Brown v. Cragg

82 N.E. 569, 230 Ill. 299

Opinion

Mr. Justice Dunn

delivered the opinion of the court:

The question for determination is whether the stock in controversy was the property of appellant, Brown, individually, of Charles A. Brown & Cragg, or of Charles A. Brown, Cragg & Belfield. The answer depends upon whether or not it was acquired by appellant in the course of the partnership business, in consideration of services either performed or to be performed. The evidence is voluminous and cannot be discussed in detail within the reasonable limits of an opinion. We have carefully read it and shall refer to the salient points, not particularizing the testimony of individual witnesses.

The evidence shows that Alfred Stromberg was born in Sweden and came to this country at the age of twenty-two years. He was a practical workman of an inventive turn of mind, and previous to the formation of the Illinois corporation was employed upon line systems of telephones and worked as a mechanic. Carlson had been a fellow-workman. After they had worked together for some time they formed a corporation for the manufacture of electrical merchandise and telephone apparatus for independent companies throughout the United States. The corporation was organized under the laws of Illinois several years prior to the filing of the bill herein and had a capital stock of $50,000, of which one-half was paid in cash and the balance by the assignment of patents to the company. The business of the corporation grew rapidly, the annual sales increasing from about $87,000 in 1895'to $925,000 in 1900. During all of this time the corporation was hard up for money with which to carry on its affairs. Neither Stromberg nor Carlson had any money at the start, and the various stockholders did not have enough capital to keep pace with the rapid increase in business. Before appellant was admitted to the bar he had been connected with the American Bell Telephone Company and with the Western Electric Company, and had managed a manufacturing plant of the latter company. After his admission to the bar he made a specialty of trade-marks, copyrights and patent law with reference to telephones. He made a success of his business and soon became an expert. After his admission to the bar, and before and after the formation of the various firms of which he was a member, he held stock in different corporations, as did also his partners, Cragg and Belfield. Each devoted more or less time to the affairs of the corporations in which they were, respectively, interested. This was no secret among the members of the firm, and was evidently considered as the private business of the respective parties and apart from the firm’s business. In 1898 the appellant purchased 40 shares of the stock of the Stromberg-Carlson company and later became a director. During its rapid growth and ever-increasing demands for money he signed the bonds of the company, became surety for it and furnished money for its pay-rolls and running expenses, besides advising its officers in the management of its affairs. He was the only stockholder in the corporation of any considerable financial ability. In 1901 Stromberg and Carlson, together with the appellant and his wife and father-in-law, owned over three-fourths of the stock of the corporation, appellant and his family having more than one-fifth. Owing to the magnitude of the business of the corporation and the insufficiency of its capital it .was necessary to malee some arrangement which would make a larger amount of cash resources available for its use. Appellant and Stromberg and Carlson were desirous of selling their stock. In the fall of that year Eugene H. Satterlee and Thomas W. Finucane, of Rochester, New York, learned that it was necessary for the corporation to have assistance in the way of increased capital, and in December, or in January, 1902, they went to Chicago and there talked with Stromberg with reference to’ obtaining control of the corporation by the purchase of stock. They then had an interview with Stromberg, Carlson and appellant, and discussed the proposition of buying a majority or two-thirds of the stock, but finally decided that they would have to ■ have all of it. Stromberg told them that he could get it on the basis of $15 for one invested in the stock of the old corporation, and this Satterlee and Finucane agreed to pay.. In pursuance of this agreement Stromberg, Carlson and appellant obtained options from all the stockholders of the Illinois corporation but one, to whom Stromberg personally had to pay $4000 bonus for his stock. After all of the stock had been purchased, the contracts set out in the statement preceding this opinion were executed, the New York corporation was organized and the shares of stock in it were issued as mentioned in those contracts.

There is nothing in this transaction indicating that the part which appellant took in the affair was iff the nature of legal services or in the performance of those duties which carné within the scope of the partnership business between , him, Cragg and Belfield. It was apparently nothing more nor less than a concerted effort among the heavy stockholders of the corporation to sell their stock, each helping the other to accomplish this end. The appellant was not employed by the other stockholders to sell their stock, and there were no legal services required of him or any other person on their behalf. He simply .obtained from them an option, running to himself, for the purchase of their stock at the rate of $15 for one invested. The options were really for the benefit of Satterlee and Finucane, and it was so understood by the stockholders, who were told by appellant that he was selling his stock at the same price. There was no intimation on the part of appellant or any stockholder, so far as the evidence shows, that appellant was the agent or attorney of any stockholder or was to be paid for the taking of these options or the sale of the stock. Satterlee and Finucane were under no obligation to1 pay appellant for obtaining the options. He was a seller and they were buyers. Appellant, Stromberg and Carlson were obliged to procure all the stock for Satterlee and Finucane in order to sell their own. The Illinois corporation was under no obligation to pay appellant, for he did not render it any service. This transaction concerned not the corporation, but the stockholders. The New York corporation was not organized until April, and there can be no claim that it owed appellant for any services. There is no evidence that he rendered any service in the organization of that company and no claim that he acted as a promoter thereof. The part performed by appellant in the whole transaction is not shown to be anything more than was to be expected of him as an owner of stock dealing with a prospective purchaser. Though much time was consumed in negotiations, appellant’s partners have no cause to complain, if it did not interfere with the business of the firm. (Metcalfe v. Bradshaw, 145 Ill. 124; Northrup v. Phillips, 99 id. 449.) The appellant was familiar with the business of the Illinois corporation, its assets and liabilities, the validity of its patents, the condition of its litigation, the probable liability from infringements and on bonds given to indemnify its customers and the users of its apparatus. The details of all these matters were essential to be considered by the purchasers of the stock, whose value was affected by them. The discussion of these details between the seller and buyer and negotiation and correspondence about them necessarily consumed much time, but the seller could not charge the buyer therefor, nor could he charge another stockholder who profited thereby in the sale of his own stock, unless he had a contract with such stockholder for that purpose, and no such contract is shown. As to services performed by appellant on behalf of Stromberg, it is apparent that appellant was as much indebted to Stromberg in the transaction as Stromberg was indebted to appellant. No contract is shown by either to pay the other. They were working together for the common end of selling the stock of both.

Under the facts as they appear in this record we are unable to see why appellant should be required to account to the members of his firm for profits made in his private business with reference to this stock any more than he should be required to account for any other private transaction in which he might have engaged, apart from the business legitimately transacted within the scope of the partnership agreement. There were no services rendered by appellant for which he had a claim against any one and for which this stock could have been delivered to him. Even if appellant, Stromberg and Carlson received this stock as a bonus, in addition to the price received by the other stockholders for their shares, and divided it among them, that is no reason why a partner of one of them in another enterprise should share in the stock.

In regard to the question whether the stock was issued to appellant in consideration of services to be thereafter performed, if the so-called “stock contract” and “service corn-tract” had not been executed no question would have arisen concerning the stock received by the appellant. Stromberg, Satterlee and appellant testify in regard to the stock contract. Their testimony is to the effect that after the agreement for the sale of the stock had been made by Satterlee and Finucane with Stromberg, whereby the latter was to go into the new company and have a large interest therein, he entered into a service contract with the New York company for ten years. Satterlee never had any conversation with - appellant in regard to this stock, and the agreement with Stromberg was, that the stock was to be issued to the latter in consideration of the covenants of his service contract and of his acting as a director of the New York corporation. There was never any understanding that appellant was to receive any of the stock in consideration of his executing the service contract or as a retainer for future legal services. Afterward, Stromberg voluntarily agreed to turn over to appellant the shares which were issued to appellant, in appreciation of the latter’s friendship and the invaluable aid which Stromberg and his company had always received in the time when their necessities were great and their resources small. The stock contract was executed as a matter of form, to provide for the issue directly to appellant of the stock Stromberg intended for him, instead of its issue to Stromberg and assignment by him to appellant.

The burden of proof was upon appellees to prove their case by a preponderance of the evidence. It is manifest that the stock contract does not truly state the agreement between the parties as to the consideration. All who were acquainted with the circumstances attending its execution agree in this, and while their evidence is at variance with the writing itself, we think the statement of the consideration contained in the contract is overcome. The circumstances of the transaction, in view of all the evidence and in spite of some contradictory statements and of the evasions and want of frankness of appellant and Stromberg, do not indicate that the stock was issued to appellant as a retainer for future services. It satisfactorily appears that it was not issued for past services in the scope of the partnership business. The appellees have therefore no right to call upon appellant to account to them for its value. -

Though the book-keeper testified that the books showed that the appellee Cragg had overdrawn his account $1007.86 on September 18, 1902, such evidence is insufficient to sustain appellant’s claim that a decree for that amount should be rendered in the appellant’s favor. The books themselves were not offered in evidence, nor was proof offered of their contents nor any evidence of their correctness.

The judgment of the Appellate Court and the decree of the superior court will be reversed and the cause remanded to the superior court, with directions to dismiss both the bill and cross-bill at the cost of the appellees, except $350 of the receiver’s fees to be paid by the appellant.

Reversed and remanded, with directions.