Kirke La Shelle Co. v. Paul Armstrong Co.

• Decision Date: 21 November 1933
• Citation: 263 N.Y. 79,188 N.E. 163
• Parties: KIRKE LA SHELLE CO. v. PAUL ARMSTRONG CO. et al.
• Court: New York Court of Appeals Court of Appeals

263 N.Y. 79

188 N.E. 163

KIRKE LA SHELLE CO.

v.PAUL ARMSTRONG CO. et al.

Court of Appeals of New York.

Nov. 21, 1933.

Action by the Kirke La Shelle Company against the Paul Armstrong Company and another. From a judgment of the Appellate Division (237 App. Div. 876,261 N. Y. S. 971), which unanimously affirmed a judgment directed for defendant after a trial without a jury at Trial Term (143 Misc. 707, 257 N. Y. S. 38), plaintiff, by permission of the Court of Appeals, appeals.

Reversed, and judgment directed for plaintiff to extent indicated in opinion.

O'BRIEN and CROUCH, JJ., dissenting.Appeal from Supreme Court, Appellate Division, First department.

Reese D. Alsop, of New York City, for appellant.

Phelan Beale, of New York City, for respondents.

HUBBS, Judge.

This action was brought to recover one-half of the moneys received by respondents on a sale of the so-called ‘talkie’ rights to the play or drama known as ‘Alias Jimmy Valentine’ to the Metro-Goldwyn Mayer Corporation, on September 21, 1928.

‘Alias Jimmy Valentine’ is a dramatization by the late Paul Armstrong, playwright, of the novel, ‘A Retrieved Reformation,’ by the late O. Henry. It was produced on the stage prior to 1914 in New York City and by road companies. It was thereafter let out to stock companies. Several years prior to September 21, 1928, the silent motion picture rights were assigned to the Peerless Features Producing Company, which rights, through subsequent assignments, had vested in Metro-Goldwyn Mayer Corporation before September 21, 1928, and silent motion pictures of the play had been exhibited throughout the United States by that corporation or its assignors.

Subsequent to September 21, 1928, Metro-Goldwyn Mayer Corporation used the play in ‘talkies,’ throughout the United States and Canada, and at the commencement of this action owned both the silent motion picture rights and the ‘talkie’ rights.

In July, 1918, a judgment for $19,337.59, theretofore recovered by the appellant here against the playwright Paul Armstrong, was affirmed by this court. 224 N. Y. 582, 120 N. E. 866. Just before the judgment was entered, Paul Armstrong died. Appellant attempted to recover from his estate and on finding it insolvent and that Armstrong had turned over practically all his plays and property to the respondent Paul Armstrong Company, brought suit against that respondent and Beale, who was Armstrong's attorney, to set aside the transfer on the ground that it was in fraud of creditors. That action was settled and discontinued on December 8, 1921, in accordance with the terms of a certain letter, written by attorneys for the appellant and addressed to and accepted by the attorney for the respondents. That letter provides for the discontinuance of the action, for the withdrawal of certain objections filed by the appellant in the Armstrong estate, for the assignment of the $19,337.59 judgment to the corporate respondent, and further reads as follows:

‘We are to receive for our clients (all checks being drawn to our order) one half of all moneys you are entitled to receive from any revivals of ‘Alias Jimmy Valentine,’ including productions in New York City, ‘on the road’ or ‘in stock’ from now on, throughout the United States and Canada.

‘In case the moneys we receive as one half of all the moneys you are entitled to receive from revival production of ‘Alias Jimmy Valentine’ by George C. Tyler, opening this evening at the Gaity Theatre, here in New York City, shall not amount to $19,337.59 * * * then we are to receive one half of all moneys you are or may be entitled to receive from any revivals of ‘Salomy Jane,’ including productions in New York City, ‘on the road’ and ‘in stock’ throughout the United States and Canada, from now on.

‘This settlement is made on the understanding that all payments due us will be made direct to us from the producers or theatres under ‘division orders' filed with the producers, that you agree to file such orders promptly in all cases, that you will file such an order with Mr. George C. Tyler not later than December 9, 1921, and that all remittances are to be accompanied by box office statements.

‘In making this settlement we feel we should state that it is in reliance * * * on the distinct understanding that all contracts, sales, licenses, or other arrangements to be made in the future affecting the title to the dramatic rights (exclusive of motion picture rights) to the above two plays or the production of the said plays in New York City, ‘on the road’ or ‘in stock’ will be submitted to us before execution or delivery and shall be subject to our approval.'

The respondents, in accepting the terms of settlement in a letter to the appellant's attorneys, stated that the agreement constituted an assignment of an interest in the plays. It appears that appellant received only about $1,000 from the revival at the Gaity Theater of ‘Alias Jimmy Valentine’ and that, consequently, the appellant became entitled to share in the profits of ‘Salomy Jane.’ The parties have agreed that the profits from ‘Salomy Jane’ as to which ‘talkie’ rights have also been granted, shall be divided in the same way as that upon which the court shall finally decide for the division of the profits of ‘Alias Jimmy Valentine.’

On September 21, 1928, the respondents granted to Metro-Goldwyn Mayer Corporation the exclusive ‘talkie’ rights, so called, in the play, for which grant they received $15,000 less a commission of $1,500, to recover for one-half of which net amount this action was instituted.

The main question presented is whether, under the contract of settlement, appellant became entitled to share in the profits resulting from the grant of the ‘talkie’ rights, so called, to the Metro-Goldwyn Mayer Corporation, either on the theory that they were included in the rights granted to appellant or on the theory that the sale was a direct violation of the covenant on the part of respondents to submit to the appellant for approval, before execution and delivery, all contracts to be made affecting the title to the dramatic rights of the play in question.

There is presented also the question as to whether there should be implied in the contract of settlement a covenant on the part of the respondents not to do anything to destroy or ignore appellant's rights under the contract, for a breach of which implied covenant the respondents have incurred liability for the resulting damage to be measured by one-helf of the profits received by them.

It is conceded that at the time when the settlement agreement was entered into, ‘talkies' were unknown commercially and were, therefore, not in contemplation of the parties. It is not seriously contended on the part of the respondents that the grant of ‘talkie’ rights and the production of sound pictures pursuant to that grant did not affect to appellant's damage the value of production of the play on the stage in New York City, on the road and in stock. It is contended by respondents that the grant to appellant was limited to the presentation of the play on the stage in New York City, on the road, and in stock, and that in view of the limited grant all other rights were retained by the respondents and were subject to their disposal without liability to appellant.

The trial court determined that the contract between the parties did not contemplate the production of the play in ‘talkies,’ as they were then unknown; that the contract could not be extended so as to give to the appellant a participation in moneys received by the respondents from sources other than revivals of the play; that when the appellant was given the right of approval of all contracts, sales, licenses, or other arrangements to be made in the future affecting the title to the dramatic rights exclusive of motion picture rights, it was with respect to revivals of the play as then known and understood; that a negative covenant on the part of respondents not to dispose of the sound and dialogue rights for talking movies without appellant's approval is not to be implied, and that the agreement between the parties did not constitute them joint adventurers owing to each other a fiduciary duty because the relation of the parties was that of judgment creditor and judgment debtor.

We believe that this conclusion, though adopted by the Appellate Division, is erroneous. The parties to this action were not at any time in the relationship of judgment creditor and judgment debtor. It is true that the appellant, prior to the making of the contract, had a judgment against Armstrong, and that it was attempting to set aside a transfer of certain of his property to respondents on the ground that it was in fraud of creditors to the end that it might collect its judgment out of the property which it was asking to have returned to the judgment debtor's estate. It never recovered a judgment in the action then pending. Its relationship with respondents is based on the contract in settlement of the pending action. Since ‘talkies' were unknown at the time when the contract was entered into, it cannot be said that ‘talkie’ rights were within the contemplation of the parties either as a subject for the transfer of an interest therein to the appellant or as included in the motion picture rights specifically excepted.

There was granted, however, to the appellant the right to share in the profits resulting from the production of the play in question on the stage, on the road, and in stock, and an express agreement on the part of the respondents not to enter into any contract affecting the...