Hart v. Fitch

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 *17himself 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 *18twenty-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, *19which 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 *20a 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.

*21The 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 *22and 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.

*23If, 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.

*24Second—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.