Appeals, Nos. 86, 87, 93 and 94, Jan. T., 1950, from decree of Court of Common Pleas No. 1 of Philadelphia County, June T., 1945, No. 3396, in case of Ethel Brooks, individually and Ethel Brooks, Admrx., Estate of George D. Brooks, Deceased et al. v. Harry Conston et al. Decree modified; reargument refused, April 10, 1950.
Laurence H. Eldredge, with him Norris, Bell, Lex, Hart & Eldredge, for plaintiffs.
John D. M. Hamilton, with him Thomas E. Comber, Jr., George Wharton Pepper, Hirsh W. Stalberg, Harry Shapiro, Shapiro, Conner, Rosenfeld & Stalberg and Pepper, Bodine, Stokes & Hamilton, for defendants.
Before Maxey, C.j., Drew, Linn, Stern, Stearne and Jones, JJ.
OPINION BY Mr. Justice HORACE STERN
This is the third time this case has come before us. Previous appeals are reported in 356 Pa. 69, 51 A.2d 684 and 359 Pa. 141, 58 A.2d 463. Plaintiffs sued in equity to rescind their sale to defendant Harry Conston of a chain of retail millinery stores and to obtain an accounting. The facts are so fully set forth in the
opinion by Mr. Justice ALLEN M. STEARNE on the first appeal that it is unnecessary to repeat them here. It is important to point out, however, that we there held that a confidential relation existed between the parties, that fraud was clearly shown, and that it was not merely "constructive" but actual fraud, that is to say, deceit intentionally and successfully practiced by Conston to induce plaintiffs to sell him their business for an unfair and inadequate consideration. We ordered that the court below should enter a decree granting the prayer of plaintiffs' bill for an accounting of the profits made by defendants from their operation of the stores. Accordingly such a decree was entered; testimony was heard by an auditor appointed by the court; an accounting was had; the court sustained some and dismissed others of the exceptions filed by the parties to the auditor's report and entered a final decree from which both parties have now appealed.
We shall consider first the questions raised by plaintiffs.
1. When, in 1941, the business was originally acquired by Conston there were nine stores. He turned them over to a corporation which he organized under the name of Lee Stores, Inc., some of the stock of which he gave to his wife and some to his son. During the course of the subsequent operation of the business three of the original stores were closed and five additional ones were added to the chain, but the enterprise was at all times a unified one. There was a central stockroom from which all the stores were supplied with merchandise; there was a central office the personnel from which served all the stores; the bookkeeping and accounting work was all done at that office and the books and records were kept there; the receipts from all the sales were deposited to the credit of the defendant corporation and the general expenses of the enterprise were allocated to the different stores; economies were effected
in the operation of each of the stores by reason of their being part of a chain, and the merchandise was no doubt purchased at a lower cost than would have been possible if each store had been an independent unit under separate ownership. It is therefore obvious that in accounting for the profits of the business defendants must account for the profits made in all of the stores whether originally acquired or subsequently added, and, for the same reasons, they are entitled to a deduction for the losses incurred in any of them. The court, however, refused to allow plaintiffs the profits made in the operation of a store at 901 Market Street on the ground that that store had not been opened by the use of any profits made in the original stores. The uncontradicted testimony, however, shows that all of the merchandise and assets invested in 901 Market Street were taken from the other stores; the fixtures and equipment were paid for out of the resources of the general business; neither Conston nor any one on his behalf contributed any capital whatever for that purpose; (it may be stated parenthetically that he never made a contribution to the business for any purpose). It is true that Conston loaned the corporation $10,000 which may have been used in whole or in part in connection with the expenses attendant upon the alteration of the store front and for furniture and fixtures (which, however, is denied by plaintiffs), but this was not a capital contribution and it was either repaid to him or he is entitled to its repayment the same as any other creditor of the business. The store at 901 ...