Rosenbaum v. Schatia (272 N.Y. 67, 1936)

Crane, Ch. J.

This action is based upon a written agreement entered into between the plaintiffs and the defendant. The plaintiffs had an ironing board cover which they desired to place upon the market through the forming of a corporation to manufacture and sell the same. The contract recited that Rechnitzer and Rosenbaum were the designers and inventors of this article, known as E-Z-ON ironing board cover, and were about to apply for letters patent. It is alleged that the other plaintiff, Penn, was interested in the cover. As capital was required to manufacture and sell E-Z-ON the contract was made with the defendant to procure credit. The parties agreed to form a corporation under the laws of the State of New York, to be known as Ezon Corporation. Rosenbaum was to be president; Rechnitzer, vice-president; Frances M. Parker, treasurer, and Frank Borut, secretary. Upon the organization of the corporation the trade-mark and patents were to be transferred to it, and the corporation was to issue one hundred shares of common stock of no par value, to Rechnitzer twenty-eight shares, Rosenbaum twenty-eight shares, Fenn nineteen shares, Herman Schatia or his nominee twenty-five shares. Rechnitzer and Fenn agreed to purchase twenty shares for $2,000. The twenty-five shares issued to Schatia were to be held in escrow. Paragraphs 5, 6 and 7 are quoted in full as they contain all of the defendant’s agreement to furnish money:

“ 5. The party of the second part agrees to finance purchases and obtain credit on behalf of the corporation for the carrying on of the corporation’s business and for the necessary materials to manufacture two hundred (200) gross of the said covers and deliver the materials to the corporation at the cost price which is to be repaid to the Second party as provided in paragraph ‘ 6 ’ hereof or in the alternative to have the corporation purchase the same and the said party of the second part will finance, provide for ample credit and guarantee the purchase price to the sellers.