Quirk v. Smith

• Decision Date: 09 October 1929
• Parties: QUIRK v. SMITH et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

268 Mass. 536

168 N.E. 174

QUIRK

v.SMITH et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Oct. 9, 1929.

Appeal from Superior Court, Suffolk County; Frederic B. Greenhalge, Judge.

Suit by Jeremiah J. Quirk against Earnest E. Smith and others, prosecuted only against the defendant N. W. Niles. From a decree dismissing the bill, plaintiff appeals. Affirmed.J. S. McCann, of Boston, for appellant.

H. S. Davis, of Boston, for appellee Niles.

RUGG, C. J.

This is a suit in equity instituted on October 26, 1926, to reach and apply property of the defendants in payment of a debt alleged to be due to the plaintiff. G. L. c. 214, § 3, cl. 7. It is prosecuted only against the defendant Niles. The case was referred to a master. The evidence is not reported. Hence his findings of fact must be accepted as final. Additional findings of fact were made by the trial judge. Thus it appears that the obligations sought to be established arose from payments, aggregating $10,000, by the plaintiff to a firm of brokers in which Niles was a partner, induced by false representations by another member of the firm. The payments were made on January[268 Mass. 538]12, 13, and 14, 1921. The partnership was adjudicated bankrupt on January 18, 1921. On March 14, 1921, the plaintiff filed a petition in the bankruptcy court, alleging that at the time of the deposit of the money the bankrupts knew that they were insolvent and would be unable to carry out the contract undertaken with the plaintiff; that the money remained in their possession when they were adjudicated bankrupt, and had passed to the possession of the trustee in bankruptcy; concluding with a prayer for an order that the money be impressed with a trust in favor of the plaintiff and returned to him. A similar petition, except that it recited that a demand for return of the money had been made on the day before the adjudication, and that demand therefor had been made of the trustee in bankruptcy, with prayer that the trustee be ordered to pay the petitioner the sum of $10,000, was filed January 10, 1922.

On the same day the plaintiff made oath to a proof in bankruptcy, claiming $10,000 as money wrongfully received and wrongfully converted to their own use by the bankrupts, and reciting that there was a counterclaim of $3,590,59, which was disputed. On March 11, 1922, the trustee in bankruptcy filed a petition in the bankruptcy proceedings, stating ‘that, in the matter of the petition in the nature of reclamation to recover $10,000,’ he had agreed with the petitioner (the present plaintiff) to compromise the petition by payment of $3,500, out of the assets of the estate, and praying that the compromise be allowed. After hearing, and by decree dated April 15, 1922, this petition was allowed. A further term of the compromise agreement between the trustee in bankruptcy and the petitioner (the present plaintiff), approved by the referee in bankruptcy, but not referred to in the petition, allowed the plaintiff to prove as a general creditor for $10,000. The bankrupts were granted their discharges on March 13, 1922.

The plaintiff received $3,500 on April 21, 1922. On March 14, 1922, his claim of $10,000, ‘to money wrongfully received and wrongfully converted to their own use,’ was allowed. On this claim he received a dividend of 10 per cent., $1,000, on October 1, 1925, and in April, 1927, $724, as a further dividend. He has thus received in all $5,224 of his $10,000 from the assets of the bankrupt estate. He has also received, on or about April 30, 1928, from another of the partners, $4,000 on an argeement not to sue that partner further, but with reservation of all rights against the other partners.

The master found as a fact that in making his composition the plaintiff ‘did not intend to waive any claim that he might have against the three partners individually outside of the bankruptcy court, that nothing was said on the subject one way or another at the time the agreement was made, and that he intended then to compromise only the claim that was in that court.’ He further found that the trustee in bankruptcy did intend that that compromise should settle definitively any claim that the plaintiff might have against the bankrupts' estate, but that the plaintiff's counsel then hoped, and later tried to obtain from any funds that might be in the hands of the trustee in bankruptcy, after a final dividend was paid, a further and additional payment to the plaintiff, and, while no assurance was given by the trustee in bankruptcy, such possibility was from time to time discussed between the trustee in bankruptcy and the plaintiff, and the trustee later arranged a conference with the referee in bankruptcy to discuss it. Whther, ‘regardless of the intentions of the plaintiff the effect of these proceedings was a matter of law to compromise the claim,’ the master left for the court to determine as a question of law.

After confirmation of the report of the master, a judge in the superior court ruled and found, on hearing on final decree, that, in seeking to follow the funds in the hands of the trustees and in accepting the compromise of his claim, the plaintiff had elected to disaffirm the original transaction and could not maintain the bill. A decree dismissing the bill with costs as to all defendants was entered. The case is before us upon appeal from this decree.

It is contended that from beginning to end the plaintiff's action has been in disaffirmance of the contract. As the payment by him was induced by false representations, he had a right to rescind the agreement and to get back the money delivered. He rescinded; and he demanded his money back by his petition for reclamation. He based his proof in bankruptcy on the obligation to return money held wrongfully by the partnership.

It seems plain that the claims presented by the plaintiff in the bankruptcy court were contractual in nature. This follows from the settled law that claims arising purely exdelicto cannot be proved under the present bankruptcy act. It was said in Schall v. Camors, 251 U. S. 239, at page 251, 40 S. Ct. 135, 137, 64 L. Ed. 247: ‘Upon every consideration, we are clear that claims based upon a mere tort are not provable. Where the tortious act constitutes at the same time a breach of contract, a different question may be raised, with which we have no present concern; and where, by means of the tort, the tort-feasor obtains something of value for which an equivalent price ought to be paid, even if the tort as such be forgiven, there may be a provable claim quasi ex contractu. Crawford v. Burke, 195 U. S. 176, 187, 25 S. Ct. 9, 49 L. Ed. 147;Tindle v. Birkett, 205 U. S. 183, 186, 27 S. Ct. 493, 51 L. Ed. 762;Clarke v. Rogers, 106 C. C. A. 224, 183 F. 518, 521, 522, affirmed 228 U. S. 534, 543, 33 S. Ct. 587, 57 L. Ed. 953.’

The plaintiff in his brief in the present case concedes that he had disaffirmed his contract with the bankrupts and was proceeding in the bankruptcy court on the assertion of contractual claims. He bases a part of his argument on the proposition that his petitions for reclamation and his proof of claim all rested on disaffirmance of his contract with the bankrupts and on the theory that, because of the unjust enrichment of the bankrupts' estate through their fraudulent act, a contractual obligation arose by implication of law to repay to him the money thus fraudulently taken from him.

The proceedings of the plaintiff in the bankruptcy court, after disaffirmance of the contract, were ‘founded upon an open account, or upon a contract express or implied,’ Bankruptcy Act § 63a(4), 11 USCA § 103(a)(4), as those words are explained in Crawford v. Burke, 195 U. S. 176, 187-194, 25 S. Ct. 9, 49 L. Ed. 147. The bankruptcy court could not rightly have entertained the plaintiff's proceedings if they had not been founded upon claims in contract. The situation in the bankruptcy court was that the plaintiff had two petitions for reclamation (which may be treated as one proceeding for the purposes of this discussion) and the petition for proof of his claim. These proceedings hardly can be pronounced incompatible. They were designed for one purpose, namely, to recover the $10,000 taken from him by the fraud of the bankrupts. The plaintiff had a right to pursue all appropriate remedies to recover this sum. If the plaintiff prevailed on the allegations of his reclamation petition, he would recover the entire sum. That petition was a strictly adversary...