Knowlton v. Fourth-Atlantic National Bank

162 N.E. 356, 264 Mass. 181, 1928 Mass. LEXIS 1264

• Court: Massachusetts Supreme Judicial Court
• Decided: June 28, 1928
• Status: Published

Opinion

Pierce, J.

The original plaintiff, now deceased, in substance alleges in his bill that in September, 1915, he was the owner of upwards of four million gladioli bulbs of great value; that if they were properly grown and intelligently handled they should have sold at that time at a fair sale for more that $20,000; that under proper handling, growing and harvesting they should have multiplied so that at the time of the filing of the bill (October 31, 1921) if no part of the original stock had been sold, there should have been on hand at least seven million bulbs of all varieties.

The bill further states, in substance, that in December, 1915, the plaintiff was indebted to the defendant, the Fourth-Atlantic National Bank; that in that month the bank made a demand upon him for the sum due, about $2,000; that the bank and the plaintiff then made an agreement by which the bank was to bring a friendly action at law based on the indebtedness of the plaintiff to the bank, which the plaintiff would not contest; that by the terms of the agreement the sheriff was to seize the gladioli bulbs on execution and sell them at auction to the bank or its agent, the defendant Breck; the agent was to take the bulbs, have them properly cultivated at his nurseries, sell and dispose of the surplus or increase in the bulbs for the benefit of the bank; and the bank would advance money to the plaintiff to harvest and care for the bulbs and would make to the plaintiff for three years an allowance of money sufficient to give him a comfortable living; and the agent would return the bulbs to the plaintiff after the bank had received payment of its loan, and interest. It is further alleged that the friendly suit was brought, and the sheriff seized the bulbs and in due time sold them on execution to the defendant Breck for a sum far below their actual value; that the agreement has not been complied with by the bank or by the agents of the bank; and that certain false representations were made by the defendant Breck which induced the plaintiff to execute a bill of sale of a portion of the bulbs.

The plaintiff prays for an injunction; for the declaration of a trust; that Breck, the Breck corporation and the nursery company be compelled to account; for an order that the defendant Breck pay to the bank the amount due the bank as of January 1,1919; and for a return of the remaining bulbs.

The answers of the four defendants embrace the defences of loches, ultra vires, statute of frauds, res judicata, and that the alleged agreement was in fraud of other creditors of the plaintiff. A supplemental bill was filed June 13, 1924, to cover the period from October 31,1921, to that date. Nothing further about this supplemental bill appears in the record and it is deemed to be waived.

The case was referred to a master who filed a report on July 5, 1924, and two supplemental reports; such exceptions as were taken thereto were overruled and the reports were confirmed. On January 18, 1926, two interlocutory decrees were entered. The first ordered a recommittal for a corrected statement of the account against the defendant bank, in accordance with the rulings set forth in the order on exceptions to the master’s report, and a direction to the master that interest may be added on the balance in whosesoever favor it may be from the date of the filing of the bill to the date of the fifing of the report.

The material facts found by the master are in substance as follows: The plaintiff, who was an expert in the growth and cultivation of gladioli bulbs, in 1915 had accumulated a considerable stock of them. The Fourth-Atlantic National Bank was authorized to operate a general banking business in Boston in accordance with the banking laws of the United States; it held a note of the plaintiff for $1,800, which, when it became due on May 15, 1915, the plaintiff was unable to pay. Other creditors of the plaintiff were L. P. Hollander and Company for $1,500, John C. Paige and Company for $325, and several farmers for an aggregate of $650. "His assets consisted of a horse, a carriage, garden equipment and the bulbs. The fair value of the bulbs was $20,000 although this amount could not have been obtained on a bulk sale. As a result of conferences with the defendant bank concerning his financial condition, an oral contract was entered into on some day between July 14, 1915, and July 20, 1915, by the plaintiff and the defendant Breck acting as the agent of the bank, as follows: “The bank was to cause a friendly suit to be brought against Chamberlain on his note held by the bank, which suit was not to be contested; an attachment of the growing crop of bulbs at Wellesley was to be made on the writ; pending a sale of the bulbs on the execution Chamberlain was to be kept in charge of the bulbs and their cultivation and harvesting, under the sheriff, the bank advancing the costs of cultivation and harvesting including ChamberIain’s living expenses and rent of the farm; after the bulbs were harvested they were to be sold on execution and were to be purchased by Breck or one of his companies for him, as agent for the bank, and the purchaser was to continue the planting, cultivation, harvesting and marketing of the bulbs under Chamberlain’s direction until such time as thé proceeds from the sale of the bulbs should liquidate the debt to the bank and reimburse it for such advances as it, directly or through Breck and his companies, might have made on account of the plan. When the bank had been paid and reimbursed, the bulbs remaining were to go back to Chamberlain. Chamberlain was to be given, during the time necessary to liquidate the debt and advances, compensation at such rate as should be necessary for his living expenses. No amount was fixed for this item at the time the contract was made . . . [$18 per week was later fixed as the amount]. There was no time fixed as to the duration of this arrangement, but it was understood that it would take more than one year and probably three to liquidate the debt and advances to be made.”

The defendant Breck corporation was not a party to the agreement between Chamberlain and the bank, either as principal or as agent, and did not act as such in its performance. The nursery company was not a party to this agreement; it acted as agent for the bank in planting, cultivating, harvesting, advertising and selling the bulbs with Chamberlain’s assent. Breck was not, as an individual, a party to this agreement; he acted at all times either as the agent for the bank or for the nursery company in its capacity as agent for the bank.

It did not appear that any endeavor was made to join the other creditors of Chamberlain in the plan. It was, however, explained to the Hollander and Paige companies and their approvals obtained. There was no evidence that the plaintiff submitted the plan to his other small creditors, nor does it appear that they were pressing him for payment. Neither the plaintiff nor the bank intended to hinder, delay, or defraud the other creditors, but on the contrary both were animated by proper motives.

In pursuance of the agreement the suit was brought and the bulbs were attached. Judgment was entered on December 27, 1915, with the consent of the plaintiff’s counsel. After the attachment the plaintiff was nominally in charge for the sheriff. With the assistance of an employee furnished by the nursery company the plaintiff continued to cultivate the bulbs and later harvested them in the usual manner and stored them. Sometime about November 20, the nursery company sent to Wellesley and took away a substantial portion of the bulbs to its nursery in Lexington; and again, on December 10 and 13, more bulbs were taken to Lexington. The sheriff’s return charges him with the sale of bulbs aggregating $1,956.39. There was no evidence that Breck or the nursery company paid the sheriff any money for these bulbs; and no evidence of any other bulbs being similarly disposed of. Sometime after the first lot had gone to Lexington the plaintiff, at the request of Breck, signed an agreement which had been prepared by the bank’s attorney, giving the sheriff permission to sell eight hundred and ten thousand bulbs to the nursery company for the sum of $1,290.41. Breck explained the necessity for this agreement to be that the attorney feared that the act of the sheriff in letting the bulbs go might affect the validity of the attachment and this agreement would protect the sheriff. This agreement was in furtherance of the plan under which the parties were acting and the representations made by Breck to the plaintiff in respect thereto were made in good faith. The remaining bulbs were sold on January 6,1916, at an auction conducted by the sheriff. Breck, acting for the bank, purchased them for $750.

Shortly after the auction the plaintiff went to work regularly at the nursery of the Breck-Robinson Nursery Company in Lexington. From April, 1916, until the end of 1916, when he ceased to work at Lexington, he was paid $18 a week; after this date he made no demand for further payments and none were made to him.

The planting season of 1916 was delayed by reason of cold weather and the scarcity of labor. During the last part of May and the first part of June the bulbs were all planted under Chamberlain’s supervision. The planting was done on land generally suitable for gladioli culture and in the main satisfactory to Chamberlain, with the possible exception of about an acre in which the bulblets were planted; of the propriety of this plot he had some doubt. This land turned out not to be good for the bulblets.

In 1916 and in subsequent seasons the number of bulbs constantly decreased. The evidence did not account for this shrinkage either by sales or by adverse soil and weather conditions. The master states that it is difficult to account for the large decrease in bulbs except upon the theory that there was some careless or improper handling or cultivation, but it is impossible on the evidence to specify its nature.

January 17, 1916, the nursery company paid $500 to the bank on the plaintiff’s debt. This sum came from proceeds of the gladioli business and was credited by the bank on the note which represented this debt. On May 31, 1917, the nursery company made an additional payment of $500 to the bank. The bank received no other money. The full amount of this last payment was not credited to the note but $300 which the bank had paid to its attorney, Mr. Smith, in the proceeding against the plaintiff was deducted from it. There was no agreement that this deduction should be made, unless the payment to its attorney be considered as one of the expenses incidental to the carrying out of the agreement. Together with the sum which the sheriff had credited on the execution these two payments more than equalled the judgment debt from Chamberlain to the bank by $451.44, if the payment of the $300 to Mr. Smith is disregarded.

At the time the Chamberlain bulbs were taken to Lexington the nursery company had about thirty thousand bulbs of its own. These bulbs were not planted with the plaintiff’s bulbs, but no attempt was made in the accounts to segregate the cost of planting and cultivating or the receipts from their sale. All these items were grouped together in the “Gladioli Account.” The master states that it is not possible to separate the sales; that at the end of 1920, by direction of Breck, the “Gladioli Account” was closed, and from that time there is no account which deals with these bulbs in such manner as to allow any identification or analysis either of expenditure or receipts.

It is plain on all the reported facts and on the special findings of the master that the defendant Joseph Breck and Sons Corporation “was not a party to the agreement between Chamberlain and the Bank, either as principal or as agent, and that it did not act as a party in its performance”; that the defendant Charles H. Breck was not as an individual a party to the agreement between Chamberlain and the bank, and that he acted at all times either as the agent for the bank or for the Breck-Robinson Nursery Company in its capacity as agent for the bank; and “that the [defendant] BreckRobinson Nursery Company was not party to the agreement between Chamberlain and the Bank, and that it acted as agent for the Bank in planting, cultivating, harvesting, advertising and selling the bulbs with Chamberlain’s assent.”

The bill does not allege the improper commingling of the receipts of the sale of bulbs by the nursery company. People’s National Bank v. Mulholland, 228 Mass. 152. It follows that relief based upon this conduct is not within the scope of the bill. Gamwell v. Bigley, 253 Mass. 378, 380. Boothby v. Dezotell, 256 Mass. 250, 255. Thayer v. Atwood, 259 Mass. 523.

There are no special circumstances to take the case out of the general rule that an agent employed by a trustee is accountable only to the trustee who employed him, and that he cannot be considered a constructive trustee and held hable merely because he knew of the trusts. Archer v. Lavender, Ir. R. 9 Eq. 220, 225. Dove v. Everard, 1 Russ. & My. 231. Attorney General v. Chesterfield, 18 Beav. 596. Lockwood v. Abdy, 14 Sim. 437, 441. In this case there are no facts to warrant a finding that the defendants, with the exception of the bank, or any of them received the bulbs in a capacity other than as agent of the bank or that any of them has been guilty of corruption countenanced by the bank, or in concert with the bank has made a fraudulent misuse of the bulbs or of a misapplication of the money received from the sale of the bulbs. It follows that the general rule is to be applied as respects all the defendants apart from the bank; and that as to each of them the bill is to be dismissed with costs.

The report of the master establishes that the defendant bank held the legal title to the bulbs upon a trust for the purpose of liquidating the debt of the plaintiff to it, of reimbursing itself for the expenses of the plan, and of eventually returning the bulbs unsold and any surplus money realized from the sale of bulbs. In its answer the bank admitted “that the plaintiff has demanded an accounting and that it . . . has denied his right to an accounting.” This denial, as disclosed in the brief of the bank, was based upon the claim that the suit was premature in that the plaintiff was not entitled to have the unsold bulbs returned to him until he should pay his debt to the bank; that he has not paid the debt; that over $1,800 is still unpaid; and that the proceeds of the bulbs sold were not sufficient to pay the expenses of cultivation and selling and the amount due the bank. We think the bill for an accounting was not premature in the circumstances here disclosed showing a repudiation of the agreement by the Breck-Robinson Nursery Company in 1921, and the refusal of the bank on demand to make an accounting. Condit v. Maxwell, 142 Mo. 266, 276.

The bank set up in its answer and argues in its brief that the agreement was ultra vires. The bank had the power to loan money and as necessarily incidental thereto it had the right to take security therefor. First National Bank of Grand Forks v. Anderson, 172 U. S. 573.

The bank sets up in its answer and relies in its brief upon the defence of the statute of frauds, in that the agreement was not intended to be performed within one year. The agreement here constituted an equitable mortgage, and the statute of frauds is not a defence to the right of the plaintiff to have an accounting. Potter v. Kimball, 186 Mass. 120, 122. O’Brien v. Hovey, 239 Mass. 37, 43.

The defendant bank set up in its answer that the agreement was in fraud of creditors. It does not treat of this alleged defence in its brief, and on familiar ground it is deemed to have waived it. Disregarding the waiver, the agreement was valid between the parties to it. Pollock v. Pollock, 223 Mass. 382. As to creditors, such an agreement ordinarily would present a question of fact and not one of law. Bawson v. Plaisted, 151 Mass. 71, 72. Samuels v. Charles E. Fogg Co. 258 Mass. 402. Banca Italiana Di Sconto v. Bailey, 260 Mass..151. In the case at bar the finding of the master that there was no fraud cannot be said as a matter of law to be erroneous. As the bank points out the bill does not allege any breach of trust on the part of the bank and does not pray for any specific relief against the bank; but this is not necessary. G. L. c. 214, § 12. Kilkus v. Shakman, 254 Mass. 274, 279. A decree for an accounting may be had under a prayer for general relief. Watts v. Waddle, 6 Pet. 389.

Founded upon objections to the master’s final report, the bank on July 8, 1924, filed the following exceptions:

“1. This defendant duly requested the master to insert at the end of paragraph 14 of his report the words ‘The agreement with Chamberlain was finally made in July 1915.

“‘It was a part of the agreement that the bulbs should be planted and cultivated and harvested during the summer and fall of the year 1916.’

“The master has failed to comply with this request although the statements asked for were statements as to important, if not vital issues raised by the pleadings and were statements fully warranted by the evidence in the case.

“2. This defendant duly asked the witness J. A. Bailey, Esq., what his client said to him about any agreement between himself and Mr. Hallett the president of the bank. The master finally ruled that the question was incompetent and need not be answered.

“An offer of proof was then duly made that the witness J. A. Bailey if required to answer would testify that his client Chamberlain never told him of such an agreement. This testimony would have contradicted the testimony of Mr. Chamberlain on a very vital point.”

These exceptions were overruled by an interlocutory decree, filed January 18, 1926, and the bank appealed therefrom on January 23, 1926. In its brief the defendant deals only with the exception numbered “2” and is therefore taken to have waived its appeal from the interlocutory decree overruling the exception numbered “1.”

The record discloses that, after Chamberlain had testified on cross-examination that he told his counsel, James A. Bailey, Jr., of his conversation with Hallett, the president of the bank, being the conversation which was the basis of the agreement, Mr. Bailey, called as a witness for the defendants, was asked by counsel for the bank: “Did Mr. Chamberlain tell you that he had entered into an agreement with Mr. Hallett . . . that the suit was to be a friendly suit, and that the bank was to buy in the bulbs and cultivate them for the benefit of Mr. Chamberlain? ” This question was excluded, and the bank made the offer of proof, namely, that the witness if required to answer would testify that Chamberlain never did tell him the things contained in the defendant’s question, that is, that his answer would be “No.” It is said in Woburn v. Henshaw, 101 Mass. 193, at page 200: “The policy of the law will not allow the counsel himself to make disclosures of confidential communications from his client; but if the client sees fit to be a witness, he makes himself liable to full cross-examination like any other witness”; and it was said in Gossman v. Rosenberg, 237 Mass. 122, at page 124, “a voluntary witness waives every personal privilege.” The privilege against the disclosure of confidential communications between attorney and client is personal to the client and may be waived by him. Phillips v. Chase, 201 Mass. 444, 450. See Montgomery v. Pickering, 116 Mass. 227; McCooe v. Dighton, Somerset, & Swansea Street Railway, 173 Mass. 117. The evidence was admissible. The exception argued must be sustained.

On January 18, 1926, on motion to confirm the master’s report, it was ordered, adjudged and decreed “That the master’s report be recommitted upon the question of the statement of the account as against the defendant the Fourth Atlantic National Bank, and the master is directed to state the account in accordance with the rulings set forth in the order on exceptions to master’s report.” The bank took no appeal from the interlocutory decree ordering a recommittal for the statement of the account against the bank. In this supplemental report the master finds, without a report of the evidence, that the value of the bulbs when the bill was filed was $11,451.96; that the gross sales amounted to $15,379.38, a total of $26,831.34; and that the expense of cultivating and selling bulbs was $17,031.78, including judgment on the note as of December 27, 1915, and interest on judgment to October 31, 1921. That is to say the gross sales did not amount to enough to pay the note, interest and expenses of cultivation. The shortage was $1,652.40. Deducting this shortage from the value of the bulbs on hand left the plaintiff entitled to receive $9,799.56 on October 31, 1921, when the bill was filed.

The brief for the bank contains no discussion or objection to any item of the account as stated by the master. As against the bank that account must stand if it be warranted in any aspect of the facts found. The finding of the master that the value of the bulbs should be taken as of October 31, 1921, and not of the spring of 1916 as he found in his first report, is based upon a ruhng of the judge “that it is not reasonable to infer from the facts reported that the decrease in the quantity of bulbs ["between the spring of 1916 and January 1921] was due to careless or improper handling or cultivation.” It was of course reasonable for the master to change his finding in this regard if upon further consideration he concluded the first valuation was not warranted by the facts. The evidence is not reported, and aside from the findings of the master in the first report, which are withdrawn, there are no facts found requiring a reversal of the finding in his second supplemental report that establishes the value of the bulbs to be $11,451.96 instead of the first finding of $20,000. The bank does not in terms present any objections to the item of gross sales nor does it contend that the items and sums credited the account are inaccurate in description or less in amount or value than they should be.

The objections of the plaintiff to the master’s second supplemental report, which were overruled by an interlocutory decree of November 8, 1926, and which are before this court on appeal of the plaintiff, are as follows:

“(1) Objection is made to Paragraph 4 in the master’s second supplemental report in so far as the master finds that three thousand and seventy-five dollars and eighty-seven cents ($3,075.87) is a reasonable compensation to the nursery for its services in selling the bulbs, it appearing in the said paragraph of the report that there is no evidence as to what the fair value of said services was.

“ (2) The plaintiff objects to the inclusion of the following amounts in the account stated in paragraph 4 of the master’s second supplemental report, said amounts appearing as credits to the accountant.

“ (a) Value of services of Curtis N. Smith $300.00

(b) Advertising as per par. 32 of report 87.67

(c) Catalogues, printing, mailing, etc., as per

par. 32 of report 198.00

(d) Use of land as per agreement 623.00

(e) General Management as per par. 34 of

report 820.00

(f) Clerical expense as per par. 35 of report 380.00

(g) Fertilizer as per par. 36 of report 1,200.00

(h) Heating as per par. 38 of report 174.00

“The plaintiff objects to these items on the ground that said charges are not in accordance with the contract between Chamberlain and the defendants, and on the additional ground that there is no evidence on the basis of which said amounts can be allowed as appears from the face of the master’s report.”

The allowance and computation are supported by the facts found. The credit of $3,075.87 with the approval of a judge of the Superior Court was found by the master to be a reasonable commission on the gross sales as compensation for the services in selling. Item (a), the Smith fee of $300, was found to be a reasonable fee for the services rendered by him in bringing the action and putting through the legal details of the plan. Items (b) and (c), for advertising, catalogues, printing, mailing, etc., are divided, and, totaled in the first account stated by the master and in the reported facts, would seem to have been proper expenditures in the prosecution of the business and equitable in amount. Item (d), for the use of the land, was properly allowed by the master; the value of such use was agreed upon by the parties. Items (e) and (f), charges for general management from 1916 to 1920 inclusive and for clerical service, were arrived at by determining a proper proportionment which should be allowed and credited for such services, to be ascertained from the proportion the gladioli sales bore to the total sales of the BreckRobinson Nursery Company; although difficult to determine absolutely, the method used seems to be a reasonable one. Items (g) and (h),. for fertilizer and heating, are manifestly proper charges for expense, and in the absence of the evidence cannot be found to be wrong.

The interlocutory decree overruling the exceptions of all parties and confirming the report is affirmed except as to the defendants’ exception numbered 2, and as to that exception the decree is reversed. It results that the bill is to be dismissed with costs as to all defendants other than the Fourth-Atlantic National Bank. As to that defendant the case is to be remanded to the Superior Court for further proceedings not inconsistent with this opinion.

Decree accordingly.