The opinion of the court was delivered by: JONES
This multiclaim action resulted from certain fraudulent dealings with respect to an apartment house property situated in the District of Columbia. At issue are the claims asserted by plaintiff Sankin in his complaint against all defendants in Civil Action No. 1493-59; claims asserted in a complaint in intervention; and claims asserted in two counterclaims, four cross-claims and plaintiff Benn's complaint in Civil Action No. 4002-60.
Plaintiff Julius Sankin (Sankin) and defendant Joseph Garfield (Garfield) are related through marriage; Herman Mankes (not a party) being Garfield's uncle and Sankin's father-in-law. Prior to 1956, Mankes, Sankin and Garfield were interested in an apartment project in the District of Columbia known as the Livingston Apartments. That enterprise being successful, Sankin and Garfield entered into a partnership in 1956 for the purpose of purchasing a suitable site in the District of Columbia and constructing thereon another apartment building. That partnership was known as Garfield and Sankin. Sankin ascertained that property situated at 5410 Connecticut Avenue, N.W. could be purchased and in April 1956 that property was acquired in the name of Sankin and Garfield individually. The greater part of the funds necessary to effectuate the purchase was advanced by Garfield.
In August 1957 Garfield and Sankin entered into a written agreement for the purpose of defining their respective partnership rights and obligations in the property they proposed to develop. That agreement provided that while Garfield was to have a 2/3 interest with respect to the profits and losses and Sankin a 1/3 interest, the latter was to have an equal voice with Garfield in all decisions affecting the undertaking and property. Garfield was to advance such funds as might be required in excess of the mortgage financing for the construction of the proposed building. It was estimated that those advances would approximate $150,000.00. Garfield was to be paid 6% per annum on the money advanced with a minimum of $17,500.00. Sankin was obligated to plan the building, apply for a F.H.A. commitment, attempt to secure satisfactory mortgage money and to build the apartment building. For his contribution to the undertaking Sankin's services were to be valued at the rate of $300.00 per week from the date the land was acquired in April 1956 until the building was completed and, if the total of that sum together with the total of fees to be paid to building consultants did not exceed $45,000.00, Sankin was to receive an additional equity of $2,500.00.
In the latter part of 1957 an F.H.A. commitment was obtained but Sankin and Garfield concluded it was not feasible to construct the apartment building due to the unfavorable financing terms then available. The parties thereafter agreed to sell the property, together with an assignment of the F.H.A. commitment, building permits, and architectural and engineering plans. On that sale they received a $50,000.00 deposit, which in this case has been referred to as the "Woodner deposit." The purchaser thereafter breached the contract and Garfield and Sankin individually declared the deposit forfeited. The purchaser brought an action to recover the deposit but without success.
In the spring of 1958 Sankin and Garfield decided to proceed with the construction of the apartment building. For that purpose in April 1958 two corporations were incorporated under the laws of the District of Columbia. Garfield and Sankin, Inc. was the corporation created for the purpose of owning and operating the apartment property. Julius Sankin, Inc. was incorporated for the purpose of constructing the building. In the case of each corporation 100 shares of stock were issued, of which Garfield owned 66 2/3 shares and Sankin 33 1/3 shares. On May 1, 1958 Garfield and Sankin entered into a written stockholders' agreement with respect to each corporation. By the terms of those agreements Garfield and Sankin had an equal voice in the affairs of each corporation notwithstanding Garfield's ownership of 66 2/3 shares compared to Sankin's 33 1/3 shares. Moreover, Garfield and Sankin each agreed that he, his heirs and assigns would not dispose of any of his shares without first offering the same to the other. Although not incorporated in their written May 1, 1958 agreements, Garfield and Sankin contemporaneously orally agreed that, in the event either party wished to dispose of his stock, the other party in exercising his right of first purchase was to pay the seller either the reasonable value of the stock at the time of purchase or an amount equal to that offered the seller by a bona fide purchaser for value.
The stock certificates issued by each corporation to Sankin and Garfield set forth no restrictions as to voting rights nor notice of the right of first purchase by a stockholder. Counsel for the corporations advised Garfield and Sankin of the desirability to include such information on the stock certificates. However, Garfield requested that no such legend be placed on the certificates as he did not want his wife to be informed of the facts. Sankin consented.
Following the creation of the two corporations F.H.A. financing was obtained and the construction of the apartment building to be known as the Garfield Apartments was begun. Sankin was in charge of the work while Garfield, whose home was in Florida, intermittently came to Washington in connection with the project. Commencing with May 1, 1958, Sankin, with the consent of Garfield, began to draw the $300.00 a week compensation agreed to in their August 1957 agreement. Under that agreement $32,000.00 had accrued to Sankin from April 1956 (purchase of property) to May 1, 1958. Also there was $7,500.00 on the books of Garfield and Sankin, Inc. which Sankin had advanced at the time of the purchase of the property - the amount remaining after a $5,000.00 withdrawal by Sankin from the $12,500.00 originally advanced by him.
Prior to May 1, 1958, Garfield had advanced to the Garfield-Sankin partnership $164,500.00 for the purchase of the land on which to construct the building and to defray costs of development. On May 29, 1958 Garfield advanced $25,000.00 to Garfield and Sankin, Inc. for the apartment building purposes.
By late February or early March 1959 Garfield had become dissatisfied with his relations with Sankin. It was then for the first time that Garfield disclosed to his wife Janet that, while he owned 66 2/3 percent of the shares of Garfield and Sankin, Inc. and of Julius Sankin, Inc., he had agreed that Sankin should have an equal voice in the affairs of the corporations. The Garfields determined that Sankin's voting power should be limited to his one-third interest in each corporation, but they did not make known their intention to Sankin. Instead, Janet suggested to her husband that he confer with defendant James Benn in Miami, Florida. She described Benn as a person professing to understand legal technicalities and as an international business man. Garfield knew Benn having had prior unpleasant and unprofitable business dealings with him. But not known to Garfield was the fact that his wife Janet and Benn were at that very time involved in an affair and that they intended to divorce their respective spouses and marry once Benn had settled his income tax difficulties with the United States Government. Moreover, Garfield did not know that Benn had on several occasions asked Janet to obtain for him an interest in the Garfield apartment project.
On March 14, 1959 the Garfields met in Miami with Benn at the office of intervenor-defendant Joseph Pardo, Benn's attorney. During a two hour conference the Garfields explained to Benn the problem of the voting rights and showed him the May 1, 1958 agreements of Sankin and Garfield with respect to their stock interests in both Garfield and Sankin, Inc. and Julius Sankin, Inc. The Garfields also showed Benn all the other documents relating to the apartment project except Garfield's cancelled checks evidencing his advances to the corporations. Benn advised Garfield that he would investigate the situation and devise a plan for restoring to Garfield his full voting rights.
The plan conceived and urged upon the Garfields by Benn provided for the sale of Garfield's stock in Garfield and Sankin, Inc. to a corporation which Benn stated would be wholly owned by Garfield. This sale, Benn advised the Garfields, would permit the corporation as a bona fide purchaser to hold free from all of the restrictions of the stockholders' agreement Garfield's 66 2/3 shares of stock in Garfield and Sankin, Inc. So that Garfield would not appear as the owner, the stock of the corporation to be formed was to be issued to Benn but immediately endorsed and delivered by him to Garfield. The sales price of Garfield's stock to be sold to the corporation would be set at a price too high for Sankin to meet under his right of first purchase provided in the Garfield and Sankin, Inc. stockholders' agreement. When Garfield set the value of his 66 2/3 shares of Garfield and Sankin, Inc. stock as between $375,000.00 and $400,000.00, Benn stated that the sales price of the stock to the to be formed corporation would be $600,000.00, this being a price which Benn believed would be too high for Sankin to meet.
On April 5, 1959, Benn again met with the Garfields and proceeded to draw up in longhand a draft of a stock purchase agreement frequently consulting and showing the Garfields sections of the negotiable instruments law and the District of Columbia corporation law.
On April 6, 1959 Benn met the Garfields at the office of a public stenographer on the mezzanine floor of the Columbus Hotel in Miami, Florida, and proceeded to dictate directly to a typist from the longhand draft the stock purchase agreement. That method, Benn declared, would avoid any record of shorthand notes. When the stock purchase agreement had been completed, he urged and obtained Garfield's execution thereof. Benn executed the stock purchase agreement for a corporation to be formed. The stock purchase agreement, while entered into on April 6, was dated March 14, 1959. It provided, among other things, for the sale by Garfield of his 66 2/3 shares of Garfield and Sankin, Inc. stock to the to be formed corporation for $600,000.00 represented by two nonnegotiable, non-interest bearing notes of such corporation, one a demand note of $60,000.00 and one a note of $540,000.00 due December 1, 1959.
Benn and the Garfields next met on April 7, 1959, in the District of Columbia at the office of Benn's Washington attorney. There an escrow agreement was prepared naming The Riggs National Bank of Washington, D.C. as escrow agent. It was executed by Garfield and 5410 Connecticut Avenue Corporation (5410), the to be formed corporation referred to in the stock purchase agreement. Benn signed on behalf of 5410 as "President Pro-tem."
Garfield and Benn on April 8, 1959 delivered to The Riggs National Bank the escrow agreement, the two April 8, 1959 nonnegotiable, non-interest bearing notes of 5410 executed by Benn as president pro-tem, and Garfield's stock power to 66 2/3 shares of Garfield and Sankin, Inc. stock. Subsequently Garfield delivered the actual stock certificate.
5410 was formed on April 10, 1959 as a District of Columbia corporation with authorization to issue 100 shares of capital stock.
On April 20, 1959, a stock purchase agreement providing for the sale of 66 2/3 shares of Julius Sankin, Inc. stock from Garfield to 5410 and an escrow agreement between The Riggs National Bank, Garfield and Benn as president pro tem of 5410 were drafted. Also drafted on that date were Garfield's stock power to 66 2/3 shares of Julius Sankin, Inc. stock and a non-negotiable, non-interest bearing demand note of 5410 in the amount of $200,000.00 payable to Garfield. At Benn's insistence, Benn and Garfield during the evening of April 20, removed from the corporate office of Garfield and Sankin, Inc. and Julius Sankin, Inc. blank checks of those corporations. Those checks had been signed by Garfield several days before in order to make it possible for Sankin to pay construction bills as they became due.
Also on April 20, 1959 at the office of Benn's Washington attorney, Benn asked Garfield for $1,000.00 in cash stating that the corporation (5410) had to be in business "and as long as you own it you might as well give me the money for the stock now, because we have to start a bank account." Garfield made out a check payable to Benn for $1,000.00 but Benn tore it up and demanded one payable to "cash" so that Garfield's name would not appear to be in any way connected with 5410. Garfield thereupon made out his check to cash and endorsed it at Benn's insistence in order to make it appear as if Garfield had actually received cash in exchange for the check. Garfield in fact never received the cash.
The following day, April 21, 1959, Benn delivered the escrow agreement, Garfield's stock power and the demand note of 5410 in the amount of $200,000.00 to The Riggs National Bank trust department, all of which pertained to Garfield's 66 2/3 shares of Julius Sankin, Inc. stock. Garfield subsequently delivered his stock certificate for 66 2/3 shares of Julius Sankin, Inc. to The Riggs National Bank. Also, on April 21, 1959, Benn opened a bank account for 5410 at The Riggs National Bank with a cash deposit of $1,000.00.
And on April 21 Benn and the Garfields went to the apartment project and met with Sankin. Pursuant to Benn's instructions, Joseph Garfield informed Sankin that he had sold to Benn all of his stock in Garfield and Sankin, Inc. and Julius Sankin, Inc. and that Sankin would have to do business thereafter with Benn. Sankin protested that he had a right of first purchase of Garfield's stock. However, Garfield made little or no response. Throughout this entire period Benn continually instructed Garfield to keep quiet and refrain from talking to anybody and to let him handle Sankin. Benn showed Sankin a copy of the negotiable instrument law and stated that he, Benn, was an innocent purchaser for value and that, therefore, he would refuse to recognize Sankin's claim to a 50% voting right. After leaving Sankin, Benn further reassured Garfield that he was "lucky" to get away from Sankin, whom Benn described as a thief, and that it was just a matter of time until he, Garfield, would have his full voting rights restored to him.
Special meetings of the boards of directors of Garfield and Sankin, Inc. and Julius Sankin, Inc. were held on April 24, 1959. Present were Sankin and Arthur Chaite who was not only a member of both boards, but was assistant secretary and counsel of both corporations. Also attending were Benn and his attorney, B. H. Saunders. At these meetings Garfield's resignation as a member of each board and as an officer of each corporation was presented. Benn was then elected to each board and as president of Garfield and Sankin, Inc. and secretary-treasurer of Julius Sankin, Inc. Resolutions were adopted authorizing Benn, or in his stead, Saunders, to countersign corporate checks with Sankin. Benn, falsely claiming that he had at that time an irrevocable assignment from Garfield of all the funds the latter had advanced for the apartment project, demanded that from the corporate funds $24,000.00 be distributed to 5410. He threatened that if such distribution was not made he would take action to have Garfield and Sankin, Inc. and Julius Sankin, Inc. placed in receivership. Before acceding to such demands and threats, Sankin required Benn to execute an indemnity agreement and he also demanded payment from the corporate accounts of his accrued salary. Benn agreed to Sankin being paid $20,000.00 providing that $8,000.00 of that amount be entered on the corporate books as a loan to Sankin. Thereafter $44,000.00 of the corporate funds were withdrawn and Benn deposited $24,000.00 in 5410 bank account.
The construction of the apartment building continued with the costs being met as they became due. But Sankin, being dissatisfied with the relationship he had with Benn, offered to purchase from Garfield 16 2/3 shares of the stock of each corporation in order that he might have 50% of the stock. Garfield refused to sell less than 66 2/3 shares in each corporation and stated that sale would have to be on the same terms on which he had purportedly contracted to sell to Benn. Garfield and Benn both agreed that Sankin could have until May 30 to complete the purchase.
During this same period of time Garfield was demanding of Benn some written evidence of the former's entire ownership of 5410 corporation. On April 27 Benn gave Garfield a "holographic" stock power and assignment for 100 shares of 5410. Benn executed that instrument without restriction. And on April 29 Benn executed on the stock certificate an assignment to Garfield of the 100 shares of common stock registered in Benn's name. However, that assignment carried an endorsement reciting that the shares of 5410 stock represented by the certificate were the same shares of stock represented by the stock power and assignment in favor of Garfield, "which stock power Joseph A. Garfield shall hold as further collateral security for payment in connection with the Garfield Apartment Building, Washington, D.C."
Benn in so assigning the stock deliberately deceived Garfield because at that time, while assuring Garfield that the latter was the entire and true owner of 5410, he did not disclose that on the previous day, April 28, the charter of 5410 had been amended to increase the authorized common stock from 100 to 250 shares. That amendment to the charter followed an April 22 certification to the Corporation Trust Company by the counsel and secretary of 5410 that no stock subscriptions had been received. As already noted Garfield on April 20 had paid $1,000.00 for all of the authorized common stock.
During this same period Benn was seeking not only to take from Garfield the latter's stock ownership in Garfield and Sankin, Inc. and Julius Sankin, Inc. but also monies which Garfield claimed were owed to him by Garfield and Sankin, Inc. On April 26, 1959 Garfield at Benn's insistence gave Benn all of his cancelled checks evidencing his advances to the Garfield and Sankin partnership as well as to Garfield and Sankin, Inc., which checks Benn stated he would photostat and return.
On April 28, 1959, Benn told Garfield that the latter had to show more consideration to 5410 for its notes totaling $800,000.00; that in order to do so, he had to assign over to 5410 the money owed to Garfield by Garfield and Sankin, Inc.; that if he did not Sankin would attack the "bona fides" of the whole scheme. Benn presented to Garfield and urged him to execute an irrevocable assignment to 5410 of his advances but Garfield at that time refused.
On May 4, 1959 Benn again told Garfield that he was certain Sankin was going to attack the purported sale of Garfield's stock to 5410 and that to prevent this Garfield had to "show consideration" by assigning to 5410 his money advances to the Garfield and Sankin partnership and Garfield and Sankin, Inc. And in order to give a further "bona fide" appearance to their fraud on Sankin, Benn stated that he would give Garfield a stock power for 2,000 shares of bearer stock of International Timber Company, a Panamanian corporation. For such stock power Garfield was to return to Benn the $800,000.00 in notes executed by 5410 to Garfield. At first Garfield refused to follow Benn's advice stating that the transaction was getting too complicated and that he would not sign any more papers. Janet Garfield, in Benn's presence, told Garfield to pay Benn $5,000.00 for his trouble, to get back all documents from Benn and terminate relations with Benn. But Benn was not to be so prevented in the achievement of his purpose. He again reassured the Garfields that they had nothing to worry about, that the papers he requested were necessary to insure the restoration of Garfield's full voting rights which in turn were necessary to protect Garfield from Sankin. He further assured Garfield that since he, Garfield, owned 5410 he had nothing to worry about.
After such assurance had been made by Benn and upon Benn's continued urging, Garfield executed the following documents all prepared by Benn:
(a) An irrevocable assignment to 5410 of all of Garfield's advances to Garfield-Sankin partnership and Garfield and Sankin, Inc.
(b) An exchange agreement substituting 2000 shares of bearer stock of International Timber Company for the $800,000.00 in notes of 5410 to Garfield.
(c) A joint letter to The Riggs National Bank authorizing the delivery of those notes marked "Paid and Cancelled" to Benn's attorney.
(d) A paper writing purportedly acknowledging receipt by Garfield of 2000 shares of the bearer stock of the International Timber Company.
While Garfield executed the receipt he never received the stock certificate for 2000 shares of the bearer stock of International Timber Company. In fact this certificate was seen in Benn's briefcase by Mrs. Garfield on May 8, 1959. Benn gave Garfield a stock power for the 2000 shares of bearer stock. Garfield had never heard of the International Timber Company prior to May 4, 1959, and knew nothing about it.
International Timber Company was formed by Benn in July of 1958 with authorized capital of 2000 shares of no par bearer stock. The sole asset of International Timber Company was an option to purchase for $10,000.00 on or before October 24, 1961, one-half of the stock of the Surinam American Timber Company, which purported to have a right to develop certain timber concessions in South America. Benn had previously sold all of the stock in Surinam American Timber Company to Orion Realty Company for $20,000.00 reserving the option. International Timber Company never had a bank account and no stock of the corporation was ever issued until May 4, 1959.
It was on May 6, 1959 that Garfield learned for the first time (from his uncle, Herman Mankes) that Benn had on April 24 withdrawn $24,000.00 from Garfield and Sankin, Inc. as a payment on account of Garfield's advances. Garfield told his wife, Janet, of that withdrawal and she communicated with Benn who was in Washington and asked him to come to Coral Gables, Florida. At that time she and Benn were still intending to be married, but before that event she wanted Benn to return to her husband all that Benn had taken from him, including the $24,000.00 and Garfield's files and cancelled checks which had been given to Benn and which the latter had never returned although he had on several occasions promised Garfield he would do so.
Benn arrived at the Garfield's Coral Gables home on May 8 and he remained there until May 9. While there he denied receiving the $24,000.00 from Garfield and Sankin, Inc. During this period of time there was much acrimonious discussion and among other things Garfield learned for the first time of the relationship between Benn and Janet Garfield. While Benn was at the Garfield home, Janet Garfield took his large briefcase to her brother's home. She noted, but did not take, a certificate for 2000 shares of bearer stock of International Timber Company. There were also in the briefcase two Manila sealed envelopes the corner of one which she tore and noted that it contained currency. On May 9 she returned to Benn the two sealed envelopes as well as the briefcase and all of its contents except the material which belonged to Garfield. Benn gave her a receipt for the money returned which he claimed amounted to $120,000.00. On the same day and before the return to him of his property, Benn gave Garfield another certificate for 100 shares of 5410 stock.
Garfield on May 11, 1959 for the first time consulted his Miami attorney, Don Nicholson, and told him of the dealings he had been having with Benn. Nicholson immediately advised Garfield that he had wronged Sankin and that Sankin had to be restored to his full voting rights under the May 1, 1958, stockholders' agreements. This was to be accomplished by a complete rescission of the Benn-5410-Garfield transactions leaving Garfield's stock in Garfield and Sankin, Inc. and Julius Sankin, Inc. in Garfield's name and subject to the May 1, 1958, stockholders' agreements. As an alternative procedure Nicholson advised Garfield to gain full control of 5410 and then reverse all of the Benn-5410-Garfield transactions.
Following his conference with Nicholson, Garfield met Benn on May 11 and on May 12. On each of those occasions Benn gave Garfield one or more additional certificates for 100 shares of 5410 stock. And he gave one or more certificates for 100 shares to Janet Garfield. All of the certificates were restricted, purporting to be collateral for 5410's notes of $800,000.00, although, as mentioned above, those notes on May 4 were purportedly exchanged by Garfield for 2000 shares of bearer stock of International Timber Company.
On May 13, 1959, after Benn had returned to Washington, D.C. he issued 250 shares of 5410 stock to himself with Saunders as secretary of the corporation signing the certificate. The 250 shares were issued pursuant to the April 28 amendment of 5410's charter as mentioned above. It was also on May 13 that Garfield attempted to reach Benn by telephone at Saunders' office and upon being told that Benn was not there Garfield talked to Saunders. Garfield told Saunders to instruct Benn not to do anything further with 5410. Notwithstanding such instruction Benn withdrew in cash $17,500.00 from 5410's bank account.
The following day, May 15, Saunders informed Phelan that Benn was willing to have 100 shares of 5410 transferred to Garfield's name. When asked if this was the entire capital stock of 5410, Saunders stated that he was not certain but would investigate and advise Phelan. Saunders subsequently telephoned Phelan and advised him that there were 250 shares of 5410 authorized and he renewed his offer to transfer 100 shares to Garfield. Phelan inquired as to what possible reason there would be for Garfield, who had put up all the money, ending up with only 40% of 5410 while Benn would continue to hold 60%. Saunders gave no explanation.
On May 16, 17, 18, 19 and 21, 1959, Benn was in Saunder's office. Between May 15 and May 21, Phelan called Saunders requesting a meeting of Benn and Garfield to be held on May 21. Saunders informed him that Benn was out of town. On May 21, 1959, Phelan asked Saunders to arrange a meeting of Benn and Garfield but Saunders again stated that Benn was out of town.
Late in the evening of May 21, Garfield in Miami and Benn in Washington talked by telephone. Garfield initiated the call and he demanded of Benn that the latter "return everything to its original state."
Saunders as Benn's counsel on May 22 called Phelan and inquired about a rescission agreement between Benn and Garfield. Phelan having no knowledge of any rescission discussion referred Saunders to Nicholson. Saunders then called Nicholson in Miami and advised him that Benn and Garfield had agreed to a rescission of all of the Benn-5410-Garfield transactions with Benn being paid his out-of-pocket expenses. Nicholson stated that he would prepare a draft of a rescission agreement and forward it to Saunders at the earliest possible date and that he would meet with Benn, Saunders and Garfield as soon as a meeting could be arranged. Nicholson added that he and Garfield would be available at any time on May 26, 27, 28, and 29. Nicholson thereupon prepared a draft of the rescission agreement.
During the May 22 telephone conversation between Nicholson and Saunders, intervenor-defendant Whiting, as counsel for 5410, was on an extension telephone and participated in the conversation. Nicholson stated in the course of the conversation that Benn was perpetrating an enormous fraud on Garfield and that he, Nicholson, did not trust Benn and he didn't think there was any semblance of good faith in the Benn-5410-Garfield transaction.
When on May 25 Saunders received Nicholson's draft of the rescission agreement he discussed it with Whiting. Whiting thereupon called Nicholson who proposed an immediate execution of the rescission documents at a meeting of the parties. Whiting countered with a demand that Garfield first execute the rescission agreement or write a letter stating that all recitations in the rescission agreement were true. Nicholson told Whiting that he did not trust Benn; that he considered Benn a fraud artist; and that he would only deal with Benn at a meeting where all parties executed the rescission agreement contemporaneously.
During the period that Nicholson and Garfield were attempting to effect a complete rescission of the Benn-5410-Garfield transactions, Benn on May 15, 1959, met with Sankin. Benn again asserted that Garfield had sold his stock in Garfield and Sankin, Inc. and Julius Sankin, Inc. and that if Sankin was to acquire that stock under his first purchase rights he would have to purchase it from Benn. At that time Benn told Sankin he knew that the $800,000.00 he had paid Garfield was greatly in excess of its true value but that he could afford to do so because he was using tax free money from out of the country. Benn offered the Garfield stock to Sankin for $480,000.00. Sankin refused to purchase the stock from Benn and he added that even that sum was in excess of the true value of the stock. Benn then offered to purchase for $250,000.00 Sankin's 1/3 interest in Garfield and Sankin, Inc. and Julius Sankin, Inc. Sankin accepted the offer and Benn stated that his counsel Whiting with Sankin's counsel would prepare the necessary agreement to accomplish the purchase by Benn.
During the following several days Sankin called Whiting on more than one occasion and inquired as to the status of the purchase by Benn. Whiting each time advised Sankin that Benn was out of Washington and could not be reached, although in fact Benn was in Washington. Sankin concluded that Benn was not going to honor his offer to purchase Sankin's stock interests and, realizing that he had to exercise his right of first purchase from Garfield on or before May 30 he arranged to meet with the latter in Washington on May 26.
Sankin with his counsel met with Garfield and Nicholson on May 26 at which time he exercised his right of first purchase by entering into the necessary agreements and delivering his notes totaling $800,000.00 to Garfield. The notes in amounts and terms were as Garfield demanded and conformed to the amounts and terms purportedly agreed to by Benn-5410. Thereafter, late in the same day Riggs National Bank, as escrow agent, was notified of Sankin's purchase of Garfield's 66 2/3 shares of stock in Garfield and Sankin, Inc. and Julius Sankin, Inc. On May 27, Riggs National Bank refused to turn the stock over to Sankin because of an adverse claim made by 5410.
Sankin met again with Garfield on May 28 and learned for the first time of the fraudulent transactions between Benn-5410-Garfield for the purpose of depriving Sankin of his equal voice in the affairs of Garfield and Sankin, Inc. and Julius Sankin, Inc. At that time Garfield related all of the facts to Sankin. On May 29 Sankin instituted Civil Action 1493-59.
Although unknown to Sankin at the time, there was on the very day he exercised his rights of first purchase, a meeting being held in the Army and Navy Club in Washington, D.C. The meeting commenced at 10:30 A.M. on May 26 and there were present Benn and intervenor-defendants Link, Pardo, Whiting and Betoff. There and then Benn purported to sell to those four intervenor-defendants 200 shares of 5410 stock. After a discussion lasting about two hours, the price, terms and conditions were agreed upon and the balance of the day was spent with Benn preparing the stock purchase agreement and related papers.
The fifth intervenor-defendant, Winn, arrived in Washington on May 27, 1959 and on that date he purportedly purchased the remaining 50 shares of 5410.
Among the agreements signed by Benn and the five intervenor-defendants was one which gave the intervenor-defendants the right to resell the stock of 5410 to Benn at a substantial profit on December 1, 1959, and which also indemnified them from any loss resulting from their purported purchase. This agreement was subsequently destroyed by the intervenor-defendants after this action was filed.
Intervenor-defendant Link is now deceased.
Prior to his death he was the head of the A. M. Kidder Company's stock brokerage office in Miami, Florida. He had been involved with Benn in other transactions and in October of 1958 he represented one Dr. Klawans, a Cuban national, who in turn represented the Orion Realty Company, a Cuban syndicate. The Orion Realty Company purchased from Benn 2000 shares (all of the issued and outstanding stock) of Surinam American Timber Company for $20,000.00. The closing of that transaction took place in Link's office. The sales contract between Benn and Orion Realty Company reserved a three year option in Benn to repurchase one-half of the Surinam American Timber Company stock for the sum of $10,000.00. That option was immediately assigned by Benn to International Timber Company, an unfunded corporation wholly owned by him. Link was an officer of the International Timber Company; he knew of the assignment of the option; and in all probability executed it. Link did not know at the time of the taking of his deposition, on March 23, 1960, whether Benn had ever exercised his option to repurchase one-half of the stock of the Surinam American Timber Company.
Intervenor-defendant Pardo, at Link's request, was present at the closing of the sale of the Surinam American Timber Company stock to Orion Realty Company. He acted as interpreter for Dr. Klawans and he knew about the assignment of the reserved option by Benn to International Timber Company. Pardo was an officer of the International Timber Company but he later resigned because of a possible conflict in interest.
In May of 1959, Link knew that Benn had no office or home address and he knew that Benn was under a $443,000.00 Internal Revenue Service jeopardy assessment. Benn had also told Link about his difficulties with Garfield and the purported theft of Benn's briefcase and $60,000.00. Link had prepared an affidavit for Benn with regard to the counting by Link of $60,000.00 in $100.00 bills at the latter's home.
A week or ten days prior to May 26, Benn called Link and told him that he had a "good deal" on which Link could make money. He requested Link to be prepared to come to Washington on short notice to consummate the deal. In this first conversation Benn gave no details with regard to what was involved and Link did not know that an apartment building would be the subject of the "good deal." Link received a second call from Benn on May 22 or May 23 and he was asked to come to Washington immediately Again no details of the proposed deal were disclosed. Link came to Washington on the evening of May 25 and he went to the Army and Navy Club where he met Benn. If any business was discussed that night the discussion was very limited.
At the meeting held in Link's room at 10:30 A.M. on the morning of May 26, Benn offered to sell all of the stock of 5410 for the sum of $550,000.00. Link made no investigation relative to the proposed stock purchase; he did not look at the 5410 minute book, nor did he even look at the apartment property until some time in 1960. Link did not talk to Sankin, did not see any of the records or financial statements of Garfield and Sankin, Inc. and made no investigation of any of the documents which were shown to him. Link knew that Sankin had a right to purchase the stock of Garfield and Sankin, Inc. and Julius Sankin, Inc. for $800,000.00 such right to expire within a few days. Link executed the stock purchase agreement late in the afternoon of May 26 and gave Benn a check for $30,000.00 and an unsecured note for $80,000.00. For that he was to receive 50 shares of 5410's 250 shares. Link believed that his check would be held in escrow and he recalled the discussion relative to the repurchase of 5410 stock by Benn in December of 1959 at a higher price than the intervenors had paid for it. There was also discussion relative to placing the purchase money notes in escrow so as to keep them out of circulation.
Intervenor-defendant Pardo is a Miami attorney who had known Benn since 1950 or 1951. Benn had referred to Pardo as his attorney and the latter had represented Benn's corporations and he had in fact been an officer of International Timber Company, which Benn purported to own. Benn frequently used Pardo's office and Pardo frequently notarized papers for him and acted as interpreter in Benn's various dealings with Spanish speaking people.
Pardo, at Benn's request, left Miami at about midnight on May 25, 1959 to fly to the District of Columbia. He met Garfield and the latter's counsel, Nicholson, at the Miami airport. Nicholson informed Pardo that Garfield and Benn had become involved in a dispute involving an apartment building in Washington, which was named Garfield Apartments and that Nicholson was on his way to Washington to conclude a rescission or cancellation of all of the transactions between Garfield and Benn. In response to Nicholson's question, Pardo stated that he was not aware of any Benn-Garfield transactions and that he, Pardo, was not going to Washington to meet with Benn but that he was on his way to transact other business elsewhere.
Pardo arrived in Washington, D.C. early on May 26 and he went to the meeting in Link's room at the Army and Navy Club where Benn led the discussion of the proposed purchase by the intervenor-defendants of Benn's stock in 5410. The purchase price was discussed first and then documents were shown to the intervenors. This discussion lasted for approximately two hours during which time Benn told the intervenor-defendants about the difficulties he was having with the Garfields over the purported theft of his briefcase and $60,000.00. At lunch time the intervenor-defendants present agreed to purchase Benn's stock and the balance of the day was spent with Benn drafting in longhand and having reduced to type at Saunders' office the stock purchase agreement. At this time Pardo saw the stockholders' agreements executed by Garfield and Sankin on May 1, 1958. Pardo, having seen the exchange agreement and the cancelled 5410 notes to Garfield was aware of the fact that Benn had purportedly exchanged with Garfield 2000 shares of International Timber Company bearer stock for $800,000.00 in notes. Further Pardo was fully aware that International Timber Company had little or no value owning only an option to purchase one-half of the stock of Surinam American Timber Company at a price of $10,000.00. Surinam American Timber Company in turn owned at most a timber concession. In March 1958 Benn had purchased for $15,000.00 the entire capital stock of the purported concessionnaire corporation and in October 1958 had sold the entire capital stock of that corporation for $20,000.00 together with a three year option to repurchase one-half of that stock for $10,000.00, which option was given to International Timber Company.
In the late evening of May 26, 1959, The Riggs National Bank notified 5410 that Sankin had exercised his right of first purchase with Garfield. Pardo then prepared in Saunders' office and sent in the name of 5410 a telegram to The Riggs National Bank which instructed the Bank not to release the stock of Garfield and Sankin, Inc. and Julius Sankin, Inc. to Sankin unless and until the Bank received $800,000.00. This telegram was received by the Bank early in the morning of May 27. The Bank in turn delivered to 5410 at Saunders' office a formal written notification that Sankin had exercised his right of first purchase with Garfield. Thereafter at 10:05 A.M., The Riggs National Bank received a letter prepared in Saunders' office by Pardo which was signed by Benn as president of 5410. That letter was delivered by hand by Whiting and it confirmed the telegram sent the night before. Pardo had full knowledge of Sankin's exercise of his right of first purchase from Garfield not later than the morning of May 27. Later that morning Pardo executed a stock purchase agreement with Benn and gave Benn his unsecured note for $95,000.00 and his personal check for $15,000.00 for which Pardo was to receive 50 shares of 5410 stock.
Intervenor-defendant Whiting's testimony at the trial was by deposition. He was unable to appear in person since he was incarcerated in the Federal House of Correction in Danbury, Connecticut, after having been found guilty by the United States District Court for the Southern District of New York of attempting to obtain by fraud $20,000,000.00.
Whiting had purchased from Benn in February of 1959 one-half of the stock of Surinam American Timber Company (pursuant to the option to purchase held by International Timber Company) for $10,000.00 in cash and $40,000.00 in notes. This transaction was rescinded at Whiting's request several days thereafter.
On May 15, 1959 Whiting was in the District of Columbia acting as Benn's attorney. By a check dated May 13 Benn had withdrawn $17,500.00 from 5410's bank account. It was in that account he had deposited on April 27 the $24,000.00 which he had obtained by coercion from Garfield and Sankin, Inc. On May 18, 1959 Benn paid Whiting $18,000.00 in $100.00 bills for the express purpose of permitting Whiting to purchase 50 shares of 5410 stock from Benn. Whiting on May 26 paid Benn $20,000.00 in $100.00 bills as partial payment for the former's purported purchase of 50 shares of 5410.
Whiting was aware of the dispute between Garfield and Benn over the briefcase episode. He had been put on notice by Nicholson that Benn-5410 were perpetrating fraud on Garfield and that there was no semblance of good faith in the Benn-5410-Garfield transactions. Whiting was fully aware of the drafted rescission agreement between Benn-5410 and Garfield and the recitations contained therein.
On May 26, 1959 Whiting had full knowledge of the fact that Sankin had exercised his right of first purchase with Garfield. He participated in the preparation of the telegram to The Riggs National Bank sent late in the evening of May 26. He also helped prepare the confirming letter on May 27 which he handdelivered to The Riggs National Bank.
Whiting, as counsel for Benn, negotiated with Sankin and Dobin, his counsel, for the sale of Sankin's stock in Garfield and Sankin, Inc. and Julius Sankin, Inc. to Benn. During this same period Whiting was obstructing Nicholson and Garfield in their attempts to have a formal rescission agreement executed by Benn and Garfield.
Intervenor-defendant Betoff is a diamond broker, part owner of the Million Dollar Pier at Atlantic City and half-owner of a diamond exchange corporation. He claimed ...