Fechteler v. Palm Bros. & Co.

• Decision Date: 23 November 1904
• Docket Number: 1,278.
• Parties: FECHTELER et al. v. PALM BROS. & CO.
• Court: U.S. Court of Appeals — Sixth Circuit

133 F. 462

FECHTELER et al. v. PALM BROS. & CO.

No. 1,278.

United States Court of Appeals, Sixth Circuit.

November 23, 1904

This is a bill filed to obtain an accounting under a contract between the complainants, comprising a firm engaged in business in the city of New York under the name and style of Palm Fechteler & Co., and the defendant, a corporation organized under the law of Ohio, and doing business in Cincinnati under the corporate name of Palm Bros. & Co. This contract bears date of February 17, 1899, but took effect from and after January 1, 1899, and was for a term of 12 years. The important features are as follows:

'Now therefore: This agreement made between the firm of Palm Fechteler & Co., of New York, N.Y., Casper Fechteler, Frank Fechteler, P. Emilie Moller and Pauline Moller, copartners of said firm, parties of the first part, and the Palm Brothers &amp Company, of Cincinnati, Ohio, a corporation organized under the laws of the State of Ohio, party of the second part, witnesseth as follows:

'First. Said parties of the first part, for and in consideration of the agreements and covenants hereinafter mentioned to be performed by said party of the second part, and with a view of increasing the business and gains of the parties of the first part, agrees and covenants with the said party of the second part to sell, furnish and supply to said party of the second part at the actual cost price, during the continuance of this contract, all such transfer and silk ornaments, special designs and decalcomania goods, as said party of the second part may choose to select and order; and said parties of the first part further agree and covenant with said party of the second part to pay said party of the second part, at the end of December of each year, to wit, on the 31st day of December of each and every year, during the continuance of this agreement, a sum of money equal to thirty-six per cent. of the total and entire gross profits made and realized during the whole year next preceding said day by said parties of the first part out of its entire business as manufacturers, importers and dealers in transfer and silk ornaments, special designs, decalcomania goods and painters' supplies, including a sum of money equal to thirty-six per cent. of the whole and entire gross profits made by its branch house in Chicago, Illinois, as well as any other branch houses that may now or hereafter be established; the first payment under this agreement to be made on the 31st day of December, 1899.

'And said parties of the first part covenant and agree to employ a capital of not less than one hundred thousand dollars in carrying on and prosecution of said business during the continuance of this agreement.

'Second. Said party of the second part, for and in consideration of the covenants and agreements herein agreed to be performed by said parties of the first part, and with a view of increasing the business and gains of the party of the second part, agrees and covenants with said parties of the first part to sell, furnish and supply to said parties of the first part, at the actual cost price during the continuance of this agreement, all such transfer and silk ornaments, special designs and decalcomania goods, as said parties of the first part may choose to order and select; and said party of the second part further agrees and covenants with said parties of the first part to pay said parties of the first part, at the end of each and every year, to wit, on the 31st day of December of each and every year during the continuance of this agreement, a sum equal to sixty-four per cent. of the total and entire gross profits made and realized during the whole year next preceding said day by said party of the second part out of its entire business transactions in the business defined and specified in its articles of incorporation, including the profits made by its branch houses, which may now or hereafter be established; the first payment under this agreement to be made on the 31st day of December, A.D. 1899.' The complainants' bill, among other things, charged that the defendant had endeavored to escape liability under its contract by carrying on a large business through the instrumentality of a corporation known as the Palm Letter Company; that this was a subsidiary corporation, owned, officered, and managed by the corporators of the defendant; that large sales of goods, really made by defendant to its own actual customers at a small trade discount, had been charged as sales to this Palm Letter Company at a very large trade discount; that this Palm Letter Company was in substance a mere branch or agency of the Palm Bros. & Co., and used only as a means of hiding gross profit on sales made by defendant in order to escape liability for a definite proportion of such profits to the complainants. It is charged that defendant denied liability to account for the gross sales made by this subsidiary company as sales made by itself, and, when complainants refused to assent to their contention, openly repudiated the contract, and refused to further abide by it.

To this bill the defendant corporation interposed a demurrer upon several distinct grounds. This was sustained. Thereupon an amended bill was filed, and the same demurrer again interposed. This was again sustained, and the bill dismissed.

Charles B. Wilby, for appellants.

Edward Colston, for appellees.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge, after making the foregoing statement of the case, .

1. The first ground of demurrer goes to an alleged failure of the complainants to aver performance or excuse for nonperformance of certain acts which they, under the contract, were required to do and perform before they can compel an accounting by defendant. One of these grounds was that each party should deliver to the other, on or before the close of each year, a full and itemized statement or invoice of stock on hand, of assets and liabilities, and a balance sheet of all its business transactions during the year. Another provision required the complainants to employ a capital of not less than $100,000 in the carrying on of their business. But without determining the character of these covenants, it is only necessary to say that the amended bill cured the defects complained of by the averment that 'all the provisions of said contract by complainants to be performed during the year 1899 had by them been performed, and performance thereof accepted by defendant. ' As the bill was filed in 1900, and only sought an accounting for the business of 1899, this averment must be regarded as a sufficient averment of performance upon the part of the complainant.

2. It is also assigned as ground for demurrer that the bill does not state a case cognizable in equity. It is true that an accounting is not sought upon the technical ground of accident, fraud, mistake, or discovery. But if the remedy at law in an action for an accounting is not so complete and adequate as in equity, that alone is ground for equitable jurisdiction. Where it is evident that, under the machinery of a court of law, great difficulties would attend the statement of an account, courts of equity have a jurisdiction concurrent with courts of law. This case involves contract and mutual accounting, and the entire transactions of two large mercantile establishments must be examined, and accounts compared. The production of books of account will be absolutely essential to the correct ascertainment of the basis upon which the amount due from one to the other shall be ascertained, and this renders essential the functions of a master. It is clearly a case where the remedy in equity is more full and adequate. Story, Eq. Juris. Secs. 67, 452, 457; Gunn v. Brinkley Carworks, 66 F. 382, 13 C.C.A. 529; Kirby v. R. Co., 120 U.S. 130, 134, 7 Sup.Ct. 430, 30 L.Ed. 569.

3. It has also been assigned as ground for demurrer that the bill prays only for an accounting. But this, as we have seen, is, in complex cases, a distinct ground of equitable jurisdiction. There is added a prayer 'for all other relief to which your orators will be entitled in equity and good conscience. ' It is not essential to good pleading that there shall be a prayer for any particular relief. Under a prayer for general relief, any relief appropriate to equity and proper under the facts may be prayed at the bar. Story, Eq. Pl. Sec. 41. Lord Northington, in Manaton v. Molesworth, 1 Eden. 26, said that it was quite a common saying that 'the prayer for general relief was the best prayer after the Lord's Prayer. ' Having taken jurisdiction upon the ground that there are complicated accounts to be stated, the court will not turn the party out in whose favor the account shall go, but will pronounce a money decree under this prayer for general relief. Waite v. O'Neil, 76 F. 408, 22 C.C.A. 248, 34 L.R.A. 550; Peck v. Ayers & Lord Tie Co., 116 F. 273, 53 C.C.A. 551.

4. The real controversy, and the ground upon which the court below mainly based its action, was that the contract sued upon was an agreement for a partnership between the complainants, who will hereafter be designated as the New York firm, and the defendant, a corporation of Ohio, and that the corporation had no power to enter into a partnership. Corporations unless expressly authorized, have no power to enter into partnership either with each other or with individuals. The agency of each partner for the partnership is inconsistent with the management of the corporation by its stockholders through directors and officers chosen only by themselves. Mallory v. Oilworks, 86 Tenn. 598, 8 S.W. 396; 1 Morawetz on Corporations, Sec. 421; Brice, Ultra Vires (3d Ed.) pp. 205 to 512, inc.; People v. North River...