M. McDonough Corp. v. Connolly

• Decision Date: 26 January 1943
• Citation: 313 Mass. 62,46 N.E.2d 576
• Parties: M. MCDONOUGH CORP. v. MICHAEL R. CONNOLLY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

313 Mass. 62

46 N.E.2d 576

M. MCDONOUGH CORP. v. MICHAEL R. CONNOLLY.

Supreme Judicial Court of Massachusetts, Essex.

January 26, 1943

November 13, 1942.

Present: FIELD, C.

J., DONAHUE, QUA COX, & RONAN, JJ.

Corporation Corporate entity, Ultra vires. Contract, Validity, Implied.

One contracting with a corporation was bound at his peril to take notice of the legal limits of its capacity to agree that labor and materials furnished him by the corporation should not be paid for by him, but that the amount of the bill therefor should be credited by him on a note owed him by another corporation.

The mere facts that two corporations had substantially the same personnel and were both controlled by a person who was their "boss" and "was the corporations," did not operate to merge their identities so as to make valid a contract that a debtor for labor and materials furnished by one of them should not pay it therefor but should credit the amount of the bill therefor upon a note of the other corporation held by him.

A corporation had no authority in the circumstances to make with one to whom it furnished labor and materials a contract that he should not pay it therefor, but that he should credit the amount of the bill therefor on a note given him by another corporation which was managed and controlled by the same officer who purported to make such contract for the first corporation and who also managed and controlled the first corporation.

One, who accepted and retained labor and materials furnished him by a corporation under an ultra vires contract, purported to have been made through its controlling officer, to the effect that there should be no payment to that corporation therefor but that the amount of the bill therefor should be credited upon a note to him of another corporation also controlled by the officer, was bound to pay the value of such labor and materials to the first corporation.

CONTRACT. Writ in the District Court of Southern Essex dated January 10, 1940.

On removal to the Superior Court, the case was tried before Morton, J.

R. L. Sisk, for the defendant.

John S.

Stone, for the plaintiff.

COX, J. This is an action of contract to recover the value of labor and materials alleged to have been furnished the defendant by the plaintiff. The case was heard by a judge of the Superior Court, sitting without jury, upon the report of an auditor whose findings of fact were not to be final. The trial judge allowed the plaintiff's motion for judgment on the report, and the defendant excepted. The auditor's findings follow.

In answer to the issue which the auditor states was presented, "Were the labor and materials furnished?" he finds that the materials were delivered as set forth in the declaration, and that the price therefor was fair and reasonable. The account annexed to the declaration contains eight items, the first of which is as of April 17, 1936. This item and the next six aggregate $144.75, and the eighth item, which is for $2,312.40, is as of August 10, 1938. The plaintiff corporation was organized on April 4, 1936, for the purpose of carrying on a general contracting business. One Delano was its treasurer, and one M. McDonough, hereinafter referred to as McDonough, was its manager. At some time he became its treasurer, but on February 1, 1938, Delano was its treasurer. The plaintiff and two other corporations, M. McDonough Co. and the Malden Crushed Stone Co. Inc., which was not organized until May, 1937, had the same office, telephone and bookkeepers. The "personnel of all of them was the same with one exception." McDonough was the "boss" of these three corporations and, at all times, controlled them. "He was the corporations."

Before the material was delivered, McDonough talked with the defendant about its cost, and the auditor found that the defendant purchased the material upon the understanding with McDonough that he was not to pay, but was to have the "amount" credited on his notes against the M. McDonough Co. which were indorsed by the Malden Crushed Stone Co. Inc. and McDonough. The auditor reports, however, that McDonough denied this and said that no talk was had about the payment for the material that was sold. Bills of the account in the name of the plaintiff were sent by it and received by the defendant. The M. McDonough Co. filed a petition in bankruptcy under "77B" in June, 1936, prior to the delivery of the material. The defendant knew of this petition and had knowledge of the "change in the corporations." He held three notes of M. McDonough Co. When this last named company went into bankruptcy, its equipment went to the plaintiff corporation, "which was immediately formed."

McDonough and the defendant dealt with each other on a "man to man" basis. "Corporations with their technicalities meant nothing to these men in their dealings with each other. . . . McDonough was always able to do as he pleased with any of the corporations . . . and . . . Connolly took McDonough on this basis." Delano, the plaintiff's treasurer, who had power to receipt for merchandise delivered "in its ordinary course," went to the defendant's office on February 1, 1938, and "receipted . . . the bill for the merchandise set forth in the declaration," and had the defendant's bookkeeper give credit accordingly on the notes of M. McDonough Co. hereinbefore referred to. Just how Delano could, on February 1, 1938, receipt for the item of $2,312.40, appearing in the declaration as of August 10, 1938, does not appear. The plaintiff suggests in its brief that the date is erroneously stated, and that it should have been given as February 1, 1939. In each month over a period of time up to November, 1935, Delano had made payments of $100 and interest and "produced each time new notes and received in return the old ones," and the stockholders of all the corporations "then in existence" knew of this practice. No payments were made after November, 1935.

The ultimate conclusion of the auditor was that "so far as Connolly and McDonough were concerned, they understood each other. Connolly was to receive the goods and credit was to be given on the notes. . . . If, as a matter of law, upon all the facts, the arrangement for payment made by Connolly and McDonough does not bind the plaintiff corporation and does not relieve the defendant and, if the receipts made and given by Delano to . . . Connolly are not valid acts, then . . . [the auditor found] for the plaintiff on the declaration; otherwise, . . . [he found] for the defendant."

The case is prosecuted by the receiver of the plaintiff, who suggests to this court that he was appointed on May 12, 1941. The defendant raises no question as to this.

The case is prosecuted by the receiver of the plaintiff, who suggests to this court that he was appointed on May 12, 1941. The defendant raises no question as to this.

The trial judge took the auditor's report with the power to draw proper inferences from subsidiary or specific facts found, and his findings, made by way of inference, cannot be reviewed by this court. Cook v. Farm Service Stores, Inc. 301 Mass. 564 , 567-568. A footnote in the Cook case, at page 567, refers to cases tending to show that a finding by an auditor may also be controlled by an inference to the contrary from mere evidence stated or reported by an auditor.

It could have been found that the defendant knew that, in his dealings with McDonough, he, at least, was negotiating for the purchase of material that belonged to the plaintiff. McDonough was the plaintiff's manager, and we think the inference was warranted that, in dealing with the defendant, he was acting as the...