Sagner v. Glenangus Farms, Inc.

Hammond, J., delivered the opinion of the Court. The case involves the construction and effect of an agreement in writing by which Stanley Sagner, owner of the thoroughbred stallion Saggy, undertook to cause to be sold to horse-breeders a number of indivisible shares of ownership in the horse in order to realize a large capital gain at a time when Saggy was enjoying preeminence as a sire. In the early summer of 1961, Sagner entered into negotiations with L. S. MacPhail, who was the principal owner of the corporation known as Glenangus Farms, Inc., which operated a stud farm in Harford County, in an effort to have MacPhail, who was experienced and knowledgeable in such matters, arrange for the syndication of the horse, as the sale of such shares is called. MacPhail finally agreed to participate and help in the syndication if Sagner agreed that Saggy would stand at Glenangus Farms for the breeding seasons of 1962, 1963, and 1964, and MacPhail would be syndicate manager and have complete charge of the breeding operations.

The syndicate agreement reached final form after a number of drafts in the latter part of August 1961, and beginning in the first part of September printed copies were mailed out to prospective subscribers. The agreement recited that it was between Sagner and “signers of counterparts, hereof * * * hereinafter designated as the ‘Shareholders/ ” that Sagner was the owner of the thoroughbred stallion Saggy, “a syndicate having been formed for the purpose of purchasing a horse for the sum of One Hundred Sixty Thousand Dollars,” and it was mutually agreed: a. that the ownership of Saggy was to be in thirty-two shares of $5,000 per share, and that each of the shares was on an equal basis with the others and indivisible; b. that Saggy should ¹⁶⁰ stand at Glenangus Farms “under the sole personal management and supervision of L. S. MacPhail at the prevailing rates at Glenangus Farms for stallion keep; c. that MacPhail was to serve as manager of the syndicate, was to advertise the stallion, select the veterinarian, and establish the annual stud fee and terms and conditions of service; d. that the shareholders were to pay all charges, costs and expenses in the proportion that their respective shares bear to the whole number of issued shares; e. if the veterinarian in charge certified that it would be better that the stallion be bred to less than thirty-two mares, the owners of shares were to' draw lots to determine whose mares were to be bred, and that if the veterinarian decided that the stallion could be bred to more than thirty-two mares, the proceeds of the additional seasons were to be divided equally among the shareholders; f. neither the syndicate manager nor Sagner were to be responsible for insuring the stallion but any shareholder could insure his own share for his own benefit. It was then provided that every subscriber for one share was to pay its purchase price of $5,000 in three installments, the first $1,000 to be paid on or before February 1, 1962, a second payment of $2,000 on or before February 1, 1963, and the third payment of $2,000 on or before February 1, 1964. The purchase price was to be evidenced by a promissory note of the subscriber for a total of $5,000, payable to Sagner, with no interest if paid at maturity.

It was then provided as follows: “Title to said shares shall pass unto the second party when the notes shall have been delivered as herein provided. In the event the syndication of the stallion be not completed, for any reason, prior to February 1, 1962, then the first party shall return to each subscriber the promissory negotiable note executed by said subscriber as aforesaid.” There followed the proviso that if Saggy died prior to February 1, 1962, any payments which had been made by any shareholder should be refunded and the notes for subsequent payments were to become null and void, and that if Saggy died after February 1, 1962, all notes due for payment after his death were to become null and void. It was then provided as follows: “This agreement may be executed in several counterparts, and when executed by all of the Shareholders and accepted by first ¹⁶¹ party, the several parts shall constitute the agreement between the parties as if all signatures were appended to one original instrument.” MacPhail joined in the agreement in order to evidence his obligation to carry out his undertakings as expressed in the agreement. Only four subscribers signed the agreement and gave notes as provided therein.

Sagner was dissatisfied with the lack of success in selling shares in the horse, and in January 1962 notified MacPhail that as of February 1 he intended to cancel the syndication agreement. Towards the end of January, MacPhail, in his own behalf and for the benefit of those who had subscribed, filed suit against Sagner and one Gee M. Cohen, who had been Sagner’s agent in negotiations as to the operation and meaning of the agreement, seeking a declaration as to the respective rights, duties and obligations of the parties, and an injunction restraining Sagner and Cohen from removing Saggy from Glenangus Farms, as they had said: they intended to do. In addition to the rights he claimed under the agreement, MacPhail relied on two independent oral substitute or complementary agreements. One allegedly provided that Saggy was to stand at stud in Glenangus Farms in 1962, 1963, and 1964 and that Sagner would pay $300.00 a month board and give to MacPhail one free service from Saggy during each of the three breeding seasons.

The other oral agreement was said to have been that Sagner would give MacPhail either a one thirty-second interest in Saggy or $5,000 in cash in return for MacPhail’s assistance in syndicating Saggy. The four subscribers to the agreement later intervened as plaintiffs, as did two others who, although not subscribers to the syndicate agreement, had purchased a breeding service in 1962 to Saggy. The answer of Sagner and Cohen denied that Sagner had entered into any oral agreements and asserted that Sagner was the sole owner of Saggy because the syndication had not been completed by February 1, 1962, and that under the terms of the agreement was entitled to terminate the syndicate as he attempted to do. Sagner asked the court to declare that he was the sole owner of Saggy and entitled to possession of him.

After hearing testimony, Judge Cullen found the written agree ¹⁶² ment to be valid and existing between the parties, disallowed the claim of MacPhail that Sagner had orally agreed to give him a thirty-second interest in Saggy or pay him $5,000 in cash, and found it unnecessary to pass on the alleged oral agreement that independent of the syndication agreement Saggy was to stand at Glenangus Farms. Sagner appealed from the decree which was entered in conformity with the opinion. There was no cross-appeal by MacPhail on the holding adverse to him. MacPhail and Sagner each testified in support of his construction of the contract and offered witnesses and exhibits to substantiate his position.

The testimony covered not only the details of the negotiations which led up to the making and form of the agreement but also the acts and declarations of the parties, and others involved, after its signing, and was directed not only towards showing the meaning of critical language in the agreement but also what the parties intended it to mean and thought it meant. All of the testimony and the exhibits came in without objection as to admissibility. It is unnecessary to decide whether the evidence would have been admissible over objection because of any ambiguity in the agreement or for any other reason, such as, for example, its bearing on the meaning of technical terms, because there were no objections to its admission. Montauk Corp. v. Seeds, 215 Md. 491, 496 ; Baltimore Luggage Co. v. Ligon, 208 Md. 406, 413 ; and Trust Co. v. Williams, Inc., 168 Md. 588, 597 .

Having come in without objection, the extrinsic evidence is to be considered, and allowed such force and effect as its weight entitles it in construing the agreement of the parties. Chesapeake v. Goldberg, 107 Md. 485, 489 . The record makes it clear that Sagner wished to capitalize on Saggy’s long and excellent record as a sire and the fact that Saggy’s offspring, Carry Back, recently had won the Kentucky Derby and the Preakness, so as to obtain as large a profit for the horse as possible as a capital gain, and that he decided as a result of conferences and discussions with those having knowledge and experience in the field, including MacPhail, that the best way to accomplish this result would be to syndicate the horse, as it is called, that is, to sell a number of indivisible shares to horsemen who would be interested in having their ¹⁶³ mares bred to Saggy. It is also clear that the almost unvarying custom is for the owner of a horse which is thus syndicated to retain some shares for himself.

It was shown that in 121 syndications, which apparently is all that have been undertaken in recent years, 119 of the owners had retained shares and in the two which the owner did not, the syndication had been unsuccessful because of the apparent lack of confidence of the owner in the stallion. Testimony on both sides was that Sagner was to retain anywhere from two to eight shares of Saggy himself and that this was understood by MacPhail and was in accord with the custom and usage in this field, and was to have been understood and expected by the horsemen likely to become subscribers to the syndication. In liis contention that the syndication became irrevocably binding and effective as soon as Sagner and one subscriber signed it, MacPhail relies heavily on the fact that in July of 1961 there was included in an advertising and promotional letter which MacPhail mailed out over Sagner’s signature to those who might become interested in purchasing shares: “I have sold Saggy to a syndicate.” It appears that these words were solely the idea of MacPhail and that Sagner did not see the letter until some time after it had been mailed out. However, when Sagner learned of the statement, he did not repudiate it because, he says, being completely inexperienced in syndications, he thought it was the way that prospective buyers customarily were made interested in subscribing.

In any event, the statement was obviously inaccurate because the syndicate agreement had not even then been prepared, and could have meant no more than that Sagner had agreed to undertake to syndicate the horse. No subscriber said he relied on the statement, and MacPhail knew the facts. Appellees make much of their claim that nowhere in the letter of July 1961 to prospective subscribers, in a release to the newspapers at a press conference called by MacPhail to announce the proposal to syndicate Saggy, in the brochure which thereafter went out again to prospective subscribers, or in so many words, in the syndication agreement itself, is there the statement that thirty-two shares must be sold if the syndicate is to be effective and operative. In support of the position that ¹⁶⁴ there was no such condition, MacPhail testified that it was the custom, if the owner intended to reserve the right to declare the syndicate ineffective if less than all the shares were sold, for this fact to be stated in the “prospectus.” As has been pointed out the record leaves no doubt that it was the unvarying custom for the selling owner to retain some shares and not to require that all thirty-two shares be sold, and that this fact was within the knowledge of all those who were or might be interested in becoming subscribers.

Further, MacPhail gave no example of any instance where such reservations had been put in a “prospectus” and he did not say or suggest what the “prospectus” would have consisted of in the case before us. The only example he gave of a reservation of a right to declare a syndicate inoperative if a certain number of shares were not sold was in the syndication of a horse named Hafiz, in which he had been personally involved, and there the arrangement was in a side agreement between the owner and MacPhail, which apparently had not been revealed to anyone else interested in the deal. In the present instance there is nothing in the record to show that either the fact of or the language of the Hafiz side agreement was made known to Sagner or those associated with him. The appellees also urge that Sagner, through his attorney, was the draftsman of the syndicate agreement ; therefore, its language, if it is ambiguous, should be construed most strongly against him.

The record does not show who drew the first draft of the agreement — there were five in all — but it does, show that a syndication agreement of a horse named Hesiod, in which MacPhail was interested, was the model or prototype of the Saggy