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September 22, 1953


The opinion of the court was delivered by: RYAN

This suit which was tried to the court seeks recovery upon two alternative causes of action in which the plaintiffs assert claims predicated on contracts alleged to have been made on February 5, 1951 or on February 8, 1951, for the sale by defendant of 153,165 shares of the common stock and 55,727 shares of the five percent cumulative preferred stock of the Western Pacific Railroad Company. *fn1"

Plaintiffs claim these blocks of stock were unique in character because they represented voting control of the railroad and could not be purchased in the market at the time of the alleged breach of the contract of sale. Plaintiffs pray for specific performance against payment of the total purchase price; in the event this equitable relief is denied, they seek money damages. Although the complaint also asks for injunctive relief restraining the defendant from selling, transferring, pledging or otherwise disposing of the stock during the pendency of the suit, no application for such relief was made.

Basic to both causes of action is a document (Pltfs' Ex. 4, which is annexed hereto as Appendix A), dated January 29, 1951, expressing the terms of an agreement made that day between defendant James and two individuals who are not parties to this suit -- William Wyer and William H. Pflugfelder. It is under authority of this writing that plaintiffs contend an offer to sell was made, and by this paper, too, and by the subsequent acts of defendant James, plaintiffs contend that Wyer and Pflugfelder and those later associated with them, were constituted agents of defendant James, not only to extend the offer but also to receive acceptance of it.

 Defendant, by its answer, admitting the agreement with Wyer and Pflugfelder of January 29, 1951 and ownership during February 1951 of the stock in suit, denies in substance the making of the contracts alleged, due performance by plaintiffs and default on its part. Defendant also pleads three separate and complete defenses -- the statute of frauds; that the contract of sale, if found to have been made was illegal and unenforceable by plaintiffs because consent and approval of the Interstate Commerce Commission had not been secured; and that Wyer and Pflugfelder did not in fact produce buyers ready, able and willing to perform as required by the writing of January 29, 1951.

 With the issues thus framed *fn2" this suit proceeded to trial. After consideration of the testimony and exhibits I make the following:

 Findings of Fact

 1. That plaintiff, Alleghany Corporation is a Maryland corporation and at all times material, Robert R. Young was the Chairman of Board of Directors of that corporation;

 2. That plaintiffs, Investors Syndicate of America, Inc. and Investors Diversified Services, Inc. are Minnesota corporations;

 3. That Union Securities Corporation and Tri-Continental Corporation are Maryland corporations; that Selected Industries, Inc. is a Delaware corporation;

 4. That defendant, James Foundation of New York, Inc., is a New York charitable corporation, and at all times material, Robert E. Coulson, George L. Burr and J. K. Olyphant, Jr. were Trustees and Directors of this corporation;

 5. That William Wyer is a consulting engineer with special training and experience in the railroad field; William Pflugfelder, is a stock broker and member of the New York Stock Exchange, and has in the past been active in dealing with railroad securities.

 6. On January 29, 1951 James made an agreement in writing with W&P which was received in evidence as plaintiffs' Exhibit 4 (annexed hereto as Appendix A). At the time of the making of the agreement it was the purpose of James to employ W&P, upon the terms and conditions therein expressed to act as brokers to seek out and produce buyers, ready, able and willing to enter into the written contract, in form as annexed to the agreement and on the stated terms, to purchase and buy the James holdings in Western of 55,727 shares of preferred stock and 153,165 shares of common stock. W&P understood that this was the purpose of James and accepted, read and interpreted the agreement of January 29, 1951 as drawn and intended to accomplish only this.

 7. Thereafter, Pflugfelder, through James G. Reardon, manager of the order department of J. & W. Seligman & Company, sought and obtained the assistance of Henry Breck in finding purchasers for the stock held by James in Western on the terms set forth in the agreement of January 29, 1951. At the time a copy of this agreement was shown to Breck by Pflugfelder; Breck read it and was advised of its contents. Breck is one of the partners of J. & W. Seligman & Company, stockbrokers, with partner membership in the New York Stock Exchange. On January 30, 1951, Breck agreed with Pflugfelder to associate his firm of S&Co. with W&P and to work with them under the agreement. It was then agreed that S& Co. were to receive one-third of all monies paid by James to W&P under the agreement. Pflugfelder furnished Breck with a counterpart copy of the W&P agreement with James.

 8. S&Co. managed the investment portfolios of Union, Selected and Tri-Continental; Breck was a vice-president and director of each of these companies.

 9. The Trustees of James did not know that Pflugfelder had approached Breck and made an agreement with him; Pflugfelder had gone to Breck without suggestion from James.

 10. Following the agreement of Breck with W&P and on February 1, 1951 Breck sought held and assistance of David Baird, a partner of David Baird & Company, a member firm on the New York Stock Exchange. Breck knew that Baird had business contacts with Robert R. Young. Baird's firm had business offices adjoining those of S&Co. and he had previously joined with them in the sale of other large blocks of stock. Breck then told Baird only that there had been offered to him a substantial block of preferred and common stock of an attractive situation; he stated that at the time he could not disclose the name or price of the stock or the identity of the owner. Baird promised to be available for a few days and to be subject to call from Breck, that he might work on securing buyers for the stock. It was on the next day, February 2, 1951, that Breck told Baird that S&Co. had the James stockholdings in Western, firm *fn3" in hand and exclusive until February 14 to find a buyer on an all or none basis, but that he could not give Baird authority at the time to try to locate a buyer definitely because Tri-Continental was considering a possible purchase. Baird mentioned that Robert R. Young might be interest in buying and said that he would await further word from Breck.

 11. During the forenoon of February 3, 1951, Tri-Continental and Selected, by corporate act duly authorized the purchase of 7500 shares of common and 7500 shares of preferred stock of Western.

 12. It was after this that Breck again saw Baird and again told him that he had the James Western stock firm in hand and exclusive on the terms stated in the agreement of January 29, 1951, and that Tri-Continental had voted to take 7500 shares each of the preferred and common stock. Breck also told Baird that the stock could only be sold for investment purposes and not for distribution, and that the purchase would have to be made at the price on the last previous closing of trading on the Stock Exchange for each class of Western Stock and not below a minimum stated price. He also advised Baird that S&Co. would participate in the commission on a sale by S&Co. to the extent of one-third. Baird still had not seen a copy of the agreement between James and W&P, but Breck told him that he expected to meet the James trustees that afternoon to propose and discuss certain changes or modifications in the agreement. It was agreed that Baird was to share equally in any commissions earned by and paid to S&Co.; that W&P were to receive on a sale a commission of approximately $ 300,000, and that if the purchase price were higher that the contract minimum W&P were to receive additional compensation.

 13. When Breck had first been shown the agreement of January 29, 1951 by Pflugfelder, Breck remarked that it would be difficult to perform particularly on account of the fluctuating price (described in the agreement as the closing price on the Stock Exchange the day previous to the signing of the agreement of sale), and the limitations on the submission of the stock for purchase to not more than twenty persons in a transaction which involved over $ 13,000,00. Breck felt that finding a buyer for the stock on the terms specified was complicated and difficult -- not an ordinary transaction, and that the commissions were higher than for an ordinary transaction.

 14. Breck on February 3, 1951 requested Pflugfelder to arrange a meeting with the James trustees so that he might propose changes in the agreement of January 29, 1951. Breck had known Burr, one of the trustees for twenty years, and Olyphant, another trustee, for ten years. Wyer discussed the matter with Coulson, the third trustee, and Wyer told Coulson that S&Co. were interested in the James stock and that they had suggestions to make for modifications of the terms of the agreement. Wyer also told him that S&Co. controlled two of investment trusts which Wyer had in mind as a part of a group of purchasers and were in touch with other investments trusts and insurance companies. By appointment, thus made, Wyer, Pflugfelder, Breck and Reardon went to the offices of James on the afternoon of February 3, 1951 and there met the James trustees.

 15. At this meeting, the James trustees were not told of the agreement W&P had made with S&Co. to share commissions which might be earned on a consummated sale, nor were they advised that S&Co. had further associated themselves with Baird and agreed to divide their commissions with him. Breck did tell the James trustees that he was speaking for S&Co., Union and Tri-Continental, and that he had discussed the matter with the Seligman investment trusts and with Union.

 16. Breck was told by Coulson, one of the James trustees, that James did recognize S&Co. in the transaction and that James would deal only with W&P. Breck's suggestion as to modifications of the agreement with W&P of January 29, 1951 were, however, listened to by the Trustees, but they did not discuss these proposed changes with him. After Breck had made his suggestions, he was again told by another of the trustees, Olyphant, that their agreement was only with W&P; that the trustees would discuss the matter with them alone, and that the trustees did not know Breck in the transaction. The trustees requested Breck to leave with Reardon, S&Co.'s employee, and they went out. No mention was made by the trustees or by W&P that there were any oral instructions or limitations with respect to the agreement of January 29, 1951. W&P remained with the trustees for further talk.

 17. The trustees then told W&P that they would not change the agreement of January 29, 1951 in any manner, but they they would receive, consider and accept or reject any propositions outside of and separate and apart.from the agreement which W&P might submit.

 18. After this meeting, Breck, Reardon and W&P adjourned to a nearby social, private club. There, Pflugfelder told Breck that the trustees had refused to modify the agreement they had made with W&P but that offers outside of its terms might be submitted from prospective purchasers. In response to inquiry from Breck as to whether that opened the door to Robert R. Young as a possible purchaser, Wyer told Breck that Young could not be presented as a purchaser under the agreement, but that, perhaps, an offer from Young might be tendered the trustees outside the agreement. Breck did not then tell W&P that the had already discussed Young with Baird as one who might be interested but both W&P were informed by Breck that he regarded Alleghany as the most likely buyer and that he would attempt to contact Young that evening. Neither Wyer nor Pflugfelder made any objection to this.

 19. In fact, on the morning of February 3, 1951 and prior to Breck's meeting with the trustees, Baird had telephoned from New York to Young who was in Florida and told him that he and Breck had the James Western Stock firm in hand and exclusive until February 14, that it was an all or none deal, that the price until 3 p.m. Monday, February 5, 1951 would be the previous day's closing -- (that is, Saturday, February 3, 1951 closing prices of 53 1/2 for the common and 92 3/4 for the preferred) -- that the stock was being first offered to Tri-Continental and that he hoped shortly for clearance to offer the stock firm to Young. Baird in his conversation with Young did not mention the names of Wyer or Pflugfelder, and did not disclose further particulars of the agreement, nor did he tell Young of the requirements in the agreement of written contracts of sale. Young expressed to Baird his interest in the stock and said that he would discuss the matter by telephone with members of the executive committee of Alleghany.

 20. Baird had a general understanding with Young that Baird would work on various stock and investment matters of interest to the companies with which Young was associated in return for such compensation that could be properly accorded, as determined by Young. During the conversation between Baird and Young on February 3, 1951, Young advised Baird that Blyth & Co. had tried to interest him in the Western preferred previously and that he, Young, did not want and trouble with Blyth over commissions, and that he would not pay any commissions to Baird. Young received assurances from Baird that the commissions would be paid by James. Baird at the time of this talk had not been informed that when Breck first spoke to Pflugfelder on January 30, 1951, Pflugfelder had told Breck that it was better not to approach IDS or ISA on the preferred stock because Blyth & Co. or Glore, Forgan & Co. might claim a commission. Breck had then replied to Pflugfelder that it might be necessary to approach such informed buyers and that they could then consider whether a commission might be owed to these brokers.

 21. After the meeting with the James trustees and on the evening of February 3, 1951, Breck communicated with Baird and told him to offer the James stock to Young. Breck did not tell Baird of the details of what had happened at the meeting with the trustees or at his subsequent talk with Wyer and Pflugfelder at the club.

 22. On the next day, February 4, 1951, Baird advised Young that he had the necessary clearance to offer him firm the James Western stock less the amount that Tri-Continental and Selected had decided to purchase in disposing of the balance of the preferred stock as Union would take it. He told Young of the minimum price of which he had been informed by Breck, which was the same as that set forth in the James agreement of January 29, 1951 with W&P; that the stock consisted of 153,165 shares of common and 55,727 shares of preferred of Western, and that stock was required to be bought for investment and not distribution, on an all or none basis, ex-dividends payable February 15, 1951. Young told Baird that he felt confident he would have a definite decision before 10 a.m. the following day.

 23. Again, early the following day, Monday, February 5, 1951, Baird phoned Young pointing out to him that a decision by Young given in time for delivery by 3 o'clock that afternoon would be protected at the previous 'saturday's market price. Young told Baird that he would advise Baird before lunch; still nothing was said by Baird regarding the execution of written contracts.

 24. During his conversations with Baird, Young advised him that he was going to call his fellow directors of Alleghany and his associates to recommend the purchase of James Western stock, but that he would have to be absolutely certain that Baird had the stock exclusive and firm until February 14, and that if assent to the purchase was made then it would be at Saturday's closing price. Young also told Baird that Alleghany would have to make sales of other securities to provide the funds necessary and that he did not want Alleghany to be in the position of 'holding the bag'. Baird although he had not seen the agreement of January 29, 1951, relying on what Breck had told him, did give Young such absolute assurances.

 25. Around noon on February 5, 1951, Young telephoned Baird that Alleghany would buy all the James Western common stock on the terms Baird had offered it. Young asked Baird to contact Robert W. Purcell, vice-president and a director of Alleghany, and Galen Van Meter, both directors of IDS and ISA, concerning the preferred stock. Baird, at this time, vised Young that Tri-Continental was not interested in the entire block of common stock.

 26. After this talk with Young, Baird told Breck of the interest of IDS and ISA in the preferred stock and Breck advised Baird that Union would take all of the preferred stock not bought by IDS and ISA.

 27. Baird then contacted Purcell and VanMeter and by their action they agreed to purchase for IDS and ISA 5000 shares of each of preferred.

 28. Baird at about 2:15 p.m. February 5, 1951 again telephoned Young that the Investors group had purchased 10,000 shares of the preferred stock and that the balance had been purchased by Tri-Continental and Union Securities; Breck also came on the wire; he, too, spoke to Young and congratulated him; the telephone conversation ended about 2:35 p.m. *fn4"

 29. The following corporations, by duly authorized corporate act of each, on February 5, 1951 orally did accept an oral offer of sale, in amounts and at prices listed, of stock of Western made to them by Breck himself or through Baird, and did on that day agree to purchase as follows: *fn5"

 Alleghany Corporation -- 153,165 shares of the Common Stock at $ 53.50 per share . . . $ 8,194,327.50

 Investors Diversified Services, Inc. -- 5,000 Shares of Preferred Stock at $ 92.75 per share . . . 463,750.00

 Investors Syndicate of America, Inc. -- 5,000 shares of the Preferred Stock at $ 92.75 per share . . . 463,750.00

 Union Securities Corporation -- 35,727 shares of the Preferred Stock at $ 92.75 per share . . . 3,313,679.25

 Tri-Continental Corporation -- 5,000 shares of the Preferred Stock at $ 92.75 per share . . . 463,750.00

 Selected Industries, Inc. -- 5,000 shares of the Preferred Stock at $ 92.75 per share . . . 463,750.00

 $ 13,363,006.75 *fn6"

 30. Each of the corporations was financially able, ready and willing to perform and consummate the agreement to purchase so made by each.

 31. Alleghany, in order to put itself in a cash position to pay for the Western common, found it necessary to make portfolio changes. Alleghany sold 100,000 shares of Chesapeake & Ohio R.R. Company common stock at the Saturday, February 3, 1951, closing price, and so made $ 3,582,000, available to itself for the purchase by it of the James Western stock.

 32. Specifically, it is found

 a. that no written contracts were executed by any of the corporations listed as purchasers in paragraph 29 hereof, or tendered to Wyer, Pflugfelder or the defendant on February 5, 1951.

 b. that none of the corporations or officers or agents of them had any direct dealings or conversations with defendant James, its trustees, or with Wyer or Pflugfelder concerning the purchases above listed.

 c. that the sole dealings of Alleghany, IDS and ISA were with Baird and the sole dealings of Tri-Continental, Selected and Union were with Breck. None of these corporations made inquiry of James as to the authority of Baird or Breck to offer the James Western stock or to bind James.

 33. Prior to 3 p.m. on February 5, 1951, Breck advised Pflugfelder that he had a group who would take the James stock at $ 53.50 per share of common and at $ 92.75 per share of preferred; he gave Pflugfelder the names and amounts but he did not include IDS or ISA and he listed Union for 45,727 shares of preferred. Pflugfelder ...

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