Stern v. McKee

Headnote

1. Contract — Action for Breach — Allegation of Full Performance — Necessity for Proof.

Where the complaint in an action for breach of contract, whereby defendants gave plaintiff’s assignor the sole option to sell defendants’ rights to certain inventions during a stated period, assignor to form a corporation to acquire the rights to the inventions and to procure purchasers for a certain amount of its capital stock, averred full performance by assignor within the time limited, no recovery could be had where a full performance was not established.

2. Same—Excuse For Nonperformance.

No excuse for nonperformance could be shown, where the complaint did not allege the facts constituting the excuse, and in addition thereto that assignor was at the time ready and had the ability to perform, and would have done so except for the acts of the other parties to the contract.

3. Same—Refusal of Performance—Rights of Parties.

The refusal of one of the parties to a contract to perform will not entitle the other party to recover damages for the breach, unless he himself is ready, able, and willing to carry out the contract on his part.

4. Subscriptions to Corporate Stock—Enforcement.

Subscriptions to corporate stock, obtained in connection with a prospectus which states that the purpose of the corporation is “to acquire all the patents and rights * * * to metal-turning machines known as the ‘H. machines,’ ” etc., cannot be enforced, where, without the assent of the subscribers, the purpose of the corporation, as stated in its certificate of incorporation, is “to make, contract for the manufacture or purchase of, buy, use, sell, lease, rent, or mortgage all mechanical or other apparatus, machinery, and implements for metal-turning machines, * * * and in general to do a manufacturing business,” there being a material departure from the agreement with the subscribers.

Appeal from trial term, New York county.

Action by Max Stern against Joseph J. McKee and Ernest G. Hoffmann. From a judgment for plaintiff, and from an order denying a new trial, defendants appeal.

Reversed.

This action was brought to recover damages for the alleged breach of a ■contract between the defendants and the plaintiff’s assignor, one Shainwald.

The contract first made was in writing and was as follows: “New York, May 15, 1896. Agreement made and entered into on this date between E. G. Hoffmann, Joseph J. McKee, and Ralph L. Shainwald. In consideration of one dollar to each in hand paid, the receipt whereof each of the parties hereto duly acknowledges, Mr. Hoffmann agrees to give Mr. Shainwald the sole option until August 31st, 1896, to sell his rights to all countries outside of the United States, except as hereafter mentioned, to metal-turning machines of his invention, and any and all improvements, for a term of years, as is customary in the various countries where such patents or rights are in existence or are procurable, and to keep alive all his rights in foreign countries at his expense during term of this option. Mr. McKee agrees to give to Mr. Shainwald the sole option to August 31, 1896, to sell all his rights to the Hoffmann Metal-Turning- Machine patents for Great Britain, France, Germany, and Belgium, which patents are not included in those referred to in the first paragraph, same having been sold to Mr. McKee by Mr. Hoffmann. Mr. McKee is also to secure to Mr. Shainwald all improvements for same term of years as Mr. Hoffmann agrees upon in the first paragraph. The purpose of said option and the rights to Mr. Shainwald are to enable him to form a company in New York City which is to acquire all the rights to the Hoffmann Metal-Turning Machines and all improvements. It is agreed between the three parties hereto as follows that the proposed company is to be formed on the below-named basis: A share capital of $300,000, of which one-half ($150,000) is to be paid for patents and the remainder ($150,000) sold at 50c. on the dollar to realize $75,000 in cash; the cash to be used to pay $55,000 for patents, and $20,000 to be left in company’s treasury as a capital for expenses of introducing and exploiting the machines in Europe. The $55,000 cash is to be distributed among the three parties hereto as follows: To Mr. Hoffmann $34,000, to Mr. Shainwald $16,000, to Mr. McKee $5,000; the shares as follows: To Mr. Hoffmann, $62,000, to Mr. Shainwald $08,000, to Mr. McKee $20,000. Out of shares received by Mr. Shainwald he is to settle with the Continental Commerce Co. for cancellation of their option from Mr. Hoffmann dated Sep., 1895, and also with Mr. H. Liebes, of London, for surrender of his rights acquired under option of Continental Commerce Co. It is further agreed that the patent for Canada now existing is understood will be reserved for sale to the Hoffmann Machine Go. of New York, and Mr. Hoffmann agrees that said company shall have the balance of this year to decide whether to purchase same at not more than one thousand dollars.” Shortly after the execution of the contract the same was modified by a parol agreement to the effect that the proposed corporation should be organized under the statutes of West Virginia, with a capital of 3,000 shares, of the par value of $100, of which 2,250 shares were to be delivered to the defendants in payment of the patents, and 750 shares were to be sold for cash, and of the proceeds, $20,000 was to be held by the corporation as working capital, and the balance to be divided among the parties to the contract in certain proportions,—the defendants to transfer and deliver to the persons purchasing said 750 shares an equal number of shares of stock issued to them as an inducement to purchasers to make such purchases. An extension of the option was obtained from August 28, 1896, to September 22, 1896. During the life of the option, Shainwald drew up a prospectus of the contemplated company. He also procured persons to subscribe for a certain amount of the stock of such corporation, when formed. On the 17th of September, 1896, Shainwald procured to be incorporated under the laws of West Virginia the Hoffmann Foreign Machine Company, with a capital stock of $500,—the articles of incorporation stating that the incorporators “desired the privilege of increasing the said capital by the sale of additional shares, from time to time, to three hundred thousand (300,000) dollars in all.” On the 21st of September, 1896, the parties to the contract met for the purpose of carrying out the same, but were unable to do so for the reason that they could not agree upon certain details. The cause of the disagreement is not entirely clear,—the plaintiff contending that the defendants required Shainwald to guaranty the payment of the subscriptions which he had obtained, and, he refusing to do so, the other parties refused to proceed, and the defendants contending that they refused to proceed because Shain

wald would not permit them to inspect the subscription list, or the charter or minute book of the corporation which he had organized. The defendants, in any event, refused to carry out the terms of the contract, and subsequently Shainwald assigned his interest in the contract to this plaintiff, who thereupon brought this action to recover damages alleged to have been sustained by reason of the defendants’ failure to perform on their part, he alleging that, prior to the expiration of the option, “Shainwald performed all the conditions and requirements of said agreement, as so modified, on his part." The defendants interposed separate answers to the complaint, and, among other things, denied that the plaintiff was entitled to recover, for the reason that his assignor had not performed the contract on his part. At the close of the case the defendants moved to dismiss the complaint upon the ground, among others, that if the defendants, at the time alleged, refused to perform, the plaintiff was not entitled to recover, because his assignor had not performed, nor had he the ability to perform at that time. The motion was denied and an exception taken. The plaintiff had a verdict for $16,000, and from the judgment entered thereon, and an order denying a motion for a new trial, defendants have separately appealed.