Union City Realty & Trust Co. v. Wright

Atkinson, J. 1. The two corporations, the Hnion City Bealty and Trust Company and the Hnion City Brick Company, were — 736 — organized in the same community about the same time, and both related to development of property owned by J. H. Harris, who was the original promoter of the first-named company, and to a lesser extent interested also in the other company. To avoid confusion, it is necessary to bear in mind that there were two corporations, and that the realty company was the defendant, which, on account of having received a deed from the brick company containing a certain clause, the plaintiff attempted to hold it liable for a note given by Harris for stock in the brick company, which note that company transferred to the plaintiff. It thus appears that the defend- ' ant was not the maker of the note or otherwise a party to it. The sole basis of the alleged equitable right of the plaintiff, as transferee of the note, to compel payment by the defendant was the promise of the latter implied by accepting the deed from the brick company, which contained the clause: “I also convey my subscription for four thousand dollars ($4,000.00) of stock in the Hnion City Brick Company, which the company agrees to pay for according to my contract; and also all the royalties derived from a twenty [year] lease I hold from said Brick Company. I agree to transfer my interest in said lease on the back of same to the Hnion City Realty and Trust Company.” Hnder the circumstances, if the plaintiff, in virtue of being transferee of the note, can claim against the defendant any equitable right based on the clause in the deed, it is only such right as Harris could exercise against the defendant. This proposition is well supported. In Ellis v. Harrison, 104 Mo. 270 (15 S. W. 198), it was held that under the common law as recognized in the State of Missouri, as well as in virtue of the statute, a person for whose benefit an express promise is made in a valid contract by others may maintain an action thereon in his own name, but that the beneficiary of such a contract does not acquire a better standing to enforce it than that of a contracting party. In the course of the opinion, it was said: “Whatever right of action a third party to such an agreement may acquire by virtue of its terms against either of the directly contracting parties, it is clear that on principle such right can not be broader than the party to the contract (through whom the right of action is derived) would have in event of its breach. To state this in another form: The right of action by any outside beneficiary, for whose advantage a contract is made between two persons, is entirely subordinate to — 737 — the terms of the contract as made. Snch beneficiary can not acquire a better standing to enforce the agreement than that occupied by the contracting parties themselves. Crowe v. Lewin (1884), 95 N. Y. 423; Wheat v. Rice (1884), 97 N. Y. 296. The plaintiff’s rights in the case before us flow from the agreement between Mr. Harrison and Mr. Ellis Jr., and are confined within the scope of that agreement interpreted according to the rules of law.' If the parties, when it was made, understood and intended the expression “mercantile debts” (as used therein) to exclude the notes in question, the plaintiff can not enlarge its meaning for them. They were the contracting parties. It is their contract to be enforced, and plaintiff has no such relation to the subject as permits him to assert the contract different from what they mutually agreed it should be.” The same principle was also recognized and applied in the case of Clay v. Woodrum, 45 Kans. 116 (25 Pac. 619), the facts of which showed a contract between two parties, in which each had made covenants. A third person, who was a creditor of one of the contracting parties, was seeking to enforce an equity or right he claimed by virtue of the contract between the two parties, which his debtor had made; and the defendant set up as a defense that the other party to the contract had not performed his covenants in the contract, and therefore the defendant was not liable under the contract to the other contracting party, and as the rights of the third person were dependent upon the rights of the party to the contract through whom he claimed, he could not recover, because such other party could not. In the course of the opinion, it was said: “The third party, however, who avails himself of such contract, and claims under its provisions, is subject to the defenses arising out of the contract between the original parties.” It was further said: “Woodrum is claiming the breach of a promise made to Elwood, which was based on conditions to be performed by Elwood; and how can he recover unless those conditions have been performed F He is in no better position to enforce the contract derived through the promise to Elwood than Elwood himself would be.” Among other cases applying these principles are the following: Hargadine-McKittrick Dry Goods Co. v. Swafford Dry Goods Co., 65 Kans. 572 (70 Pac. 582); Green v. McDonald, 75 Vt. 93 (53 Atl. 332); Crowell v. Hospital, 27 N. J. Eq. 650; Keller v. Ashford, 133 U. S. 610 (10 Sup. Ct. 494, 33 L. ed. 667). — 738 — 2. Inasmuch as the plaintiff could enforce only such rights as Harris could enforce against the defendant, we may now consider what was Harris’s right. In this connection see Union City Realty & Trust Co. v. Wright, 138 Ga. 703 (76 S. E. 35). This leads to consideration of his subscription contract for stock in the brick company, and the circumstances attending the sale thereof to the realty company. The contract with the realty company, as described by the clause in the deed, was that Harris should convey his “subscription for four thousand dollars ($4,000.00) of stock” in the brick company, for which the realty company “agrees to pay . . according to my [Harris’s] contract.” The contract also purported to convey “all the royalties derived from a twenty [year] lease I hold from said brick company,” which Harris agreed to transfer by indorsement. The purchase-price of all the property mentioned as thé consideration of the deed also entered into the consideration moving Harris to make the above transfers. There was extrinsic evidence to the effect, that at the date of the deed to the realty company Harris had executed the note sued on and received a certificate for thirty shares of stock of the par value of $100 each; and that prior to execution of the note and issuance of the stock, while negotiating with prospective purchasers of the stock in the realty company, Harris stated to them that he had a subscription contract for $4,000 of stock in the brick company, under which, without the payment of any money, he was to receive the stock in consideration of certain clay and certain royalties to be paid him by the brick company under a lease contract which he had made with the company, which contemplated the establishment of a brick manufactory on the leased premises, and as a part of the proposed sale he would put in the subscription contract and transfer the lease. The prospective purchasers agreed with Harris to take interest in all his holdings, including the stock-subscription contract as represented by him, and to organize the realty company as a means of carrying out the enterprise. After such agreement Harris executed the note and received the stock as above mentioned, and shortly thereafter the realty company was organized and the deed executed by Harris to it, containing the clause with reference to stock subscription in the other corporation as before indicated, without disclosing to the other proposed purchasers of stock the facts of his having executed the note or received the 30 shares of — 739 — stock. As a matter of fact Harris did not have such a lease contract with the brick company as he had stated, and was not entitled to any royalties from that company, and had not transferred any such to the realty company. Treating the representations made by Harris as having been made to the realty company, it is clear that he could not compel that company to pay money as promised in the note at a specified time for the stock, when he had induced the company to take the stock subscription upon the representation that the stock was to be paid for in another way, not involving the payment of money; and when he had failed to comply with his contract in regard to the lease contract under which the royalties were to be received. 3. It was urged, however, that inasmuch as Harris had subscribed for all the stock of the realty company and all the stock was issued to him in payment fox the property described in the deed, in making the deed to the realty company he was, in effect, dealing with himself, and his knowledge of the existence of the note and issuance of stock and non-existence of the lease contract and royalties represented to be payable thereunder would be imputed to the corporation, and it could not resist payment of the note on account of such conditions. The representations were made to proposed purchasers of interests in the property, in contemplation of organizing the corporation to promote the enterprise. Instead of taking deeds to the interests in the property and paying therefor and joining in the conveyance to the corporation for stock issued to them, the persons who bought interests equal to fifty-one per cent, of the property elected to let Harris convey all the property to the corporation and receive all the stock therefor and transfer to them fifty-one per cent, of stock in consideration of the purchase-price which they paid to Harris. All this was carried out at the organization meeting at which one of the purchasers became president and Harris vice-president. The president accepted the deed for the corporation when it was delivered by Harris. The purchasers, therefore, were substantially interested all the time, first, as purchasers under the executory contract; and secondly, as actual owners of the stock in the corporation; and their interests with respect to the representations made by Harris were opposed to that of Harris. Hnder the circumstances Harris’s interest was opposed to that of the corporation, and his dealing with the corporation — 740 — was with it as a distinct entity and at arm’s length. The case falls within the principle of Peoples Bank v. Exchange Bank, 116 Ga. 820 (3), 828 (43 S. E. 269, 94 Am. St. R. 144), where it was held: “A corporation is not to be charged with notice of facts of which its president acquires knowledge while dealing in his private capacity and in his own behalf with third persons; nor is knowledge on his part thus acquired imputable to the corporation when, acting through another official, it deals with him at arm’s length as with any other individual representing himself alone.” Applying this principle, the knowledge of Harris would not be imputed to the realty company; nor would that company be precluded from making the defense that the contract was not performed by Harris. Georgia Milk Producers’ Asso. v. Crane, 137 Ga. 50 (72 S. E. 414); Taylor v. Felder, 3 Ga. App. 287 (59 S. E. 844). 4. The remaining grounds of the motion for new trial deal with the allowance of certain evidence over specified objections. The following questions were propounded to J. H. Harris by the plaintiff: “Wasn’t your wife to have some of the stock? And wasn’t your mother-in-law to have some?” Each question was objected to on the ground that an answer to such questions would be irrelevant. The objection was overruled, and defendant excepted. The further question was propounded to Harris, while a witness, “What property did you have beside that property you transferred to the Hnion City Realty and Trust Company?” This was objected to on the ground that it was immaterial and irrelevant, and error was assigned upon the overruling of the objection. Certain papers (known in the trial and designated as minutes of the Hnion City Realty & Trust Company, produced by S. G-. Slack), purporting to be the originals, were offered in evidence by the plaintiff. The defendant objected to their admission, on the grounds: (a) “They were not certified.” (5) “There is nothing about them to verify their correctness.” The court then directed that proof that they were the minutes be made. Evidence to that effect was introduced; and the objection was renewed, on the ground that the evidence showed that the papers were not minutes but only memoranda. The court overruled the objection, and error was assigned upon the ruling. Objection was also raised to the following question propounded to J. H. Harris, oh the ground that such evidence was irrelevant and immaterial: “Do you know that your wife and — 741 — mother-in-law have put up security for the payment of this claim?" The objection was overruled, and the witness allowed to answer; and error was assigned upon the ruling. The 10th ground of the motion for new trial complained of a ruling allowing the witness Slack to answer the following question: “Mr. Harris has put up collateral security or other, property to protect the Greater Georgia Development Company against liability incident to this claim?" To which'the witness answered: “I don’t know." The objections were that it was immaterial and was in writing, if it was true. The relevancy of most of the evidence which was admitted over objection does not appear, but its character was such that its admission would not require a new trial. Judgment reversed. All the Justices concur.