Court Opinion

ID: 3863581
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:57:07.728435+00
Date Added: 2024-06-11T13:49:39.858478
License: Public Domain

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 means, stock, and supplies for running their mills and print works," upon 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 oneper 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 *Page 371 
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 Quidnick Company? If the goods sold for the more than the expenses and commissions, not only would there be no debt 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.  W. Sprague Manufacturing Company becomes in any way liable for 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 value of the stock as manufactured goods. So long as both parties fulfilled the contract, the Quidnick Company would have its own property and the proceeds of sales. *Page 372 
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 conversion.
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, pursuant to the 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 be 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, and the answer admits an "apparent indebtedness" on such account of about one million dollars, subject to *Page 373 
deductions not ascertained; and in the argument counsel on both sides seemed to assume that a debt would remain, under the contract, against the A.  W. Sprague Manufacturing Company, in case of deficiency or loss in the closing of the account.
It might be claimed from these facts that the parties themselves had shown their understanding of the contract, and thus had given a construction to it which the court should adopt. 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 Manufacturing *Page 374 
Company is indebted to the Quidnick Company in the sum of more than two million dollars," as charged in said bill, but they admit that upon the accounts, as they now stand, there is an apparent indebtedness from said A.  W. Sprague Manufacturing Company to said Quidnick Company of about one million dollars," subject to deductions for unascertained credits, which they claim will be sufficient 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 print works, 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 Company. *Page 375 
Certain reasons were suggested by counsel in argument why no action has been taken in behalf of the Hoyt estate to demand its rights in the Quidnick Company, but 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 estates to satisfy the balance of the account when found, or to some other equivalent remedy.
TILLINGHAST, J., concurred.