Bucher v. Federal Baseball Club of Baltimore, Inc.

• Decision Date: 26 June 1917
• Docket Number: 15.
• Parties: BUCHER v. FEDERAL BASEBALL CLUB OF BALTIMORE, Inc.
• Court: Maryland Court of Appeals

101 A. 534

130 Md. 635

BUCHER v. FEDERAL BASEBALL CLUB OF BALTIMORE, Inc.

No. 15.

Court of Appeals of Maryland

June 26, 1917

Appeal from Superior Court of Baltimore City; James M. Ambler Judge.

"To be officially reported."

Action by the Federal Baseball Club of Baltimore, Incorporated against Frederick Bucher. Judgment for plaintiff, and defendant appeals. Affirmed in part, and reversed in part and new trial awarded.

Argued before BOYD, C.J., and BRISCOE, BURKE, THOMAS, PATTISON URNER, and STOCKBRIDGE, JJ.

William G. Towers and William P. Lyons, both of Baltimore, for appellant.

L. Edwin Goldman and Frank B. Ober, both of Baltimore (Ritchie & Janney, of Baltimore, on the brief), for appellee.

URNER J.

An underwriting agreement between the Federal Baseball Club of Baltimore, Incorporated, and a number of persons, including the appellant, recited that the corporation had then outstanding capital stock to the amount of $150,000 preferred and $150,000 common stock, and was desirous of raising money for use as working capital for the ensuing year, and proposed to obtain the necessary funds by increasing its capital stock to $250,000 preferred and $250,000 common stock, the preferred to be offered to the stockholders at par, with such bonus, if any, of common stock as might be determined by the board of directors, but that, as the time was deemed unfavorable for offering the new stock to the stockholders and the public, the corporation had requested the other parties to the agreement to underwrite the stock on the terms thereinafter prescribed, the underwriting, when completed to the amount of $25,000, to be effective and binding, and to be used by the corporation for the purpose of borrowing money thereon to the extent of its requirements. The agreement then provided that each of the underwriters thereby subscribed for the number of shares of the preferred stock of the corporation set opposite his name, and obligated himself to pay therefor at the rate of $10 per share as and when payment should be called for by notice in writing from the treasurer of the corporation, but such calls to be made in no event prior to July 1, 1915. It was further agreed that the underwriting might be hypothecated by the corporation with any bank or trust company. There was a provision that the baseball club should have the exclusive right to offer the stock to its stockholders and the public "until the dissolution of the underwriting on July 1, 1915," and the agreement then proceeded as follows:

"And in consideration of such services rendered by the subscribers, said Federal Baseball Club of Baltimore, Incorporated, does hereby agree that upon the sale of said stock to the amount subscribed for hereunder to its stockholders or to the public, said subscription obligations shall be returned and the said underwriters shall each receive as compensation for their said services 50 per cent. of the par amount of their subscriptions herein in common stock of the corporation, the same having been contributed for this purpose by the directors, and that all sales of stock effected as aforesaid shall be applied ratably on said subscriptions."

The appellant was one of 25 underwriters, each of whom signed the agreement as a subscriber for $1,000 of the preferred stock at its par value. By the hypothecation of the underwriting with the Baltimore Trust Company a loan was obtained by the Baseball Club to the amount of $25,000. The efforts of the club to dispose of the new issue of preferred stock resulted in the sale of only 129 shares, apart from those taken by underwriters, two of whom paid for and received the full amount for which they subscribed. The other 23 subscriptions were reduced ratably, as provided by the agreement, as the result of the sales of stock made by the club subsequent to the underwriting. As the amount realized from such sales at par was $1,290, the obligation of each of the subscribers was reduced from $1,000 to $943.92, and each of them was notified in writing by the treasurer of the club to pay that sum on August 15, 1915, in pursuance of a resolution to that effect passed by the board of directors. The payment thus requested of the appellant having been refused, he was sued in this action, and a judgment, on the verdict of a jury, was recovered against him for the amount claimed, with interest.

There are seven bills of exception in the record. The first exception was taken to the admission in evidence of the underwriting contract. It is contended that the agreement is invalid and inadmissible, because of its provision that the underwriters should receive, as compensation for their services, common stock of the baseball club to the amount of 50 per cent. of their subscriptions for its preferred stock. This objection is founded on the theory that the agreement provided for the issuance of bonus stock to the subscribers, in the amounts specified, and that such an undertaking is illegal, and renders the subscription void and unenforceable. The principle applied in the case of Trent Import Co. v. Wheelwright, 118 Md. 249, 84 A. 543, is invoked in support of this contention. In the case cited a subscription for preferred stock, with a 50 per cent. bonus of common stock, in a New York corporation, was held to be invalid under the laws of that state. It is urged that the law of Maryland also prohibits such contracts upon the part of corporations created under our statutes. Whether this view is correct in its general theory is a question which need not now be decided, because, if the principle asserted be assumed to be operative in this state, we are satisfied that it does not apply to the special terms of the agreement involved in this suit.

The common stock, to be received by the subscribers for preferred stock under the present contract, was not to be issued by the corporation, and was not intended to be a bonus. It was contributed by the members of the board of directors as a compensation to the underwriters for their services in that capacity. By the terms of the agreement they were to receive the stated amounts of common stock only in the event that the corporation succeeded in selling the preferred stock for which they had subscribed. If that contingency had actually occurred, the subscription obligations were to have been returned and the underwriting dissolved. The subscribers would then have been relieved of the liability they had assumed, and would have received no preferred stock under the agreement, but would have been entitled to the common stock contributed by the directors as compensation for the service rendered in the underwriting transaction. The argument for the appellant on this point proceeds upon the theory that the contribution of the common stock by the directors, to which the agreement referred, in fact represented the direct issuance of the stock by the corporation to the underwriters. We do not feel at liberty to make such an assumption. It is not in accord with the meaning of the language used in the agreement, and we have no reason to assume that the statements of fact therein made are incorrect in any particular. When the agreement was executed, $150,000 of common stock had previously been issued, and it was some of this stock, apparently, that was owned and contributed by the directors. If it had been intended to compensate the...