McLaughlin v. Leonhardt

²⁶² Pattison, J., delivered the opinion of the Court. In this ease William J. McLaughlin, the appellant, filed his hill against William Leonhardt and John H. Leonhardt, the appellees, asking for the specific performance of an option agreement, in writing by the terms of which the appellees, together with one George E. Faust, gave to the appellant the right or option to purchase from each of the appellees and George F. Faust,, within a given time, at a stated sum, forty shares of the capital stock of the Leonhardt Wagon Manufacturing Company of Baltimore. In the year 1810 William Leonhardt and John H. Leonhardt, his brother, the former a wheelwright and the latter a blacksmith, started, in the city of Baltimore, the business of manufacturing wagons which business they, as partners, conducted, with fair success, until 1881. At that time they were interested in a revolving shute coal wagon, of which they were the patentees.

In order to place the wagon upon the market they found it necessary not only to give much of their time thereto, but likewise to spend considerable money in connection therewith. At the suggestion and request of George Faust, father of George F. Faust, the son was taken into thé firm and was sold a one-third interest therein, for which interest there was paid seven thousand five hundred dollai’s. The elder Faust agreeing in connection therewith to improve certain idle property belonging to him in a manner suitable to the business requirements of the new firm and to rent the same to it at a rental charge of five per cent, upon the valúe of the land and the cost of such improvements, the firm to pay the taxes, fire insurance, and to make such repairs upon the property as should be needed from time to time. In the conduct and management of the business, each of the members of the new firm had his individual duties to perform in connection therewith; the Leonhardts managed and superintended the manufacture of the products, while the office work devolved upon Faust. ²⁶³ Iii 1905 the health of John H. Leonhardt became impaired, and in consequence thereof it became necessary for him to be away from his home and business much of the time during the several succeeding years.

During this period his mental condition became much involved and we are told by his family physician that at times he was absolutely incapacitated for the transaction of business and was at intervals in a sanitarium. Through Eaust, the appellant was employed as salesman for the firm at a salary of thirty dollars per week, with an understanding that he should have an interest in the business, although no definite amount of interest was agreed upon. He entered upon his duties the first of the year 1907. Eaust, on several occasions, prior to the employment of McLaughlin, had suggested the formation of a corporation and the taking over by it of the real estate occupied by the firm, formerly belonging to his father hut since his death the property of Faust.

This, however, was resisted by his partners, but after the entry of McLaughlin in the services of the company, the proposition was again made and was this time accepted by the Leonhardts and the corporation, formed, and the property of the firm transferred to the corporation on or about August 1st, 1907. At the time of tho-incorporation, however, nothing was said by Eaust in relation to taking over the real estate. The capital stock of the corporation was fixed' at fifty thousand dollars, divided into five hundred shares, each of the par value of'one hundred dollars. One share was taken by each of the following persons: William Leonhardt, John H. Leonhardt, George E. Eaust, Edward M. Leonhardt, son of William leonhardt, E. W. Leonhardt, son of John H. Leonhardt, and' William J. McLaughlin, and paid for in cash.

The balance of the stock, consisting of four hundred and ninety-four shares, was divided about equally among the two Leonhardts aiid Eaust. It was ascertained that the value of the property transferred by the firm to the corporation was ²⁶⁴ eighty thousand dollars, thirty thousand dollars in excess of the capital stock of the corporation. Therefore a note for ten thousand dollars, secured by a mortgage, was given by the corporation to each of the three members of the firm. Shortly after the distribution of the stock, McLaughlin, through Eaust, asked for six more shares of stock.

This was sold to him, the two Leonhardts and Eáust each selling him two shares at and for one hundred dollars per share. McLaughlin had neither property nor money and in order to pay for this stock borrowed the required sum from Eaust, giving him his note or notes therefor. At the time of the sale of the stock, Eaust testified that William Leonhardt stated “that he hoped that would not be all that McLaughlin would have, that- they intended to give him an equal holding with the balance of us.” Some ten or twelve days thereafter, Faust, on behalf of McLaughlin, again called upon the Leonhardts asking that more stock be sold to McLaughlin. The Leonhardts testify that the quantity asked for by Eaust on this occasion was ■forty shares of stock.

William Leonhardt asked, “You mean -of the entire block?” Faust assented and said “Yes.” Then William Leonhardt said “That means thirteen shares apiece ••and one will give fourteen and he who has the most will ¡give the odd one, or if not we will draw lots who will get the ¿fourteen shares.” It was then and there agreed that the three should sell unto McLaughlin forty shares in all.. Eaust, however, in his testimony, stated that, “The understanding was that in order to give Mr. McLaughlin an equal holding with the balance of the principal parties concerned, we were to give him an option on forty shares each and that was as near as we could possibly divide it,” and denied that anything was said in the conversation about the division of forty shares into three parts, two of thirteen and one of fourteen. McLaughlin testified that on two separate occasions, William Leonhardt told -him that he, McLaughlin, should have the same interest in the company as the rest. This state- ²⁶⁵ meat Leonhardt- denied, but admitted that he said to McLaughlin that he should have fair treatment with the company, bixt. that he did not say he shoxxld have the same interest as the rest; nor was there any wish expressed or request made by McLaughlin for additional stock.

In August or in September, earlier than the sixth, William Leonhardt was in the office of the company and when in the act of leaving Eaxxst called him and said', “Sign this paper before you go.” Leonhai’dt replied, “What paper is that?” Faust said “The paper for the forty shares we promised Mac,” meaning McLaughlin. Leonhardt replied, “All right.” The paper was at the time turned down ready to sign and Mr. Faust’s name was on it, when Mr. Leonhardt picked xxp the pen, signed it and walked out. In his testimony he stated he never had the least suspicion that there was anything the matter with the paper, that he never read it, that he relied upon Faust, in whom he had implicit confidence, to draw the paper as verbally agreed upon, and that agreement was for an option of purchase of forty shares in all and not forty shaxns from each of them; that he positively woxxld xxot have signed the option had he known that by it he was giving an option to McLaughlin to purchase forty shares of his stock; that at no time before signing the paper had' McLaughlin made known to him the number of shares he wanted, in fact, McLaxxghlin, personally, had said nothing to him about wanting any additional shares. Faust, in his testimony, in speaking of the occasion of the signing of the option agreement by William Leonhardt, said, he presented the agreement to William Leonhardt; was not positive whether Mr. Leonhardt read it or inquired of him what it was, but he said to Mr. Leonhardt, “Here is the option of Mr. McLaughlin.” This paper when signed' was afterwards, by Faust, mailed to John H. Leonhardt at Atlantic Oity with a letter from Faust accompanying it.

The sending of the paper and the letter is admitted by Faust. The record discloses that the ²⁶⁶ letter was destroyed, but Jobu H. Leonhárdt, in his testimony, in' stating its contents, said: “As near as I can remember it was distinctly an agreement enclosed in reference to the forty shares we had promised Mr. McLaughlin and to please sign it and return it to me and a few words of good wishes for my betterment,. etc.” At the time it was handed to him by the carrier, he was in the exchange of the hotel in company with two of his acquaintances, one of whom, Mr. Fox, he called upon to witness the paper, saying to him “I have a little paper sent to me here from home where three of us have agreed to allow a certain gentleman to have a few shares of stock.” He did not read the paper before signing it for the reasons, first, he was not in a condition to. take in and comprehend' any paper, and Mr. Faust was at that time well aware of his condition; second, that he had the utmost confidence in Mr. Faust, feeling sure that the agreement was as verbally understood between the three of them. That had he known of the contents of it he would not have signed it. He further stated that he was at the time very weak and nervous, having been reduced to this condition largely by the heat and overwork required of him while in Baltimore in connection with the formation of the corporation.

Dr. William F. Gilroy, John H. Leonhardt’s family physician, testified that so early as 1905 Mr. Leonhárdt was suffering with the disease known as neurasthenia. That in 1905 he went to Atlantic City; that while there he visited him; that in 1905 his capacity for the transaction of business was simply lost entirely and was absolutely helpless both mentally and physically speaking; that he was not at.Atlantic City in 1907, but saw him every week or two prior to his going to Atlantic City; that his condition then was about the same as it was in 1905, only it was exaggerated; that it was impossible for him to attend to business. Upon cross-examination he stated that he supposed there' were times in 1907 that he was .capable of making a contract. every man has those times; that he thought his worst period ²⁶⁷ in 1907 was along about September or August, although he did not see him while at Atlantic City, but saw him before he left-in August and when he returned in October; he was better, however, when he returned. When he was at Atlantic City he was under his attention.

In 1907 he thought Mr.- Leonhardt “was able to read a paper and was capable of understanding at short duration but not prolonged, as he became very much fatigued; mentally competent in a way.” Nothing more was heard of this option agreement until one day in November, 1908, fourteen months - after it had been signed, when William Leonhardt went to the -office of the company and there found McLaughlin alone, and'the following conversation was had between them,- as related by Leonhardt. McLaughlin said, “Mr. William, I think I will take my shares. I said, Mac, you must have got rich. He said, Oh, no; I am going to borrow the money to pay for the stock.

I says, Mac, that is a risky thing to do; you will have to pay interest. He said, I know, but I am going to run the risk. I said all right. I walked right out of' the office and had -no further conversation with him.

A few days after that my brother came over and says, look here, Mae wants forty shares from me; am I to give all forty? The moment my brother said that to me, I said John, there is something wrong. I went over to the office immediately. Mr. Faust, I said, I understand Mac wants his shares.- Mr. Faust says, yes.

I said my thirteen are ready. He said but you signed for forty, and I told him then, you know we never agreed to do any such a thing. I immediately called Mr. McLaughlin over in my little office next door. I says, Mr. McLaughlin, there is something wrong here.

I never agreed to give you forty shares of my stock, and said to him, where is that paper ? He said I have it home. ■ I said bring it down here, I want to see it. He says I will bring it in the morning. The next morning as soon as' Mr. McLaughlin arrived at the office, I went to him for- the -paper and he said, I forgot it.

I' said, we want it here today,' I ²⁶⁸ want to see it. He said, I will go home and get it.” It was not produced, however, .until a day or two thereafter, at the meeting of November 21st. The statement of Leonhardt as to this conversation with McLaughlin is practically borne out by McLaughlin’s testimony, McLaughlin stating in addition thereto that he told Leonhardt that Faust had offered to lend him the money. The first time that John H. Leonhardt’s attention was called to this written option after he had signed it, was about the time that William Leonhardt’s attention was called to it, and what was said in relation thereto is best given in his own language. “I stepped over in the office one day and Mr. McLaughlin was in the office all alone.

As I walked in he said, Mr. John, I will be ready to take over the stock on Monday. I says, you will? He says, yes. He said, I am going to borrow the money and will be expected to pay the interest on it.

I said no more to him but walked out of the office and I think it was the day following, I am not sure, I went back to him and asked him what he expected of me. wanting to know whether he wanted thirteen or fourteen, I wanted to know just how many he wanted, and he said forty. I gave him no answer to that whatever, but I went right over to my brother and told him of the conversation with McLaughlin, and he said, it looks like there is something wrong.” On November 21st, 1908, a stockholders’ meeting was held; at which Mr. Faust, Mr. McLaughlin, E. M. Leonhardt, John H. Leonhardt and William Leonhardt were present. At this meeting the option agreement was produced by McLaughlin and read by William Leonhardt, which, omitted the formal parts, is as follows! “Now this agreement witnesseth, that William Leonhardt, John H. Leonhardt and George F. Faust, in consideration of five dollai-s, to each of them in hand paid by the said William J. McLaughlin, the receipt of which is hereby acknowledged, to each of them, each covenanting for himself and not ²⁶⁹ for the others, hereby agree to give an option of purchase on forty (40) shares of each of their respective holdings in the aforesaid corporation at the par value of the said shares. That the aforementioned, in consideration of the aforegoing, further agree that this option may be exercised by the said William J. McLaughlin in whole or in part, provided always, that no share or shares of stock is or are to be transferred to the said William J, McLaughlin until the purchase price thereof shall have been paid in full to the owner or owners of such share or shares.

And provided, further, that this option to be effective must be exercised within two years from the date hereof (September, 1907), at end of which time this option herein given shall expire and cease to be of any further force or effect.” Tho above option was typewritten, except the number of shares, which appeared in the handwriting of Eaust. William Leonhardt- stated that after reading it he turned to Eaust and said, “George, I signed that paper and never read it, but it is not as we agreed to do. He asked, why didn’t you read it ? I told him it was my implicit confidence in him that he had drawn the paper as we had agreed.

Then T asked him, wasn’t the promise of these shares made before this paper was drawn? Ho said vos. 1 said, how is it that your brother-in-law, Mr. Mylander, did not insert the number of shares but left a blank space and you filled it in with his (your) own handwriting ? Mr. Faust said he didn’t know. My brother also said that he had signed it without reading it and then and there charged Faust with taking advantage of his weakened condition at the time that he signed it, and we both then and there declared it a fraud practiced upon us.” To this, as the Leonhardts testify, Eaust made no resj)onse, although Faust, in his testimony in rebuttal, stated that he did respond, that he-said that the ■agreement and option were in accordance with the understanding.

He could not remember just what was said, the discussion, however, was not a lengthy one. He denied