Court Opinion

ID: 5194712
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:41:32.404609+00
Date Added: 2024-06-11T08:27:02.302334
License: Public Domain

Ingbaham, J-.
(dissenting)":
I do not concur in the affirmance - of this judgment I. do not consider it at all necessary to determine the relation that" existed between the parties- to this action prior to the execution of the agreement of March twenty-seventh, but as. I understand it, under the prior agreement, if-: the stock in the pool was divided, the defendants were to receive 5,100 shares, the plaintiff- 250 shares, and the balance of the stock in the pool-was to be sold, the defendants-to receive from the proceeds of that, stock one hundred and six thousand dollars.- If the-4,750 shares of stock sold above' twenty-two dollars and=fifty cents-per share, the plaintiff was to receive, the difference between twenty-two dollars and fifty cents and twenty-seven dollarsin stock at twenty-two dollars and-fifty cents -per share. If the stock sold for more than twenty-seven dollars a. share, the amount realized over twenty-two dollars and fifty cents per share was to be divided between Garrison, Spier and Hyde. As I look at it, there was no partnership or joint adventure by which the defendants became trustees for1 tile plaintiff. The plaintiff never became the owner of any stock. He had an agreement with the defendants by which he was: to receive 250 shares of stock in the event that the arrangement was carried out, and a certain further sum in the event that' profits were realized, as compensation for the services that he had rendered, in relation to the transaction. The complaint alleges that prior to the execution of the agreement of' February 24, 1899, Hyde had purchased 10,100 shares of stock of the Goodson Type *484Casting and Setting Machine Company, a corporation organized under the laws of the State of Minnesota; that he had paid in cash therefor $106,000, and that in purchasing that stock plaintiff had rendered certain services to Hyde, thé compensation 'for which was secured to him by the agreement of February 24, 1899, which liquidated the .claim for compensation for his work, labor and services in obtaining the contract for this stock. Hyde had become the owner of the stock by purchase; for which he paid $106,000. He was indebted to the plaintiff for services which the plaintiff had rendered, in procuring that stock, and he agreed to pay for such services by delivering to plaintiff 250 shares of the stock and a contingent interest in the event that a portion of the stock was sold at a price which would realize a profit. There was here no joint adventure, no relation of trust, no partnership, but simply an agreement by Hyde to discharge an obligation that he was under to the plaintiff for the services rendered. Tinder this agreement, there was no intention to organize a new company, or to deal with the stock in any way except to sell it.
By the contract of March twenty-seventh an entirely different disposition of this stock was contemplated, which was inconsistent with the arrangement of February twenty-fourth and which abrogated that agreement. The agreement of March twénty-seventh, instead of a sale of this stock, provided for the organization of a new company, and that the 10.,100 shares of stock of the Type Casting and Setting Company then owned by Hyde were to be exchanged for an equal number of shares of stock in the new sompany. There was thus to be substituted in the possession of Hyde 10,100 shares of stock of the new company in place of stock of the old company that Hyde then owned; and the plaintiff necessarily^ by joining in this understanding, relinquished all right that he had in profits that might be realized from the sale of the old company’s stock. His right was limited by the. agreement that he then made with Hyde. The new agreement provided that Hyde, expected to place the 10,100 shares, of stock of the new company in a pool, the stock to be charged to the pool at the rate of twenty-two dollars and seventy-five cents per share, and that he expected to have this stock underwritten or sold; that á part of the ' money to be realized on that sale was to be paid to the company to *485be used as working capital, Hyde reserving the right to fix the amount, and the expenses in selling the stock were also to be paid. It was then understood that the profit to accrue in connection with the 10,100 shares of stock of the company was to be the net sum realized upon the sale of the said stock, after deducting and repaying to the persons depositing it the sum of twenty-two dollars and seventy-five cents per share and deducting the expenses and the amount fixed by Hyde as working capital for the ,new company.
Now it seems, to me that this arrangement was entirely clear. Hyde and his associates had purchased the 10,100 shares of stock, paying therefor $106,000. They were to transfer that stock to the new company, and were to receive from the new company an equal number of shares of its capital stock. These 10,100 shares of the stock of the new company were to be placed in a pool and, when sold, from the proceeds Hyde was to receive an amount equal to $22.75 per share for the 10,100 shares. There was also to be deducted from the amount realized upon the sale of the stock the expenses and such a sum as should be paid to the company for its working capital, and the balance was to be considered as the profits in which the plaintiff was entitled to share. It was then provided that, as a consideration for the services rendered by the plaintiff, Hyde would be willing to “ set aside for your benefit as full compensation for your services 15% of whatever net profits estimated on the above basis may be found to have been realized from the sale of the pooled stock after the entire 10,100 shares have been pooled and sold; ” and “ it is understood, however, that this 15% interest relates only and applies solely to the 10,100 shares of stock of the new company and to the net profits, if any, to be derived from the sale thereof on the basis as above stated.”
By this agreement the plaintiff was limited to the fifteen per cent of the net profits upon the 10,100 shares of stock of the new company to be issued in exchange for old stock owned by Hyde. To this the plaintiff agreed, and it is this agreement that plaintiff asks to enforce. Hyde proceeded to carry out this arrangement, and negotiations were commenced with a firm of bankers for a sale of the stock of the new company when organized. Those negotiations finally resulted in a contract between Hyde and the bankers, Talbot J. Taylor & Co. That agreement recites that Hyde and his *486associates had acquired control of the Type Casting and .'Setting Company (the old company), and intendto organize'under the daws of the State of New Jersey the Grapliotype Company1 (the 'new company) for the purpose of acquiring the entire-capital stock of the old company and the o worship of the patents and other patents belonging tout, and the agreement provides that on or before May. 23, 1899, Taylor-&-Co.'.should, in the event that their-examination into the validity of -the patents proved satisfactory, purchase from Hyde 10,000 shares of the preferred stock and 10,000-shares of The common stock - of the new company; that the new company was to have 25,000'shares of the par value of $100 each of the preferred-stock and 25,000 shares of the par value of $100 each of the common stock; that the new company was to issue -to Hyde 24,999 -shares of preferred stock and 25,000 shares of the common stock, for which Hyde was to deliver to -the new company the 10,100 shares of stock of the old company and $374,000 in cash, Hyde to procure, by purchase or exchange, all of the balance of the stock of the old-company, amounting to 19,900 - shares, and to -transfer it to the new company, and:for each-share of stock of the old-company Hyde was to receive of the amount issued to liim-by the new company one share of preferred stock and one'share of common stock; that in the event that Hyde was unable to acquire all of the -stock of the old company by the 4th of September, 1899, he -should on that date return to the new company1 the amount of common and preferred stock to which he was not entitled under the contract. It was further!provided that on or before the 31st day of May, 1899, Taylor & Co. would pay to Hyde, in the event that Their examinations of the machinery and-patents owned by the company were satisfactory, the sum of $187,500 on account of 10,000 shares of preferred and 10,000 shares of common stock of the new company, purchased by them from Hyde, and that the remaining $562,500 on account of such purchase was to be paid by Taylor & Co. to Hyde in Three equal installments, payable July 1, 1899, September 1, 1899, and November-1, 1899, and Hyde was to deposit in a Trust company 10,000 shares of the preferred stock and 10,000 shares of common stock, to be held by the company for one year from the date of the agreement, and not to be sold within that time. This agreement was signed on the sixth day of May, and after it-was signed Hyde had *487an interview with the plaintiff at his -office, when a new agreement was made, which "the plaintiff alleges was induced by false and fraudulent representations of Hyde, and which the court below has found was void because of such representations.
It does not seem to be disputed that if the -new agreement of May 8, 1899, is binding upon the plaintiff, this action cannot be maintained, and the right of the plaintiff to require all accounting from Hyde under the original agreement of March twenty-seventh depends upon whether or not the agreement of May eighth was properly abrogated. The defendant Hyde, who was corroborated by the defendant Harrison, denied having made the representations claimed by the plaintiff; but the court having found that such representations were made, we must assume that Hyde did make the representations testified to by the plaintiff; and the question first presented is whether those representations were proved to be false so that a contract based upon them was fraudulent as against the plaintiff.
To determine whether or not those representations were false, it is necessary to determine just what interest the plaintiff had at the time of his interview with Hyde which resulted in this agreement of May eighth. By the contract with Taylor & Co., Hyde was to get for the 10,100 shares of stock of the old company and the payment to the new company of $374,000 in cash, 10,100 shares of preferred stock and 10,100 shares of common stock in the new company. This sum of money, I assume, would be the working capital which, under the letter of March twenty-seventh, was t"o be paid to the new company and deducted from the proceeds of the sale of the stock of the new company which was to be issued to Hyde in lieu of the 10,100 shares of stock of the old company. The agreement with Taylor ■& Oo. was not absolute, but depended entirely upon an examination of the patents and machinery proving satisfactory to Taylor & Oo. Hyde was entitled to receive for the stock of the old company $22.75 per share, amounting to $229,725. He was required to pay in cash to the new company $374,000. Taylor & Go. had agreed to pay for 20,000 shares of stock (10,000 of preferred, 10,000 of common), if things were satisfactory, $750,000 on or before November 1, 1899. Hyde had agreed to purchase the remaining stock in the old company, for which he was to receive stock in the new company at the rate of one share of preferred and *488one of common for each share of stock of the old company; and the stock that Hyde was to receive was to be deposited so that it could not be sold or used for one year.
• It is clear that under this agreement there could be no profits ascertained until the expiration of the year from the date of the Taylor agreement. "Whether there would be any profit at all. depended, first, upon whether or not Taylor & Co. would carry out their contract which was contingent upon the patents and machinery, being satisfactory to them, and then upon the price at which the stock that Hyde retained could be sold after the expiration of the ■ year, so that at the time of the conversation between Hyde and the plaintiff there were no profits upon the undertaking to which the plaintiff was entitled. The new company was not then organized, as the date of its organization was May 31, 1899. The plaintiff testified that at that time he knew that Hyde was ■ negotiating with Taylor & Co. for the sale of some of the stock of the new company, such negotiations having been discussed between the plaintiff and Hyde in a general way, and the plaintiff knew that representatives of Taylor & Co. were frequently at the office of the company, and the plaintiff familiarized himself, so far as he could, with what was ■going on between them and Hyde. The plaintiff also' knew that Hyde had employed Mr. E. H. Dickerson, a patent attorney, and had made an agreement with him by which, for services rendered, Dickerson was to have twenty per cent of the net profits of the transaction and knew that the new company had not been formed. The plaintiff, with this knowledge, after the -agreement with Taylor & Co. had been executed,- saw Hyde, and the plaintiff testified that Hyde said to him, “ How, Spier, T want you to accept ten per cent instead of fifteen.” This the plaintiff objected to,- when some discussion followed, and Hyde then said, “Well, the profits of the pool are only about 2,475 shares and your percentage of that would be about 361vand a fraction,” and then Hyde offered the plaintiff 375 shares, which the plaintiff accepted on Hyde’s representation that the profits of the pool were only about 2,475 shares. Spier also testified that Hyde said that Taylor & Co. had made other exactions in regard to the shares, of stock that they were to purchase, and that this was the basis for the statement that the pool profits would be 2,475 shares of the stock.
*489Assuming that such a statement was made, it must be apparent that the plaintiff understood that this statement of profits was a mere estimate based upon what was the expected result of the negotiations with Taylor. The plaintiff knew that no new corpora* tion had been organized. He also knew that under his agreement he was entitled, not to any amount of stock, but to the net profits to be realized by a sale of the stock of the new company received for the 10,100 shares of the stock of the old company after all expenses had been paid and a working capital had been provided for the new company. The defendant testified that the plaintiff had knowledge of the terms of the contract with Taylor. That the plaintiff denied, but he knew perfectly well that, under his contract, there could be at that time no statement of the probes to- a percentage of which he was entitled. He also knew that under no condition would he be entitled to any number of shares of the stock of the new company, but only to fifteen per cent of the net profits after all of the stock issued to Hyde in lieu of his 10,100 shares of sfock of the old company had been sold. Assuming that the contract with Taylor & Oo. was carried out, was it at all certain that there would be any profits upon the final completion of the contract? That would necessarily depend upon the amount that it would cost Hyde to procure the additional stock of the old company and the amount for which he would be able to sell the stock of the new company after the year had expired, during which time it was to be deposited with the trust company. With the knowledge that the plaintiff had of the transaction, it is clear that the plaintiff did not understand, and could not have understood, that Hyde represented at that time that there was any profit in the transaction to which the plaintiff was then entitled, or that Hyde’s statement was anything more than a proposition to accept a certain amount of preferred and common stock of the new company in lieu of the fifteen per cent of the cash profits of the transaction after all the stock that was issued to Hyde in lieu of the 10,100 shares of stock of the old company had been sold. And that the plaintiff relied upon Hyde’s representations that the profit of the pool stock was at that time 2,415 shares, of which he was entitled to receive fifteen per cent, when the plaintiff knew that no company had been organized and was told that Taylor & Co. were negotiat*490iagfor -a purchase of 6a interest in the company, and liad made ¡additional demands for stock, is directly contradicted fey the conceded facts. There could be under the agreement no profits to the plaintiff at -all until -the stock of the new -company had been .-issued and sold, the amount furnished as working capital determined and the expenses paid; and plaintiff knew all tills as well as Hyde knew -it. The plaintiff says that relying upon this- .representation he .made a contract by which he -agreed to accept -3Í5 shares -of preferred and 3Í5. of common stock of the-new company in the event of the formation of that company, which stock should be in full for his services and all -demands under the' agreement of March 2%, 1899,, and the agreement then contained this clause : “ This, of course, depends, upon the.formation of the G-oodson Grapho'type 'Company and the carrying out -of -bur plans of reorganization as mentioned t:o you to-day.” This letter expressly states that -the ¡stock to be given to the plaintiff was to be the -stock in a company to be organized, and the form of the understanding which he accepted -in writing as perfectly satisfactory to him-and which iby-such acceptance he¡adopted,is a -clear statement that the agreement to ¿accept ¡this stock wa-s based upon a plan of reorganization to fee earned out in the future which had ¡been -discussed between Hyde .and the plaintiff, and any statement of the profits of fsuch .an arrangement to be carried out in the future would clearly -be a. statement of estimated or -contemplated profits and not a statement of profits that had been realized or fixed which-could be the basis of ¡a -charge of false -or fraudulent misrepresentations.
It-is -clear to me that, accepting this whole -conversation as -testified to by the plaintiff as true, there is no representation made as to the existence of profits, but -a mere- statement -of what it was contemplated would be the profits, if the agreement with Taylor •& Co. was carried out, -and that the plaintiff could have understood nothing else from -the statement that was made by Hyde. But i-f it be assumed -that Hyde did state that the profits of the pool at that time were only about 2,áfo shares there is no - evidence that 'this .statement was false. It-is -clear that it was here intended -that the profits would be S,4/£5 -shares of the. preferred and :2,á75--of ¡the common stock, of -which plaintiff would be entitled to Í50 shares of -each. What Hyde was to receive from -the transaction of the Id,1-0.0 ¡shares of stock of the told company and what, as I understand, he did *491receive was 10,100 shares of -preferred stock and 10,100 shares of common stock. But it was not agreed that the plaintiff should receive fifteen per cent of the stock that Hyde was to receive for ¡the 10,3 0.0 shares of the old stock :that he transferred to the company. There is certainly nothing in. this evidence to show that, after deducting .the amount of stock necessary to procure the sums of money required to pay the twenty-two dollars and seventy-five cents per ¡share,-the expenses and the working capital, there would "be any more stock to divide among those who were entitled to the proceeds of 'the profits realized, than that stated by Hyde, if stock instead of cash was to 'be distributed. There is nothing, therefore, to show or that tends to show that at the time this statement was made it was a false statement of the profits to an interest in which the plaintiff was entitled. Assuming that the plaintiff’s story is true, I think the statement made by Hyde was necessarily made as an estimate of what the profits would be in the future if the transaction was carried out.; that it was -so understood by the plaintiff; that there is no .evidence that at that time-that statement was false, and that the finding of the court that the agreement of May 8, 1899, was induced by fraiid was unsupported by the evidence, and for that reason the judgment should be reversed.
Judgment modified as directed in opinion, and as modified affirmed, without costs of appeal.