Gardiner v. Equitable Office Bldg. Corporation

• Decision Date: 06 April 1921
• Docket Number: 63.
• Citation: 273 F. 441
• Parties: GARDINER et al. v. EQUITABLE OFFICE BLDG. CORPORATION.
• Court: U.S. Court of Appeals — Second Circuit

273 F. 441

GARDINER et al. v. EQUITABLE OFFICE BLDG. CORPORATION.

No. 63.

United States Court of Appeals, Second Circuit.

April 6, 1921

Hough Circuit Judge, dissenting. [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Kellogg & Rose, of New York City (Abram J. Rose and Alfred C. Pette, both of New York City, of counsel), for plaintiffs in error.

Simpson, Thacher & Bartlett, of New York City (Julius F. Workum and Adrian L. Foley, both of New York City, of counsel), for defendant in error.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

This is the third time that the subject-matter of this litigation has been before this court. It came here first in Du Pont v. Gardiner, 238 F. 755, 151 C.C.A. 605. We held at that time that an injunction was improperly granted restraining Gardiner from maintaining an action at law against Du Pont. All that we decided in that case was that in an action brought on a contract which was not under seal it was a good defense at law that the contract was induced by fraudulent representations. The matter came here next in Gardiner v. Du Pont, 250 F. 227, 162 C.C.A. 363, and we decided that the evidence was insufficient to sustain an action against Du Pont for breach of contract; the evidence not indicating that Du Pont was binding himself individually, or that the parties believed he was binding himself, but that the understanding was that the contract should be performed by a corporation to be formed.

In the present suit the action is brought against the corporation which the parties contemplated should be formed and which later was formed. It having been decided that the contract was not the personal obligation of Du Pont, we must now determine whether there exists any obligation on the part of the defendant corporation.

It has been held in some jurisdictions that, if the promoters of a corporation necessarily perform services or incur expenses in obtaining a charter, in securing subscriptions to the capital stock, and in otherwise perfecting the organization and such services were necessary and reasonable, and not rendered gratuitously, but with the understanding and expectation of the promoters that they were to be paid for, a promise to pay by the corporation after its organization and acceptance of the benefits of such services or expenses will be implied. Farmers' Bank of Vine Grove v. Smith, 105 Ky. 816, 49 S.W. 810, 88 Am.St.Rep. 341; Low v. Connecticut & Passumpsic Rivers R. Co., 45 N.H. 370; Hall v. Vermont & Massachusetts R. Co., 28 Vt. 401. In laying down the above rule it has been said that any other doctrine would render it difficult to organize any corporation, however necessary. But the weight of authority seems clearly to be that there is no such liability on the part of a corporation to its promoters, in the absence of an express promise by it after its organization, unless, as is sometimes the case, such liability is imposed by the charter or the general law. Melhado v. Porto Algere, New Hamburgh & B. Ry. Co., L.R. 9 C.P. 503; New York & Hew Haven R. Co. v. Ketchum, 27 Conn. 170; Rockford, Rock Island & St. L.R. Co. v. Sage, 65 Ill. 328, 16 Am.Rep. 587; Weatherford, Mineral Wells & Northwestern Railroad Co. v. Granger, 86 Tex. 350, 24 S.W. 795, 40 Am.St.Rep. 837.

Then it is said that a corporation which has had the benefit of a promoter's contract accepts it cum onere, and is liable thereon. The rule on this subject is stated in Cook on Corporations (7th Ed.) vol. 3, p. 2411, as follows:

'A corporation, accepting the benefits of the contract of its incorporators, must accept the burden, and a promoter's contract, which has been ratified or adopted by the corporation, or the benefits of which have been accepted by the corporation with knowledge of such contract, may be enforced against it.'

And see Morgan v. Bon Bon Co., 222 N.Y. 22, 118 N.E. 205.

But it is important to understand exactly what is meant when it is said that, if a corporation accepts the benefit of a contract made by its promoters, it takes it cum onere. In Re Rotherum, etc., Co., 50 Law T. (N.S.) 219, this language is used by one of the justices:

'It is said that Mr. Peace has an equity against the company, because the company had the benefit of his labor. What does that mean? If I order a coat, and receive it, I get the benefit of the labor of the cloth manufacturer; but does any one dream that I am under any liability to him? It is a mere fallacy to say that, because a person gets the benefit of work done by somebody else, he is liable to pay the person who did the work.' And see Weatherford, etc., Ry. Co. v. Granger, supra.

We do not challenge the proposition that a corporation, in accepting the benefits of a promoter's contract, takes it subject to the burdens, but we do not see wherein it has any application to the facts of this particular case. The theory, as we understand it, seems to be that Andrews made arrangements with Gardiner to procure information, which information was procured by Gardiner and was valuable to Andrews, and enabled him to prepare and formulate a plan for organizing and financing the project for the purchase of the Equitable site and the erection of an office building thereon; that after a tentative plan had been formulated by Andrews, and after information had been obtained by Gardiner in connection therewith, Du Pont entered into arrangements with Andrews to take over the enterprise and to provide for the payment of the obligations incurred in the formation thereof; that a statement was made up, showing the obligations and expenses incurred, included in which was an item of $200,000 to be paid to Gardiner, in consideration of the services rendered and to be rendered by him; that in consideration of the turning over by Andrews to Du Pont of said enterprise and of the services rendered by Gardiner, Du Pont promised that there should be paid out of the treasury of the company the obligations and expenses incurred in the formation thereof; that defendant was organized by Du Pont, and in consideration of the turning over to it of said plan and enterprise promoted by Andrews and Du Pont, with Gardiner's assistance, and of the payments to it by Du Pont referred to in his offer, the defendant has had the benefit of Du Pont's agreement, and is therefore impliedly bound to pay the Gardiner commission.

So far as this argument is concerned, it is enough to say that to make the principle applicable the corporation must have accepted the benefits with knowledge of the facts. All of the cases which recognize the doctrine so hold. And there is no evidence in this record that the corporation knew of the agreement made by Du Pont in the Andrews letter. It is true it is said that two of the directors, Du Pont and Dunham, had actual knowledge of the letter at the time of the taking over of the enterprise by the defendant. So far as the knowledge of Du Pont is concerned, it is clear that it was not imputable to the corporation. A corporation is not charged with notice of facts known to a director in a transaction between him and the corporation, in which he is acting for himself and not for the corporation. Davis Improved Iron Wagon Co. (C.C.) 20 F. 699; Commercial Bank v. Cunningham, 24 Pick. (Mass.) 270, 276, 35 Am.Dec. 322; Burt v. Batavia Paper Manufacturing Co., 86 Ill. 66. The general rule that the knowledge of the agent is imputed to the principal rests upon the presumption that the agent will disclose what it is his principal's business to know and the agent's duty to impart. But the rule does not apply where the agent contracts with his principal, because in such a case there is no reason to presume that the agent will impart information which it is for his interest to suppress. The knowledge of a promoter is not to be imputed to his corporation. Machen on Corporations, vol. 1, Sec. 348.

It is also true that the knowledge of Dunham cannot be imputed to the corporation. At the time Dunham obtained knowledge of the transaction, he was not a director. In Houseman v. Girard Mut. Bldg. & Loan Ass'n, 81 Pa. 256, quoted in Gilkeson v. Thompson, 210 Pa. 355, 359, 59 A. 1114, 1115, Judge Sharswood said:

'It is only during the agency that the agent represents, and stands in the shoes of his principal. Notice to him is then notice to his principal. Notice to him 24 hours before the relation commenced is no more notice than 24 hours after it had ceased would be.'

It is not necessary that we should express our opinion concerning Judge Sharswood's statement. It is a proposition not everywhere accepted. While the knowledge of an agent, according to the trend of recent decisions, may be attributed to his principal, it cannot be so attributed unless it is clearly shown that the agent, while acting for the principal in a transaction to which the information is material, has the information present in his mind. Harrington v. United States, 11 Wall. 356, 20 L.Ed. 167; Vulcan Detinning Co. v. American Can Co., 72 N.J.Eq. 387, 67 A. 339, 12 L.R.A. (N.S.) 102; Suit v. Woodhall, 113 Mass. 391; Slattery v. Schwannecke, 118 N.Y. 543, 23 N.E. 922; Booker v. Booker, 208 Ill. 529, 70 N.E. 709, 100 Am.St.Rep. 250. Or unless, according to some of the authorities, the information was acquired so recently or under such circumstances that it will be presumed to have been in his mind at the time of the transaction in question. Alger v. Keith, 105 F. 105, 44 C.C.A. 371; Henry v. Omaha Packing Co., 81 Neb. 237, 115 N.W. 777; Brothers v. Kaukauna Bank, 84 Wis. 381, 54 N.W. 786, 36 Am.St.Rep. 932; Jenkins Bros. Shoe Co. v. Renfrow, 151 N.C. 323, 66 S.E. 212, 25 L.R.A. (N.S.) 231.

In Cook on Corporations (7th Ed.) vol. 3, Sec. 727, p....