Woodbridge v. Pratt & Whitney Co.

• Decision Date: 15 June 1897
• Citation: 69 Conn. 304,37 A. 688
• Court: Connecticut Supreme Court
• Parties: WOODBRIDGE v. PRATT & WHITNEY CO.

37 A. 688

69 Conn. 304

WOODBRIDGE

v. PRATT & WHITNEY CO.

Supreme Court of Errors of Connecticut.

June 15, 1897.

Appeal from superior court, Hartford county; George W. Wheeler, Judge.

Action by James E. Woodbridge against the Pratt & Whitney Company for breach of a special contract, and, by way of equitable relief, for an accounting under the contract, brought to the superior court for Hartford county, and judgment rendered for an account on certain terms. Each party appeals. No error.

The findings showed the following state of facts:

The defendant is a corporation chartered by the state, and until February 28, 1893, was engaged in manufacturing at Hartford. Its business was conducted in several departments, one of which was known as the "Small-Tool Department" On January 1, 1889, it entered into a written contract with the plaintiff, containing the following provisions: it was to maintain, develop, and carry on for five years its small-tool department; and the plaintiff was appointed the superintendent of this department, having the whole management thereof, subject only to the board of directors, for said term. It was, during said term, to manufacture and deal in, through said department, goods similar to those that had been made by it under his superintendence during a previous term, under a previous contract, and not otherwise to manufacture or deal in such goods, to keep an accurate account of all proper debits and credits to said department, and to give the plaintiff access to all its books and accounts. Debits to said department were to be, for any year, only these: Five per cent. of the inventory price of all patents and plant used in it, on the inventory taken in January of that year; such proportion for that year of the taxes, insurance, counsel fees, and expense of lawsuits, salaries of officers, incidental expenses of gas, interest on borrowed money, water, advertising, stationery, and postage, as the inventory price of the machines, shop tools, shop fixtures, patents, and goods manufactured, in whole or in part, in said department, should bear to the inventory price in January of that year of all the company's machines, shop tools, shop fixtures, patents, and goods manufactured, in whole or in part; $55 per horse power for the amount of power and heat used in said department for that year; 1 per cent. of the sales of goods manufactured in said department that year, for shipping and teaming, except when the boxing should be done in said department, in which case said percentage should be only one-fifth of 1 per cent. of the sales; the amount paid to agents, mechanics, and laborers for services rendered in or in behalf of said department for that year, and the amount paid in that year as royalty upon articles manufactured in said department; the cost of any and all materials used; also, of any services not hereinbefore mentioned, regularly employed in manufacturing, displaying, selling, and delivering the goods manufactured in said department that year, and the cost of goods dealt in by said company through this department for that year. All these debits were to be stated in itemized bills, and then presented to the plaintiff monthly for approval. If he disapproved any bills or items, the board of directors might nevertheless, by its approval before or during January in the following year, make them proper debits to the department, saving his right to resort to law to determine the difference between them. The credits to said department for any year were to be the entire proceeds realized from sales for that year of goods manufactured or dealt in by said company in or through said department The defendant was to pay the plaintiff each year during the term of this contract, except the last year thereof, an annual salary, to consist of $3,600, and a percentage of 10 per cent. of the profits for that year; and the same said last year, provided, as was intended, another contract should be made during said year, substantially a renewal of the present one. If no such renewal contract were made, owing to the neglect or refusal of the defendant, the salary during said last year was to be $5,600, in addition to said 10 per cent. of the profits of that year. The plaintiff was to give his exclusive attention to the business during the term. This contract was duly performed until February 28, 1893, except that the plaintiff was paid no profits on sales made in January and February, 1893. Early in 1890 the plaintiff and two others— all three being stockholders in the defendant— became dissatisfied with the management of the company by the president and general superintendent, and tried to find parties who would buy out the other stockholders and put the control of the business in the hands of a different president and superintendent. They resorted to one Reed, who had had some success as a promoter of corporate organizations, and at his request the directors, in March, 1892, voted to have an inventory and valuation made by experts of the assets and accounts of the company. This was primarily intended to give Reed a basis to work on, in interesting capitalists; but the directors thought it would be worth its cost, even if Reed failed in his scheme of promotion.

In May, 1892, the experts reported, and Reed proposed that he should have an option from the owners of the majority of the shares in the company, for 90 days, on certain terms. The directors were advised by counsel that this was the only practicable mode of reorganization. They approved the report of the experts, and gave it to Mr. Reed, and he obtained the options desired, expressed as follows: "Shareholders' Option to George W. M. Reed. Negotiations have been pending for some time for the purchase of the capital stock of the Pratt & Whitney Company, a corporation organized under Connecticut law by special charter, and whose capital stock is five hundred thousand dollars, divided into five thousand shares of one hundred dollars each. The negotiation has been advanced by Mr. George W. M. Reed, who has solicited an option to buy the stock for the purpose of selling it to parties in England who propose to form a new association as hereinafter set forth. An inventory of the assets of the Pratt & Whitney Company, and a statement of the profits of the business for a number of years, have been made by experts named by said Reed. This inventory and statement have been by the company delivered to Mr. Reed for his use in completing negotiations. The option desired by Mr. Reed is to buy all the shares of the Pratt & Whitney Company, so far as possible, upon the following terms: Each share to receive two hundred dollars in cash, and two hundred dollars in securities of the new company to be formed by the purchasers; one-third of said securities to be bonds secured by pledge of the assets of the new association to be formed, and including as part of said assets the capital stock of the Pratt & Whitney Company owned by said new association, or the property of the Pratt & Whitney Company; these bonds to bear interest at the rate of at least five per cent. per annum; one-third to be cumulative, preferred stock, with preferred right to dividends at the rate of at least — — per cent. per annum; and the remaining one-third of said two hundred dollars to be payable in common shares of the capital stock of said new company to be formed. The new company is to be capitalized at $2,700,000, namely, $900,000 in bonds secured by first lien on the assets of the company, $900,000 in the preferred shares, and $900,000 in common shares, and is to be formed by Mr. Reed's English parties; but, if necessary or convenient for purposes of holding land in this country, they may use a charter obtained for them from one of the United States. Now, therefore, in view of the foregoing matters and things, we, the undersigned, being the largest shareholders of the capital stock of the Pratt & Whitney Company, and including all its directors, and owning more than a majority of said capital stock, in behalf of ourselves and of such other shareholders as we can affect by our influence, do hereby give to said Reed the option to buy all of our shares in said Pratt & Whitney Company upon the terms aforesaid. It is understood that the purchase shall include all the shares owned or controlled by the undersigned, and all the shares that any other stockholder is willing to sell upon the terms aforesaid, and it is hoped by both parties that the purchase will cover all the shares of the company. This option is to run for ninety days from the date of this memorandum of agreement, and no more. If, within said period of ninety days, Mr. Reed shall obtain a good and binding contract, made to our reasonable satisfaction, by parties of reliable character and pecuniary responsibility, for the purchase from him of all the shares of the stock of the Pratt & Whitney Company owned by the undersigned, and all the shares of, all and several, the shareholders of said company who are willing to sell upon the terms aforesaid, such purchase to be completed within the term of six months from the date of this memorandum, or if said Reed shall within said period of ninety days obtain a good and binding contract, made to our reasonable satisfaction, by parties of reliable character and pecuniary responsibility, agreeing to purchase directly from the undersigned, and, all and several, the shareholders of said company, all their shares, on the terms aforesaid (such purchase to be completed within the period of six months from the date of this agreement; sale and delivery to be made at the company's office in said Hartford, or at the office of a trust company satisfactory to all parties), and if said Reed shall within said period of ninety days produce such contract, and offer the same to the directors of said Pratt & Whitney Company, then we agree to join in a contract with said Reed, or with his assigns, as...