Jayne, Francis and Smalley. The opinion of the court was delivered by Jayne, S.j.a.d.
A brief introductory statement is essential to elucidate the nature of this action, its subject, and the controversial issues presented to us for determination. The defendant Tho-Ro Products, Inc. is a New Jersey corporation engaged in the manufacture of plastic sheets from which synthetic buttons are stamped at Carlstadt, Bergen County. The defendant Irving Thor is the holder of 17 1/2 shares of the common stock of the corporation and an officer and director. The defendant Harry Simon, the owner of 24 2/3 shares of the common stock and 88 8/9 shares of the preferred stock, is the president and the surviving voting trustee. The defendants Arthur J. Simon and Edward H. Simon are sons of Harry Simon, and each is the owner of five shares of the common stock.
The Harry Simon, Arthur J. Simon, Edward H. Simon previously mentioned and Helen Simon are also all the members of a partnership trading in the City of New York under the name and style of Eagle Button Company. They are non-residents of this State maintaining their residences in the State of New York. The plaintiffs are the holders of a majority of the shares of both the common and preferred stock of the corporation. They also are non-residents of this State.
On or about June 9, 1949 a written agreement was executed on behalf of the corporation and by the partners comprising Eagle Button Company by the terms of which the partnership engaged to act as agent in the promotion of the sale of the buttons produced by the corporation and to receive compensation for such service at a figure equivalent to 20% of the sales consummated by the partnership. The nativity of this sales agreement and the eventualities in the pursuance of it constitute the core of the discord between the plaintiffs and the defendants.
An antecedent action was instituted and is pending implicating substantially the same subject matter, to which action it is unnecessary to allude except to indicate the lack of proper parties thereto and the endeavors of the plaintiffs to
have the controversial issues heard and determined in this jurisdiction.
On May 11, 1953 an affidavit of the plaintiff Saul Fischbein was presented to Judge Grimshaw of the Chancery Division. The deponent therein stated, inter alia:
"3. Said individual defendants and said partnership are non-residents of this state and reside in New York. Summons cannot be served upon them in this state.
4. The nature and particulars of said cause of action are as follows:
a. The defendant Harry Simon is not only the dominant and controlling partner in Eagle, but is also the president and one of the directors and the surviving trustee of Tho-Ro.
b. On or about June 9, 1949 the individual defendants as partners trading as Eagle Button Co. purportedly entered into a written agreement wherein and whereby it was agreed that Eagle Button Co. would act as the sales agent for buttons produced by Tho-Ro and should be compensated at the rate of 20% of the sales made by it of such buttons. The contract was purportedly entered into pursuant to a resolution of the directors of Tho-Ro authorizing the making of such a contract for a period not to exceed three years.
c. At or about the time of the incorporation of Tho-Ro, the defendant Harry Simon, who was and is President of Tho-Ro, knowingly made false, misleading and fraudulent misrepresentations to the other officers and directors of Tho-Ro with the intent that they rely thereon in order to induce them and Tho-Ro to enter into a sales agency agreement with Eagle for the sale of Tho-Ro's buttons at grossly excessive rates to Eagle. These misrepresentations and statements consisted of misrepresenting the cost of operating a sales organization for the sale of Tho-Ro's buttons, Simon misrepresenting that the cost would approximate 26% of the sales volume but that he, through Eagle, would operate such an organization at 20% which would merely meet the cost of Eagle in connection therewith without any profit to Eagle or Simon.
d. Said representation was false in that the cost to Eagle of operating a sales organization was far less than 20% of sales volume. Said representation was known by the defendant Harry Simon to be false when made by him on behalf of Eagle, and it was made by him with the intention that Tho-Ro should rely upon it, all in violation of and in breach of the said Simon's duties and obligations as a director of Tho-Ro. Said representation, false as aforesaid, was relied upon by Tho-Ro to its damage in that it entered into the agreement aforesaid, whereby the said Simon and the other defendants comprising the Eagle Button Co. partnership have been enabled to make unconscionably high profits to the detriment of Tho-Ro and its stockholders.
e. Notwithstanding that said sales agreement requires the expense of effecting sales and furnishing samples of the buttons to be borne by Eagle, defendant Harry Simon caused Tho-Ro to pay certain costs and expenses of sales made by Eagle and caused Tho-Ro to furnish at its own expense certain samples of its buttons.
f. The defendant Harry Simon has converted to his own use or to the use of himself and his co-partners in the Eagle Button Company 40,000 gross of buttons, the property of Tho-Ro, without payment of compensation therefor.
g. The defendant Harry Simon has taken from the assets of Tho-Ro commissions for himself and his co-partners in the Eagle Button Company commissions for them on sales of items other than buttons in violation of said sales agreement.
h. The foregoing enumeration is not intended to be inclusive of all of the acts of fraud, misrepresentation, dereliction, double dealing, misconduct, and illegal and improper competition with Tho-Ro, which, it is alleged, Harry Simon, Arthur J. Simon, Edward H. Simon and Helen Simon, individually and as partners trading as Eagle Button Company, have committed. In addition thereto, the sales agency agreement has expired, but the Simons and Eagle Button Company have, through their position of dominance, continued to operate and pay themselves exorbitant commissions thereunder.
i. By virtue of the said sales agreement and the acts done pursuant thereto and under color thereof, the defendant co-partners have wrongfully taken and received assets of Tho-Ro, which, on information and belief, amount to or are valued at $250,000.
j. Said sales agreement, fraudulently procured as aforesaid, should be declared null and void and rescinded, and the defendant co-partners should be compelled to account for and pay over to Tho-Ro all monies and ...