Baltimore Sugar Refining Co. v. Campbell & Zell Co. , 83 Md. 36 ( 1896 )

Roberts, J.,

delivered the opinion of the Court.

The facts and circumstances out of which the controversy on this appeal has arisen are unusual, peculiar and interesting. The demurrer to the appellant’s bill makes it necessary that the facts properly pleaded should be stated with such particularity as to give a clear understanding of the principles of law to be considered and announced. The bill alleges that the appellant was in the month of February, 1890, about to engage in the business of sugar refining in the city of Baltimore, and for the purpose of properly conducting its business, it became necessary to purchase certain steam boilers ; that in carrying on its business,fit employed two of the appellees, Engal and Kraft, as engineers, believing them to be men of integrity and honesty, skilled in the business of sugar refining, and well acquainted with the machinery required for the refining business ; that it was well known to the appellee company that the appellant did so depend upon its said agents, and that they were charged by it with the duty of selecting proper boilers for its use; (3), that acting upon what it believed to be the honest advice and judgment of its said agents, it purchased from the appellee company, on or about the 12th of February, 1890, six boilers for the price of twenty-five thousand one hundred dollars, one-fourth payable in cash on delivery, and one-fourth payable when the boilers should be ready for testing, and the balance when the boilers were found to be such as they were guaranteed to be by the appellee company; that each of said boilers was represented to be 250-horse-power, rating horse-power equal to 30 pounds of water evaporated per hour from feed-water 100 degrees Fahrenheit at 70 pounds pressure, and were guaranteed by said appellee company to be full power as rated to give dry steam, to be perfect in all parts, and with proper draft to be as economical as any other boiler, and to evaporate not less than 10 pounds of water per pound of good Cumberland coal as rated, and to evaporate twenty-five hundred pounds of water per hour for 10 consecutive hours; (4), that six boilers were placed in the appellant’s refinery by said appellee company, and were accepted by the appellant under the advice and approval of its said agents, and without any knowledge or suspicion on the part of the appellant that its said agents were not faithful to their duty, and that their advice and directions with reference to said boilers, and as to the acceptance of them by the appellant, were other than truthful and worthy of its confidence ; (5), that it was soon discovered that said boilers were defective ; .that they were not such as they were represented and guaranteed to be, and that they failed to perform the service which the said appellee company had represented and guaranteed that they would perform, and that they were not for that reason suitable for the purpose of appellant’s business ; but it avers that it was induced to believe, by the advice and suggestion of its said agents, that said boilers could be made to perform the work required of them, according to said guarantee, and to answer the purpose for which they had been purchased, and for which they had been sold, by making certain changes in the arrangements for using them, suggested by said appellee and by said agents of the appellant. The appellant was thus led to continue to use said boilers in its business, notwithstanding the defects so discovered in them, and notwithstanding their failure to do the work they were guaranteed to do, and it incurred great expense in endeavoring to remedy the defects and short-coming of said boilers. (6), That, relying upon the advice and judgment of its said agents as to said boilers, it paid for them according to the contract, believing that the defects in them could be remedied and that they were in fact capable of being made to do the work they were guaranteed to be able to do, as set forth, and thus serve the purpose for which they were purchased; (7), that, finding the quantity of steam guaranteed by said boilers less than was stated in said guarantee of the appellee company, and less than was necessary for the business of the appellant, and still believing that the failure of said boilers to render the service the appellee company had guaranteed that they would render proceeded from causes that could be removed, as the appellant was so advised that it could by its said agents, the appellant sanctioned the purchase made by said agents, Kraf and Engel, of two boilers on or about the first day of June, 1891, from said appellee company, said purchase being recommended by said agents, said two other boilers being represented by the appellee company to be each 250-horse-power, rated horse-power equal to 30 pounds of water evaporated per hour from feed water of 100 degrees Fahrenheit, at 70 pounds pressure, for the sum of eight thousand five hundred and sixty-six dollars and sixty-six cents ; the said appellee company guaranteed each of said boilers to be full power as rated, to give dry steam, to be perfect in all its parts, and with proper draft, to be as economical as any other boiler; that, relying upon the advice and judgment of its said agents, it paid for said two boilers all the agreed price, except about two thousand dollars, which it has not paid for the reasons hereinafter stated; (8), that, acting under the advice and relying on the judgment of its said agents, whose fidelity and integrity it had no cause to distrust, it continued to use said eight boilers and to endeavor to make the same perform the service which said appellee company had guaranteed that they would perform, as the appellant was led to believe by its said agents could be done, thereby incurring great expense and great loss in its business by reason of what it afterwards discovered to be intrinsic defects of said boilers and their insufficiency to perform the service which said appellee company had guaranteed they could perform, until finally it became evident that said boilers were not fit for its use, because they could not do, or be made to do, the work which said appellee company had represented and guaranteed that they were capable of doing ; that it was forced to abandon the use of said boilers after it had paid for the first six in full, and had paid for the other two boilers all the purchase money except two thousand dollars, which payment it had made under the belief, as above stated, that said boilers could be made to perform the services guaranteed by said appellee company ; (9), that, acting under the advice and by the direction of its said agents in endeavoring to use said boilers as herein mentioned, it did not reject said boilers as soon as the defects thereof were first perceived, but continued to use them with the expectation that they could be made to serve the purpose of the appellant according to the guarantee of said appellee, as hereinbefore set forth, and when it finally became convinced that said boilers were altogether incapable of being made to produce the results mentioned in the guarantee of the appellee company, which results it was necessary that said boilers should be capable of producing in order to conduct successfully the business of the appellant, it notified the defendant, the appellee company, to remove the boilers, and claimed that said company should return the purchase money it had received for the same and make good to the appellant the loss it had suffered by reason of the premises; but said appellee refused to do so, and instituted an action in the Superior Court of Baltimore City on the 27th of April, 1892, against the appellant .to recover the balance of the purchase money of said two boilers, and a large amount claimed to be due by appellant under its contract for said boilers, for work done in attempting to make .said boilers capable of performing the service set forth in said guarantee of the said appellee company, and for alterations and repairs of said boilers, which suit now stands for trial in said Superior Court; (io), that said suit is based upon the contracts for the purchase of said eight boilers ; that said contracts were procured and the appellant induced to purchase said boilers and to retain the same, with the expectation that the defects thereof could be remedied, as hereinbefore set forth, by the gross deceit and fraud of the said appellee company; that before any of said boilers were so purchased, and while the said agents of the appellant were considering the various boilers offered to it, the president of the appellee company, and one of the appellees, fraudulently and wickedly corrupted the said agents of the appellant, upon whom it relied in making the selection of proper boilers, and upon whose advice it relied in its subsequent dealing with the said boilers, as said president and the said appellee company well knew, and by bribing the said agents of the appellant with money secretly paid to said agents, fraudulently procured said agents to accept said boilers for the appellant, and to advise the purchase of the same, and also to advise.the action subsequently taken with reference to the said boilers, as hereinbefore set forth, and thus grossly and fraudulently deceived and defrauded the appellant; (12), that it did not suspect the honesty and fidelity of its agents until after it had become convinced of the worthlessness of. said boilers and .had been forced to discard them, and that it has only recently been informed of the gross deception and fraud practised upon it by said appellee company.

These are facts, the truth of which the demurrer admits. The ground assigned in support of the demurrer is that a Court of Equity has not jurisdiction of the case made by the bill of complaint. Most learned and exhaustive arguments, both oral and written, have been presented to this Court by the counsel for the respective parties. The question is a narrow one, and relates chiefly to the practice which ought to prevail in Courts of Law and Equity in this State, where both jurisdictions prevail, but it is not always easily ascertainable exactly where the line of demarcation between the two jurisdictions lies. Many nice distinctions are to be found in the decided cases upon the subject, and the solution of the question is not found to be without some difficulty. It is well settled, however, that there are two grounds for the assumption of jurisdiction by Courts of Equity over causes of action that practically furnish an answer to every inquiry in respect to equitable jurisdiction. The first is, when a substantive right is itself of equitable origin ; secondly, where the right is legal, but the legal remedies are inadequate for the protection of the right. Tiedeman on Equity Jurisprudence, sec. 222.

The relief prayed is, that said contracts for the purchase of the eight boilers be declared null and void, and be annulled ; secondly, that the appellee company be required to repay to the appellant the money received under said contracts, and all other money paid to the appellee company by the appellant under said contracts ; thirdly, that the appellee company be enjoined from prosecuting any suit and especially the suit pending in the Superior Court of Baltimore against the appellant based upon said contract, and from asserting in any Court any right against the appellant by reason pf said contract and for general relief. The case is relieved of such difficulty in consequence of the absence of any controversy as to the facts. This controversy finds its origin in the purchase by the appellant, and the sale by the appellee company of eight boilers of certain horse-power, guaranteed to be full power as rated to give dry steam, to be perfect in all their parts, &c. The boilers were purchased at two different times. On the first occasion six were purchased for the sum of $25,100; and on the second two more were purchased for the sum of $8,566.66. The first six boilers were paid for in full as per terms of the first contract; and all but about $2,000 was paid under the second contract. The $2,000 was not paid because it was ascertained that said boilers were defective and unfit, and unable to perform the service which they were contracted to do and guaranteed to perform. If the question of the failure of the boilers to meet the requirements stipulated for in said several contracts was the only difficulty presented by this appeal, it would find easy solution. An action at law would be the appropriate remedy adequate and complete. The real question here lies at the very inception of the purchase of said boilers, and before a single boiler had been purchased. The terms of the contract play, but a small part in the alleged scheme by which the fraudulent purchase was to be accomplished. The contracts on their face are fair to all seeming, but the allegations of the bill charge the utmost bad faith in the manner of the execution. It is stated in the second paragraph of the bill “ that when the appellant was preparing to begin its business, manufacturers of steam boilers were desirous to obtain the contract to supply them, and among the number was the appellee company.” Behind the appellant in this transaction stood its two employees, Engel and Kraft, competent engineers, skilled in the sugar refining business, enjoying implicitly the confidence of the appellant company, which depended entirely upon their judgment and skill in the selection of proper boilers for its business.

The bill also charges the material facts stated in the eleventh paragraph of the bill as shown in the eleventh item of the statement of facts hereinbefore set out. At the time of the execution of said contracts the relation which existed between Engel and Kraft and the appellant was of a most confidential and fiduciary character. Such at least was the position the appellant believed them to hold. For all substantial purposes, in so far as the approval and acceptance of said eight boilers were involved, Engel and Kraft stood in the position of the appellant, clothed with complete authority to accept or reject. Without the approval of said employees the boilers would not have been accepted, and the appellee was well advised of this fact, and being thus advised, it proceeds at once to obtain control of the employees of the appellant, and in fact of the appellant itself, and thus deprive it of the only means which it had provided for its protection. It is well settled that an agent, employed to sell, cannot himself become the purchaser, and an agent employed to buy cannot himself be the seller. And upon the same principle it is held, that a contract made by one who acts as the agent of both parties may be avoided by either principal. Story on Agency, sec. 211. This is the state of the law in a case where no fraud is imputed to either principal or agent. But in a case where fraud is superadded and practiced by the agents of the innocent principal, and a fraudulent design secretly accomplished by the other principal through the corrupt instrumentality of unprincipled agents, there ought to be, we think, but small doubt as to the Court which should take cognizance of it. Whilst it is true the appellee has brought suit in the Superior Court seeking to recover the balance unpaid of the purchase money for said two boilers bargained for under the second or last contract, yet this determines nothing in favor of the Superior Court’s jurisdiction. The question of fraud is not asserted of the last contract alone, but by the provisions of the bill it is made applicable alike to the first and second contracts, and to each and everyone of the eight boilers manufactured under both contracts. Plquity here supplies a more extended and adequate remedy, one which avoids a multiplicity of suits, and restrains any suit or suits which have been or may be improperly brought, whereas a Court of Law is remediless to cancel or annul any instrument. Says Mr. Tiedeman, in his work already referred to: “ The Court of Law recognizes the right of the defrauded’ party to rescind the' agreement or contract which he has been induced by fraud to enter into; but rescission is not so much an affirmative remedy as an act of repudiation, serving as a defence to any attempted enforcement of the fraudulent contract. The Courts of Law which do not have equity powers could not go further, and furnish to the defrauded party the protection of a cancellation or surrender of the written instrument which is based upon the fraud; or furnish to him the affirmative remedy of reformation of such a contract, and a subsequent enforcement of the contract as reformed and purged of the fraud. When the interest of the defrauded party requires either of these two remedies resort must be had to the Courts of Equity. Cancellation and reformation are distinctively and exclusively equitable remedies.”

There are some phases of this controversy of which a Court of Law might take cognizance. But it is not enough that there is a remedy at law; it must be plain and adequate, or in other words, as practical and efficient to the ends of justice, and its prompt administration, as the remedy in equity. Boyce's Executors v. Grundy, 3 Peters, 215; C. P. R. R. Co. and B. O. R. R. Co. v. Pa. R. R. Co., 57 Md. 271 ; Wagner v. Shank, 59 Md. 325-6. Mr. Pomeroy in his work on Equity Jurisprudence, vol. 1, sec. 176, says: " That in cases where the primary right, interest or estate to be maintained, protected or redressed is a legal one, and a Court of Law can do as complete justice to the matter in controversy, both with respect to the relief granted and to the. modes of procedure by which such relief is conferred, as could be done by a Court of Equity, equity will not interfere even with those peculiar remedies which are administered by it alone, such as injunction, cancellation and the like, much less with those remedies which are administered both by it and by the law, and which therefore belong to its concurrent jurisdiction. This principle, however, must be understood as referring to the original condition of law and equity, at a period when equity was establishing its jurisdiction, and before the remedial powers of the Law Courts had been extended by statutes, or enlarged by the gradual adoption of equitable notions ; for as will be more fully shown hereafter, the present power of the Law Courts to grant complete relief does not, in general, deprive equity of a jurisdiction which it had formerly acquired, because the Law Courts then possessed no such power. But in order that the general principles may apply, the sufficiency and completeness of the legal remedy must be certain; if it is doubtful, equity may take cognizance. While the concurrent jurisdiction of equity thus depends upon the inadequacy of legal remedies for the particular controversy, or for the class of cases of which the particular controversy is an instance, it is impossible to define by any single formula, what is the adequacy or sufficiency of the remedy at law which shall prevent an exercise of the equitable jurisdiction.” The case under consideration, we think, affords apt illustration of the nature and character of the facts and circumstances which go to make up a purely equitable jurisdiction. It is certainly not an obstacle in the way of the jurisdiction of a Court of Equity that legal questions are presented for its consideration, which might also arise in a Court of I .aw. So that when a Court of Equity has taken jurisdiction of the whole subject-matter of a controversy, the determination of which can be fully and completely disposed of by its decree, a Court of Law will not be permitted to assume a partial jurisdiction or interfere with the jurisdiction in equity. It is in such cases that a multiplicity of suits arise, and largely tend to interferfere with the proper and due administration of justice. As already stated, the prayer of the bills asks that said contract be declared void and be annulled. If they are to be annulled, they will be cancelled, and cancellation is not within ’the jurisdiction of a Court of Law, but it is distinctively and exclusively an equitable remedy.

(Decided March 25th, 1896.)

We have weighed with care the allegations contained in the bill and are well satisfied that they are material and if substantiated are such as entitle the appellant to relief. 'For' the reasons assigned the decree of the Court below must be reversed and the cause remanded for further proceedings.

Decree reversed with costs and cause remanded for further proceedings.