LEGAL DOCUMENT

Case: Quidnick Company vs. Zechariah Chafee et als.
Citation: 13 R.I. 367
Court: Supreme Court of Rhode Island
Jurisdiction: Rhode Island
Decision Date: 1881-10-15
Docket Number: 
Pages: 367–438
Volume: 13
Reporter: Rhode Island Reports

Parties: Quidnick Company vs. Zechariah Chafee et als.

Quidnick Company vs. Zechariah Chafee et als.
Q. and S. entered into a contract by which Q. was to furnish S”ock, means, and supplies to run the mills of S. S. to manufacture such stock and supplies into prints, and consign the prints in the name of Q. to commission merchants to be agreed on, for sale on account of Q.; the stock, supplies, and goods till sold to remain the property of Q.; the proceeds of sale as received by Q. to be applied to pay freight, insurance and expenses, then to repay advances from Q. to S., including a commission, of one fourth of one per cent, on such advances, the balance of the proceeds to be paid to S. as his compensation. The contract to be terminable by either party on thirty days’ notice.
There being no charge of negligence, non-performance, or conversion:
Held, that under the contract no debt could arise from S. to Q. Potter, J., dissenting.
C., the treasurer of the Q. corporation, was also trustee and assignee for the benefit of the creditors of most of the stockholders in the Q. corporation. C. held in pledge most of the stock of the Q. corporation for such creditors.
It appearing that funds of the Q. corporation had been used for the trust estate in C.’s hands:
Held, that the Q. corporation was entitled to a lien on the trust estate for the amount of such funds and to an account.
It further appearing that the trust estate could not be held to await such account without great loss, the court ordered the trust estate sold and the lien transferred to the proceeds. Potter, J., dissenting from the order.
A portion of the trust estate in C.’s hands was realty situated in Connecticut, under attachment in suits pending in that State.
It appearing that this realty could not be at once sold and that its maintenance involved expense, the court authorized C. to lease the realty and approved a form of lease submitted by him. Potter, J., dissenting.
When proceedings at law and in equity are pending between the same parties and for the same cause of action, the court, on motion, will compel an election of remedies; and when the equity proceedings have been carried to hearing and decree, the court, on motion, will enjoin the prosecution of the suits at law, and will order the discharge of any attachment made in them.
Such order made in the present case. Potter, J., dissenting on the ground that the facts did not justify it.
A decree entered by the court cannot be suspended or modified by an injunctive order issued by a single justice. Potter, J., doubting.
C. holding as trustee, for the benefit of creditors, a large estate of realty and personalty, applied to the court for its approval of a plan to sell the whole estate in bulk.
It appearing that the creditors desired this mode of sale, that the trustee favored it, and that the debtors assented to it:
Held, That the court would approve it; that the trustee should fix a time and place to receive competitive offers for the" estate, and should contract to sell to the highest bidder. Potter, J., dissenting in the circumstances.
Terms and conditions stated which such a contract to sell should contain.
C. subsequently received from W. an offer to bid at auction a given sum as an upset price for the estate in bulk. This offer was favored by the creditors, and was submitted to the court by C. with the knowledge of W., whereupon the former order of sale was modified to meet the conditions of W.’s offer.
The day before the auction sale W. annulled his offer, and the sale was thus frustrated.
Held, that W. was gmlt^jjj a contempt of court.
Bill in equity to establish a lien and for an account.
By deed of trust, bearing date November 1, 1873, the A. & W. Sprague Manufacturing Company, William Sprague, Amasa Sprague, Mary Sprague, Fanny Sprague, and the firm of A. & W. Sprague, conveyed certain property to Zechariah Chafee, giving him power to execute notes for the indebtedness of the grantors, to sell the property conveyed in case of default in the payment of these notes, and, meanwhile, to carry on the business of the grantors for the benefit of their creditors. Subsequently all the grantors, except Mary Sprague and Fanny Sprague, executed deeds of assignment for the benefit of their creditors to said Chafee of all their property not exempt from attachment by law. These grantors held most of the capital stock of the Quidnick Company, a solvent corporation. In pursuance of the general plan, of which the above trust deed was a part, Chafee was chosen treasurer of the Quidnick Company, and the following agreement was made between the Quidnick Company and the A. & W. Sprague Manufacturing Company:
“It is agreed between the Quidnick Company and the A. & W. Sprague Manufacturing Company, a corporation created by the General Assembly of the State of Ehode Island, as follows:
“ That said Quidnick Company will, from time to time, furnish the said A. & W. Sprague Manufacturing Company the necessary means, stock, and supplies for runnier their mills and print works so long as this contract shall contir a in force.
“ That said A. & W. Sprague Manufacturing Company will manufacture all such stock and supplies into printed goods, and consign the same as fast as manufactured, in the name of the Quidnick Company, to such commission houses as may be agreed upon, for sale on account of said Quidnick Company, said stock and supplies, and goods in process or manufactured, at all times till sold, to be and remain the property of said Quidnick Company.
“ That the proceeds of sales of said goods as received by said Quidnick Company, shall be applied, first to the payment of freight, insurance, and other expenses, and to the repayment of all advances made by them as aforesaid, including a commission of one quarter of one per cent, upon the amoimfc of such advances for their trouble; and the balance of said proceeds shall, from time to time, be paid over to said A. & W. Sprague Manufacturing Company as its compensation for manufacture.
“ And it is further agreed that this contract shall continue in force until terminated by thirty days’ notice, in writing, by either party to the other party of its intention to terminate the same.
“In testimony whereof said Quidnick Company has caused these presents to be signed, and its corporate seal to be hereunto affixed by Zeehariah Chafee, its treasurer, for this purpose duly authorized. And said A. & W. Sprague Manufacturing Company has caused these presents to be signed, and its corporate seal to be hereto affixed by Amasa Sprague, its treasurer, for this purpose duly authorized, this eighteenth day of December, A. D. 1873.
“ Zechariah Chafee, Treasurer. [Seal.]
“Amasa Sprague, Treasurer. [Seal.]
“ Executed and delivered in presence of
Charles B. Gould.”
The complainant, in this bill in equity, claimed that under this contract large sums of money were due to the Quidnick Company; that much of this money had been used by Chafee for the benefit of the holders of the extension notes issued by him under the powers contained in the deed of trust, and for the purposes and benefit of the trust estate conveyed to him. The bill prays that a lien on the trust estate i^y be decreed in favor of the complainant, that an account may oe taken, and that Chafee may, meanwhile, be enjoined from selling and encumbering in any way the trust estate.
The pleadings involved many other matters charged in the bill, and denied or explained in the answer, arising from the connection of the parties with other persons and corporations. A statement of these matters is immaterial in view of the decision and decree of the court.
October 15, 1881.

Stiness, J.
This bill seeks to charge with a lien, in favor of the complainant, all the estate which was conveyed to Chafee in trust for the creditors of the A. & W. Sprague Manufacturing Company and its individual members, setting up as the foundation for its claim of lien a contract for furnishing “ the necessary meins, stock, and supplies for running their mills and print works,on which it is claimed that a large balance is due to the Quidnick Company ; and also an appropriation of the funds of the Quidnick Company by Chafee, who was formerly its treasurer, for the benefit of the trust estate.
The first question that meets us is whether there is any debt due to the Quidnick Company from the A. & W". Sprague Manufacturing Company, under the contract.
The contract in question is what is commonly known as a stocking contract, and, though it is quite meagre in its details, it clearly provides that the A. & W. Sprague Manufacturing Company is to manufacture goods for the Quidnick Company ; that the latter is to furnish all the stock, supplies, and funds necessary to do this, and is to own all the stock, supplies, and goods, in process or manufactured at all times till sold, and is to have the proceeds of the sales; that out of the proceeds all expenses and advances are to be paid; also one quarter of one per centum on the amount of the advances for its trouble, and the balance, if any, is to go to the A. & W. Sprague Manufacturing Company, “ as its compensation for manufacture.” In other words, the Quidnick Company was to have its own stock and supplies manufactured in the Sprague mills. If there was a profit, the Sprague estate would get something for the use of its mills and for its supervision; but if there was no profit, the silence of the contract on that point is significant. Under such a contract what debt could arise to the Quid-nick Company ? If the goods sold for more ,&an the expenses and commissions, not only would there be no crewt under the contract, but there would be a balance due to the A. & W. Sprague Manufacturing Company. If the goods sold for less than it cost to produce them, we cannot see how the A. duiftC Sprague Manufacturing Compariy becomes in any way liabWfor the deficiency.
Take a simple illustration. A. has corn. B. has a grist-mill. A. says to B.: “Grind my corn into meal; I will pay all expenses, and if the meal brings more than a certain price, you shall have the excess for your trouble.” Now, suppose there is a fall in the grain market, or that B.’s machinery for grinding is of such a kind as to make the cost for labor more than in other mills, so that A. finally loses money in the operation ; clearly he could have no claim on B. for the loss. And yet this simple arrangement is not essentially different from the contract before us. The manufacture and printing of cotton goods has more complication of details, but in substance the Quidnick Company, by this contract, said to the A. & W. Sprague Manufacturing Company: “ Make our cotton into prints in your mills, we paying all expenses. If on sale they bring more than a certain price, you shall have the excess.” By necessary implication, therefore, it also said : “ If they bring less than cost, it is our own loss, because our own goods have brought less than we have put out on them.”
We see nothing in the contract to make the A. & W. Sprague Manufacturing Company liable for any loss incurred in the manufacture of the goods, and from the nature and terms of the. contract, that is the only kind of debt that could be claimed to have arisen under it. No accounting is provided for in the contract, and the only security mentioned is that of title in the stock and goods. By this arrangement all advances for labor and incidental expenses would be secured in the enhanced^yalue of the stock as manufactured goods. So long as both pipíes fulfilled the contract, the Quidnick Company would have its own property and the proceeds of sales.
The only losses, other than those which might come from the chances of business, which the Quidnick Company could sustain under this contract, would be from negligence or non-performance on the part of the A. & W. Sprague Manufacturing Company, or a failure to deliver back the property intrusted to it, which would be a conv^ion.
But none of these things are charged in the bill. On the contrary, this particular indebtedness is claimed to have arisen “ under the contract and authority above stated,” and, as we must therefore assume, pursuantj^pke contract and not in violation of it or in fraud.
But if there is nothing in the contract'to show that the A. & W. Sprague Manufacturing Company was to ke held for losses in the business, is there anything in the situation of the parties or the character of the arrangement to show that such was their implied understanding, though not specifically expressed ? The A. & W. Sprague Manufacturing Company was “ financially embarrassed; ” it was without credit; its stockholders had pledged nearly the entire stock of the Quidnick Company for their debts; it had made conveyance of all its property in trust for its creditors, and was compelled to enter into this scheme in order to keep its mills from rusting in idleness. Under such circumstances it is impossible to suppose that the Quidnick Company, composed almost entirely of the same stockholders as the A. & W.- Sprague Manufacturing Company, and lending its name and credit to carry the project into operation, was looking to the ultimate liability of an insolvent corporation as a guaranty against loss in furnishing stock, &c., for the manufacture of its own goods. Was it looking to reimbursement from the trust estate ? There is no suggestion of it in the contract, and if so valuable a security was contemplated, it is incredible that it could have been omitted, or that the parties would have trusted to the remote and doubtful inference of liability of the trustee, who, as such, was no party to - the contract, from the simple fact that the creditors knew of and assented to the agreement.
It appears that accounts were kept by these corporations, as though they understood the relation of debtor and creditor to exist between them,4Hid the answer admits an “ apparent indebtedness ” on such account of about one million dollars, subject to deductions not ascertained; and in the argument counsel on both sides seemed to assume that a debt would remaxi, under the contract, against the A. & W. Sprague Manufacturing Company, in case of deficiency or loss in the closing of the aaaount.
It might be claimed from these facts that tie-parities themselves had shown their understanding of the contract, and thus had given a construction to it which the court should--aatept. • We do not think, however, that the facts warrant such an inference. As the A. & W. Sprague Manufacturing Company was to have a portion of the proceeds of sales in case of profit, it would be necessary to keep accounts in order to determine whether there were any profits; and we do not understand that the accounts as kept amounted to anything more than this. An “ apparent indebtedness ” might be shown in such accounts without any implication of liability for the balance so disclosed. The contract to be construed by the court is simple, definite, and unambiguous, and requires no guide to its meaning from extrinsic facts. Neither do we think that any of the facts before us are inconsistent with the plain meaning of the contract as we have read it.
The bill also charges that said Chafee “ incurred an unexplained loss of about two million dollars.” If this means a loss in the manufacture of goods under the contract, from what we have already said, there would be no debt accruing to the complainant, and, therefore, no lien for it. If it means that there has been a loss to the Quidnick Company outside of the contract, and in some other way, it' would come under the second branch of the case, which we will now consider.
The bill charges that “ the earnings belonging to said Quidnick Company of itself, and the earnings belonging to said Quidnick Company under the contract above referred to, have either been paid to said creditors holding the said extension notes, or have been used by said Chafee as trustee and assignee, as aforesaid, in preserving and carrying on the business of said A. & W. Sprague Manufacturing Company, and for the sole benefit and advantage of its creditors, to the loss, injury, and damage of said Quidnick Company.”
We do not find that this is specifically denied in the answer. The defendants do “ deny that the A. & W. Sprague Manufactur ing Company is indebted to tbe Quidnick Company in the sum of more than two pillion dollars,” as charged in said bill, but they admit that upon the accounts, as they now stand, there is an apparent indebt'-¡grifes from said A. & W. Sprague Manufacturing Company to sl/iiA'Quidnick Company of about one million dollars,” subject to deductions for unascertained credits, which they claim will be ?.uf#/&ient to cover the indebtedness.
The answer does not state how this “ apparent indebtedness ” has arisen, whether under the contract or in the way charged in the bill; and, of course, we cannot now know whether the credits will be sufficient to cover the indebtedness or not.
Upon this branch of the case we think that the complainant is entitled to an account.
If the defendant, Chafee, by virtue of his position as treasurer of the Quidnick Company, has used its funds for the benefit of the trust estate, the Quidnick Company is entitled to have the amount so appropriated ascertained and repaid. But the defendants say, even if there was an indebtedness of this kind, still as Chafee holds the whole of the Sprague estates in trust for creditors, and 4,022 shares out of 4,349 of the Quidnick Company in pledge for the same creditors, and as the Quidnick Company has entered into this scheme above referred to “ for continuing in operation the-manufacturing business and printworks, and keeping in activity the Sprague properties for the benefit of creditors,” it is practically one concern, one estate, and that an accounting from one company to the other would simply be taking from one pocket to put into another, involving circuity of remedy and unnecessary delay. Perhaps this may be so, but upon the record before us we do not see that we have any authority to treat the two companies as one, if, indeed, we could do it under any circumstances.
Three hundred and twenty-seven shares of the Quidnick Company belong to the estate of Edwin Hoyt, and, so far as appears in this case, neither was he, nor are his representatives, interested in the trust estate. As owners in the Quidnick Company, those representatives are entitled to their proportion of its earnings and property, and to the full benefit accruing to it under the contract. They have not waived any of their rights, and for all that appears before us, may properly claim their share in the Quidnick Com pany. Certain reasons were suggested by comfsel in argument wby no action lias been taken in bebalf of Hoyt estate to demand its rights in the Quidnick Company, bffl we find nothing in the record to warrant us in ignoring their rights in it or in dealing with it as if such rights had been abandoned or did not exist.
The Quidnick Company then stands as a distinct and independent corporation, with other stockholders than those of the A. & W. Sprague Manufacturing Company, and entitled to its own earnings and property, as well from the A. & W. Sprague Manufacturing Company and the trustee of the Sprague estates as from others. As such, upon this record, it is entitled to an account, such as we have stated, and is also entitled, in order to secure such account, to a lien upon enough of the trust estate to satisfy the balance of the account when found, or to some other equivalent remedy.
TlLUlNGHAST, J., concurred.