Appeal from decree of Court of Common Pleas of Allegheny County, Jan. T., 1963, No. 3018, in case of Universal Builders, Inc., by Frank R. Sack, Receiver v. Moon Motor Lodge, Inc., Morris M. Berger, Dorothy J. Berger, his wife et al.
John G. Buchanan, Jr., with him Buchanan, Ingersoll, Rodewald, Kyle & Buerger, for appellant.
Robert E. Wayman, with him Robert A. Jarvis, S. M. Rosenzweig, Aaron Rosenzweig, and Wayman, Irvin, Trushel & McAuley, for appellee.
Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Eagen. Dissenting Opinion by Mr. Justice Musmanno. Mr. Chief Justice Bell joins in this dissenting opinion.
This appeal is from a final decree of the Court of Common Pleas of Allegheny County sitting in equity. Plaintiff asked the court to set aside a real estate conveyance as a violation of the Uniform Fraudulent Conveyance Act, Act of May 21, 1921, P. L. 1045, 39 P.S. §§ 351-363, to declare void a supplemental agreement allegedly induced by fraud, and to grant plaintiff a money decree for work done under both the supplemental agreement and the basic contract as well as for loss of profits and punitive damages. Defendant denied that there was fraud involved in either the real estate conveyance or the supplemental agreement, denied that it owed plaintiff any sum under the basic contract and supplemental agreement, claimed a set-off for uncompleted work and counterclaimed for delay damages. The court below refused the request for a reconveyance under the Fraudulent Conveyance Act, supra, refused to declare the supplemental agreement void, dismissed plaintiff's claims for lost profits and punitive damages, denied defendant a set-off for uncompleted work, dismissed the counterclaim for delay damages and decreed that defendant should pay plaintiff $127,759.54 (the balance due on the basic contract price together with extras) plus interest. Defendant appeals.
Briefly, the background facts of this case are as follows. On August 16, 1961, the plaintiff, Universal
Builders, Inc. (hereinafter Universal), entered into a written contract with the defendant, Moon Motor Lodge, Inc. (hereinafter Moon), for the construction of a motel and restaurant in Allegheny County. The contract provides, inter alia, that all change orders must be in writing and signed by Moon and/or the Architect and that all requests for extension of time must be made in writing to the Architect. The contract specifications also required that a certain proportion of a re-inforcing substance be used in the building walls. The masonry sub-contractor failed to use the specified proportion. When this defect was discovered, Moon magnified its importance, withheld from Universal a progress payment to which Universal was entitled, threatened to expel Universal from the job and thereby induced Universal to enter into the supplemental agreement. The supplemental agreement, dated March 27, 1962, provides, inter alia, that Universal will pay Moon $5000 as damages for the absence of the reinforcing material, that Universal will perform certain additional work at no additional cost to Moon, that the date for completion of the project is extended from April 1, 1962, to July 1, 1962, and that liquidated damages at a specified rate per day will be assessed for delay.
Universal substantially completed performance on September 1, 1962, and left the construction site on October 1, 1962. After filing this suit, Universal went into bankruptcy. The trustee prosecuted this action and won a final decree in the lower court.
Before reaching the contract questions, it is necessary to consider several preliminary matters.
Moon contends that Universal has unclean hands because Joseph V. Pizzuti, an officer and executive of Universal during the performance of the contract, allegedly manufactured evidence to support Universal's
case. This is not a sufficient ground to deny Universal relief for three reasons.
First, although the manufacturing of evidence by a plaintiff certainly might bar recovery under the clean hands doctrine, see Gaudiosi v. Mellon, 269 F. 2d 873 (3d Cir. 1959) and Mas v. Coca-Cola Co., 163 F. 2d 505 (4th Cir. 1947), in the instant case the evidence was manufactured not by the plaintiff but by an officer of the plaintiff corporation, now in bankruptcy. The attribution of one party's unclean hands to another party is not based on simple agency principles. The applicable law has been outlined by the late Judge Learned Hand: "Whenever the question has come up, it has been held that immoral conduct to be relevant, must touch and taint the plaintiff personally; that the acts of his agents, though imputed to him legally, do not impugn his conscience vicariously. Vulcan Detinning Company v. American Can Company, 72 N.J. Eq. 387, 391, 392, 67 A. 339 . . . [other citations omitted]. On principle, so far as there is any principle about the whole matter, it seems to me that a plaintiff should not be so charged. The doctrine is confessedly derived from the unwillingness of a court, originally and still nominally one of conscience, to give its peculiar relief to a suitor who in the very controversy had so conducted himself as to shock the moral sensibilities of the judge. . . . The reasons which justify imputing liability to a principal for his agent's acts, whatever they are, have nothing in common with such a notion. It would be monstrous that a man's conscience should bear the sins of those he employs, however liable he may be for their acts, and a doctrine which stands upon moral wrongdoing must clear itself of that confusion, or adopt another form. While it stands upon the court's repugnance to the suitor personally, it must confine itself to his personal delinquencies." Art Metal Page 555} Works, Inc. v. Abraham & Straus, 70 F. 2d 641, 646 (2d Cir.) (dissenting opinion), cert. denied 293 U.S. 596, 55 S. Ct. 110 (1934), adopted as opinion of the court 107 F. 2d 944 (2d Cir.) (per curiam), cert. denied 308 U.S. 621, 60 S. Ct. 293 (1939). In this case, appellant offers no persuasive reasons for imputing Pizzuti's conduct to the bankrupt corporation, nor do we see any such reasons ourselves.
Second, assuming for the sake of argument that Pizzuti's conduct should be imputed to Universal, the application of the clean hands doctrine to deny relief is within the discretion of the chancellor. Shapiro v. Shapiro, 415 Pa. 503, 204 A.2d 266 (1964). Where the rights of innocent parties are involved, the doctrine should be applied cautiously. See Zweifach v. Scranton Lace Co., 156 F. Supp. 384 (M.D. Pa. 1957), and the doctrine should not be invoked if its application will produce an inequitable result. Hartman v. Cohn, 350 Pa. 41, 38 A.2d 22 (1944). To deny plaintiff recovery in this case would result in the enrichment of Moon at the expense of innocent creditors of the bankrupt Universal. This is an inequitable result and thus we are not persuaded that the clean hands doctrine should be applied.
Third, although it has been said that the clean hands doctrine applies in courts of law as well as in courts of equity, Olmstead v. United States, 277 U.S. 438, 484, 48 S. Ct. 564, 574 (dissenting opinion) (Brandeis, J.) and Z. Chaffee, Some Problems of Equity (1950), it generally has been held that the doctrine operates only to deny equitable, and not legal, remedies. Merchants Indemnity Corp. v. Eggleston, 37 N.J. 114, 179 A.2d 505 (1962); Manufacturers' Finance Co. v. McKey, 294 U.S. 442, 55 S. Ct. 444 (1935); 30 C.J.S., Equity, § 98 at pp. 1037-38 (1965). The plaintiff in this case was granted, not a special equitable
remedy, but only a money decree. In effect, Universal received what it would have if the action had been at law in assumpsit.*fn* We are not persuaded that the clean hands doctrine should be applied to deny plaintiff this legal right.
Next Moon contends that Pizzuti's conduct in manufacturing evidence should disqualify him as a witness, just as if he had been convicted of perjury. If Pizzuti's testimony is completely disregarded, Universal's case against Moon collapses. Moon's argument that Pizzuti should be disqualified as a witness completely ignores the Act of May 23, 1887, P. L. 158, § 4, 28 P.S. § 314, which provides: "In any civil proceeding before any tribunal of this Commonwealth, or conducted by virtue of its order or direction, no liability merely for costs nor the right to compensation possessed by an executor, administrator or other trustee, nor any interest merely in the question on trial, nor any other interest, Page 557} or policy of law, except as is provided in ...