Electric Welding Co. v. Prince
| Decision Date | 14 May 1907 |
| Parties | ELECTRIC WELDING CO., Limited SAME v. PRINCE. SAME v. EATON. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Edward F. McClennen and Brandeis, Dunbar & Nutter, for plaintiff.
Coolidge & Hight, for defendants.
Under these two titles we have before us 20 cases brought to recover certain sums alleged to be due to the plaintiff from the defendants, in payment of their several subscriptions to shares in its (the plaintiff's) ordinary share capital. The cases were sent to an auditor. The evidence at the trial consisted of his report and other evidence, some of which was not before him. The presiding justice directed a verdict for the defendants and reported the cases to this court.
Before the cases came on for trial, Eaton, the defendant in one of the actions, died, and his executor was summoned in to defend against his objection and exception. The question raised by this exception is also submitted to us by this report.
The circumstances out of which these actions arose are stated at length in the auditor's report and are in substance as follows:
In October, 1889, the Thomson European Electric Welding Company (which we shall hereafter speak of as the 'Thomson Company'), being the owner of certain patents (for Great Britain and Europe) for welding iron by electricity, entered into a contract with one Leon, by which Lenon agreed to form a company to buy their patents. The plaintiff company was incorporated under the English companies acts in pursuance of this agreement. Lenon further agreed in this contract to have 30,000 ordinary shares of the capital stock of the plaintiff corporation underwritten, and, when that had been done, to have the ordinary shares advertised for public sale. It was further provided in this agreement that the transfer of the patents was to take place when 30,000 ordinary shares had been subscribed for, and that the whole transaction should be completed before June 1, 1890. This contract was entered into by Lenon as agent for the London Contract Corporation (which we shall speak of hereafter as the 'Contract Corporation'), and its performance was guarantied by that corporation.
During the months of April and May of the same year, the promoters procured some 64 or 69 underwriting agreements in the United States, most of them in and about Boston. At this time the Contract Corporation was in fact and in law the promoter, for Lenon was acting as its agent in making the contract already spoken of. Later on (as will be stated) he dropped out and a new contract was made between the Thomson Company and the Contract Corporation. Since Lenon acted as agent of the Contract Corporation in all he did, this change did not affect the legal relations of the parties, and we shall hereafter in all cases speak of the promoters generally without regard to the time in question being before or after Lenon dropped out. The 64 or 69 underwriters included the 20 defendants now before the court.
These underwriting agreements between the promoters and the defendants were in the form of an underwriting letter signed by each defendant on a blank prepared by the promoters. This letter being accepted by the promoters became a binding contract between the promoters and the several defendants. The auditor found that this letter was an offer by the several defendants to the promoters not accepted by the promoters. In this matter we are of opinion that (on the facts stated in his report) the auditor was wrong. We shall consider this matter later on.
With the underwriting agreement each defendant handed the promoters an application for 50 ordinary shares of 10 each and another application for one founders' share, and paid to the promoters >25, being 10 shillings per share on the 50 ordinary shares, and 10, being payment in full for the 1 founders' share.
The rights of the parties to this contract of underwriting are to be gathered from the four corners of this underwriting letter and the preparatory draft prospectus referred to therein, and will have to be construed with care before this case is disposed of. It is not necessary, however, in stating the sequence of events, to go into that matter now.
On May 1, 1890, the plaintiff company was incorporated under the English companies act.
By a series of supplementary agreements the time for bringing out the plaintiff company was postponed until October 27, 1891, when the transfer of the patents to it by the Contract Corporation was carried into effect. In one of these agreements Lenon dropped out, as we have already said. At that time releases were executed by Lenon, the Thomson Company and the Contract Corporation, and a new contract was made between the Thomson Company and the Contract Corporation. Changes were also made in the make up of the plaintiff corporation, and in the terms on which the purchase of the patents was to be made.
No further underwriting agreements were procured by the promoters between May, 1890, and August of the following year. In August, 1891, the promoters procured further underwriting agreements for all the ordinary shares subsequently offered to the public except 1,917, and these the Contract Corporation, the promoter, elected to underwrite itself.
On August 28, 1891, 16,667 ordinary shares were offered to the public. The public took 472, a number slightly in excess of 2 per cent. of the amount offered.
The applications for ordinary shares signed by the defendants were each of them for 50 ordinary shares, with the exception that the defendant Wetherbee's application was for 100 ordinary shares. The directors of the plaintiff company, on these applications being filed with them, allotted to each 98 per cent. of the amount applied for; that is to say, 49 shares to each defendant except Wetherbee, and 98 to Wetherbee. At the same time the Contract Corporation paid to the plaintiff company the sums paid it by the defendants, being 10 shillings a share on the 50 shares applied for (25 in case of each defendant except Wetherbee, and 50 in case of Wetherbee), and payment in full for the founders' shares applied for (10 in case of each defendant except Wetherbee, and >20 in case of Wetherbee).
'Notice of the allotments was duly made,' and 'in due time the names of the defendants were placed upon the list of registered shareholders of ordinary shares, and are still upon the list,' to quote the findings of the auditor.
By the terms of the application through its reference to the prospectus issued to the public, a further sum of 3. 10s. became due from each holder of ordinary shares on allotment, and a first installment of >2 a share became due on October 31, 1891, under a call duly made. Notices of this call were duly mailed to each defendant.
On May 20, 1892, the defendant Prince paid 171, being the 3. 10s. per share due on his 49 ordinary shares on their being allotted to him, and on the same date the defendant Pope paid 98, being the 2 due as the first installment on his 49 ordinary shares.
These actions were brought in May, 1894. In them the plaintiff seeks to recover from the defendant Prince 98, being the first installment of 2 a share on 49 ordinary shares, and from the defendant Pope 171, being 3. 10s. due on allotment on his 49 ordinary shares. From the 17 defendants other than Wetherbee like sums of 171+l98, or 269 each, and from Wetherbee double that amount, or 538, were sued for.
Each declaration contains three counts. In the first the plaintiff alleges that the defendant in question applied for 50 shares and was allotted 49, and so became liable to pay the sums sued for. In the second it is alleged that the defendant applied for shares, was allotted shares, and was put on the register as a shareholder; and being a shareholder, is liable for the sums sued for. The third count alleges that an underwriting contract was made between the plaintiff and the defendant, under which it allotted 49 shares to that defendant, and that in this way he became liable to pay the sums sued for.
It is plain that no underwriting agreement was made between the plaintiff and the defendant. The Contract Corporation agreed with the Thomson Company that it would find underwriters for the capital stock of the plaintiff company, and agreements were made between the Contract Corporation and the several defendants, by which the several defendants agreed with the Contract Corporation to underwrite the 50 ordinary shares of the plaintiff company on the terms therein stated, and in pursuance of that agreement between the Contract Corporation and the several defendants the defendants handed the Contract Corporation applications to be used by it in behalf of the defendants under the terms of these agreements. If the agreements between the Contract Corporation and the defendants authorized it to deliver the applications, a case under the first count was made out. But in no event were the allegations of the third count proved.
This brings us to the defense set up to the first count.
The defense set up to the first count is that the adventure into which the underwriters were put was materially different from that stated in the preparatory draft prospectus.
The first difference relied on by the defendants is that the contract between the Contract Corporation and the Thomson Company was materially changed in that the plaintiff company was to have started with 50,000 working capital, and in fact started with 46,539. We do not find it necessary to consider whether a reduction of less than 10 per cent. in working capital would be a material change, for we are of opinion that there is nothing in the agreement between the Contract Corporation and the several defendants which prevented...
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