Wasserman v. National Gypsum Co.

• Decision Date: 07 January 1957
• Parties: Arthur T. WASSERMAN, Trustee in Bankruptcy, v. NATIONAL GYPSUM COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 410

139 N.E.2d 410

335 Mass. 240

Arthur T. WASSERMAN, Trustee in Bankruptcy, v. NATIONAL GYPSUM COMPANY.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 6, 1956.

Decided Jan. 7, 1957.

Richard H. Gens, Boston, for plaintiff.

Roger P. Stokey, Boston (Leonard Wheeler and Paul H. Farrell, Boston, with him), for defendant.

Before WILKINS, C. J., and RONAN, WILLIAMS, COUNIHAN and CUTTER, JJ.

CUTTER, Justice.

In this action of contract brought in the Municipal Court of the City of Boston, the plaintiff, as trustee in bankruptcy of Shanley Lumber Company, a New Jersey corporation (hereinafter called Shanley), seeks to recover $732.56 as money had and received by the defendant to the plaintiff's use. The trial judge denied various requests of the plaintiff for rulings of law and found for the defendant. A report to the Appellate Division was dismissed. The plaintiff has appealed.

There was evidence at the trial of the following circumstances. One Jacobson and his wife owned all the capital stock of Shanley and all but two shares of Arey and Russell Lumber Company, a Virginia corporation (hereinafter called Arey), which cut and milled lumber in Virginia. Its stock was acquired by Jacobson 'for the purpose of assuring Shanley * * * an adequate supply of lumber at low prices.' Shanley sold 'lumber in Massachusetts which it bought from Arey * * * and others.' Jacobson, as president of Shanley, from time to time discharged debts of Arey with funds or checks of Shanley. Separate records were kept for each corporation and their funds were not mingled.

On June 9, 1950, Shanley paid to the defendant $732.56 by check of Shanley to discharge a debt owed by Arey to the defendant. This was done 'so as to help preserve Arey * * * as a source of supply of cheap lumber for Shanley.' On the face of the check was written 'Arey and Russell account,' the invoice number and amount, and the discount. The defendant cashed the check and made no inquiry of Shanley about the check.

Shanley and Arey were both solvent on June 9, 1950. Arey was subsequently liquidated and its creditors were paid in full. Shanley later was adjudicated a bankrupt. Some of the bankrupt's creditors were creditors on June 9, 1950, when the check was given.

The trial judge found that Jacobson and his wife 'acquired the stock of Arey * * * to control it for the benefit of Shanley * * * as Shanley * * * was thereby enabled to purchase lumber, etc., at a better price than otherwise * * * that Arey * * * was continued in existence for' Shanley's benefit, that 'Jacobson * * * operated both corporations as though they were an entity,' and that 'the check * * * was issued to Arey * * * for the benefit of Shanley * * * in the course of the established business relations between the corporations.' These findings must stand it warranted by the evidence or if they were reasonable inferences from that evidence. See First National Stores, Inc., v. H. P. Welch Co., 316 Mass. 147, 149, 55 N.E.2d 200; Kellogg v. Suher, 329 Mass. 544, 546, 109 N.E.2d 169.

The trial judge denied requests for rulings of law, which, so far as relevant at all, asked the judge to rule in substance (a) that the check received by the defendant from Shanley was a wrongful diversion of Shanley's funds to Arey of which the defendant was put on notice; (b) that the payment was ultra vires, illegal and void; (c) that as matter of law Shanley and Arey were in no wise affiliated and that the payment was wrongful, and (d) that the evidence did not warrant a finding for the defendant. We think that implicit in all the plaintiff's requests, which were denied, was an erroneous assumption by the plaintiff that Shanley wrongfully diverted its corporate funds to the payment of the debt of another corporation by an act which was ultra vires.

The law of New Jersey applies to the question of the corporate powers of Shanley, a New Jersey corporation. Edwards v. International Pavement Co., 227 Mass. 206, 212-213, 116 N.E. 266. See Commissioner of Banks v. Chase Securities Corp., 298 Mass. 285, 313, 10 N.E.2d 472; Restatement; Conflict of Laws, s. 156, comment b. See also Beason Wool Corp. v. Johnson, 331 Mass. 274, 279-280, 119 N.E.2d 195. However, on the facts found, the result would be the same under Massachusetts law. There was here a wholly executed transaction by which Shanley in the regular course of its lumber business and in its current of transactions with Arey (a supplier maintained for its benefit) paid for items purchased by Arey. Because of the community of business interest between the two corporations and the business purpose of preserving Arey as a source of supply, the trial judge was warranted in concluding that the transaction was within Shanley's corporate powers. Whitehead v. American Lamp & Brass Co., 70 N.J. 581, 583-585, 62 A. 554 (receiver of a guarantor, under an executory corporate guaranty of payment for goods sold to its supplier, held estopped to assert the guaranty was ultra vires, where goods sold were needed for benefit of guarantor). Hall v. Pauser, 128 N.J.L. 211, 213-214, 24 A.2d 575 (corporate guaranty of rent of one of the guarantor's retailers). See also Jesselsohn v. Boorstein, 111 N.J.Eq. 310, 312, 162 A. 254. Compare Earle v. American Sugar Refining Co., 74 N.J. 751, 763, 71 A. 391, 396 (where a corporate loan to an individual was held to be an improper participation in a banking business, although the court indicates that the 'loan would have been legitimate had it been made to advance the corporation's business'. See, for Massachusetts law, American Surety Co. of New York v. 14 Canal Street, Inc., 276 Mass. 119, 125, 176 N.E. 785, and cases cited (indemnity given to a surety company by a parent corporation...