Williams v. Montgomery

It appeared from the papers, that in September, 1892, the Hydraulic Brake Company was organized under the laws of the State of New Jersey, with a total capital stock of $5,000,000, which was to be issued for certain patents covering a railway train brake; and that prior to the month of November, 1892, the plaintiff was jointly interested with the defendants, Montgomery, Powell & Lande, in»said patents, which bad been theretofore transferred by the patentee, one Guernsey, to said company.

On the 16th of November, 1892, said Powell, Lande, Montgomery and Williams entered into an agreement in respect to the disposition of the stock of the corporation when it should be issued, which agreement bears date the 2d of November, 1892, and is as follows:

“ This agreement, made this second day of November, 1892, by and between John B. Powell, Bernard Lande and Thos. J. Montgomery, all of the city of New York, and Fred Williams, of London, England, witnesseth:

“ For and in consideration of one dollar paid by each of the parties hereto to each other, the receipt whereof is hereby respectively acknowledged, it is agreed as follows :

“ That of the capital stock of the Hydraulic Brake Company, one million ($1,000,000) dollars shall be put into the treasury of the company for working capital;

“Four hundred and fifty thousand ($450,000) dollars shall be issued to Messrs. Montgomery and Powell, as trustees;

“Four hundred thousand ($400,000) dollars to Messrs. Montgomery and Powell, as trustees;

“ One million and six thousand two hundred and fifty ($1,006,250) dollars to Thos. Montgomery;

“ Seven hundred and seventy-five thousand ($775,000) dollars to-John B. Powell;

“ Seven hundred and seventy-five thousand ($775,000) dollars to Bernard Lande; and'

“ Five hundred and forty-three thousand seven hundred and fifty ($543,750) dollars to Fred Williams.

“ We also agree that the above certificates to Montgomery, Powell, Lande and Williams, shall be deposited in the Central Trust Company,

Attached to said instrument was this agreement:

“ Regarding the notification clause of 5 days in the within agreement, I hereby agree that any notice served upon my attorney, George M. Pinney, Jr., No. 96 Broadway, is binding upon me the same as if served upon myself.

“FRED WILLIAMS.”

Subsequent to the execution of said agreement there was issued to the said defendants, Montgomery, Powell & Lande, the stock of said company which they were respectively entitled to receive in accordance with said agreement; and the plaintiff, in his complaint, alleges that he has no knowledge or information sufficient to form a belief as to whether any certificate representing the plaintiff’s interest in said stock had been issued or delivered to any person whatsoever, and that no notice of such issue of stock had been given to the plaintiff, and that the fact that any part of said stock had actually been issued was concealed and withheld from the plaintiff by the defendants for the purpose of fraudulently carrying out a scheme to render that part of said agreement of November 2, 1892, providing for the deposit of certificates in the Central Trust Company, wholly inoperative, and for the further purpose of wrongfully and illegally securing to the defendant Montgomery a controlling interest in the stock of said brake company.

The complaint further alleged that after the stock of said brake company to which Powell and Lande were respectively entitled had been issued to them, the defendant Montgomery purchased, or “ agreed to purchase from said Lande and Powell, enough of their stock to give him, with his own stock, control of the capital stock of said brake company, and that pursuant to such agreement, the

The complaint further alleges : “ That this plaintiff did not until •January 24th, 1893, or thereabouts, ascertain that said agreement of November 2d, 1892, bad been broken by tbe defendants, Montgomery, Powell and Lande, and an attempt made to render tbe same wholly inoperative, and that immediately upon making such discovery, tbe plaintiff demanded of tbe defendants, Montgomery, Powell and Lande, that tbe certificates of tbe stock of said brake company, issued to tbe said defendants, and tbe certificates issued, or to be issued to this plaintiff, as provided in said agreement, be at once deposited in tbe Central Trust Company, together witb a copy of said agreement, but that tbe said defendants, Montgomery, Powell and Lande, having wholly refused, and still refuse to comply with said demand.”

The complaint further states that unless tbe defendants and each of them be enjoined and restrained from making any other disposition of tbe certificates of said stock now in possession of the defendant, tbe State Trust Company, standing in tbe names of Montgomery, Powell & Lande, than to deliver same to ' the Central Trust Company, as provided in said agreement, tbe plaintiff will suffer irreparable and incalculable loss and damage, and tbe control of said brake company will become vested, in Montgomery contrary to and in defiance of tbe spirit and intention of said agreement; and that tbe whole object and purpose of tbe plaintiff and of tbe defendants, Montgomery, Powell & Lande, in executing said agreement, a£ was fully understood by each of them, was to place defendants and plaintiff on an equal footing as regarded tbe control of said com

Wherefore the plaintiff demanded judgment, among other things,, for an injunction restraining defendants from delivering to any person other than the Central Trust Company any certificates of the stock of the Hydraulic Brake Company standing in the names of' or issued to the defendants, Montgomery, Powell & Lande, and the-plaintiff, or either of them, as trustees or otherwise.

The defendants admit the making of the agreement in question and some of the alleged objects of the agreement, and allege that, despite the efforts of all persons interested in said company no saleeould be made of any of said treasury stock, and that in December, 1892, the difficulties of the company and its financial embarrassments became pressing and were discussed by the defendants, Montgomery, Powell & Lande, and the defendant Montgomery informed them that he was unable to obtain assistance from his friends unless he-might own and control a majority of the stock, and that if an agreement could be made whereby said Powell and Lande would sell to him out of their interests, whereby he might obtain a majority of the stock, he thought he could obtain the necessary assistance to pay

The defendants deny the concealment of the issue of stock,.or' that such issue of stock had anything to do with any fraudulent scheme, or otherwise to render the agreement inoperative or void. And defendants deny that the object and purpose of said agreement was to place defendants and the plaintiff upon an equal footing as regards the control of said company, or that said agreement prohibited sales by any of the parties of their respective holdings unless sufficient treasury stock was sold to realize $30,000 for the use of the company And defendants allege that the intention of the parties was that they should be prohibited from offering to the public, or on the market generally, their respective sha,res at such a price or under conditions that would interfere with the value of the stock, or the possibility of realizing an amount of money to the extent of at least $30,000 by the sale of the whole or any portion of the treasury stock. And the defendants deny that the fact that Montgomery has obtained control will render it impossible to sell any of the treasury stock.

Up'on this state of facts the court dissolved the preliminary injunction which had been procured upon the application of the plaintiff at the commencement of the action, .and from the order thereupon entered this appeal is taken.

The case of the plaintiff, as alleged in his complaint, seems to be based upon assumptions as to the object and purpose of the agreement of November, 1892, which are not contained therein, and which form no part thereof.

If it was the intention of these parties by the deposit of these certificates in the Central Trust Company, to prevent any disposition of this stock by the parties owning the same for the period of six months, such an arrangement, if not void as being contrary to the statute, is certainly unenforcible as against public policy.

And furthermore, it is urged that the object and purpose of the deposit of this stock was to prevent the defendant Montgomery from obtaining control of this corporation. It is not alleged that any such agreeement was entered into between these parties, and it is not contained in the written instrument under consideration. And that such was not the understanding of the parties seems to be evident from the fact that the ownership of any number of shares of stock of this corporation for this period of six months within the first year of its organization, would give the defendant no greater control of the corporation than he had at the time of the execution of this agreement. There was no allegation that there was to be any election of trustees or directors, or that the ownership of this stock could be used for any purpose in reference to the conduct of the business of the corporation.

The claim that it was the understanding of the parties that this deposit was to be made in order that these parties should be upon an equality in reference to this corporation, seems upon its face to be absolutely incredible, in that no reason whatever is assigned why the parties owning the greater number of shares in this stock should surrender any advantage which such ownership could possibly give.

It is admitted that the object of these parties was to prevent this stock from getting upon the market until some of the treasury stock, might be sold to provide funds for carrying on the business of the company. But there is nothing in this agreement which prevented the defendant Montgomery either from purchasing the stock of Powell and Lande, or from purchasing the debts due from the corporation, and thus obtaining any advantage which might accrue from such purchase and ownership.

Indeed, the learned counsel for the plaintiff, in one portion of his brief, urges that Montgomery’s purchase oí Powell and Lande’s shares was plainly contrary to the agreement of November, 1892; and in another part claims that the legal objection urged by the counsel for the defendant, that the agreement is void and against public policy and in restraint of trade, is untenable because there is nothing in the agreement which restrains the defendants from agree

Now, it is idle to say that the mere want of possession of these certificates of stock prevented the transfer of the title thereto. It may be true that, without the surrender of the certificates, Montgomery could not become the holder of the stock upon the books of the company. But there is no intimation that there was any advantage to be gained by having the stock transferred to Montgomery’s name upon the books of the company. Therefore, it is conceded, as well as denied, by the plaintiff’s counsel, that Montgomery had a right to purchase this stock and become the owner thereof, and the only thing that he was prohibited from doing was to have the manna! possession of the certificates and to have them transferred to his own name. What possible advantage the mere prohibition of the manual possession of these certificates could be to the plaintiff, it is difficult to imagine. As already seen, the title to the stock could be transferred, perhaps not with equal facility, but with equal security, the certificates being in the hands of a responsible depositary.

Some point seems to have been made upon the part of the plaintiff that no notice of the issue of this stock had been given to him, and that his stock had not been deposited with the Central Trust Company. There is no obligation contained in the agreement to notify the plaintiff of the issue of the stock to him. Nor is there any undertaking upon the part of the defendants to deposit his stock with the trust company. And the point that these various notices might have been given to the plaintiff through his attorney because of the addendum to the agreement of November, 1892, is certainly not well taken, because if it had been necessary to give the plaintiff notice of any of these facts in order to have protected the defendants, and a notice had been given to his attorney and the plaintiff had desired to repudiate that notice, he would have said at once, “ I did not agree to accept the notice that way,” and he would have referred to the only agreement which he executed authorizing notice to be given to his attorney, and that is expressly limited to the'

It seems to us upon the whole case, entirely independent of the question as to whether it was necessary for Montgomery to acquire the title to this stock in order that he might procure money to relieve the company from embarrassment, and as to what his purpose was, that the agreement under consideration was impossible to be enforced:

First. Because if it was intended to restrain the disposition of this property for a period of six months from the date of the agreement, it was against the statute and public policy; and,

Secondly. Because the agreement imposed no restraint upon the disposition of the stock in question. All that it prevented, if it had been carried out, was. the actual handing over of the certificates of stock to the purchasers thereof, and the transfer of the same upon 'the books of the company, and it is evident that the plaintiff, by the breach of the provisions in reference to the deposit of these certificates under these circumstances, could have sustained no damage, and has no cause of action.

The order should be affirmed, with costs.

O’Brien and Follett, JJ., concurred.

Order affirmed, with costs.