Wilson v. General Water Heater Corp.

NOURSE, P. J. In the year 1919, one Bastían entered into a written contract with the defendant Hinckley and three others for the formation of a corporation to manufacture and sell a patented combination water heater. Bastían, as owner of the patent, transferred his interest to the corporation in consideration for specific amounts of common and preferred stock and a royalty of two per cent of the sale price of the products of the corporation. In further consideration Bastían was also employed as manager and continued as such until April, 1921, when he sold all his preferred stock and the greater portion of his common stock to one Smith. Some time prior to the year 1927 the defendant Hinckley acquired from Smith all his interest in both the common and preferred stock of the corporation. The plaintiffs each owned one-third of the stock of a rival corporation, in which the defendant Hinckley owned the remaining one-third. In 1927, these three entered into a writing agreeing that the second corporation should be dissolved and that the plaintiffs should be given in exchange for their shares in the rival corporation a specified number of shares in the defendant corporation. The business of the two concerns was thereupon merged in the defendant corporation. At that time the defendant Hinckley either owned or controlled 1800 of the 1825 shares of the outstanding [771]common stock of the defendant corporation. Prior to this merger he had received from the corporation quarterly payments on account of the royalty agreed to be paid to Bastían apportionate to his holding of the capital stock of the corporation presumably on the basis of having acquired the royalty rights of Bastían through the purchase from Smith. Evidence was offered that prior to the execution of the written agreement heretofore referred to, -the defendant Hinckley promised on behalf of the defendant corporation that the latter would pay to each plaintiff such proportion of this two per cent royalty ás their holdings in the defendant corporation bore to the outstanding common stock of the corporation. After the merger was completed and the transfers of stock had been made the defendant corporation paid to each plaintiff three quarterly dividends on account of such royalty. Payments were then discontinued, the corporation taking the position that the oral contract of Hinckley with the plaintiffs was not binding upon the corporation. This action was thereupon instituted by the plaintiffs against the corporation and Hinckley to recover portions of the unpaid royalty and to have a determination made covering the rights of the plaintiffs to participate therein in the future. Judgment went for the plaintiffs in accordance with the terms of the contract against the corporation alone and the corporation prosecutes this appeal.