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HOSEA v. DROHN

November 29, 1951

HOSEA et al.
v.
DROHN et al.



The opinion of the court was delivered by: MARSH

In this case, plaintiffs, Max E. Hosea and Charles A. Lampel, allege that they purchased certain stock for $ 80,000.00 from the defendant, H. H. Drohn, and that he, by certain fraudulent statements upon which the plaintiffs relied, induced them to pay to him $ 15,000.00 in cash as an additional down payment on the price, for which payment Drohn has refused to give credit. This action, in the nature of a bill in equity, is brought to compel Drohn and the defendant Bank, as trustee holder of the stock and collector of deferred payments, to give this credit or repay the $ 15,000.00 with interest. The court is of the opinion that plaintiffs cannot prevail.

The plaintiffs are citizens of the State of Indiana and the defendant Drohn is a citizen of Pennsylvania. The defendant Bank is a Pennsylvania corporation.

 In July, 1946, Drohn owned 582 shares of the capital stock of the Community Telephone Company, of New Bethlehem, Pa., a Pennsylvania corporation. The total outstanding stock of this Company was 1,000 shares; each share had a par value of $ 25.00, and a book value of $ 58.50. The book value is computed from a statement as of June 30, 1946, sent to Lampel by Drohn, which also disclosed a surplus of $ 33,546.00 and cash in banks of $ 25,439.19. The board of directors consisted of seven members. Drohn was a director until his resignation on or about August 13, 1946.

 In 1946, Lampel advertised his desire to purchase a telephone business. Drohn indicated his interest and these parties met in New Bethlehem in July of that year, where Lampel inspected the plant on one or two occasions and negotiated for the purchase of Drohn's stock. Drohn represented that he had built up the Company to its then state of prosperity and that he controlled it, owning 58.2% of the shares. The upshot was that Drohn agreed to sell his 582 shares to Lampel for the price of $ 80,000.00; cash in the sum of $ 8,000.00 was to be paid upon consummation and the balance of $ 72,000.00 was to be paid in yearly installments of $ 8,000.00. Drohn also agreed to have his attorney reduce the terms of the sale to writing and notify Lampel when the contract was ready. It is not clear that notice was given, but on August 2, 1946, Lampel, accompanied by the plaintiff Hosea, returned to New Bethlehem and met Drohn. The written contract was not produced by Drohn. Instead, he demanded an additional $ 15,000.00 on account of his interest, as he put it, in the surplus of the corporation. He also claimed that he was entitled to this $ 15,000.00 because in round figures it represented 58.2% of the cash on deposit in the Company's bank accounts and that this was his money. He used such expressions as- 'How about giving me my cash out of the bank?' and 'Whoever heard of any one selling his cash?' It is also alleged that Drohn claimed a personal interest, as distinguished from a stockholder's interest, in certain money and stock to be found in the Company safe. Lampel became incensed at this demand and refused to agree to the additional sum, but Hosea, who had become interested, engaged in further negotiations with Drohn for the purchase of his stock.

 During this meeting Hosea wrote two memoranda of sale; one proposing a purchase price of $ 80,000.00, the other proposing a price of $ 95,000.00; neither was executed; in both Lampel and Hosea appeared as the purchasers.

 As the meeting terminated, Lampel proposed to pay $ 23,000.00 down on a sale of the stock for $ 80,000.00. He wrote his name, address and telephone number on the back of the paper containing the $ 95,000.00 proposal and left it with Drohn in case he wished to write or telephone. The paper containing the $ 80,000.00 proposal was retained by Hosea.

 At this point Drohn had gone back on his oral agreement to sell his stock for $ 80,000.00, but the door to further negotiations was not entirely closed.

 Plaintiffs then knew that Drohn wanted $ 15,000.00 more than had been agreed. That sum was substantially equivalent to his share of the cash in banks, i.e., if then the Company had declared a dividend out of this cash. All parties knew, however, that no dividend had been declared prior to or pending these negotiations. *fn1"

 Subsequently, Drohn telephoned Lampel and advised that the sale could be consummated on August 13, 1946. Plaintiffs returned to New Bethlehem on that day and, meeting Drohn in the offices of the Company, examined the written contract of sale which he produced and which had been prepared by his attorney as originally agreed, viz., the purchase price therein set forth was $ 80,000.00 for 582 shares; the purchaser named was Charles A. Lampel; the down payment specified was $ 8,000.00; and the deferred payments of $ 72,000.00 called for nine notes payable one per year for the succeeding nine years. The New Bethlehem Bank was constituted a trustee with certain duties including the duty to hold the stock and vote for such persons as directors as the purchaser may desire.

 The parties then went to the New Bethlehem Bank. There the written contract was amended to include Hosea as one of the purchasers, the number of shares to be held in escrow was reduced to 578; the other four shares were intended to qualify four new directors. While the cashier, W. R. Strong, was supervising these changes, Lampel and Hosea, in a private room, each gave $ 7,500.00 in cash to Drohn. Upon receiving the money, Drohn signed a 'receipt' written by Hosea, which is as follows:

 'August 13, 1946

 'Received of Max E. Hosea and Charles A. Lampell (sic) of Indianapolis, Indiana ($ 15,000.00) Fifteen Thousand Dollars as part payment on purchase of 582 Shares of Community Telephone Company stock of New Bethlehem, Pennsylvania this is in lieu of any dividend due on this stock and I hereby assign and transfer to Hosea and Lampell all my rights title and interest whatsoever, in said money and dividends and also my interest in the stock and money left in the safe at the telephone office. I further agree to not deal in (sic) directly or indirectly in the purchase of stock of the Community Telephone Company of New Bethlehem, Pennsylvania. It is also understood that the telephone company owes me no back interest, salary, rent, or another claim whatsoever.

 'H. H. Drohn

 'Witnes ...


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