This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
As an illustration of the casual way in which people sometimes take a hand in promoting new enterprises, a case was reported recently of a manufacturer, whom we will designate as A, who was desirous of joining forces with a certain large corporation or of selling out to it. He came into contact with a broker and promoter, B, who was acquainted with a second promoter, C, who had facilities, in B's opinion, for putting through just the deal that A had in mind. B took A over to Cs office, introduced him and explained that in view of C's facilities he would step out of the transaction, expecting, however, to be taken care of in case the deal were consummated. Later the transaction was actually effected and the question immediately arose as to what compensation B ought to obtain.
There is no such thing as a standard rate or a standard method of fixing the compensation for financial promoters, and in this case there was no definite bargain in advance. B could certainly have no legal claim, inasmuch as he had performed no service, and it is questionable if he would have any moral claim except for a small honorarium. A mere suggestion or an introduction can hardly be claimed to have a high commercial value. Yet B from his point of view might well reason that, without him, A would probably not have made the deal which was so profitable to him, and that B consequently was fairly entitled to a large proportion of these profits. The question can never be answered one way or the other to the satisfaction of both parties. It is clear that it should never have been allowed to arise. B was careless and unbusinesslike in his dealings. If he thought there was any reasonable chance of putting through the transaction, he should have arranged with C for a definite proportion of his commission. Evidently, under the definition that has previously been given, B did not have in this case a properly "assembled" proposition.
Another case in which, according to the promoter's own story he failed to give himself proper protection, came into the New Jersey courts a few years ago, and was decided by the Court of Errors and Appeals in 1912. It appears that Harry C. Haskins claims to have been the originator of the scheme to unite all the independent lead companies not previously included in the National Lead Company. He went to Thomas F. Ryan, the well-known financier, and enlisted his support. Mr. Haskins charges that after Mr. Ryan and his friends had secured from him all the information they needed, and had made use of his knowledge of the lead business, resulting from years of study, they froze him out of the deal. His claim was that, while Mr. Ryan had made enormous profits as promoter of the consolidation, he himself had received nothing.
Without attempting to express any opinion whatever on the merits of this case, it is plain that in the eyes of the law Mr. Haskins could have little standing. He had no property right in the idea of forming the consolidation; the facts and figures which he submitted to Mr. Ryan were apparently freely given. He may have had a verbal understanding, but, if so, it can best be described as an agreement to make an agreement, fulfilment of which cannot, of course, be compelled in equity proceedings. In other words, the original promoter, Mr. Haskins, according to his own statement, did not contractually protect himself. He went ahead before he had "assembled" his proposition.