Opinion
No. 53/597.
03-01-1924
PAPPAS v. FOSTER SCREEN CO., Inc.
Frank E. Bradner, of Newark, for complainant. Lum, Tamblyn & Colyer and Ralph E. Lum, all of Newark, for defendant.
Suit by George D. Pappas against the Foster Screen Company, Incorporated. Relief denied, with permission to amend bill for further hearing.
Frank E. Bradner, of Newark, for complainant.
Lum, Tamblyn & Colyer and Ralph E. Lum, all of Newark, for defendant.
BACKES, V. C. The complainant seeks to rescind three sales of preferred capital stock of the defendant company and to recover the purchase price. The first cause of action involves two of the sales. As to the first sale the action is abandoned, and as to the second relief is denied for failure to sustain the cause for action, in law and in fact.
The company's authorized preferred capital stock is $250,000, shares $10 each, and 37,500 shares of nonpar value. The latter was originally issued for property purchased—patent rights appraised at $50,000. Of the nonpar value shares 12,500 were returned to the treasury of the company to be given to purchasers of the preferred stock as bonus, at the rate of one share to two of the preferred. The complainant owned 60 shares of the preferred stock, for which he had paid $600, and 30 of the bonus shares, when the third "sale," the subject of the second cause of action, was negotiated. At that time, and for some time before, the company was looking for capital to extend its operations, and had retained Stone & Co., of New York, stock sales promoters, to market its stock. Brown, a salesman for Stone & Co., called on the complainant, a prospect, with the stock last and thou recently bought by him—10 shares preferred and 5 nonpar value. With him was one Williams, a confederate, whom he introduced as also a Stone & Co. salesman. Williams, in the presence of Brown, represented that the company was offering exclusively to its stockholders shares at $20 a unit—a unit being two shares of preferred and one of nonpar value—and that be had a customer for the shares at $30 par unit, and if the complainant would buy 120 units for $2,400 he would bring him a certified check for $3,600 in 10 days. The offer was so alluring that the complainant took Brown to Mr. Colyer, the president of the company, not to verify it but, as he says, to be sure that any business transaction he may have with Brown would be "on the level," and of this, he says, be was assured without revealing the nature of the business. Evidently more than that took place, for Mr. Colyer, speaking of the occurrence, says, and I believe him, that the complainant asked if Brown was all right to deal with in buying their stock, and that he replied he certainly was, that he had authority to sell it; that the complainant related that Brown had represented that he wanted to buy stock; that it had been oversubscribed, and that they had orders for it at $30 a unit; and asked whether it would be all right to deal on that basis; whereupon he (Colyer) reprimanded Brown for suggesting anything of that kind and told the complainant not to buy stock on that basis; that if he wanted to buy stock in the company as an investment to go ahead and do it, but not to do it if he expected the company at any time to buy any of its stock back, and that the company was selling, and not buying. He says he repeated this a second time. Later Brown, Williams, and the complainant continued their negotiations at the complainant's store. The complainant had but $1,400—$1,050 in Liberty bonds and $350 in cash. Williams generously loaned him his check for $1,000. These were turned over to Brown, together with the subscription for the shares, signed by the complainant, on a printed form furnished by the company, which, as' originally filled out, read:
"I hereby subscribe for 120 units, each unit consisting of 2 shares of preferred and 1 share of common stock, fully paid and nonassessable,of the Foster Screen Company, Inc., at $20 per unit, and accompany this subscription with the full payment thereon, $2,400 cash."
Brown gave the complainant a receipt on the company's printed form for the subscription for 120 units and $1,400 cash and $1,000 check. In the course of the trial it developed that Brown altered the subscription to 70 units and the amount received to $1,400 in cash. The subscription blank thus altered and $1,400 in cash were remitted to Stone & Co., and by them forwarded to the company, which issued certificates for the 70 units and sent them to Stone & Co., who mailed them to the complainant, but he refused to receive them, it having dawned upon him that he had been tricked. A few days later an accomplice had called and tried to get him to furnish cash instead of Williams' check, upon the false plea that the laws of New York prohibited brokers lending money with which to buy stock.
There can be no doubt that the sale was brought about by cheat, and that it was accomplished substantially in the manner related by the complainant, except, perhaps, that Williams referred to the company or Stone & Co. as the "customer," which complainant in his eagerness to win his suit may have wittingly suppressed. His testimony is not above criticism, for he stubbornly denied his signature to the subscription, even after persuasion that he was in error; but his story, in the main, is supported by the altered subscription blank and the spurious check given by Williams and noted on the receipt for the subscription.
The complainant relies on the well-established principle of law that, where a person acts for another, who accepts the fruits of his efforts, the latter must be deemed to have adopted the methods employed, as he may not, even though innocent, receive the benefits and at the same time disclaim responsibility for the measures by which they were acquired. With the benefits of the contract he must accept the responsibilities, 21 R. C. L. 932; Marsh v. Bucban, 46 N. J. Eq. 595, 22 Atl. 128; Mick v. Corporation of Royal Exchange, 87 N. J. Law, 607, 91 Atl. 102, 52 L. R. A. (N. S.) 1074; Hubing v. Liberty Trust Co., 88 N. J. Eq. 322, 102 Atl. 636. The remedy is to rescind and sue for the benefits. Keen v. James' Ex'rs, 39 N. J. Eq. 527, 51 Am. Rep. 29; Kennedy v. McKay, 43 N. J. Law., 288, 39 Am. Rep. 581; Decker v. Fredericks, 47 N. J. Law, 469, 1 Atl. 470. The principle cannot be invoked here. The complainant is an intelligent Greek. He has been in this country 30 years, and for the most part engaged in business. The fanciful story that led up to his undoing was in itself sufficient to impress him that the agents were not acting within the scope of their authority, and, further, the fact that he gave no intimation of the nature of the transaction to the president of the company, and concealed what was afoot when he should have spoken, reveals not only his own cunning, but his appreciation that he was venturing with Brown and Williams, not as agents, but independently and dissociated from the company. He wanted to be sure of Brown's integrity, not his authority. Besides, he was fully warned that the representations were without authority of the company. The con, tention that, the warning by the president not to buy the stock on the basis represented by Brown was only that the company would not repurchase the stock at the increased price, and not that others would not, is a shallow evasion of the spirit of the repudiation of the fraud, for it embraced whatever scheme was related to the president, and, if his words did not extend to the real situation, it was because the complainant concealed it. It was sufficiently comprehensive to put him fully on his guard, and if he chose to understand it more narrowly the fault lies with him. If his cupidity overreached his judgment he has but himself to blame. It was his privilege to disregard the advice of the president and to chance with the swindlers but in the gamble he had no right to reckon with the principal as a responsible factor in case he lost. The complainant, not the company, is chargeable with the duplicity complained of.
But it would seem that the complainant is not without relief in a proper case. In his present bill he counts simply on the false pretense of the company's agents, which has been held to be not imputable to the defendant. This is the only issue decided. The contract of subscription was for 120 units of stock; it was fraudulently altered to 70 units before it reached the defendant company, and therefore their minds did not meet. Hubing v. Liberty Trust Co., supra.
The bill may be amended, and further hearing will be given if desired.