Brehm v. Sperry, Jones & Co.

³⁹³ Jones, J., delivered the opinion of the Court: In this case the appellant on the 23rd day of February, 1899, entered into a contract with the appellees, Sperry, Jones & Co., the purpose of which was expressed as follows: “Whereas, the party of the first part (appellant) is the owner of certain brewing property, real, personal and mixed, situate in Baltimore County, and used in connection with the establishment known as George Brehm’s Brewery. And, whereas, the party of the first part appreciating the advantage which would be gained if his said business could be consolidated with that of other persons or corporations, so as to make the annual output not less than 560,000 barrels of beer, and reduce the cost of manufacture, is desirous of procuring the assistance of parties of the second part (appellees) in effecting such an agreement.” The general undertaking of the said appellees as parties to this contract was expressed as follows : “ And the said parties of the second part are willing to undertake the effort to bring about such an agreement, upon the terms herein mentioned, on or before the 1st day of March, 1899.” Then follows the stipulation, “ that, in consideration of the premises and of the covenants of the party of the first part hereinafter mentioned, the parties of the second part covenant that they will give their best efforts to procure corporations and individuals engaged, in the city of Baltimore or Baltimore County, in the manufacture and sale of beer, ale, porter and similar beverages, hops and malt, to enter into consolidation with each other on or before March 1, 1899, in the manner and on the terms following: ” It is then provided that the consolidated corporation shall be known as the Maryland Brewing Company of Baltimore City; “that the capital stock of the corporation should be $6,500,000.00, one-half thereof to be preferred stock, entitled to receive six per cent cumulative dividends, and the other half common stock ; that the corporation should be formed under the laws of Maryland, and its purpose should be the manufacture and sale of beer, ale, etc.; that it should execute and issue its first mortgage gold bonds of $1,000,00 each, ³⁹⁴ bearing interest at six per cent, payable semi-annually, the principal to be payable in thirty-nine years from date of bond, to an amount adequate for the purposes to which they were to be applied as provided in the contract, but not to exceed $7,500,000.00; that it should execute to the Citizens’ Trust and Deposit Company of Baltimore a mortgage of all the property and franchises it might acquire to secure the payment of these bonds ; that this mortgage should provide for a sinking fund as a provision for the ultimate redemption of the bonds and the betterment of the security thereof — the interest coupons of the bonds to be purchased for the sinking fund should be paid as they matured and the moneys paid should be part of the sinking fund; that the issue of stocks and bonds should be used entirely for the purpose of providing the portions to be received by the several constituent corporations and individuals which should enter into the consolidation (“whether said portions be cash, stocks or bonds,”) and the purchase of properties to be acquired by purchase and for furnishing working capital, “ not less in amount than $500,000.00,” and for paying expenses and compensation attendant upon the consolidation and purchase provided for in the contract and for compensation of the parties of the second part; that each constituent member of the consolidated corporation should pass in and deliver to the said corporation all good-will, trade-marks, fixtures, and generally all property, evidences of debt, etc., appertaining to the prosecution by such member of the brewing business, with certain, named exceptions ; that the consolidated corporation should accept and purchase for cash the malt, hops and raw material so turned in at the invoice prices, and if there should be any ground rents on any of the property passed in and delivered to said corporation, such as could be paid off should be so paid by the grantor, and such as could not be paid off to be capitalized in a manner specified ; that the said corporation should assume all existing contracts for materials which the constituent members may have entered into before the 1st of March, 1899; that the said constituent members should have on hand ready ³⁹⁵ to deliver on said ist of March, 1899, at least 20 per cent of the average yearly sale of beer as ascertained in a mode specified and should deliver or place at the option of said corporation the said quantity of beer and the said corporation was to pay at the rate of $1.50 per barrel for all excess over the said 20 per cent — provision being further made for any default in having on hand the said 20 per cent; that the issue of capital stock and bonds by the said corporation as provided for in the contract was predicated upon its “ starting with the control by means of consolidation and the right of purchase of all the breweries in Baltimore City and Baltimore County, which, according to their sales of beer for twelve months preceding March j, 1899, have an annual output and sale of beer of 700,000 barrels per annum; ” the consolidation nevertheless to “ take place if so much as an output of 560,000 barrels be produced, and further provided that such consolidation shall embrace” certain “ breweries and individuals” that are named and specified; that “ in the event that said output shall be less than 700,000 barrels, then a pro rata reduction corresponding to the amount less than 700,000 barrels, shall be made at the rate of $20.00 per barrel in the preferred and common stock and bonded indebtedness as aforsaid (said reduction should be made from the capital stock and bonded indebtedness in the relative proportions said stock and bonded indebtedness bear to each other), but before any reduction shall be made there shall be taken from the said shortage in the number of bonds in the annual output of the consolidated companies and individuals below 700,000 barrels capitalized at $20.00 per barrel as aforesaid, all cash working capital and its equivalent as aforesaid; ” that the agreement was not to be binding upon the appellant, George Brehm, unless “ the breweries, companies and individuals ” which had been enumerated should “ become a part of the said consolidation ; ” that each of the constituent members, corporations and individuals, of the consolidation should receive bonds or cash and capital stock in accordance with agreements between them and the said appellees — the agreements to be deposited with the ³⁹⁶ consolidated company and the stocks and bonds to be issued to said members as soon as “ printed or engraved and issued,” and the cash to be paid them according to the several agreements — and pending preparation of certificates of stock and the bonds, temporary certificates to be issued; and that the capital stock should be divided among the shareholders on the stock-books of the consolidated corporation and they become stockholders in proportion to stocks in said corporation ; that it was “distinctly understood and agreed and made a condition” of the agreement that on or about March i, 1899, there should be elected nine directors to manage the affairs of the corporation to be formed for the ensuing year, and Henry A. Brehm, a son of the appellant, should be elected as one of the directors; that the said appellees should furnish the sum of $500,000 in cash for working capital, and for the same and for their services in procuring and arranging the said consolidation, they shall receive all the bbnds and stock aforesaid not necessary for payment and delivery to the several constituent companies and individuals in accordance with their several contracts with the said appellees, and the said sum shall be furnished at the time that bonds and stock so delivered to the said appellee shall be received by them. This stipulation to be strictly in accordance with the terms of the agreement “ as to the amount of stock and bonds to be issued.” The agreement then sets out stipulations on the part of the appellant that if the said appellees should succeed on or before March 1, 1899, in procuring the consolidation and the formation of a consolidated corporation upon the terms mentioned in the agreement, “and so that the aggregate output of the beer of the corporation and individuals entering into the consolidation, together with the annual output of beer of” the appellant “and of other persons and corporations who may enter into contract with” the said appellees “for sale of their brewing property, shall amount to such annual output of at least 560,000 barrels of beer * * * and embracing the companies, breweries and parties” which had been enumerated ³⁹⁷ “and whose entrance into such consolidation” had “ been made a condition of the” appellant “entering said consolidation” then the appellant would convey and deliver to the consolidated corporation all his good-will, trade-marks, fixtures, machinery and generally all his property and improvements used in connection with his brewery business, including chattle mortgages, books, accounts, etc., with certain designated exceptions with the stipulation in reference to ground rents upon any of the property, which by previous provisions in the contract was to be exacted of other parties entering the consolidation, that he would “accept as the consideration for said conveyance and delivery the sum of $1,050,000, payable $450,000 cash, $100,000 in bonds, $250,000 in preferred stock and $250,000 in common stock of said consolidated corporation. The said $450,000 to be paid to the appellant when he executed and delivered a deed to the real estate and delivered possession of the other property; that he would have on hand and in readiness to deliver the 20 per cent of his yearly sales of beer under the like conditions and provisions that were prescribed in previous parts of the agreement for other parties entering the consolidation; that he would cause his son, Henry A. Brehm, to enter into the employment of the consolidated company for the period of ten years from March 1, 1899, and his said son to devote his entire time and best attention to the management of the business which had been conducted by him as brewer and manager for the appellant, at the yearly salary of $12,000 — the supplemental agreement as to this employment being referred to and made a part of the agreement; that upon making conveyance of his property as aforesaid, he would not directly nor indirectly, nor as agent, etc., within the period of ten years from March 1, 1899, engage in the business relinquished by him, except for the consolidated company; and lastly, that the agreement between the parties should be assigned to the consolidated corporation when formed to be enforceable by and to bind the said corporation and its obligation to be in substitution for that of the said appellees. ³⁹⁸ On the same day that the recited agreement was made the same parties united with Henry A. Brehm in a “supplemental agreement” which, after referring to the principal agreement and the stipulation therein by the appellant “to sell and convey and assign” to the said appellees “and a corporation to be formed as therein fully mentioned, certain good-will” and other specified property appertaining to appellant's business indicates its purpose as follows, “and whereas said agreement refers to a supplemental agreement in which said property, etc., to be conveyed, assigned, and sold is to be more fully set out and described, therefore this agreement is entered into for said purpose.

And whereas the said agreement of the 23rd of February, 1899, contains a provision that Heny A. Brehm shall enter into the employment of the said consolidated corporation from the 1st day of March, 1899, as to be provided in a supplemental agreement, therefore this agreement is made to fully set forth said terms of employment ” It then mentions and describes the property to be conveyed, etc., and refers to a schedule of real estate annexed thereto which is to be taken as indicating the only real estate intended tobe “included in or in any manner affected by said agreement;” after which there is a provision that Henry A. Brehm agrees “to enter the employment of said consolidated company for the period of ten years,” etc., at the yearly salary of $12,000 and that the said company agrees to employ him, etc., which provision concludes as follows : “And it is understood that the said employment of the said Henry A. Brehm for ten years at the salary of $12,000 per year, is a condition precedent to the conveyance of any of said property mentioned in said agreement, and in case the said Henry A. Brehm is not employed at said salary and for said term by said consolidated company, then the said agreement above mentioned and this agreement and all other agreements heretofore made relative to said sale or transfer of said property mentioned in said agreements between these parties shall be considered as utterly at an end.” On the 5th of April, 1900, the appellant filed in the Circuit ³⁹⁹ Court of Baltimore City his bill of complaint in this • case, in which, after summarizing and setting out in substance the provisions and stipulations of the said agreement, it is alleged “that the said Maryland Brewing Company was duly incorporated under the laws of Maryland.” The plaintiff’s (appellant’s) •construction of the agreement is then stated to be that in consideration of the conveyance by him to the consolidated corporation, provided for in the agreement of his property, etc., used by him in his brewing business, “he should be paid four hundred and fifty thousand dollars in cash and one hundred •thousand dollars in stock, common and preferred,” of the new •corporation. “And that to fix and ascertain the value of the ■said stock and bonds (and thus to give certainty and exactness to the value of the consideration to be received by him for his said brewing property), the total issue of said stock and bonds should be dependent upon the annual output in barrels of beer of the constituent breweries of the “corporation to be formed under the agreement.” “And that the compensation of Sperry, Jones & Co. (appellees), for their services in bringing about the union of the several breweries should be only the amount of stock and bonds of the Maryland Brewing Company (issued as aforesaid on the basis of the annual output in barrels of beer of the constituent breweries), left after fulfilling and satisfying the contracts for the several breweries.” Therefore if there was issued by the new consolidated corporation .stocks and bonds in excess of what was proper when calculated upon the basis indicated this “would pro tanto wrongfully decrease the real consideration to be paid” to the appellant for his property “and at the same time wrongfully and improperly increase the compensation to be paid to Speny, Jones & Co. (appellees), for their services,” etc. In this connection it is alleged that the appellant “parted with his brewery property in the belief that the contract between Sperry, Jones & • Co. (appellees), and himself in regard to the amount ■ of the stock, common and preferred, and of the bonds of the Maryland Brewing Company to be issued by said company, . and the relation of that amount to the annual barrelage of the ⁴⁰⁰ constituent breweries would be fully and faithfully complied with.” The bill then alleges a violation of the agreement as thus construed, in this, that the Maryland Brewing Company, the corporation formed under the agreement from the union or consolidation of the various brewery companies and individuals that entered into the scheme of consolidation outlined and provided for therein, issued outstanding securities to the amount of “twelve million eight hundred and three thousand dollars. Of these seven million three hundred and three thousand dollars were in bonds ; two million seven hundred and seventy-five thousand dollars in preferred stock and a further sum of two million seven hundred and seventy-five thousand dollars in common stock.” And that this issue of bonds and stock was in excess of what was authorized under the appellant’s agreement with Sperry, Jones 8c Co. (appellees), upon the basis that was to regulate such issue because instead of their being an annual output of 700,000 barrels of beer of the breweries that formed and became amalgamated with the Maryland Brewing Company, the total annual output of beer by these only amounted to about five hundred and seventy-five thousand barrels of beer per annum. This would make, it is alleged, the total capitalization of the Maryland Brewing Company authorized by the agreement between the appellant and Sperry, Jones & Co. (appellees), eleven million five hundred thousand dollars, to be divided into six million one hundred and seventy-five thousand dollars bonds, two million six hundred and sixty-two thousand five hundred dollars common stock, and two million six hundred and sixty-two thousand five hundred dollars preferred stock, making an overissue of one million one hundred a.nd twenty-eight thousand dollars in bonds, and of eighty-seven thousand five hundred dollars in preferred, and of a like sum in common stock of the said corporation. From this it would result, it is alleged, that the stock and bonds of the said corporation, received by the appellant as apart payment of the purchase price of his brewing property, were rendered pro tanto less valuable than ⁴⁰¹ was contemplated and agreed upon between him and the said appellees.

It is further alleged that not only has there been “a grossly excessive issue of bonds, preferred stock and common stock” as charged; but that there has also been a gross and improper overissue of bonds pro rata to the stock, common and preferred.” The bill also alleges that the contract in controversy has never been assigned to the Maryland Brew-, ing Company, but as to this no relief is asked as will be presently seen. The prayer for relief therein is that the appellants, Sperry, Jones & Co., may be required to “deliver up to the Maryland Brewing Company $1,128,000.00 par value of the first mortgage bonds of the Maryland Brewing Company $62,500.00 par value of the common stock of the said Maryland Brewing Company, and $62,500.00 par value of the preferred stock of the said Maryland Brewing Company; or, if they have not enough of said bonds and stock in their possession to comply with said requirement,