Barnett v. West Const. Co., 7201.

• Decision Date: 08 March 1934
• Docket Number: No. 7201.,7201.
• Citation: 69 F.2d 266
• Parties: BARNETT et al. v. WEST CONST. CO.
• Court: U.S. Court of Appeals — Fifth Circuit

69 F.2d 266 (1934)

BARNETT et al. v. WEST CONST. CO.

No. 7201.

Circuit Court of Appeals, Fifth Circuit.

March 8, 1934.

Herbert S. Phillips, of Tampa, Fla., for appellants.

A. G. Turner, of Tampa, Fla., and Vaughn Miller, of Chattanooga, Tenn., for appellee.

Before BRYAN, FOSTER, and HUTCHESON, Circuit Judges.

HUTCHESON, Circuit Judge.

Alleging that sums paid to defendant for income tax purposes, under clause 22¹ of a working agreement they had, had been diverted from that purpose and converted by defendant to its own use, plaintiffs brought this suit for an accounting.

The defense was no diversion. Specifically, it was asserted that the moneys had been received and applied by defendant as agreed, both when the profit sharing contract was made and when, in 1926, all accounts were settled and the net profits distributed. During 1925 and 1926 plaintiffs, as partners, had a unique working agreement in regard to road contracts in Florida, with defendant, a general contractor, doing business in many other places as well. The writing which effected and controlled this arrangement designated it as a "Cooperation." The agreement was not made public. It was not known to outsiders. It did not exist as to them. All contracts were taken in defendant's name, all obligations were incurred, all business done in its name. As to the parties to it, it was only a symbol for accounting purposes. By its use, in addition to salaries of $60 per week paid to each of the partners, they were to receive two-thirds of the net profits defendant made out of the contracts it covered. Plaintiffs thus pleaded the effect of the agreement: "Under and by said contract defendant corporation was given the contracting control, the credit control, and the financing control of the business." In fact, however, the agreement gave nothing to the defendant. It was treated by the parties to it as, it was, a profit sharing accounting device by which the plaintiffs, employees of the defendant, got from it two-thirds of the net profits the company made out of that part of its business. A year to year arrangement, it provided in section 23² for discontinuance after thirty days' notice, and the distribution of the net profits, one-third to defendant and two-thirds to plaintiffs. On December 6, 1926, it was discontinued an its net profits were distributed in accordance with the contract. In the course and as a part of the accounting provided for in the contract, and the distribution of profits had at its dissolution, 13½ per cent. of the net income, $119,398.07 for 1925 and $208,682.23 for 1926 was paid to defendant for income taxes under clause 22. It was as to these payments, $16,118.75 for 1925, and $28,172.10 for 1926, a total of $44,290.85, that plaintiffs' suit sought an accounting. As to these plaintiffs alleged that they should have been applied, but were not, in exoneration of plaintiffs' tax liability on account of the profits distributed to them. They sought a decree awarding two-thirds of them to plaintiffs.

The District Judge thought absurd the claim plaintiffs put forward, that the moneys paid defendant under section 22 had been paid to them for the purpose of paying the income tax of the co-operation in exoneration of the partnership of Barnett & Embrey, and of its individual members in respect of these earnings. He rejected it altogether. He thought equally absurd defendant's claim that the moneys had been paid to it to pay its own income tax. He found it unnecessary, however, to construe the clause to determine what the parties had originally intended by it, because he found that plaintiffs and defendant had completely settled all matters at issue between them. He found that the accounting and distribution the parties had when in December, 1926, they distributed the net profits operated as a settlement, and resulted in a complete accord and satisfaction.

Plaintiffs vigorously assail the decree as wrong, in the results accomplished and the reasons given. Defendant as vigorously maintains that the decree was right. Plaintiffs urge that their suit is not correctly apprehended if considered as defeated by settlement. They insist that their suit is not in contradiction of, but in accordance with, the agreement to discontinue. They say that they are merely asking that the moneys which were paid the defendant for a purpose, be applied to that purpose. They insist that this in no manner contradicts the agreement for discontinuance, it fully affirms it. They say, in short, that their suit though in form an action for an equitable accounting, is in effect a suit for moneys had and received from plaintiffs for a specific purpose, which, diverted from that purpose by defendant, should be returned to them.

Speaking broadly, we think plaintiffs are right as to the nature of their suit and their rights under it, if they can maintain the proposition they advance. We think they should have the moneys they sue for if in law the defendant has diverted them from the purpose for which they were lodged with it. It becomes necessary, then, to inquire whether defendant is in fact withholding money from the purposes to which, by the agreement under which it got it, it was to be devoted. To determine this requires a construction of the contract, not alone as it was written, but as the parties have interpreted it.

Defendant insisting that the moneys were paid to it to pay its income tax, points out that all of the business was done by it and in its name; all of the profits were earned by it and in its name. All of the property employed in the conduct of the business was owned by it and assessed in its name. All taxes due in connection with the operations were the taxes of the company. It insists that just as the company put aside or set up on its books in respect of the business, it did elsewhere, in the Profits from which Barnett and Embrey had no share, 13½ per cent. of its income to pay the income tax due on account of it, so here the business in which the Co-operation was interested had to contribute to company funds to pay its income tax 13½ per cent. of the net income of the business done before there were any net profits to be distributed under the co-operation agreement.

Plaintiffs say this is not, it cannot be, a fair construction of the contract. That such construction would result in reducing the profits it was agreed Barnett and Embrey should have by the amount of their contribution to defendant's income tax. They say that what was intended by the...