O'Brien v. O'Brien

131 N.E. 177, 238 Mass. 403, 1921 Mass. LEXIS 1009

Opinion

Rugg, C. J.

This is a suit in equity concerning shares of capital stock in a corporation. There are three defendants. Each filed a separate demurrer, all of them being of the same tenor. No action except the final decree dismissing the bill appears to have been taken upon the demurrers of the defendants other than upon that of Margaret O’Brien. Upon her demurrer an order was made to the effect that the demurrer be sustained, and that “ unless within two weeks leave shall be given to amend, a decree dismissing the bill shall be entered without further order.” Two days after the expiration of the two weeks thus limited, another order was entered that “ unless leave to amend the bill in this case is given on or before May 10, 1920, a decree is to be entered dismissing the bill with costs.” Those orders in legal contemplation mean that the cause will be dismissed if the action in question is not taken within the time specified, and that until an order based upon proof is made that such action has not been taken, the court still may deal with the case. Loonie v. Wilson, 233 Mass. 420, 423. Plaisted v. Cooke, 181 Mass. 118.

There was a finding of fact that there was no compliance with either of those orders. No interlocutory decree was entered. A final decree was entered dismissing the bill as to all the defendants without any recital as to the grounds upon which it was entered. The plaintiff’s appeal from the final decree brings the case here.

The better and more satisfactory practice would have been to have entered an interlocutory decree sustaining the demurrer. A mere order sustaining or overruling the demurrer has been treated as the equivalent of an interlocutory decree. Parker v. Flagg, 127 Mass. 28. Nelson Theatre Co. v. Nelson, 216 Mass. 30, 33.

Since the only pleadings filed by the defendants were demurrers, and since the decree in dismissing the bill was final in the sense of disposing of the whole case without reservation of any sort, Corbett v. Craven, 193 Mass. 30, there is ground for the contention that the plaintiff may proceed in this court on the presumption, as to the defendants other than Margaret O’Brien, that the final decree was in substance and effect a decree sustaining the several demurrers of those defendants, see Keown v. Keown, 231 Mass. 404, , Capaccio v. Merrill, 222 Mass. 308, Coyle v. Taunton Safe Deposit & Trust Co. 216 Mass. 156, 160, and that his appeal seasonably taken and prosecuted opens to him to argue the merits of his bill as put in issue by the demurrers of those defendants. The entry of a final decree dismissing a bill with costs when the only pleading filed by the defendant is a demurrer imports a sustaining of the demurrer in the absence of anything either on or outside the record to indicate any other ground. The usual and proper practice, however, is an interlocutory decree sustaining the demurrer.

The merits of the demurrer are open for another reason. The final decree was entered because the plaintiff failed to amend his bill in accordance with the orders to that end. Although no appeal was taken by the plaintiff from the order sustaining the demurrer of Margaret O’Brien, nevertheless, interlocutory decrees not appealed from are open to revision on appeal from a final decree so far as such final decree is erroneously affected thereby. R. L. c. 159, § 26, now G. L. c. 214, § 27. The only ground for the order for a final decree dismissing the bill', so far as disclosed by the record, was that the bill was demurrable for the reasons set forth by the demurrer of Margaret O’Brien. There was no occasion for the plaintiff to amend his bill, if it were not defective for those reasons. Therefore the freedom from error of the final decree depends upon the question whether the order sustaining the demurrer of Margaret O’Brien was. right. It is open to revision here and now. Cowley v. Jean, 189 Mass. 220, 225, 227. Harrell v. Sonnabend, 191 Mass. 310. Lyons v. Elston, 211 Mass. 478, 482. Fay v. Corbett, 233 Mass. 403, 410.

The substantial allegations of the bill are that in 1906 the plaintiff and the two individual defendants organized under the laws of Connecticut a corporation named the Otter River Board Company, of which the three constituted all the stockholders and officers; its capital stock was $28,000, divided into two hundred and eighty shares, each of the par value of $100, of which the plaintiff held ten, the defendant Margaret O’Brien ten, and the defendant John P. O’Brien two hundred and sixty shares; it had no tangible property in the State of its domicil but had real estate and machinery and conducted business at Templeton in this Commonwealth; that it built up a successful business and acquired a valuable good will; that in 1913 its plant was destroyed by fire; -that in 1913 the defendant John P. O’Brien, instead of liquidating the Connecticut corporation, applied insurance money received by reason of the fire to the organization and payment of the capital stock in a Massachusetts corporation of the same name as that of the Connecticut corporation, and caused to be conveyed by deed in the name of the Connecticut corporation, without vote of its stockholders and without notice to the plaintiff, all its real estate to the Massachusetts corporation; that the Massachusetts corporation took possession of the good will and other assets of the Connecticut corporation and has continued to enjoy and use them; that John P. O’Brien allowed the charter of the Connecticut corporation to lapse by failing to file required returns, and that that corporation was legislated out of existence in 1916; that the defendant John P. O’Brien professed to and did act as agent and trustee of the plaintiff’s interest in the Connecticut corporation during its active business; that the plaintiff knew in a general way of proceedings for the organization of the Massachusetts corporation, “but was informed by the defendant John P. O’Brien that the stockholders of the old corporation would receive stock in the new corporation to an amount pro rata to that held by them in the old corporation and that his interest therein would be properly protected by the said John P. O’Brien, and relying upon said assurance took no steps or made no inquiries to find out as to whether that arrangement had been actually carried out until recently when, upon inquiry, the plaintiff ascertained that instead of issuing stock in the new corporation to the holders of stock in the old pro rata to the amounts of stock previously held by them, defendant John P. O’Brien had caused all the stock of said Massachusetts corporation to be issued to the . . . individuals associated with him in the formation of said new corporation and had appropriated all of the plaintiff’s interest therein to himself regardless of the plaintiff’s rights; . . . that at some time to the plaintiff unknown, the defendant John P. O’Brien either transferred or caused to be originally issued to one Margaret O’Brien, his wife, all or substantially all of his stock in the corporation including that wrongfully issued in place of the plaintiff’s stock, and the said John P. O’Brien made this transfer fraudulently and with the intent to hinder, delay and embarrass the plaintiff in recovering his said stock or the value of his interest in the said corporation; and the said Margaret O’Brien accepted the transfer of said stock and received the same with full knowledge of all the plaintiff’s equities in the' matter.”

There are alternative prayers for the issuance to the plaintiff of his proportional share of the stock of the Massachusetts corporation, for an adjudication of the invalidity of the deed from the Connecticut to the Massachusetts corporation and sale thereof under order of the court for distribution among stockholders of the Connecticut corporation, for an accounting and for other relief.

The bill sets out a cause for relief in equity. There are averments of fiduciary obligations on the part of the defendant John P. O’Brien to the plaintiff, breach of that trust to the harm of the plaintiff, conversion of the trust res by that defendant, transfer of his property to the defendant Margaret O’Brien on a secret trust in order to hinder and defeat the claim of the plaintiff, all to the knowledge of the defendant Margaret O’Brien, and shares of stock in the defendant corporation standing in the name of the defendant Margaret O’Brien which in equity and good conscience belong to the plaintiff. An action at law affords no adequate relief for such fraudulent conduct. It is the peculiar province of equity to adjust the rights of the parties under such circumstances. Rioux v. Cronin, 222 Mass. 131. Parker v. Nickerson, 112 Mass. 195. Cohen v. Levy, 221 Mass. 336. Lyon v. Wallace, 221 Mass. 351. Glover v. Waltham Laundry Co. 235 Mass. 330. The defendant John P. O’Brien as director occupied a position of trustee toward the plaintiff as stockholder in the Connecticut corporation. Elliott v. Baker, 194 Mass. 518, 523. In addition there is express averment of a trust on his part.

The conveyance of real estate by the Connecticut corporation, being regular in form and under the corporate seal, is presumed to be regular. Lamson v. Coulson, 234 Mass. 288, and cases cited at page 292. Nevertheless that is only a rebuttable presumption and it is open to proof that it was unauthorized.

It being alleged that the Connecticut corporation is no longer in existence, no application could be made to it by the plaintiff to redress his wrongs and it could not have been made a party. All its stockholders on the averments of the bill are made parties. Manifestly it would have been idle for the plaintiff to ask relief of the defendants. Converse v. United Shoe Machinery Co. 209 Mass. 539. Hayden v. Perfection Cooler Co. 227 Mass. 589, 593.

The defendant Massachusetts corporation is a proper party, if in the end it should be held that stock in it in truth belonging to the plaintiff stands in the name of either of the other defendants. Warr v. Collector of Taxes of Taunton, 234 Mass. 279, 281.

By demurrer advantage can be taken of loches shown on the face of the bill. Doane v. Preston, 183 Mass. 569. The case at bar does not come within that principle. The suit was brought more than six years after the initial wrong of which complaint is made. The statute of limitations is as applicable in equity as at law. Bremer v. Williams, 210 Mass. 256. These facts are overcome by the averments of the bill. It is alleged that the plaintiff was ignorant of the breach of trust by the defendants until shortly before the present proceeding was instituted. The plaintiff is held to diligence in action after the discovery of the facts, but there cannot be loches so long as there is no knowledge of the wrong and no failure to avail oneself of reasonable opportunities to ascertain the facts. Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 201. Dunning v. Bates, 186 Mass. 123. Manning v. Mulrey, 192 Mass. 547, 550, 551.

The circumstance that the plaintiff was himself a director and secretary of the Connecticut corporation, although important as matter of evidence and in determining issues of fact which may arise, is not decisive against him as matter of law. It is, nevertheless, possible that a trust relation may have existed between him and John P. O’Brien and that the latter has been faithless toward him.

It follows that the decree dismissing the bill must be reversed and the case stand for further consideration.

So ordered.