Colt v. Fradkin

• Decision Date: 21 March 1972
• Citation: 361 Mass. 447,281 N.E.2d 213
• Parties: , 10 UCC Rep.Serv. 860 Zenas COLT v. William S. FRADKIN et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 213

281 N.E.2d 213

361 Mass. 447, 10 UCC Rep.Serv. 860

Zenas COLT v. William S. FRADKIN et al. ¹

Supreme Judicial Court of Massachusetts, Berkshire.

Argued Jan. 4, 1972.

Decided March 21, 1972.

Walter J. Hurley, Boston (Richard C. Levin, Fall River, with him), for defendants.

Frederick M. Myers, Pittsfield (Brian J. Quinn, Pittsfield, with him), for plaintiff.

Before TAURO, C.J., and CUTTER, QUIRICO, BRAUCHER and HENNESSEY, JJ.

BRAUCHER, Justice.

The plaintiff sues for specific performance of an oral agreement by each of the defendants to transfer to him 20,000 shares of stock in the Logic Corporation (Logic) for $1,000. The matter was referred to a master, who heard testimony and filed a report and a summary of evidence. An interlocutory decree was entered confirming the report, and a final decree ordered the defendants to transfer the stock to the plaintiff. The defendants appeal from the final decree.

We summarize the facts found by the master. The plaintiff, a New York stockbroker, had bought and sold stock for the defendants, who were brothers and optometrists, one in Pittsfield and one in Fall River. The underwriters for Logic authorized the plaintiff to sell 80,000 shares of Logic stock at five cents a share, and in June, 1967, the plaintiff told the defendant William Fradkin of the offering. A series of telephone calls between New York and Massachusetts resulted in an oral agreement on July 26, 1967, which the plaintiff confirmed by a xeroxed copy of a signed handwritten letter sent to each of the defendants on that day.

Each of the defendants agreed to buy 40,000 shares at five cents a share, and to give the plaintiff an option to buy 20,000 shares at five cents a share at any time within two years. The plaintiff agreed that in the event of a loss he would pay to the defendants in equal amounts one-third of their loss. Each defendant executed a so called 'investment letter' and a subscription form enclosed with the plaintiff's letter of July 26, 1967, and sent them to Logic's lawyers, but neither defendant ever acknowledged the plaintiff's letter, although they several times promised during telephone conversations to confirm its terms by letter. The plaintiff arranged for the issuance of the shares, and they were duly issued to the defendants on August 8, 1967. The plaintiff received no brokerage commission. At the time of the agreement, as the plaintiff knew, the defendants did not own or have any other contracts to purchase the shares.

On March 20, 1968, the defendants by letter severed all business relations with the plaintiff because of 'poor investment counselling' and their resulting 'precarious financial position.' On April 1, 1968, by a letter to each of the defendants enclosing a check for $1,000, the plaintiff exercised his option to buy a total of 40,000 shares for $2,000. The defendants returned the checks with a letter stating that 'we have no knowledge of any deal with you.'

The defendants argue that the contract is void under G.L. c. 259, § 6, that it is void under G.L. c. 106, § 8--319, 'Statute of Frauds,' and that there is no basis for imposing a constructive trust.

1. We are unable to accept the plaintiff's contention that G.L. c. 259, § 6, was repealed by implication on the enactment of the Uniform Commercial Code, G.L. c. 106. The Code was 'intended as a unified coverage of its subject matter.' G.L. c. 106, § 1--104. See Godfrey v. Building Commr. of Boston, 263 Mass. 589, 592, 161 N.E. 819; Homer v. Fall River, 326 Mass. 673, 676--677, 96 N.E.2d 152, and cases cited. But it expressly contemplates that other principles relative to invalidating causes 'shall supplement its provisions.' We find no 'particular provisions' of c. 106 displacing G.L. c. 259, § 6. G.L. c. 106, § 1--103. 'A statute is not to be deemed to repeal or supersede a prior statute in whole or in part in the absence of express words to that effect or of clear implication.' Cohen v. Price, 273 Mass. 303, 309, 173 N.E. 690, 692. See Haffner v. Director of Pub. Safety of Lawrence, 329 Mass. 709, 713--714, 110 N.E.2d 369, and cases cited.

2. General Laws c. 259, § 6, governs only contracts made in this Commonwealth. Bearse v. McLean, 199 Mass. 242, 243, 85 N.E. 462. The plaintiff argues that the contract was made in New York, Nissenberg v. Felleman, 339 Mass. 717, 719, 162 N.E.2d 304, and was to be performed in New York, Clark v. State St. Trust Co., 270 Mass. 140, 150, 169 N.E. 897, and that the transaction bore 'an appropriate relation' to New York rather than to Massachusetts, Skinner v. Tober Foreign Motors, Inc., 345 Mass. 429, 432--433, 187 N.E.2d 669. The issue of Logic stock to the defendants, arranged in New York by the plaintiff as the defendants' representative, was undoubtedly a New York transaction governed by New York law. There is no finding that the contract between the plaintiff and the defendants was made in Massachusetts, and in the absence of such a finding we cannot hold the Massachusetts statute applicable. Bearse v. McLean, supra. Skinner v. Tober Foreign Motors, Inc., supra. New York law is contrary to our statute. New York Gen. Obligations Law (23A McKinney's Consol.Laws of N.Y.) § 5--1101.

3. Even if the contract were made in Massachusetts, it is not within G.L. c. 259, § 6. That statute, derived from St.1836, c. 279, ² resembles the New York statute ³ considered in Thompson v. Alger, 2 Metc. 428, 440: 'The policy of the act, and its leading purpose, doubtless were to prevent gambling in the rise and fall of stocks. The evil to be remedied was that of fictitious sales of stock, stocks never owned, nor contemplated to be owned, or to be under the control or disposition of the vendor. Such sales are understood by the parties to be merely nominal . . ..' See Stebbins v. Leowolf, 3 Cush. 137, 142--143.

The Massachusetts statute has been applied in one reported case. There the defendant promised to deliver, on demand and payment of $60, forty shares of a mining stock he did not own; later he agreed to pay $800 in settlement. Barrett v. Mead, 10 Allen, 337. In many other cases, however, the court has refused to apply the statute to contracts contemplating genuine transfers of stock to be acquired pursuant to the agreement. Barrett v. Hyde, 7 Gray, 160, 161. Brigham v. Mead, 10 Allen, 245, 246. Colt v. Clapp, 127 Mass. 476, 480. Bullard v. Smith, 139 Mass. 492, 497, 2 N.E. 86. Picard v. Beers, 195 Mass. 419, 428, 81 N.E. 246. Wood v. Farmer, 200 Mass. 209, 215, 86 N.E. 297.

Since the plaintiff, at the time of making the contract, was the owner's agent, and since he authorized the defendants to sell to him the shares contracted for, the case is literally within the exception stated in the statute. Moreover, the parties contemplated that the defendants would actually buy stock for the common benefit and at the common risk of themselves and the plaintiff.

4. Both parties argue that the contract was a 'contract for the sale of securities' subject to § 8--319 of the Uniform Commercial Code. It is immaterial whether the governing statute is G.L. c. 106, § 8--319, ⁴ or the identical New York statute. The contract committed the defendants to sell shares of stock to the plaintiff and therefore was not solely a contract between customer and broker as principal and agent. See Stott v. Greengos, 95 N.J.Super. 96, 101--102, 230 A.2d 154; Lindsey v. Stein Bros. & Boyce, Inc., 222 Tenn. 149, 151--159, 43 S.W.2d 669. The fact that the plaintiff had an option to buy or not to buy did not negate the existence of a contract for sale by the defendants. Mortimer B. Burnside & Co. Inc. v. Havener Sec. Corp., 25 A.D.2d 373, 374--375, 269 N.Y.S.2d 724. Cf. Oregon Ridge Dinner Theatre, Inc. v. Hamlin, 253 Md. 462, 468, 253 A.2d 382; Kessler v. M. J. Greene Co. Inc., 39 Pa.Dist. & Co.R.2d 717, 718--719. We agree with the New York court that we may look by analogy to §§ 2--106 and 2--304 of the Uniform Commercial Code, applicable to the sale of goods, for definitions of 'sale' and 'price.'

We decline to follow Cohn, Ivers & Co. Inc. v. Gross, 56 Misc.2d 491, 493--495, 289 N.Y.S.2d 301, as far as the decision is to the contrary. There the court held that a 'call' option was not a 'security,' and that a contract by which an owner of stock granted such an option was not a contract for the sale of securities under § 8--319 but a contract for the sale of general intangibles under § 1--206. That holding might be appropriate in a case where the holder of an outstanding option made a contract to sell it, but it does not properly apply to a case where the owner or prospective owner of securities contracts to sell them at the buyer's option. See 3 Willier & Hart, U.C.C. Reporter--Digest, § 8--319, A4.

5. The plaintiff argues that § 8--319(b) has been satisfied both by delivery and acceptance of the securities and by full payment for the option contract. See Schwartz v. Jacobson, 5 Uniform Commercial Code Reporting Service, 630, 631 (N.Y.Sup.Ct.1968). Compare, before the Uniform Commercial Code, Armstrong v. Orler, 220 Mass. 112, 114--115, 107 N.E. 392. We think, however, that we may look to § 2--326(4), which indicates that the sale to the plaintiff is to be treated as a separate contract for sale within the statute of frauds from the sale to the defendants. See Wolcov v. Russell, 46 Del.Co. (Pa.) 202, 204. Similarly, we think that the 'payment' referred to in § 8--319(b) is payment by the plaintiff of the price for the stock, five cents a share, rather than his payment in services of the price for the option. We are confirmed in these conclusions by the explicit statement that 'the contract is enforceable under this provision only to the extent of such delivery or payment.' This means to us that the seller recover only the price of what he has delivered and the buyer is entitled to receive only what he has paid for. Cf. Schlussel v. Carlton E. Drake Constr. Corp. 5 Uniform Commercial Code...