Forbes v. Thorpe
| Decision Date | 06 September 1911 |
| Citation | 209 Mass. 570,95 N.E. 955 |
| Parties | FORBES et al. v. THORPE et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
S. R Wrightington, for appellant Jeremiah Clark Machinery Co.
Giles Taintor, for appellees.
The material facts upon which this suit is founded are that the defendants Thorpe and Cashin, with two associates, were the owners of a secondhand machinery business conducted under the name 'Jeremiah Clark Machinery Company.' Conveyance of real estate and personal property, with which this business was conducted, was made to Thorpe, who executed a declaration of trust to the effect that he held the title equally for the benefit of Cashin, himself and two others each of whom had contributed $6,000 to the purchase price. Subsequently, but before the events here complained of, Thorpe purchased the interest of these last two, and they now have no connection with this case. In January, 1904, Cashin sold one-sixth of his interest in the property and business and its profits to the defendant Wilde, Thorpe consenting to this transfer. No articles of copartnership were ever drawn up between Thorpe and his associates, but they considered that the business was being conducted as a partnership, Thorpe and Cashin being actively engaged in its prosecution all the time, while Wilde after purchasing his interest (which was in January, 1904, during the course of dealings complained of in this suit) was connected with the business in a clerical capacity. The plaintiffs were a committee of bondholders of the Simonds Rolling Machine Company, which had acquired title to a factory and its contents, consisting of a large amount of machinery and stock. In June, 1902, they entered into a contract with the Jeremiah Clark Machinery Company to sell the property for not less than designated prices on a commission basis, with a guaranty of purchase by the partnership on April 1, 1904, if not sold before, at a price which should yield the plaintiffs with prior sales not less than the appraised value. Immediately after the execution of this contract (as found by the master) Thorpe with the knowledge and participation of Cashin 'entered upon a deliberately conceived scheme to defraud the plaintiffs by selling their property at prices far above those which he reported to the plaintiffs and taking the difference for the partnership.' A final statement and apparent end of this scheme was made on April 20, 1904, but minor ramifications of the fraud continued to October, 1904. As a result the plaintiffs were defrauded of a sum considerably in excess of $10,000. By reason or pressure by one of Thorpe's individual creditors, and at his suggestion in October, 1904, the Jeremiah Clark Machinery Company, a corporation, was organized to acquire all the assets of the firm which had done business under the same name. As steps in the execution of this plan, a conveyance was made to an intermediary named Pearson, who, immediately after the charter of the corporation was issued, executed a like conveyance to it of all the assets of the partnership, subject to 'all the debts and liabilites of James Thorpe and Charles E. Cashin contracted in or arising from or on account of the business and property conveyed,' and the conveyance to the corporation was upon condition that it should pay and discharge 'all and singular the indebtedness and liabilities of James Thorpe and Charles E. Cashin contracted in or arising from or on account of the conduct of said business carried on under the name of the Jeremiah Clark Machinery Company.' The value of the property so conveyed was slightly in excess of $30,000, and the partnership debts, aside from those to the plaintiffs by reason of the frauds committed on them, about $8,200, of which about $1,700 was on notes held by Thorpe, which were subsequently canceled and nothing paid on them. The statement of debts furnished to the corporation did not include those arising out of the frauds committed on the plaintiffs. The capital stock of the corporation was $24,000, of which certificates for 180 shares of the par value of $100 each were issued to Thorpe, who assigned them to his creditor as collateral for his private debt, for 10 shares to Wilde, for 15 shares to Cashin, and for 35 shares to his wife. Immediately after the organization of the corporation and its vote to accept the conveyance of property from Pearson in return for the issue of stock, the officers resigned, and Thorpe and Cashin were elected respectively vice president and general manager and two of a board of three directors. The master has found that the conveyance to the corporation was not according to the desire of Thorpe and Cashin, but was forced upon them by the creditor of Thorpe, but that they at that time had no good reason to believe that their fraud upon the plaintiffs would even be detected, and hence that in the conventional sense they had no actual intent to defraud their creditors in making the conveyance, nor did Pearson or the corporation participate in any plan to defraud the creditors of the partnership in receiving the conveyance, for the reason that both conveyances made express provision for the payment of the firm debts by the corporation, and that but for such provision the conveyance would have been a fraud upon the firm creditors.
1. The partnership was liable to the plaintiffs for the frauds committed against them. All the sales of machinery and stock made by the partnership as agents for the plaintiffs and the purchases made by the partnership at the end under the guaranty clause of the contract with the plaintiffs were so tinctured with fraud that the plaintiffs were entitled to full relief as soon as the wrong they had suffered was discovered. It is too late in the history of law to argue successfully that reasonable reliance upon representations which turn out to be fraudulent must go without relief because the sharpest distrust might have discerned the wrong. It is no ground for not affording relief to the plaintiffs that it would have been possible for them by constant and suspicious watching to have discovered that they were being defrauded. So long as they acted reasonably they have a right to protection. Whether the partnership might have bought machinery under the agreement with the plaintiffs without disclosure of its personal interest is of no consequence in this connection. It did not profess so to buy in most instances, but it deceived the plaintiffs by representing that it was selling as an agent, and also grossly deceived them as to the amount of stock sold.
2. Wilde filed an appeal in the superior court from the decree there entered against him. He presented no brief in this court, either personally or through counsel, as required by rule 2, nor did he appear in person or by counsel to argue his appeal. It is plain that under the English chancery practice, where the appellant does not appear in the court to which the appeal is taken at the time set down for argument, the appeal is dismissed. Martin v. D'Arcy, 3 H. L. C. 698; Honeyman v. Maryatt, 6 H. L. C 112; Scanlon v. Usher, 8 Cl. & F. 561; Sherburne v. Middleton, 9 Cl. & F. 72; Murphy v. Conway, 9 Cl. & F. 73. There is no statute or rule definitely covering the matter in this commonwealth. Therefore the general principles of chancery practice prevail. It was stated in argument at the bar by counsel for other defendants that Wilde was without money to prosecute his appeal. So far as we know, there has never been an instance in this commonwealth permitting an appeal in forma pauperis. Social conditions and the practice respecting costs and the bonds required as security for appeals in this commonwealth have made inapplicable the rule in this regard which still prevails in England. Drennan v. Andrew, L. R. 1 Ch. 300; Biggs v. Dagnall, [1895] 1 Q. B. 407; Kiff v. Roberts, 3 Ch. Div. 265.
We proceed to consider the appeal of Wilde upon its merits, without intending that this shall be treated as a precedent for future cases. Wilde was not a member of the partnership at the inception of the scheme by which the plaintiffs were defrauded. He is described by the master in one place in the report as a clerk in the employ of the firm, and at another place as bookkeeper. The master makes no finding as to whether he knew of the fraud upon the plaintiffs by Thorpe and Cashin, but if clerk and bookkeeper were used by the master as synonymous, the inference would be almost irresistible that he knew of it. It does not appear that he participated in any way in the management of the business. He bought one-sixth of the interest of Cashin, and he thereby became possessed of one twenty-fourth interest in the whole property, and was a beneficiary under the trust agreement, upon the basis of his interest in which shares in the corporation were issued to him. He appears to have been treated as a partner by an entry upon the books of the partnership showing the transfer to him of the interest in the business. Although his name was omitted from the transactions incident to the transfer of the property to the corporation, this does not affect his rights, as he shared in the stock issued for it to the extent of his interest. The declaration of trust plainly indicates that the property was intended to be used in the machinery business, and all the profits accruing from it were to be distributed among the beneficiaries. Joint ownership of property, use of it in a business, sharing of profits, division of net proceeds upon dissolution constitute the part owners partners in the business and liable for its losses as well as beneficiaries of its profits in the absence of a specific agreement defining by express terms the status of the part owners.
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