Reitzfeld v. Harris — 171 A.D. 403

Majority

p. 403

Morris Reitzfeld and Abraham Halbrecht, Respondents, v. Michael Harris and Max Harris, Appellants.

First Department,

February 18, 1916.

Headnote

Contract — action for breach of agreement to form corporation — evidence — by-laws — confidential communications —evidence by attorney as to conversations by all parties in interest in his presence.

In an action to recover damages for breach of an alleged contract whereby the two plaintiffs and the two defendants agreed to form a corporation, the complaint alleged that the plaintiffs agreed to transfer to the corporation all the property and outstanding accounts of a copartnership at a certain value; that the defendants agreed to transfer to the corporation a certain sum in cash and machinery of a certain value; that a portion of the capital thus created was to be divided between the plaintiffs and the balance given to the defendants jointly; that the defendants agreed to permit the plaintiffs to be in exclusive charge and control of the business and to receive a certain salary per week and a percentage of the net profits. It was further alleged that the defendants failed to carry out the terms of the agreement and prohibited the plaintiffs from managing and controlling the business. The by-laws of the corporation signed and duly approved by all of the parties to the agreement were placed in evidence, and provided that the president of the company, who was one of the defendants, was to have general control and management of its business and affairs in the recess of the board of directors.

Held, that if the jury found that the defendants agreed to allow the plaintiffs exclusive control of the corporation in spite of the express provisions of the by-laws to the contrary, their verdict was against the weight of the evidence.

Evidence by the attorney who formed the corporation as to conversations which took place in his office at the time of the incorporation, and in the presence of all four parties, was admissible, since the conversations were had in the presence of all the parties.

p. 404

Appeal by the defendants, Michael Harris and another, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of New York on the 19th day of June, 1915, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 18th day of June, 1915, denying defendants’motion for a new trial made upon the minutes.

Jacob M. Leibner, for the appellants.

Harry A. Qoidel, for the respondents.

This action is brought to recover damages for breach of an alleged contract whereby the two plaintiffs and the two defendants agreed to form a corporation for the purpose of manufacturing mantels and woodwork. The complaint alleges that the plaintiffs agreed to transfer to the corporation all the property and outstanding accounts of a copartnership, in which they had been engaged in similar work, at a valuation of $1,600. Defendants agreed to transfer to the corporation $3,000 in cash and $1,500 worth of machinery. The $6,100 of capital thus created was to be divided and $800 thereof given to each plaintiff and $4,500 to the defendants jointly. It is further alleged in the complaint that the defendants agreed to permit the plaintiffs to be in exclusive charge and control of the business and to receive each a salary of $20 per week and twenty-five per cent of the net profits of the business. The breaches of the contract alleged are that defendants failed to invest the said $4,500 in the corporation, failed to turn over $1,600 worth of stock to the plaintiffs, refused to permit plaintiffs to draw $20 per week salary and prohibited the plaintiffs from managing and controlling the business.

The two plaintiffs, who were the only witnesses in support of their case, testified to the foregoing agreement. The only . breaches attempted to be shown, however, were that plaintiffs received only ten dollars and sometimes fifteen dollars weekly salary during the five months that the corporation continued business'; that they did not receive their stock in the company

p. 405

as agreed and were not allowed to manage and control the business. The court ruled out the damages for loss of salary and confined the case to a recovery of the money or property which the plaintiffs had invested.

The defendants showed that they had invested the $4,500 in the corporation as agreed and that the stock was issued to the plaintiffs each in the sum of $800 according to the contract. They denied the agreement to pay $20 weekly as a salary to each of the plaintiffs and denied the agreement to allow the plaintiffs to control the corporation exclusively. The by-laws of the corporation, signed and duly approved by all four of the parties to the agreement, were placed in evidence and provided that the president of the company, who was one of the defendants, was to have general control and management of its business and affairs in the recess of the board of directors, which body was to consist of three members, and had general management of the affairs of the corporation. The attorney who incorporated the company testified that he fully read and explained the by-laws, minutes, etc., to all four of these parties in Yiddish before they were adopted. It was shown that the corporation did not succeed and its assets and business were sold to satisfy the claims of a judgment creditor. If the jury found that the defendants agreed to allow the plaintiffs exclusive control of the corporation in spite of the express provisions of the by-laws to the contrary, I am of the opinion that the verdict was against the weight of evidence. The record contains no competent evidence of a breach of the defendants’ agreement to invest $4,500 in the corporation. Most of the testimony given on behalf of both parties was rambling and almost unintelligible. Hot one of the four parties seemed able to tell a consecutive story of what was said and done. The only disinterested and intelligent witness called to the stand was the attorney who formed the corporation. He was asked to testify as to conversations which took place in his office at the time of the incorporation in the presence of all four parties. This was excluded, on the ground of privilege of counsel. This was clearly error since the conversations were had in the presence of all of the parties, and were not confidential communications. Whether these conversations would have thrown

p. 406

any light on the real agreement of the parties it is impossible to say.

The judgment should be reversed and a new trial granted, with costs to the appellants to abide the event.

Clarke, P. J., McLaughlin, Laughlin and Scott, JJ., concurred.

Judgment and order reversed, new trial ordered, costs to appellants to abide event.