Shoup v. Dowsey.

• Decision Date: 25 February 1944
• Docket Number: 129/632.
• Citation: 36 A.2d 66
• Parties: SHOUP v. DOWSEY.
• Court: New Jersey Court of Chancery

36 A.2d 66

SHOUP

v.DOWSEY.

129/632.

Court of Chancery of New Jersey.

Feb. 25, 1944.

COPYRIGHT MATERIAL OMITTED.

Suit by Klaire D. Shoup against James L. Dowsey seeking to set aside an option agreement and the subsequent sale of subject matter of option by complainant to the defendant, consisting of controlling interest in stock in certain companies, and for an accounting and other relief.

Decree for complainant.

1. If one assumes to give legal advice and counsel, he takes over the role of an attorney, and the principles of law applicable to attorneys who deal with their clients, apply with equal force; and while the relationship may be said to rest upon contract, formality is not an essential element of the employment. Payment of fees is not a necessary element. It may exist even though the services are rendered grantuitously.

2. The requisites which equity exacts in transactions between an attorney and client to sustain his purchase from his client are, on his part, perfect good faith, absence of pressure of the influence acquired by the confidential relationship, and the imparting of such information and disinterested advice to the client respecting the transaction, and on her part, complete knowledge of the situation and entire freedom of action. The court is not required to determine that the attorney actually failed in the performance of these required duties. The invalidity of the transaction will result from a judicial determination that he has failed to show that he performed those duties.

Milton, McNulty & Augelli, of Jersey City, for complainant.

Lum, Tamblyn & Fairlie, of Newark, for defendant.

EGAN, Vice Chancellor.

The hearing of this cause extended over a long period of time. The record covers volumes of testimony, and there is a mass of exhibits.

The amended bill of complaint seeks to set aside an option agreement (Exhibit C-6) given April 1, 1925, by the complainant to the defendant, her brother (who then was and still is a member of the New York Bar), and the subsequent sale of the subject matter of the option by the complainant to the defendant in June, 1928 (Exhibit C-7). The option and sale affected the controlling interest of stock in the Autographic Register Company of Hoboken, New Jersey (hereinafter referred to as the American Company), and the Autographic Register Systems, Ltd., a Canadian corporation (hereinafter referred to as the Canadian Company). The complainant acquired the control through a testamentary gift from her husband on his death on July 4, 1923. The bill asks for a reconveyance and an accounting.

A trust is sought to be impressed upon the stock of the Canadian Company, which the defendant acquired from a former executive of the Canadian Company, a man named Pierce, upon an allegation that the money paid for it was the complainant's; and an accounting and other relief is prayed for.

The complainant charges that the defendant acquired title to her corporate interests through fraudulent manipulations and a ‘juggling’ of her assets, at a time while there existed between them a fiduciary relationship of attorney and client, and that also of trust and confidence engendered by the ties of blood. Under the pressure of those influences, to which is coupled an attitude of misrepresentation and concealment of material facts, complainant says the defendant obtained her interests in the aforementioned organizations.

The substance of the complainant's allegations, as well as the existence of the alleged fiduciary and confidential relationship, are specifically denied by the defendant.

On or before July 4, 1923, the complainant's husband, Walter C. Shoup, was the owner of 358 shares of common ‘A’ stock of the American Company, and also two other shares which were registered in the names of employees, Brenn and Miss Muller, for qualifying purposes.

Complainant on or before July 4, 1923, held 62 shares of the common ‘A’ stock of the American Company. There were 569 1/2 shares of common ‘A’ stock outstanding. The aggregate holdings of complainant and her husband amounted to 422 shares of the common ‘A’ stock. The common ‘A’ stock had voting rights and it controlled as long as the dividends accruing under the preferred stock were paid.

The American Company manufactured and sold autographic registers and printing supplies therefor. The Canadian Company sold registers manufactured by the American Company, but printed the forms used in connection with the registers. This company had 250 shares of preferred stock of the par value of $100, and 2092 shares of common stock which had been issued and outstanding in the lifetime of Walter C. Shoup. The American Company held 229 shares of the preferred stock and 640 shares of the common stock of the Canadian Company. The decedent held one share of the common stock in his name, while his holding company, The Manifolding Devices Corporation, a Delaware corporation, held 1200 shares of this common stock, being its sole assets. The remaining shares of the common and preferred stock were held by minority stockholders. These 1200 shares Shoup, in his lifetime, gave to his wife, the complainant, but did not transfer them on the books.

Walter C. Shoup was the president of both the American and Canadian companies. He actively managed the American Company and received therefor a salary of $25,000 per annum. He also received a yearly salary of $6,000 from the Canadian Company. For eighteen months prior to his death, he suffered from a malignant cancerous ailment. Throughout the period of his illness he was attended by the complainant. He left a last will and testament in which he named his wife, the complainant, his executrix and sole beneficiary. The testamentary bequest of 360 shares of the common ‘A’ stock of the American Company, added to her 62 shares that she had acquired from her husband in his lifetime, gave her a total of 422 shares. The 1200 shares of the Canadian Company stock, which were registered in the name of The Manifolding Devices Corporation, also became hers under the testament, with an additional share (Certificate No. 18), and two qualifying shares held by J. F. Callaghan and S. H. R. Bush. These testamentary gifts vested in her the control of the two companies.

Her vigil at her husband's bedside during the period of his long illness, developed in the complainant a highly nervous condition and other physical ailments that seriously affected her health. Over the same period of time she had the care of her infant son, Robert, who was a sickly and delicate child for the first nine years of his life. He suffered from weeping eczema, developed a bad asthmatic condition, and had several attacks of pneumonia. From the year 1915 when complainant's mother died, to the year 1925 her two sisters and two brothers died; one brother's death being under very tragic circumstances. All of these family troubles and afflictions made heavy inroads upon the complainant's health and peace of mind. They occasioned a severe mental strain, and physical deterioration, which resulted in what was diagnosed as an ‘exhausted heart’.

Prior to her marriage the complainant was a teacher of music in the grade schools. Her training was along musical, cultural, and educational lines. Her spare moments were largely devoted to church, choir, and musical work. Prior to her husband's death, she had had no business experience; and upon his death she felt the need of help and advice in order to cope with the heavy responsibilities which the control of the two aforesaid corporations imposed upon her. (See Exhibits C-111, p. 323, C-112, p. 77.)

The two companies have assets in excess of $1,375,000, and their annual sales volume is in excess of $1,350,000.

The complainant testified (p. 54) that when her husband died, the defendant visited her in her home in Milburn, New Jersey, and made the necessary arrangements for his funeral; that he then advised that a directors meeting of the American Company be called immediately. That was done and a meeting was held on the day of her husband's funeral, and she then was elected president of the American Company. The defendant then became very much interested in her affairs. He aided in the administration of the decedent's estate (p. 55), and helped in the preparation of the estate's inheritance tax returns (Exhibit C-9). He actively assisted the complainant in her personal and business matters. She confided in him and trusted him. He reviewed business affairs and conditions with Pierce, the managing director of the Canadian Company (Exhibit C-204, p. 9); and he passed upon inquiries which complainant received from business competitors as to a sale or disposition of her holdings in the American and Canadian companies.

The defendant denied that he had any professional or other interest in his sister's affairs at the time of her husband's death, save the natural interest of a brother in his sister's welfare. He denied that he represented her in the administration of her husband's estate, and claims that David F. Edwards, an attorney, represented her. However, the defendant's denial does not find support in the documentary evidence. His name appears on the inheritance tax return as ‘attorney or other representative to whom all correspondence should be mailed’ and his address is given as ‘350 Tenth Street, Hoboken, New Jersey’, the office of the Autographic Register Company in Hoboken (Exhibit C-9).

Furthermore, the inheritance tax holder (Exhibit C-190) shows that on April 17, 1924, the defendant wrote the complainant that the 9500 shares of the Carson River stock, appearing in the list of decedent's assets, were worthless. On June 6, 1924, he wrote Edwards (Exhibit C-220) about a letter of June 2, 1924, from the Comptroller (part of Exhibit C-190), supplying information for the affidavit requested by the Comptroller. The defendant's name appears on the Comptroller's assessment of July 7, 1924; and, on July 9, 1924, he...