and good-will of the business at exorbitant prices, — much more than they were actually worth, — and also gave a bond not to engage in similar business, for which they were paid large amounts in stock of the company. Upon an inventory of the property the following year, the properties were put in at their actual worth. The accotmts of the company were kept upon the ledger under two general heads, — one real estate and machinery account, and the other purchase account. Under the new inventory large deficits appeared in these two accounts, and, under a resolution of the board of directors, sufficient of the earnings of the company were taken out and applied to make up these balances, and these accounts were charged off. Complainant claims that the balance to be divided among the stockholders after these deductions, and deductions for expenses, represented the net profits; and that defendants, under their contract with him, must share in this loss.
Defendants claim that they are entitled, under the agreement, to their share of the amounts charged off the same as though these amounts were not so disposed of by the board of directors upon the books. I think the defendants are correct in their interpretation of the contract. The contract is not ambiguous. .It was entered into by all the parties understandinglv, and no fraud or mistake is charged. The contract expressly provided that—
“On such settlement no loss that may be charged on account of the purchase and sale by said Diamond Match Company of other match factories shall be taken into account," etc.
Whatever the rights of the parties may be as between the complainant and the Diamond Match Company to *666charge these amounts off, and apply the earnings of the company to such purpose, certainly the defendants could in no manner be bound by the action of the board of directors in that regard. They were not members of that company, and held the stock directly'from the complainant by way of security for their indorsements, and for the payment of their claims, which were certainly and definitely fixed by the contract. The net earnings of the company, as mentioned in the contract, served only to fix the amount they were to receive.
The complainant states in his bill that the net earnings of the stock of said company, so held as security by defendants, including these amounts charged off applicable thereto, amounted, in the year 1881, to the sum of $81,099.31, and for the year 1882 amounted to $139,757.93. While these amounts are large, yet complainant gets one-half, and the defendants each one-quarter, by the terms of the contract. As is well stated by Mr. Justice Sherwood:
“ Of course, when the agreement between these parties now before us for construction was entered into, no one could certainly tell that the defendants would ever realize a dóllar of profits fro'm their venture, while their liabilities assumed were very large. It could not be known that the dividends would ever be sufficient even to pay the interest on the notes indorsed, or the mortgage of $28,200 covering the property which was their only security, and which was to be first paid before they could realize-anything by way of profit. The success of the enterprise was not altogether free from doubt. Upon this point, Richardson himself says in his testimony he considered he was assuming a great risk in turning his factory into the Diamond Match Company.”
He took this risk, and the defendants shared it with him therein by the indorsement of his notes to nearly $85,000. They were together to get one-half of the net earnings for a certain definite period, after the payment *667of these notes and mortgage. Complainant was then entitled to the, whole stock, freed and unincumbered from any claims of defendants whatever, and the stock was to be assigned to him. The stock has made fabulous earnings, more than complainant or defendants could ever have anticipated or hoped. Complainant, as appears from this record, has reaped the benefits of defendants’ financial standing and business abilities. The defendants found him with a plant stocked at $75,000, and his shop closed. They opened the doors, and put the machinery in motion, which, according to complainant’s statement, has an earning capacity of more than $100,000 annually, and made the complainant the owner and possessor of $190,000 of the common stock and $95,000 of the preferred shares fully paid for.
It would seem that one ought to be satisfied with such results, and be willing that those who have carried the burden, and upon whom the loss would fall if disaster overtook the enterprise, should share in the profits when crowned with success, especially when the rights, duties, and obligations of the parties are fixed with so much certainty as appears by this contract.
Complainant’s bill is entirely devoid of equity, and there is nothing appearing in the record showing that defendants have not treated the complainant in the most honorable manner, and under the true interpretation of the contract.
Whether the organization of the Diamond Match Company is one against public policy, I do not propose to discuss. Defendants are not members of the company, nor have they ever been. They claim the right to sell and dispose of this stock so held by them as security,' and to realize therefrom the amount then due under the contract. By the terms of the contract they have the right to pursue this course.
*668By the decree of the court below they were restrained from making this sale. I agree with Mr. Justice Sherwood that the decree of the court below be dismissed, with costs.
Morse, J., did not sit.