McGaffee v. McGaffee

58 N.W.2d 357 (1953)

McGAFFEE
v.
McGAFFEE et ux.

No. 48070.

Supreme Court of Iowa.

May 5, 1953.

Lorna L. Williams and Emmert, James, Lindgren & Eller, of Des Moines, for appellant.

Eskil C. Carlson, of Des Moines, for appellees.

THOMPSON, Justice.

Our first opinion in this case was filed on December 16, 1952, and is found in 56 N.W.2d 36. We there determined the major issue of cancellation of the purported assignment of July 6, 1946, in favor of the plaintiff-appellant. Rehearing was denied as to this opinion except as to Division VI thereof. This leaves the issues discussed and decided in the remainder of the opinion as matters adjudicated.

A rehearing was granted as to Division VI, which is now set aside and the following substituted therefor. This is the final division of the opinion and pertains to the relief to be granted to the plaintiff. In effect, it held that restoration of the status quo ante was impossible, or at least impracticable, and plaintiff's relief must be by money judgment for the value of the property taken over by defendants, and ordered an accounting for that purpose. Upon rehearing it is now determined that such relief is inadequate and plaintiff is entitled to other and further restorations and compensations for the wrong done him. The major facts are set out in the original opinion. Other evidence will be referred to in connection with the matters discussed in the opinion which follows.

I. We held in the first opinion that plaintiff was at all times the owner of the physical property and assets of the business of J. F. McGaffee & Company and Des Moines Plumbing & Heating Company, and the defendant Loren McGaffee was a partner or joint adventurer only in the operation of the business. We shall assume that he was an equal partner since there is no evidence to the contrary. This implies he would be entitled to one-half of the net profits, and that his services were rendered as his contribution to the operation. That is to say, J. F. McGaffee furnished the physical property and Loren furnished his services as the basis for his share in the net earnings. The defendant Gretchen McGaffee is the wife of Loren and was the bookkeeper for some years before the date of the assignment, July 6, 1946, and seems to have been active in the operation of the business as an office manager since that time.

We have now concluded that it is possible to restore the status quo to such an extent that the assets of the business should be returned to the plaintiff. True, they are not entirely the same assets. Personal property wears out, is broken or destroyed when used in the operation of an active business. Change is inevitable in all human affairs. But the business is still there, and is operating with the same type of property, probably greater in extent, as before. We held in the preceding opinion that the assignment, under which the defendants took possession and control, was obtained by fraud, and it was canceled and set aside. This leaves the question of what equity should do to repair the wrong and what is required in justice to all parties.

Equity has broad powers in this class of cases. Such relief should be granted as will most nearly work substantial justice to all parties. 12 C.J.S., Cancellation of Instruments, § 77a, p. 1078. It may be true here that the defendants now have a more successful and profitable business than the one they took from the plaintiff in 1946. Whether this be due to their energy and business acumen, or to economic conditions which prevailed following the close of World War II, we need not determine. Under well-established rules of law, having obtained plaintiff's business by fraud, they held it as trustees for him and cannot now be heard to say that it is an injustice to them to return it to him, enhanced in value though it may be.

The rule is thus expressed in Restatement of the Law of Restitution, 820 § 202, c:

* * * "The result, it is true, is that the claimant obtains more than the amount of which he was deprived, more than restitution for his loss; he is put in a better position than that in which he would have been if no wrong had been done to him. Nevertheless, since the profit is made from his property, it is just that he should have the profit rather than that the wrongdoer should keep it. It is true that if there had been a loss instead of a profit, the wrongdoer would have to bear the loss, since the wrongdoer would be personally liable to the claimant for the value of the claimant's property wrongfully used by the wrongdoer. If, however, the wrongdoer were permitted to keep the profit, there would be an incentive to wrongdoing, which is removed if he is compelled to surrender the profit." (Italics ours.)

We hold that plaintiff is entitled to the ownership and possession of the physical assets of the business, including all trucks, tools and implements now used in its operation, the books of account, money on hand, accounts receivable, and all other personal property; and the defendants are ordered to transfer the registration of the trucks forthwith. It is conceded that these have been purchased with money from the business. In fact, the defendant Gretchen McGaffee, bookkeeper and office manager, testifies that since January 1, 1947, neither of the defendants have had any funds except such as came from the business.

Two pieces of real estate, known as 1346 Harding Road and 1414 Harding Road, each in Des Moines, have been purchased with funds of the business. These must be determined to be held in trust for the plaintiff, to the extent that they were purchased with business funds. Restatement of the Law of Restitution, 780 § 190, says:

"Where a person in a fiduciary relation to another acquires property, and the acquisition or retention of the property is in violation of his duty as fiduciary, he holds it upon a constructive trust for the other."

The same must be true of the two Buick automobiles since defendants concede they were purchased with money taken from the business; which means as the earnings of the property which they held in trust for the plaintiff. A constructive trust arises. We think that if, upon an accounting, the defendants shall pay all sums that may be found due from them, these automobiles may be discharged from the trust; but until such time a trust must be impressed. The defendants are permitted to retain possession of said automobiles until the final accounting is had herein; but they are each enjoined from disposing of or creating any lien upon them until the rights of the parties are determined by the accounting.

It also appears that certain moneys of the business were used to pay a mortgage and perhaps other charges on the homestead of the defendants, known as 3222 Bowdoin Avenue, Des Moines. A lien should be impressed upon this real estate to the extent that funds taken from the business were used. All insurance policies upon the properties, both real and personal, should be made over to the plaintiff, or proper steps taken that his interests may be protected.

II. Of course an accounting is called for, and the case must be remanded to the trial court for that purpose. Upon such accounting the defendants will be charged with all moneys taken by them from the business, including all accounts collected either before or after July 6, 1946. Plaintiff will likewise be charged with all moneys paid to him. The defendant Loren McGaffee will be entitled to credit for one-half of the net profits, and the defendant Gretchen McGaffee to the reasonable value of her services. Moneys received by the defendants for rentals of 1414 Harding Road will be charged to them. They will, of course, have credit for proper expenditures in the operation of the business and for taxes, insurance premiums, and other charges. Defendants will also be credited with any of their own moneys invested in the business before 1947, if any such there was for which they have not been reimbursed. The usual rules of accounting will be followed, and each party will be given all proper credits and charged with all proper debits, in accordance with the two opinions in the case.

III. One other matter urged by plaintiff upon rehearing must be considered. It is plaintiff's claim that a certain account owing from a corporation, known as Grand Avenue Apartments, was permitted to become barred by the statute of limitations through the negligence of defendants. There is evidence to this effect; whether it is conclusive either as to the fact that the account is barred or as to defendants' negligence we do not now determine. The matter may be inquired into by the trial court upon the accounting and a proper order made. It would at least be material upon the question of the value of the services of the defendant Gretchen McGaffee, whose province it was to bill and collect accounts. It may or may not also be that the loss was such as reasonable care would have guarded against, and that the wrongdoers should bear the loss in accordance with the principles expressed in the quotation from the Restatement of the Law of Restitution, § 202, c, supra.

There is evidence that the payment of some accounts, and perhaps the accounts themselves, were not shown upon the books, but were paid direct to Loren McGaffee. These, of course, must be considered and proper charges made in the accounting. The cause must be reversed and remanded for further proceedings in accordance with the opinions rendered.

Reversed and remanded.

All Justices concur.