Quirk v. Smith
| Decision Date | 02 October 1929 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | JEREMIAH J. QUIRK v. EARNEST E. SMITH & others. |
December 11, 1928.
Present: RUGG, C.
J., CROSBY CARROLL, WAIT, & SANDERSON, JJ.
Bankruptcy Settlement by compromise. Election. Equity Jurisdiction, To reach and apply equitable assets. Equity Pleading and Practice, Appeal.
In a suit in equity under G.L.c. 214, Section 3 (7), to reach and apply property of a member of a firm of stockbrokers in payment of a debt alleged to be due to the plaintiff from the firm, it appeared that the plaintiff's claim was for sums of money paid to the firm by reason of false and fraudulent representations of one of its members; that the firm had been adjudicated bankrupt; that in the bankruptcy proceedings the plaintiff had filed a petition for reclamation of the funds he had paid on the ground that, by reason of the fraud of the bankrupts the money had become impressed with a trust and should be returned to him; that the plaintiff also had made oath to a proof of a claim for the same amount in the bankruptcy proceedings; that on petition by the trustee in bankruptcy allowed by the referee in bankruptcy, the petition for reclamation was compromised by the payment of a sum of money and the plaintiff was allowed to prove as a general creditor for his full claim, entitled, "To money wrongfully received and wrongfully converted to their . . . [the bankrupts'] own use," and received dividends thereon. There was no express reservation of any right further to pursue the claim against the firm or its members. The bankrupts afterward were discharged in bankruptcy. No release under seal was delivered by the plaintiff. The suit in equity was for a balance of the entire claim. A master who heard the suit found that 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." The suit was dismissed. Held, that
(1) The claims presented by the plaintiff in the bankruptcy court were contractual in nature;
(2) On the pleadings in the bankruptcy court, the compromise there effected without express reservation of rights against the individual partners put an end to the plaintiff's entire claim, and therefore the bill rightly was dismissed;
(3) It was immaterial that no release under seal was given by the plaintiff;
(4) The facts, that the plaintiff intended to compromise only the claim in the bankruptcy court, and that he did not intend to release or to waive any claim that he might have against the partners individually outside the bankruptcy court, were immaterial;
(5) The rule of law that, if the plaintiff had proved his entire claim in bankruptcy, with no other proceedings, the bankrupts' discharge in bankruptcy would not release them from provable debts founded on liability for obtaining property by false representations and the plaintiff still might have pursued the bankrupts individually, was not applicable because the plaintiff's proof of claim and receipt of dividends were part of a compromise of his petition for reclamation of moneys procured from him by fraud.
Whether the plaintiff in the suit above described was barred by an election of alternative and inconsistent remedies, was not discussed.
Whether the cause of action set out in the bill above described was a claim of the character described in G.L.c. 214, Section 3 (7), was not discussed. If, on appeal for a final decree dismissing a suit in equity in the
Superior Court, it appears that the dismissal was proper, the decree will be affirmed although the reason for the decision given by this court is different from that given by the Superior Court.
BILL IN EQUITY, filed in the Superior Court on October 26, 1926, and afterwards amended, described in the opinion.
In the Superior Court, the suit was referred to a master. Material facts found by him are stated in the opinion.
Upon a hearing by Greenhalge, J., the ruling described in the opinion was made and a decree dismissing the bill was entered. The plaintiff appealed.
J.S. McCann, for the plaintiff. H.S. Davis, for the defendants.
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, Section 3 (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
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 counter claim 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 ten 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 agreement 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. Whether, "regardless of the intentions of the plaintiff, the effect of these proceedings was as 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...
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