Brown v. Green & Hickey Leather Co.

138 N.E. 714, 244 Mass. 168, 1923 Mass. LEXIS 968

• Court: Massachusetts Supreme Judicial Court
• Decided: March 1, 1923
• Status: Published

Opinion

Crosby, J.

This is a bill for an accounting and to reach the proceeds of certain hides delivered by the plaintiffs, Brown Brothers and Company, to the Green and Hickey Leather Company. The plaintiffs, Brown Brothers and Company, are a co-partnership; they alone are the parties plaintiff who have any interest in the subject matter before the court in this suit. Green and Hickey Leather Company is á Massachusetts corporation engaged in the business of tanning and manufacturing leather, with places of business in Shrewsbury .and Winchendon in this Commonwealth. The bill has been dismissed or discontinued as to the other defendants. The questions at issue arise only between Brown Brothers and Company and the Green and Hickey Leather Company; they will be referred to respectively as the plaintiffs and the defendant. The suit was referred to a master who has filed a report; as the evidence is not before us, his findings must, stand unless inconsistent with each other. The defendant appealed from the interlocutory decree denying its motion to recommit the report, overruling the exceptions to the report, and confirming it; and from a final decree directing the defendant to pay the plaintiffs-the sum of $74,971.19 with interest from July 6, 1920, and costs.

In May, June and September, 1918, the defendant made arrangements with the plaintiffs, who are bankers, to finance for it certain purchases of hides which it was about to make; and the plaintiffs issued to the defendant four letters of credit dated respectively May 17, June 25, September 25, and September 26, 1918. Under these letters of credit the defendant purchased three hundred and seventy-nine bales of hides which were shipped by the sellers in several shipments to Winchendon by bills of lading in which the plaintiffs were named as consignees. On or about the dates of arrival of these shipments, the plaintiffs authorized delivery of the hides to the defendant and took from it certain trust receipts describing the hides so delivered. Upon receipt of the hides the-defendant began to tan them and manufacture them into leather. The trust receipts provided that the hides and the leather manufactured therefrom and all proceeds thereof should remain the property of the plaintiffs and should be applied against the advances made to the defendant under the letters of credit.

It is found by the master that on September 30, 1918, the defendant became financially involved and was unable to meet its obligations at their maturities; that it thereupon called a meeting of its creditors, at which a creditors’ committee was appointed and an arrangement entered into between the defendant and the committee by which the latter assumed control of the business for the benefit of the creditors; that no assignment was made and no proceedings in bankruptcy were instituted, and title to the property remained in the defendant; that the business was thereafter carried on in the name of the defendant but was subject to the direction and control of the committee. At about this time the plaintiffs’ representative took possession of the hides covered: by the trust receipts. The hides were then in various stages of manufacture into leather and were left by the plaintiffs on the defendant’s premises where they were found. The plaintiffs notified the committee that they claimed title to all the hides manufactured or in process of manufacture from hides described in the trust receipts, and the master found that later the committee acquiesced in that claim.

At about the time the plaintiffs took possession of the property they and the committee entered into an agreement under which the plaintiffs were to furnish the money to complete the manufacture into leather of the hides covered by the trust receipts, the leather was to be sold and the plaintiffs were to be reimbursed for such advances out of the proceeds, and the plaintiffs would then be paid the balance of such proceeds up to the amount of their advances to the defendant. The master found that, except for a complete accounting for the proceeds of the leather manufactured, this agreement was fully carried out; and that the account filed in substitution of the earlier account, showing a balance due the plaintiffs of $74,971.19 with interest to July 6, 1920, is conceded by the plaintiffs to be accurate. He also found that the balance due the plaintiffs is $74,971.19 with interest from July 6, 1920.

It appears that before the credits had been given by the plaintiffs to the defendant, the latter had made an arrangement with officials of the War Department of the United States to devote itself exclusively to the manufacture of “Bark Tanned Leather” for use in making army shoes. The hides described in the' trust receipts were purchased for this purpose and were in various stages of that process when the defendant’s financial difficulties arose. About this time the defendant was notified by the government officials not to manufacture any more leather for such purpose, and thereafter as a result of the armistice on November 11, 1918, all demand for the leather ceased. Accordingly the stock then on hand could not be used for other purposes without substantial loss to the defendant. Thereafter the defendant made claim against the government for the losses alleged to have been sustained by it and engaged attorneys to prosecute its claims, which were of three kinds: (a) for leather manufactured .and not taken; (b) for expenses incurred in enlarging the capacity of its tannery at Winchendon and remodelling its finishing plant at Shrewsbury; and (c) for loss of its established trade and business. After these claims were made, an act of Congress, known as the Dent Act, went into effect on March 2, 1919.

While the defendant’s claim was pending, the creditors’ committee made a settlement with all the creditors of the defendant other than the plaintiffs, and thereafter the control of the business was returned to its officers. Before this settlement was effected,, the plaintiffs had certain correspondence with the defendant and therein stated to the latter that they would waive any claim to a cash dividend from the defendant in respect to the amount due to them “provided that all the leather, or proceeds of same, or claims based thereon, applicable to the Trust Receipts held by . . .. [them] under Letters of Credits issued by . . . [them] to pay for same, . . . [was] applied in liquidation of . . . [their] claim;” and further: “It is understood that any balance remaining after covering the amount of our advances, expenses and charges, is to be returned to the Green & Hickey Leather Co.” In a letter written to the plaintiffs, the defendant assented to the terms so> made as a condition of its agreement to waive a cash dividend, and subsequently settled with all its creditors other than the plaintiffs.

The defendant waived that part of its claim against the government based upon loss of its regular business which had been discontinued in order to carry out its undertaking to make leather for army shoes, but insisted upon its claims for losses on account of undelivered leather and for the expenses incurred by it in enlarging and remodelling its plants. As to the latter the master-found that the Board of Contract Adjustment made the following finding: “The evidence, however, is insufficient to establish that these changes were made at the request of the Government or that the Government is for any reason liable for any loss claimant may have sustained by reason of such changes,” and accordingly decided that this portion of its claim should be denied. Thereafter an allowance of $75,000 was made to the defendant for undelivered leather, which was paid by the United States to the defendant about June 23, 1920. No part of this sum has been paid to the plaintiffs. The defendant also has received the sum of $4,600, on account of leather covered by the trust receipts, for which it has not accounted. It now has on hand five thousand four hundred and five double bends of leather manufactured from hides which, are the property of the plaintiffs under the trust receipts.

The defendant contends that the plaintiffs, by reason of the appointment of the creditors’ committee and the carrying on of the business thereunder, and of the correspondence between the parties, have waived any claim which they might otherwise have against the defendant, for anything except the application of the leather or the proceeds thereof to their claim under the letters of credit and trust receipts; and that its liability is limited to the value of the leather or proceeds thereof or claims based thereon. We are of opinion that the contractual relation between the parties, created by the letters of credit and the trust receipts was not affected by the appointment of the creditors’ committee, and the carrying on of the business by it with the assent of the defendant. No assignment was made by the defendant nor were any proceedings in bankruptcy instituted; and the title to the hides remained in the plaintiffs and the business continued to be carried on in the name of the defendant. Although the plaintiffs waived their claim to a cash dividend they did so upon the express understanding and condition that “ all the leather, or proceeds of same, or claims based thereon, applicable to the Trust Receipts held by . . . ¡[them] under Letters of Credit issued by . . . [[them] to pay for same, . . . [[should be] applied in liquidation of . . . [[their] claim.” The defendant in its letter of August 22, 1919, to the plaintiffs stated: “it is understood and agreed that the proceeds arising out of our claim against the Government in respect to the leather described in your letter to us of April 1, 1919, shall belong to you to the extent set forth in said letter.” In these circumstances, the correspondence between the parties, above referred to, cannot be construed as amounting to a waiver of the plaintiffs’ rights under the trust receipts. The receipts in each instance recited that the defendant has received the hides of the plaintiffs and that it agrees “to hold said goods in trust for them, and as their property, with liberty to sell the same for their account or to manufacture and remanufacture the same without cost or expense to them, and . . . also agree to keep said goods, and the manufactured product and proceeds thereof, whether in the form of money or bills receivable, or accounts, separate and capable of identification as their property, and hand the proceeds to them” to apply against its indebtedness to the plaintiffs. The relation between the parties so established was fiduciary in character and binding upon the defendant. Peoples National Bank v. Mulholland, 228 Mass. 152. The validity of trust receipts, such as were given by the defendant in the case at bar, cannot be questioned. Moors v. Drury, 186 Mass. 424. Peoples National Bank v. Mulholland, supra. Commercial National Bank of New Orleans v. Canal-Louisiana Bank & Trust Co. 239 U. S. 520. In re Coe, 106 C. C. A. 181.

The defendant contends that it is entitled to be allowed for expenses incurred by it for legal services in the prosecution of its claim against the government and that such expenses should be deducted from the amount due the plaintiffs. The plaintiffs were entitled under the trust receipts to the "proceeds” of the leather manufactured by the defendant. Manifestly the word “ proceeds ” means gross proceeds, without deduction on account of expense of manufacturing the hides into leather or selling them, and without deduction for other expenses. Moors v. Wyman, 146 Mass. 60. We see no sound reason for holding that expense incurred for legal services stands upon a different footing from expense of manufacture; besides the trust receipts expressly provide that the authority of the defendant in connection with the hides is to be exercised “without cost or expense” to the plaintiffs; accordingly the defendant is not entitled to an allowance for money expended for legal services. Moors v. Wyman, supra.

The defendant annexes to its brief what purports to be a copy of a check, marked Exhibit 14, for $8,969.21, dated October 28, 1919, payable to the plaintiffs and signed by the defendant. The check appears to have been indorsed by the plaintiffs and can-celled. The defendant argues that it has not received credit for the proceeds of this check and that it is entitled to such credit. There is no reference to the check in the record, nor does it appear that it was offered in evidence as an exhibit. In these circumstances the question whether the defendant has been credited with the amount for which the check was drawn is not properly before us.

The plaintiffs are entitled to have applied to their claim the entire sum received from the government by the defendant without deductions, so far as necessary to settle their claim, which the master finds to be $74,971.19 and interest from July 6, 1920, the date of the filing of the bill. As the defendant was not discharged from its contractual liability to the plaintiffs under the trust receipts, the defendant’s fourth and twelfth exceptions cannot be sustained. The exceptions relating to the interest charges, found by the master to be due the plaintiffs, cannot be sustained as the evidence is not reported. The plaintiffs are entitled to recover for reasonable and necessary expenses incurred by them in the employment of counsel, as the correspondence expressly provides that they are “to be covered for all . . . [their] outlay of every nature including legal expenses.” The contention of the defendant that the findings of the master are inconsistent cannot be sustained. Many exceptions are based upon findings of the master or his failure to make certain findings; as the evidence is not reported these exceptions must be overruled. We find no error on the part of the master, therefore all exceptions to his report are overruled. The motion to recommit the report was addressed to the sound discretion of the court and we cannot say that in the denial of it that discretion was improperly exercised.

Accordingly the interlocutory decree denying the motion to recommit the master’s report, overruling the exceptions thereto, and confirming the report, is affirmed; and the final decree is affirmed with costs of the appeal.

So ordered.