Porter v. Reid

• Decision Date: 17 June 1948
• Docket Number: Civil Action No. 5837.
• Citation: 79 F. Supp. 898
• Parties: PORTER v. REID et al.
• Court: U.S. District Court — District of Massachusetts

79 F. Supp. 898

PORTER v. REID et al.

Civil Action No. 5837.

United States District Court D. Massachusetts.

June 17, 1948.

COPYRIGHT MATERIAL OMITTED

Charles D. Brown and M. James Zelman, both of Boston, Mass., for plaintiff.

Robert H. Hopkins, Paul V. Power, Richard N. Bail, and Gaston, Snow, Rice & Boyd, all of Boston, Mass., for defendant Lisle M. Buckingham.

John N. Worcester, Foster E. Allison, and Sullivan & Worcester, all of Boston, Mass., and Howard C. Walker, of Akron, Ohio, for defendant Lester R. Reid.

Edmund Burroughs, of Akron, Ohio, for defendant Lisle M. Buckingham.

FORD, District Judge.

On June 6, 1946, Curtis Porter filed a bill in equity in the Superior Court of Massachusetts for Suffolk County against Lester R. Reid, of Akron, Ohio; against Lisle M. Buckingham, of Akron, Ohio in his capacity as executor under the will of Paul L. Arnold; and against Harold A. Leventhal, of Boston, Massachusetts, as the stakeholder of funds claimed by plaintiff and the two principal defendants. Leventhal was temporarily restrained from paying over any of the money to Reid or Buckingham until further order of the Massachusetts court. Buckingham qualified in Massachusetts as executor of Arnold. The principal defendants removed the case to this court on diversity grounds, and appeared generally to contest the cause. Leventhal, being only a fundholder with no interest in the case, can be disregarded for diversity of citizenship purposes. Salem Trust Co. v. Manufacturers' Finance Co., 264 U.S. 182, 44 S.Ct. 266, 68 L.Ed. 628, 31 A.L.R. 867.

I.

Background of the Case.

From 1937 to 1944 Reid and Arnold conducted a trucking business under an Interstate Commerce Commission license. The base of operations for the business was at Akron, and the business operated trucks to Boston. There were terminals at Akron, Ohio, and Watertown, Massachusetts, owned by Reid and Arnold in some sort of co-ownership, and leased to Reid Brothers Express, Inc., which operated the business. The trucks and other heavy equipment were similarly owned and leased to the corporation. Reid and Arnold each owned one-half of the stock of Reid Brothers Express, Inc., amounting to 100 shares apiece.

Curtis Porter was an employee of the business at the Watertown terminal, where he performed the duties of manager from 1937. Thereafter, he was at times an owner-operator, an arrangement by which he bought trucks and leased them to the corporation, serving as a truckdriver himself. Toward 1944, he began working at the Akron terminal as a dispatcher.

Arnold went into the military service in 1942 and left the business to be operated by Reid. He resumed activity with the business in the Spring of 1944, as president; Reid was secretary and treasurer.

In June and July, Reid negotiated for the sale of his interest in the business to Porter, and an agreement was consummated sometime in July but dated July 1, 1944. The Sale Agreement recited that Reid owned one-half the capital stock of Reid Brothers Express, Inc., an undivided one-half interest in the Akron and Watertown real estate and in certain trucks, tractors, equipment, notes and various miscellaneous appliances used in the trucking business; that Reid desired to sell all his right, title and interest in the above; and that he "does hereby sell to the buyer and the buyer does hereby purchase from the seller all of the seller's interest in said property" for $75,000. The terms were as follows: $2,000 in cash, $73,000 represented by a non-negotiable purchase money note at 4% per annum computed semi-annually and payable in installments of $1,000 per month, but if conditions in the trucking business should be such that Porter could not meet the required payments, then upon condition that Porter should not draw more than $75 per week for his services from the whole business, Reid would agree to a reduction of payments to $400 per month. Upon default in payment by Porter, the balance of the note would become due immediately. It was further agreed that Reid should transfer to Porter his stock in Reid Brothers Express, Inc., and that Porter should endorse it back to Reid as security on the note; that Reid should execute deeds for an undivided one-half interest in the Akron and Watertown terminals, and that Porter mortgage to Reid his interest thereby acquired, the Akron mortgage to be released by Reid upon payment to him of $12,500 and the Watertown mortgage to be released upon payment of $17,500. It was also agreed that title to the trucks, tractors, and trailers jointly owned by Reid with Arnold should not be transferred till April 1, 1945, but that Porter should have the right to operate the equipment with Arnold; and upon transfer of Reid's title to the trucks, tractors, and trailers, any proceeds from the sale or disposition thereof should be placed in special bank accounts and used only for the purchase of new equipment.

Porter also agreed to transfer a certain equipment note he held against other persons with a balance due of $3,000 as further security for the payment of the $73,000 note, Porter to guarantee payment of the $3,000 note.

The Sale Agreement was signed sometime in July by Reid and Porter at the law offices of Buckingham, Doolittle and Burroughs, in Akron. The $2,000 cash payment was made; the $3,000 equipment note was endorsed to Reid; and Porter signed the $73,000 purchase money note. Reid transferred his 100 shares of stock and Porter endorsed them back. Reid delivered deeds to his one-half interest in the Akron and Watertown real estate; Porter executed mortgages on the two pieces of real estate, the mortgage on the Watertown property purporting to convey to Reid the whole Watertown property rather than an undivided one-half interest. Reid also delivered a letter to Porter which reduced the monthly payments to $400 in accordance with the terms of the Sale Agreement.

Arnold did not sign the Sale Agreement or assent in writing to any of the arrangements. However, it is fairly inferable that he knew of the negotiations which led up to the sale, that he knew of the sale, and that he assented to the arrangement. In fact, the evidence shows that he worked with Porter in the business after Reid stepped out, and that the set-up, with Porter in place of Reid, was satisfactory to him.

Porter and Arnold operated the business after consummation of the sale, and Porter made regular payments on the note. They transferred all of their personal interest in the trucks, trailers, and tractors to the corporation sometime before April 1, 1945, and set up a credit of $40,000 to themselves on the corporation books. Later, Arnold was killed in a robbery, Buckingham was named executor under his will, and Porter continued to operate the business. For reasons which do not appear on the record, the business suddenly collapsed in the Fall of 1945, and Porter ceased making payments. Edmund Burroughs of the law firm of Buckingham, Doolittle and Burroughs was appointed receiver of the corporation.

Thereafter, by agreement of Buckingham, Reid and Porter, the Akron real estate was sold, and $12,158.25, being one-half the proceeds, was applied to the debt of Porter to Reid on May 28, 1946.

On November 27, 1945, Buckingham and Porter agreed to sell the Watertown property to Sarah Mogul for $27,500, $1000 of which was paid on that date to be held in escrow by Edmund Burroughs. Subsequently, Buckingham as executor conveyed his one-half interest to Mogul by quitclaim deed; Porter conveyed his one-half interest to Mogul by quitclaim deed; and Reid released his mortgage and executed a quitclaim deed on the property to Mogul. The sum of $26,500 less various expenses was paid to Harold A. Leventhal, of Boston, Massachusetts, who was apparently acting in behalf of all parties to the transaction. At this juncture, Porter instituted his action in the Massachusetts courts, and secured an order there restraining Leventhal from paying out the money until the rights therein should be adjudicated.

II.

Pleadings.

Plaintiff, in his complaint, alleges that the contract of sale here in issue was induced by the false and fraudulent representations of Reid and Arnold; that they represented that the corporation was solvent when in fact it was insolvent; that they represented the property sold to be worth much more than it was worth; that Reid promised to pay the outstanding accounts payable of the corporation at the time of the sale, and that he did not do so. The complaint also contains an allegation that Reid did not in fact own the one-half interests in the Akron and Watertown real estate which he purported to convey to Porter. Plaintiff further alleges payment by him on the note in the amount of $8800, and asks that the transaction be set aside, the note cancelled, and that he be restored, out of the funds held by Leventhal, to his position before the transaction took place.

Defendant Reid answered denying the allegations of fraud; denying that he had no title to the realty sold and asserting that the only defect in his title was in any event cured by the conveyance to Mogul, in which all parties joined; setting up the statute of frauds as a defense to any action based on a promise by him to pay the accounts payable of the corporation. Reid also counterclaimed for a judgment on the balance due on the $73,000 note, and demanded that Leventhal be required to pay over to him one-half the proceeds of the sale of the Watertown real estate in conformity with the provisions of the Sale Agreement.

Answering the counterclaim, Porter reiterated as a defense thereto his allegations of fraud and failure of consideration; and, as a defense to Reid's claim that the conveyance to Mogul cured any defect of title, Porter added that he was "ignorant of the law relative to the rights of a surviving partner" and consented to the sale because he thought he would get part of the proceeds, while Buckingham, knowing the law, did not...