Court Opinion

ID: 7333550
Source: CourtListenerOpinion
Date Created: 2022-07-25 22:24:43.497694+00
Date Added: 2024-06-11T16:20:11.215126
License: Public Domain

INGRAHAM, J. (dissenting).
The defendant, a corporation organized under and in pursuance of the laws of the state of New *601York, is sought to be held liable under an agreement made between Mr. Johnson, president of the defendant corporation, and the plaintiff, for services rendered in the promotion or organization of a corporation known as the Edison Electric Light Company of Philadelphia. A memorandum of the agreement between the plaintiff and Johnson was given to the plaintiff at the time the agreement was ' made, signed by Johnson as president. By that -memorandum, supplemented by the evidence of the plaintiff, it appears that the plaintiff as promoter was to organize a company in Philadelphia, with a capital stock of §1,000,000, of which the defendant was to have 30 per cent, in stock and 5 per cent, in cash. The promoters were to have 10 per cent., and the plaintiff was to have 5 per cent., of the stock from the 30 per cent, which the defendant was to receive. The memorandum also contained the following provision: “Future increase of capital: 35 per cent., stock, to Edison Company; rebate of 5 per cent, to present promoter.” The plaintiff claimed that, under this contract or memorandum, the defendant agreed to pay him 15 per cent, of the capital stock upon the incorporation of the Philadelphia Company, and that 5 per cent, of any increase of stock of the Philadelphia Company, out of the 35 per cent, of such increase, under the agreement, was to be paid to the defendant. The plaintiff proceeded to organize the Philadelphia Company, which was eventually incorporated with a capital of §1,000,000, 35 per cent, of which was transferred to the defendant in stock, and 15 per cent, of which was transferred by the defendant to the plaintiff. Subsequently the stock of the Philadelphia Company was increased by the issue by the Philadelphia Company of stock to the par value of §200,000, which was divided among its stockholders as a dividend; and in September, 1802, the Philadelphia Company authorized the issue of §273,000 additional capital stock of said company. That stock was sold at par, realizing for the Philadelphia Company the sum of §273,000; the proceeds being used to pay obligations of the Philadelphia Company. On March 15, 1893, there was a further issue of stock by the Philadelphia Company of the par value of §277,-000. No part of either of these issues of stock seems to have been received by the defendant. It was held by this court, on a prior appeal, that the plaintiff was not entitled to recover for the stock issued by the Philadelphia Company for dividends, but was entitled to 5 per cent, of the stock that the defendant should have received by the increase of the capital stock sold by the Philadelphia Company; and upon a retrial of the action the plaintiff has recovered a judgment against the defendant for the value of 5 per cent, of the §550,000 of the capital stock of the Philadelphia Company which that company sold for cash, and no part of which stock was issued to the defendant.
Upon the trial the court charged the jury:
“Always providing you shall find that the plaintiff was the ‘present promoter,8 within the meaning of the contract, he is entitled to the value of his percentage of the stock, at times when the defendant might have received it, but for the contract of July 10, 1892.”
*602To this the defendant excepted.
It seems to me that this contract between the defendant and the plaintiff imposed no liability upon the corporation organized by the plaintiff to deliver any stock to the defendant. It is well settled in this state that contracts made by a promoter of a company are not binding upon the company, when organized and incorporated. Munson v. Railroad Co., 103 N. Y. 75, 8 N. E. 355. When we come to look at the general effect of such a contract as is here proposed to be enforced, it seems to me that such a contract could be challenged, even if subsequently ratified by a corporation. The stock of a corporation can be issued only for money or its equivalent. At common law a corporation would not have a right to issue its capital stock as full paid up stock to a third party without consideration, unless expressly authorized by its charter; and it is at least a doubtful question whether a contract by a corporation, made upon a good consideration, to issue a percentage of all subsequent increases of stock that it should make to a particular individual, without requiring any payment therefor, would be binding.- Thus, if it should wish to increase its stock, and sell it, for the purpose of obtaining additional working capital, or property necessary for the transaction of the corporate business, before it could do so it would have to issue, without consideration, a certain percentage of the increase to an individual as full paid up stock. Thus, upon every increase of capital stock the company would receive, not the value of stock as issued, but the amount of such stock, less the percentage issued as full-paid stock to such third party. Such a contract, it seems to me, would be one that no court would enforce at the suit of the individual who claimed to be entitled to receive such a percentage of the stock from the corporation which had bound itself to issue it.
The only contract that appears to have been made between the plaintiff and the Philadelphia Company was the agreement, executed on the 3d day of February, 1887, whereby the defendant granted to the Philadelphia Company a license for the sale and exclusive use of certain inventions under letters patent held by the defendant within the corporate limits of the city of Philadelphia. As a consideration for that license it was agreed that, of the capital stock of the Philadelphia Company, of the par value, of $1,000,600, the defendant should receive from the Philadelphia Company 30 per cent., fully paid and nonassessable, and 5 per cent, of all moneys called in by the said Philadelphia Company when the same should be paid by the stockholders. It further provided:
“This percentage of 35 per cent, is to be maintained in any future increase of the capital stock, subject, only, to the change that the percentage in such case is to be given entirely in stock.”
It was further provided in the agreement that all shares of the Philadelphia Company should be of the par value of $100 each, and of like tenor and effect, and should be issued for full payment in cash only, except as above provided, and 30 per cent, of all such shares, as originally fixed or at any time afterwards increased, should be delivered, fully paid, to the light company or its assigns. The *603.agreement also contained a further provision that no bond or mortgage, or other incumbrance creating a preferential charge in priority to its ordinary capital stock, other than such sums as may be temporarily required to meet current liabilities of the company necessarily incurred for machinery, plant, or other material or property required in carrying on its business, shall be created by the illuminating company without the consent of the light company; that the defendant, however, agrees to give its consent to creating such a preferential charge whenever requested in writing, provided that •35 per cent., in amount, of the preferential charge thus created shall be given to the defendant, fully paid.
Assuming, however, that this agreement between the defendant and the Philadelphia Company was valid, and under it the defendant could insist upon the Philadelphia Company’s paying to the defendant 35 per cent, of the capital stock subsequently issued, I do not think that the subsequent agreement made between the defendant and the General Electric Company contracted away any right that the defendant in this action had to receive from the Philadelphia Company any stock of its proposed issue; and neither that contract, nor the receipt by the General Electric Company of any of the Philadelphia Company’s stock or money, would justify the plaintiff in demanding from the defendant any stock, or the value of any stock, as delivered to it under this contract between himself and the defendant. The General Electric Company did transfer to the Philadelphia Company, by the agreement made on the 15th day of July, 1892, and the supplemental agreement made on the same day, various licenses and rights, in consideration of which transfer and ■contract the Philadelphia Company agreed to pay to the General Electric Company 10 per cent, of the new stock that it should issue, and also 10 per cent, of such bonds' as it should execute and negotiate; and such stock and bonds, to be issued by the Philadelphia Company to the General Electric Company, were expressly stated in the agreement to be in consideration of the license and other provisions of this contract. This contract did not, itself, purport to destroy any right that the defendant would have to receive from'the Philadelphia Company any stock; nor did it abrogate any obligation of the Philadelphia Company to the defendant. It simply provided that this contract should take the place of the license theretofore granted by the Edison Electric Company of New York to the Edison Electric Light Company of Philadelphia. The right of the General Electric Company to receive this 10 per cent, of stock or bonds was not based upon any agreement or license theretofore •existing between the defendant and the Philadelphia Company, but the stock was to be issued to the General Electric Company for the rights and licenses granted to the Philadelphia Company by the contract of July 15, 1892; and, as the defendant never did receive any stock of the Philadelphia Company, I do not think it was liable to the plaintiff for any such stock.
It is conceded in the prevailing opinion that the matter ig now before the court on this appeal in a different form from what it was *604presented upon the former appeal. It was not held that the act off the General Electric Company, in granting a new license to the Philadelphia Company, and insisting therein that it should be paid a portion of such new stock, as a matter of fact, rendered the defendant liable for something which it never received, and from which it could derive no benefit'. It seems to me, also, that there was absolutely no evidence to show that this defendant ever constituted the General Electric Company its agent to contract away its right, if it had any; and it seems to be conceded that the only proof of such agency is the acts and declaration of the General Electric Company and the Philadelphia Company. It seems to me a novel proposition to hold that the acts or declarations' of one alleged to be an agent are competent as evidence, standing alone, to prove the fact of agency, and the authority conferred upon the agent. The General Electric Company and the defendant are distinct corporations. The-General Electric Company admits and declares that it controls the defendant and is the owner of its stock, but I see no evidence in the case in which the defendant has admitted or made such a declaration; and upon what principle it can be said that this defendant'is to be liable for a contract made between the General Electric Company and the Philadelphia Company, not purporting to be made by the defendant’s authority, and not purporting to be a contract made-by the defendant, and where it is- not alleged that the principal had any knowledge that a particular contract was being made in its name or on its account, I am at a loss to conceive. I do not think that there is any evidence here to show that the General Electric-Company assumed to release any right that the defendant had against the Philadelphia Company; and, as the defendant has received no stock from the Philadelphia Company, the plaintiff is not entitled to-any percentage of the increase of the stock named. It seems to me,, therefore, that upon the facts as proved the plaintiff was not entitled to recover. I dissent from the affirmance of the judgment.