Petition for A Writ of Certiorari — Farina v. United States

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SEP 1 = 1949

CHARLES ELMOR" CRopuRy

— j OL i

Supreme Court of the United States

OCTOBER TERM, 1949

No. 24 :

Tomas W. Smits, JR.,

Petitioner,

against

Joun T. McLane, JosepH L. McLaneg, Jostre E. McLane,

Nett McLane Armstrone, Cyntoi1a McLane, Louisa A.

McLang, Mary E. McLanzg, individually; Josrr E. McLane

and Josep L. McLane, Trustees; Propies Crry Bank,

NationaL Bank oF McKeesport and Union NationaL

Bank,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

UNITED STATES COURT OF APPEALS, THIRD

CIRCUIT, AND BRIEF IN SUPPORT THEREOF

Martin A. ScHENCKE,

| Kenyneta W. GREENAWALT,

Attorneys for Petitioner,

One Wall Street,

} New York 5, N. Y.

Dated, August 31, 1949.

APPEAL PRINTING CO., INC., 130 CEDAR STREET, ".EW YORE, wo 4-3033

INDEX

Petition FoR Writ oF CERTIORARI:

I—Summary Statement of the Matter Involved

Il—The Basis Upon Which it is Contended that

this Court has Jurisdiction ..

I11—The Questions Presented

IV—Reasons Relied Upon for the Allowance of

the Writ

Brier IN Support oF PETITION:

STATEMENT

Point I—The decision of the Third Cireuit Court

of Appeals in applying, sponte sua, against peti-

tioner the doctrine of unclean hands is in con-

flict with decisions of this Court upon a federal

question, in conflict with decisions of other Cir-

cuit Courts of Appeal and this Court upon the

same matter and in conflict with fundamental prin-

ciples of equity and procedure followed in Federal

Courts

Port 11—The decision of the Third Circuit Court

of Appeals that it could not and would not rede-

termine the credibility of the witnesses is in con-

flict with decisions of other Circuit Courts of mel

peal on the same matter ....

Pornt JI1I—The Circuit Court has not properly

applied the rules as to the scope of appellate

review in federal courts in equity cases and

its decision in this respect is in conflict with the

Federal Rules of Civil Procedure, applicable

decisions of this Court and decisions of other

Circuit Courts on the same matter

CoNncLusION

Table of Cases Cited

103 (C.C.A. 3rd, 1943)

Ist, 1945)

Carter v. Powell, 104 F. (2d) 428, 430 (C.C.A. Sth,

1939), cert. den. 308 U. S. 611

Carter Oil Co. v. McQuigg, 112 F. (2d) 275, 279

(C.C.A. 7th, 1940)

Comstock v. Thompson, 286 Pa. 457, 461, 462; 133

Atl. 638 (1926)

Container Patents Corporation v. Stant, 143 F. (2d)

170, 172 (C.C.A. 7th, 1944), cert. den. 323 U. S.

734

Demster v. Baxmyer, 231 Pa. 28; 79 Atl. 805, 808

(1911)

Fleming v. Palmer, 123 F. (2d) 749, 751 (C.C.A.

Ist, 1941)

Fountain v. Filson, 336 U. S. 681, 683; rehearing

denied 336 U.S. 921 (1949) .. - ie

Frazier v. Mansfield, 305 Pa. 359, 363; 157 Atl. 798

(1931)

Goldie v. Cox, 130 F. (2d) 695, 715 (C.C.A. 8th, 1942)

Guaranty Trust Co. v. York, 326 U. 8. 99 (1945) _....

Halladay v. Faurot, 8 Ohio Decisions Reprint 683

(1883)

Adam Hat Stores, Ine. v. Lefeo, 134 F. (2d) 101,

Bergeron v. Mansour, 152 F. (2d) 27, 32 (C.C.A.

~-—

PAGE

Hays’ Estate Nat’l. Bank’s Appeal, 159 Pa. 381, 383;

ae AN BIR CD nsecitieaceenssepnectntensnireninciiobiennenictnings 21

Hercules Powder Company v. Rich, 3 F. (2d) 12,

19 (C.C.A. 8th, 1925), cert. den. 268 U. S. 692........ 18

Jones v. Tower Production Company, 120 F. (2d)

779, 782 (C.C.A. 10th, 1941) 18

King v. Order of Travelers, 333 U. 8. 153 (1947)...... 19

Klaxon Co. v. Stentor Co., 313 U. 8. “487, 496 (1941);

reversing 115 F. (2d) 268 (C.C.A. 3rd, 1940)........ 22

Lewis & Nelson’s Appeal, 67 Pa. 153, 166 (1870)...... 21

Luckenbach S. S. Co. v. United States, 157 F. (2d)

250, 251 (C.C.A. 2d, 1946) 26

McClanahan v. McClanahan, 79 Ohio App. 231, 235,

236 (1946) 23

National Labor Relations Board v. Fickett-Brown

Mfg. Co., Inc., 140 F. (2d) 883, 884 (C.C.A. 5th,

ID insect acsiincsssntpairtcteinsipianinisnoniinbaialaabinianipaneignin 23

New York Life Ins. Co. v. Calhoun, 114 F. (2d)

526, 543 (C.C.A. 8th, 1940), cert. den. 311 U.S. 701 17

Perey A. Brown & Co. v. Raub, 357 Pa. 271, 291;

54 Atl. (2d) 35 (1947) 21

Plack v. Baumer, 121 F. (2d) 676, 678 (C.C.A. 3rd,

1941)

Ruhlin v. New York Life Ins. Co., 304 U. S. 202

(1938)

Seottwood Realty Co. v. Bowman, 21 Ohio App. 244,

249 (1926) 23

State Farm Mut. Automobile Ins. Co. w. Bonacci, 111

F. (2d) 412, 415 (C.C.A. 8th, 1940) 26, 29

Stokes v. United States, 144 F. (2d) 82, 85 (C.C.A.

2nd, 1944) 25

United States v. LeBaron, 60 U. S. 73, 77 (1856)........ 18

United States v. U. S. Gypsum Co., et al., 333 U. S.

364 (1948) 28, 30

Statutes Cited

PAGE

Federal Rules of Civil Procedure, Rule 52(a) ...... 10, 11, 27

Judiciary Act of 1789, §34, R.S. §721, 28 U.S.C. §25,

i 19

Title 28 U. S. Code, entitled ‘‘Judiciary & Judicial

Procedure,’’ See. 1254 (Public Law 773, Chap. 646,

80th Cong., 2nd Sess.) 8

Revised Rules of the Supreme Court of the United

States, Rule 38, para. 5(b) 8,9

Authorities and Miscellaneous Cited

4 A.L.R. 32, 44, 58-9 21

Pomeroy’s Equity Jurisprudence, 5th Ed. Vol. 2,

$399 17, 20, 21, 23

Hearings before Subcommittee No. 3 of the Com-

mittee on the Judiciary, House of Representatives;

Hearings of March 7, 9 and 11, 1949 6

Review of Findings of Administrators, Judges and

Juries: A Comparative Analysis, 58 Harv. L. Rev.

70, 88

IN THE

Supreme Court of the United States

OCTOBER TERM, 1949

pen eres

A ee

Tuomas W. Situ, JR.,

Petitioner,

against

Joun T. McLane, JosepH L. McLane, Joste E. McLane,

Nett McLane Armstronc, Cyntota McLaneg, Louisa A.

McLang, Mary E. McLane, individually; Josm E. McLanr

and JosepH L. McLans, Trustees; Prortes City Bank,

NationaL Bank or McKergsporr and Union Nationa

Bank,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

UNITED STATES COURT OF APPEAIS,

THIRD CIRCUIT

To the Honorable the Chief Justice of the United States

and the Associate Justices of the Supreme Court of

the United States:

Your petitioner, Thomas W. Smith, Jr., respectfully

represents to this Court:

Summary Statement of the Matter Involved.

This is an action in equity brought, on the ground of

diversity, in United States District Court for the Western

District of Pennsylvania, by petitioner Thomas W. Smith,

Jr., beneficiary of a trust, against respondent John T.

McLane, a trustee, who had violated his trust (36a-38a).*

The corpus of the violated trust constituted the controlling

shares of stock of The Sun Rubber Company, an Ohio

corporation, of which both said beneficiary and said trus-

tee were and are directors, officers and stockholders (52a,

d3a, 54a; Pl. Ex. 1, 551a). The trustee violated his trust

by misapplying trusteed stock and by pledging said trus-

teed stock to secure his individual indebtedness. He desig-

nated himself as ‘‘donor’’ and members of his family as

‘trustees’? in documents set up for the latter purpose

(21a; 38a; 54a-55a, 63a; 59a-G4a; Pl. Exs. 19 and 20, 594a-

600a; 349a-358a).

The complaint alleged that on discovery of MeLane’s

breach of trust and hypothecation of trusteed stock, peti-

tioner objected because of the trust breach and the re-

sulting harm to his beneficial interest therein and _ the

welfare of The Sun Rubber Company and, being un-

heeded, he left The Sun Rubber Company and accepted

employment elsewhere; that petitioner was thereafter in-

duced by McLane to return to Sun Rubber by an oral

settlement agreement made between them at Akron, Ohio

on June 24, 1937 (38a-39a) whereby there would be es-

tablished forthwith, and maintained thereafter during the

life of the trust, a parity of their stock holdings and bene-

* References are to pages of the record unless otherwise noted.

feial interests in trusteed stock in The Sun Rubber Com-

pany as between MeLane and his immediate family and

petitioner and his immediate family and by McLane’s

partial performance of that agreement on that day by

establishing a then present parity.* The complaint fur-

ther alleged that thereafter this parol settlement, parity

agreement was breached by the trustee by his secret

acquisitions of such stock and beneficial interests from

others (39a-40a).

Petitioner sought, in equity, an accounting of the trust

administration and of the shares of trusteed stock wrong-

fully pledged by the trustee and specific performance of

the parity agreement (42a-43a).

The case was tried before District Judge Nelson Me-

Vicar, without a jury. During the course of trial, when

the subject of the trustee’s maladministration of the trust

was about to be developed, counsel for respondents con-

ceded that the Court should order an accounting and

consented to an accounting as prayed for in the complaint

(365a-366a). Judgment entered after trial directed a full

trust accounting (637a). The accounting phase of this

case is pending in the District Court awaiting the appoint-

| ment of a Master to take evidence thereon.

On the trial petitioner testified to the making of the

parity agreement between McLane and himself on June

14, 1937 at Akron, Ohio (108a-109a; 138a-140a) and to

the reiteration and confirmation of that agreement by

both of them later that same day before Rev. Dr. LeRoy

Lawther, their mutual friend since 1921, former pastor

and spiritual adviser, in his study in Lakewood Presby-

_ * It was also agreed between them that the trustee would forth-

with spell out and make a declaration of the interests of the ultimate

beneficiaries of the trusteed stock.

terian Chureh, Lakewood, Ohio (136a-141a). Respondent

McLane testified that the alleged parity agreement had

never been made (383a-384a). Rev. Dr. Lawther testified,

on deposition, that the parity agreement had been reiter-

ated and confirmed in his presence by both petitioner and

McLane, fully corroborating petitioner’s testimony (271a-

279a). He was the one real key witness in the case. Re-

spondent did not question his integrity or veracity (538a).

Also testifying on deposition, other substantial, disinter-

ested key witnesses for petitioner corroborated the ex-

istence of the parity agreement and the partial perform.

ance thereof by McLane (242a; 267a-270a; 232a; 262a;

204a; 295a). The veracity and integrity of these witnesses,

likewise, was not questioned by respondents (538a).

Concededly, late on that same day, a declaration of

the ultimate distribution of the trusteed shares to the

trust beneficiaries was set up and agreed to by McLane;

also ‘‘present’’ parity, as of that date, was established

between petitioner and his family on the one hand and

McLane and his family on the other by a realignment, in

petitioner’s favor, of the beneficial interests of McLane

and petitioner in the trusteed stock so that each (and

his immediate family) had an equal amount (603 shares)

of Sun Rubber Company stock, counting their shares held

in the trust with those held outside of the trust (Pl. Ex.

6, 558a; 142a).

After parity was thus established **presently’’ on and

as of June 24, 1937, McLane breached the parity agree-

ment by acquiring, without petitioner’s knowledge, the

beneficial interests in said trusteed stock of the benefi-

ciaries other than petitioner, and other blocks of stock of

Sun Rubber Company (Pl. Ex. 16, 588a; 347a; Pl. Exs.

21-29, 601a-612a; 358a; 437a; 465a-466a).

After trial, petitioner’s complaint was dismissed with

prejudice, except for the trust accounting.

The District Court (73 Fed. Supp. 849; 634a, 636a)

held that the alleged parity agreement never did exist,

which holding was hinged on the question of the credibility

of witnesses. The Court said:

‘“*Whether this alleged oral agreement was made

depends on the credibility of the witnesses who tes-

tified that there was such an agreement and the wit-

nesses who testified that there was no such an

agreement, the surrounding circumstances and in-

ferences to be drawn from facts proven.’’ (636a)

This finding was in complete disregard of the testimony

of Rev. Dr. Lawther, the one outstanding key witness in

the case, and the testimony of petitioner’s other substan-

tial, disinterested, key witnesses (all of whom testified on

deposition), although respondents, expressly, did not ques-

tion their veracity or integrity (538a). It also ignored

petitioner’s corroborative documentary evidence and the

several acts of McLane in partial performance of the

parity agreement, including his establishment of a ‘‘pres-

ent’’ parity (for which, otherwise, there was no reason or

basis).

The trial court erroneously determined, merely as an

isolated issue of fact, the parity agreement between the

wrong beneficiary and his violating trustee. It refused,

over objection, to take or consider evidence of the terms of

the trust or its breach and determined the issue of fact as

to the parity agreement as in vacuo. It ignored the rule of

law that the credibility and integrity of a trustee who has

violated his trust is impaired. [t ignored that in the

making of the parity agreement a beneficiary was dealing

with a trustee in respect of a violation of trust and that

such a trustee is duly bound to make a fair agreement in

respect of his trust violations and had the burden of show-

ing fairness in his treatment of the beneficiary.

His motion for retrial having been denied (638a-639a,

644a; 75 Fed. Supp. 219), petitioner appealed from that

part of the judgment to the Circuit Court of Appeals.

That the decision of the District Court was clearly erro-

neous and against the great weight of evidence is appa-

rent from a review of the entire record. It is equally

apparent that in reaching its conclusion, the trial court

had engaged in and followed a judicial process which was

entirely unreasonable and destructive of equity and jus-

tice.

The situation prevailing in that Court has been the

subject of recent inquiry,* and may well explain the treat-

ment and disposition of this case there.

The Circuit Court of Appeals affirmed the judgment of

the District Court (174 Fed. (2nd) 819 (C.C.A. 3rd,

1949)) ; (681-684) on the following grounds:

(1) Petitioner was guilty of “unclean hands,”’ in

respect of other beneficiaries of the trusteed stock,

and was, therefore, in no position to come into

equity to seek specific performance of the parity

agreement or aid as a defrauded beneficiary as

against the trustee. This was a new issue, never

before raised in the case, and was applied by the

Court, sponte sua,

(2) Because of his ‘‘unclean hands’’ petitioner

was not entitled to have reviewed on appeal the

District Court’s failure to take evidence on, to con-

sider and to apply to the factual issue of the parity

agreement the trust relationship of beneficiary and

trustee and trust principles of law.

(3) The Cireuit Court of Appeals will not re-

determine the credibility of witnesses, because it is

**hornbook law’’ that an appellate tribunal in a

civil suit will not redetermine the credibility of

witnesses when the trial judge has had the oppor-

tunity to observe the demeanor of the key witnesses

upon the stand. (Here, actually he did not have

that opportunity.)

(4) The finding of the trial judge is not ‘‘clearly

erroneous’’ since it is supported by ‘‘ample’’ evi-

dence and his personal observance on the stand of

the witnesses.

Petitioner sought an opportunity to be heard by the

Cireuit Court of Appeals on the questions raised in its

opinion, but his application for a rehearing was denied

(686a-694a).

The question of unclean hands had never before been

raised in the case and was injected therein by the Court

of Appeals on its own initiative without giving petitioner

any opportunity of a hearing on the facts or the law.

Had he been given the opportunity, he could have shown

that this doctrine had no basis in the facts of this case.* The

* Given the opportunity, petitioner readily could have shown that

he was completely free of any “unclean hands” as to anyone; that he

did not participate in any fraud or breach against other trust benefi-

ciaries but, on the contrary, fought for, protected and supported their

glaring error of the Court of Appeals in **discovering”’

and applying this principle was undoubtedly caused by its

entire misapprehension of the facts bearing thereon and

of the true equitable rule applicable to the facts because

that issue had never before been raised or litigated on

the facts or law.

The Basis Upon Which it is Contended that this

Court has Jurisdiction.

The jurisdiction of this Court is invoked under Title 28,

United States Code, entitled ‘‘ Judiciary & Judicial Pro-

cedure’’, Section 1254 (Chapter 646, Public Law 773, 80th

Congress, 2nd Session); and Rule 38, paragraph 5(b)

interests against the trustee’s contention that the only beneficiary of

the trusteed stock was a McLane Co., Inc. rather than said benefi-

ciaries; that the agreement between them to maintain and establish

parity of their own stock interests in Sun Rubber Company was a

matter which concerned them alone ; that the realignment of their own

beneficial interests in the trusteed stock to establish “present” parity

was a matter which concerned them alone ; that petitioner did no wrong

or injury to McLane the trustee and defendant: that if there really

was any inequity in the declaration of the ultimate distribution of the

beneficial interests of trusteed stock by the trustee, such declaration

and distribution was the trustee's duty and was, on his testimony, at

his own suggestion; that following the set-up of the distribution

declaration, the beneficiaries, other than petitioner, with full knowl-

edge thereof, not only acquiesced in their respective distributive

shares but sold their beneficial interests to the trustee and released him

from any claims; that no distribution has yet been made inasmuch

as the wrongful pledge by the trustee to the banks of the corpus of

the trust is still outstanding; that no such beneficiary was actually

defrauded or ever claimed to be; that the ultimate distribution, when

made, will be fair and just and will injure no one and that at the time

of the trial all possible claims of other beneficiaries in respect to the

ultimate distribution had been bce ught by McLane in violation of his

parity agreement with petitioner.

of the Revised Rules of the Supreme Court of the United

States. Petitioner’s time to file this petition has been

extended, by order, to September 1, 1949.

Ill

The Questions Presented.

1. Was it not error for the Circuit Court of Appeals

to inject into this case on its own initiative and for the

first time, in its decision, the issue and doctrine of

“unclean hands’’ and to apply it against petitioner as a

bar to a full and fair review on appeal and to all equitable

relief, without petitioner’s ever having any opportunity

to be heard or to present evidence on that unlitigated

issue?

2. Was it not error for the Circuit Court of Appeals

to fail to ascertain and to follow the rule of law of

the States of Pennsylvania or Ohio (whichever is appro-

priate under the conflicts of law rule in Pennsylvania) as

well as the general rule of law as stated in decisions of

other U. S. Circuit Courts of Appeal, that said doctrine

of unclean hands has no application whatever to the situa-

tion involved in this case?

3. Was it not error for the Circuit Court of Appeals

to fail to ascertain the conflict of laws rule prevailing in

Pennsylvania in relation to an equity action brought in a

federal court in Pennsylvania on the ground of diversity

for specific performance of an agreement made between

a trustee and a trust beneficiary in Ohio, particularly in

the application of the equitable doctrine of unclean hands

on the issue of whether petitioner had a right to seek

equity in that federal court for specific performance of

that agreement?

4. Did not the Circuit Court of Appeals commit error

in refusing to redetermine the question of the credibility

of witnesses where, as here, the testimony of the master

key witness and of all of the other of petitioner’s substan-

tial, disinterested, key witnesses was taken on deposition

so that the trial court did not have an opportunity to

observe their demeanor on the stand, particularly when, as

here, the veracity and integrity of said witnesses was not

attacked?

5. Did the Circuit Court of Appeals not commit error

in the interpretation and application of Rule 52(a) of the

Federal Rules of Civil Procedure by holding that the

findings of a trial court cannot be clearly erroneous if

they are supported by ample evidence and by refusing

to review the question of credibility and the entire record.

Reasons Relied Upon for the Allowance

of the Writ.

(1) The decision of the Circuit Court of Appeals in

discovering and applying sponte sua the equitable doe-

trine of unclean hands against petitioner upon the appeal

in this case is:

(a) In conflict with the decisions of this Court

upon a federal question.

(b) In conflict with the decisions of other Circuit

Courts of Appeal and of this Court on the same

matter.

equity and procedure followed in federal courts.

(2) The Circuit Court of Appeals decision that it, as

an appellate court in a civil action, cannot redetermine

the credibility of ‘witnesses when, as here, all of peti-

tioner’s witnesses (except himself), all of whom were key

witnesses, testified on deposition, is in conflict with deci-

sions of other Circuit Courts of Appeal as well as Rule

§2(a) of the Federal Rules of Civil Procedure.

(3) The decision of the Cireuit Court of Appeals that

a finding of the trial court is not clearly erroneous within

Rule 52(a) if it is supported by ample evidence, is in

conflict with decisions of this Court and with decisions of

other Circuit Courts of Appeal on the same matter.

(4) The questions presented here are of substance and

importance in relation to the administration of equity and

to the legal principles and procedures applicable in

equitable suits in the federal courts and to the scope of

appellate review and the powers and duties of a federal

appellate court on an appeal in an equity suit.

Wuererore, your petitioner respectfully prays that a

writ of certiorari be issued, directed to the United States

Court of Appeals for the Third Circuit, in respect of its

judgment affirming the judgment of the District Court,

to be reviewed by this Court, and for such other relief

as to this Court may seem proper.

Dated: August 31, 1949, New York, N. Y.

Tuomas W. Smita, Jr.,

Petitioner.

By: Martin A. ScHenck,

KenNETH W. GREENAWALT,

Attorneys for Petitioner.

Certificate of Counsel

We hereby certify that we have examined the foregoing

petition for a writ of certiorari and that in our opinion

it is well founded and the cause is one in which the peti-

tion should be granted.

Dated: August 31, 1949.

Martin A. Scuencr,

Kenneta W. GREENAWALT,

Attorneys for Petitioner.

—

IN THE

Supreme Court of the United States

OCTOBER TERM, 1949

TDG wines

—_—_—E

TxHomas W. Situ, Jr.,

Petitioner,

against

Joun T. McLane, JoserpH L. McLane, Jostzr E. McLane,

Nett McLane Armstrone, Cyntuia McLane, Louisa A.

McLane, Mary E. McLang, individually; Josrz E. McLane

and JosepaH L. McLansg, Trustees; Proptes City Bank,

NationaL Bank or McKeesport and Union Nationan

Bank,

Respondents.

PETITIONER’S BRIEF IN SUPPORT OF PETITION

FOR WRIT OF CERTIORARI

Statement

This petitioner seeks review on certiorari to United

States Circuit Court of Appeals, Third Circuit, of its

affirmance of that portion of the judgment of the Dis-

trict Court, Western District of Pennsylvania, which dis-

missed petitioner’s complaint with prejudice in so far

as it sought specific performance of a settlement parity

agreement entered into between petitioner and respondent

John T. McLane.

Petitioner was beneficiary and respondent McLane was

trustee of a trust which was peculiar in that the shares

of stock constituting the corpus thereof involved the

control of The Sun Rubber Company, of which petitioner

and McLane were officers and directors. When petitioner

discovered that McLane had pledged the corpus of the

trust to secure his personal loans, he protested and then

left the employ of the corporation. McLane, petitioner’s

uncle, thereupon induced him to return to the corpora-

tion upon the making (and partial performance later on

that very day) of a settlement agreement with him which

involved (1) the establishment forthwith, and the mainte-

nance thereafter during the life of the trust, of equality

or parity of their (and their families’) respective holdings

of stock and beneficial interests of stock of The Sun Rub-

ber Company (so that neither group would gain stock

control of the corporation) and (2) a spelling out and

commitment forthwith by the trustee of the interests of

the ultimate, individual beneficiaries of the trusteed stock.

Petitioner, in the District Court, alleged a breach of the

settlement, parity agreement and a violation of the trust

and sought specifie performance of that agreement and a

trust accounting.

Upon the trial, the trial judge ignored the original

breaches of trust and excluded the main evidence in re-

gard thereto and refused to consider the relationship of

the parties (petitioner as beneficiary and McLane as trus-

tee) in regard to the breach of trust and the settlement

agreement. The settlement agreement was treated as an iso-

lated question divorced from its Surroundings. The trial

court ignored the fact that this settlement parity agree-

ment was reiterated and confirmed by them personally

before a clergyman, Rev. Dr. Lawther, whose integrity and

veracity was not attacked and who testified on deposition.

It also ignored the testimony of petitioner’s other cor-

roborative witnesses who also testified on deposition and

whose veracity also was not attacked. It limited the

question of fact as one solely between petitioner and re-

spondent and did not mention or deal with the factor that

said agreement was reiterated and confirmed by them

before their ‘‘ecclesiastical referee’’.

The Court of Appeals, in affirming, again ignored the

testimony of Rev. Dr. Lawther and petitioner’s other

witnesses, as though testimony taken on deposition was

beyond that Court’s power to review or to reappraise;

and held that petitioner was barred from equity and from

a full and free review on appeal and from the applica-

tion of trust principles to the factual issue because of

his alleged ‘‘unclean hands’’ not as to the trustee but

as to other beneficiaries (which question theretofore had

never been mentioned or even suggested in the case).

POINT I

The decision of the Third Circuit Court of Appeals

in applying, sponte sua, against petitioner the doctrine

of unclean hands is in conflict with decisions of this

Court upon a Federal question, in conflict with deci.

sions of other Circuit Courts of Appeal and this Court

upon the same matter and in conflict with fundamental

principles of equity and procedure followed in Fed.

eral Courts.

*Unclean hands”’ in this case were first ‘‘discovered”

by the Court of Appeals and announced in its decision.

That Court, on its own initiative and of its own aceord,

invoked the doctrine of unclean hands against petitioner

and held, because of it, that petitioner ‘is in no position

to come into equity and seeks specifie performance of the

agreement’’ (683) and ‘‘is in a position where he eannot

invoke the aid of a court of equity as a defrauded bene-

ficiary’’ (684) and is not entitled to have the trust rela-

tionship and trust principles applied on an Appellate

review to the factual issue of the agreement made be-

tween the wronged beneficiary and the Violating trustee,

This principle of unclean hands was not pleaded by

any defendant in the answer. No issue was presented or

tried in respect thereto before District Judge MeVicar.

It was not urged, presented or even mentioned in the

briefs submitted to the trial court. It did not enter into

the opinion or decision of the trial judge and he made

no finding of fact or law on the subject. It was not urged

or mentioned by either side in the briefs filed in the Court

of Appeals, although therein respondent McLane urged

many reasons why the trust principles should not be

—

applicable to the decision of the factual issue and why the

judgment below should be affirmed,

Petitioner never has been given an opportunity of a

hearing in this litigation, either on the facts or on the

law, in respect of that principle. If petitioner had been

given an opportunity of a hearing on that issue he readily

could have shown as pointed out in his annexed petition

that there is no basis in fact in this case for the applica-

tion of that principle, that there is no basis in law for the

application of that principle against the petitioner and

that the true rule in respect of unclean hands here appli-

eable is that set forth in Pomeroy’s Equity Jurisprudence,

5th Ed. Vol. 2, §399, infra.

The Court of Appeal’s sponte sua application of the

unclean hands doctrine against petitioner here is in con-

flict with the controlling legal authorities in several

respects.

(1) The procedure of injecting that new and unlitigated

issue into the decision on appeal—-and on that ground not

only depriving petitioner of the kind of review on appeal

to which he was entitled but also barring him entirely

from recourse to equity—is in conflict with decisions of

other Circuit Courts of Appeal and of this Court.

It has been held uniformly in those Courts that a

defense, question or issue not raised, tried or considered

in the trial court can not be asserted or considered for

the first time on appeal and that this is particularly so

where, as here, the facts concerning that issue were not

litigated upon the trial or made the subject of any finding

of the trial court. The rule is stated typically in New York

Life Ins. Co. v. Calhoun, 114 F. (2d) 526, 543 (C,C.A. 8th,

1940), cert. den. 311 U. S. 701, as follows;

“It is the general rule universally applied by

appellate courts that courts of review will refuse

to consider questions which have not been raised

and tried in the trial court. The reasons for such

ruling are numerous and varied. One is that in

most instances any alleged error might have been

corrected or the proper amendment made if an

objection had been seasonably interposed, and that

if a litigant were permitted to urge any point not

going to the merits of the issue, it would give him

an opportunity and an incentive to conceal errors

during the trial in order that they might be used

as grounds for reversal on review, in case the

decision below was adverse.

““e * 6° 6*to permit a party, upon an appeal, to

shift his ground so as to present here a question of

law, not raised in the trial court, in a case where,

had it been presented there, the court might have

obviated it by allowing amendments and the intro-

duction of further evidence, might enable him to

mislead the trial court and the opposite party, and

so, really, to commit a fraud.’ ”’

To the same effect see: Container Patents Corporation v.

Stant, 143 F. (2d) 170, 172 (C.C.A. 7th, 1944), cert. den.

323 U. S. 734; Bergeron v. Mansour, 152 F. (2d) 27, 32

(C.C.A, Ist, 1945); Carter v. Powell, 104 F. (2d) 428, 430

(C.C.A. 5th, 1939), cert. den. 308 U. S. 611; Jones v. Tower

Production Company, 120 F. (2d) 779, 782 (C.C.A. 10th,

1941); Goldie v. Cox, 130 F. (2d) 695, 715 (C.C.A. Sth,

1942); Hercules Powder Company v. Rich, 3 F. (2d) 12,

19 (C.C.A. 8th, 1925), cert. den. 268 U. S. 692; and United

States v. LeBaron, 60 U. S. 73, 77 (1856).

(2) Moreover, the Court of Appeals had no right, of its

own accord or otherwise, to make an order on appeal on

the new issue of ‘‘unclean hands’’ as to which petitioner

had no opportunity to present a defense before the trial

court. Its procedure in doing so is directly in conflict

with the recent decision of this Court in Fountain v.

Filson, 336 U. S. 681, 683 (1949); rehearing denied, 336

U. S. 921 (1949) where, upon granting certiorari and re-

versing a Court of Appeals this Court stated:

‘*For here the order was made on appeal on a

new issue as to which the opposite party had no

opportunity to present a defense before the trial

court’’.

Here, the order on appeal affirming the judgmert of

the District Court (685) was made on the new issue of

“unclean hands’’ as to which petitioner had no oppor-

tunity to present a defense on the facts or on the law

either in the trial court or in the appeal court.

(3) The Cireuit Court’s decision is in conflict with the

decisions of this Court under the Rules of Decision Act,*

in that it disregarded the law and court decisions of the

States of Pennsylvania and Ohio (as well as other leading

authorities) which hold clearly that said doctrine of un-

clean hands is not applicable to the situation involved in

this case.

In Erie R. Co. v. Tompkins, 304 U. S. 64 (1938) and

subsequent cases, particularly King v. Order of Travelers,

333 U. S. 153 (1947), this Court held that the Rules of

* Judiciary Act of 1789, .§34, R.S. §721, 28 U.S.C. §25, Title 28,

$1652, which reads as follows:

State laws as rules of decision. The laws of the several

states, except where the Constitution or treaties of the United

States or Acts of Congress otherwise require or provide, shall

be regarded as rules of decision in civil actions in the courts of

the United States, in cases where they apply.”

Decision Act commanded federal courts to regard as

**rules of decision’’ the substantive ‘‘laws’’ of the appro-

priate state, including not only state statutes but also the

unwritten law of a state as pronounced by its courts.

This Court frequently has granted certiorari to deter-

mine whether a federal court’s failure to follow a state

court’s decision is inconsistent with the Rules of Decision

Act. For example, in King v. Order of Travelers, supra,

this Court said (p. 154):

‘We granted certiorari in order to determine

whether the Circuit Court of Appeals’ refusal to

follow the only South Carolina decision directly in

point, the decision of a Court of Common Pleas,

was consistent with the Rules of Decision Act as

applied in Erie R. Co. v. Tompkins, 304 U. 8S. 64

(1938), and subsequent cases.’’

This Court has held that the principle of Frie R. Co.

v. Tompkins, supra, is applicable to a suit in equity—

especially as to a purely substantive matter such as the

doctrine of unclean hands—and that in an equity suit

the federal courts must follow the law of the appropriate

state (Guaranty Trust Co. v. York, 326 U. 8. 99 (1945)

and Ruhlin v. New York Life Ins. Co., 304 U. S. 202

(1938).

In this case the Court of Appeals did not follow the

controlling decisions of Pennsylvania and petitioner was

not even accorded an opportunity to present those deci-

sions.

The true rule in respect of unclean hands, here appli-

cable, is as set forth in Pomeroy’s Equivy Jurisprudence,

5th Ed. Vol. 2, §399, supra, as follows:

‘‘The dirt upon his hands must be his bad conduct

in the transaction complained of. If he is not guilty

of inequitable conduct toward the defendant im that

transaction, his hands are as cleam as the court can

require.

* eo eo @ e

‘*The party to a suit, complaining that his opponent

is in court with ‘unclean hands’ because of the lat-

ter’s conduct in the transaction out of which the

litigation arose, or with which it is connected, must

show that he himself has been injured by such con-

duct, to justify the application of the principle to

the case. The wrong must have been done to the

defendant himself and not to some third party.”

(Italics ours.)

This is not only a gene: >! equitable rule established by

many authorities (see cases and annotation 4 A.L.R. 32, 44,

58-9) but it represents the law in Pennsylvania as stated

by its Supreme Court. (See the following cases: Hays’

Estate Nat’l. Bank’s Appeal, 159 Pa. 381, 383; 28 Atl. 158

(1893) ; Comstock v. Thompson, 286 Pa. 457, 461, 462; 133

Atl. 688 (1926); Frazier v. Mansfield, 305 Pa. 359, 363;

157 Atl. 798 (1931); Lewis & Nelson’s Appeal, 67 Pa. 153,

166 (1870); Demster vy. Barmycr, 231 Pa, 28; 79 Atl. 805,

808 (1911); Cf. Percy A. Brown & Co. v. Raub, 357 Pa.

271, 291; 54 Atl. (2d) 35 (1947).)

(4) Moreover, the Court of Appeals (in barring peti-

tioner from the aid of a federal court of equity to seek

specific performance of the parity agreement and as a de-

frauded beneficiary on the ground of his alleged unclean

hands in reference to some third parties) gave no con-

sideration whatever to the conflict of laws question neces-

sarily involved in that issue, as required under the Rules

of Decision Act.

The complaint alleged and petitioner’s proof showe

that the parity agreement, <o which the Court of Appeal

referred, was made in Akron, Ohio, between the petitione

and the respondent McLane and was confirmed in Ohi

by them before Rev. Dr. Lawther.

In Klazxon Co. v. Stentor Co., 313 U. S. 487, 496 (1941)

reversing 115 F. (2d) 268 (C.C.A. 3rd, 1940), this Cour

stated that in a diversity case, such as this, a federa

court must follow the conflict of laws rules prevailing i

the state in which it sits.

Thus, under the doctrine of Erie R. Co. v. Tompkins

supra, the Court of Appeals was required, in any event

to inquire into and apply as to this new issue, the conflic

of laws rule prevailing in Pennsylvania. The question t

be answered was this: In an equity action brought in |

Federal Court in Pennsylvania on the ground of diversit:

for specific performance of a contract made in Ohio, doe

the law of Pennsylvania or the law of Ohio apply in th

application of the equitable doctrine of ‘‘unclean hands’

on the issue of whether petitioner had a right to see

the aid of equity in that Federal Court for specific per

formance of that contract?

It is not necessary for us here to discuss the applicabl

conflicts of law rule in that situation. We merely poin

out that the Court of Appeals ignored the point and neve

gave petitioner an opportunity to discuss it. We als

point out that the conflict of laws problems inherent i

the case were called to the attention of the trial cour

in reference to issues and defenses which were actuall:

pleaded and raised in the trial court (40a, 47a; 120a-12la

533a).

Had the Court of Appeals made inquiry, it would hav

found that Ohio, like Pennsylvania, has followed th

gnclean hands rule, applicable here, as stated in Pomeroy’s

Equity Jurisprudence, supra. (See: McClanahan v.

McClanahan, 79 Ohio App. 231, 235, 236 (1946); Scott-

wood Realty Co. v. Bowman, 21 Ohio App. 244, 249 (1926) ;

Halladay v. Faurot, 8 Ohio Decisions Reprint 683 (1883).)

The decision of McClanahan v. McClanahan, supra, is

peculiarly applicable here because it involves a closely

analogous factual situation and states the applicable rule

of unclean hands with fullness and clarity.

(5) The general equitable rule stated by Pomeroy,

supra, has been followed in the federal courts. See for

example American Cooperative Serum Assn. v. Anchor

Serum Co., 153 F. (2d) 907, 912 (C.C.A. 7th, 1946), where

the Court stated:

“The rule that a complainant must come into

equity with clean hands means that he must do

equity as respects the defendant’s rights in the par-

ticular matter of the suit. * * * If he is not

guilty of inequitable conduct toward the defendant

in that transaction, his hands are as clean as the

court can require.’ ”’

To the same effect see National Labor Relations Board

y. Fickett-Brown Mfg. Co., Inc., 140 F. (2d) 883, 884

(C.C.A. 5th, 1944).

Thus, the decision of the Third Circuit Court of Ap-

peals is not only in conflict with the law of the appropriate

state which, under decisions of this Court it was required

to ascertain and apply, but is in conflict, also, with the

same law as stated in decisions of other Circuit Courts

of Appeals.

It should be added that the rule cited by the Court of

Appeals (684) from Restatement, Contracts 1932 Ed. See-

tion 368 is not applicable herein in that enforcement of

the parity agreement is not (in the wording of the rule)

“fin violation of the rights of a third person which are

superior to those of the plaintiff. If the rights of the

plaintiff and those of the third person are equal, the court

may prorate performances’’, Whether that rule would

have any application under the Rule of Decisions Act, in

any event, does not appear.

The Court of Appeals completely misapprehended the

facts and the applicable rule of law. This case illustrates

the difficulties and gross injustice that can result when an

appellate court, on its own, injects into a ease an entirely

new, unlitigated issue without the affected party having

any opportunity of a hearing on the facts or law in re-

spect thereof.

POINT II

The decision of the Third Circuit Court of Appeals

that it could not and would not redetermine the cred-

ibility of the witnesses is in conflict with decisions

of other Circuit Courts of Appeal on the same matter.

The Court of Appeals refused to redetermine the eredi-

bility of witnesses in this case on the erroneous assump-

tion that the “trial judge has had the opportunity to

observe the demeanor of the key witnesses upon the

stand.’’ Actually, as the record shows, the trial judge

did not have the opportunity to observe the demeanor of

the ‘‘key witnesses’? upon the stand. The testimony of

Rev. Dr. Lawther, the one master key witness in the case

(as well as the testimony of petitioner’s other corroborat-

ing witnesses who, too, were key witnesses of only slightly

less importance) was taken on deposition.* Moreover,

their veracity was not questioned by respondent.

Nevertheless, the Court of Appeals held that it, as ‘fan

appellate tribunal in a civil suit’? and as a matter of

“hornbook law’’ would not and could not redetermine

the credibility of witnesses. It refused to reconsider the

question of credibility, to reappraise the testimony or to

review the case on the entire evidence. It accepted the

trial judge’s finding and judgment and held itself bound

to do so without any exercise of its own judgment. Since

the trial judge had hinged his finding of ‘‘no agreement’’

on the question of credibility of witnesses, the Court of

Appeals, thus, effectively denied petitioner a review on

appeal and made of his appeal a sterile procedure. In

this respect its decision, clearly, is in conflict with the

decisions of the other Circuit Courts of Appeal.

It is well settled that in the situation presented here,

the appellate tribunal is in as good a position as the trial

judge to evaluate such testimony and to draw inferences

from it. The correct applicable rule is stated in Stokes

v. United States, 144 F. (2d) 82, 85 (C.C.A. 2nd, 1944),

where the Court of Appeals, in reversing a trial court’s

factual finding of negligence, stated: ‘

‘The only eyewitness who testified before the

trial judge concerning libellant’s conduct was libel-

lant himself. All the other evidence on that subject

consisted of statements, by deposition or other-

wise, of witnesses whom the trial judge neither

saw nor heard. We are, therefore, in as good a

* Petitioner’s entire case (other than his own testimony) consisted

of the testimony, all taken on deposition, of seven corroborative wit-

nesses and documentary proof (see Record Index, pp. iii, iv, vi-ix;

550a-613a). Another witness’ testimony was excluded (erroneously )

as “not proper rebuttal” (502a-504a).

position as the trial judge to evaluate that testi-

mony and to draw inferences from it. In such

circumstances, it has frequently been held, we are

not bound by his findings,’ (Cases cited.)

A District Court’s finding on such evidence is subject

to a full and free review on appeal unaffected by pre-

sumptions which ordinarily accompany such findings on

controverted issues. (See Carter Oil Co. v. McQuigg, 112

F. (2d) 275, 279 (C.C.A. 7th, 1940) where, as here, a

substantial part of the evidence consisted of oral testi-

mony taken on deposition, the weight of which depended

on the credibility of the witnesses giving it.)

The Court of Appeals had and should have assumed

the burden of reappraising the question of credibility.

See Equitable Life Assur. Soc. v. Jrelan, 123 F. (2d) 462,

464 (C.C.A. 9th, 1941), where the Court stated:

**Sinee all testimony bearing on the circumstances

antecedent to and surrounding her death was by

deposition, the finding of accidental death, while

it is justly entitled to consideration, has not the

weight we would otherwise be obliged to concede

to it. This court is in as good a position as the

trial court was to appraise the evidence and we

have the burden of doing that. Rule 52(a) of the

Rules of Civil Procedure, 28 U.S.C.A. following

section 723c, was intended to accord with the deci-

sions on the scope of the review in federal equity

practice; and, as is well known, in the federal

courts where the testimony in equity (cases cited)

or admiralty (cases cited) cases is by deposition the

reviewing court gives slight weight to the findings.”’

(Italics ours.)

See also State Farm Mut. Automobile Ins. Co, v.

Bonacci, 111 F, (2d) 412, 415 (C.C.A. 8th, 1940) and

Luckenbach 8.8. Co. v. United States, 157 F. (2d) 250,

251 (C.C.A. 2d, 1946),

The provision in Rule 52(a) of the Federal Rules of

Civil Procedure* that ‘‘due regard shall be given to the

opportunity of the trial court to judge the credibility of

the witnesses’’ does not justify a federal appellate court

in accepting as not reviewable a trial judge’s finding as

to credibility of witnesses where the trial court had no

opportunity to hear or observe the demeanor of any of

the principal witnesses on one side of the case (other than

the party) including the one most important and truly

key witness in the case and other key witnesses.

Had the Court of Appeals properly construed the scope

of appellate review in equity cases and had it not erro-

neously foreclosed itself from its power and duty to reap-

praise the deposition testimony of petitioner’s witnesses,

particularly Rev. Dr. Lawther, it might, and readily could,

have found that this testimony represented the great

weight of the credible evidence and that on the entire

record the findings of the trial judge were clearly erro-

neous.

As it is, the Court of Appeals, by a destructive and futile

judicial process, which represents a serious and sub-

stantial departure from recognized procedures in equity

causes in federal courts, effectively closed its doors and

the doors of equity to petitioner.

* Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A.

following Section 723c “Effect. In all actions tried upon the facts

without a jury or with an advisory jury, the court shall find the

facts specially and state separately its conclusions of law thereon and

direct the entry of the appropriate judgment; and in granting or re-

fusing interlocutory injunctions the court shall similarly set forth the

findings of fact and conclusions of law which constitute the grounds

of its action. Request for findings are not necessary for purposes of

review. Findings of fact shall not be set aside unless clearly errone-

ous, and due regard shall be given to the opportunity of the trial court

to judge of the credibility of the witnesses. * * *”

POINT Ill

The Circuit Court has not properly applied the rules

as to the scope of appellate review in federal courts

in equity cases and its decision in this respect is in

conflict with the Federal Rules of Civil Procedure,

applicable decisions of this Court and decisions of

other Circuit Courts on the same matter.

The Court of Appeals. in deciding this case, has not

properly interpreted or applied Rule 52(a) of the Rules

of Civil Procedure within the rules laid down in United

States v. U. 8S. Gypsum Co., et al., 333 U. S. 364 (1948)

or within the rules as correctly stated in other Circuit

Courts of Appeal.

1. The Court of Appeals did not properly interpret

or apply Rule 52(a) in holding that it could not redeter.

mine the question of the credibility of witnesses where,

as here, a substantial and vital part of such testimony

was taken on deposition (see discussion and cases under

Point II hereof).

2. The Court of Appeals has erroneously held that

merely because a finding may be “amply supported by

evidence adduced at the trial’’ such finding cannot be

‘clearly erroneous’’ within the meaning of said Rule

52(a) but is binding on the appellate court. This attitude

on the part of the Third Circuit Court of Appeals is re-

flective of its holdings, in prior cases, that findings of a

trial court are not clearly erroneous and may not be dis-

turbed and that Court is without power to interfere with

them upon appeal but is under the necessity of accepting

them as conclusive, where such findings are supported by

“substantial”’ or ‘‘sufficient’’ or “‘ample’’ evidence. (See

Adam Hat Stores, Inc. v. Lefco, 134 F. (2d) 101, 103

(C.C.A. 3rd, 1943); Bethlehem Baking Company v. United

States, 129 F'. (2d) 490, 491 (C.C.A. 3rd, 1942); Plack v.

Baumer, 121 F. (2d) 676, 678 (C.C.A. 3rd, 1941).

That interpretation of Rule 52(a) is in conflict with

the interpretation thereof by other Circuit Courts, which

have held that the question is not whether there is any

“substantial’’ evidence to support such findings but

whether they are against the clear weight of evidence.

See State Farm Mut. Ins. Co. v. Bonacci, 111 F. (2d) 412,

415 (C.C.A. 8th, 1940), where the Court in discussing

Rule 52(a) states:

“Under the new practice, where findings are

made hy the court without a jury, the appellate

court is not limited to the mere question whether

there is any substantial evidence to support them,

but may set them aside if against the clear weight

of the evidence, at the same time giving full effect

to the special qualification of the trial judge to

pass on credibility,’ ”’

To the same effect see Fleming v. Palmer, 123 F. (2d)

149, 751 (C.C.A. 1st, 1941) and cases there cited.

The rule followed in the Third Circuit has been justly

eriticized (see Review of Findings of Administrators,

Judges and Juries: A Comparative Analysis, 58 Harv.

L. Rev. 70, 88), where the author, after reviewing the

subject, states:

**Policy, authority and history all thus show the

‘clearly erroneous’ rule gives the reviewing court

broader powers than the ‘substantial evidence’

formula.

oe e . * oe

Moreover, the position of the Third Circuit on this

subject is inconsisent with the recent decision in United

States v. U. S. Gypsum Co., et al., supra, where this

Court, in reversing findings of ‘‘no agreement’’ despite

the opportunity of the trial court to appraise the credi-

bility of the witnesses, stated:

‘*The practice in equity prior to the present Rules

of Civil Procedure was that the findings of the trial

court, when dependent upon the oral testimony

where the candor and credibility of the witnesses

would best be judged, had great weight with the

appellate court. The findings were never conclusive,

however. A finding is ‘clearly erroneous’ when

although there is evidence to support it, the review.

ing court on the entire evidence is left with the

definite and firm conviction that a mistake has been

committed,”

Here, it was the duty of the Court of Appeals to review

the entire evidence and to decide therefrom, in the exer-

cise of its own judgment, whether or not a mistake had

been made. It had no right to accept blindly the judg-

ment of this trial court. It had no right, sitting in equity,

to close its conscience and its doors to the injured

beneficiary seeking relief against the violating trustee,

to ignore the trust principles and relationships involved

and to bar him, especially on a new issue, from a full and

free review and from equity.

This case, as it comes to this Court, involves no mere

question of fact or of private interests. It involves a

method of judicial process in the trial and appellate fed-

eral courts below which is destructive of equitable rights

—

and contrary to generally accepted equitable procedures.

The case arises in a circuit where there are many litigants

who are seeking equity and need a clarification of the

principles and procedures applicable on trials and ap-

peals. The issues raised here are of substantial import-

ance in the administration of justice and equity in the

federal courts.

CONCLUSION

The petition for the writ should be granted.

Respectfully submitted,

Martin A. SCHENCK,

KenNnetH W. GREENAWALT,

Attorneys for Petitioner.

FILE COPY FILE

IN THE

Supreme Court of the United-States—

OCTOBER TERM, 1949.

NO. 305.

THOMAS W. SMITH, JR., Petitioner,

JOHN T. McLANE, JOSEPH L. McLANE, NELL Mc-

LANE ARMSTRONG, CYNTHIA McLANE, LOUISA

A. McLANE, MARY E. McLANE, individually; REED

H. ALBIG and J. C. PETERSON, Trustees; PEOPLES

CITY BANK OF McKEESPORT; and NATIONAL

BANK OF McKEESPORT, Respondents.

BRIEF IN OPPOSITION TO PETITION FOR

CERTIORARI.

WILLIAM H. EcKERT,

1025 Union Trust Building,

Pittsburgh 19, Pennsylvania,

Attorney for Respondents.

SMITH BROS. CO. INC., LAW PRINTERS, 434-436 BLVD. oF ALLIES, PITTSBURGH 18, PA.

;

INDEX.

PAGE

Opinions Below ............. see eee eens mgt tte 1

EE GD GEM nec anccescecccscccscceses 1

SEED Acc cuvsrbccvvessensoves 3

I 5 saw anesscsnnccccesecccsccescsesoess 5

) Both Courts below Having Concurred in the

) Finding of Fact that there was No Agree-

ment Made Such as is Sought to be En-

forced, That Finding Should be Accepted

BOP Tee INS han socvncevecncccssceccens 5

Petitioner Has Changed His Theory on Appeal

and His New Theory Should Therefore Not

ET eee eT TTT ee ee 26

Consideration of “Clean Hands” Maxim not

PE SRG Cen ASR ea Wee ee cert teneccus 34

IV.

| Court of Appeals Correct Regarding “Clean

| er ek 6 b08 bk bes bebe 36

| V.

ed ce nbiaces 47

TABLE OF CASES.

PAGE

Agnew v. Southern Avenue Land Co., 204 Pa. 192,

Ss Mas D hp kdcepennen chine cd vbCiadn duck 47

Allen v. Trust Company of Georgia, 326 U.S. 630.. 5

American Ins. Co. v. Lucas, 38 F. Supp. 926, 129

We ED bh banda wksdanda daiasesidacesa 37, 38, 39

Barton v. Benson, 126 Pa. 431, 17 A. 642.......... 40

Beidler v. Davis, 72 Ohio App. 27, 50 N. E. 2d 613 47

Berner v. Diamond, 48 Ohio Law Abs. 505, 74 N. E.

PUNE Shh 0050 0l bona dahd cs iuasbha de esccane 42-43

Sighey v. Misher, GB Pa. 20B. .. oo... ccc cece ccne 47

Browne v. Hoekstra, 279 Pa. 418, 123 A. 861...... 7

Canister Co. v. Wood & Selick, 73 F. 2d 312....... 47

Cashman v. Mason, 166 F. 2d 693................ 7

Cleo Syrup Corp. v. Coca-Cola Co., 139 F. 24 416.. 7

Cody v. Landis, 68 Ohio App. 225, 40 N. E. 2d 209 43

Collier v. Stanbrough, 6 How. 14................ 36

Comstock v. Group of Institutional Investors, 335

ee CEN SHES Oi ebay unnnis eWeb'eddnlebaucss 5

Dayton-Goose Creek Railway v. U. S., 263 U. S. 456 29

Dent v. Ferguson, 132 U. S. 50.................. 44

Equitable Life Assurance Society v. Irelan, 123 F.

PU Nadas Rakbkes tints cdsntdacbenescte 8

Estate of Elke Dayen, 97 Pa. Superior Ct. 250..... 40

Fountain v. Filson, 336 U. S. 681................ 37

Frank Adam Electric Co. v. Westinghouse E. & M.

ES ib denen nh ates dw nnn 6 dw 3 38

Friend v. Lamb, 152 Pa. 529, 25 A. 577........... 39

Girard Mammoth Coal Co. v. Raven Run Coal Co.,

Pee is US, RM Oi, GI oo ohh hes kncscccces 39

Graver Tank & Mfg. Co. v. Linde Air Products Co.,

NE MIA 8s 4646 SKe KLAR URS Seas dkaceneos 6,9

We Wh MENS Rb Ge San cundeenne aghbeacenceeccatke 35

Table of Cases. iii

PAGE

Helvering v. Gowran, 302 U. S. 238.............. 36

Hennessy v. Woolworth, 128 U. S. 438........... 39, 47

Hershey v. Weiting, 50 Pa. 240................-- 40

House v. Mayo, 324 U. S. 42..............---0- 36

Howitt v. U. S., 328 U. S. 188... 0... eee ween 29

Hukill v. Yoder, 189 Pa. 233, 42 A. 122........... 40

Kentucky Vermillion M. & C. Co. v. Norwich U. F.

Bie. Boc., 266 Wed. GOB... . onc ccccccsccccsess 29

Kihlken v. Kihlken, 59 Ohio St. 106, 51 N. E. 969.. 42

LeTulle v. Scofield, 308 U. S. 415................ 36

McBrine Co. v. Silverman, 121 F. 2d 181......... 36

McNeely v. Bookmyer, 292 Pa. 12, 140 A. 542.... 47

Manhattan Medicine Co. v. Wood, 108 U.S. 218.... 44

Markovitz v. Markovitz, 336 Pa. 136,8 A. 2d42.... 47

New York Life Ins. Co. v. Calhoun, 114 F. 2d 526.. 36

Park Lane Dresses v. Houghton & Dutton Co., 54

Te, Se Mt pac aehkebea he MAhARKEARRAD ER DARD 36

Precision Instrument Mfg. Co. v. Automotive M.

Machinery Co., 324 U. S. 806............... 38, 44

Pride v. Andrew, 51 Ohio St. 405, 38 N. E. 84....... 42

Primeau v. Granfield, 193 Fed. 911............. 38, 39

Raiche v. Standard Oil Co., 137 F. 2d 446......... 29

Reynolds v. Boland, 202 Pa. 642,52 A.19......... 41, 45

Riley Investment Co. v. Commissioner, 311 U. S.

Da out ce Une eeeeek CAEKEEN WKAR TAS KOR SE 35, 36

Bebe vw. Unmn, © Wall. SET. ... 2. ccc ccc ccccens 44

Slingluff v. Eckel, 24 Pa. 472..............00005- 40

Smart v. Baroni, 360 Pa. 296, 61 A. 2d 860........ 40

Spokane I. Fair Ass’n. v. Fidelity & Deposit Co.,

RE MS bn coc 60 data 450 040665.04688485 5.050 29

State Farm Mut. Automobile Ins. Co. v. Bonacci,

kk FST samen Gene 8

iv Text Books—Statutes.

PAGE

Stevens v. Doylestown B. & L. Ass’n., 321 Pa. 173,

Fe A eee eee ee ee ee 47

Sunal v. Large, 332 U. S. 174. .............ceeees 36

Tickel v. Shock, 80 Ohio App. 459, 72 N. E. 2d 154 47

Thomas v. Taylor, 224 U.S. 73.................. 29

U. & W. Meee, Br UU. GB. TG... wc cece sence 29

oe eae SS ree 35

Ble Wie We I, ER Bs OE Ue wc cc tens esccesecs 7

Se es cp csesnsescsccs 29

Rs a We SI OE So cc cc cnsccesees 29

U.S. v. U. S. Gypsum Co., 333 U. S. 364.......... 8

Voss Bros. Mfg. Co. v. Voss, 157 F. 2d 263........ 7

Waltz v. Ellinghouse, 165 F. 2d 596.............. 8

Watson v. Brewster, 1 Pa. 381.................. 39

TEXT BOOKS.

Henry on Pennsylvania Trial Evidence (3 ed.),

EE eo ERG ohn v0 046.0665 5000.8 28

2 Pomeroy’s Equity Jurisprudence, § 399........ 42, 44

2 Pomeroy’s Equity Jurisprudence, § 401........ 44, 45

8 Standard Pennsylvania Practice, § 359.......... 28

STATUTES.

Statute of Frauds, Pennsylvania Act of 1915, P. L.

543, § 4, as amended 1925, P. L. 310, § 2 (69

gh SERRE SSS LS ae a 47-48

Statute of Limitations, Pennsylvania Act of 1713,

ef eee Tes 8) | rrr Terr 48

Rule 52(a) of the Federal Rules of Civil Pro-

2 22 e559. 89 88 2.22 8.6 6840484 02S OO 6.68 HOO

—

Supreme Court of the United States

OCTOBER TERM, 1949.

NO. 305. ‘

THOMAS W. SMITH, JR., Petitioner,

JOHN T. McLANE, JOSEPH L. McLANE, NELL Mc-

LANE ARMSTRONG, CYNTHIA McLANE, LOUISA

A. McLANE, MARY E. McLANE, individually; REED

H. ALBIG and J. C. PETERSON, Trustees; PEOPLES

CITY BANK OF McKEESPORT; and NATIONAL

BANK OF McKEESPORT, Respondents.

BRIEF IN OPPOSITION TO PETITION FOR

CERTIORARI.

OPINIONS BELOW.

The original adjudication of the District Court is

reported in 73 F. Supp. 849 and its opinion denying the

petitioner’s motion for a new trial is reported in 75 F.

Supp. 219. The opinion of the Court of Appeals is re-

ported in 174 F. 2d 819.

STATEMENT OF THE CASE.

Petitioner’s statement of the case is misleading,

particularly in that petitioner persists in referring to

himself as a “wronged beneficiary” and to the respond-

ent John T. McLane as a “violating trustee”, when as a

matter of fact no trust relationship existed between those

parties on June 24, 1937, if ever, and no breach of trust

was ever committed by John T. McLane. June 24, 1937,

is the date when the petitioner alleges there was made

the oral agreement of which he seeks specific enforce-

ment and by which he is attempting to get half of The

Sun Rubber Company stock purchased by his uncle since

that date at the price which his uncle paid for it (R.

106). John T. McLane ceased to be a trustee on Decem-

ber 29, 1932, more than four years before the alleged

making of the agreement in dispute (Exhibit G, R. 430,

619). The first and only “pledging” of the stock was by

the so-called “Trust Agreement” of July 9, 1935, and at

that time John T. McLane was the outright owner of all

of the stock in question and had the right therefore to

pledge it (R. 59-62, 476, 619). The trust of which an

accounting was asked and granted and which was com-

monly referred to at the trial as “the trust” was that

created by the so-called “Trust Agreement” of July 9,

1935 (R. 59-62, 133), and the alleged breaches thereof

were all after June 24, 1937, by the trustees (of whom

John T. McLane was never one) of that trust (R. 42-43,

68-69, 637). The attack upon this trust went to the

question whether the bank beneficiaries under the “Trust

Agreement” of July 9, 1935, should not already have

been paid in full, in which event petitioner would be pres-

ently entitled to receive the 327 shares allotted to him

by the so-called “Distribution Agreement” of June 24,

1937 (Exhibit 6, R. 147, 558). The petitioner’s present

attempt to influence the decision of the question whether

John T. McLane agreed with him on June 24, 1937, that

each would offer to sell the other half of all Sun Rubber

stock thereafter acquired by him at cost, by the admin-

istration of the trust under the “Trust Agreement” of

July 9, 1935, by Joseph L. McLane, Josie E. McLane,

Reed H. Albig or J. C. Peterson is without justification

in fact and wholly contrary to petitioner’s position at

the trial (R. 132, 516). There was no contention in the

Trial Court that any “trust principles” applied to the

2 Statement of the Case.

Summary of Argument. 3

determination of the question of fact whether petitioner

and John T. McLane had made the oral agreement of

which specific performance is sought. That alleged oral

contract was independent of and aside from any trust

and related only to stock which petitioner or John T. Mc-

Lane might thereafter acquire with his own funds from

third parties and with respect to which stock John T.

McLane owed no fiduciary obligation whatever to the

petitioner. This will be amplified in subdivision II.*

Other errors in petitioner’s statement of the case

will be corrected in the course of our argument. The

material facts are stated in the opinion of the Court of

Appeals (R. 681-683, 174 F. 2d at 820-821) and here-

after in this brief. To avoid lengthening this brief we

do not repeat them here.

SUMMARY OF ARGUMENT.

I. Both Courts below having concurred in the find-

ing of fact that there was no agreement made such as is

sought to be specifically enforced, that finding should be

accepted by this Court. There is no “very obvious and

exceptional showing of error” in that concurrent finding

of fact, especially when due regard is given to the op-

portunity of the Trial Court to judge of the credibility

of the witnesses. Ten witnesses testified in person in

the Trial Court, and among them were the petitioner and

John T. McLane, who were the principal witnesses and

both of whom testified at length.

II. Petitioner’s present attempt to have the ques-

tion of fact whether petitioner and John T. McLane

orally agreed on June 24, 1937, that each would offer to

the other at cost half of any Sun stock thereafter ac-

* Post, pp. 26-33.

E a.

4 Summary of Argument.

quired by him decided on “trust: principles”, constitutes

a change of position by petitioner since the case left the

District Court and is therefore barred by the recognized

principle that an appellate court will not reverse a trial

court on a theory or questions which were not presented

to the trial court.

III. Consideration of the “clean hands” mazim is

not necessary to the disposition of this case, because the

finding of fact by both Courts below that no such oral

agreement was made as is sought to be specifically en-

forced is alone decisive. ;

IV. If the “clean hands” maxim is to be consid-

ered, the Court of Appeals did not err with respect to it.

Under Pennsylvania law the “clean hands” maxim

applies regardless whether the plaintiff’s inequitable

conduct injured the defendant or a third person. Such

is also the law in Ohio and in the Federal Courts.

V. The alleged oral contract is not proved with

sufficient definiteness in all material terms to be specifi-

cally enforced. The Statute of Frauds relating to sales

of personalty, the Statute of Limitations and the doc-

trine of laches are additional reasons why the judgments

below are right.

VI. There is no question of public importance or

general interest involved in this case. Only the private

rights of the parties to a family quarrei are at stake.

Certiorari should therefore be denied.

Argument. 5

ARGUMENT.

Both Courts below Having Concurred in the

Finding of Fact that there was No Agreement

Made Such as is Sought to be Enforced, That

Finding Should be Accepted by This Court.

The phase of this case involved on appeal turns upon

a question of fact, which is, did petitioner and John T.

McLane orally agree on June 24, 1937, that each would

offer to the other one-half of all stock in The Sun Rubber

Company which he thereafter acquired at its cost to

him? Both the District Court and the Court of Appeals

concurred in deciding that question of fact in the nega-

tive, i.e., that no such agreement was made (R. 634, 645,

682-683, 73 F. Supp. 849, 75 F. Supp. 219, at 220, 174 F.

2d 819, at 821). Both the Trial Court and a unanimous

Court of Appeals having concurred in finding as a fact

that there was no such agreement as is now sought to be

specifically enforced, that should end the part of this

case that was appealed because this Court has re-

peatedly held that concurrent findings of the two lower

Courts will be accepted as conclusive by this Court, at

least unless a very obvious and exceptional showing of

error is made. Thus in Allen v. Trust Company of

Georgia, 326 U. S. 630, this Court in affirming a decision

that two gifts had not been made in contemplation of

death and that therefore no estate tax was due on them,

said by Mr. Justice Douglas (p. 636) :

“Those findings, being concurrent findings of the two

lower courts, will be accepted here without reexami-

nation of the evidence.”

In Comstock v. Group of Institutional Investors, 335

U. S. 211, this Court in affirming said through Mr. Jus-

tice Jackson (p. 214) :

. “7

6 Argument.

“A seasoned and wise rule of this Court makes con-

current findings of two courts below final here in

the absence of very exceptional showing of error.”

In the even more recent case of Graver Tank & Mfg.

Co. v. Linde Air Products Co., 336 U. S. 271, this Court,

in accepting the findings of fact concurred in by the two

lower courts and after quoting part of Rule 52(a) of

the Federal Rules of Civil Procedure, said by Mr. Justice

Jackson (p. 275):

“The rule requires that an appellate court make

allowance for the advantages possessed by the trial

court in appraising the significance of conflicting

testimony and reverse only ‘clearly erroneous’ find-

| ings. These are manifestly supported by substan-

: tialevidence * * *. A court of law, such as this

Court is, rather than a court for correction of errors

in fact finding, cannot undertake to review concur-

rent findings of fact by two courts below in the ab-

sence of a very obvious and exceptional showing of

”

error

Many other decisions of this Court to the same

effect as these three are cited in the opinions of this

Court immediately following the three above quotations.

The portion of Rule 52(a) quoted in this Court’s

opinion in Graver Tank & Mfg. Co. v. Linde Air Products

Co., supra, and which is applicable to the case at bar, is

as follows:

“Findings of fact shall not be set aside unless clearly

erroneous, and due regard shall be given to the op-

portunity of the trial court to judge of the credi-

bility of the witnesses.”

The Court of Appeals complied with that Rule. The

Court of Appeals expressly decided that the District

Judge’s refusal to find that petitioner and John T. Mc-

Lane had orally agreed that each would offer to the other

os Bhs

_— op BOGEN eee

te! a oes Set aah Ns ate} Gey m4 se et

—

Argument. 7

at cost half of any Sun stock thereafter purchased by

him, was not “clearly erroneous”-and specifically out-

lined considerable of the established facts and evidence

which led it to that conclusion (R. 683, 174 F. 2d at 821).

It is admitted that no one was present when such an

agreement as is sought to be specifically enforced is al-

leged to have been made other than petitioner and John

T. McLane (R. 107, 136), and consequently the only direct

evidence whether such an agreement was made comes

from those two men. Petitioner and John T. McLane

were therefore correctly described by the Court of

Appeals as the “key” witnesses. The Trial Judge saw

poth of them upon the witness stand, as well as eight

other witnesses, and therefore was in the best position

to judge their credibility. The Trial Judge expressly

based his finding that there was no such agreement as

is in dispute upon “the credibility of the witnesses” (R.

645, 75 F. Supp. at 220). This is therefore a proper case

for the application of the mandate contained in Rule

52(a) that “due regard shall be given to the opportunity

of the trial court to judge of the credibility of the wit-

nesses” and the Court of Appeals properly complied with

that mandate.

In determining whether a finding of fact of a trial

court is “clearly erroneous”, all evidence and inferences

therefrom favorable to the appellee are accepted as true:

U. 8. v. Ingalls, 114 F. 2d 839, 840 (C. A., D. C.); Cleo

Syrup Corp. v. Coca-Cola Co., 139 F. 2d 416, 418 (C.C.A.

8), cert. den. 321 U. S. 781; Voss Bros. Mfg. Co. v. Voss,

157 F. 2d 263, 266 (C.C.A. 8) ; Cashman v. Mason, 166 F.

2d 693, 696 (C.C.A. 8) ; Browne v. Hoekstra, 279 Pa. 418,

421, 423, 123 A. 861, 862. The necessary corollary is that

all conflicting testimony and all inferences unfavorable

to the appellee must be rejected.

No different rule with regard to appellate review of

questions of fact is established by any case cited in peti-

a EIR SS PSP LESS BE LED DESERT R EY EE ICES IE ERY ILL 2S ANE

8 Argument.

tioner’s brief, nor does any of those cases convict the

learned Court of Appeals of error in the case at bar. In

U. 8. v. U. 8. Gypsum Co., 333 U. S. 364, the District

Court had dismissed the Government’s complaint at the

close of the Government's evidence, but this Court was

of the opinion that the documentary evidence and ad-

mitted facts were sufficient to constitute a violation of

the Sherman Anti-Trust Act. Equitable Life Assurance

Society v. Irelan, 123 F. 2d 462, as the quotation from

it in petitioner’s brief (p. 26) shows, is confined to a

case in which all the testimony is presented by deposi-

tions. That is not the situation in the case at bar, for

here the only two persons who were present when the

agreement, the existence of which is in dispute, is alleged

to have been made and who were therefore the principal

witnesses, both testified personally at length in the Trial

Court, and eight other witnesses also personally took

the witness stand there. The quotation in petitioner's

brief (p. 29) from State Farm Mut. Automobile Ins. Co.

v. Bonacci, 111 F. 2d 412, 415 (C.C.A. 8), was not the

Court’s own language, but a quotation from Simkins

Federal Practice, p. 488, and contrasted with that is the

more recent decision of the Court of Appeals for the

same Circuit in Waltz v. Ellinghouse, 165 F. 2d 596,

where in affirming a nonjury case that Court said that

in the absence of an error of law (p. 597) “The findings

are not erroneous unless they are without an adequate

evidentiary basis”. In the case at bar there was ade-

quate evidentiary basis for the Trial Court's finding of

fact in question, as is shown in the opinion of the Court

of Appeals (R. 683, 174 F. 2d at 821). Without mention-

ing the other cases cited in points II and III of petition-

er’s brief specifically, we respectfully submit that they

are all distinguishable from the case at bar and that

none of them requires the granting of a writ of certio-

rari in this case.

—

Argument. 9

That the Court of Appeals did “review the entire

evidence”, as petitioner argues in his brief (p. 30) was

its duty, is shown by its reference to the petitioner's evi-

dence as well as that of respondent (R. 682, 174 F. 2d

at 821).

The crucial finding of fact that no oral agreement

was made on June 24, 1937, between petitioner and John

T. McLane that each would offer to the other half of any

Sun stock or interest in such stock which he thereafter

acquired at the price which it had cost him, which find-

ing was concurred in by both Courts below, is not very

obviously in error and has not been shown to be so by

any exceptional showing, to use the words of this Court

in its latest pronouncement on the conclusiveness of

findings of fact concurred in by both lower courts

(Graver Tank & Mfg. Co. v. Linde Air Products Co., 336

U. S. 271, 275, supra). To demonstrate this, we respect-

fully trust that the Court will indulge us in a review

of the evidence, though we deeply regret that such

review will extend this brief far beyond ordinary length.

John T. McLane denied unequivocally that he had

entered into any agreement with petitioner that each

would offer to the other at cost half of any Sun stoci.

thereafter acquired by him (R. 415-416). Mr. McLane’s

denial of any agreement such as is now sought to be

enforced is corroborated by many cogent facts, one of

which is the unexplained anomaly that the other two

parts of the alleged oral agreement were reduced to

writing and signed on the same day the alleged oral

agreement was made. The part of the alleged oral

agreement relating to distribution of the 1250 shares in

the trust was covered by the distribution agreement,

Exhibit 6 (R. 147, 558). The part relating to petitioner

becoming general manager and eventually president of

The Sun Rubber Company was reduced to writing in

Exhibit A (R. 171, 614). If there had been a third

part to the oral agreement, as is now alleged, providing

10 Argument.

for division of future stock acquisitions, it would also,

according to all logic, reason and experience, have been

reduced to writing at the same time. This natural pre-

sumption is fortified by petitioner’s testimony that the

purpose in going to Mr. Farrell’s office where the distri-

bution agreement and the employment letter were

written and signed, was to put in writing the portion of

the agreement relating to “parity” (R. 174). If there

had been any oral agreement for future parity it natur-

ally also would have been reduced to writing. Admit-

tedly, however, there is absolutely nothing in writing

evidencing any agreement for future parity or, more spe-

cifically, that if either the petitioner or John T. McLane

should thereafter acquire any stock in The Sun Rubber

Company he would offer to sell half of it to the other at

the price which he had paid for it (R. 170). Not only is

there no written instrument signed by either of the Mc-

Lanes evidencing any such agreement for future parity,

but it is further admitted that there is not even anything

written by the petitioner prior to the date he swore to

the original Complaint on February 25, 1946, asserting

that there was any such agreement (R. 170). It was even

admitted that no oral demand for any part of the stock

purchased by John T. McLane subsequent to June 24,

1937, was made until February 25, 1946, when the peti-

tioner swore to the criginal Complaint and two days

before this suit was instituted (R. 170).

The Trial Court and the Court of Appeals are not to

be criticized for not believing that if the alleged oral

agreement had included the third point which petitioner

now contends it did, there would not have been some-

thing in writing evidencing or asserting such an agree-

ment either by petitioner or the respondents before well

over eight years had elapsed, i.e., from 1937 until 1946.

This is all the more true because the petitioner admitted

that he learned of the purchase by John T. McLane of the

Carr stock at the time when those shares were trans-

—

Argument. 11

ferred on the Company’s books from Carr to John T.

McLane on May 18, 1939 (R. 180). Petitioner also ad-

mitted that he learned of the subsequent transfers to

John T. McLane or members of his family within three

weeks at the most after each transfer was made (R. 181-

182) and that he learned in 1942 or 1943 of the pur-

chase by John T. McLane of the beneficial interest of

two f the other distributees named in the distribution

agreement (R. 162). As secretary of The Sun Rubber

Company since 1928 petitioner admittedly has had cus-

tody of and access to the stock certificate books of the

Company at all times, and therefore was in a position

to learn of all stock transfers promptly (R. 180). Know-

ing of those transfers soon after they were made and

admittedly not having made any demand for any part

of the shares involved until February 25, 1946,— almost

seven years after the Carr sale—is wholly incompatible

with the existence of any such agreement as petitioner

now says there was.

The natural conclusion thet the oral agreement did

not include anything that was not reduced to writing is

strengthened by the clear testimony of J. Paul Farrell,

Esquire, a member of the bar, who was admitted by

petitioner’s counsel to be “a reputable witness” (R. 528).

Mr. Farrell testified that while the distribution agree-

ment (Exhibit 6) was being typed he asked if that was

all and the petitioner said “No. There is one other thing”

and that was to put in writing the agreement concerning

his becoming general manager of The Sun Rubber Com-

pany because “he wanted everything that had been

agreed to that day put down in writing so there would

be no misunderstanding or argument in the future”

(R. 483) ; that accordingly the employment letter (Ex-

hibit A) was written; and that after Exhibits 6 and A

had been written, read and signed (R. 484):

es ae

12 Argument.

«* * * Tasked them then" if that was everything

they agreed to that day and they said it was.

Q. When you said, ‘they said it was’, whom do you

mean?

A. I mean John McLane and Joseph McLane and

Thomas W. Smith, Jr.”

John T. McLane ar@ Joseph L. McLane testified to

the same effect (R. 414, 474).

J There is no contention that petitioner at the meet-

ing in Mr. Farrell’s office requested that anything be

put in writing regarding division of future acquisitions

of Sun stock. Petitioner stated that he had testified to

everything that had been said at Mr. Farrell’s office on

June 24, 1937 (R. 191). Nowhere in his testimony is

there anything to the effect that he asked that any

agreement relating to division of future acquisitions of

Sun stock be reduced to writing.

Also supporting the finding that there was no oral

agreement to divide future acquisitions of stock between

petitioner and John T. McLane is the 20th admission in

the Stipulation of Facts, which is as follows (R. 57):

“On April 9, 1943, the plaintiff, Thomas W.

Smith, Jr., purchased 50 shares of common stock of

The Sun Rubber Company from Mrs. Effie Clark

Mackey, but made no offer to divide said shares with

the defendant John T. McLane or offer to permit

said John T. McLane to acquire any of said shares

until February 25, 1946.”

There is no evidence anywhere in the record explain-

ing the approximately three years’ delay of the peti-

tioner in offering John T. McLane any part of the 50

shares which the petitioner purchased from Mrs. Mackey

* The word “then” is omitted in appellant’s Appen-

dix but will be found in the original transcript at p. 558.

—

Argument. 13

on April 9, 1943. The petitioner studiously avoided any

reference in his testimony to that purchase by him. If

there had been such an agreement as the petitioner now

seeks to enforce he would in good faith have been re-

quired to offer half of those shares to John T. McLane

promptly after acquiring them on April 9, 1943. Instead,

however, he silently retained them for nearly three years

until the eve of suit, when his counsel doubtless told

him he must make such an offer in order to be consistent

with the legal position he was about to assert. Peti-

tioner’s conduct, therefore, belies the existence of such

an oral agreement as he now asks the Court to enforce.

Petitioner has sworn to discrepant versions of the

alleged oral agreement. Petitioner personally signed

and swore to the original Complaint and to the

“Amended Complaint” (R. 666-668). According to

paragraph 8 of the original Complaint and paragraph 9

of the Amended Complaint (R. 11, 655), the alleged oral

agreement was (1) a tri-partite agreement among Smith,

John T. McLane and Joseph L. McLane; (2) the agree-

ment necessarily must have been made in McKeesport,

Pennsylvania, because the petitioner admitted (R. 195)

that that was the only place he saw Joseph L. McLane on

June 24, 1937; (3) the equalization was to be only be-

tween the petitioner and John T. McLane personally,

without including members of their families or any

others; and (4) the equalization was to continue “at all

times.” At the trial on February 17, 1947, the petitioner

materially changed the alleged oral agreement by testi-

fying (1) that it was only a bi-party agreement between

him and John T. McLane; (2) that the agreement was

“made in Akron, Ohio; and (3) that the equalization was

to last only as long as the 1935 trust continued (R. 107-

109). Leave was thereupon asked to amend the

Amended Complaint and the trial was continued (R.

115-118). Thereafter the “Second Amended Complaint”

——_ oF OE a SSE POE ae RAEN TORRE

14 Argument.

was filed, in paragraph 7 of which (R. 39) a fourth mate-

rial change was made in the alleged oral agreement. This

change was that the equalization was not to be confined

to the petitioner and John T. McLane alone, but was ex-

panded to include their immediate families as well. This

last change was manifestly made to fit the alleged oral

agreement into the immutable distribution agreement

(Exhibit 6). According to the distribution agreement

nothing approaching equalization between the petitioner

and John T. McLane was attained, because under that

written agreement petitioner was to get only 327 shares

whereas John T. McLane was to get back the 384 shares

which had belonged to him at the outset plus 219 other

shares, which added to 6 shares he held outside any

trust, gave him a total of 609 shares (R. 147, 558).

The petitioner manifestly is himself uncertain as to

the terms of the alleged cral agreement which he now

seeks to have specifically enforced and is willing to

swear to whatever seems expedient and to fit the alleged

oral agreement into facts which are immutable because

they are in writing. Are the learned Trial Court, who

saw the petitioner at length on the stand, and the unani-

mous Court of Appeals to be reversed because they re-

fused to accept the petitioner’s latest version of the

alleged oral agreement when the petitioner has so often

and so materially himself varied the terms of the alleged

oral agreement, the parties to it and the place where it

was made?

The petitioner’s discordant statements of the al-

leged oral agreement are rendered even more incredible

by the petitioner’s asseveration that though he was re-

lying solely upon his memory, he remembered that two

hour conversation of more than ten years before,

verbatim (R. 171). If the petitioner remembers the

conversation verbatim, why did he not state the alleged

oral agreement at first as he has finally?

——

Argument. 15

That the Court cannot rely upon the petitioner’s

credence is also proved by the petitioner’s testimony

that from Akron, Ohio, he and John T. McLane on June

24, 1937, first went to Lakewood, Ohio (which according

to the road map, Exhibit M (R. 486), is 8 miles west of

Cleveland on Lake Erie), and had more than an hour

conference there with Dr. Lawther before going to Mc-

Keesport, Pennsylvania. By what appears to be the

shortest route it is 41.2 miles from the Akron City Club

to the Lakewood Presbyterian Church and 15514 miles

from the Lakewood Presbyterian Church to the McLane

Company office on Sixth Avenue in McKeesport (R. 420-

422, 476-477, 485-487, 492 and see the road map, Exhibit

M, R. 486). In 1937 Akron and the Cleveland district

used Eastern Standard Time, but McKeesport used East-

ern Daylight Saving Time (R. 177, 384, 397, 467). For

convenience we shall translate all times hereinafter men-

tioned into Eastern Daylight Saving Time. According

to the petitioner, he and John T. McLane left Akron

about noon; drove to Lakewood, arriving there about

1:00 P. M.; left Lakewood between 3:00 and 3:30 P. M.;

drove back to Akron and stopped there about one-half

hour; then drove to the McLane Company office in Mc-

Keesport, arriving there between 7:00 and 8:00 P. M.;

left the McLane Company office between 8:30 and 9:00

P. M.; then ate dinner at the G. C. Murphy Company

cafeteria in McKeesport; then went to Mr. Farrell’s office

in McKeesport, arriving there between 10:00 and 11:00

P. M.; and left Mr. Farrell’s office about an hour later,

which would be between 11:00 P. M. and midnight (R.

137, 177-178, 191, 202). Not only is this contradicted by

John T. McLane, who testified that they drove directly

from Akron to McKeesport (R. 385), but also by three

disinterested witnesses and the probabilities according

to common experience.

—_— eee —

Mrs. Madden, now a housewife but in June, 1937,

the stenographer in the McLane Company office, testi-

fied definitely that she never worked beyond her quit-

ting “ime at 5 o’clock; that Messrs. Smith and John T.

McLane arrived at the McLane Company office about

half an hour before her quitting time; and that she

typed the list of McLane Company stockholders after

Smith and John T. McLane had arrived at the Mc-

Lane Company office (R. 446-448). In other words,

according to the clear testimony of this witness, the

petitioner and John T. McLane arrived at the office

of McLane Co., Inc., in McKeesport about 4:30 P.M.

They could not possibly have done that if they left

Akron about noon, had gone to Lakewood, Ohio, had a

conference for an hour or more there and then returned

to Akron for half an hour, as the petitioner testified.

No matter how fast the petitioner drives his automobile,

is it believable that petitioner could leave Lakewood,

Ohio, at 3:00 or 3:30 P.M. and arrive in McKeesport, a

distance of over 150 miles, at 4:30 P. M.? Going back

to Akron and stopping there for half an hour or so, as

the petitioner testified they did (R. 141, 202), would

have left not more than an hour to have driven from

Lakewood, 8 miles west of Cleveland, Ohio, to McKees-

port, 12 miles beyond Pittsburgh, Pennsylvania, a dis-

tance of over 150 miles (R. 487, 492). The petitioner

admitted that there was a woman clerk in the McLane

Company office when he and John T. McLane arrived

there on June 24, 1937 (R. 195). That woman must

have been Mrs. Madden, who never worked after 5

o’clock. If petitioner and John T. McLane had not ar-

rived at the McLane Company office until 7 or 8 o’clock,

as petitioner testified (R. 177), petitioner would not

have seen Mrs. Madden.

Can this Court believe that petitioner and the two

McLanes ate their dinner at the G. C. Murphy Company

cafeteria between 8:30 and 10:30 P. M., which would be

16 Argument.

—

Argument. 17

the earliest time possible according to the petitioner’s

testimony (R. 177-178)? That the restaurant in such a

store should be open so late at night is contrary to com-

mon experience, at least in the Pittsburgh district. The

hostess at the G. C. Murphy Company restaurant, Mrs.

Gerzenyi, forced in by subpoena, testified that as long

as she has been there, which is since 1935, the G. C.

Murphy Company cafeteria has closed at 2:00 P. M. and

the dining room at 7:30 P. M. (R. 404-405). If Messrs.

Smith and John T. McLane had gone to Lakewood first,

after leaving Akron at noon, and had had a conference

for an hour or more there, leaving Lakewood at 3:00 or

3:30 P. M., as the petitioner testified, they would never

have eaten their dinner at the G. C. Murphy Company

restaurant in McKeesport, Pennsylvania, the same day.

Instead of the meeting in Mr. Farrell’s office having

been between 10:00 P. M. and midnight, as the petitioner

testified (R. 178, 191), it was between 7:30 and 9:30

P. M. according not only to the two McLanes and Mr.

Farrell but also according to Miss Brieck, a disinterested

witness (R. 397-398, 410, 414, 471, 474, 482, 484). Miss

Brieck was only 17 at that time and testified that she

never worked beyond 9:30 at night (R. 398-399). Her

testimony was particularly impressive because, as the

Trial Judge could see, she was a pretty little girl who

might well have been in danger if she was out near

midnight, as she would have been under the petitioner’s

testimony. Furthermore, it is contrary to ordinary

experience to have a meeting in a lawyer’s office be-

tween 10 o’clock and midnight for the purpose of having

an agreement reduced to writing. If the meeting in Mr.

Farrell’s office was between 7:30 and 9:30 P. M., it

would have been impossible for the petitioner and John

T. McLane to have left Akron at noon, have gone to

Lakewood, Ohio, had an hour or two conference there,

and have had a conference in the McLane Company office

—

18 Argument.

for an hour or more, all on the same day, as the petii’oner

testified.

From the admitted fact that the petitioner and John

T. McLane did not leave Akron until noon, and the es-

tablished facts that they arrived at the McLane Company

office in McKeesport, Pennsylvania, about 4:30 P. M.,

ate at the G. C. Murphy Company’s restaurant which

closed at 7:30 P. M., and that the conference in Mr. Far-

rell’s office ended about 9:30 P. M., all on June 24, 1937,

the irresistible conclusion is that the petitioner and John

T. McLane did not go to Lakewood, Ohio, on that day.

There is no contention that the petitioner and John T.

McLane went to see Dr. Lawther on any other day re-

garding the alleged oral agreement which is now sought

to be specifically enforced and there is no reason why

they should have done so, because harmony was admit-

tedly restored that day, viz., June 24, 1937. It therefore

follows that Dr. Lawther must have been thinking about

some prior conversation with these two men. Dr.

Lawther admitted that he had had many conferences

with the petitioner and John T. McLane, both together

and separately, at which there were long discussions of

affairs relating to The Sun Rubber Company, including

the personal problems of the petitioner and John T. Mc-

Lane growing out of Sun business (R. 284-285, 290).

Dr. Lawther admitted also that he was a very busy man;

that he had had many conferences with people regarding

their troubles; that he was depending solely upon his

memory; and that he did not profess to be able to re-

member what had been said in his many conversations

with the petitioner and John T. McLane (R. 283-284).

Admittedly, there was a conference among Dr. Lawther,

the petitioner and John T. McLane regarding the peti-

tioner’s position at The Sun Rubber Company, but that

was in 1935 (R. 432). Admittedly also, there have been

discussions with Dr. Lawther regarding distribution of

the beneficial interests in the 1935 trust (R. 386). That

a |

Argument. 19

Dr. Lawther is mistaken is also indicated by the fact

that according to him it was agreed at the conference

which he had in mind that the 1250 shares were to be

divided among the stockholders of McLane Co., Inc., “On

the basis of the holdings which each one individually

had in the McLane Company.” (R. 288-289). A com-

parison of the distribution agreement (Exhibit 6, R. 147,

558) with the list of stockholders in McLane Co., Inc.,

on June 24, 1937 (Exhibit K, R. 470, 621), discloses that

the 1250 shares were not distributed in any proportion

to the stockholdings in McLane Co., Inc., on the same

date. The petitioner was alloted 327 shares in the dis-

tribution agreement, whereas he had only 118 shares in

McLane Co., Inc., on June 24, 1937, and all of the share-

holders other than the petitioner, Lawther and the Mc-

Lanes were allotted the same number of shares under

the distribution agreement as they owned in McLane

Co., Inc., without any participation whatever in the ex-

cess of 1250 shares of Sun stock over the 1057 shares of

McLane Co., Inc., stock then outstanding. We do not

contend that Dr. Lawther deliberately lied, which is the

most that we conceded at the trial as to any of peti-

tioner’s witnesses (R. 538), but we submit that his

recollection of what was said a decade or more ago is

not accurate and that he is extending other discussions

of parity beyond the proper application of that word

to this case, all of which is only human in view of the

length of time which has elapsed. Dr. Lawther’s testi-

mony on the subject of parity is very general. Nowhere

does Dr. Lawther say that it was agreed that if either

the petitioner or John T. McLane thereafter acquired

any Sun stock he would offer half of it to the other at

the price which he had paid for it. Undeniable facts

establish that the petitioner and John T. McLane did

not confer with Dr. Lawther on June 24, 1937; they could

not have told him of any parity agreement regarding

future stock acquisitions prior to that date because the

20 Argument.

agreement is not alleged to have been made until that

date, and there is no contention that the petitioner and

John T. McLane conferred with Dr. Lawther after June

24, 1937.

If Dr. Lawther knew that there was an agreement

between the petitioner and John T. McLane to maintain

parity after June 24, 1937, Dr. Lawther helped to break

that agreement because he admittedly sold 85 shares of

Sun stock to John T. McLane on December 17, 1943 (R.

347, 588). What has just been said applies also to peti-

tioner’s witness Mrs. Mackey, because on April 9, 1943,

she sold 50 shares to the petitioner, no part of which was

offered to John T. McLane until the eve of suit (R. 57).

Petitioner relies upon various vague statements re-

garding parity which John T. McLane is alleged to have

made. None of these alleged admissions was a full

statement of all the material terms of a complete con-

tract. None of the petitioner’s witnesses had any writ-

ten memorandum of any alleged admission (R. 234, 251,

283, 302). Mr. McLane denied having made any such

admissions (R. 385, 419, 426, 427). Human memory of

what was said years before is too unreliable, we respect-

fully submit, to reverse the finding of fact of a trial

court and Court of Appeals, particuiarly when their

finding is supported by cogent evidence such as has been

pointed out above in this brief. Aside from the general

inability of the human mind te remember accurately

what was spoken orally years before, there are specific

reasons for discounting the testimony of the petitioner's

witnesses. Space does not permit reference to all such

reasons. Some of them relating to Dr. Lawther have

already been mentioned. Petitioner’s witness Etling

denied categorically that he had ever given any written

statement to the petitioner’s lawyers (R. 254). In fact,

he had and had signed it (R. 254-255). Mr. Marion ad-

mitted that the petitioner is his “boss”, that the peti-

—

Argument. 21

tioner has authority to discharge him, that he takes his

orders from petitioner, and that he is dependent upon

his employment at Sun for his livelihood (R. 233). Mr.

Burke reluctantly admitted that he is a personal friend

of the petitioner and that most of the conversations be-

tween them regarding petitioner’s going to work for

The General Tire & Rubber Company took place in the

petitioner’s home (R. 308-309). That Mrs. Mackey is

a very close personal friend of the petitioner is admitted

(R. 78, 639). The testimony of these witnesses must be

weighed with their bias.

The testimony of Mrs. Mackey is inherently improb-

able. She says that she spoke to Mr. McLane only once,

and that was “a few weeks before the 1938 stockholders’

board meeting, or maybe a few days” (R. 267). It should

be remembered that harmony existed between the peti-

tioner and John T. McLane during 1938. Mrs. Mackey

continuing, says that she was concerned on account of

her investment in Sun stock and said to Mr. McLane “I

understood they were having a new man to put up for a

director who was not qualified and who was more or less

lined up with him, being a relative, and I wasn’t very

happy about the situation, and we talked at length about

it and Mr. McLane assured me he was going to keep his

agreement with Mr. Smith” (R. 268). Why Mr. McLane

would, when asked about a proposed new director, refer

to his alleged agreement with Mr. Smith, is incompre-

hensible. The question raised by Mrs. Mackey was the

fitness of the proposed new director. There was at that

time no question regarding petitioner’s remaining with

The Sun Rubber Company or any question whether John

T. McLane was going to keep his alleged agreement with

the petitioner. The first stock purchase by John T. Mc-

Lane about which any question is raised was the Carr

stock and that was not purchased by him until May 18,

1939—more than a year after Mrs. Mackey’s alleged con-

versation with Mr. McLane. There was therefore ab-

a SOIREE LILLE OTOL TIEM

22 Argument.

solutely nothing to call forth any statement by Mr.

McLane to Mrs. Mackey, admittedly a total stranger,

that he had any agreement to divide future acqusitions

of stock with the petitioner at the time when that state.

ment is said by Mrs. Mackey to have been made, viz.,

“a few weeks * * * or maybe a few days” before the

1938 stockholders’ meeting, which was on April 25, 1938,

The tricks that memory can play are illustrated by

petitioner’s repeated testimony that the office of McLane

Co., Inc., to which he and John T. McLane went on June

24, 1937, was on Ringgold Street (R. 110, 142). It was

proved, however, by the written lease (Exhibit B) and

finally stipulated (R. 407-408, 467-468) that the office

of McLane Co., Inc., has been at 431 Sixth Avenue since

at least February 1, 1936.

Neither John T. McLane nor Joseph L. McLane knew

on June 24, 1937, how many shares of Sun stock were

owned by petitioner or his wife (R. 431, 470). Neither

of the McLanes, therefore, could have known that the

327 shares which petitioner would eventually get under

the distribution agreement would result in petitioner

and his wife having 6 less shares than John T. McLane

then had and would get under the distribution agree-

ment. Neither of the McLanes saw petitioner’s compu-

tations (R. 471, 477-478). The McLanes denied that

anything was said at the McLane Company office on

June 24, 1937, to the effect that parity or equalization

of stock ownership between petitioner and John T. Mc-

Lane was to be accomplished (R. 409-410, 469-470).

Petitioner’s theory at the trial was that his leaving

The Sun Rubber Company placed it in such a dilemma

that John T. McLane was willing to agree to anything

to get him back. The record, however, supports a dif-

ferent conclusion. Admittedly, The Sun Rubber Com-

pany’s plant operated throughout the month of June,

1937 (R. 184). It is admitted also that M. S. Lower

was then the Vice President and General Manager of the

tei hh Tas an hee A Dat e bed

7—~”—”™

Argument. 23

Company and had been since 1924; that he was an ex-

perienced rubber production man and attended to all

buying, manufacturing and hiring of factory personnel,

and tha* he had at least one good customer (R. 57, 185).

The financial statements of the Company in evidence

show that it was in a healthy condition in 1937 (R. 443,

Exhibits H, I and J). The Company paid dividends in

March and December, 1937, aggregating $7.50 (R. 56).

The Company previously had operated satisfactorily

when the petitioner had been away for as long as a

month (R. 418). The unsubstantial nature of the peti-

tioner’s severance of relations with Sun and going to

work for General was admitted (R. 56-57). The only

way in which petitioner’s nominal quitting is alleged to

have prejudiced Sun was by suspension of a line of credit

which it had arranged less than two weeks before at a

new banking connection (R. 197-200). The necessity of

borrowing to carry on the Company’s operations was

nothing new (R. 58). The Company’s business was ad-

mittedly of a seasonal nature, building up inventory in

the spring and summer, which would move out quickly

in the fall (R. 185-186, 245). The Company engaged in

a building program about every other year which, to-

gether with the seasonal nature of its business, required

frequent loans (R. 245-246). John T. McLane testified

that he could himself have loaned the Company the

money to meet its next payroll, as he had done before

(R. 416-417). Petitioner’s evidence discloses that

$75,000 could have been borrowed from a Columbus in-

surance company in June, 1937 (R. 218). That amount

plus the $30,000 which had been borrowed from the

First-Central Trust Company on June 9, 1937 (R. 216),

exceeded the total of $90,000 which it was admitted by

stipulation was the maximum amount borrowed by the

Company during 1937 (R. 58). Finally, the uncontra-

dicted evidence is that the Peoples City Bank of McKees-

—

port was willing to loan The Sun Rubber Company as

much as $100,000 in June, 1937, — and that regardless

whether the petitioner remained with the Company or

not (R. 444-445). There was, therefore, no such finan-

cial crisis as would force John T. McLane to surrender

to any demand petitioner might exact.

24 Argument.

The truth, we respectfully submit, and the version

of the evidence which should be accepted under the au-

thorities hereinbefore* cited, is that petitioner was not

happy at The General Tire & Rubber Company, particu-

larly because he was not to receive as large a cash salary

there, because he was compelled to take orders there

from others, which he did not like, and because any in-

jury he did to The Sun Rubber Company would reduce

the value of the stock in that Company which he and his

wife owned; and that, therefore, after spending June 23,

1937, at the office of General he came to see his uncle at

the latter’s room in the Akron City Club and asked to

be taken back into the Sun organization; that he was

not in the position of exacting tribute for his return, but

on the contrary was asking for the forgiveness of his

uncle; that his uncle forgave him; and tiat the only

things agreed to be given to the petitioner were the num-

ber of shares allocated to him in the distribution agree-

ment (Exhibit 6, R. 147, 558) and the general manager-

ship and ultimately presidency of Sun, as provided in

Exhibit A (R. 171, 614). This is in accordance with

what John T. McLane testified the petitioner told him

on the evening of June 23, 1937 (R. 380-381), which tes-

timony it is significant was not contradicted in rebuttal.

That the petitioner was to receive a smaller cash salary

at General than he had been receiving at Sun appears,

contrary to the petitioner’s own testimony, from peti-

tioner’s witness Burke (R. 298).

* Ante, p. T.

S_"

Argument. 25

Summarizing this point, it is respectfully submitted

that because all other parts of the alleged oral agree-

ment were reduced to writing on the day the agreement

was made; because the presumption is that all that was

agreed upon was encompassed in the writings; because

of the evidence from an admittedly reputable witness

and others that petitioner joined in declaring that all

that had been agreed upon on June 24, 1937, was covered

by the two writings prepared and signed that day; be-

cause of the admitted fact that no written or oral de-

mand for any Sun stock purchased by John T. McLane

after June 24, 1937, was made until nearly nine years

later, when the value of Sun stock had risen; because of

the discordant versions of the alleged agreement sworn

to by the petitioner; because of the incredibility of the

petitioner’s asseveration that he remembers the two

hour conversation in which the oral agreement is alleged

to have been contained verbatim ; because the conduct of

the petitioner in not offering any of the 50 shares bought

by him from Mrs. Mackey on April 9, 1943, to John T.

McLane until two days before the suit was brought is

inconsistent with the existence of any such contract as

the petitioner now seeks to have enforced; because of

the specific reasons for discounting and rejecting the

testimony of the petitioner’s corroborating witnesses ;

and because of the other impossibilities and improbabili-

ties contained in the petitioner’s evidence pointed out

heretofore, it is respectfully submitted that the learned

Trial Court’s finding of fact that no oral contract was

made on June 24, 1937, that if petitioner or John T. Mc-

Lane should thereafter acquire any stock in The Sun

Rubber Company he would offer half of it to the other

at the price which he had paid for it, which finding was

concurred in by a unanimous Court of Appeals, cannot

be branded as “clearly erroneous” and that no “very ob-

vious and exceptional showing of error” has been made,

26 Argument.

particularly when due regard is given to the opportunity

of the Trial Court to judge of the credibility of the peti-

tioner, John T. McLane and the other witnesses who

appeared before him.

Il.

Petitioner Has Changed His Theory on Appeal

and His New Theory Should Therefore Not Be

Entertained.

Petitioner criticizes the learned Court of Appeals

for applying the “clean hands” equitable maxim “sponte

sua” on appeal, when in fact petitioner was himself re-

sponsible for that by changing his position from that

upon which his trial counsel presented his case in the

District Court. In the District Court petitioner’s trial

counsel took the position that there were three separate

causes of action. One was for specific performance of

the alleged oral agreement of June 24, 1937, that peti-

tioner and John T. McLane would each offer to the other

at cost half of all Sun stock thereafter acquired by him,

which petitioner’s trial counsel called a “parity” agree-

ment (R. 126). The second cause of action was for an

accounting of the trust created by the “Trust Agree-

ment” of July 9, 1935, by Joseph L. McLane, Reed H.

Albig and J. C. Peterson on account of alleged improper

payments of taxes and expenses and dispositions of

stock out of that trust (R. 127). The third was for an

alleged loan of 6 shares of Sun stock (R. 132). Petition-

er’s trial counsel admitted that the issue regarding the

alleged parity agreement was separate from that relat-

ing to the alleged breaches of trust. Thus petitioner's

counsel at the trial said to the Court (R. 132):

“It will be observed that this second cause of

action is separate from the parity agreement, be-

cause even if the parity agreement didn’t exist at

——

ee ee ree

Argument. 27

all, this cause of action exists with respect to the

administration of the trust.”

Subsequently, petitioner’s counsel again informed

the Trial Court (R. 516):

“Mr. Denby: I repeat what I said before, Your

Honor. There are two separate issues, really, in

this case. The one issue is on the parity agreement.

As to that, I concede that the banks are not in-

volved. The other branch of the case, which hasn’t

been completed or even really gone into yet, is the

accounting feature * * *.”

Also showing that petitioner at the trial did not try

to link the alleged oral agreement to divide future

acquisitions of Sun stock with any breach of trust is

his assertion that “the whole intent” of said alleged

oral agreement “was to persuade Smith to come back to

the Sun Rubber Company” (R. 209). Petitioner reiter-

ated the same position elsewhere (R. 206, 207). “The

consideration” for the agreement in dispute said peti-

tioner’s trial counsel “was that Mr. Smith should give

up his position with General and return to the Sun Rub-

ber Company” (R. 530), without mention of any alleged

breach of trust. Petitioner was pictured by his trial

counsel as a “star salesman” and capable executive

whose services were indispensable to The Sun Rubber

Company, and not as a pitiful beneficiary who dealt at a

disadvantage with an overbearing trustee (R. 71, 531).

Petitioner also admitted at the conclusion of the

trial that the only issue then before the Court “is a very

simple and precise issue” (R. 520). That issue was then

stated by petitioner’s counsel as follows (R. 521-522) :

“We are faced here with that difficult thing, an

oral agreement, and especially an oral agreement

made a good many years ago. There is no dispute

that there is nothing in writing, which spells out

this agreement. Accordingly, we have the testi-

we ie

SEALE SAR HEN ay PPLNET

——ag

mony of the plaintiff who says, ‘We made this

agreement’, the testimony of the defendant that

says, ‘We did not make this agreement’.”

28 Argument.

Now, however, petitioner seeks to reverse his posi-

tion and link the parity agreement with alleged breaches

of the 1924 trust by John T. McLane, and it was this

new argument that led the Court of Appeals to allude

to the clean hands doctrine (R. 683, 174 F. 2d at 821).

Petitioner thereby apparently seeks to transfer to John

T. McLane the burden of proof on the question whether

there was such an oral agreement made as petitioner

seeks to have specifically enforced. It was not disputed

in the District Court that the burden of proving the ex-

istence of that agreement was upon the petitioner.

Thus, the first subdivision of argument in “Plaintiff's

Trial Brief” furnished to the District Court after the

trial was headed “The plaintiff has met the burden of

proof of establishing the oral agreement and its breach.”

Under that heading petitioner said “In equity the bur-

den of proof upon the plaintiff is no different from that

which prevails at law.” (Emphasis added.) In support

of the last statement petitioner then quoted 8 Standard

Pennsylvania Practice § 359 and from Henry on Penn-

sylvania Trial Evidence (3 ed.), pp. 638-640. Nowhere

was any such theory advanced in the District Court as

is now presented in petitioner’s brief. With change of

counsel for the petitioner in the Court of Appeals the

theory of his case also changed.

The question whether petitioner and John T. Mc-

Lane agreed on June 24, 1937, that each would offer to

the other half of any Sun stock which he thereafter ac-

quired at its cost to him, is, as petitioner’s counsel ad-

mitted at the trial, wholly independent of any trust ques-

tion. The stock in the trust was covered by the written

“Distribution Agreement” (Exhibit 6, R. 147,558). The

alleged oral agreement sought to be specifically enforced

—

Argument. 29

relates to stock of third parties which eith - petitioner

or John T. McLane might thereafter purchase with his

own funds.

The petitioner should not under well settled princi-

ples of appellate practice be permitted to change his

theory on appeal by contending now that John T. Mc-

Lane committed a breach of trust and that this shifts

the burden of proof on the question whether an oral

contract was made between petitioner and John T. Mc-

Lane on June 24, 1937, that each would offer to sell

the other half of any Sun stock he thereafter acquired

at the price which he paid for it, which was the only

issue left with the Trial Judge at the conclusion of the

testimony, as petitioner’s counsel then admitted, and

which issue petitioner’s own counsel then described as

“a very simple and precise issue” (R. 520).

This Court has long and consistently held, as have

other appellate courts, that it will not review a case on

a different theory than that upon which it was presented

to the trial court or consider a question which was not

submitted to the trial court: U.S. v. Le Baron, 60 U. S.

73; Thomas v. Taylor, 224 U. S. 73, 84; Dayton-Goose

Creek Railway v. U. 8., 263 U. S. 456, 486; U. S. v. Atkin-

son, 297 U. S. 157, 158-159; Howitt v. U. 8., 328 U. S. 189,

191-192, footnote 3. This rule has been expressly ap-

plied to prevent a plaintiff who had assumed the burden

of proof at the trial from contending on appeal that the

burden should have been carried by the defendant: Ken-

tucky Vermillion M. & C. Co. v. Norwich U. F. Ins. Soc.,

146 Fed. 695, 702 (C.C.A. 9); Spokane I. Fair Ass’n. v.

Fidelity & Deposit Co., 15 F. 2d 48 (C.C.A. 9); U.S. v.

Peterson, 34 F. 2d 245, 250 (C.C.A. 10) ; Raiche v. Stand-

ard Oil Co., 137 F. 2d 446, 449 (C.C.A. 8).

The only alleged breach of trust by John T. McLane

and by which it is sought to affect disposition of the

question of fact whether such an agreement was made

as TEPER LIM AGE

—

as is sought to be specifically enforced was by his “pledg-

ing” 1634 shares of Sun stock to secure three McKees-

port banks. There was no breach of trust by John T

McLane in pledging the stock to the banks, because 384

of those shares admittedly belonged to him personally

and all rights in the remaining 1250 shares of McLane

Co., Inc., and therefore of its stockholders, had ceased

in 1932 (R. 73, 430, 619). The “pledging” was done

solely by the “Trust Agreement” of July 9, 1935 (R. 53,

59-62, 133). Before July 9, 1935, John T. McLane had

become the owner individually of the 1250 shares by the

contract dated December 29, 1932, between him and

McLane Co., Inc., Exhibit G (R. 430, 619), pursuant to

which he endorsed and guaranteed the notes of that

Company at the banks and gave a $50,000 mortgage on

his individual real estate and in consideration whereof

McLane Co., Inc., transferred to him its beneficial own-

ership in said 1250 shares. Petitioner stipulated that

said contract had been authorized by the Board of Direc-

tors of McLane Co., Inc., (R. 476), and no question re-

garding the validity of that transfer was raised at any

time during the trial. Petitioner himself as secretary

signed the new certificate transferring the 1250 shares

out of the name of “John T. McLane Trustee” and also

a new certificate for those 1250 shares in 1934 (See cer-

tificates Nos. 139 and 261 in petitioner’s Exhibits 8 and

10, R. 157, 163, 671-672). At the trial petitioner re-

; peatedly took the position that what occurred before

July 9, 1935, was not material and that the starting

point so far as he was concerned was that date (R. 129,

PY 430, 462-463). Petitioner also repeatedly took the posi-

tion at the trial that it was no longer material whether

the 1250 shares were issued to John T. McLane in trust

for McLane Co., Inc., or its individual stockholders, be-

cause the distribution agreement (Exhibit 6, R. 147,

558) had settled the persons ultimately entitled to that

stock (R. 73,128,463). John T. McLane testified that the

30 Argument.

TT rene ees

LUE AR SCTE PRE EERIE EAL VENT IL LYON IES LLIN LIPO PO IN De AD DS SS

—eEeESV7-7”—

Argument. 31

1250 shares were issued to him in trust for McLane Co.,

Inc. (R. 462-464), and that was confirmed by the

written declaration of the trust made in 1929 (R. 54).

Petitioner stipulated that the distribution agreement

was a valid and binding legal agreement (R. 464), but

it could not be that if the 1250 shares were held by John

T. McLane in trust for the individual stockholders of

McLane Co., Inc., because the three stockholders who

entered into the distribution agreement patently could

not eliminate the interests of other stockholders in

the excess of the 1250 shares over the 1057 shares of

McLane Co., Inc., then outstanding, as comparison of the

distribution agreement (R. 147, 558) with Exhibit K

(R. 470, 621) will demonstrate was in fact accomplished

by the distribution agreement. In other words, the dis-

tribution agreement could only be valid if John T. Mc-

Lane had previously become the complete owner of the

1250 shares and therefore had the right to put them in

the trust of July 9, 1935, which reserved to him a general

power of appointment over those shares after the banks

had been paid. Accordingly, when John T. McLane first

“pledged” the 1250 shares to the banks he was the sole

owner of those shares and had the right to pledge them

for his own obligations (though most of them were in

fact for McLane Co., Inc., and some for The Sun Rub-

ber Company, R. 350-357). The arguments in petition-

er’s brief based on a defaulting trustee who has violated

his trust, therefore, have no basis in fact on this record.

Furthermore, the distribution agreement which

petitioner signed, in its opening paragraph in effect rati-

fies the trust agreement of July 9, 1935, by providing

that it should be carried out in accordance with its

terms (R. 147, 558). Petitioner admitted that he agreed

that the 1634 shares should remain pledged to the banks

until their obligations had been fully discharged (R.

189). As secretary of The Sun Rubber Company peti-

——

32 Argument.

tioner in 1935 signed the stock certificates transferring

the 1250 shares to “Josie E. McLane and Joseph L. Mc-

Lane Trustees and their Successors under Trust Agree-

ment of July 9, 1935” (See certificates Nos. 289 and 290

of Exhibit 8, R. 157, 673-674). There can be no doubt,

therefore, that petitioner agreed to the “pledging”’.

The only breaches of trust relied upon by the peti-

tioner at the trial were those alleged to have been com-

mitted after June 24, 1937, by the trustees (of whom

John T. McLane was never one) of the trust created by

the instrument of July 9, 1935, and it was of that trust

that the accounting was asked and granted (R. 42-43,

68-69, 518, 637). Petitioner admitted at the trial that

the trust for which the 1250 shares had been originally

issued to John T. McLane in 1924 was “A wholly differ-

ent trust” than the one of 1935 (R. 324).

Petitioner’s one-day “leaving” of The Sun Rub-

ber Company’s employment did not immediately follow

his discovering the “pledging” of stock to the McKees-

port banks, as one would think from petitioner’s brief

(p. 14). Two years elapsed between those two occur-

rences (1935 until 1937) and the events which immedi-

ately preceded his unsubstantial leaving were described

by petitioner himself as several months of bickering

over the manner in which The Sun Rubber Company’s

business should be conducted (R. 104, 110).

John T. McLane did not have any knowledge su-

perior to the petitioner as to the owners of Sun stock,

who would be the only persons from whom it could be

acquired, or of the value of Sun stock. Petitioner has

been Secretary and Treasurer of The Sun Rubber Com-

pany since 1928 (R. 52) and as such has had custody of

the Company’s stock transfer books (R. 180) and other

records which would enable him to know at least equally

as well as Mr. McLane who owned The Sun Rubber Com-

pany’s stock and who might therefore have it for sale,

. eyy LUCE ge ee A

EP AEL EE, SORES IPL LL OAELECE LIES EELS OF

re ee — =

ES_

Argument. 33

and what it was worth. Petitioner also had the distribu-

tion agreement (Exhibit 6, R. 147, 558), from which he

could tell who had any beneficial interests in Sun stock

and from whom, therefore, they might be bought.

The petitioner, therefore, had at least as much knowl-

edge as John T. McLane after June 24, 1937, where and

at what price to buy Sun stock and the same opportunity

to do so. Now, however, that Sun stock has risen

greatly in value, petitioner would like to get half of the

shares which his uncle bought at the comparatively

favorable prices paid for them by his uncle years ago.

It is significant that no authority whatever is cited

in petitioner’s brief for his contention that any breach

of trust allegedly committed by John T. McLane had the

effect of shifting to him the burden of disproving that

he had made an agreement with petitioner to divide fu-

ture acquisitions of stock at cost or to prove that he had

made a fair agreement with petitioner. No authority to

support any such contention on the facts of the case at

bar, we respectfully submit, can be found. No fiduciary

relation existed between petitioner and John T. McLane

on June 24, 1937, when the agreement of which specific

performance is sought is alleged to have been made. No

fiduciary relation or “trust principles” enter into the

question whether petitioner and John T. McLane orally

agreed on June 24, 1937, that each would sell to the other

half of any Sun Rubber Company stock which he there-

after acquired at the same price which he had paid for it.

Petitioner’s arguments based on his posing as a

“wronged beneficiary” and John T. McLane maligned as

a “violating trustee” should be rejected because they

were not presented to the Trial Court, because they have

no basis in fact, and because they are irrelevant to the

only issue raised on appeal.

= ORAS ORI AD RT

34 Argument.

Ill.

Consideration of “Clean Hands” Maxim not

Necessary.

The Court of Appeals did not pinion its decision to

the equitable maxim that he who seeks the aid of a

court of equity must come with clean hands. The para-

mount and self-sufficient reason for the affirmance by the

Court of Appeals was that it concurred in the crucial

finding of fact of the Trial Court that petitioner and

John T. McLane did not orally agree on June 24, 1937,

that each would offer to the other, at the price which he

had paid for it, half of any stock in The Sun Rubber Com-

pany which he thereafter acquired. That the Court of

Appeals regarded the finding of fact of the Trial Court

that no such oral agreement had been made, since that

finding could not be adjudged “clearly erroneous”, .s

itself a sufficient reason requiring the affirmance of the

judgment of the District Court appears from the con-

cluding clause of the paragraph of the opinion of the

Court of Appeals referring to the “clean hands” maxim.

That clause is as follows (R. 684, 174 F. 2d at 822):

“* * * nor can he [petitioner] prevail here under

any theory, in view of the specific finding that no

such agreement was made.”

That the Court of Appeals based its affirmance on

the finding of fact that no such agreement was made as

is sought to be specifically enforced, irrespective of any

other reasons, also appears from the summation of its

opinion, which is as follows (R. 684, 174 F. 2d at 822):

“* * * we must conclude that the critical finding

of fact by the district judge, amply supported by

credible evidence, is dispositive of this appeal. The

judgment will accordingly be affirmed.”

The reference by the Court of Appeals to the “clean

hands” maxim was merely an additional reason for its

—7_""

Argument. 35

decision and wholly unnecessary. What the petitioner

sought by his appeal to the Court of Appeals and what

he now seeks by applying to this Court for a writ of

certiorari, is specific performance of an alleged oral con-

tract between him and John T. McLane that each would

offer to the other at cost half of any Sun Rubber Com-

pany stock which he thereafter purchased. If the find-

ing of fact that no such oral agreement was made is sus-

tained, that is fatal to petitioner’s case, without invoking

other reasons. It is also unnecessary to consider the

“clean hands” maxim because, as shown above", there

was no breach of trust by John T. McLane or any fidu-

ciary relation between him and petitioner when the oral

agreement sought to be specifically enforced is alleged

to have been made. In referring to the “clean hands”

maxim the Court of Appeals was merely proceeding

arguendo on the hypothetical assumption that there had

been a breach of trust by John T. McLane, as expressly

appears from its opinion (R. 683, 174 F. 2d at 821).

Since the allusion by the Court of Appeals to the

“clean hands” maxim was wholly unnecessary to its de-

cision and its affirmance on the crucial question of fact

whether an oral agreement such as is sought to be spe-

cifically enforced was made is sound, consideration by

this Court of the questions sought to be raised by the

petitioner regarding the “clean hands” maxim would be

academic. This Court affirms a correct decision of a

Court of Appeals even though this Court does not agree

with the reasons given by the Court of Appeals: Riley

Investment Co. v. Commissioner, 311 U. S. 55, 59. The

denial of a certiorari does not even rise to the dignity

of an affirmance and imports no expression of opinion

upon the merits of the case: Hamilton-Brown Shoe Co.

v. Wolf Bros. é Co., 240 U. S. 251, 258; U. S. v. Carver,

* Ante, pp. 29-32. -

———

36 Argument.

260 U. S. 482, 490; House v. Mayo, 324 U. S. 42, 48:

Sunal v. Large, 332 U. S. 174, 181.

IV.

Court of Appeals Correct Regarding “Clean

Hands” Maxim.

While consideration of the questions sought to be

raised by the petitioner regarding the “clean hands”

maxim is unnecessary to e decision of this case, a brief

of counsel should, we believe, cover those questions.

Petitioner contends first that the Court of Appeals

had no right “sponte sua” to invoke the fundamental

equitable maxim that he who seeks the aid of a court of

equity must not himself have been guilty of any iniquity

in the subject matter of the litigation. On the contrary,

it is well settled that a Court of Appeals or this Court

may affirm for any reason disclosed by the record,

though it was not raised in or considered by the court

below: Collier v. Stanbrough, 6 How. 14, 21; Helvering

v. Gowran, 302 U. S. 238, 245; LeTulle v. Scofield, 308

U. S. 415, 421; Riley Investment Co. v. Commissioner,

311 U. S. 55, 59; Park Lane Dresses v. Houghton &

Dutton Co., 54 F. 2d 33, 37 (C.C.A. 1); McBrine Co. v.

Silverman, 121 F. 2d 181, 182 (C.C.A.9). New York Life

Ins. Co. v. Calhoun, 114 F. 2d 526, and the other cases

cited in petitioner’s brief (p. 18) do not hold differently

or sustain the petitioner’s contention that the Court of

Appeals erred in assigning an additional reason for its

affirmance “sponte sua”. Those cases hold that an appel-

late court will not reverse on a ground which was not

raised in the trial court. The Court below did not depart

from that rule; on the contrary it is the petitioner who

is trying to violate that rule by arguing the issue

whether such an oral agreement as is sought to be spe-

cifically enforced was in fact made upon a different

aes a aa iain : — S . AEC own I

Argument. 37

theory on appeal than it was argued in the Trial Court.

Fountain v. Filson, 336 U. S. 681, is in accord with the

principle that an appellate court should not reverse on

an issue not raised in the trial court. In Fountain v.

Filson the only issue litigated in the District Court was

whether there was a resulting trust in plaintiffs’ favor.

That issue was decided by the District Court in favor of

the defendants and the Court of Appeals agreed with

that decision, but went further and held that there was

a personal liability on the defendants to repay the plain-

tiffs a certain sum of money, and directed the District

Court to enter a personal money judgment for that

amount in favor of the plaintiffs and against the defend-

ants. To the extent that the Court of Appeals in that

case went beyond affirming the judgment below it was

clearly wrong, but finds no counterpart in the case at

bar. If the Court of Appeals in Fountain v. Filson had

simply affirmed the judgment of the District Court, as

the Court of Appeals did in the case at bar, it is mani-

fest from this Court’s opinion that it would not have

reversed.

The maxim that equity will not lend its aid to a

suitor with unclean hands is such a fundamental prin-

ciple for the protection of the court itself that it has

- been expressly recognized that a court of equity may

invoke that maxim sua sponte. Thus in American Ins.

Co. v. Lucas, 38 F. Supp. 926, affirmed in 129 F. 2d 143

(C.C.A. 8), app. dis. 314 U. S. 575, a three judge court

in refusing equitable relief said (p. 934) :

“In applying the maxim requiring equity from one

seeking equity the court is concerned primarily with

the rights and duties of the parties inter sese. In

applying the ‘clean hands’ maxim the court is con-

cerned primarily with protecting its own integrity

from improper action by a party. The former arises

upon the pleading of a party (usually defendant*

aS ee ee er ee Ra ee

38 Argument.

against whom a fraud has been committed. The

latter need not be even pleaded; may come to the

attention of the court in any way; and the court will

act sua sponte.”

In Precision Instrument Mfg. Co. v. Automotive M.

Machinery Co., 324 U. S. 806, this Court in enforcing

the clean hands maxim said (p. 815):

“This maxim necessarily gives wide range to

the equity court’s use of discretion in refusing to

aid the unclean litigant. It is ‘not bound by formula

or restrained by any limitation that tends to

trammel the free and just exercise of discretion.’”

That the clean hands maxim was not pleaded or

argued in the District Court does not prevent the Court

of Appeals from invoking it: Primeau v. Granfield, 193

Fed. 911, 913 (C.C.A. 2); Frank Adam Electric Co. v.

Westinghouse E. & M. Co., 146 F. 2d 165, 167 (C.C.A. 8);

American Ins. Co. v. Lucas, supra. The first of those

cases was a bill in equity for an accounting between two

men who had been engaged in the fraudulent sale of

stock to third persons. The Court of Appeals dismissed

the bill because of the plaintiff’s unclean hands, notwith-

standing that that principle had not been pleaded or

argued by the defendant in the trial court, and even

though it was third persons rather than the defendant

who had been injured by the fraudulent transactions.

The Court said (p. 913):

“But from the very nature of the fundamental

principles involved it is manifest that the question

is deeper than one of pleading. The court must con-

sider it not because it is a matter of defense to the

defendant but because it is against public policy to

hear the case if the charge be established. The

court acts for its own protection rather than for the

protection of the defendant. When fraud or illegal-

ity is disclosed in a case, public policy requires 4

—

Argument. 39

court to refuse its aid irrespective of the state of

the pleadings and regardless of the fact that with

fraud and illegality absent the plaintiff might

appear entitled to relief.”

The applicability of the clean hands maxim was ex-

pressly argued orally before the Court of Appeals. Peti-

tioner’s counsel then had no satisfactory answer to the

Court’s inquiries regarding the applicability of that

maxim, and this though the petitioner was accorded

additional time beyond the ordinary for his oral argu-

ment.

Petitioner contends that the clean hands maxim

does not apply to the case at bar because the agreement

which he made on June 24, 1937, evidenced by the so-

called “Distribution Agreement” (Exhibit 6, R. 147,

558), did not defraud John T. McLane since he agreed

to it, but only third parties, viz., the other stockholders

at that time in McLane Co., Inc. Whether the clean

hands maxim bars a plaintiff's claim to specific per-

formance affects the remedy for enforcement of the

contract, and is therefore a procedural matter governed

by the lex fori: Watson v. Brewster, 1 Pa. 381, 385.

That the lex fori should govern is reinforced by the

accepted principle that specific performance is an extra-

ordinary remedy which is not of right but of grace,

resting in the sound discretion of the equity court and

that it will not be granted where there are circumstances

rendering it inequitable: Friend v. Lamb, 152 Pa. 529,

533, 25 A. 577, 578; Girard Mammoth Coal Co. v. Raven

Run Coal Co., 275 Pa. 439, 443, 119 A. 495, 496; Hennessy

v. Woolworth, 128 U. S. 438, 442. That the lex fori

should govern the question whether the remedy of speci-

fic performance is barred by unclean hands also is con-

sonant with the statements in American Ins. Co. v.

Lucas, supra, and Primeau v. Granfield, supra, that a

court invokes the clean hands maxim for its own pro-

[as TRIE BELL TNS ERENT NEN ORT

——

40 Argument.

tection. Petitioner’s trial counsel admitted that it was

the Pennsylvania Statute of Frauds, Statute of Limita-

tions and doctrine of laches which apply to this case (R.

530, 533). If the Pennsylvania doctrine of laches ap-

plies, the Pennsylvania law respecting the clean hands

doctrine should also apply, for they are both equitable

doctrines affecting the question whether a remedy should

be granted. Consequently, the Pennsylvania law de-

termines the applicability of the clean hands doctrine.

It is clear that in Pennsylvania the clean hands

doctrine applies even though it is a third person and not

the defendant who was injured by the plaintiff’s inequi-

table conduct. It has been repeatedly held in Pennsyl-

vania that where the plaintiff conveyed his property to

the defendant in order to defraud the plaintiff’s cred-

itors, the courts will not specifically enforce the defend-

ant’s agreement to reconvey the property to the plain-

tiff after the danger from the creditors had passed, or

enforce any other contract which had for its object

evasion of the plaintiff’s creditors: Hershey v. Weiting,

50 Pa. 240; Hukill v. Yoder, 189 Pa. 233, 42 A. 122:

Smart v. Baroni, 360 Pa. 296, 61 A. 2d 860; Estate of

Elke Dayen, 97 Pa. Superior Ct. 250. In all of those

cases it was not the defendant but only third persons

who were injured by the plaintiff’s misconduct. Never-

theless in every one of them relief was denied the plain-

tiff because he came into a court of equity with unclean

hands.

It has also been held in Pennsylvania that an agree-

ment between two lien creditors whereby one of them

abstains from bidding at an execution sale of their

debtor’s property will not be enforced: Slingluff v.

Eckel, 24 Pa. 472; Bartonev. Benson, 126 Pa. 431, 17 A.

642. It is clear in those cases also that it was not the

defendant who was injured. It was a third party, the

debtor.

Argument. 41

Reynolds v. Boland, 202 Pa. 642, 52 A. 19, is another

case which clearly shows that the petitioner errs in

stating that under Pennsylvania law “The wrong must

have been done to the defendant himself and not to some

third party” in order that the clean hands maxim may

be invoked. Reynolds, Boland and one Stetler were

organizing a corporation to mine coal on leases which

belonged to Stetler and which he was to transfer to the

new company. Animosity developed between Reynolds

and Stetler to the extent that Stetler refused to pro-

ceed with the organization of the corporation unless

Reynolds withdrew from it. Reynolds ostensibly with-

drew by assigning his interest to Boland, but Boland

agreed on June 3, 1899, that after the corporation had

been formed he would transfer to Reynolds out of the

stock issued to him (Boland) the number of shares

which it was originally intended that Reynolds should

get. Reynolds sued for specific performance of Boland’s

agreement to transfer the stock to him, but his bill was

dismissed because of his unclean hands. In affirming

the dismissal of the plaintiff’s bill, the Supreme Court of

Pennsylvania expressly recognized that it was not the

defendant Boland who was wronged by the plaintiff, but

a third party, Stetler. Thus, the Supreme Court of

i Pennsylvania said (pp. 649-650) :

is “It is not pretended that, in the agreement of

June 3, 1899, Reynolds and Boland tried to take

advantage of each other, or that either was attempt-

ing any fraud upon the other. Its sole purpose was

the deception of Stetler, to enable Reynolds to ac-

complish through it what was apparently impos-

sible without it. But this does not relieve it from

its baseness, and in it there is no equity for the

plaintiff. . . . Stetler is to be wronged. The

compact of June 3, 1899, was for that purpose. It

is still executory, and equity frowns at the mere sug-

gestion of its enforcement. Both parties to it are

+ Tia 8 en Gy URE LSA ETP OR INR ANTI

—

42 Argument.

parties to its iniquity, and neither has any equity

against the other. ‘Who comes into equity must

come with clean hands. In pari delicto melior est

conditio defendentis. These are the principles which

stand in the plaintiff's way. . . . Who does in-

iquity shall not have equity; equity has no relief

for a party who, in the practice of one fraud, has

become the victim of another.’ ”’

None of the Pennsylvania cases cited in the peti-

tioner’s brief (p. 21) contains any statement to the effect

that the injury must have been done to the defendant,

rather than to a third person, in order that the clean

hands doctrine apply. While in some of them the injury

was in fact done to the defendant there is no holding

that the clean hands doctrine is confined to such cases.

We respectfully submit that those cases do not support

petitioner’s assertion (p. 21) that his quotation from

2 Pomeroy’s Equity Jurisprudence, § 399, “represents

the law in Pennsylvania as stated by its Supreme Court.”

The last seven Pennsylvania cases cited above in this

brief affirmatively show that petitioner’s assertion is

erroneous.

While the Ohio law, we believe, is immaterial for

the reasons outlined above*, we submit that there also

the clean hands doctrine applies to cases in which the

party wronged by the plaintiff’s inequitable conduct was

a third person, and not the defendant. It has been ex-

pressly held in Ohio, as in Pennsylvania, that a plain-

tiff who conveyed his property to the defendant in order

to hinder, delay or defraud the plaintiff’s creditors will

not be aided by a court of equity in compelling the de-

fendant to return the property to the plaintiff: Pride

v. Andrew, 51 Ohio St. 405, 38 N. E. 84; Kihlken v.

Kihlken, 59 Ohio St. 106, 51 N. E. 969; Berner v. Dia-

* Ante, pp. 39-40.

Argument. 43

mond, 48 Ohio Law Abs. 505, 74 N. E. 2d 568. Third

persons and not the defendant were the ones wronged

in each of those cases.

Cody v. Landis, 68 Ohio App. 225, 40 N. E. 2d 209,

is another Ohio case in which the clean hands maxim

was applied, notwithstanding that the plaintiff’s mis-

conduct was designed to injure third parties and not the

defendant. That was a suit for specific performance

of a written contract for the sale of real estate. The

purchase price specified in the sale agreement was

$3,200 but plaintiff tendered only $2,025, contending

that the latter was the price actually agreed upon and

that the larger figure had been inserted in the sale agree-

ment simply to assist him in borrowing more money on

the security of the property or selling it at a greater

profit than he could if the rea! purchase price had been

stated in the agreement. Specific performance was re-

fused, inter alia, on the ground that plaintiff was guilty

of inequitable conduct which precluded him from relief

by way of specific performance in a court of equity. The

Court also held in this case that it could invoke the

clean hands maxim sua sponte, saying (p. 231) :

“* * * this court, in the exercise of its appellate

jurisdiction in the trial of chancery cases, may,

either upon motion of a party, or sua sponte, dis-

miss a petition where consideration of all the plead-

ings reveals that the petitioner has no cause of

action, or does not come into court with clean hands,

and a petition may be dismissed on the latter ground

irrespective of whether the defendant has invoked

the clean hands maxim.”

In the Federal Courts it is also true that the clean

hands doctrine applies notwithstanding that the injury

was to a third person and not to the defendant. It has

been held by this Court, just as in Pennsylvania and

Ohio, that specific performance will not be granted of

aa PERE SP A NPE GREE BEE ENS OPA LSM CAL NN PR:

en TR St ee

44 Argument.

a contract made to defraud creditors: Dent v. Ferguson,

132 U. S. 50, 64. Other illustrations of cases in which

this Court has applied the clean hands maxim notwith-

standing that third persons and not the defendant were

the injured ones are Selz v. Unna, 6 Wall. 327; Manhat-

tan Medicine Co. v. Wood, 108 U. S. 218, and Precision

Instrument Mfg. Co. v. Automotive M. Machinery Co.,

324 U. S. 806. In Selz v. Unna, supra, the plaintiff

sought enforcement of an agreement that the defendant

would not collect from him if he (plaintiff) did not de-

fend a prior suit which the defendant had brought

against four persons of whom the present plaintiff was

one. Relief was denied, inter alia, because plaintiff's

hands were not clean. The persons intended to be in-

jured there were the other three defendants in the orig-

inal action, and not the present defendant. Expressly

recognizing that the clean hands maxim applies where

third persons, and not the defendant, are the intended

victims of the plaintiff’s misconduct, this Court said

(p. 336):

“Parties are not only bound to act fairly in

.their dealings with each other, but they are not to

expect the aid of a court of equity to enforce an

agreement made with the intent that it shall operate

as a fraud upon the private rights and interests of

third persons.”

In 2 Pomeroy’s Equity Jurisprudence (5 ed.) § 401,

the author contradicts the statement in Section 399

which is quoted in petitioner’s brief (pp. 20-21) and

upon which petitioner so heavily relies. In Section 401,

still dealing with the clean hands maxim, Pomeroy says: .

“Upon the same principle, wherever one party, in

pursuance of a prior arrangement, has fraudulently

obtained property for the benefit of another, equity

will not aid the fraudulent beneficiary by compelling

a conveyance or transfer thereof to him; and gen-

a as i ape APA PLS 7

Argument. 45

erally, where two or more have entered into a fraud-

ulent scheme for the purpose of obtaining property

in which all are to share, and the scheme has been

carried out so that all the results of the fraud are

in the hands of one of the parties, a court of equity

will not interfere on behalf of the others to aid them

in obtaining their shares, but will leave the parties

in the position where they have placed themselves.”

This quotation unquestionably refers to cases in

which a third person, and not the defendant, has been

injured by the fraud in which the plaintiff participated.

In support of the last quotation Pomeroy cites Reynolds

v. Boland, 202 Pa. 642, 52 A. 19, supra,” which was a

clear case of injury to a third person. What has been

said herein about Pomeroy’s Equity Jurisprudence

applies to other texts on the subject as well.

Regardless of any conflict of laws question, it is

clear that the equitable maxim that he who comes into

equity must do so with clean hands applies to the case

at bar notwithstanding that it was other stockholders

of McLane Co., Inc., rather than John T. McLane, who

were injured by the agreement entered into on June 24,

1937, between petitioner and John T. McLane. That

most of the stockholders in McLane Co., Inc., were de-

frauded by the part of the agreement of June 24, 1937,

reduced to writing in the “Distribution Agreement”

(Exhibit 6, R. 147, 558), if petitioner were right that the

1250 shares of Sun stock issued to John T. McLane on

October 15, 1924, were in trust for the individual stock-

holders of McLane Co., Inc. (which contention was aban-

doned by him at the trial, R. 73, 128, 462-463), can be

seen by comparing said “Distribution Agreement” with

the list of stockholders in McLane Co., Inc., on the same

date (Exhibit K, R. 470, 621). If the 1250 shares of Sun

* Ante, p. 41.

stock were held in trust for the individual stockholders

in McLane Co., Inc., each of the latter should have re.

ceived that number of Sun shares which bore the same

proportion to his stockholdings in McLane Co., Inc., as

1057 bears to 1250. Thus, W. H. Copeland should have

been allotted 50 shares in the “Distribution Agreement”

instead of the 50 actually allotted to him in that instrv-

ment (R. 558). In fact, however, each stockholder listed

in the “Distribution Agreement”, beginning with C.

Albert Ball, was allotted only the same number of Sun

shares as he had in McLane Co., Inc.. thereby depriving

him of his interest in the excess of the i250 Sun shares

over the 1057 McLane Co., Inc., shares then outstand-

ing, and all of that excess went to the petitioner, who

had only 118 McLane Co., Inc., shares but was awarded

327 out of the 1250 Sun shares. The learned Court of

Appeals was therefore correct in stating that, if the

facts were assumed to be as petitioner now asserts

“plaintiff assuredly likewise committed a breach against

the other beneficiaries of the trust” (R. 684, 174 F. 2d

at 821). The clean hands maxim may therefore appro-

priately be applied to the case at bar, though it is unnec-

essary to do so to reach the same decision.

46 Argument.

ORES WLS VLE PLANET BOVE TINT NID S PF GPP UENO OS , Saul

Argument. 47

Other Defenses.

There are also various other reasons, we respect-

fully submit, why the judgments of the two lower Courts

are right. One of them is that, tested by the evidence

as distinguished from the arguments of petitioner’s

counsel, the alleged contract is too indefinite for specific

performance. As said by this Court in Hennessy v.

Woolworth, 128 U. S. 438, 442, in affirming the refusal

of specific performance on this ground, the extraordi-

nary remedy of specific performance “should never be

granted unless the terms of the agreement sought to be

enforced are clearly proved, or, where it is left in doubt

whether the party against whom relief is asked in fact

made such an agreement.” Such is also the law in Penn-

sylvania and Ohio: Markovitz v. Markovitz, 336 Pa. 136,

141, 8 A. 2d 42, 44; Agnew v. Southern Avenue Land Co.,

204 Pa. 192, 194, 53 A. 752, 753;Beidler v. Davis, 72 Ohio

App. 27, 33, 50 N. E. 2d 613, 616; Tickel v. Shock, 80

Ohio App. 459, 463, 72 N. E. 2d 154, 156. Nowhere in

this record is there any clear proof that petitioner and

John T. McLane agreed that each would offer to the

other half of all shares of Sun Rubber Company stock

thereafter acquired by him at the price which he had

paid for it. The petitioner’s own testimony goes far-

thest but even in it there is no reference whatever to

the price at which any such offer shall be made (R. 108-

109). The price is an essential term without which

there can be no enforceable contract: Canister Co. v.

Wood & Selick, 73 F. 2d 312, 315 (C.C.A. 3), cert. den.

296 U. S. 590; Bigley v. Risher, 63 Pa. 152, 155; McNeely

v. Bookmyer, 292 Pa. 12, 14-15, 140 A. 542, 543; Stevens

v. Doylestown B. & L. Ass’n., 321 Pa. 173, 174, 183 A. 922,

923. Other essential terms are also lacking. Other

defenses are the Statute of Frauds contained in the Uni-

form Sales Act (Pennsylvania Act of 1915, P. L. 543,

ee. IRENE ey RPE RRO ETHIE RR SUI OS OY

48 Argument.

§ 4, as amended 1925, P. L. 310, § 2; 69 PS §42)*; the

Statute of Limitations (Pennsylvania Act of 1713, 1 Sm.

L. 76; 12 PS §31)**; and the doctrine of laches. Be-

cause of the length which this brief has already at-

tained, these other defenses are merely stated and not

argued.

In conclusion, it is respectfully submitted that this

family quarrel turns upon a question of fact and that

there is nothing in it that justifies the granting of a

writ of certiorari.

Respectfully submitted,

WILLIAM H. ECKERT,

Attorney for Respondents.

*“A contract to sell or a sale of any goods or

choses in action of the value of five hundred dol-

lars or upwards shall not be enforceable by action

unless the buyer shall accept part of the goods or

choses in action so contracted to be sold or sold,

and actually receive the same, or give something in

earnest to bind the contract, or in part payment, or

unless some note or memorandum in writing of the

contract or sale be signed by the party to be charged

or his agent in that behalf.”

**“All actions of . . . contract . . . shall

be sued or brought . . . within six years next

after the cause of such actions or suit, and not

after.”

axon tS kh Cant ties Sac te aS Sa ER ER EE ast ae Re tnt a aga nie he area

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