Clowes v. Miller , 74 Conn. 287 ( 1901 )

The sole purpose of this action is to enable the plaintiff, and those who may be associated with him, to purchase a controlling interest in the Randolph-Clowes corporation.

The only reason shown by the pleadings, or by the facts found, for compelling the defendant to transfer to the plaintiff the shares in question, is the one alleged in the complaint, that the transfer to him of the 910 shares will, with the 3,100 shares which he claims now to own, give him a majority of the 8,000 shares of stock of the company which have been issued, and "a controlling voice in the management and affairs thereof."

No equitable ground is stated in the complaint, nor does any appear in the facts, why the management of the business and affairs of this corporation should be taken from the defendant and given to the plaintiff, excepting that it is claimed that by the terms of Exhibit B, the defendant's assignor, O. W. F. Randolph, administrator, contracted to sell to the plaintiff for the sum tendered the 910 shares demanded, and that the defendant Miller, by Exhibit C, purchased the 3,700 shares of preferred stock from said administrator, subject to the conditions of said agreement between the administrator and the plaintiff.

Exhibit B contains no express promise to sell to the plaintiff just enough shares of stock to give him the control of the company, nor is it either alleged in the complaint or found proved that the provision in that contract for the delivery to the purchaser of five shares of the preferred stock for every $400 paid to the administrator, was for the purpose of enabling the plaintiff or any other single purchaser to obtain a controlling interest in the stock of the company. On the contrary, from the language of this provision, and from the financial inability of the plaintiff to purchase the stock, it seems to have been the understanding of the parties that the stock would or might be sold in small blocks to various purchasers, and that no one person would become the owner of a majority of the stock.

The only grounds, therefore, upon which the plaintiff can ask a court of equity for a decree of specific performance are, that by Exhibit B the administrator contracted to sell, at the time the tender was made, and at the price fixed by the tender, to the plaintiff or to such persons as he might procure to purchase the same, the whole or any part of the 3,700 shares of preferred stock held by the administrator, and that the enforcement of said contract, to the extent of compelling the transfer to the plaintiff of the demanded 910 shares, is necessary in order to give him a controlling interest in the stock of the company.

Without deciding that a court of equity may not, under any circumstances, decree the specific performance of a contract for the sale of a controlling interest in the stock of a corporation, we shall confine ourselves to the question of whether, upon the facts in this case, the equitable relief asked for can be properly granted, for the purpose of enabling the plaintiff and those interested with him to gain control of this company.

We think it was clearly intended by the provision in ExhibitB, for the delivery to the purchaser of five shares of the preferred stock for every $400 paid, that upon the payment of that sum — certainly at any time prior to May 1st, 1900, if not after that date — the five shares should not only be delivered to the plaintiff or other purchaser, but that the title to such stock should be at once properly and legally transferred to him, and that therefore, by that clause of the agreement, the administrator contracted to transfer to the plaintiff the 910 shares when they were demanded and the $72,800 tendered on April 18th.

But the mere fact that at the time the tender was made there was a contract, valid in law, by the language of which the administrator undertook to deliver to the plaintiff, on that date, the demanded shares upon payment of the sum tendered, does not entitle the plaintiff as a matter of right to relief in equity by a judgment of specific performance. "The equitable remedy of the specific enforcement of contracts, even when they are valid and binding at law, is not a matter of course; it is so completely governed by equitable considerations, that it is sometimes, though improperly, called discretionary; it is never granted unless it is entirely in accordance with equity and good conscience. It is therefore a well-settled rule that in suits for the specific performance of agreements, even when written, the defendant may by means of parole evidence show that through the mistake of both or either of the parties, the writing does not express the real agreement; or that the agreement itself was entered into through a mistake as to its subject-matter, or as to the terms. In short, a court of equity will not grant its affirmative remedy to compel the defendant to perform a contract which he did not intend to make, or which he would not have entered into had its true effect been understood." 1 Pomeroy's Eq. Jur. (2d ed.) § 860 and note; 2 Story's Eq. Jur. (13th ed.) § 742.

When the specific performance of a contract is sought to be enforced, courts of equity will look to the substance of the transaction, to the purpose of the agreement and the real understanding of the parties, whether expressed in the written contract or not, and will never decree the specific performance of a contract when its enforcement will defeat the primary object of the agreement and the real understanding of the parties. Meeker v. Meeker, 16 Conn. 403, 407; CanterburyAqueduct Co. v. Ensworth, 22 id. 608, 613; Patterson v. Bloomer, 35 id. 57, 63; Quinn v. Roath, 37 id. 16, 24;Platt v. Stonington Savings Bank, 46 id. 476; Van Epps v.Redfield, 68 id. 39, 46.

It is the contention of the defendant that it appears, by the language of Exhibit B, and by the facts proved, to have been the purpose of the contract and the intention of the parties, not that the plaintiff should gain control of the corporation by purchasing just enough of the preferred stock to give him a bare majority of all the stock, but that the administrator should, at any time before January 1st, 1901, sell to the plaintiff or to such persons as he might "procure to purchase and pay for the same," the entire 3,700 shares of preferred stock held by him, at the price of $300,000, or at that rate for such part of the purchase as might be made prior to May 1st, and at a higher price for that remaining unsold after that date; that the provision for the delivery of five shares for every $400 paid, was to aid the accomplishment of the primary object of the contract, namely, the sale by the administrator of the entire 3,700 shares of preferred stock; that the tender of April 18th was manifestly made, not with the view of thereafter purchasing the remainder of the stock, but for the purpose and with the intention of not buying at any time more than said 910 shares; that the $72,800 was intended as full payment for the shares demanded, and that for these reasons the trial court erred in rendering a judgment ordering the defendant to transfer to the plaintiff the 910 shares.

We think the facts before us sustain the defendant's contention. As administrator of the estate of Edward F. Randolph, O. W. F. Randolph naturally and properly desired to relieve, as soon as possible, the other property of that estate from the burden of the several hundred thousand dollars of debts which should be borne by the assets of the partnership of Randolph Clowes, and to obtain whatever might be due such estate upon the settlement of the partnership business. To accomplish these ends it seemed necessary that the interest of the Randolph estate in the partnership assets should be turned into cash, and to carry out these and other purposes the plan of transferring the partnership assets to a corporation, and issuing stock and providing for the sale of that issued to the administrator, seems to have been adopted.

The court has found that Exhibit B was executed by the administrator "in order to provide a way and means of turning the entire interest of the said Randolph estate into money, so that the same might be duly administered and distributed, and relieving the estate from the obligations" of the partnership of Randolph Clowes, and "that such only was the main and true cause and consideration inducing the said Randolph, administrator, to execute said ExhibitB, was known to and participated in by the said Clowes and urged and presented by him as such cause and consideration to the said Randolph, administrator."

These being the well-understood objects of the administrator in executing Exhibit B, the use which the plaintiff is now seeking to make of the contract, assuming that its language will admit of the construction which he gives to it, is in clear conflict with the purpose for which it was intended. If, as claimed by the plaintiff, he is entitled by the terms of the contract to elect to purchase only such number of shares as will give him a majority of the entire stock, and the defendant is required to sell him that number, then instead of aiding the administrator by enabling him to turn into money the entire interest of the Randolph estate in the partnership assets, the practical effect of the contract is to empower the plaintiff, by purchasing only a small part of the administrator's stock, and without having provided means for the payment of the partnership debts, to deprive the administrator of his control of the company, provided for by the contract, and to probably render much less valuable, if not unsalable, the large number of shares remaining in the administrator's hands.

But turning to the language of the contract itself, we think it fails to sustain the plaintiff's claim that he is entitled to elect to purchase only the 910 shares demanded, and at the price tendered. It is only the precise offer made and upon the conditions proposed, which the plaintiff can claim the right to accept and can ask a court of equity to enforce.Schields v. Horbach, 30 Neb. 536.

What stock, by the language of Exhibit B, did the administrator offer to sell to the plaintiff, and at what price? The first words of the offer are: "The preferred stock so to be issued to the administrator he will sell to the said George H. Clowes, or to such persons as said Clowes may procure to purchase and pay for the same, for the sum of three hundred thousand dollars ($300,000), provided that the said sum be paid on or before May 1st, 1900." The preferred stock "so to be issued to the administrator" was, by the terms of the contract, 3,700 shares. This is, therefore, an offer to sell at any time prior to May 1st, 1900, the entire preferred stock held by the administrator, for a fixed sum; the sale to be made to one or more persons, but the whole stock to be sold to all.

Another clause of the contract provides for the sale after May 1st, 1900, at a higher price but for a fixed sum, of the preferred stock then remaining in the hands of the administrator. This is an offer to sell after the 1st of May, 1900, the entire stock held by the administrator, whether there then remained in his hands the whole or only a part of the 3,700 shares issued to him. It is apparently not claimed by the plaintiff, that he was entitled under this or any other part of the agreement to purchase after May 1st only a controlling interest in the company. But it is urged that the clause of Exhibit B which provides that the administrator will deliver to the purchaser five shares of preferred stock for every $400 paid to him, gave to the plaintiff the right to elect to purchase, prior to May 1st, only such number of blocks of five shares as was required to give him a majority of the stock of the company. Why he should be only enabled to elect to purchase a bare majority of the stock prior to May 1st is not clear. That he should be able to gain control of the company without purchasing all the preferred stock is inconsistent with the provision giving the administrator the right to vote on the common stock issued to the Corporation Trust Company.

For the purpose of aiding the plaintiff to effect the real object of the agreement to purchase all of the preferred stock, this clause undoubtedly enabled the plaintiff to procure, at least prior to May 1st if not after that date, a transfer to purchasers upon the payment of $400 for every five shares, of any number of such blocks, though that number was less than the entire 3,700 shares. But the inquiry here is whether he was permitted to procure the transfer of even one block of five shares for any other purpose than that of effecting a sale of the entire 3,700 shares; whether this particular provision of the offer is one which he could accept without accepting the entire offer. We think it is not, but that when read in connection with the other provisions of the contract for the sale of the entire stock, and in the light of all the facts, it should be considered as merely providing a method for aiding the plaintiff to carry out the main purpose of selling the entire 3,700 shares.

But at what price was the administrator to sell the plaintiff the preferred stock? The plaintiff evidently assumed by his tender that by the terms of the contract $72,800 was to be accepted in full payment for 910 shares of preferred stock. No claim is made that prior to January 1st, 1901, the time limiting the plaintiff's right of purchase, or even since that date, any further sum has been tendered or any further offer of purchase made. The contract first provides that the administrator will sell the 3,700 shares for $300,000, provided that sum be paid before May 1st, 1900. Does the next clause provide, as would seem to follow from the plaintiff's interpretation of it, that the administrator will sell the same stock within the same period for $296,000? If so, the provision fixing the price at $300,000 seems to be meaningless. Does the clause providing for the delivery of five shares upon the payment of every $400, mean that prior to May 1st the administrator will sell any portion of his stock at a less price per share than he will sell the whole? We think such cannot be the correct interpretation of it.

As we view the contract, and it is not wholly free from ambiguity, it provides that the administrator shall ultimately receive not less than at the rate of $300,000 for 3,700 shares, for any stock sold; that the entire 3,700 shares may be purchased for $300,000 at any time prior to May 1st, and after that date and prior to January 1st, 1901, at a higher rate for either the entire 3,700 shares or those remaining unsold; that at least prior to May 1st, if the entire stock cannot be sold in one lot, partial sales will be made and lots of five shares will be transferred upon payment of every $400, and that the amount thus received will be paid to the administrator and credited to the plaintiff upon the price to be paid under the agreement, the deficiency to be made up by an increase in the price of the stock afterwards sold or by subsequent payments before the 1st of January, 1901. The clause near the close of the contract provides that "it is understood that all moneys received by said Clowes from the sale of stock until January 1st, 1901, are to be paid to the said administrator on account of the purchase of the stock as aforesaid;" and finally that "if this agreement is carried out and fulfilled by said Clowes it is to be in full settlement of all claims of the said administrator against him." These clauses, we think, throw some light upon the meaning of the provision for the sale of five-share lots, and are in conflict with the plaintiff's claim both as to the price to be paid for the shares and as to his right to elect to purchase only a majority of the stock.

The plaintiff has no greater right to enforce a sale of a bare majority of the preferred stock against the defendant than he had against the administrator. By his agreement of purchase from the administrator (Exhibit C), the defendant became bound as to the plaintiff only for the performance of the conditions of the contract contained in Exhibit B.

By the sale of his entire stock to the defendant, the administrator appears to have received $100,000, and to have secured for the corporation the means of paying the copartnership obligations, for which the Randolph estate was holden, and the defendant, in order to procure the control of the corporation, appears to have paid $100,000 to the administrator and to have advanced $300,000 to the corporation to enable it to pay the debts of the partnership which he had assumed.

Upon the facts before us we think it is contrary to well-established equitable principles to compel the defendant to transfer to the plaintiff the 910 shares demanded upon payment of $72,800, for the purpose of enabling the latter to obtain the control and management of the Randolph-Clowes Company.

The case having been finally tried upon its merits, it is unnecessary to inquire whether the demurrer to the complaint was properly overruled.

There is error in the judgment of the Superior Court and it is reversed.

In this opinion the other judges concurred.