Orange County Co. v. Appleton

Field, J.

This is a bill in equity brought in the Superior Court to establish a debt alleged to be due to the plaintiff from the defendant Appleton on account of said defendant’s subscription to a syndicate agreement and the assignment of this subscription to the plaintiff by the syndicate, and .to reach and apply in satisfaction of this alleged debt certain shares in the defendant New England Equity Corporation alleged to belong to the defendant Appleton. On the motion of the defendant Appleton, hereinafter referred to as the defendant, an issue was framed for submission to a jury on the question of the establishment of the debt as follows: “How much money does the defendant Appleton owe the plaintiff? ” The questions which are before us for determination arose in connection with the trial of this issue.

The plaintiff’s evidence consisted of documents, the execution of which was admitted, and agreed facts. The defendant offered evidence which was excluded, and made an offer of proof, a part of which proof was ruled to be inadmissible, and the evidence in support thereof excluded. The defendant moved that a verdict be' directed for him on the issue submitted, asking that the jury be directed to answer “nothing.” This motion was denied. The defendant made requests for rulings which were refused, and other requests which were given with the ruling that they were inapplicable to the facts presented. On motion of the plaintiff, the judge directed a verdict for it for $29,416.50, *133including $27,000, the balance due under the original syndicate subscription, and $2,416.50, interest thereon, the latter amount being reached by agreement, but without any admission by either party affecting the substantive case. To the exclusion of the defendant’s evidence, the denial of his request for a directed verdict, the rulings and refusals to rule, and the direction of a verdict for the plaintiff, the defendant excepted. The judge reported the case.

Under date of August 26, 1924, various persons as managers and others, including the defendant, as subscribers executed an agreement for the formation of the Southern Land and Timber Syndicate for the purpose as therein recited of “providing such funds and credits as the Managers may find necessary or advisable for or in connection with the acquisition or development” of certain land and timber in Florida. The total subscription was $300,000, of which the defendant’s subscription was $30,000, being three units of $10,000 each. The agreement included the power to make calls for payments, after ten days’ notice, in full, or in instalments from time to time, of these subscriptions. At some time prior to January 1, 1925, the managers made a call for ten per cent of the subscriptions, in the case of the defendant, $3,000, which amount he paid. On February 2, 1925, they made a call for the balance of these subscriptions — in the case of the defendant, $27,000 — to be paid on October 24, 1925, and on August 31, 1926, sent to all the members and subscribers a call for the payment of thirty per cent of the full amount due of the subscriptions — in the case of the defendant, $9,000 — and again on November 5, 1926, for sixty per cent of such amount — in the case of the defendant, $18,000. The defendant has not made any payment in response to these calls.

On or about August 19, 1926, the managers submitted to all the “members and participants” in the syndicate, including the defendant, a document embodying a plan for liquidating it. This plan provided for the formation of a corporation to acquire the assets of the syndicate and assume its liabilities, and to issue preferred and common stock for such assets to be distributed among the “members *134and participants” in the syndicate, and additional stock for sale. Each of the “members and subscribers” of the syndicate — among them the defendant — signed and delivered to the managers a document whereby he assented to the plan, requested liquidation of the syndicate in accordance therewith, and confirmed his obligations as “a member or participant” therein.

On July 14, 1927, the then surviving syndicate managers joined in executing an indenture by which they purported to assign to the plaintiff, a corporation organized on July 12, 1927, under Massachusetts laws, all the assets of the original syndicate, with certain exceptions not material to this case, including specifically “all unpaid subscriptions to said Syndicate and all rights of said Syndicate under or by virtue of said agreement of August 26, 1924, and/or the supplemental agreement of August 19,1926 to collect from members any unpaid balances of their subscriptions” and the plaintiff purported to assume the liabilities of the syndicate. The plaintiff as such assignee seeks by this suit to recover from the defendant the balance of his subscription amounting to $27,000 with interest thereon.

The defendant does not contend that he was not bound by his original subscription, except so far as such a contention is presented by his exception to the exclusion of evidence of his conversation with the managers before he signed the syndicate agreement. He offered to prove that he signed the agreement in reliance upon statements made to him by the managers that they were forming a syndicate which “was a very profitable proposition, and would require the investment of only a little money,” and that “no call would be made upon him to pay any more than $1,000 per unit subscribed,” and excepted to the exclusion of this evidence. It is clear that this evidence was not admissible to modify the written contract of subscription and was excluded rightly. Goldenberg v. Taglino, 218 Mass. 357. Starks v. O’Hara, 266 Mass. 310.

The plaintiff’s suit is brought upon the defendant’s subscription to the syndicate — not upon a subscription to stock in the plaintiff corporation — and can be maintained *135if the plaintiff has a valid assignment in writing of the syndicate’s right to recover the unpaid balance thereof. G. L. c. 231, § 5. Commonwealth v. Market Warehouse Co. 250 Mass. 449, 452. Assignment by the managers of the assets of the syndicate including this right was authorized by the plan of liquidation of August 19,1926, as assented to, and an assignment thereof in writing to the plaintiff was executed by them. The defendant contends, however, (a) that in mating this assignment the managers did not act within the scope of the authority conferred upon them either by the agreement of August 26, 1924, or by the plan of liquidation of August 19, 1926, and (b) that the assent of the defendant to this plan was procured by fraud.

The defendant urges in support of his contention that the assignment was not within the scope of the syndicate managers’ authority under the plan of liquidation, that this plan was not followed in the formation of the plaintiff corporation. Compare Katama Land Co. v. Jernegan, 126 Mass. 155.

According to the plan the capital of the corporation to be formed to take over the assets of the syndicate was to consist of “ $420,000 of Preferred stock to cover the total Syndicate subscriptions amounting to $300,000 and $120,000 of new cash, and 120,000 shares of Common stock, of which 18,000 shares will be returned to the New Company’s treasury for its use in selling $120,000 Preferred stock at par.” The preferential features of the preferred stock issue were set forth with much detail. The common stock was to be without par value. It was further provided in the plan that the new corporation should “pay for the assets acquired by payment or assumption of liabilities outstanding, by the issue of Preferred stock to the extent of the paid-up subscriptions of Syndicate members with interest at 7% per annum . . . and by the issue of all of its common stock,” and that the managers “reserve the right to amend the above plan in respect to details.”

The plaintiff’s certificate of incorporation dated July 12, 1927, provided for “an authorized capital stock of eight hundred and fifty thousand dollars, consisting of forty-five *136hundred shares of preferred stock, par value one hundred dollars, and four thousand shares of common stock, par value one hundred dollars.” The next day an amendment was adopted substituting one hundred and twenty thousand shares of common stock without par value for the par value common stock previously provided for, and the following day the assignment was made. On August 6, 1927, thirty-two hundred and thirty preferred shares and one hundred and twenty thousand common shares were issued for the benefit of the syndicate of which three thousand shares of the preferred stock represented the amount of the total subscriptions to the syndicate, "and two hundred and thirty shares . . . the amount proposed to be issued to the Syndicate subscribers to cover interest at the rate of seven per cent per annum upon the subscriptions.”

The authorized capital, therefore, at the time of the assignment was in accordance with the plan. The common stock then authorized was one hundred and twenty thousand shares without par value, as the plan required. It is immaterial that for one day before the date of the assignment the charter provided for common stock with par value.' Nor was the authorization of a preferred stock issue of the par value of $450,000 a variance from the plan. The provision therein for an issue of preferred stock of $420,000 par value to cover "Syndicate subscriptions amounting to $300,000 and $120,000 of new cash” is to be read with the provision that the assets assigned shall be paid for in "Preferred stock to the extent of the paid-up subscriptions of Syndicate members with interest” thereon. Such interest amounted to $23,000. A further $7,000 of par value, doubtless intended to make the amount of the issue a round figure, was within the authority reserved to the syndicate managers "to amend the above plan in respect to details.” Moreover, the amount of stock actually issued to the agent of the syndicate for its benefit in exchange for its assets met the requirements of the plan, and the issue was not invalidated by the fact that this agent was also the treasurer of the plaintiff corporation. The agreement of the parties that "preferred shares” were so issued must be taken to *137mean shares containing the preferential features called for by the plan.

Whatever may be the rights and obligations of the syndicate or of any of its members or participants under the plan after the formation of the plaintiff corporation and the issue of its stock to the syndicate, no condition precedent to the assignment of the syndicate assets was fixed by the plan which has not been performed. The plan did not require that the preferred stock to be issued for cash be fully subscribed before the assignment was made. Each member of the syndicate was to have an opportunity to subscribe for such stock but steps were to be taken to carry out the plan, in reliance upon the fact, as recited therein, that “certain of the original subscribers” had “indicated their willingness to take up shares not subscribed for by the other participants.” It was contemplated that immediate cash requirements would be met by payments on the original syndicate subscriptions, such as the defendant’s subscription upon which this suit was brought. Members were not to be allowed to subscribe for the preferred stock to be issued for cash unless they had paid their syndicate subscriptions in full and these subscriptions might be collected by the syndicate or by the new company. Nor was it required that eighteen thousand shares of common stock be returned by the syndicate to the plaintiff before the assignment. Obviously these shares could not be returned before they had been issued in exchange for the assets assigned. It follows that in making the assignment the syndicate managers acted within the scope of their authority under the plan. Whether they acted within the scope of their authority under the agreement of August 26, 1924, need not be determined.

The defendant’s contention that his assent to the plan of August 19, 1926, was procured by fraud is based wholly on an offer of proof of statements made to him by some of the managers. He offered to prove that three of them talked with him about the plan and told him “that the preferred stock of the new company was already fully subscribed; that he would not have to pay any money to the managers *138or to the new company; . . . that the new company was completely financed by subscriptions of stock by others,” and that he “would receive $3,000 in preferred stock in the new company and a bonus of common stock for the money that he had already paid in,” and that he signed the assent to the plan in reliance on these representations. The defendant offered to show further “that the said preferred stock was not fully subscribed” at the time the plan was presented to him, “nor was the $120,000 in additional preferred stock,” that “no preferred stock or common stock has been transferred or tendered to Appleton for the $3,000 which he paid to the syndicate managers; and that no request was made by the syndicate managers that he subscribe for stock in the new company prior to July 12, 1927.”

The evidence offered was excluded rightly. The subject matter of the statements which the defendant offered to prove was covered by the document embodying the plan. They did not tend to prove a collateral agreement independent thereof. They were not admissible to vary the written instrument. Goldenberg v. Taglino, supra. Starks v. O’Hara, supra. Nor were they admissible to show that the defendant’s assent to the plan was induced by fraud. The statement as to what the defendant was to receive under the plan and the statement that he “would not have to pay any money to the managers or to the new company” were inadmissible for this purpose because they were not affirmations of existing facts. Loughery v. Central Trust Co. 258 Mass. 172, 175, 177-178. Moreover the promise that the defendant would not have to pay any money was inconsistent with the express provisions of the plan, as were the statements that “the preferred stock . . . was already fully subscribed” and that “the new company was completely financed by subscriptions of stock by others.” According to the plan the unpaid subscriptions to the syndicate were to be collected to finance the new corporation and all members of the syndicate were “invited” and “expected” to subscribe for preferred stock. The evidence did not tend to prove that the defendant assented to the plan by reason of any “fraud or misstatement as to the *139nature” of the written instrument or “as to the meaning of the contents” thereof. It did not go beyond an attempt to vary the plan, for which purpose it could not be received. DePasquale v. Bradlee & McIntosh Co. 258 Mass. 483, 487-488. Since the statements were inadmissible, the evidence offered to show their falsity fell with them, and it was not material on any other issue in the case. Apart from this inadmissible evidence there was no basis for the contention that the defendant’s assent to the plan was procured by fraud.

As there was a valid assignment to the plaintiff of the syndicate’s right to collect the defendant’s unpaid subscription thereto, and the distribution of the assets of the syndicate among its members was not a condition precedent to such collection, and as the suit is on this subscription the defendant’s offer of proof that “no preferred stock or common stock has been transferred or tendered to Appleton for the $3,000 which he paid to the syndicate managers; and that no request was made by the syndicate managers that he subscribe for stock in the new company prior to July 12, 1927,” was immaterial and excluded rightly. For the same reasons the amount to be recovered by the plaintiff is not to be reduced by the value of shares of stock in the plaintiff corporation to which it will be entitled on liquidation of the syndicate.

On the agreed facts and the documents in the case, in the absence of evidence that the defendant’s assent to the plan was procured by fraud, the plaintiff was entitled to recover the unpaid balance of the defendant’s subscription with interest. It follows that the refusal to direct a verdict for the defendant and the direction of a verdict for the plaintiff were right. O’Meara v. Smyth, 243 Mass. 188, 190.

The questions raised by the defendant’s requests for rulings have been considered in connection with the motions for directed verdicts. There was no error in the disposition of them.

Since the rulings of the judge were right, according to the terms of the report, “an interlocutory decree is to be entered establishing the debt as of the date of the verdict in the *140sum of $29,416.50, and the case is to be remanded to the Superior Court for further proceedings in connection with the plaintiff’s prayers to reach and apply certain property in satisfaction of the debt.”

Ordered accordingly.