Equity Jurisdiction, Accounting. Contract, Validity. Partnership. Corporation. Equity Pleading and Practice, Bill. Words, "A fair and equitable share."
A bill in equity by the administrator of the estate of a chemist against the surviving members of a certain copartnership alleged that the chemist made a contract with the copartnership by the provisions of which the chemist was to devote his time and skill to producing formulas of a certain kind "for the mutual benefit of himself and said copartnership" and to permit the copartnership to make use of the formulas for manufacturing purposes, and the copartnership was to manufacture and put upon the market compounds made in accordance with such of the formulas as they believed capable of yielding a profit and to pay the chemist "a fair and equitable share of the net profits"; that the chemist performed his part of the contract, and that, although there were large profits realized from the enterprise by the copartnership, the defendants refused to account therefor to the plaintiff; that an accounting would be an extremely complicated and difficult matter and that the common law would afford no adequate and complete relief. There was a prayer for an accounting and for an order for a payment to the plaintiff of what was due him as administrator. The defendants demurred to the bill. Held, that there was nothing to show that the rule for ascertaining the chemist's share of the net profits, "a fair and equitable share," was so indefinite or that its application was so impracticable that it could not be applied with reasonable certainty to the circumstances under which the profits were made; and that equity had jurisdiction to compel the defendants to account, irrespective of the question whether under the contract the chemist and the copartnership became partners.
If the surviving members of a copartnership, to whom a chemist had entrusted certain formulas in the nature of trade secrets under a contract whereby the copartnership was to manufacture and sell compounds made from the formulas and share the profits with the chemist, form a corporation of which they are the president, treasurer, a majority of the board of directors and the owners of the controlling shares of the capital stock, and then convey the formulas to the corporation which continues to use them without accounting to the chemist for profits actually realized, the corporation receives the formulas and uses them with full knowledge of the breach of trust of the copartnership and must be held to hold and to use them subject to the same trust under which they were held by the copartnership; and therefore after the death of the chemist, the administrator of his estate may maintain a bill in equity to compel the corporation to account for the chemist's share of the net profits realized by the corporation in his lifetime.
A bill in equity, by the administrator of the estate of a chemist against the surviving members of a copartnership and a corporation, alleged in substance that the chemist had made a contract with the copartnership by which he entrusted to them certain formulas under an agreement that they should manufacture and sell compounds made from such formulas and should divide with him the net profits thereof, that the copartnership realized profits but did not account to the chemist, denying that there were any profits, that, one of the copartnership having died, the individual defendants, who were the surviving partners, formed the defendant corporation, they being its president, treasurer, a majority of its board of directors and the owners of the controlling interest of the capital stock, that the individual defendants as surviving copartners conveyed the formulas to the corporation, which used them and realized profits, but refused to account to the chemist or to the plaintiff. The prayers of the bill were for an accounting, injunctions against the divulging of the formulas, a determination of the plaintiff's rights as to the formulas and a decree that the corporation be required to recognize those rights. Held, that the bill was not multifarious, the fundamental question being the interest of the chemist in the formulas and all the defendants being interested directly in that question.
HAMMOND, J.
Under the original contract with Joseph Burnett and Company, Markoe was to devote his time and skill to produce formulas of the kind therein specified, "for the mutual benefit of himself and said copartnership," and to permit the firm to make use of the formulas for manufacturing purposes. And the firm was to manufacture and put upon the market such compounds made in accordance with any of these formulas as they believed capable of yielding a profit, and to pay Markoe "a fair and equitable share of the net profits." The bill alleges that an accounting would be an extremely complicated and difficult matter, and that the common law for that and other reasons would afford no adequate and complete relief. Under these circumstances it is manifest that if the plaintiff is entitled to any portion of the net profits, equity has jurisdiction at least against the defendants, who are the surviving partners of the old firm of Joseph Burnett and Company; and this is so, irrespective of the question whether or not under the agreement the contracting parties became partners. Pratt v. Tuttle, 136 Mass. 233, and cases cited. Hallett v. Cumston, 110 Mass. 32.
But it is contended by the defendants that the agreement is too indefinite to be enforced. In support of this contention they argue that what is a fair and equitable share of the net profits cannot be determined and hence the plaintiff can have nothing. The allegations of the bill show that this work was done by Markoe not gratuitously, but under a promise to receive a portion of the proceeds. The work has been done and the bill alleges that great profits have accrued, and the only thing to be done is for the defendants to pay over a fair and equitable share thereof. The plaintiff does not call upon the court to state the rule in accordance with which the profits already obtained and now in the hands of the defendants shall be divided. The contract itself states the rule — a fair and equitable share. The plaintiff simply asks that this rule shall be applied not to future probabilities but to past facts. There is nothing to show that the rule is so indefinite or that its application is so impracticable that it cannot be applied with reasonable certainty to the circumstances under which the profits were made. See McMurtrie v. Guiler, 183 Mass. 451, 454. The case is clearly distinguishable from Marble v. Standard Oil Co. 169 Mass. 553. And the same may be said of Fairplay School Township v. O'Neal, 127 Ind. 95; Des Moines v. Des Moines Waterworks Co. 95 Iowa, 348; Faulkner v. Des Moines Drug Co. 117 Iowa, 120; and Pulliam v. Schimpf, 109 Ala. 179; all of which are cited by the defendants.
It is next contended in support to the demurrer that in no event can the defendant corporation be held. In support of this it is urged that the bill does not set forth any contract between Markoe and the corporation, that in this Commonwealth the beneficiary of a contract cannot sue the obligor at law or in equity, that there has been no novation, and "no new consideration for any new contract with the corporation," and further that none of these processes was patented, that they were all merely trade secrets and that, if the owner of a trade secret divulges it without imposing restrictions against its divulgence by his confidant to another, any one who through the confidant or otherwise gets knowledge of the secret can do with it as he chooses.
We do not understand the plaintiff to put his case upon the doctrine of a new contract. The bill sets out that these formulas were for the mutual benefit of Markoe and the old firm, and that he was to permit the firm to make use of them. There is no allegation that they were the property of the firm, but the whole framework of the bill is that the property in the formulas remained in part at least in the plaintiff, and moreover that the formulas were to be regarded as trade secrets. The firm had the possession of the formulas for a limited purpose only, and could not properly as against Markoe divulge them. To divulge them was a breach of trust. The corporation was not a purchaser without notice. Its officers and organizers were members of the firm, and they held nearly all the stock. Their knowledge was the knowledge of the corporation. They knew Markoe's rights and the limitation of their own rights. With full knowledge of these rights and limitations the corporation took the formulas and used them. In other words it received, with full knowledge that the conveyance from the old firm was a breach of trust, the formulas. Under these circumstances it must be held to hold the formulas on the same trust as that on which they had been held by the old firm. See Loring v. Brodie, 134 Mass. 453, and cases cited. Nor is there anything inconsistent with this in Pratt v. Tuttle, 136 Mass. 233, upon which the defendants rely. In that case the corporation was the mere agent of the original contractors, nor was it charged that the corporation had profits in its hand in which the plaintiffs had an interest. In the present case it is alleged that the corporation as the purchaser from the firm has used the formulas and has profits in its hands.
The bill is not multifarious. The fundamental question respects the interest of Markoe in the formulas, and in this question all the defendants are directly interested. That is the trunk, of which the respective liabilities of the corporation and the other defendants are the separate branches. "It is not indispensable that all the parties should have an interest in all the matters contained in the suit; it will be sufficient if each party has an interest in some material matters in the suit, and they are connected with the others." Brown v. Guarantee Trust Safe Deposit Co. 128 U.S. 403, 412, and cases cited. Andrews v. Tuttle-Smith Co. 191 Mass. 461, and cases cited.
The orders overruling the demurrers are affirmed; and in accordance with the terms of the report the defendants are to plead or answer.
So ordered.