## Facts

- An insolvent company entered into a contract with Sweeney (plaintiff) under which Sweeney was to obtain a controlling interest in the company’s stock and bonds.
- The contract set no definite time for performance, and the controlling interest was never transferred to Sweeney.
- Sweeney later assigned his contract rights to Zell and Van Dyke (co-defendants in the equity suit).
- Edward B. Smith & Co. (Smith) (defendant) knew of Sweeney’s earlier contract when it later dealt with the company.
- The company later entered into a similar arrangement with Smith, and the controlling interest in the stock and bonds was transferred to Smith, which profited from the transaction.
- Sweeney filed a bill in equity against Smith, Zell, and Van Dyke, seeking (among other relief) an accounting from Smith for profits earned from the stock and bonds.
- The bill did not allege that Smith induced, procured, or persuaded the company to abandon or breach its earlier contract with Sweeney, nor that Smith acted fraudulently or in collusion with the company to injure Sweeney.
- Smith demurred, arguing the bill alleged no legal or equitable basis to require Smith to account to Sweeney for profits.

## Issues

1. Whether a third party that later acquires and profits from corporate stock and bonds, with knowledge of a prior contract involving the same securities, must account to the prior contract-holder when the bill does not allege inducement, procurement of breach, fraud, collusion, or a fiduciary duty.
2. Whether notice of a prior, unperformed contract—standing alone—can support a constructive trust or other equitable accounting remedy against the later transferee.

## Decision

- The court sustained Smith’s demurrer.
- The court dismissed the bill as to Smith.
- The court held that the bill’s theory wrongly assumed Smith owed Sweeney a duty to account for Smith’s profits, when the pleaded facts showed no legal wrong by Smith and no trust or fiduciary relation that would justify equitable relief against Smith.

## Legal Principles

- A party is not liable in equity to account for profits merely because it contracted with another while aware that the other had previously contracted with a different person concerning the same subject matter.
- Liability for interference with contract generally requires allegations that the third party procured or induced the breach or abandonment of the prior contract; knowledge alone is not enough.
- Equity will not impose a constructive trust or require an accounting absent facts showing fraud, collusion, or some relationship or duty that makes the defendant answerable as a trustee or fiduciary.
- A plaintiff’s remedy for nonperformance of a contract ordinarily lies against the contracting party (the promisor), not against a non-fiduciary third party who later receives the benefit of a separate transaction.

## Conclusion

Because Sweeney alleged only that Smith knew of Sweeney’s earlier contract and later profited from a similar transaction—without alleging that Smith procured a breach, acted fraudulently, colluded, or owed Sweeney a trust-based duty—the court sustained Smith’s demurrer and dismissed the equity claim for an accounting against Smith.


Sweeney v. Smith, 167 F. 385 (1909)