Tully v. Felton , 177 Pa. 344 ( 1896 )

Opinion by

Mr. Justice Gbeen,

By the terms of the agreement between these parties the plaintiff was interested in the transactions of the defendants under the contract, in the manner of a partner. The manufacturing was to be done in accordance with instructions to be given by tbe plaintiff, who was the patentee of the processes to be used. The defendants were to be the sole manufacturers of the paints in question. They were to furnish all the capital necessary to carry on the manufacture, and, by necessary implication, the place and means of manufacture. There is no direct provision as to who should sell the products, and the agreement seems to contemplate sales by each party. But, by one of the clauses, it is provided “ that all the net profits arising from the direct sales of said Patent Paint Filler made by said party of the second part or by their travelling salesmen shall accrue to the benefit and advantage of the said party of the first part in the same proportion as though sold directly by the said party of the first part.” By another clause of the contract it was stipulated that the plaintiff should give to the defendants “ one third of the net profits arising from the entire sale of the Patent Paint Filler.” This provision looks as if the plaintiff was to be the seller of the entire product and, therefore, the recipient of the whole proceeds of sales. As a matter of fact the sales were made by the defendants. The interests of the parties, therefore, were a participation in the net profits of the business in the proportion of one third to the defendants and two thirds to the plaintiff. The venture was a joint one in which the interest of each was a share of the net profits, but the cost of manufacture was to be borne by the defendants alone. The contribution of the plaintiff to the joint enterprise was to be the use of his patents and such personal service as was necessary in giving instructions for the manufacture, and the contribution of the defendants was to be the capital requisite to carry on the business and the cost of manufacture. That which resulted from the business, to wit, the profits, were to be divided between the parties. It is very clear that the plaintiff had a necessary and direct interest in the subject of the cost of manufacture, as profits would be the resulting gain after the cost of manufacture should be deducted. It is not easy to understand why he was not entitled to the same knowledge of the details of the business and to the same degree of good faith as to all the transactions of the parties, as if their relation had been that of actual partnership. It seems to us that the necessity of keeping accounts which embraced the cost of manufacture and the amount, number and proceeds of sales was as great as though the parties were technically partners. And of course any accounts that were, or should have been, kept must be accurate and correct. Some consideration should doubtless be given to the expression in the contract, “ the cost of manufacture to be estimated by the wholesale price of the materials and packages used and the amount of labor bestowed in its manufacture.” Whatever may have been the meaning of the parties in the use of this phraseology, we cannot think that it was meant that the cost of materials and labor was to be merely a matter of estimate without any reference to the actual cost. It rather seems to us that it was intended to convey the idea that the wholesale price of materials and packages was to be taken as the cost price, and not the retail price, and to that was to be added the cost of labor. If we read the word “ estimated ” in the sense of “ computed,” which is one of its meanings, we would perhaps more accurately express what was in the minds of the parties. Then the sentence would mean that in ascertaining the cost of manufacture the wholesale price of materials and packages used and the cost of labor should be computed. The matter is not of much importance but it is at least certain that actual cost should be the basis of the calculation to determine what was the amount of net profits.

We have not the slightest hesitation in holding that the case was a proper one for equitable jurisdiction. Whether on the ground of discovery, which was absolutely necessary, or mistake, or complicated accounts, or community of interest in a common enterprise where all the accounts were in the hands of one of the parties, and the situation was one which involved a trust and confidence, it is perfectly clear that the only suitable and complete remedy was by a bill in equity. There is but little controversy on this subject. The serious matter of contention grows out of the long delay of the plaintiff and his repeated acts of acquiescence in the method of stating accounts pursued by the defendants. For sixteen years the plaintiff received semiannual statements from the defendants, purporting to state the cost of materials and labor, and dividing the resulting profits, of which he accepted his share without complaint. The learned court below dismissed the bill on this ground. In ordinary circumstances it would be sufficient. But after an extremely patient and careful consideration of the testimony and the master’s report, we think he was justified in his findings of fact and conclusions of law, and that the bill should be sustained. We cannot regard the final statements delivered to the plaintiff in January and July, 1887, as a stated account. The master has found that they were not received by the plaintiff as true and correct, and that there was nothing in his conduct from which it could be considered that they were accounts stated. He finds also that sometime in 1886 a question arose between the parties as to the meaning of the word “ wholesale ” in the agreement, and that after learning that the defendants had charged him an advance on the price of different materials purchased from others, he demanded a detailed account for the year 1885 of the quantity of different paints manufactured and sold, the prices charged for the different articles used in the manufacture and the amount paid for labor. The plaintiff also instituted tests to determine the cost of the labor necessary to produce the paints, and ascertained that the charges against him for labor were much in excess of the amounts which were properly chargeable to him under the contract. This is also found by the master to be the fact. Subsequently to the plaintiff’s demand for an account he received from the defendants two statements which were unsatisfactory, and he thereupon filed the present bill. It was claimed by the defendants that the semiannual statements and the last two statements constituted an account stated by which the plaintiff was bound so that the account could not be opened. The master in a very able and exhaustive review of the authorities and also of the testimony reached the conclusion that the statements were not stated accounts; that the whole' subject of the accounts between the parties was an open one; that the statute of limitations was not a bar to the plaintiff’s claim, and that the defendants were liable to an accounting which he accordingly ordered, and recommended a suitable decree to that end. We are of opinion that the master was right in his view of the case, and in directing an account to be taken, and for that reason we now reverse the decree of the court below dismissing the bill, and we make the decree recommended by the master. We are satisfied with the reasons and authorities presented by the master in his report, but do not discuss them now because no account has been taken, and we cannot know what it will be. After an account has been taken and the various questions arising between the parties have been considered and disposed of upon final hearing, we will be prepared to hear and determine them on their merits if the case should again come before us.

The decree of the court below is reversed and the plaintiffs bill is reinstated at the cost of the appellees. And it is now ordered, adjudged and decreed that an account shall be taken of all the dealings and transactions between the complainant and the respondents under the agreement of 28th of February, 1871, and the supplemental agreements thereto.- It is ordered and decreed that the accounting heretofore made by the respondents is incorrect and untrue, in that they did without the knowledge of the complainant charge him improperly and erroneously with a higher price for materials than was just under said agreement; that they charged him with a greater cost of labor than was actually paid by them, and that the accounts between the complainant and respondents be opened and the respondents account de novo.

It is ordered that the respondents shall account for all their receipts under said agreements; that in said account they shall be allowed a credit for materials furnished, not at the wholesale selling price of such materials as established by their sales to others, but at the usual wholesale selling price of said materials in the market at the time of furnishing the same; that they shall be allowed a credit only for the actual cost of the labor furnished and done by them in the manufacturing of articles under said agreement, and that when the balance is ascertained due to the complainant upon the taking said account they shall pay over the same to the plaintiff with interest and costs.

It is ordered that this account shall be taken before D. Webster Dougherty, Esq., of Philadelphia; and that he shall take all testimony necessary thereunder; and that he shall report to the court said account thus taken and the balance due to the plaintiff thereunder. The record is remitted to the court below in order that this decree may be carried into effect.