Court Opinion

ID: 5231306
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:56:57.09887+00
Date Added: 2024-06-11T08:27:40.283434
License: Public Domain

Laughlin, J. (dissenting):
The plaintiff alleges that on the 6th day of May, 1911, Edward G-. Hemmerde and Francis Neilson, who were the authors of the .play or dramatic composition entitled “ The Butterfly on the Wheel,” and the proprietors of the performing rights thereof for the United States and Canada, made an agreement in writing with Charles Frohman and thereby assigned to him the sole and exclusive right to produce the play in the United States and Canada for the period of five years from the date of the first production, which was to be on or before December 31, 1911, in consideration for which Frohman agreed to pay to them weekly as authors’ royalties five per cent on the first $5,000 of gross weekly receipts, ten per centón the next $2,000, and fifteen per cent on all gross weekly receipts in excess of $7,000, and at the time the agreement was signed an advance payment of £300 was made on account of said royalties; that thereafter and prior to the 1st day of December, 1911, the authors, for full and adequate consideration, duly assigned to the defendant Waller a twenty-five per cent interest in and to all authors’ royalties earned or to be earned from any and all performances of said play in the United States or Canada under contracts made and to be made *732therefor; that thereafter and in said month of December Frohman, by an agreement in writing between him and the defendant Waller, in consideration of $4,000 paid to him by Waller and of the latter’s agreement to pay him the further sum of $1,000, if the play should be successful financially during the first season of its production in the United States and Canada, and of Waller’s agreement to hold him “harmless against any claim which ” said authors might thereafter assert against him in connection with his said agreement' with them, assigned to Waller all his rights under his contract with the authors, together with all manuscripts of the play and all scenery and other equipment and properties used by him in producing it. It is recited in the agreement between Frohman and Waller that the latter in making it was acting as agent and representative of the authors. That doubtless accounts • for the fact that the agreement contains no express assumption by Waller of Frohman’s obligation to pay royalties. The plaintiff further alleges that on the 29th day of December, 1911, Waller and the defendant Shubert entered into an agreement in writing, a copy of which is annexed to the complaint, for the production of the play, “ not as partners, but with a sharing of the profits ” and of losses and expenses in the proportions of two-thirds by Shubert and one-third by Waller, with a proviso, however, limiting Waller’s liability for making advances and for losses and his responsibility to $2,500, one-half of which, according to recitals in the agreement, he had paid over to Frohman. That agreement further provided, in effect, that for the purpose of accomplishing what the parties intended, Shubert was to be given the rights to produce the play and the use of the scenery and other property which Waller acquired from Frohman, and Waller was to give such time and attention to the production as might be convenient and as he might deem wise, and Shubert assumed two-thirds of “ such obligations as are imposed on ” Waller “ in his contract for the purchase of the production and the contract rights to produce the said piece from the said Charles Frohman. ” The plaintiff also alleges that thereafter and down to October 4, 1912, Waller and Shubert paid to the authors the royalties to which they were entitled under their contract with Frohman, with the *733exception of twenty-five per cent thereof, which was kept and retained by Waller by virtue of said assignment from the authors to him. It is further alleged that on the 4th day of October, 1912, the defendant Waller, in consideration of $4,000, assigned to plaintiff a twenty-two and one-half per cent interest in and to the authors’ royalties, and agreed that such royalties would be paid direct to the plaintiff by the managers or producers of the play; that seventy-five per cent of the royalties due since the assignment to plaintiff had been paid to the authors, but that twenty-two and one-half per cent of the royalties due to the authors under the contract with Frohman earned by the defendants in presenting the play since said assignment to plaintiff which have not been paid aggregate $8,000. This action was brought to recover that amount. The contract between the defendants contains no specific reference to royalties. The contract contained other provisions with respect to the presentation of the play not material to the appeal.
The defendant Shubert, after putting in issue some of the material allegations of the complaint, alleged for a first defense that when he made the contract with the defendant Waller he was not aware that the latter was interested in the royalties; that Waller fraudulently concealed from him the fact that he was so interested, and that the payments made to and received by Waller on account of royalties were received on the representation that they were to be paid to the authors, and without knowledge on the part of Shubert that there had been an assignment of any part of then* interests therein; that by reason of the premises Waller became a trustee for the defendant of two-thirds of the twenty-five per cent of the royalties and was without authority to assign any part thereof to the plaintiff.
For a second defense Shubert alleges, by reference, most of the allegations contained in the first defense, and further alleges that the assignment by Waller to the plaintiff was not in good faith; that plaintiff was cognizant of the facts and circumstances under which it was made and knew that Waller was not the true owner of the royalties so assigned and had fraudulently suppressed the material facts from him at the time they made the agreement of December 29, 1911, and he demands judgment for the dismissal of the complaint, with *734costs, and that all royalties received by Waller be impressed with a trust in his favor for two-thirds thereof.
The plaintiff demurred to these defenses on the ground that they are insufficient in law upon the face thereof. Appellant urges two points in support of his appeal. The first is that he was wronged by Waller’s concealment of his interest in the royalties; and the second is that upon the formation of the firm of Waller & Shubert—there is no allegation that there was such. a firm — Waller’s interest in the royalties became a firm asset and that he held it in trust for the firm, and that, therefore, he could not assign any part thereof to the plaintiff.
The full scope of the point presented for decision may, I think, be more readily grasped by assuming that the assignment of royalties to Waller was of all instead of twenty-five per centum thereof. If Waller owned all royalties and were suing Shubert, on the agreement for the joint adventure, to recover two-thirds thereof, we would have pointedly presented the question whether, in view of his concealment of his interest, a court of equity would aid him in appropriating to his exclusive use the share of the gross receipts of the adventure represented by the percentages set apart for royalties,' thereby reducing profits if any profits were, or otherwise would have been, made; and the same point would be presented if Waller, having so concealed his interest, had secretly received and appropriated to his own use all the royalties and Shubert were here asking that he be required to account. The wisdom of ages has developed a wholesome rule of honesty and fair dealing between men about to embark in any lawful enterprise or adventure, which involves relations of mutual trust and confidence, either as partners or as joint adventurers, and that rule, which has and can have no exception, rigidly requires the utmost good faith on the part of each toward the other, and a full and complete disclosure by each of all knowledge and information possessed by him that might influence the making of the copartnership or joint adventure agreement by the other and throughout the period of its continuance, and especially his interest, if any, m property to be rented or acquired for the business venture, under penalty for failing to make such disclosure, regardless of whether or not any direct *735loss to the copartnership has been shown to have resulted, of forfeiture to the copartnership or joint adventure of all secret profits realized or reserved, and of liability to account to each copartner or joint adventurer for his proportionate share thereof. (White v. Sherman, 168 Ill. 589; Getty v. Devlin, 54 N. Y. 403; 70 id. 504; Brewster v. Hatch, 122 id. 349; Dunlop v. Richards, 2 E. D. Smith, 181; Manufacturers’ Nat. Bank of Troy v. Cox, 2 Hun, 572; affd., 59 N. Y. 659; Kimberly v. Arms, 129 U. S. 512; Pratt v. Fraser, 95 Ark. 405; 129 S. W. Rep. 1088; Van Deusen v. Crispell, 114 App. Div. 361; Spears v. Willis, 151 N. Y. 443; Mitchell v. Reed, 61 id. 123; 84 id. 556; Reinhardt v. Reinhardt, 134 App. Div. 440; South Joplin Land Co. v. Case, 104 Mo. 572; Colton Imp. Co. v. Richter, 26 Misc. Rep. 26; Jordan v. Markham, 130 Iowa, 546; Telegraph v. Loetscher, 127 id. 383. See, also, Reis & Co. v. Volck, 151 App. Div. 613; Koster v. Pain, 41 id. 443.) It does not appear whether or not the royalties agreed to be paid were the usual or customary authors’ royalties paid on the production of a play, or whether by usage and custom there are fixed and uniform royalties. Since Waller concealed from Shubert the fact that he was interested in the royalties, it is fairly to be inferred that Shubert was led to believe that Waller could not produce the play without paying the royalties, and' that notwithstanding the requirement that such royalties would have to be paid out of the gross receipts, it was Waller’s conviction that the play could be produced with financial success. If Waller’s interest in the royalties had not been suppressed from Shubert the latter might not have undertaken to produce the play at all, or on terms embodied in the joint adventure agreement. In view of Waller’s interest in the royalties and his limited liability for losses, it was to his interest to have the play produced, even if he thought no profits would be realized for distribution between him and Shubert, for he expected profits in the form .of royalties. It may fairly be inferred that Waller was led by these considerations to conceal from Shubert his interest in the royalties. Manifestly Shubert on discovering the facts was at liberty to rescind the contract and to call Waller to account for a proportionate share of the profits he thus secretly realized from the receipts of the business, subject, *736perhaps, to reduction by a proportionate share for the period involved of Waller’s burden, if any, on account of his investment in procuring an assignment of the royalties; but I am of opinion that Shubert was neither obliged to rescind nor to acquiesce in Waller’s fraud and deception and that he was at liberty to claim, as he does-in effect by his answer, that the assignment of the royalties to Waller inures to the benefit of the joint adventure, subject, possibly, to a claim for an equitable return on his investment—a point not presented for decision and on which I express no opinion. (White v. Sherman, supra; Getty v. Devlin, supra; Spears v. Willis, supra; Manufacturers’ Nat. Bank of Troy v. Cox, supra; Reinhardt v. Reinhardt, supra; Mitchell v. Reed, supra; Trice v. Comstock, 121 Fed. Rep. 620; Dunlop v. Richards, supra; Van Deusen v. Crispell, supra; Reis & Co. v. Volck, supra; Brooks v. Belasco, 48 Misc. Rep. 600.) If, as I am convinced and have endeavored to show, Waller could not recover the royalties from Shubert and would be accountable therefor if he owned all royalties, for the same reasons he could not recover and would be accountable for his one-quarter interest therein. Manifestly, under the defense charging plaintiff with having taken the assignment from Waller with full knowledge of the facts with respect to his having suppressed from Shubert his interest in the royalties, he could have no greater right than Waller.
I am likewise of opinion that the other defense is good, on the theory that Waller’s contract for a percentage of the royalties inured to the joint adventure for the period of its continuance, and that plaintiff, under the assignment from Waller individually, took subject to Shubert’s rights, and that the assignment only transferred a right to share in Waller’s interest in any surplus on the termination or abandonment of the joint adventure. (Wood v. American Fire Ins. Co., 149 N. Y. 382.)
I, therefore, vote for reversal, with ten dollars costs and disbursements, and for overruling the demurrer, with ten dollars costs, hut with leave to plaintiff to withdraw the demurrer on payment of said costs.
Hotchkiss, J., epneurred.
Order affirmed, with ten dollars costs and disbursements.