Walsh v. Atlantic Research Associates

• Decision Date: 26 February 1947
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: EDMUND F. WALSH v. ATLANTIC RESEARCH ASSOCIATES, INC.,& others.

321 Mass. 57

71 N.E.2d 580

EDMUND F. WALSH v. ATLANTIC RESEARCH ASSOCIATES, INC.,& others.

Supreme Judicial Court of Massachusetts, Middlesex.

February 26, 1947

November 7, 1946.

Present: FIELD, C.

J., LUMMUS, QUA & SPALDING, JJ.

Contract, Of employment, Performance and breach, Termination Construction. Agency, Agent's compensation, Agent's duty of fidelity. Equity Jurisdiction, Accounting Plaintiff's clean hands. Partnership, What constitutes. Equity Pleading and Practice, Parties. Trustee Process. Words, "Material default."

Under provisions of a contract of employment that the employee was to devote all his time, attention and energy to the duties of the employment; that his entire compensation was to consist of certain rights to share in the profits of the employer's business and to have an account kept during the employment and adjusted at the termination thereof; for termination of the employment in various contingencies, including default by either party; and that upon "any" termination the balance due the employee upon the adjusted account should be paid to him by the employer forthwith, the employee was not precluded from obtaining in equity an accounting of the balance of the adjusted account upon termination of the contract by his justifiable discharge for having secretly and wrongfully become connected with a competitor of his employer, either on the ground that his wilful and material breach of the contract barred him from relief or on the ground that he came into court with unclean hands or on the ground that as an unfaithful servant he had forfeited his right to compensation; but in the accounting he would be chargeable with the entire amount derived by him from his connection with the competitor and with any damages arising from his breach of the contract.

A certain arrangement between a corporation and the manager of one of the divisions of its business, although closely resembling a partnership in many particulars, including the manager's right to a share of the profits of the division as his entire compensation, was nevertheless an employment of the manager by the corporation and not a partnership.

The bill in a suit in equity commenced by trustee process need not name the trustee as a defendant where no relief against him other than as such trustee is sought.

BILL IN EQUITY filed in the Superior Court on July 30, 1945. The suit was heard by Cabot, J., who filed "Findings, Rulings and Order for Decree." The evidence was not reported upon appeal by the plaintiff from a final decree dismissing the bill.

C. C. Worth, (C.

B. Cross with him,) for the plaintiff.

B. H. Loewenberg, (C.

R. Cabot with him,) for the defendant Atlantic Research Associates, Inc.

QUA, J. This is a bill for an accounting between the plaintiff and Atlantic Research Associates, Inc., hereinafter called the defendant and for payment to the plaintiff of the sum found to be due him, all on account of a contract between the plaintiff and the defendant dated June 3, 1943, whereby the defendant employed the plaintiff for an indefinite period as general manager of the defendant's "mechanical division." From a final decree dismissing the bill the plaintiff appeals.

By the terms of the contract the plaintiff was "to take and have charge of this division, subject to such general policies and within such budgets as the management and board of directors of the company [defendant] may from time to time establish." The defendant was to "have the sole say as to the business to be conducted by the mechanical division, and as to the receipts and disbursements to be allocated to it," provided that such allocations should be in accordance with the defendant's regular accounting practices and not contrary to the contract. The plaintiff was to "devote all of his time, attention and energy to the duties of this employment" and was to "perform his duties to the best of his abilities" and to "use his best efforts" to contribute ideas, inventions and improvements for the use of the "mechanical division." "As his only compensation" the plaintiff was to share the net profits and net losses of the "mechanical division" equally with the defendant. Net profits or losses were to be computed not less frequently than once each calendar quarter. The method of calculating net profits was precisely stated. The defendant was to set up on its books an account with the plaintiff from which the plaintiff would "be permitted to draw weekly a reasonable percentage of his share of net profits up to a maximum of one hundred dollars ($100) a week." The plaintiff would also be permitted not oftener than once in each calendar quarter "to withdraw so much of his credit balance as exceeds 50% of the book value of the assets of the mechanical division (other than cash) including without limitation machinery, equipment, inventory and accounts receivable . . . as the parties may determine by mutual agreement." This account between the plaintiff and the defendant was to be "subordinate" to the claims of all creditors of the defendant.

The provisions for termination of the contract are important and are here quoted in full. "7. Either party may terminate the employment on the last day of any calendar month by not less than six months' previous written notice given to the other. Either party may terminate the employment forthwith upon material default by the other. The employment shall terminate without action by either of the parties in any of the following events: (1) If Walsh dies or by reason of incapacity or otherwise is unable to perform his duties for a period exceeding ninety consecutive days. (2) If the company sells substantially all of its assets, dissolves, or if bankruptcy or receivership proceedings are commenced by or against it. 8. Upon any termination of Walsh's employment his account shall be adjusted, as of the date of termination, by a credit in the amount of one half of any profit over book value realizable from the assets of the mechanical division or by a debit in the amount of one half of any loss so realizable, and the adjusted amount, if a credit, shall forthwith be paid Walsh by the company or if a debit, shall forthwith be paid to the company by Walsh. In the event of dispute as to the gain or loss so realizable, final settlement of the account shall be deferred until the actual value of the disputed item or items has been determined by collection, sale or payment. Payment as provided in this paragraph shall discharge all obligations of the parties to each other hereunder."

The trial judge made detailed findings of fact which in substance are these: On June 3, 1943, the defendant was engaged primarily in the manufacture, development and sale of chemical products. It had also a small division of its business engaged in the work of a machine shop. It was anxious to increase the operations of its machine shop, and to that end it employed the plaintiff. The plaintiff "devoted long hours and great attention with outstanding success to the operations of the mechanical division of the defendant, and through his efforts the earnings of that division rose from almost nothing to a total of $116,983.81 for the period from the date of the contract to October 31, 1944. However, on February 7, 1944, the plaintiff entered into a partnership with four other persons known as the Cushing Stearns Machine and Tool Company under the provisions of which he was entitled to receive nine per cent of the profits of the partnership and his duties were set forth as engineering consultant to it. This partnership was engaged in substantially similar activities to those of the mechanical division of the defendant . . .. The two companies were to a substantial degree economic competitors of one another, and the principal buyer of the goods of each was the Raytheon Manufacturing Company of Waltham, Massachusetts. The plaintiff did not devote very much time to the affairs of the Cushing Stearns partnership and such time as he did devote was primarily at night after the normal working hours in the defendant's mechanical division were over. The plaintiff failed to disclose to the defendant that he had joined this partnership and his failure to disclose his connection was not by inadvertence but on purpose. On the evidence in this case it is virtually impossible to determine what, if any, loss the mechanical division of the defendant suffered by reason of the competition of the Cushing Stearns partnership of which the plaintiff was a member, but I do find that if there was any financial loss it was not in any substantial amount. The plaintiff continued to be a member of the Cushing Stearns partnership until it was dissolved on June 14, 1944. The plaintiff received from this partnership the sum of $1,630.74. The defendant did not learn of the plaintiff's connection with the Cushing Stearns partnership until late in October of 1944, at which time it discharged the plaintiff from its employ."

The judge further found that "the plaintiff's secretly joining the Cushing Stearns partnership was a wilful and material breach of his contract with the defendant," and ruled that the plaintiff had "thereby forfeited his right to relief in a court of equity." He found, however, that the defendant had paid the plaintiff $15,500, and that if the plaintiff was entitled to recover at all, his "damages," that is, the balance still due to him, calculated according to the terms of his contract with the defendant, would be $42,991.90.

The defendant contends that these findings were not made under the statute (G. L. [Ter. Ed.] c. 214, Section 23, as appearing in St 1945, c. 394, Section 1), and that it is not stated that they comprise all the material facts upon which the decree was based. ...