Woodward v. MacKenzie

31 F.2d 721, 1929 U.S. App. LEXIS 3539
Court of Appeals for the First Circuit·Decided March 16, 1929·No. No. 2309·Published

Opinion

ANDERSON, Circuit Judge.

This appeal presents a family controversy over property.

The plaintiff, Mrs. Margaret MaeKenzie, was born in Scotland in 1852, and was twice married. By her first marriage she had two children, John Gillies and Susie Gillies; by her second marriage, two daughters, the defendant Prudence M. Woodward and Mrs. Margaret Belcher. Prudence was married to defendant Jeremiah. D. Woodward in 1905 and divorced from him in 1925.' They had two daughters. Margaret, the older, in 1925 married a lawyer, Chester W. McNally. In 1926 plaintiff went to live with the McNallys, in New Jersey, and McNally persuaded her to bring this suit on June 2, 1927, without previous demand or notice. McNally appears as counsel for plaintiff and as a witness. The suit was instituted and is being financed by him. The other personal defendant is Costas, who from boyhood was an employee of the defendant corporation, Gillies & Woodward.

Summarily stated: Plaintiff complains that she owned 27 of the 50 shares of the defendant corporation, by inheritance from her son John D. Gillies, who died January 2, 1916, and that she was fraudulently induced by her daughter and her daughter’s then husband, Jeremiah, to transfer these shares, one to Costas, seven to Jeremiah, and nineteen to Prudence; that she is entitled to rescind these transfers and recover the shares, together with all dividends paid thereon; that her daughter and son-in-law also illegally misappropriated large sums of money belonging to the corporation; and that as an alleged stockholder she is entitled in this suit to require repayment of such withdrawals, together with interest.

The answers not only deny all the material allegations of fact, but set up laches, prescription (limitation), and misjoinder of defendants and of causes of action.

The conclusion we have reached on the merits makes it unnecessary for us to determine whether such a combination of separate claims and separate defendants as is here made can be united under a single unit, under the most liberal interpretation of equity rule 26. .

After a long trial (a record of 600 pages) the court below in a brief opinion found that the Woodwards, as long ago as in 1916, conceived a plan to defraud the plaintiff of her stock, carried out by falsely and fraudulently informing her that the corporation was insolvent, and by causing her to transfer her stock into the name of her daughter Susie, without her knowledge or consent. The judge overruled, without discussion, the legal defenses set up.

The decree required plaintiff’s daughter, Prudence, to turn over to plaintiff nineteen shares of stock, with dividends amounting (with interest) to about $40,000, less $12,000, with interest, paid for this stock by Prudence. It required Costas to surrender one share, with back dividends and interest amounting to about $2,000. It required Jeremiah to surrender seven shares, with back dividends and interest amounting to about $15,000. It also required Jeremiah to repay to the corporation about $40,000, with interest from various dates, and referred the case to a master for further accounting.

Both the findings and the rulings are unwarranted, giving the fullest weight to the conclusion. of the trial court, that saw and heard the witnesses.

While Mrs. MaeKenzie, at a preliminary hearing on a motion to inspect the corporation’s books, under oath, denied her signature on the stock certificates, and offered expert evidence of forgery, the signatures are all now admitted. These documents control. It is rare that a court is asked to sustain a ease of alleged fraud that starts with a known false charge of forgery. The facts of controlling importance, undisputed or shown by the overwhelming weight of evidence, are as follows:

John D. Gillies went to Porto Rico shortly after the American occupation. By 1907, he was attached to the insular police force, and also had a barber shop in San Juan, where he sold newspapers, cigars, etc. The Woodwards and Mrs. Gillies, with her unmarried daughter, Susie, lived in Detroit; Woodward had had experience in the cigar business. In 1908 he went to Porto Rico and became, as he testified, an equal partner with his brother-in-law, Gillies, in the ownership and operation of the barber shop and its petty merchandising business. In July, 1908, the firm was incorporated under the name of Gillies & Woodward, with capital stock, apparently paid in, though not in money, of $5,000; while Woodward claimed to be an equal partner, a record then made indicates that it was agreed that Gillies should have twenty-seven shares, Woodward twenty-two, while one was issued to an outsider, apparently belonging beneficially to Woodward. No stock certificates were issued, no meetings held, no minutes and no regular books kept. [723] The corporation was probably formed because of fear of suits against Gillies, one of which was actually brought in 1910, and an attachment made on the barber chairs, etc. It was then, in form, a petty corporation,' carrying on a petty business. During the next 7% years Woodward several times came to the states, made connections with various large tobacco concerns, and introduced the sale of American cigarettes into Porto Rico. The cigarette business thus begun by Woodward is, broadly speaking, the source of nearly aE the prosperity afterwards attained by the concern, and thus the cause of this controversy.

In 1908, the Woodward family, with the plaintiff and Susie GEHes, went to Porto Rico; they aE Eved with John D. GiEies as one famEy, supported by the business carried on by GiEies & Woodward. No attention was paid to the requirements of corporation law; there was no real bookkeeping system; the two owners drew money as they chose, for both personal and famEy expenditures.

Late in 1915, all the famEy exeept John D. GiEies returned to Detroit. Woodward was critieaEy El and subjected to a serious operation on the brain, which disabled him for months. On January 2, 1916, .John D. Gillies died in San Juan. The financial status of the business was bad; the debts were about $28,000, with cash less than $1,500. Woodward was stEl El. Friendly receivers were forthwith appointed, who managed the business for some months. An accountant employed by the receivers opened a set of books and prepared stock certificates, dating them back eight years to 1908, when (as he properly thought) they should have been issued. This was the first substantial step taken by this concern to conform to any of the requirements of corporation law or corporation business methods.

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Woodward v. MacKenzie, 31 F.2d 721, 1929 U.S. App. LEXIS 3539 (1st Cir. 1929).

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