Wright v. Barnard
This text of 248 F. 756 (Wright v. Barnard) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
BRADFORD, District Judge.
Herman E. Wright, of New York, brought his bill against Cynthia If. Barnard, Executrix of Remsen C. Barnard, 'William Pennewill and the Stetson & Ellison Company, hereinafter referred to as the canning company or the company, charging fraud and breach of contract against Barnard, Pennewill and the canning companj, and praying sundry relief against them as hereinafter mentioned. It appears from the evidence that the canning company was incorporated December 22, 1904, for the purpose, among other things, of canning and preserving fruits, vegetables, meats, &c., with a capital stock of $100,000, divided into 1,000 shares of $100 each. .In the certificate of incorporation there was no provision for preferred stock. The original subscribers and incorporators were William Ellison, Barnard and Pennewill, the two latter being sons-iu-law of Ellison. These three men composed the board of directors. EJlison became president, Pennewill vice president, and Barnard secretary and treasurer of ¿he company.
In Way, 1910, the complainant became connected with it. He wrote April 29, 1910, to the company suggesting that there was a plan by winch from 25% to 30% more profit could be made on its output of canned goods, referring to his experience in selling and advertising to the wholesale and retail grocery trade, and indicating his desire to have a personal interview on the subject. Such an interview was promptly had with Barnard, the secretary and treasurer, who went to Philadelphia for that purpose, and in the early part of the following month, without any formal written contract, the complainant was employed by the company for the balance of that year for the salary or compensation of $300 a month in order that the efficacy of his suggested plan might be tested. This arrangement having been made, the [760]*760complainant opened an office in the city of New York at No. 105 Hudson Street. At the time of his employment by the company approximately 40,000 cases of canned1 tomatoes were in storage, being an unsold surplus of the last year’s product. He rendered such active and efficient service as to dispose not only of the product of 1910, but of the above mentioned surplus. His work having proved satisfactory to the company, it was decided late in the fall of 1910 to secure his services for the year beginning December 1, 1910,- and ending December 1, 1911, on a basis materially different from that on which he had served the company in 1910. An arrangement was accordingly made between the company and him embodied in a letter written by him to the company November 25, 1910, and endorsed by it in the following words:
“Correct: Stetson '& Ellison Co. Per R. C. Barnard, Sec. & Treas.”
The portions of the letter material in this connection are as follows:
“This is to confirm tbe arrangement agreed upon for the maintenance of the New York office from December 1st, 1910, to December 1st, 1911, substance of which is as follows: That $6,000.00 is to be allowed me during this period for my work on gallon (#10) tomatoes and tomato pulp, this sum to cover the expenses of maintaining the sales offices here in New York, which shall include rent, stenographer, and incidental expenses. * * * Expenses outside of the maintenance of the New York office, such as advertising, salesmen, traveling expenses, etc., etc., are to be paid by Stetson & Ellison Co., but no such expenses are to be incurred without their consent. Remittances are to be made to me on the 1st and 15th of each month, the amounts of same dependent upon what is needed by me at this end. Final settlement of the year’s work to be made at a date to be agreed upon.”
It appears from the evidence that the “expenses of maintaining the sales offices here in New York” were insignificant in amount as compared with the $6,000 allowed him for his work, falling short of $100. The complainant served the company faithfully and efficiently during the year agreed on, from December 1, 1910, to December 1, 1911, and received December 21, 1911, from the company, and receipted for, a check for $1,869.27, being balance in full of the stipulated salary or compensation of $6,000 and his commissions on sales of tomatoes.
About or shortly before the time of the expiration of the last mentioned agreement with the complainant, it being necessary that a further arrangement should be had with him to secure his services for the future, the matter was taken up by him with Barnard and Pennewill who went to New York to discuss the situation for 1912. The conference continued for several days. It appears from the evidence, direct and circumstantial, that Barnard and Pennewill recognized that the complainant, had secured good results in 1911, and desired that the company should- have the benefit of his services thereafter for the enlargement of its business. The complainant, however, was unwilling to continue to serve the company on the same basis which he viewed as “more or less of a salary and commission proposition,” and he so informed Barnard and Pennewill, who agreed that if the sales could be largely increased' by him he would be entitled to have a part or share in the business of the company. Finally a decision was reached that, [761]*761to use the language of the complainant on the stand, “the business should be split into thirds; . in other words, that we should all go in on an equal basis; get together and strive to pull the business up and to share the profits equally.” With respect to the raising of the requisite amount of money for the proposed enlargement of the business, it was suggested and concluded by those present that the same could be secured through preferred stock, or an issue of bonds, or borrowed from the bank. After the discussion of some further details of the proposed change the complainant secured the services of Arthur Rowe, an attorney at law, who met him and Barnard and Pennewill at the Wool Club in New York. The evidence does not disclose any act, statement or conduct on the part of Barnard, Pennewill or the company, prior to this meeting at the Wool Club, on its face suggestive of a fraudulent or unfair intent toward the complainant or in the least inconsistent with an observance by them of entire good faith. He was not aware of anything calculated to beget in him the slightest suspicion of fraud or bad faith on their part. He, relying, unconsciously it may he, upon the presumption of honesty and fair dealing in business transactions, assumed and had a right to assume that he was negotiating with, straightforward and honorable men. But the evidence of what transpired at the Wool Club, and subsequently up to and including December 19, 1911, between Barnard and Pennewill and the complainant, renders it impossible to reconcile the conduct of the two former with the rules of fair and honest dealing. It is established by the documentary and oral evidence and is wholly beyond controversy that during all that time the 1,000 shares of the capital stock of the company were held and owned as follows: Barnard 330 shares; Pennewill 20 shares; Katherine E. Pennewill, his wife, 480 shares; and William Ellison 170 shares. Thus Barnard and Pennewill together held and owned but 350 shares as against 650 held and owned by others, — only slightly over one-third of the total capital stock. Rowe testified to the effect that at the conference at the Wool Club Barnard and Pennewill told him they were the owners of all the capital stock of the company. He further testified as follows:
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BRADFORD, District Judge.
Herman E. Wright, of New York, brought his bill against Cynthia If. Barnard, Executrix of Remsen C. Barnard, 'William Pennewill and the Stetson & Ellison Company, hereinafter referred to as the canning company or the company, charging fraud and breach of contract against Barnard, Pennewill and the canning companj, and praying sundry relief against them as hereinafter mentioned. It appears from the evidence that the canning company was incorporated December 22, 1904, for the purpose, among other things, of canning and preserving fruits, vegetables, meats, &c., with a capital stock of $100,000, divided into 1,000 shares of $100 each. .In the certificate of incorporation there was no provision for preferred stock. The original subscribers and incorporators were William Ellison, Barnard and Pennewill, the two latter being sons-iu-law of Ellison. These three men composed the board of directors. EJlison became president, Pennewill vice president, and Barnard secretary and treasurer of ¿he company.
In Way, 1910, the complainant became connected with it. He wrote April 29, 1910, to the company suggesting that there was a plan by winch from 25% to 30% more profit could be made on its output of canned goods, referring to his experience in selling and advertising to the wholesale and retail grocery trade, and indicating his desire to have a personal interview on the subject. Such an interview was promptly had with Barnard, the secretary and treasurer, who went to Philadelphia for that purpose, and in the early part of the following month, without any formal written contract, the complainant was employed by the company for the balance of that year for the salary or compensation of $300 a month in order that the efficacy of his suggested plan might be tested. This arrangement having been made, the [760]*760complainant opened an office in the city of New York at No. 105 Hudson Street. At the time of his employment by the company approximately 40,000 cases of canned1 tomatoes were in storage, being an unsold surplus of the last year’s product. He rendered such active and efficient service as to dispose not only of the product of 1910, but of the above mentioned surplus. His work having proved satisfactory to the company, it was decided late in the fall of 1910 to secure his services for the year beginning December 1, 1910,- and ending December 1, 1911, on a basis materially different from that on which he had served the company in 1910. An arrangement was accordingly made between the company and him embodied in a letter written by him to the company November 25, 1910, and endorsed by it in the following words:
“Correct: Stetson '& Ellison Co. Per R. C. Barnard, Sec. & Treas.”
The portions of the letter material in this connection are as follows:
“This is to confirm tbe arrangement agreed upon for the maintenance of the New York office from December 1st, 1910, to December 1st, 1911, substance of which is as follows: That $6,000.00 is to be allowed me during this period for my work on gallon (#10) tomatoes and tomato pulp, this sum to cover the expenses of maintaining the sales offices here in New York, which shall include rent, stenographer, and incidental expenses. * * * Expenses outside of the maintenance of the New York office, such as advertising, salesmen, traveling expenses, etc., etc., are to be paid by Stetson & Ellison Co., but no such expenses are to be incurred without their consent. Remittances are to be made to me on the 1st and 15th of each month, the amounts of same dependent upon what is needed by me at this end. Final settlement of the year’s work to be made at a date to be agreed upon.”
It appears from the evidence that the “expenses of maintaining the sales offices here in New York” were insignificant in amount as compared with the $6,000 allowed him for his work, falling short of $100. The complainant served the company faithfully and efficiently during the year agreed on, from December 1, 1910, to December 1, 1911, and received December 21, 1911, from the company, and receipted for, a check for $1,869.27, being balance in full of the stipulated salary or compensation of $6,000 and his commissions on sales of tomatoes.
About or shortly before the time of the expiration of the last mentioned agreement with the complainant, it being necessary that a further arrangement should be had with him to secure his services for the future, the matter was taken up by him with Barnard and Pennewill who went to New York to discuss the situation for 1912. The conference continued for several days. It appears from the evidence, direct and circumstantial, that Barnard and Pennewill recognized that the complainant, had secured good results in 1911, and desired that the company should- have the benefit of his services thereafter for the enlargement of its business. The complainant, however, was unwilling to continue to serve the company on the same basis which he viewed as “more or less of a salary and commission proposition,” and he so informed Barnard and Pennewill, who agreed that if the sales could be largely increased' by him he would be entitled to have a part or share in the business of the company. Finally a decision was reached that, [761]*761to use the language of the complainant on the stand, “the business should be split into thirds; . in other words, that we should all go in on an equal basis; get together and strive to pull the business up and to share the profits equally.” With respect to the raising of the requisite amount of money for the proposed enlargement of the business, it was suggested and concluded by those present that the same could be secured through preferred stock, or an issue of bonds, or borrowed from the bank. After the discussion of some further details of the proposed change the complainant secured the services of Arthur Rowe, an attorney at law, who met him and Barnard and Pennewill at the Wool Club in New York. The evidence does not disclose any act, statement or conduct on the part of Barnard, Pennewill or the company, prior to this meeting at the Wool Club, on its face suggestive of a fraudulent or unfair intent toward the complainant or in the least inconsistent with an observance by them of entire good faith. He was not aware of anything calculated to beget in him the slightest suspicion of fraud or bad faith on their part. He, relying, unconsciously it may he, upon the presumption of honesty and fair dealing in business transactions, assumed and had a right to assume that he was negotiating with, straightforward and honorable men. But the evidence of what transpired at the Wool Club, and subsequently up to and including December 19, 1911, between Barnard and Pennewill and the complainant, renders it impossible to reconcile the conduct of the two former with the rules of fair and honest dealing. It is established by the documentary and oral evidence and is wholly beyond controversy that during all that time the 1,000 shares of the capital stock of the company were held and owned as follows: Barnard 330 shares; Pennewill 20 shares; Katherine E. Pennewill, his wife, 480 shares; and William Ellison 170 shares. Thus Barnard and Pennewill together held and owned but 350 shares as against 650 held and owned by others, — only slightly over one-third of the total capital stock. Rowe testified to the effect that at the conference at the Wool Club Barnard and Pennewill told him they were the owners of all the capital stock of the company. He further testified as follows:
“They discussed the situation of the Stetson and Ellison Company; they said that it was a corporation with one hundred thousand dollars of common stock, and that Mr. William Penniwell and Mr. Xi. C. Barnard were the owners of the common stock; that Mr. Wright had for some time been connected with the company as sales agent, and had proved his value to the company by increasing the net returns of company. Mr. Barnard said that Mr. Wright was so valuable to the company that they wished to retain his services, and Mr. Wright explained that the goods put up by the company were very good, and that was, in part, the reason for his success in soiling tiie goods; they told me that they wished the company reorganized in such a way that Mr. Wright would be entitled to one-third of the proceeds of the business.”
And. further, that as a result of the conversation at the Wool Club the witness prepared two paper writings, (Complainant’s Exhibits 73 and 72,) being proposed agreements between Pennewill, Barnard and the complainant, relative to the business and affairs of the company. The first recital in the preamble in Exhibit 71 is as follows:
[762]*762“Whereas, William Penniwell and E. 0. Barnard, are each the owner o£ $50,000 of the stock of Stetson & Ellison Co., which corporation is engaged in the canning business.”
Exhibit 72 contains nothing inconsistent with the above recital. It appears that these proposed agreements were received from Rowe by the complainant through the mail on the day next after the conference at the Wool Club, and were personally delivered by him to Barnard and Pennewill, who took them to Delaware for the expressed purpose of taking up the matter with Ellison, the president of the company. The complainant received December 18, 1911, a letter, dated the preceding day, from the company bearing its typewritten signature, but in fact prepared and emanating from Barnard, in which it was stated, among other things, that:
“We bave bad our conference with Mr. Ellison which has ended as we predicted, Well, go ahead boys, I leave it to you.’ ”
The proposed agreements prepared by Rowe were submitted by Barnard and Pennewill to an attorney in Dover, Delaware, who prepared in lieu of them a proposed agreement which was subsequently signed by Wright, Barnard and Pennewill December 19, 1911, as follows: ’ •
[The contract was here quoted in full.]
It will be observed that, contrary to the fact, the first recital in the preamble declares that Pennewill and Barnard “own and control the capital stock of Stetson and Ellison Company,” and that in the third paragraph the agreement provided that 1,500 shares of the common stock of the “new or re-organized company” be issued to Pennewill and Barnard “full paid, in consideration of the one thousand (1,000) shares of stock now held by them and. the business of the company.” .The complainant testified that at the time the agreement of December 19, 1911, was signed he did not know, and it appears that until after the bringing Of this suit, he never did know that 'there were other holders-of stock in the company than .Barnard and Pennewill, save that he “thought Mr. Ellison held one share which had probably been issued to him and endorsed, so he could have the office of president,” and that nobody had told him so, “but he was the president, and he must have had a share.” Although .Pennewill testified as to the holdings of the stock of the company at the time of the signing of the agreement of December 19, 1911, he does not say, and there is absolutely no evidence, that until after the filing of the bill the complainant had been informed or was aware that at che time of the Wool Club conference or on December 19, 1911, or thereafter, substantially all of the stock was not owned and controlled by Barnard and Pennewill, as falsely recited and declared by them. In fact in the bill as originally filed the complainant, evidently relying i'pon such false statements, averred that Pennewill and Barnard “owned and controlled the capital stock” of the company; but in the amendment to the bill filed six months later declared that before and at the time of the execution of that agreement it was “falsely and fraudulently represented” to the complainant by Pennewill and Barnard, and “the contract falsely and fraud-' [763]*763ulently set forth, that they owned and controlled the capital stock of the said Stetson and Ellison Company.”
Secrecy is of the essence of fraud and those meditating the latter do not proclaim their nefarious purpose from the housetops. Consequently, ;dmost without exception, the proof of fraud must depend upon evidence of circumstances which in their totality clearly establish it I say in their totality, for even though the circumstances in a given case taken individually and separately may not he sufficient to sustain the charge, yet when considered collectively they may leave no escape from its truth. On this subject Mr. Justice Mitchell in delivering the opinion of the court in Montgomery Web Co. v. Dienelt, 133 Pa. 585, 19 Atl. 428, 39 Am. St. Rep. 663, forcibly said:
“IfrotKl, as has so often boon said, can rately be proved by direct and positive testimony, and great liberality is always allowed in the introduction of evidence having a tendency to show it. * * *• Defendants had to get their testimony from the other side, and from the cireuniKtances, and were not able, to mate positive and direct proof of the fraudulent intent, but had to rely upon circumstances pointing thereto. In his charge, the learned judge took those up seriatim, and disposed of them summarily. * * “ The substantial defect of the charge is in Us treatment of the Items of evidence, one by one. without at any time directing the view of the jury to their united force. There probably never was a case of circumstantial evidence that could not be blown to the winds by taking up each item separately, and dismissing it with the conclusion that it does not prove the ciase. The cumulative force of many separate matters, each perhaps slight, ns in the familiar bundle of twigs, constitutes the strength of circumstantial proof.”
fn order that the company should further enjoy the services of the complainant it was necessary, owing to the stand taken by him, that its charter should be amended in such manner as, among other things, to allow the issue of more capital stock. Under the laws of Delaware this could be effected only through affirmative action, by a majority of the board of directors approved by the holders of a majority of the capital stock. As Barnard and Pennewill had only 350 out of 1,000 shares, they had not the power, without the co-operation of other stockholders, to secure the requisite amendment. If Ellison, after the Wool Club conference, and prior to December 19, 1911, had been in sufficient possession of ins faculties and, after having had the pioposed scheme embodied in the written agreement of that date laid before him, had in good faith said to Barnard and Pennewill “Well, go ahead boys, I leave it to you,” there would have been no reason, if they intended to carry that scheme into execution, why they should make a false statement as to the ownership and control of the capital stock. For they were a majority of the board of directors and with Ellison held a majority of the whole capital stock, namely, 520 of the 1,000 shares and would have been able to secure the requisite amendment of the company’s'charter or its reorganization. The making of these false statements affords cogent evidence that they either could not control Ellison’s stock or did not intend to secure the amendment or reorganization they agreed to obtain; or, in other words, that they lacked either tire expectation or the intention of securing the change in the charter contemplated in the agreement. Barnard and Pennewill were in a. position where they could not secure the services [764]*764of the complainant without deceiving him as to the control and ownership of the stock, and the evidence satisfies me that their false statements were made for the purpose of securing those services for the company and without any intention on their part that the complainant should enjoy the benefits of those provisions in the agreement which served as the sole or principal inducement for his becoming a party to it. The fact that they practiced this fraud upon the complainant in order to have the benefit of his services is the highest tribute they could pay to his fidelity and efficiency.
That agreement provided in substance, among other things, that on or before January 1, 1912, the charter of the company should be so altered that the capital stock should be $250,000, consisting of 1,500 shares of common stock, and 1,000 shares of preferred stock, of the par value of $100 each; that in consideration of the complainant’s becoming the general manager of the “new or reorganized company” and of his selling all of the preferred stock at par and without commissions, 500 shares or one-third of the common stock should be transferred to the complainant, a certificate for the same to be deposited in escrow' with and held by the Baltimore Trust Company, and by that company delivered to the complainant when he should have disposed of all the preferred stock “or so much thereof as shall be agreed upon by any two of the parties hereto” and should have “brought the business of the said new or reorganized company to a showing of at least a net yearly profit above fixed charges and expenses,” as therein defined, of $45,000; that if the complainant should fail to sell the preferred stock, or so much thereof as should be agreed upon as above mentioned, and to bring the net annual profit up to $45,000 on or before January 1, 1922, the certificate of slock so deposited with the trust company should be returned to Pennewill and Barnard; that the complainant during the period the stock certificate should be held in escrow by the trust company, should receive “any and all dividends that may be declared on the common stock of the said new or reorganized company for the shares so held in escro”; that commencing with January 1, 1912, annual salaries to the officers of the “new or reorganized company” should be paid as follows: to Ellison, as president, $2,500; and to Pennewill as vice president, Barnard as secretary and treasurer, and to the complainant as general manager, $5,000 each; provided that only $300 per month should be paid to the last three named until the end of the fiscal year 1912; that the total [766]*766proceeds from the sale of the preferred stock should be paid into the treasury of the company and used for operating expenses incident to its business, for enlargement of its plant, the purchase of new plants, or otherwise, as the board of directors should direct; and that none of the parties to the agreement without the consent of the others should sell, hypothecate, or in any wise dispose of any of the common stock of the copipany.
[767]*767“X. Then you were going on the presumption that Mr. Ellison would reor-ganizo this company, according to the agreement which you .entered into with Mr. Wright, without knowing whether he would do it, or'not? A. On presumption, yes. X. Entirely on presumption? A. Yes.”
The statement in the letter of December 17, 1911, from the company through Barnard to the complainant, “We have had our conference-with Mr. Ellison which has ended as we predicted, ‘Well, go ahead hoys, I leave it to you/ ” was either true or false. If it was true and Barnard believed Ellison to be mentally competent and in earnest,' there was no legitimate reason for an omission on Barnard’s part to cooperate with Pennewill and Ellison in securing the proposed charter amendment. The complainant testified to the effect that on December 19, 1911, after the signing of the agreement of that date he and Barnard and Pennewill arranged that the complainant shotild go' to Delaware a few days later, and “we were to hold a meeting and arrange for changing the charter and various other things”; that he went to Dover where he met Pennewill and Barnard; that he “asked them if they were going to have a meeting, that if they were all ready, wc would have the meeting”; that “they said that the matter was being carried through by their lawyers, that the papers were being drawn up and that the stock and everything would be fixed in a few days, so that the matter was simply in the hands of Ihe lawyers, and everything would be fixed”; that the complainant had received a telegram from Chicago asking him to go there on some business of the company; and that they suggested that he should go to that city and “while I was out there they would attend to the details and put the reorganization through”; and that he accordingly went to Chicago about ilie end of 1911. No amendment of the charter, however, was secured as promised and agreed by Pennewill and Barnard. The defendants have not produced nor accounted for the absence of any lawyer or lawyers employed to “put the reorganization through,” nor has any evidence been adduced that Pennewill and Barnard or either of them at any time attempted to secure an amendment of the charter in accordance with the agreement of December 19, 1911.
But, notwithstanding such default on the part of Pennewill and Barnard, the complainant, who was wholly unaware of the falsity of ilieir statements as to stock owner ship and control, continued actively and loyally to co-operate with them for the advancement of the company’s business and welfare. I have discovered nothing in the testimony or in the documentary proofs indicating on the part of the complainant fraud, bad faith or indifference to the interests of the company; but, on the contrary, zealous efforts on liis part in its behalf.
The complainant testified to the effect that he had an interview with Barnard and Pennewill in Camden, in the latter part of July, 1912; that the witness inquired as to the need for insurance on his life, he having been requested to have his life insured in the sum of $30,000 for the benefit of the .company, because he had not discovered why they wanted such insurance; that they told him the trust company demanded about $90,000 insurance on the lives of Barnard, Penne-will and himself in equal portions, as additional collateral for the [768]*768loans that that company had made to the canning company; that the proposition-of raising more money was not discussed at that time; that Barnard and Pennewill said “they had all the money they needed” and that “for operating expenses they would demand an advance from Libby, McNeil & Libby, (a corporation of Maine, doing business in Chicago, with which the canning company had a contract for furnishing tomato pulp, &c.,) as soon as the season started”; that after they stated that the company had ali the money it needed the complainant said he felt it was “unfair to me to hold me down ori my contract with the sale of that preferred stock, or any part of it”; that they seemed willing to make a change in the agreement of December 19, 1911, to meet his ideas, and the change was made; that it was written out by the complainant and signed July 25, 1912, as follows:
“July 25th, 1912.
. “When debts of company for 191.:'.: (as shown Dec. 31st, 1912) are liquated, company will be reorganized from $100,000.00 to $150,000.00 and $50,000.00 given to each. In case earnings c.o not equal $45,000.00 year, stock of H. L. W. to be placed in escro according to original agreement until earnings do reach same. O. K.
“H. L. Wright
“R. O. Barnard
“Wm. Pennewill.”
The word “liquated” as used in the above agreement has been treated by counsel on both sides as intended for and as having the same significance as “liquidated,” the omission of the letters “id” evidently being a mere clerical error. It is not without significance that the above modification was written and signed on letter paper of the company having on its heading “Wm. Ellison, President, Wm. Pennewill, Vice President, R. C. Barnard, Secretary & Treasurer, H. L. Wright, General Manager,” thui implying the recognition and ratification of the agreement of December 19, 1911, subject to the modification. The modification was written in the railway station at Wyoming and on its face suggests haste in its preparation and a lack of the precision which should have characterized an agreement of its importance.
“In Brooklyn Life Insurance Co. v. Dutcher, 95 U. S. 269 [24 L. Ed. 410] it was said: ‘There is no surer way to find out what parties meant than to see what they have done.’ So obvious and potent a principle hardly needs the repetition it has received. And equally obvious and potent is a resort to the circumstances and conditions which preceded a contract. Necessarily in such circumstances and conditions will be found the inducement [769]*769to the contract and a test of its purpose. The conventions of parties may change such circumstances and conditions, or continue them, but it cannot be separated from them.”
The evidence discloses a set purpose on the part of the company and its two active directors to reap the benefit of the complainant’s services and at the same time to withhold from him the principal benefit and advantage they had ostensibly intended to secure for him. The testimony of the complainant on this branch of the case is natural, inherently credible, and accords with the fact that the agreement of December 19, 1911, and its modification were finally nullified by .the company, Barnard and Pennewill, so far as they had power to do so, in the spring of T913, as hereinafter set forth. [The complainant’s testimony and other evidence were here reviewed.]
It appears from the evidence that the certificate of incorporation of the cauuing company was amended March 27, 1913, by striking out the provision limiting its capital stock to $100,000, and specifying $35,000 of capital stock for the commencement of business, and inserting in lieu thereof the following:
“The amount of the total authorized capital stock of this corporation is two hundred thousand dollars (§200,000.00), divided into two thousand (2,000) shares of one hundred dollars (§100.00) each. The amount of capital stock with which it will commence business is one hundred thousand dollars (S'l 00.000) being one thousand (1,000) shares of one hundred dollars (§100) each.”
[The evidence relating to this amendment and the issuance of the additional stock was here referred to.]
There is evidence to show that the complainant had no knowledge or suspicion of the contract of March 13, 1913, and of the amendment of the certificate of incorporation March 27, 1913, until long after-wards. Further, it appears from the evidence that the execution of that contract and the amendment of the charter followed and were in consequence of a contract between the company and Ribhy, McNeil & Uibby for an increase in the supply of tomato pulp by the company to that concern, the negotiations for which contract were taken out of the hands of the complainant in January, 1913, as before stated, by the company through Barnard. The amendment of the company’s charter March 27, 1913, and the subsequent issue of stock to the exclusion of the complainant as above mentioned were the consummation of the fraud and wrong perpetrated by the company, Barnard and [772]*772Pennewill upon him. After this wanton violation of his rights they evidently felt uneasy as to the possibility or probability of being held to account for their fraud, and nothing could be more natural than that an attempt should be made to approach the complainant in such manner as to do away with the danger of litigation. It appears from the testimony of the complainant that during or about the month of May, 1913, Barnard visited New York and “invited me to lunch. I-Ie was looking, mostly, for information; wanted to know what I was doing, and so forth. No proposals were made at that time. He seemed afraid to make any proposals.” It further appears that Barnard called in August, 1913, upon the complainant at Great Neck, Long Island, where he lived and made certain proposals at that time; asking the complainant to surrender the contract of December 19, 1911, as modified, and offering to employ him at a salary of $3,000 a year if he would come back as a selling agent. The complainant inquired “What becomes of my interest in the business ?” and Barnard replied, “There is no interest on the business. We are hooked up with other people, now, and the old deal doesn’t count for anything.”
It is difficult to conceive of a case more permeated with fraud than that now before this court. The evidence, direct and circumstantial, oral and documentary', has established to a moral certainty fraud and wrongdoing on the part of the company, Barnard and Pennewill, by which the complainant’s rights were violated and his interests disregarded.
It is contended on the part of the defendants, and there is some evidence to the effect, that the contract negotiated by the complainant between the company and Libby, McNeil & Libby in January, 1912, for the furnishing of tomato pulp by the former to the latter was disadvantageous to the company, but advantageous, to Libby, McNeil & Libby on account of the low price to be received by the company for the pulp. Pennewill testified to the effect that it was partly or wholly owing to the execution of the above mentioned contract that the amendment of the charter of March 27, 1913, was secured under which Libby, McNeil & Libby acquired an interest through their representatives. I fail to perceive any force in this’contention or its relevancy to the issues involved in this case. If the contract just mentioned was disadvantageous to the company the responsibility for its improvident character rests upon the company and not the complainant, for. the former through Barnard and not the latter determined the prices on which the contract was bottomed. Further, the contract received the attention and approval of both Pennewill and Barnard who as men of practical experience in the canning business, unlike the complainant, were more familiar with the cost of production. But aside from these considerations, no disadvantageous feature in the contract could justify the practicing by the company, Barnard and Pennewill of fraud upon the complainant.
“X. Then, Mr. I’eimewiU, the Stetson and Ellison Company wont ahead and put lip these factories, or negotiated for these factories, simply on the faith that they hud in Mr. Wright’s words that he could raise this money in ninety days? A. Right. I won’t say raise it all in ninety days, but he said he could the better portion of it in ninety days — a big portion of it.”
Pennewill’s testimony in this connection must be rejected. If the company had faith in the ability of the complainant to raise money for enlargements and additions, as stated by him, according to Peunewill’s testimony, it is difficult to account for the fact that in the agreement executed shortly afterward he was allowed ten years within which to dispose of $100,000 of preferred stock for the same purpose. Further, PemiewiH’s testimony on the above point is inconsistent with that of the complainant. Fraud in fact is an acted lie, and the testimony of a party to the fraud touching the fraudulent transaction, if not against interest, is entitled to1 little, if any, weight. He has discredited himself; and such testimony, uncorroborated and coining from a party to the cause testifying in his own behalf, should not be permitted to avail against the inherent probabilities of the case, to say nothing of apparently truthful evidence given by others innocent of wrongdoing.
[776]*776“There is a prima facie presumption of fairness and honesty in the dealings of mankind, and, where one man makes a promise to another as an inducement for a change of position or other action on the part of the latter, he, if not expressly, impliedly avers that he has an existing intent to fulfil his promise, and sudh implied averment of existing intent is of matter of fact and, if false and fraudulent, is a fraudulent representation, which may or may not, according to circumstances, furnish the basis for an action ex delicto.”
Shortly after the opening of the trial, the complainant being on the stand, objection was made to “his assuming to testify to any conver[777]*777sation between him and Mr. Barnard” on the ground that “Mr. Barnard’s estate is a defendant .in this suit, and under the statute in this state the witness being the complainant cannot testify to any brans' actions with the deceased.” Barnard died September 1, 1914. The court sustained the objection in so far as Barnard’s estate was concerned, but overruled it in so far as it applied to the company. No objection was made that under no circumstances could a statement by Barnard be admissible against the company, but that, not being admissible against Barnard’s estate, the evidential value of the proposed testimony could not be separated,. — that it could not “be applicable to one phase of the case without being applicable to another phase of the case.” By the'act of Congress of June 29, 1906, c. 3608, 34 Stat. 618 (Comp. St. 1916, § 1464), section 858 of the revised statutes was amended to read as follows:
“Sec. 858. Tlie competency of a witness to testify in any civil action, suit, or proceeding in tlie courts of the United States shall be determined by the laws of the state or territory in which the court is held.”
The law of Delaware on this subject is found in section 4212 of the code of 1915, as follows:
“No person shall be incompetent to testify in any civil action or proceeding whether at law or in equity, because he is a party to the record or interested in tiio event of the suit, or matter to be determined: Provided, that in actions or proceedings by or against executors, administrators or guardians in which judgment or decree may be rendered for or against them, neither party shall be allowed to testify against the other as to any transaction with or statement by the testator, intestate or ward, unless called to testify thereto by the opposite party.”
In order to render a party incompetent under this provision to testify it is necessary not only that the suit be an action or proceeding by or against an executor, administrator or guardian, in which judgment or decree may be rendered for or against him, but'also that the proposed testimony relate to a “transaction with or statement by the testator, intestate or ward.” This provision has received judicial construction in the state tribunals. In Krause v. Emmons, reported in 97 Atl. 238, the supreme court of Delaware said:
“It clearly appears from, our statute that in actions by or against executors, etc., the parties are not disqualified from testifying in their own behalf, but are disqualified only from giving testimony eemoernmg any transaction with or statement by the testator, etc., unless they are called to -testify by tlie opposite party. The purpose of the legislatures in passing statutes of this kind is equality. In this slate the intention was to prevent both parties, unless called as a witness by tlie opposite party, giving testimony of transactions with or statements by the deceased, concerning which the deceased, if living, could of his own knowledge contradict, corroborate or explain. So much depends upon the particular facts in each case, that it would practically be impossible to define the word ‘transaction,’ as used in the proviso, in terms sufficiently comprehensive so as to include all facts which would be considered a transaction, and at the same time exclude all facts which would not be a transaction within the meaning of the act. In general terms a transaction, within the terms of the statute, may he said to be an occurrence or action to which both decedent and the other party had knowledge, and to which the decedent if living would be equally qualified to testify with the other party.”
[778]*778
“The existing statute (Rev. Stat Sect. 858) seems too plain to require construction. The first clause of that section shows that there was in the mind of Congress two classes of witnesses, — those who were parties to the issue, that is, parties to the record; and those interested in the issue to be tried, that is, those who, although not parties to the record, held such relations to the issue that they would lose or gain by the direct legal operation and effect of the judgment. A witness may be interested in the issue without beiDg a party thereto, — a distinction which seems to have been recognized in all the statutes to which reference has been made. But whether a party to or only interested in the issue, the witness is not to be excluded in the courts of the United States, upon either ground, except that in actions in which judgment may be rendered for or against an executor, administrator, or guardian, no party to the action can testify against the other as to any transaction with, or statement ay, the testator, intestate, or ward, unless called to testify thereto by the opposite party, or required to testify thereto by the court. The proviso of Sect. 858 excludes only one ot the classes described in its first clause, — those who are, technically, parties to the issue to be tried, — and we are not at liberty to suppose that Congress intended the word ‘party,’ as used in that proviso, to include both those who, according to the established rales of pleading and evidence, are parties to the issue, and those who, noi; being parties, have an interest in the result of that issue.”
Under section 858, as then existing, a witness could not be excluded “because he is a party to or interested in the issue tried.” Under the Delaware statute he is not to be excluded “because he is a party [779]*779to the record or interested in the event of the suit or matter to be determined.” In substance these quoted provisions are the same, and the reasoning of the Supreme Court applies in full force to the Delaware statute. The evidence however, oral and documentary, especially the latter, satisfactorily establishes, wholly aside from any testimony given by the complainant as to Barnard’s statements, fraud and wrongdoing on the part of the latter.
It appears that only one dividend was paid or declared after January 1, 1912, and before the bringing of this suit. That dividend, amounting to 20% on the $200,000 capital stock of the company was payable November 28, 1914. For the reasons hereinbefore given the complainant must be held entitled to receive primarily from the company by way of damages 20% on $33,333.33, being one-third of the $100,-000 of capital stock other than that acquired pursuant to the negotiations with Libby, McNeil & Libby, such percentage amounting to $6,666.66, on which interest at the rate of 6% per annum is to be computed from November 28, 1914; also one-sixth of the amount of any further dividend or dividends heretofore declared or hereafter to be declared and which has or have become payable or shall become payable prior to the making of the final decree in this cause, together with interest thereon at the said rate to be computed from the time or times respectively when such dividend or dividends, if any, became or shall become payable; also his instalments of salary for January and February, 1913, each amounting to $416.66, aggregating $833.32, together with interest at the rate aforesaid, computed on onerhalf of said amount from February 1, 1913, and on the residue thereof from March 1, 1913; also the sum of $1,400 reserved from his salary for 1912, as hereinbefore mentioned, with interest thereon at the rate aforesaid from January 1, 1913, and also damages representing the net pecuniary loss sustained by the complainant from being wrongfully deprived through the fraud of the defendants of the opportunity of receiving the specified salary of $5,000 a year from the time to which it was paid as aforesaid until January 1, 1922; such net pecuniary loss to he ascertained in the light of the circumstances of the case, including probabilities of life, the complainant’s earning capacity, and the extent to which he has offset or had the opportunity of offsetting or may reasonably be expected to offset his loss with respect to,the non-receipt of the specified salary, to the end that just and equitable compensation, and no more, may be made him for the wrong he has suffered. Semet-Solway Co. v. Wilcox, 143 Fed. 839, 74 C. C. A. 635. I fear the measure of relief accorded to the complainant is not commensurate with the damage lie has suffered from the wrong done to him, but I have been unable to discover any ground on which consistently with the principles controlling the presumption of damage or loss of gain as against wrongdoers more extensive relief can be given.
The case must be referred to a master for an accounting and ascertainment of damages the complainant may be entitled to receive aside from the items specifically mentioned in this opinion.
A decree in accordance with this opinion may he prepared and submitted.
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Cite This Page — Counsel Stack
248 F. 756, 1917 U.S. Dist. LEXIS 821, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wright-v-barnard-ded-1917.