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July 23, 1931


The opinion of the court was delivered by: KIRKPATRICK

The plaintiff in this suit in equity is a corporation organized under the laws of Rumania and will be referred to as the "Rumanian Corporation." The defendant is an American citizen. The prayers of the bill are that the defendant be decreed to be a trustee for the plaintiff's benefit of substantially all the capital stock of Union Petroleum Steamship Company, an American corporation organized under the laws of Delaware, which will be referred to as the "Delaware Corporation," and for an accounting of dividends and profits received by the defendant by virtue of the stock.

The foundation of the plaintiff's case is an alleged oral agreement of trust made in connection with the transfer of the steamship Steaua Romana by the plaintiff to the Delaware Corporation for the purpose of obtaining American registry for the vessel for the period of the World War.

 Findings of Fact.

 1. At the outbreak of the war, the tank steamer Steaua Romana was lying in the port of Bremen. She was owned by the Rumanian Corporation, having been purchased by it about a year before for approximately $420,000 from a German corporation. She had been registered under the laws of Rumania and was entitled to fly the flag of Rumania, a then neutral country. Without going into the various corporate entities involved, it may be taken as a fact that the stock of the Rumanian Corporation was entirely German owned and that it was under the indirect, but complete, control of the Deutsche Bank of Berlin.

 2. The precise status of the vessel as a neutral will be the subject of discussion hereafter. Suffice to say that the German interests considered it advisable, before letting her sail, to arrange for her transfer to American registry. Acting for them in Germany throughout was Emil Georg von Stauss, a German citizen and a managing director of both the Deutsche Bank and the Rumanian Corporation. The Deutsche Bank, through indirect stock ownership, also controlled various corporations in the United States, among them, Union Petroleum Company, with offices in Philadelphia, of which Woodman, the defendant, was vice president and treasurer. Von Stauss first planned to have the vessel sold to Union Petroleum Company, subject to a condition reserving to the Rumanian Corporation the right to repurchase her at the same price at the end of the war.

 3. This proposal was communicated to Union Petroleum Company in two sections. An absolute offer to sell was cabled direct, and a "request" to accept under an obligation to resell (which in view of the relations of the companies probably amounted to an instruction) was transmitted via an agent in Denmark. The purpose was to prevent the discovery by the British of the real transaction. The president of the company replied through the agent in Denmark that the resale condition was impossible, and at approximately the same time there was transmitted direct to the Rumanian Corporation a complete acceptance of the other, or unconditional, part of the proposition.

 Comment: It is perfectly apparent from the relations of the parties and their subsequent conduct that Union Petroleum Company intended by this communication merely to express its willingness to take title to the ship under the form of an absolute sale to it, and to outline a method to be followed.Union Petroleum Company has at no time taken the position or even suggested that by virtue of the foregoing interchange it became entitled to insist on title being transferred to it, although with the full knowledge of its officers other arrangements were later made. By the law of contracts a conditional offer cannot become a contract by an acceptance which expressly repudiates the condition, and consequently no contract came into being. These observations answer the defendant's contention that the Rumanian Corporation had contracted for and was bound to an absolute sale, and that Von Stauss had no right or authority to require any further condition for its benefit or otherwise.

 4. The foregoing interchange of messages constituted what may be called the first stage of the negotiations ending in the latter part of September, 1914. The original idea of a sale to Union Petroleum Company with a condition of repurchase after the war was then abandoned by Von Stauss and of course the American Corporation, controlled by the Deutsche Bank, dropped it as well.

 5.The next stage began with the suggestion from one Adams, a New York representative of the Deutsche Bank, that Woodman go to Berlin to meet Von Stauss. Von Stauss agreed and Woodman arrived in Berlin October 14, 1914. The Delaware Corporation (Union Petroleum Steamship Company) was then in existence. It had been organized some time before for the purpose of taking title to the vessel, and had been nominated for that purpose by Union Petroleum Company in its telegram outlining the method to be followed upon a transfer. Apparently none of its stock, other than the incorporators' shares, had as yet been issued.

 6. After a number of interviews in Berlin, Von Stauss and Woodman agreed that the vessel should be conveyed to the Delaware Corporation, that the stock of the Delaware Corporation should be issued to Woodman, and that Woodman would take and hold the same in trust for the benefit of the Rumanian Corporation for the period of the war. Woodman was to get $2,000 of the stock and 10 per cent. of the surplus, over 6 per cent., of the profits arising out of the vessel's operations, as compensation for his services. The Deutsche Bank was to finance the transaction, the arrangement being that the bank, through Adams, would advance $598,000 to Woodman against his (Woodman's) receipt and the stock of the Delaware Corporation as collateral, that Woodman would turn the money over to the Delaware Corporation (presumably in payment for his stock), which company in turn would pay it to the Rumanian Corporation as the price of the ship. This agreement was entirely oral, but was complete, definite, and explicit. It was intended that the vessel should engage in carrying cotton from the United States to Germany.

 Comment: I have thus accepted without reservation the testimony of Von Stauss appearing in his answers to the interrogatories, as to what occurred in Berlin, and I have found as a fact that the defendant's agreement of trust as to the stock of the Delaware Corporation was made substantially as alleged in paragraphs 8 and 9 of the plaintiff's amended bill of complaint as amended. Dr. Lehner, one of the managers of the Rumanian Corporation, who assisted Von Stauss with the transaction, but who did not discuss it in detail with Woodman, corroborated Von Stauss to the extent that he remembered a statement by Woodman that $2,000 worth of the stock of the company was "for himself." Von Gwinner, chairman of the board of the Rumanian Corporation, and a managing director of the Deutsche Bank, also corroborated Von Stauss at several points. If nothing beyond a sale of the ship had been contemplated, it would be difficult to suggest a sensible reason for Woodman's trip to Berlin. But above all, it is of the highest significance that Woodman who was in Philadelphia during the hearing of the cause at no time offered himself as witness to contradict any of Von Stauss' statements. Of course his sworn answer is in the case, but his failure to submit to cross examination is not to be overlooked.

 7. During Woodman's stay in Germany, title to the vessel was transferred and provisional registry under the American flag obtained for her, the original intention, however, being not to let her sail until after the financial part of the transaction had been completed in New York. A bill of sale, bearing date October 31, 1914, was duly executed by Dr. Lehner and Dr. Kirschen, two representatives of the Rumanian Corporation duly constituted by it, in accordance with its by-laws, its agents in this behalf, by which the Rumanian Corporation unconditionally sold the vessel to the Delaware Corporation for $600,000.

 8. Provisional registers for ships tied up in foreign ports by the war and coming under the requirements of the law as to American ownership had been provided for by the Commissioner of Navigation, and American consuls were authorized to issue such registers upon production to them of the bill of sale and an affidavit executed by the vendee and signed by the vendor or his authorized agent, containing among other things the statement: "2. There is no agreement or understanding reserving to the vendor, or for his benefit, any interest in the vessel, or its operation, or right or voice of control therein." An affidavit in the required form was signed and sworn to by Woodman and signed by Lehner and Kirschen, which, with the bill of sale, was produced by Woodman to the American consul at Bremen in obtaining the provisional American registry.

 9. When Woodman left Berlin for the United States, he took with him a letter from Von Stauss to Adams, the contents of which he was familiar with. This letter, dated November 14, 1914, advised Adams that it was satisfactory to Von Stauss that the stock of the Delaware Corporation should remain registered in the name of Woodman, "for the time being." It also informed Adams as to the "remuneration for Mr. Woodman in connection with his services." This letter was apparently taken from Woodman by the British authorities when he was in London on his way home, and by them mailed to Adams who received it.

 10. With Woodman's arrival in New York the transaction entered upon its third stage. For the German owners its execution had been committed principally to Hugo Schmidt, a representative of the Deutsche Bank in New York. In carrying out the plan, Schmidt, on his own authority, changed some details of the financing. This change, which will be considered, was not of vital importance and neither it nor anything done by the parties in New York abrogated or impaired in any way the trust agreement made in Berlin between Von Stauss and Woodman, which remained in full force and effect at all times referred to herein.

 Comment: I am unable to find from Schmidt's testimony or his letters any real support for the interpretation placed by the defendant upon what happened in New York -- an alternative theory, based upon the assumption that the trust arrangement which I have found to have been entered into, or a similar one did actually exist. The theory is that Schmidt, scared by the advice of Woodman's lawyer or by his own information to the effect that the British Prize Courts were likely, in the event of seizure of the vessel, to disregard the flag and its immediate corporate ownership and to condemn it if the remote German interest should be disclosed, took it upon himself completely to alter the original arrangement, scrapped the entire trust agreement, and turned the transaction into an absolute sale to Woodman at the agreed price, with no reservation whatever of any beneficial interest in the stock of the owning corporation, thus wiping out entirely the reversionary interests of his principals. Again, I am compelled to note that Woodman did not offer to testify that such a change was made, though he was an active participant, with his counsel, in all the conferences in New York at which the method of financing was settled. A consideration of the financing as actually carried out, however, will go a long way toward resolving the issue raised by this contention of the defendant.

 11. On January 2, 1915, the Deutsche Bank, at Von Stauss' request, had cabled Schmidt, "You may finance Edward Youngstown" (a code word for the steamship Steaua Romana and also for Union Petroleum Company). This cable was supplemented by another on January 11th, partly as follows: "* * * ownership to be settled according letter Edward Dean to Emil George, 15th December as to rest please act according Woodman's suggestions if they appear reasonable." The letter, "edward Dean to Emil George," referred to, was a letter written by Adams to Von Stauss in reply to the letter of November 14, 1914, which had been taken from Woodman in London, and mailed to Adams by the British authorities. It noted the arrangement respecting the shares of the steamship company and the remuneration for Mr. Woodman and went on: "The final disposition of the shares will, of course, receive your consideration, and if the same are registered in Mr. Woodman's name, their proper endorsement in Bank (blank) with witness, to protect the interests of the owners."

 12. In the meantime, however, on the night of January 5th, Schmidt had had a conference with Woodman and his attorney and had definitely agreed upon a different method of financing, in pursuance of which the following steps had been taken: Woodman took the capital stock of the Delaware Corporation to the Guaranty Trust Company of New York, upon which as collateral for his own notes, he borrowed the sum of $598,000. This money was immediately deposited with the Guaranty Trust Company to the account of the Rumanian Corporation; but, and this was a vital element in the deal, the Deutsche Bank, through Schmidt, guaranteed to the Guaranty Trust Company that the money deposited to the account of the Rumanian Corporation on the time deposit would not be withdrawn until Woodman's notes had been paid.

 Comment: The stock of the corporation was obviously collateral of extremely doubtful security since the ship might be seized or sunk and the question of insurance in such cases was always a risky one. There is nothing to show definitely whether or not Woodman's personal notes were worth anything, but the indications are that they were not worth much. The real security for the loan was, of course, the guaranty of the Deutsche Bank that the deposit of the Rumanian Corporation would remain with the Guaranty Trust Company until Woodman's notes were paid. Thus, if the various intervening corporations and persons be disregarded, the transaction was a purchase by the Deutsche Bank of its own ship with money obtained upon the credit of its own guaranty. By the use of Woodman's name the ship was released for operations in trade which were bound to prove profitable if she survived.

 This procedure changed the plain adopted in Berlin in the following particular: Instead of the Deutsche Bank, through Adams, loaning the money to Woodman and taking the stock from him as collateral, the money was advanced by the Guaranty Trust Company, ostensibly on the stock. The real security for the loan given by the Deutsche Bank (the guaranty as to the Rumanian Corporation's deposit) appeared in an entirely separate transaction between entirely different parties. As Schmidt pointed out in his letter of January 6, 1915, "Both operations will be kept strictly apart and will be attended to by different departments of the Bank (Guaranty Trust Company) which have no knowledge of each other's transactions." Thus the Deutsche Bank's participation was removed still further from ...

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