Selwyn & Co. v. Waller

• Decision Date: 29 September 1914
• Citation: 212 N.Y. 507,106 N.E. 321
• Court: New York Court of Appeals Court of Appeals
• Parties: SELWYN & CO. v. WALLER et al.

212 N.Y. 507

106 N.E. 321

SELWYN & CO.

v.WALLER et al.

Court of Appeals of New York.

Sept. 29, 1914.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Selwyn & Co. against Lewis Waller and another. From an order (142 N. Y. Supp. 1051) sustaining a demurrer to the first and second separate defenses of defendant Lee Shubert, affirmed by the Appellate Division (160 App. Div. 725,146 N. Y. Supp. 7), Shubert appeals. Reversed, and demurrers overruled.

Walter H. Pollak, of New York City (William Klein, of New York City, on the brief), for appellant.

Melville H. Cane, of New York City, for respondent.

MILLER, J.

The question of law involved in this appeal arises from the following facts, to state them as briefly as possible: On the 6th of May, 1911, Charles Frohman entered into a contract with Edward G. Hemmerde and Francis Neilson by which, in consideration of the payment to them of £300 and an agreement to pay certain stipulated authors' royalties, to be computed on the gross weekly receipts, Hemmerde and Neilson granted to Frohman the sole and exclusive right for five years to perform and have performed in the United States and Canada a play entitled ‘The Butterfly on the Wheel’; in December, 1911, Frohman transferred his rights under said contract to the defendant Waller, who agreed to hold the former harmless against any claim which Hemmerde and Neilson might thereafter assert against him in connection with the said agreement of May 6th; in the meantime, Hemmerde and Neilson had assigned to said defendant a 25 per cent. interest in all authors' royalties earned or to be earned from any and all performances of said play in the United States and Canada under all contracts made or to be made therefor; thereafter, and on the 29th of December, 1911, the defendants Waller and Shubert entered into a contract to produce said play in the United States and Canada, ‘not as partners,’ but with a sharing of profits and losses in the percentage of 33 1/3 per cent. to the former and 66 2/3 per cent. to the latter, the former's losses in no event to exceed $2,500, and the latter agreeing to assume in his two-thirds proportion the former's obligation to Frohman under the contract for the purchase of his rights; Waller concealed from Shubert the fact of his ownership of a one-fourth interest in the authors' royalties; the play was produced as agreed upon, and the authors' royalties under the Frohman contract were paid up to some time in October, 1912, in the belief by Shubert that Hemmerde and Neilson were the sole owners thereof, by Waller secretly retained or received from the authors 25 per cent. of said payments; in October, 1912, Waller assigned to the plaintiff a 22 1/2 per cent. interest in said royalties, and this action is brought to recover that proportion of the royalties alleged to have been thereafter earned. The appellant asserts that Waller's concealment was a fraud upon him, and that by reason thereof equity should impress a trust for the benefit of the joint enterprise on the interest in the authors' royalties secretly held by Waller. The two defenses demurred to are alike, except that, in the second, it is alleged, as it is not in the first that the plaintiff obtained its assignment from Waller with the knowledge of his alleged fraud upon Shubert.

The only agreement ever made by the appellant Shubert to pay royalties was in his assumption in his two-thirds proportion of Waller's obligation to Frohman. That was an obligation to save the latter harmless from any claim of Hemmerde and Neilson. They could only have had a valid claim to three-fourths of the stipulated royalties as they had assigned the other one-fourth to Waller. Apart from any question of fraud, therefore, it is impossible to discover from the facts pleaded any contract obligation of said appellant to pay more than his share of the royalties due to Hemmerde and Neilson. True, he supposed that he had agreed to pay two-thirds of the royalties stipulated for in the Frohman contract, a circumstance which might bear on the materiality of the fact concealed from him by Waller, but which does not alter the fact that, accordingtothe terms of his contract, he was obligated to pay only two-thirds of any claim which Hemmerde and Neilson could assert against Frohman, namely, for the threefourths of the stipulated royalties which they still owned.

Leaving out of view the weakness in the plaintiff's case, we come to the interesting question debated below, namely, whether Waller's concealment of his interest in the authors' royalties was a fraud upon the appellant which entitled him to appeal to the jurisdiction of equity to impress a trust upon that interest for the benefit of the joint venture. Of course, that...