Lovejoy v. Bailey

101 N.E. 63, 214 Mass. 134

• Court: Massachusetts Supreme Judicial Court
• Decided: February 27, 1913
• Status: Published

Opinion

Sheldon, J.

These two suits in equity, although they have not been formally consolidated, arise out of the same transaction, have been heard together, and come before us upon a single reservation. And when we speak generally of the defendants in the first suit, we refer to the defendants other than Fowle.

1. The demurrer to Lovejoy’s amended bill should be first considered.

The bill properly can be maintained for an accounting. By separate instruments, made by each partner with the knowledge and consent of the other, the plaintiff became entitled to receive one half part of the profits of each partner and, upon the dissolution of the partnership, to one half part of the interest of each partner in all the firm property. And both partners covenanted with the plaintiff that the real estate described in the bill was and should remain a part of the partnership assets. This was enough to entitle the plaintiff to come into equity to have an account taken and the amount to which he was entitled ascertained. Neither the existence nor the extent of any money demand by him against either one of the partners could be ascertained until such an account had been taken. After the firm, though not actually dissolved, had ceased to do business and by the devices stated in the bill had stripped itself of the great bulk of its assets, the plaintiff would have been without remedy if he could not have brought such a bill as this. Whatever might have been his liability to firm creditors (Fitch v. Harrington, 13 Gray, 468), he was not as to members of the firm a partner. London Assurance Co. v. Drennen, 116 U. S. 461. Ex parte Barrow, 2 Rose, 252. Bray v. Fromont, 6 Madd. 5. But he was yet entitled to an accounting in order to determine his rights against each partner and to hold as against them their interests in the firm for the satisfaction of whatever sums should be found to be due to him. R. L. c. 159, § 3, cl. 7. Chandler v. Chandler, 4 Pick. 78. Hallett v. Cumston, 110 Mass. 32. Noble v. Joseph Burnett Co. 208 Mass. 75, 82. Mathewson v. Clarke, 6 How. 122. Even were this doctrine not so well established, yet the bill could be maintained under R. L. c. 159, § 3, cl. 6. The averments abundantly show the necessity of taking an account too complicated to “be conveniently and properly. adjusted and settled in an action at law.” Massachusetts General Hospital v. State Mutual Life Assurance Co. 4 Gray, 227. Pierce v. Equitable Life Assurance Association, 145 Mass. 56.

We need not determine whether the plaintiff could have maintained a bill against each separate member of the firm upon the separate agreement with him without joining the other parties in interest, especially if he had sought only a declaration of his rights against each separate member. See Settembre v. Putnam, 30 Cal. 490; Brown v. De Tastet, Jac. 284. Under the circumstances now averred, with the same right relied upon against each partner, where it appears that the rights of the plaintiff against each partner have been recognized by both members of the firm, and where as here one partner has absconded and the other has assumed control of all the business and property of the firm, and has so dealt therewith as to put it beyond the reach of the plaintiff unless such dealings can be avoided or disregarded, and where the other defendants have combined with that partner in a fraudulent endeavor to deprive the plaintiff of his contract rights against each partner, a bill brought to enforce those rights is not to be regarded as multifarious, because it recites the details of the fraudulent scheme and joins all the conspirators as parties defendant. The plaintiff upon the averments of the bill seeks to avoid the effects of one scheme of fraud, participated in by all the defendants except Fowle, who had absconded, and so could not act, but who is a necessary party to the bill. It would have been a needless and vexatious duplication of actions and of the resultant trouble and expense to all parties for the plaintiff to bring a separate bill upon each one of his separate agreements with the two partners, where, in order to secure the full relief to which upon the allegations of his bill he is entitled, he would have been compelled in each bill to join all the defendants and to seek upon the same grounds for the same relief that now is asked for. Here, as was the case in Bliss v. Parks, 175 Mass. 539, the bill seeks to enforce a general right with which all the matters charged are connected and to which all the parties are so related that they cannot be said to be unduly burdened by being joined in the same suit. As was said in that case, the objection of multifariousness is one as to which there is no inflexible rule, and the question must be determined largely by the circumstances of the particular case. Nor is it indispensable that all the parties to the bill should have an interest in all the matters complained of; it is enough if each party has an interest in some of the matters and they are connected with one another. See the cases collected in Coram v. Davis, 209 Mass. 229, 248, and Ginn v. Almy, 212 Mass. 486, 493.

Most of the cases relied on by the defendants rest upon different facts from those presented here, and are not applicable to this case. See for example Keith v. Keith, 143 Mass. 262; Ricker v. Brooks, 155 Mass. 400,403; Sylvester v. Boyd, 166 Mass. 445; Davis v. Peabody, 170 Mass. 397; Mesisco v. Giuliano, 190 Mass. 352; McLellan v. Osborne, 51 Maine, 118; Sawyer v. Noble, 55 Maine, 227; White v. White, 5 Gill, 359; Griffin v. Merrill, 10 Md. 364.

The other causes of demurrer assigned have not been argued and could not be sustained. The decree overruling the demurrer must be affirmed.

2. Many of the defendants’ exceptions to the master’s first report deal with findings of fact made by him. Only a part of the evidence heard by the master has been reported; but the parties by a stipulation have agreed among other things that “there was evidence upon which the findings of fact made by the master might. be made.” The defendants contend that the part of the evidence which has been reported shows that some of their exceptions to findings of fact should be sustained. We do not think so. We do not find so binding an admission by the plaintiff as has been contended for in argument, or any other testimony which might not have been met and controlled by unreported evidence. And the decision on Lindenbaum v. New York, New Haven, & Hartford Railroad, 197 Mass. 314, 323, that even uncontradicted evidence is not necessarily to be accepted as true, has been so often cited and followed that it is no longer to be argued against. The master had a right to find on proper evidence that Fowle’s assumption of certain outstanding debts in his partnership agreement with Bailey was procured by the undue influence of Bailey, and so Bailey could not hold Fowle to its performance; and the stipulation of the parties which we have mentioned shows that there was such evidence. And the circumstances could very well be such that the rest of the agreement ought to stand, with the elimination of this obnoxious clause.

3. The thirty-second exception ■ cannot be sustained. It is made immaterial as to the administratrix of Salmon by her subsequent appearance and answer and the fact that she is relieved from any claim by the special statute of limitations. R. L. c. 141, § 9. The liability of the other defendants is the same whether Salmon was an innocent tool or an active participant in the execution of this fraudulent device. The thirty-third exception is immaterial, for the master’s report shows that Clemson bought and procured to be assigned to himself the mortgage held by the City Institution for Savings, and there was no contention that he paid for it less than the amount due thereon. And the desired finding, which though not material upon the main issue might have a bearing upon the account to be taken, was made by the master in his second report. The charge is not that the confederates bought in this mortgage for less than its value, but that they acquired and used it for the purpose of carrying out an intended fraud which could not have been accomplished without first gaming control of the mortgage.

4. We see no ground of objection to the interlocutory decree entered on August 8, 1906, as amended on June 24, 1907, upon the master’s first report and the exceptions taken thereto by the different parties. Its provision gave to the plaintiff Lovejoy nothing more than he was entitled to.

5. Upon the master’s second report, certain exceptions of the plaintiff Lovejoy and of the defendant Fowle (who is the plaintiff in the second suit) were sustained. This was upon the ground that the master in his first report had found that the defendants Bailey, Clemson and Blendinger had participated in the fraudulent scheme set forth in the report, and had organized the two corporations, in which they alone were really interested, for the purpose of carrying out that fraudulent scheme. The single justice who entered that decree considered that on the findings the defendants became in equity joint tortfeasors and were liable jointly and severally for the wrongs in which they joined. Upon the facts then found and reported, we do not doubt that this was right. The mere fact, if it be so, that some of the defendants came into the scheme only after it had been formed and partly executed by Bailey, that the corporations for example may not have been organized until later, would not protect them from a joint and several liability with the earlier confederates, if they came into the scheme for the purpose of completing its accomplishment and of taking with full notice and knowledge the benefit of what wrongfully had been done. They would be liable alike for what preceded and what followed their accession to the combination. Livermore v. Herschell, 3 Pick. 33. Adams v. Paige, 7 Pick. 542. Cheney v. Gleason, 125 Mass. 166. Boston v. Simmons, 150 Mass. 461. Emmons v. Alvord, 177 Mass. 466. Nor do the additional findings of the master in his third report take the case out of the rule stated. They leave untouched the finding in the first report that “the foreclosure of the personal property mortgage and the sale thereof by Salmon, the mortgagee’s sale of the real estate by Clemson, the sale of the personal property by Bailey in the name of Fowle Brothers and Company, and the sales by Blendinger to the Bailey-Blendinger Manufacturing Company, were all made in pursuance of a fraudulent scheme by the aforesaid parties to defraud W. Frank Fowle and Elwyn W. Lovejoy, and that the intended sales were a mere pretence and cover to procure an apparent title to the property transferred.” These findings are in no way reversed or modified in the third report. The additional finding there made went no further than to show that Clemson and Blendinger did not concern themselves about each other’s wrongful gains, and that the same thing was true of the two corporations. But we do not consider it material that the different defendants took in severalty their respective shares of the booty resulting from their joint scheme. Nor upon the findings can the two corporations stand any better than the two individuals respectively interested in them. The Clemson-Bailey Company stands in the shoes of Clemson and Bailey; the Bailey-Blendinger Company in those of Bailey and Blendinger. Whether the corporations were organized at an earlier or a later period in the execution of the scheme is of no consequence. These defendants are jointly and severally liable.

6. But it is said that the suit against Clemson has fallen by reason of his death. If this were merely an action of tort for the consequences of a fraud, that might be so. Houghton v. Butler, 166 Mass. 547. Jenks v. Hoag, 179 Mass. 583. But that is not the case. Bailey stood in a fiduciary relation both to Fowle and to Lovejoy. The other defendants, taking the property which was the subject of that fiduciary relation from Bailey with notice of the rights of Fowle and of Lovejoy, gained no greater rights than those of their grantor. This is especially true where, as here, they all acted with a fraudulent intent to defraud Fowle and Love-joy. Such a cause of action in equity survives the death of either of the parties. As in Concha v. Murrieta, 40 Ch. D. 543, the act complained of is not a mere tort, but it is a breach of a quasi contract, the claim being founded on the breach of a fiduciary relation, and the law implying a contract that a man will faithfully perform duties which he has undertaken. As in Batty v. Greene, 206 Mass. 561, the plaintiffs are really seeking to follow trust property or its avails procured by fraud and still held as part of the estate of the fraudulent party. And see, substantially to the same effect, Cheney v. Gleason, 125 Mass. 166, 174; Warren v. Para Rubber Shoe Co. 166 Mass. 97, 104; Wineburgh v. United States Steam & Street Railway Advertising Co. 173 Mass. 60; Parker v. Simpson, 180 Mass. 334, 343. The Orange County Trust Company, as executor of the will of Clemson, must be held liable to these plaintiffs, and a proper decree must be entered against it. Von Arnim v. American Tube Works, 188 Mass. 515, 521.

7. The defendants’ twenty-sixth exception to the master’s second report rightly was sustained. As the Bailey-Blendinger Company is held to pay rental, this item must be allowed as a charge in diminution of its net profits. Otherwise, it would be doubly charged with rent.

8. As to the mortgage for $5,000 which was assigned to Clemson and foreclosed by him in the manner reported by the master, it is contended by the defendants that the amount thereof should be allowed to them in the accounting. So far as this claim rests upon any right of the defendants to be subrogated to the benefit of the incumbrance which they have paid by means of a foreclosure, their contention cannot be allowed. What they did was done in furtherance of their fraud as an essential part of their wrongful purpose. They acted in their own wrong; they do not come into court with clean hands, and cannot now invoke the equitable doctrine of subrogation to relieve them from the consequences of their tortious acts. Railroad Co. v. Soutter, 13 Wall. 517. Sands v. Codwise, 4 Johns. 536, 598. Gillespie v. Moon, 2 Johns. Ch. 585, 602. Guckenheimer v. Angevine, 81 N. Y. 394. McCaskey v. Graff, 23 Penn. St. 321. Hays’ estate, 159 Penn. St. 381. Almond v. Wilson, 75 Va. 613. White v. Trotter, 14 Sm. & M. 30. Connecticut Mutual Life Ins. Co. v. Smith, 117 Mo. 261, 297, 298. Goble v. O’Connor, 43 Neb. 49. Johnson v. Moore, 33 Kans. 90. But this well settled principle is not applicable. The note, though signed by Fowle and not by the firm, was a charge upon the firm’s real estate, and, through the Salmon mortgage, upon much of its personal property. It may be doubted whether, under the partnership agreement between Fowle and Bailey, with the elimination of the clause which .as we have seen is to be disregarded, this note had not become a firm debt. At any rate, it was substantially so. If it had been paid by the firm in good faith, in the regular course of business, this would have been a proper expenditure of the partnership funds, and could not have been charged by the firm to Fowle’s private account. In effect, the note has been paid. •As this was the payment of a firm debt, the defendants must be credited with it as such. But this allowance of course cannot diminish the profits of the old firm. It was like an old debt of the firm; its payment is like the payment of any such debt.

9. The amounts paid for taxes upon real estate and machinery should be allowed as an offset against rent and depreciation. The account is taken as if the real estate and machinery had been leased to the Bailey-Blendinger Company; and in such case the taxes, in the absence of any agreement on the subject, would have fallen upon the general owners of the property. R. L. c. 12, § 20. Walker v. Whittemore, 112 Mass. 187, 189. Boston Molasses Co. v. Commonwealth, 193 Mass. 387, 391. But the amounts paid by the defendants for insurance premiums should not be allowed to them. Their policies were taken for their own benefit, and would not have been available to either of these plaintiffs. Nor are the defendants’ expenditures for repairs to be allowed to them. Repairs made by tenants are not chargeable to the general owner.

10. The salaries paid to the officers of the two corporations must be treated as if the corporations had not been formed, but the individual defendants had carried on the business directly and in their own names instead of doing so indirectly and under the shelter of the corporate organizations. If that had been so, it would have been for the court to say as a matter of discretion whether anything or how much should be allowed as compensation for their services. Robinson v. Simmons, 146 Mass. 167. Moore v. Rawson, 185 Mass. 264, 276, and 199 Mass. 493, 502. In these cases, the defendants, whose conduct was wholly wrong, should be allowed no compensation for services in continuing the old business. But the business of the corporations was not wholly that of the old firm. The salaries in question were not themselves fraudulent and excessive, and were paid for the management of other property and capital mingled with those of the old firm. Something properly may be allowed for this reason. We think it fair under the circumstances to allow one half of the amounts paid for these salaries and no more. Bailey must, however, be charged with the amounts drawn by him from the old firm while managing its business, being $30 á week or thereabouts. It does not appear that this was an agreed allowance to him for services; and it must be taken to have been received by him merely as a partner.

11. The sum of $3,355.35, being profit received by Bailey on the sale of his stock in the Clemson-Bailey Company, should be charged against him. It was a profit made by him in dealing with the firm property and its proceeds. And under the rule to be applied in these cases this proper charge against Bailey is also a proper charge against all the defendants other than Fowle, just as they all become liable to Lovejoy for the amount which originally he could have recovered only from Fowle, — all of them being held by reason of their combination in the scheme to prevent the plaintiff from obtaining what was due to him from each of the two members of the original firm.

12. As already has been said, the cause of action against the defendant Scalley as administratrix of the estate of Salmon is barred by statute and the bill must be dismissed as to her.

13. The claims allowed by the receiver should be paid by him out of the balance in his hands if that balance is sufficient therefor. The claim made by Clemson’s executor for $5,000 must be disallowed; but as this is to be considered in the general accounting, it is not perceived that his estate suffers by the disallowance. The claim made by Blendinger must be disallowed. So far as he is entitled to any allowance, it will be made in the accounting as already stated.

14. The good will of the business of the old firm was properly charged against the defendants.

15. The assets of the old firm must of course be taken to include the notes of Fowle and Bailey, amounting to about $6,500 due from each of them. This has not been disputed.

16. We do not think it necessary to discuss the other questions that have been argued, except to say that we do not allow to either plaintiff both interest and profits upon the same amounts for the same time. This of course should not be done. None of the contentions made by either party in argument which have not been allowed is sustained.

17. Since the account is taken as of August 8,1906, each plaintiff is entitled to interest from that date upon the amount found due to him. Counsel have not fully argued the question what these respective amounts should be, and we think it better to leave that point to be settled by a single justice, or if necessary, by the master. In the first case, the plaintiff Lovejoy is entitled to a decree against the defendant Fowle for the amount due from that defendant, with interest as aforesaid, but without costs; and against all the other defendants except Scalley and the Orange County Trust Company for the total amount due him from both Fowle and Bailey, with interest as aforesaid, and costs. Against the Orange County Trust Company he is to have a decree for costs, and also a decree for the total amount last mentioned, with interest as aforesaid, to be paid out of the goods and estate of Clemson in his hands. ■But he is to have only one full satisfaction from all the decrees and any amount that may be available to him from the fund in the hands of the receiver is to be credited upon his decrees. As to the defendant Scalley, the bill is to be dismissed with costs.

In the second case, the plaintiff Fowle is to have a decree against the defendants (except the defendant Scalley, as to whom the bill is to be dismissed with costs) for the amount found due to him, after allowing for the notes due from him and from Bailey to the old firm of Fowle Brothers and Company, with costs.

As the demand of Parker has been allowed and is to be paid accordingly, his intervening petition is to be dismissed without prejudice, unless it shall appear that the fund in the hands of the receiver is insufficient to meet his demand. In that event, he is to have decrees against the defendants in the first case for any balance due him, like those of the plaintiff Lovejoy. And the receiver is to be ordered, after payment of his proper costs and charges, to pay the amount of the approved claims of Parker, of John L. Fowle, and of the Clemson-Bailey Company, in full or ratably, as the amount in his hands may or may not be sufficient therefor, and to pay any balance that may remain to the plaintiff Lovejoy, to be credited on the total amount to which he is entitled as aforesaid.

So ordered.