Beatty v. Guggenheim Exploration Co.

• Citation: 119 N.E. 575,223 N.Y. 294
• Parties: BEATTY v. GUGGENHEIM EXPLORATION CO. et al.
• Decision Date: 23 April 1918
• Court: New York Court of Appeals

223 N.Y. 294

119 N.E. 575

BEATTY

v.GUGGENHEIM EXPLORATION CO. et al.

Court of Appeals of New York.

April 23, 1918.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Alfred Chester Beatty against the Guggenheim Exploration Company and Oscar B. Perry. From a judgment of the first department of the Appellate Division of the Supreme Court (167 App. Div. 864,153 N. Y. Supp. 757), reversing a judgment for defendants and directing a judgment for plaintiff, defendants appeal. Reversed.

Crane, J., dissenting.Nathan L. Miller, of Syracuse, and Louis Marshall, of New York City, for appellants.

Charles F. Brown, of New York City, for respondent.

CUDDEBACK, J.

The plaintiff in this action alleged that he and the defendant Oscar B. Perry were jointly interested in a mining enterprise on Bonanza creek, in the Yukon mining district of Alaska, and that he, the plaintiff, was entitled to certain money and property which the defendant Perry withheld, and for which the action was brought to recover. The defendant Perry made no personal claim to the money and property involved in the action, but retained it because the other defendant, the Guggenheim Exploration Company, alleged that it owned such money and property, and that the plaintiff's demand was in fraud of the company's rights and in violation of a contract between the plaintiff and the company.

It appeared that in May, 1905, one Treadgold, who owned mining property and held options on other mining property on Bonanza creek in the Yukon district, sought to sell the same to the defendant company and gave the company an option thereon.

In June, 1905, John Hays Hammond, who was the manager of the defendant company, directed the defendant Perry, a mining engineer in the employ of the company to investigate Treadgold's offer. Perry went to the Yukon district, examined the property, and advised the defendant company to take over the same. Hammond then directed the plaintiff, Beatty, to go to the Yukon and further investigate Treadgold's propositions and schemes.

The plaintiff was a mining engineer and assistant manager of the defendant company. He was engaged by the company under a contract for five years from March 1, 1903, and by his contract the plaintiff agreed to devote himself exclusively to the business of the defendant company, and not to accept, engage in or enter upon any other business or employment whatever, and not to become, either directly or indirectly, interested in or connected in any way with any business similar to that which the defendant company carried on, with certain exceptions not material here, without the written consent of the company. By the contract the company reposed great confidence in the plaintiff's integrity, and the agreement was very carefully drawn to give the company the sole benefit of Beatty's unbiased judgment. Beatty was to receive a salary of $20,000 a year and in certain contingencies additional compensation.

Beatty went to the Yukon as directed by Hammond, and after an investigation he strongly advised the defendant company by telegraph to purchase the Treadgold properties. But the price asked by Treadgold was too high, and Hammond answered September 2, 1905, for the defendant company that the business was not attractive on the basis offered and directed Beatty not to commit the company on that basis, believing that Treadgold would come to New York, where better terms could be made. At about that time Treadgold was in trouble with his options, and he applied to Perry for aid. Perry was unable to furnish the money required, and he applied to the plaintiff, Beatty. Beatty advanced Perry $15,000, which was expended to hold the options.

After Hammond's telegram of September 2, Perry conceived the plan to get from Treadgold certain mining claims lower down on Bonanza creek, known as claims 89-104 below discovery, and work them as a mine. These claims were not included in the Treadgold offer to the defendant company. Perry did not have the money to purchase these claims, so he asked Beatty to take a share in the enterprise. To get these claims it was necessary to have $45,000 at once, about $115,000 May 1, 1906, and later on $150,000 for equipment. The plaintiff agreed to advance to Perry $20,000 of the $45,000 immediately required, and he also agreed to advance 35/45 of the future payments, and it was agreed that Beatty should have 35/45 of the profits accruing from the venture, and should be repaid for all the moneys advanced to Perry.

At the time of this agreement Beatty informed Perry of his contract with the defendant company, and that he had no right to take any personal interest in this scheme without the consent of the company, and it was agreed that if the company did not consent, the money advanced to Perry should be regarded as a loan and repaid by Perry to the plaintiff.

The plaintiff then returned to the United States, and from there sent Perry by telegraph $20,000, and Perry made a contract with Treadgold to acquire from him claims 89-104 below discovery, with the right reserved in Treadgold within a time fixed to buy back the claims at an advanced price. This contract was in writing dated September 26, 1905, and Perry sent a copy of it to the plaintiff at Denver.

The plaintiff then went to New York to report to the defendant company on the Yukon enterprise. He gave Hammond, the company's general manager, a copy of the Perry-Treadgold contract, and also informed him of the arrangement he had made with Perry for a joint interest with Perry in the contract, but he did not inform Hammond of the amount of his interest. The plaintiff also gave Daniel Guggenheim, president of the company, the same information. Both Guggenheim and Hammond assented to the arrangement that the plaintiff should be interested with Perry in the Perry-Treadgold agreement, but no written consent thereto was given as provided by the plaintiff's contract of employment with the defendant company.

Thereafter Perry arrived in New York, and Treadgold reached there about the same time. Negotiations between Treadgold and Hammond for the sale of the Yukon property were reopened with the result that on December 5, 1905, the defendant company acquired the property in the original contract with Treadgold, and in addition thereto claims 89-104 below discovery which were included in the Perry-Treadgold agreement. That, of course, broke up the arrangement between Perry and the plaintiff as to claims 89-104 below discovery under which the plaintiff had advanced to Perry $35,000, but before that time Perry had returned $7,700 of the sum advanced.

Hammond then took up with Perry the matter of the latter's compensation for his services in Alaska. Hammond agreed on the part of the defendant company to deliver to Perry 4 per cent. of the shares of the preferred and common stock of the company formed to take over the Treadgold properties and an option to take at cost 4 per cent. additional of such preferred and common stock, and also an option on stock in another company which is not important here.

After such compensation had been agreed upon between Perry and Hammond, but before the contract was finally made, Perry and the plaintiff, Beatty, agreed that the plaintiff should have in lieu of his interests in claims 89-104 below discovery 1 1/4 per cent. out of the 4 per cent. of stock that Perry was to receive from the defendant company, and 3 per cent. out of the 4 per cent. of stock on which Perry was to have an option and 273/450 of all the profits Perry should make out of the Perry-Treadgold contract.

Perry received from the defendant company all the stock and other property that he was to get under the contract as his compensation. This action is brought by the plaintiff to recover from Perry the plaintiff's share of such compensation according to their agreement. Perry was willing to accede to the plaintiff's demand but for the objections raised by the defendant company.

These conflicting claims of the plaintiff and the defendant company present the issues in the case. There can be no doubt that the plaintiff's agreement with Perry was a contract to engage in a business similar to that carried on by the defendants, and was in violation of his contract of employment, and, furthermore, that the plaintiff had no written consent from the defendant company to engage in such business. The plaintiff's answer to this objection is that the defendant company knew of and assented to his agreement with Perry, and thereby waived the provision that he should not make such a contract without the company's written consent.

I pass this question of waiver because I think there is another ground of objection which is fatal to the plaintiff's recovery. That objection relates to the second agreement made by the plaintiff with Perry, whereby the plaintiff was to have a share in the compensation which Perry was to receive...