Majestic Electric Development Co. v. Rice

THE COURT.

This is an action for breach of contract and for an accounting. The complaint also contains counts for conversion and money had and received.

Plaintiff, herein called the Development Company, in exchange for certain assets, was to receive 50,000 shares of the stock of Majestic Electric Appliance Company, herein called the Appliance Company. The corporation commissioner, however, ordered that 25,000 of such shares be withheld until the Appliance Company should sell 50,000 additional shares to the public at $10 per share. Thereupon, in May, 1923, A. T. Burch, who was an officer and director of plaintiff Development Company, and owned eighty per cent of its stock, entered into a contract with defendants, who were partners engaged in selling securities. The object of this contract was to have defendants undertake with the Appliance Company to sell the required 50,000 additional shares, in order that plaintiff might receive its balance of 25,000 shares. Under the Burch contract defendants were to receive from him twenty per cent of the selling price of the stock sold, payable in'shares. Defendants sold the 50,000 shares, and thereby became entitled to 10,000 shares as compensation. Plaintiff Development Company became entitled to receive its balance of 25,000 shares, and did in' December, 1923, secure a release from escrow of 18,706 of said shares. Burch explained his activities to the directors

[274]

of plaintiff Development Company on December 5, 1923, seeking to have them ratify his contract. Plaintiff, however, refused to deliver the 10,000 shares to satisfy Burch’s obligation, and after some negotiations, a new contract was entered into on February 13, 1924, between plaintiff and defendants. It is this contract which is the basis of the present action. Under its terms, 5,000 shares, recited to be the property of plaintiff, were delivered to defendants as “an advance payment of commissions” for the sale of a further 25,000 shares of Appliance Company stock. It further provides that should the defendants fail “to complete the program” of selling 25,000 shares “unless prevented from so doing by court action or by action of the Commissioner of Corporations”, the 5,000 shares or the proper proportion thereof are to be returned.

At this time, defendants had on hand orders for the purchase of 3,969 shares, which had been taken by them from November, 1923, to February 14, 1924, and these orders were filled from the 5,000 shares delivered under the new contract, and the money was retained by defendants.