Opinion by
This is the third time this case has come before us. Previous appeals are reported in
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 thе 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 wеre allocated to the different stores; economies were effected *260 in the operation of each of the stores by reason of their being part of a chain, and the merchandise was no donbt 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 thаt 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 Market Street was treated as part of the chain the same as all other stores; the profits there earned were reported in income tax returns as part of the profits of the cоrporation and later of the Lee Stores Company, which was a partnership consisting of Conston, his wife and his son, organized by him in 1911 to take over the business of Lee Stores, Inc. To support plaintiffs’ claim it was not necessary for them *261 to prove that profits made in the other stores were used to start this store; it is sufficient that the assets of the original stores were so employed. Plaintiffs are entitled to the fruits of the use of property which, in equity, continued to be theirs throughout the period of defendants’ operation. We hold, therefore, that the account should be revised to include the profits made at 901 Market Street. By the same token defеndants should be credited with the loss sustained in the store operated at 16 South Broad Street, Trenton, for which, apparently, they were not granted an allowance.
2. One of the new stores opened by defendants was at 938 Market Street, replacing a store at 926 Market Street the lease of which had еxpired. The building at 938 Market Street had been purchased a year or two before by the DeGray Corporation, the stock of which was held by Conston, his wife and his son, but Conston was the real owner. In the accounting for the profits of this store the court approved a claim for rent to the DeGray Corporation in the amount of $35,000 for the period during which the store was operated. Plaintiffs argued that to allow the full rental value of the property instead of merely the carrying charges (which amounted to $16,560.80) would be to permit Conston to profit indirectly from his original wrongdoing. We see no merit in this contention. As bona fide оwner of the property DeGray Corporation could presumably have obtained the same amount of rent from any other tenant, and it would be unduly penalizing it to deprive it of something which was not in any way the fruit of the fraud committed by Conston in connection with his acquisition of plaintiffs’ stores. We are of opiniоn that DeGray Corporation is entitled to the rent which the court allowed it.
3. It appears that while the business was being operated by Lee Stores, Inc. there was paid to Conston and to his wife the sum of $100 each per week for the
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services rendered by them respectively, Conston as the manager of thе enterprise and his wife as buyer of the merchandise. After the ownership of the business was changed from corporation to partnership no further payments were made to them nor were they credited on the books with any salaries, but, in the accounting, defendants claimed credit not only for these salary payments made by the corporation but for the estimated value of the services of Conston and his wife to the partnership, viz., $15,000 a year for Conston and $5,000 a year for his wife, making a total claimed deduction for Conston’s salary of $60,306.60 and his wife’s salary of $26,139.95. The court approved these allowances. Althоugh the amounts seem high in view of the fact that Conston operated another extensive business of his own and did not give all of his time to the affairs of Lee Stores Company, and in view of the further fact that Mrs. Conston’s services were merely incidental to similar work she performed for her husband’s business and for which she recеived a substantial salary, the auditor found, on testimony presented by defendants, that the amounts claimed were fair and reasonable, and the court accepted that finding. Plaintiffs insist that no compensation whatever should have been allowed. As far as the wife is concerned there is nothing in the record to indicate that she was a party to her husband’s fraud or cognizant of it and therefore there is no reason why she should not be regarded as any other employe of the business and her reasonable compensation allowed as a deductible expense. As to Conston, it is true that in
Callaghan v. Myers,
4. The court erroneously decreed that the auditor’s fee should be “paid equally by both parties.” The accounting was made necessary only by Conston’s wrongdoing, and the litigation has proved that plaintiffs were entitled to a recovery considerably in excess of that admitted by defendants to be due. Under such circumstances all the costs of the accounting, including the auditor’s fee, should have been imposed upon defendants.
This brings us to the questions raised by defendants.
1. Defendants sought a deduction in the sum of $52,587.29 for income taxes paid by Conston on the profits earned during the course of their operation of the business. This credit was properly disallowed by the court. Whether one who is merely a “constructive” trustee or is guilty of a “constructive” fraud could properly claim such an allowance need not here be considered inasmuch as we held in the original appeal in this case that Conston was guilty of actual fraud and intentional deceit. The authorities are uniform to the effect that a conscious wrongdoer is not entitled to an allowance for income taxes on profits made by him in connection with his operation of a business which he improperly acquired. In
L. P. Larson, Jr., Co. v. William Wrigley, Jr., Co.,
2. It appears that the building at 940 Market Street in which was operated one of the stores originally acquired by Conston was purchased in 1944 by Lee Stores, Inc. The court ordered defendants to convey title to this property to plaintiffs. It was bought for a cash payment of $59,748.11 subject to a purchase-money mortgage of $90,000. Considerable testimony was taken by the auditor in an attempt to determine the source of the money paid. The auditor found as a fact, on amply supporting evidence, that it was money that had been made from either the conversion or use of the assets originally aсquired by defendants from plaintiffs and accordingly that the investment in the building was made fpr plaintiffs’ account; therefore they were entitled to have the property conveyed to them. The court approved this finding and the conclusion based upon it, and we find no error in its decision. While defendants admit that the $59,748.11 Avаs paid out of the cash reserves of Lee Stores, Inc. they claim that it did not represent profits of the business; it was not necessary, however, for plaintiffs, in order to establish their claim to the building, to prove that it was bought out of profits; it is sufficient that the purchase money was an asset of the business and therefоre, from the viewpoint of equity, the property of plaintiffs. It is merely *266 a matter of tracing trust funds, and plaintiffs are clearly entitled, at their election, to take the property in which their money was invested. Of course, as the decree of the court provided, defendants, upon making conveyance of the title, should be credited with the amount of the cash payment used to purchase the property and already accounted for by them in the calculation of the profits; also with payments, if any, made by them on account of the principal of the purchase-money mortgage, payments of interest on the mortgage, and payments of taxes, water rents, insurance and repairs, together with appropriate interest on all such payments. Since the property equitably belonged to plaintiffs, defendants were properly held disentitled to any allowance for depreciation, or for rent during the time they operated the store there, and they must account for any income they received from the property since they turned the store back to plaintiffs and until they make conveyance of the title as directed by the court.
The record is remanded to the court below with direction to amend the decree and to proceed in accordance with this opinion; costs to be paid by defendants.