Chamberlain v. James

• Decision Date: 02 March 1936
• Citation: 294 Mass. 1,200 N.E. 361
• Parties: CHAMBERLAIN et al. v. JAMES et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

294 Mass. 1

200 N.E. 361

CHAMBERLAIN et al.

v.JAMES et al.

Supreme Judicial Court of Massachusetts, Suffolk.

March 2, 1936.

Suit by Arthur F. Chamberlain and others against Thomas M. James and others. From interlocutory decrees sustaining defendants' demurrers and from a final decree dismissing the bill, plaintiffs appeal.

Interlocutory decrees affirmed, and final decree modified, and, as modified, affirmed.Appeal from Superior Court, Suffolk County; Brogna, Judge.

F. W. Crocker, of Boston, for appellants.

W. C. Rogers, of Boston (B. Berenson, of Boston, on the brief), for appellees.

FIELD, Justice.

This is a suit brought by the members of a committee acting as agents of the holders of certain mortgage bonds of the defendant Park Square Corporation against that corporation and certain individuals and corporations to compel an accounting between the defendants, other than the Park Square Corporation, and the defendant Park Square Corporation and for the recovery of damages and general relief. The defendants severally demurred on the grounds that the bill of complaint does not state a case which entitles the plaintiffs to equitable relief and that the plaintiffs have a plain and adequate remedy at law, and some of the defendants demurred on other grounds. Interlocutory decrees were entered sustaining the demurrers generally and thereafter a final decree was entered dismissing the bill. From the interlocutory and final decrees the plaintiffs appealed.

The bill contains these allegations: The plaintiffs are members of a committee acting as agents of the holders of certain so called ‘General Mortgage Bonds' of the Park Square Corporation secured by a mortgage of certain real estate in Boston to the National Shawmut Bank of Boston as trustee. The defendant Thomas M. James is president and director of the defendant Park Square Corporation and president and director of the defendant Thomas M. James Company. The defendant J. R. Jackson, Jr., is treasurer and director of the defendant Park Square Corporation and vice-president and director of the defendant A. B. See Elevator Company, Inc. The defendant Howard K. Spaulding is assistant treasurer of the defendant Park Square Corporation and an employee of the defendant A. B. See Elevator Company, Inc. The individual defendants and the corporate defendants Thomas M. James Company and A. B. See Elevator Company, Inc., together own or control substantially all the capital stock of the defendant Park Square Corporation.

The mortgage securing the general mortgage bonds was subject to a first mortgage of the same premises to the Boston Five Cents Savings Bank. The defendant Park Square Corporation defaulted in the payment of an installment of interest on the general mortgage bonds. Thereafter the individual defendants and the corporate defendants Thomas M. James Company and A. B. See Elevator Company, Inc.-the language of the bill is somewhat obscure as to the defendants alleged to have been the contracting parties but we interpret the language as the plaintiffs have done-agreed with the plaintiffs that in consideration of the plaintiffs as representatives of the bondholders ‘refraining from exercising the right of foreclosure and the right to take possession under the indenture of mortgage securing the General Mortgage Bonds' these defendants would ‘manage the mortgaged property so that the interests of the holders of the General Mortgage Bonds would not in any way be jeopardized, would restrict the dividends paid upon the capital stock until such time as the Company should be in a position to resume interest upon the General Mortgage Bonds, would apply all income from the mortgaged property to the payment of interest on the first mortgage, taxes and operating charges so that the foreclosure of the first mortgage would be avoided, would use their best efforts to raise approximately $25,000 additional cash among the defendants or persons associated or to be associated with them to be applied to the liquidation of accrued taxes, would cooperate with the plaintiffs in working out a plan of reorganization which would protect the bonds represented by the plaintiffswithout the necessity of a foreclosure under the mortgage securing said bonds * * * would keep the plaintiffs at all times fully informed as to the operation of the mortgaged property, and would so manage the mortgaged property and apply its income during the development of said reorganization plan that the interests of the holders of the General Mortgage Bonds would not in any way be jeopardized.’

In reliance upon the agreements of the defendants the plaintiffs as a committee as aforesaid forbore from exercising the right to foreclose the mortgage securing the bonds and from requesting the trustee under such mortgage to take over the mortgaged property. The plaintiffs in good faith proceeded to develop a plan of reorganization. The defendants in breach of their agreements and with knowledge that the plaintiffs were relying thereon ‘fraudulently, wilfully and negligently’ failed to carry out these agreements, in that they failed to apply the income of the defendant Park Square Corporation in such a manner as to prevent a foreclosure of the first mortgage, allowed the interest thereon to become in default, failed to pay the current taxes upon the mortgaged property though the income thereof was sufficient for such purposes, diverted income from said property in amounts and to persons unknown, adjusted without the consent of the plaintiffs the rentals of leases between the defendant Park Square Corporation as lessor and the defendants A. B. See Elevator Company, Inc., and Thomas M. James Company as lessees, interests associated with said lessees being in control of the defendant Park Square Corporation, failed to cooperate with the plaintiffs in the development of the proposed plan of reorganization, and ‘fraudulently and wilfully’ concealed these activities and breaches of the agreements from the plaintiffs by assuring the plaintiffs that the property was being managed in the best interests of the bondholders.

On the representations of the defendants the plaintiffs continued to refrain from exercising the right of foreclosure and the right to take possession of the property under the mortgage securing the bonds until it became impossible for the plaintiffs to take proceedings to protect the bonds without making provisions for the payment of the first mortgage or curing the defaults thereunder as the plaintiffs were not in a position to do. The defendants' actions were for the purpose of forcing a foreclosure of the first mortgage in order that they might have an opportunity to reacquire the mortgaged property free and clear of the lien thereon of the mortgage securing the bonds without the necessity of participating in any plan of reorganization containing provisions for the protection of the bonds. A foreclosure sale under the power of sale contained in the first mortgage was held and the mortgaged property was bid in by the first mortgagee and conveyed to such first mortgagee. Thereafter the property was conveyed to the defendant Stuart Carver Corporation, a corporation then organized by six ‘persons associated with and controlled by the defendants, or one or more of them,’ three of these persons being in the employ of the defendant Thomas M. James Company and three of them being in the employ of the defendant A. B. See Elevator Company, Inc. The mortgaged property was acquired by the defendant Stuart Carver Corporation subject to a new first mortgage ‘so that the defendants or one or more of them in substance reacquired the equity in the mortgaged property free from the lien of the mortgage securing the General Mortgage Bonds represented by the plaintiffs and without the necessity of participating in any plan of reorganization which contained provision for the protection of or recognized the lien or equity of the bonds represented by the plaintiffs, all to the serious damage of the bonds represented by the plaintiffs.’

The prayers of the bill are that an accounting be ordered between the defendants other than the Park Square Corporation and the defendant Park Square Corporation ‘for all sums of money, cancellation of leases, cancellation of debts, misapplication of moneys and wrongful diversion of income wrongfully done or caused to be done by the said defendants to the detriment of the defendant, Park Square Corporation,’ that ‘the amount of damages suffered by the plaintiffs because of the wrongful acts of the defendants be fixed,’ and for general relief.

The demurrers were sustained rightly.

Since the defendants demurred both on the ground of want of equity and on the ground of adequacy of remedy at law it is not necessary to discriminate minutely between these grounds of demurrer. Clearly the allegations of the bill do not bring the suit within any statute by which a remedy in equity is given regardless of adequacy of remedy at law. Maguire v. Reough, 238 Mass. 98, 99, 130 N.E. 270;Proctor v. MacClaskey, 278 Mass. 238, 242, 243, 179 N.E. 600; Compare Thomas v. Burnce, 223 Mass. 311, 312, 111 N.E. 871;Powers v. Heggie, 268 Mass. 233, 241, 242, 167 N.E. 314. See G.L. (Ter.Ed.) c. 214, § 3.

First. We need not decide whether the bill states a cause of action for breach of contract. Even if the bill states such a cause of action it does not set forth facts showing that the remedy at law for such a breach is inadequate. See Jones v. Newhall, 115 Mass. 244, 252, 253,15 Am.Rep. 97. Consequently, since objection on this ground was made seasonably, the suit cannot be maintained to recover damages for such a breach of contract in the absence of some other ground for equitable relief. Maguire v. Reough, 238 Mass. 98, 130 N.E. 270;Waters v. Boyden, 275 Mass. 564, 566, 567, 176 N.E. 535.

Second. The primary contention of the plaintiffs is that the allegations of the bill state a case for relief in equity...