Nat'l Mfrs. Co. v. Bird

• Decision Date: 24 February 1925
• Citation: 127 A. 819
• Parties: NATIONAL MFRS. CO. v. BIRD et al.
• Court: New Jersey Court of Chancery

127 A. 819

NATIONAL MFRS. CO.

v. BIRD et al.

Court of Chancery of New Jersey.

Feb. 24, 1925.

Suit by the National Manufacturers Company against James Philip Bird and others. Decree in accordance with opinion.

Carlyle Garrison, of Jersey City (Lindley M. Garrison, of Jersey City, of counsel), for complainant.

Merritt Lane, of Newark, for defendant Bird.

Frederick Snow Kellogg, of Jersey City (R. Robinson Chance, of Jersey City, of counsel), for defendant Kellogg.

BENTLEY, V. C. The complainant is a subsidiary corporation of the National Association of Manufacturers and was the proprietor of two periodical publications having to do with export trade. In 1911 it leased the periodicals to a corporation known as Steven De Scesznak, Inc. (the principal spirit of which was a man named Steven De Scesznak), with an option to purchase for the sum of $100,000 cash on or before August 1, 1916, which was extended to endure until January 1, 1921. These periodicals did not prosper financially, and in or about the year 1914, the defendant J. Philip Bird was placed in charge of the financial transactions of Steven De Scesznak, Inc., for the purpose of safeguarding the interests of the complainant and the National Association of Manufacturers. This defendant was the general manager of the National Association of Manufacturers and vice president and a director of the National Manufacturers Company. Finally, in the summer or fall of 1916, the financial condition of the De Scesznak company became so alarming that the governing members of the complainant determined that they must get rid of the magazines and for that purpose appointed a committee of the directors of the complainant to negotiate their sale. Bird was a member of that committee, as were also the president (Pope) and two others named Boudinot and Abbott. It appears that negotiations were carried on with Pope, who exercised a potent influence, to authorize the De Scesznak company to pay the option price in the form of $100,000 of 30-year coupon, 7 per cent. bonds instead of cash. This, Pope refused to consider.

By some method the option price was subsequently reduced to the sum of $10,000 and the payment by the lessee of a demand note or notes amounting to $12,500 held by the complainant, and furnishing $2,500 to De Scesznak for working capital. A. new option to that effect was given by the complainant. Both before and after the giving of this latter option Bird undertook to find some one who would advance the necessary cash to take advantage thereof and, in fact, considered purchasing the papers himself. In this connection it should be pointed out that he gives highly contradictory explanations of the reason he gave up the latter idea. In one place he says that it was because he intended committing his resources to another venture called the "International Engineering Works," whereby he would be left without means to acquire the publications. In another, he says it was because Pope, his superior, frowned on it. In the course of his search for an investor, he attempted to enlist the services of another defendant, Mr. Kellogg, a member of the bar of this state. The latter, after some investigations, declined to advise any of his clients or acquaintances to risk any money in the business, because as he expressed it, the governing spirits of the National Association of Manufacturers were men of wide business experience, and if they felt that the business was not remunerative he felt a natural reluctance to advise any one to invest therein. Subsequently, however, he did appear with an assignment of the option executed by De Scesznak, Inc., and, upon paying the necessary $10,000 to the complainant and providing the additional $15,000 capital for the De Scesznak company, secured a bill of sale of the periodicals, taking title in his own name. Within a very short time thereafter he transferred the business to the De Scesznak company and, in consideration thereof, took from it $100,000 of debenture bonds maturing in 30 years, bearing interest at the rate of 7 per cent. and in coupon form. It is conceded by the defendants that in this transaction he acted as Mrs. Bird's agent and has continued in that capacity to collect the interest thereon and the return of the $15,000 in cash advanced to the De Scesznak company. The complainant maintains that the defendants, Mr. and Mrs. Bird, should be decreed to hold the bonds as trustee for it and should be compelled to account to it for all interest collected upon coupons, upon the grounds: (a) That Bird in his fiduciary capacity has fraudulently purchased the complainant's periodicals and realized a large profit thereon, although taking title in his wife's name; and (b) that a purchase of trust property at a sale held by a quasi trustee is voidable at the option of the beneficiary when purchased by the wife of the fiduciary, equally as if purchased by him. It is conceded that there should be no decree as against Mr. Kellogg.

I think there can be no abiding doubt that the proofs indicate that Bird has profited by the position of trust in which he stood to the complainant. It will be recalled that not only was. he an officer of the complainant company, but he was the officer selected by it to represent it in the councils of the De Scesznak company whereby he, of course, became more familiar with the latter and its condition than any other officer or director of the complainant. In the beginning of 1917 when its affairs reached a condition such that the directors of the complainant became alarmed, he appears to have exercised himself more actively than any one else to save to the lessee company its business, and even went to the length of conferring with Pope about making the purchase for himself. This I confidently believe to be true. But when told by the latter that he must not do so he then abandoned the scheme. He then talked with one of his employees named Dingwall and arranged with the latter to purchase the publications for him (Bird), and thereafter a resolution was adopted by De Scesznak. Inc., with Bird present, actually authorizing the issuing to the said Dingwall of $100,000 of bonds of the same description as mentioned above. This was not consummated, but the bonds were afterwards actually issued to Mrs. Bird.

Bird says that one night in the early winter of 1917, after he had returned home, he said to Mrs. Bird that he was being pressed to go through with the International Engineering Works investment, and continued:

"I went home one night and told her that I had made up my mind to take up the option on the International Engineering Works of Framingham, and that, so far as I was concerned, I was disgusted with the whole industrial American situation; and we chatted awhile about it, and I said to her then that I hadn't lost faith in it; I thought it was a good thing, but I had decided to take up the option of the International Engineering Works at Fraraingham; and she turned to me and said: 'Well, you do think it is a good thing?' And I said. 'I do.' And she said, 'Why can't I buy it?' And I said: 'I don't know; I will ask Col. Pope and see.' And she said, 'Well, what would I do?' I said, 'The first thing you would do would be to go and consult some lawyer.' And she said, 'Whom would I go to?' And I said, 'I don't know.' And she said, 'Well, I know Mr. Kellogg.' I said, 'He would be a good one, because he has been familiar with the situation and he can advise you about it.'"

He says that he had just sold 300 shares of stocks, 100 of which he had presented to her when he purchased it in 1911, and that her share of the proceeds of the sale, amounting to $10,000, he had deposited along with his own funds in the Irving National Bank, New York City, and that this was the money with which she intended to finance the purchase of the publications. In this he is corroborated by his wife, and the circumstantial story told about the withdrawal of the funds from the bank and the turning of them over to Mr. Kellogg is corroborated by that gentleman, Mrs. Bird, and one of his daughters. While I have no doubt, especially from the testimony of Mr. Kellogg, that Pope was acquainted with the purchase by Mrs. Bird, it is an especially significant fact that he never communicated her appearance in the transaction to either of the other two members of the committee charged by the complainant with ridding it of the magazines. Col. Pope, it is fair to assume from the testimony, was a very elderly man who died in April of the year following this transaction. There was the darkest secrecy maintained otherwise from all the world about the interest of Mr. Bird. Upon to the time of the final hearing, Mrs. Bird had received about $35 000 in interest and $15,000 in return for her advance for working capital of De Scesznak, Inc. Out of the latter sum she had repaid her husband some $3,000 of the $15,000 he had loaned to her, and he said that the rest was gone and he had no great hope that he would ever be repaid. At any rate, according to her own showing, she has received and disbursed approximately $47,000 for which she is unable to account in any...