Clark v. State St. Trust Co.

• Decision Date: 31 January 1930
• Citation: 270 Mass. 140,169 N.E. 897
• Parties: CLARK et al. v. STATE STREET TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

270 Mass. 140

169 N.E. 897

CLARK et al.

v.STATE STREET TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 31, 1930.

Appeals from Supreme Judicial Court, Suffolk County.

Suit by Elton Clark and others against the State Street Trust Company and others, in which defendant Adams filed a cross-bill. The case was referred to a master, and interlocutory decree entered overruling exceptions to the report, and a final decree was thereafter entered dismissing the cross-bill and granting plaintiffs relief, and plaintiffs appeal from part of the decree, and defendant Adams appeals from an order denying his motion to strike out parts of the record and from the interlocutory and final decree. Order refusing to strike parts of master's report affirmed, decree confirming master's report modified and affirmed, and final decree reversed and remanded, with directions.E. F. McClennen, of Boston, for plaintiffs.

H. S. Davis, of Boston, and J. N. Miller, of New York City, for defendants.

RUGG, C. J.

The plaintiffs, as trustees under a declaration of trust created in 1919 under the name Boston Mexican Petroleum Trustees, bring this bill to recover money deposited by their assignors with the State Street Trust Company. The defendant Adams, by cross-bill against the plaintiffs and State Street Trust Company, seeks to recover the same money. The present controversy grows out of attempts by certain stockholders of the Boston Mexican Leasing Company, an oil corporation, to sell their stock to Adams, who was attempting to buy that stock because he owned a new process for cracking oil called the ‘Adams-Day Process' which he thought he would be able to sell to the French Government or to French capitalists, if he could obtain a large supply of crude oil to be used in demonstrating the value of his process and to be sold with it. To secure this supply of oil Adams wanted to get an option to purchase the stock of the Boston Mexican Leasing Company, the ownership or which would give him control of the larger part of the oil produced by the Harmon Well Oil property in Mexico.

On November 15, 1917, a contract entitled ‘Option Agreement,’ executed in New York, was entered into between two corporate and seven individual owners of stock in the Boston Mexican Leasing Company (hereinafter called the Leasing Company), parties of the first part, described in the agreement as Grantors and herein to be referred to as Depositors, Adams, as party of the second part, therein described as Grantee, and the State Street Trust Company (hereinafter called the Trust Company), as party of the third part. Some of the Depositors are trustees under the declaration of trust and as such are parties plaintiff to this suit; others are not parties. By the option agreement the Depositors, who were owners of a large part of the capital stock of the Leasing Company, gave Adams an option to buy that stock for $1,170,400, payable in installments: the first of $15,000, payable within thirty days from the date of the agreement; the second of $10,000, payable on or before February 15, 1918; the third of $45,000, payable on or before April 1, 1918, and three other payments to be made at designated dates, the last being July 1, 1920. Upon payment of the first installment a specified portion of the certificates of stock indorsed in blank were to be deposited with the Trust Company to be held pursuant to the terms of the agreement. Upon payment of the fourth installment the certificates were to be transferred to and in the name of Adams, or his assignees or nominees, and the new certificates issued were to be held by the Trust Company until the paymentof the last installment, when they would be delivered to Adams. The payments made by Adams to the Trust Company were to be forthwith distributed by it, proportionately, to the Depositors. The option agreement provided that upon failure of Adams to make payments in accordance with its terms the Trust Company should forthwith redeliver to the Depositors the stock of the Leasing Company held by it.

The principal asset which gave value to the stock of the Leasing Company was the lease of an oil well in Mexico. Before the option agreement was executed, the lessor had brought suit in Mexico to have the leasehold declared forfeited. At the time of the execution of the option agreement, and as a part of the same transaction, the Depositors made a contract with Adams designated ‘Supplemental Agreement,’ to which the Trust Company was not a party, providing, among other things, that Adams should not be required to make the final payment due on July 1, 1920, until that suit ‘shall have been dismissed or decided favorably to the defendants'; that in the event of the suit ‘being decided advers[e]ly to the defendants and the leasehold held to have been forfeited the Grantors shall each return to the Grantee forthwith all payments made by him to them respectively with interest thereon at the rate of six per cent. (6%) per annum from the date of such payments, and shall respectively receive from the Grantee their stock in the Leasing Company’; that ‘if the decision in said suit’ should be that the leasehold his not been forfeited, but should hold the defendants liable for money damages for the non-operation of the well or otherwise, the Depositors should each, to the extent of the payments received or to be received by them under this agreement and no more, pay their respective proportions of such judgment which shall be in such proportion to the whole judgment as the interest of each Depositor shall bear to the aggregate interest of the Depositors.

It was known to the Depositors at the time said agreements were executed that Adams entered into said agreements with the expectation of negotiating in France for the funds necessary to effect the purchase of the Leasing Company stock and could not complete the purchase unless he could raise funds in this manner. It was known to the Depositors, prior to and at the time that the said agreements were executed, that Adams owned an interest in a process for cracking oil to get Gasoline, known as the ‘Adams-Day Process,’ and contemplated causing the erection of a plant in France for demonstrating the value of said process and interesting therein the Government of France and capitalists in France, and that he needed, for such purpose, a large supply of oil and was interested in the purchase of the stock of the Leasing Company, for the sake of obtaining such supply of oil while the Great War was pending and the Government of France was in extraordinary need of gasoline for war purposes.

Adams made the first payment within the time allowed by the option agreement and in accordance therewith it was distributed by the Trust Company to the Depositors.

A short time thereafter, in December, 1917, the Mexican district court in which the action had been pending entered judgment, declaring the lease forfeited. The master found that an adverse decision of this sort had been regarded by the Depositors and by Adams as beyond the bounds of reasonable possibility. An appeal was promptly taken by the Leasing Company, carrying the case to an appellate court.

On February 13, 1918, the Depositors and Adams entered into an agreement reciting that the parties had been informed of the judgment of the Mexican district court; that the Leasing Company had moved to have the judgment vacated, and had perfected an appeal to be operative in event of such motion to vacate being denied; that notwithstanding the judgment the Depositors were desirous of having Adams pay the second installment and Adams was ready and willing, subject to the terms and provisions of ‘this Agreement,’ which were likewise acceptable to the Depositors, to make the payment. The parties therein agreed that Adams would make the payment due February 15, 1918, to be received, held and applied by the Trust Company as a payment of the second installment under the terms of the option agreement, with the understanding that this should not be taken, held or construed as a waiver, relinquishment or modification of the rights of Adams, as provided in the supplemental agreement, resulting from the judgment of the Mexican district court. The agreement of February 13, 1918, provided that such rights were to continue unimpaired as to the payment of both installments, and that the payment should not be taken, held or construed as a commitment or obligation on the part of Adams to make any further payment under the option agreement while that judgment should remain in force and effect. When the second payment was made to the Trust Company it was notified of the decision of the district court in Mexico. At the same time it received copies of the supplemental agreement and of the agreement of February 13, 1918. This second payment was distributed by the Trust Company to the several Depositors in accordance with the terms of the option agreement.

On March 27, 1918, the Depositors and Adams made an agreement extending the time for payment of the third installment from April 1, 1918, to May 10, 1918, and therein provided ‘That in all other respects the said agreements of November 15, 1917, and the said agreement of February 13, 1918, shall remain in full force and effect.’ In May, 1918, Adams elected not to pay the third installment and he made no payments thereafter. He demanded return of the money paid by him and notified the Trust Company that it should hold the stock on deposit until he was repaid by the Depositors.

On March 22, 1919, an appellate court in Mexico reversed the decision of the district court of Mexico. The plaintiff in that suit was contemplating taking the case to a tribunal having jurisdiction to reverse the decision of the appellate court for any error of law, when the case was settled by the payment to him, by the present plaintiffs, of a substantial sum of money, and the judgment of the appellate court reversing the first...