Cosmopolitan Film Distributors, Inc. v. Feuchtwanger Corp.

• Decision Date: 22 March 1962
• Citation: 226 N.Y.S.2d 584
• Parties: COSMOPOLITAN FILM DISTRIBUTORS, INC., Plaintiff, v. FEUCHTWANGER CORPORATION, Hans Rosenwald and Music News, Inc., Defendants. & Trial Term, New York County, Part XXIII
• Court: New York Supreme Court

Page 584

226 N.Y.S.2d 584

COSMOPOLITAN FILM DISTRIBUTORS, INC., Plaintiff, v. FEUCHTWANGER CORPORATION, Hans Rosenwald and Music News Inc., Defendants.

Supreme Court, Special & Trial Term, New York County, Part XXIII.

March 22, 1962.

Zola A. Aronson, New York City, by William Merritt, New York City, Herbert I. Handman and Howard Weinberger, New York City, Associate Counsel for plaintiff.

George M. Lehr, by Alfred Samberg, Long Island City, for defendants Rosenwald and Music News, Inc.

Garfield, Salomon & Mainzer, by Jacob Freed Adelman, New York City, and Hodges, Reavis, McGrath & Downey, New York City, by Frederick R. Adler, New York City, of counsel for defendant Feuchtwanger.

ABRAHAM N. GELLER, Justice.

In this action to recover damages in the round sum of one million dollars on multiple alternative theories or causes of action, such as conversion of plaintiff's collateral, inducing breach of contract, fraud, conspiracy and breach of trust, the attorneys for the parties stipulated, after conference, to waive the jury trial previously demanded and to waive findings. Thereafter the court determined to try the issue of liability first--all attorneys stating they had no objection--and reserving the question of whether if plaintiff were held entitled to recover, the issue of damages should be referred to a referee.

Disregarding the many irrelevant matters injected into the case which might possibly give rise to conjecture and suspicion but cannot constitute proof of legal liability, the court finds the essential operative facts to be the following.

On January 4, 1958 plaintiff, Cosmopolitan Film Distributors, Inc ., newly formed for the venture, entered into a contract with M. J. P. Enterprises, Inc. (M. J. P.), providing for the assignment to plaintiff for a term of seven years, renewable at its option for an additional seven years, of M. J. P.'s rights in the United States and Canada with respect to certain foreign films, consisting of one feature film, 'Snow Princess,' available for both theatrical and television performances, and 66 shorts, mostly cartoons, available only for television performance. It provided for installment payments and corresponding deliveries as follows: (1) On execution of the contract, 'Snow Princess' upon payment of the 'purchase price' of $5,750, and 'Sputnick,' a special short, upon payment of the 'purchase price' of $4,500; (2) The remainder of the film subjects to be selected by plaintiff and paid for at the rate of $2,500 per film at stated dates--11 by January 15, 1958; 17 by January 31, 1958; 18 by February 28, 1958; the balance by March 31, 1958. The contract did not state any overall price, the only prices mentioned being those in the severable form above indicated. Also, the contract did not contain any default clause, normally provided in an installment transaction, to cover the contingency of plaintiff's failure to make the selections and corresponding payments on the subsequent dates.

On the signing of the contract plaintiff made the agreed payments for 'Show Princess' and 'Sputnick.' It was agreed that plaintiff's earlier binder payment of $10,000 be held in escrow by M. J. P.'s attorney and applied to the price of films to be purchased in February and March.

Just prior to the January 15th installment the attorney (Marten), who organized plaintiff corporation and obtained through stock subscriptions the monies paid to M. J. P., told defendant Hans Rosenwald that plaintiff required financing to meet the payments due January 15th and 31st. Rosenwald said that he might have a 'party interested' in making such a loan, naming defendant Feuchtwanger Corporation (Feuchtwanger). Marten and Rosenwald talked of a loan in the sum of $75,000.

Rosenwald had just then entered into some kind of brokerage arrangement with Feuchtwanger on loans made to accounts introduced by him. He discussed this matter with Feuchtwanger's officers and they agreed to make a loan to plaintiff of $35,000 repayable 90 days after date with interest at the rate of 24% per annum. Plaintiff made the January 15th installment payment to M. J. P. with these monies and selected 11 films.

The loan agreement made on January 20, 1958 provided that, as 'collateral security,' plaintiff assigned to Feuchtwanger all of its right, title and interest in and to the contract with M. J. P. dated January 4, 1958; and that in the event of plaintiff's default under this loan agreement, Feuchtwanger could sell such collateral to the extent permitted by law and apply the net proceeds to plaintiff's indebtedness. It also contained a clause giving Feuchtwanger an option, exercisable in writing on or before January 30, 1958 at 6 P.M. and upon a further payment of $265,000, to request from plaintiff an exclusive license as to the remaining 52 cartoons.

On that same day Marten made an agreement with plaintiff's stockholders, whereby they as individuals received all of the corporation's rights in 'Snow Princess' and assigned all their interest in the corporation to him. Thus, without any investment, he became the sole stockholder of plaintiff, whose only asset was the potential value of its rights under the January 4th contract in the remaining films.

To help it decide whether it should exercise the option, Feuchtwanger asked Rosenwald to make inquiries as to the marketability of these films. On January 30th, the option date, it was agreed in writing to extend it so that it could be exercised in writing on or before february 4, 1958 at 6 P.M.

Marten testified that on February 4th he was told by Rosenwald that he had been instructed to say that the deal was off, that Feuchtwanger would not be exercising the option. Marten then inquired about borrowing additional money and he was told that Feuchtwanger would not advance any further monies.

In the meantime plaintiff had not paid the January 31st installment to M. J. P. Marten testified that he called M. J. P.'s attorney about this time; but he could not, of course, testify as to what was said, since M. J. P. was not a defendant in this case. Moreover, neither M. J. P.'s attorney nor any of the persons interested in M. J. P. with knowledge of this transaction were produced as witnesses. In any event, plaintiff received on February 10th a telegram from M. J. P. advising that, because of its failure to make the January 31st payment, the 'contract is terminated * * *. We are going to offer the balance of the films for sale.'

Marten testified that he once again called M. J. P.'s attorney and that he thereafter spoke to defendant Rosenwald, telling him that M. J. P. had agreed to 'protect' him and in effect hold the deal open in view of his pending negotiations with a distributor. Such testimony, while technically admissible for a limited purpose, cannot serve to establish the fact so related by Marten. It does appear, however, that Marten was attempting to make a distribution deal with an established firm and presumably, although there was no direct evidence of this, he was also trying to borrow money to finance the installment arrangements with M. J. P. But there is no evidence that he was able to consummate either transaction and plaintiff continued in default.

During this period plaintiff did arrange to dispose of several of the films which it had purchased and collateralized to Feuchtwanger. To obtain Feuchtwanger's release of its lien it made certain payments per film so released, together with partial interest, credited against the outstanding loan. As a matter of fact, the remainder of these collateralized films were sold by Marten in November 1958, while litigation was pending between the various parties, so that the balance due to Feuchtwanger was reduced to $5,000 plus interest, for which it has asserted a counterclaim in this action.

On February 18, 1958 M. J. P. entered into a contract with defendant Music News, Inc., a corporation controlled by defendant Rosenwald, providing for the transfer of all rights in the remaining 52 cartoons upon installment terms practically identical to those in plaintiff's contract. The contract contained a representation by M. J. P. that plaintiff's contract, 'to the extent that it is executory as of date hereof,' had been terminated and cancelled by reason of non-payment of the January 31st installment. The first payment of $42,500 for 17 of the 52 films at the same rate of $2,500 per film was advanced by defendant Feuchtwanger, which merely received an interest-bearing note and guaranty from another corporation controlled by Rosenwald.

It is the making of this Music News deal and taking over of plaintiff's contract, allegedly depriving plaintiff of the opportunity to earn one million dollars, the claimed value of the rights to these 52 cartoons, which is the basis of this suit against Feuchtwanger, Rosenwald and Music News. Actually, plaintiff's target is Feuchtwanger, the only defendant with substantial assets, and the charge is that, as a result of the plaintiff's loan agreement and its provisions regarding plaintiff's contract rights in the films being assigned as collateral security therefor, Feuchtwanger occupied the position of pledgee and constructive trustee toward plaintiff, which it breached by having its 'dummy' Music News, Inc., take over plaintiff's contract. Plaintiff has also attempted a contrived theory of conversion in the purported failure of Feuchtwanger to 'sell' plaintiff's 'collateral' (referring to its executory contract rights), contending that as a pledgee Feuchtwanger owed an obligation to conform to certain legal requirements in the sale of collateral, not to take it as its own. In addition, plaintiff has set up a cause of action of wrongful inducement of breach of contract by M. J. P.

However, no evidence whatsoever was even offered purporting to show anything by way of inducement or instigation of M. J. P. to terminate plaintiff's executory contract rights. The evidence permits of only...