Hart v. Fitch — 32 N.Y. Super. Ct. 9

Majority

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GEORGE W. HART, Plaintiff and Respondent, v. DENNIS M. FITCH, as Surviving Executor of the last Will and Testament of Stephen A. Dennis, deceased, Defendant and Appellant.

Headnote

Under a contract whereby D., as the owner of one half of a patent, in consideration of the assignment to him of another quarter by the inventor, agreed with said inventor that he would proceed, with funds to be furnished by him, with the construction and completion of a machine according to the plan of said patent, and put the same into operation; and that after such machine had been made and completed, the same should be used and applied to the promotion of the formation of a stock company, the capital of which was not specified, in which D.’s interest in the patent should be incorporated as a part of the capital stock, and that whatever stock in said company, when formed, should he represented by the quarter of the patent still remaining the property of the inventor, should he transferred to said inventor free of all assessment, charge, or expense, etc.;

Held that D. was hound to pnt his interest in the patent into the company under all circumstances, but the inventor might elect whether he would do so or not; that the construction and completion of the machine was a condition precedent to the formation of the company; that the inventor had a right to refuse his assent to the formation of a company, as long as this condition remained unperformed; that after the organization of a company without such previous performance and the refusal of the inventor to join, which refusal resulted in the formation of the company upon D.’s

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three-quarters interest in the patent, the inventor could not, after all the stock had been issued and disposed of, change his mind and insist to come in, but that he might maintain an action for the recovery of the damages sustained by him generally in consequence of D.’s breach of the contract.

[Decided December 4, 1869.]

Before Monell, Jones, and Feeedman, JJ.

Appeal from a judgment entered upon the report of a referee.

The action was to recover damages for a breach of two written contracts.

The referee found the following facts:

That the defendant’s testator made the following agreement:

“ Whereas, Oarmi Hart has, this day, by instrument in writing bearing even date herewith, transferred and assigned to me, Stephen A. Dennis, the one undivided equal fourth part of certain letters patent of the United States, issued to said Hart for a machine for cutting veneers: How, in consideration thereof, and other considerations received, to my full satisfaction, I, the said Stephen A. Dennis, do hereby covenant and agree with said Hart, that in ease certain contemplated arrangements agreed upon by and between me, the said Dennis, and Edward White, for forming and organizing a stock company, under the laws, of the State of Hew York, shall not be completed and successfully carried out, which said company is to have the said letters patent and certain other property for its capital, that in such ease the said Dennis will proceed with the construction and completion of a large machine for cutting veneers, according to the plan described in the said letters patent, and will put the same into operation, and that he will appropriate and expend ten thousand dollars ($10,000), if necessary, for such object; and that, after such machine is made and completed, the same shall be used and applied to the promotion of the formation of a stock company, in which the interest of the said Dennis in said letters patent shall be incorporated as a part of the capital stock; and it is understood and agreed, on the part of said Dennis, that whatever stock in the said company, now or hereafter to be formed,

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shall be represented by the quarter of the letters patent aforesaid, now remaining the property of said Hart, shall be given and transferred to said Hart or his assigns, free of all - assessment, charge or expense, either to said Hart or to the stock so represented; it being the intention of the said Dennis that the interest of the said Hart which shall go into the said company, when formed, shall be held and owned by him, said Hart, and his assigns, free, clear, andunassessable for any charge or expense whatsoever arising out of the formation and organizing of the said company, or the incorporation thereof; and

“ Whereas, A certain agreement in writing has lately been made and entered into by and between me, the said Dennis, and Edward White, bearing date the 27th October, 1856, in reference to the same object and intention of forming a company and building a machine, as is heretofore provided: How it is understood that this agreement is made in connection with that agreement, and in part furtherance thereof, and that said Hart has an interest in enforcing and carrying out the said agreement.

“ And I, the said Dennis, do hereby agree to and with the said Hart, that so far as the interest and influence of the said Dennis are concerned, the same shall be used for the joint benefit of all concerned, and that he, the said Dennis, will, when such company is formed, use his influence and exertions to the best of his power toward having a new and complete machine built and put in operation, sufficiently large and powerful to cut veneers such as may be required to suit the market; as witness my hand and seal this 25th Hovember, 1856.”

Simultaneously with which, Staples, the subscribing witness, made the following memorandum at the request of Dennis, explanatory of the agreement:

“ It is understood by me, and so stated and agreed to on the part of Messrs. White and Dennis as a part of the arrangements toward organizing a company, that Mr. Gar mi Hart’s interest in the letters patent, being one fourth of said patent, is to represent and receime one quarter of the capital of such company, and that said stock will when issued represent not only one quarter

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of said letters patent, but will represent and own one quarter o'f all the property, machinery, and sums that may be put into said company by White and Rogers^ and one quarter of all the property late of the Bridgeport Company, and of any machine or property that may be erected or built by the said company, without charge to said Hart.”

The agreement of the 27th of October, 1856, referred to in the foregoing contract, is sufficiently stated in the opinion of the court.

Dennis died in December, 1856, leaving a will, in which he appointed the defendant one of his executors, and which contained the following provision:

“ Being the owner of three eighth parts of a certain patent called Carmi Hart’s Patent Cutting Veneer Machine, invented in 1854, for cutting rosewood, mahogany, etc., it is my wish and desire, if no stock company therefor shall be organized previous to my decease, that then my said executors and the survivors of them shall pay, from time to time, any income arising from my estate not otherwise appropriated, such sum "and sums of money, not exceeding ten thousand dollars, as may be necessary for the purposes of carrying out my written agreement with Edward White, relative to the said patent; and after having expended the sum above named, then to aid in relation to the said patent, as they in their judgment may deem most fit and proper and advisable.

“Also, that they pay out of such income such proportioned sum and sums of money as may be necessary for the purpose of securing the patent right of the above-named inventor in any foreign country or countries.”

White and the executors of Dennis endeavored to form a company on a capital of $200,000, in pursuance of the agreement of October, 1856, and requested Hart to put in his remaining one fourth of the patent, which he declined. Failing to form such company, they made efforts to form one on a capital of $100,000. During these times Hart was engaged in making plans for a large machine, but was discharged by White.

In April or May Fitch, the executor of Dennis, told Hart

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that they were about forming a company on the basis of one hundred thousand dollars as a capital, and requested him to put his one fourth of the patent into the company. This Hart declined to do, giving as a reason that, according with his understanding with Mr. Dennis, the capital was to be two hundred thousand dollars, and that he was to have one fourth, which would include the mill property of White and Rogers.

Fitch explained to him that he would receive just as much whether the capital was two hundred thousand dollars or one hundred thousand dollars, so long as it included the same property ; but he still declined to put his one fourth of the patent into the company.

In May, just before or about the time the company was formed, Fitch again saw Carmi Hart, and told him that if he did not put his one fourth of the patent into the company, they would be obliged to form a company on the basis of three fourths of the patent, but if he would put in his one fourth, or consent to do so, he should receive one fourth of the stock; but Hart again declined to do this.

On the 15th of May, 1857,’ a company was formed under the general manufacturing law of this State, by Edward White, Joseph Rogers, and B. M. Wilson (the latter one of the executors of Dennis), on a capital of one hundred thousand dollars divided into four thousand shares of twenty-five dollars each, for thirty years, by the corporate name of “ White & Rogers’ Hew York Sawing, Planing, and Patent Veneer Cutting Company.”

Ho tender of any stock in this company was. ever made by the executors of Dennis to George W. Hart, or to his attorney, Columbus Hart, or to Carmi Hart, after the formation of the company, nor any demand made by them, or either of them, for a transfer to the company of the remaining one fourth of the patent.

A month or two after the formation of the company, viz., in June or July, 1857, Carmi Hart, professing to act in behalf of his son (the plaintiff), offered to Edward White, the president of the company, to transfer the remaining one fourth of the patent

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to the company, or to whoever they might desire, and to receive the stock; which offer was declined by White, on the ground that the one fourth had not been put into the company, but that the company had been formed on the three fourths of the patent only.

Upon these facts, the referee decided that the plaintiff was entitled to recover, as damages, for not transferring to him the stock of the company formed, the par or nominal value of such stock, there being no proof of any market value, with interest upon such value.

The defendant excepted to the findings, and appealed from the judgment.

Mr. D. B. Eaton, for appellant.

Hart had no option to put his one fourth into the corporation, and there was no obligation on the part of the defendant to do more in relation thereto than to allow the one fourth to come in if duly tendered by Hart for that purpose. He not only omitted to tender the one fourth, but in the exercise of his right refused to allow it to go in when solicited to furnish it for such purpose. The estate then was clearly guilty of no breach of duty.

The claim that Hart’s option might be exercised after the company should be formed, is clearly unreasonable and untenable.

The contract, neither directly nor by any implication, allows or contemplates such an extended right of election. ..

All the provisions and purposes of the contract is answered, and full justice would be done to the Harts by limiting the right of election to the period anterior to the formation of the contract.

Hart was only to have stock that should be “ represented by his one fourth of the patent; ” and no stock could be represented by his part of the patent unless he allowed it to go into the corporation, and that he refused. He thereby placed himself outside of the contract, and deprived himself of all just pretence to claim stock under the contract.

The corporation was obliged by la/w to declare on what property and with what amount of stock it was formed, and there

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was no authority to increase the stock; and to give the contract the construction claimed by the Harts would render compliance therewith legally impossible.

It would be practically impossible to form a corporation and dispose qí its stock, if it was uncertain how much stock there was to be, and a right was reserved for its increase. It is not to be presumed, nor held but upon the most conclusive testimony, that any contracting parties in the situation of this estate and the Harts, made a contract that would lead to. such destructive, anomalous, and illegal results.

Mr. Abram Wakeman, for respondent.

Insisted that it could not be claimed that before a large machine had been built—and before it could have been used in promoting the formation of any company, or any company had ever been incorporated, and without knowing of what its capital would consist, or whether White & Kogers would transfer their property to such a company, or whether the property of the Bridgeport company would be included, or whether the stock would be assessable or full stock—Mr. Hart could be called upon to make an election which would bar his rights, or relieve Dennis from his obligations arising under his contract.

The tender was within a reasonable time. The reasonableness of the time, being a mixed question of law and fact, will not be disturbed by an appeal unless palpably erroneous.

But aside from the question of the reasonableness of this tender, it is insisted that the obligation to make a tender rested with the defendant, and not with the plaintiff.

Hart sold and delivered to Dennis one quarter of the whole patent, in payment for which Dennis agreed to give him one quarter of the paid-up stock of a company established as provided for in the contract.

The plaintiff is entitled to damages. The one fourth of the stock of the company, as such, when formed, constituted no measure of the actual damages sustained by the plaintiff, for the reason

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that the company was incorporated anterior to the construction and operation of a larger machine, which was to be used in aid of its formation.

Taking the value of the patent to be that fixed by the parties themselves is most equitable, and violates no principle of law. Certainly fixing the whole value of the patent at $55,000, when Dennis paid $20,000 for one fourth of it, was most favorable to the defendants. Why should he not have been obliged to pay at the same rate for the one fourth obtained from the inventor on the 25th November?

By the express terms of the agreement last referred to he was to be entitled to one fourth of the White & Rogers’ mill property, valued by all the parties, and actually sold to the company for $45,000.

By the Court:

The contract of October 27, 1856, made between Dennis and White, did not bind Carmi Hart to put his one-quarter interest into the company proposed to be organized under said contract with a capital of two hundred thousand dollars ($200,000), nor did it of itself confer any rights upon Carmi Hart. The clause at the end of said contract to the effect that such undivided interest in Hart’s patent as is not owned by the contracting parties shall be brought into the capital stock of said company, and shall be paid for in stock in such proportions as shall be just and equitable, laid White, however, as well as Dennis, under the obligation, in case of the formation of the company referred to, to procure that interest, and to incur the expenses (in stock) necessary to secure it. But, as all efforts to organize a company under this contract failed, and were abandoned as impracticable, the rights of the plaintiff in this action mainly depend upon the true construction of the agreement of November twenty-fifth, 1856. This agreement is executed by Dennis only, and contains promises and covenants on the part of Dennis only, but does not state any on the part of Carmi Hart. Dennis thereby covenanted that in case the arrangement between

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himself and "White for forming a stock company, with a capital of two hundred thousand dollars ($200,000), should not be completed and successfully earned out, he would proceed with the construction and completion of a large machine for cutting veneers, according to the plan described in Carmi Hart’s letters patent, and would put the same into operation; that he would appropriate and expend ten thousand dollars ($10,000) if necessary for such object; and that after such machine had been made and completed, the same should be used and applied to the promotion of the formation of another stock company, the capital of which is not specified, in which his (Dennis) interest in the letters patent should be incorporated as a part of the capital stock; and he therein further agreed, among other things, “ that whatever stock in the said company, now or hereafter to be formed, shall be represented by the quarter of the letters patent still remaining the property of said Hart, shall be given and transferred to said Hart, or his assigns, free of all assessment, charge, or expense, either to said Hart or to the stock so represented; it being the intention of the said Dennis that the interest of the said Hart, which shall go mto the said company, when formed, shall be held and owned by him, said Hart, and his assigns, free, clear, and unassessable for any charge or expense whatsoever, arising out of the formation and organization of the said company,, or the incorporation thereof, etc.”

It will be seen that Dennis thus bound himself to put his interest in the patent into the company, to be organized, under all circumstances, but that Hart was under no obligation to put in his one-quarter interest unless he so elected. It will also be observed that the agreement did not in terms obligate, or purport to obligate, Dennis to secure the organization of a company with a stipulation, or to contract with the company to the effect that Carmi Hart should have the privilege at all times, and under all circumstances, of transferring his interest to the company after it had been formed. In these respects the last-named agreement materially differs from the contract between Dennis and White. The memorandum at the foot of the agreement of November

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twenty-fifth, 1856, signed by Staples (but not signed by Dennis or White), if binding upon Dennis at all, affects no other question but the question of the quantity of the stock to which Hart might become entitled. It can exercise no influence upon the determination of the question in what contingency or upon what condition Dennis did covenant that the stock should be issued to Hart, and it seems as if this memorandum, at the time it was made, had, in the minds of the parties which could be affected by it, special reference to the agreement of October twenty-seventh, 1856. But although this may have been otherwise, it cannot be doubted that Dennis, in the agreement of November 25, 1856, undertook to construct and build a large machine according to the plan described in said letters patent, and to put the same into operation, and to appropriate and expend, if necessary, ten thousand dollars ($10,000) for that object before the attempt was to be made to form the stock company. A fulfilment of these stipulations before the actual formation of the company was necessary, therefore, to the due performance of the contract on the part of Dennis. Upon this point the language of the agreement is too clear to admit of dispute.

When, therefore, all efforts to organize a company with a capital of two hundred thousand dollars ($200,000), under the agreement of October 27, 1856, had been abandoned; when Carmi Hart was informed of the steps which had been taken to form a company with a capital of one hundred thousand dollars ($100,000), which was to have as capital, exclusive of money ■capital, precisely the same property as contemplated by the •agreement between Dennis and White; when he was told that If he did not put his one fourth of the patent into the company, the other parties would be obliged to form a company on the 'basis of three fourths of the patent, but if he would put in his -one fourth or consent to do so, he should receive one fourth of the stock, he was not bound to assent to the formation of that company, but on the contrary had a clear right to refuse' to come in, for the reason ■ that Dennis and his executors had wholly failed to perform those conditions of the agreement,

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which were to precede the formation of the company, and upon the performance of which the success of any company, which might or could be formed, depended to a great extent.

On the other hand the agreement of November 25, 1856, as’ before said, did not, in express terms, impose an obligation upon Dennis to secure the organization of a company in such a manner and with such stipulations as to reserve to Oarmi Hart the unlimited privilege of coming in with his one-quarter interest at any time he might thereafter elect; and I am of the opinion that, after full performance on the part of Dennis of all the aforesaid conditions precedent, and an express refusal on the part of Oarmi Hart to transfer his one-quarter interest in the letters patent to a stock company subsequently organized in strict conformity with the provisions of the agreement of November 25, 1856, a company could have been formed on the basis of the ownership of an undivided three-quarters interest in the patent. In such case Oarmi Hart might well be held estopped upon general principles from subsequently insisting upon the delivery of any portion of the stock and from otherwise asserting the rights, which, but for his approval, he would have had.

But inasmuch as the undisputed facts of the case under consideration show that the company formed upon the one hundred thousand dollar ($100,000) plan was organized without the previous construction by the estate of Dennis of a large machine, according to the plan described in Hart’s patent; that no machine was ever constructed by the estate of Dennis at the expense of the estate; that a large machine which has been constructed was not constructed strictly on Oarmi Hart’s plan or invention, but was built by the company, under the superintendence of a person incompetent for that purpose; that a machine properly constructed on Hart’s plan would have done good work, and that the failure of the company was attributable in a great degree to the insufficiency of that machine; Oarmi Hart cannot be deemed to have forfeited his rights against the estate of Dennis by a refusal to join a stock company which was not organized in such

Concurrence

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a manner, and with such a guarantee of success as he had stipulated for.

It is true, the company was, in point of fact, organized on the basis of the ownership of an undivided three-quarters interest in the patent only; all of its stock was issued for property to be used in its business. It was, therefore, a physical impossibility, after the company had once been thus organized and had thus parted with its stock, to give to the one-quarter interest of Hart a subsequent representation by stock in such company; no stock remained for any such purpose, and Carmi Hart, in consequence of his persistent refusals to join, may be fairly held estopped from subsequently claiming part of such stock. But this estoppel does not extend any further, and does not prevent the plaintiff, as the representative of the interest of Carmi Hart, from asserting his rights against the estate of Dennis. As the offer of Carmi Hart to waive all damages for the breach of the conditions precedent to the formation of the company, contained in the agreement of November twenty-fifth, 1856, and to accept stock of a company not organized as it should have been, was not accepted—and the fact that it was impossible to accept it does not change the matter—the plaintiff is at liberty to insist upon full payment of all damages sustained in consequence of the breaches on the part of Dennis, and his executors, of the covenants contained in said agreement. It seems perfectly clear to me that the plaintiff has an undisputable right to the recovery of these damages; but they can in no event exceed, as the evidence stands, the market value of the stock at the time of the demand. The referee, therefore, erred in computing the damages sustained by the plaintiff by taking the value of said stock and of the patent at the time of the organization of the company.

The judgment should be reversed.

Monell, J., concurred.

I concur in reversing the judgment in this case, but on different grounds from those taken by my associates.

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The provisions contained in the document signed by Dennis, dated November 25, 1856, formed the consideration for the transfer of the one quarter of the patent on that date assigned by Carmi Hart to Dennis. In other words, those provisions were the mode in which Hart was to receive payment, or an equivalent, for the one quarter interest which he on November 25, 1856, transferred to Dennis.

This equivalent, as I read the document of November 25, was that Hart should have the right to put his remaining quarter (he having disposed of the other three quarters) into a stock company which Dennis and White were endeavoring to organize on the basis of a capital of $200,000, and to receive therefor one quarter of so much of the stock of said company as was contemplated to be appropriated for the purchase of the patent; or if it should be found impossible to organize that contemplated stock company, then that Dennis should use his influence and exertions for the formation of a stock company in which his interest hi the patent should be incorporated as part of the capital stock, and that Hart should have the right to put in said company his remaining quarter and receive therefor so much of the stock as should be represented thereby, free from all assessment, charge, or expenses arising out of the formation and organizing such company, or the incorporation thereof; and that after the formation of either of such companies, Dennis should use his influence and exertions to the best of his power towards having a new and complete machine built and put in .operation sufficiently large and powerful to cut veneers, such as might be required to suit the market.

In short, Hart was to receive for this one quarter a right to bring his remaining quarter into a contemplated company; or if that should fall through, a right to the services of Dennis in forming another company, and a right to bring his remaining one quarter into that company, together with a right, after the formation of either of such companies, to the influence and exertions of Dennis towards the building of a machine for the purpose of the business.

On the other hand, Dennis, for giving to Hart the said rights

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and services, received the one quarter interest assigned to him on November 25.

It may have been foolish and improvident in Hart to part with the one quarter interest on such terms. With that, however, we now have no concern.

This action is based on that agreement, and seeks to enforce a liability claimed to have arisen thereunder.

The questions, therefore, are whether Dennis has performed what he undertook to perform, as a consideration for the assignment, or, if' not, was his performance before breach by him rendered impossible by the act of Haft or those claiming under him?

If he has performed, or if his performance has been so rendered impossible by the plaintiff, then there is no liability resting on him under the contract.

The proof shows that it was found impossible to form a company with a capital of §200,000, as contemplated by the agreement between Dennis and White—that project was therefore abandoned; that Dennis subsequently succeeded in perfecting arrangements for the formation of a company on the basis of §100,000 capital; that thereupon application was made to Hart to put in his remaining one quarter; this he refused to do, and thereupon the 'company was organized on a basis of a capital of §100,000, to be paid in as -follows: §55,000 by three quarters of the patent held by parties other than the plaintiff, and §45,000 by other property. The whole of the stock was accordingly issued in payment of such three quarters and of such other property.

Thus, then, Dennis has performed all that he was bound to as the consideration for the one quarter assigned to him, except so far as performance has been rendered impossible by Hart’s own act.

Hpon the falling throug-h of the project for a company with a capital of $200,000, he rendered his services and used his best endeavors towards the formation of another company, and was successful. This was all he was bound to do, unless Hart saw fit to put in his remaining quarter. If Hart saw fit so to do, then he was to receive as much stock as was represented by that quarter, and also the exertions and influence of Dennis in the procuring the building of a large machine for working purposes.

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If, however, Hart did not see fit to put in his remaining quarter, he in that event was not entitled to receive any stock or the benefit of any exertion of Dennis towards building the large machine for working purposes.

How, Hart refused to put his remaining one quarter in the $100,000 company, and this, although he was told that if he did, it would be necessary to form-a company, leaving out his one quarter. Conceding that Hart had a locus penitentim, still it could only extend up to the time of the organization of a company without his one quarter, for after the organization of such a company it would be impossible to bring in his one quarter and issue stock therefor.

Hart then exercised his option not to come into the company, and did not repent of such exercise until after it had become impossible to take him in and issue stock to him for his one quarter. That being the case, he cannot now recall his refusal, on the faith of which the parties have acted, and consequently defendant is under no liability to him by reason of that portion of the agreement of Hovember 25,1856, which provides for the issuing of stock to Hart and for the exertions of Dennis in building a large machine for working purposes.

It is stated above that Dennis has performed that part of the agreement whereby he was to form a company in which his interest in the letters patent should be incorporated as part of the capital stock.

It is, however, claimed by the plaintiff that that part of the contract has not been performed; that Dennis, by the organization of the company of $100,000, has put it out of his power to perform that part, and therefore a liability has arisen against him on the contract. If these two propositions are correct, then I think there would be a liability for the value of the one quarter assigned to Dennis by assignment of Hovember 25,1856.

Plaintiff claims that Dennis has not performed the contract to organize a company, because,

First—He was to build a large machine to be used in the promotion of the formation of such company, which he did not do.

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Second—Because the company contemplated was to have a capital of $200,000.

Third—Because it was to have the same property as the company contemplated by the agreement between Dennis and White, and the company formed did not have the same property.

1. This machine was not intended for working purposes; a subsequent provision is made for a machine for that purpose. There is no provision that this machine was to be brought into the company after it was formed as part of the property thereof. It was simply intended as a machine for exhibition, in order to induce persons to enter into the formation of a company.

Such was its sole design. If that design could be accomplished without the aid of such a machine, the construction of it might well be dispensed with. It was only an incident leading to the accomplishment of a principal object. The principal object having been accomplished without the aid of the incident, no liability arises for the non-performance of the incident.

2. The agreement makes no provision as to the amount of capital on which the company should be formed. Mor do I perceive any thing which indicates it to have been the intention that it should be formed on a capital of not less than $200,000. Indeed, the impossibility of forming one on a $200,000 basis seems to have been in view of the parties, and provision was therefore made for such a contingency.

3. This objection is based on the ground that there was not transferred to the $100,000 company certain property formerly of the Bridgeport Veneer Company, which it is alleged was to form a part of the $200,000 company referred to in the agreement between Dennis and White.

It is not found as a fact that this property did not go into the company of $100,000; and there is evidence to the effect that it did.

It is unnecessary, therefore, to consider what effect the non putting in of this property would have. Whatever effect it has must depend on the construction of the unsigned paper supplementary to the agreement of Movember 25, 1856.

Judgment reversed, and order of reference vacated; new trial ordered, with costs to appellant to abide the event.