Gray v. Green — 50 N.Y. St. Rep. 316

Majority

p. 316

Henry W. Gray, Resp't, v. George T. Green, App'lt.

(Supreme Court, General Term, First Department,

Filed December 16, 1892.)

Headnote

1. Pabtnebshif—Dissolution.

In an action for an accounting of a partnership and a judicial dissolution, it appeared that on the dissolution of the partnership there was no agreement by which either partner was to have exclusive liquidation of the firm affairs, and that both joined in so doing. Defend- nt testified, that by a “tacit understanding ’’ plaintiff was to be the liqu dator, but it appeared that he drew money from the bank, signing checks with the firm name and paying firm debts, authorizing a foreclosure suit and making affidavits in support of the firm's claim against the government. Held, that there was no agreement with regaid to liquidation by which one partner was to be sole liquidator to the exclusion of the other.

2. Same—Accounting—Limitation.

It appeared that the liquidation proceeded peaceably, and that there was a “ tacit understanding to postpone the final accounting until the defendant could be credited with the collections made in the due course of such liquidation.”. Held, that the statute of limitations did not begin to run on the right of plaintiff to an accounting at the dissolution of the firm, and the cause of action on the final accounting did not arise until defendant had been given credit for his share of the collections made, and his indebtedness thereon ascertained.

Appeal from a judgment entered at a special term, declaring the dissolution of the partnership between the plaintiff and the defendant, and stating and settling the accounts between the par

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ties, and decreeing payment of the balance found due to the plaintiff, with costs.

Whitehead & Suydam (Charles 0. Suydam, of counsel), for app’lt;

Burrill, Zabrislcie & Burrill (J. K Burrill and George Zabrislcie, of counsel), for resp’t.

I confess that when this case was before us on the last appeal, 25 St. Rep., 622 , I had grave doubts upon the facts, as they then appeared, with regard to the question of the statute of limitations, and I concurred in the affirmance of the judgment only because I felt bound by the opinion delivered upon the first appeal, 41 Hun, 524 ; 4 St. Rep., 43 . It was, therefore, with but little surprise that I observed the reversal of the judgment in the court of appeals, 125 N. Y., 203 ; 34 St. Rep., 732 , and upon perusing the opinion of that court, I noted that the reversal was upon the very point which had seemed to me to be the difficult one in the plaintiff’s case as it was then presented. I make these observations the more freely because, upon the record as it now comes up, my previous doubts are removed, and I feel satisfied that, upon the facts as found by the learned judge upon the trial now under review, his conclusion that the statute had not run against the plaintiff’s claim is entirely correct. The keynote of the case, as it was presented to us and to the court of appeals on the previous hearing, was that by the agreement of dissolution the plaintiff was made the liquidating partner; that by this agreement he became the authorized agent of the partnership; that, as such, it was his duty to collect and realize its assets; that the claim against the defendant was an asset, and that consequently it became the plaintiff’s duty to the creditors, as well as to himself, to collect it. The cause of action to reduce this asset to possession was held to be independent of the right to an adjustment of partnership affairs as between the partners themselves, even though an accounting to ascertain the precise amount of the asset, namely, the specific sum due to the partnership, might well be involved in the liquidator’s action. The cause of action for a judicial dissolution and adjustment of partnership affairs as between the partners themselves, and for a final accounting, with an appropriate money judgment thereon, may, indeed, accrue upon dissolution ; but whether it does or not' must, necessarily, depend upon the facts of each particular case. The right of the liquidator. however, to proceed against one, be he partner or ordinary debtor, who is liable to the firm accrues immediately upon dissolution. This latter liability of the defendant was treated as in the nature of an overdraft, for which he was liable without regard to the general right to an accounting. In fact, it was thought that the accounting could more properly be had after the restoration to the firm and to its depleted capital of the amount of this overdraft. This is clear from the language of the opinion:

“Granting,” said Finch, J., “that the defendant’s interest in profits could equitably reduce his overdraft, and that the amount of profits, and so his interest in them, would be affected by the

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total of debts and the soundness of assets, and yet his overdraft remained due instanter to the partnership, which he was liable at once to pay, which he ought at once to pay which the liquidating partner, as such, was entitled immediately to realize and receive.”

The fundamental error upon the trial then under review was the finding of fact with respect to the' agreement of dissolution, and the appointment thereby of plaintiff as sole liquidator. This error was the result of some loose and inaccurate expressions on the part of the plaintiff, when he was previously examined, to the effect that by agreement with his partner he was to liquidate the business of the firm. The finding which followed this testimony was not inconsistent with the framework of the complaint, and it was, therefore, fatal to a recovery. It is also true that the pre-. sent finding of fact, that there was no agreement with regard to liquidation, is entirely consistent, as we shall presently see, with both the letter and the scope of the complaint, and such finding is the truth of the case. This finding of fact, that there was no agreement by which either partner was to be sole liquidator to the exclusion of the other, is amply supported by the testimony. Indeed, the evidence on the subject was all one way. The plaintiff on the present trial testified to facts, that is, to what actually transpired, and not, as upon the previous trial, to mistaken conclusions or impressions.

He testified that there was no agreement by which he 'was to have exclusive liquidation of the business; none that he was to liquidate to the defendant’s exclusion; none that the defendant was to liquidate to his exclusion; and that, as matter of fact, they both went on, “each of them, liquidating the business.” And this was the literal truth, whatever the plaintiff may have inadvertently said upon any other occasion. It is borne out by the subsequent acts of the parties, and by facts as to which there could be no dispute. Even the "defendant claimed nothing more than a “tacit understanding ” that the plaintiff was to be the liquidator; an understanding, however, which was directly opposed to his own acts; for we find him, too, liquidating, drawing money from the bank, paying debts therewith, signing checks “ H. W. Gray & Co., in liquidation,” as late as September, 1874, authorizing a foreclosure suit in July, 1884, and making affidavits in support of a claim against the government in May, 1873, and July, 1875. The defendant testified that the assets “ were liquidated to a certain extent” by him “in settlement of the affairs of H. W. Gray& Co.,” and on being asked how these assets were liquidated, he replied, “By sale of the securities." He also testified that he drew a great many checks on the account of the firm on the Bank of Hew York for the liquidation of the business of H. W. Gray & Co., although he denies that he drew such checks as late as September, 1874. It is claimed that all this occurred while the plaintiff was absent in Europe, and was necessitated by such absence, but it clearly appears that several of the specified acts were done while the plaintiff was here, and as to the others, the defendant acted freely, and without apparent regard to any contract limitation upon his right. The finding of fact, therefore, to

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which we have referred, was in precise accord with the evidence on both sides, and it is conclusive of the main question; for, if such finding be just as consistent with the averments of the complaint as was the opposite finding made on the previous trial, then plainly the cause of action is not that of a liquidator seeking to compel payment of a sum due to the firm, but an ordinary action between partners (partners who, without question or disagreement, have been severally liquidating the affairs of the firm, and who have completed such liquidation), for a final adjustment of accounts as between themselves.

Let us analyze the complaint, and see precisely what it contemplates. In the first place, it contains no averment that the plaintiff was to be the liquidator of the firm’s business. There is, in fact, no averment at all upon the subject of liquidation. Nor is there even a distinct averment of dissolution, although that may be implied from the language used In the first paragraph the partnernership is set forth, and its terms are specified. This is admitted in the answer. In the second paragraph it is averred that, prior to the commencement of the action, and on or about the 1st day of July, 1884, there remained outstanding and unadjusted certain copartnership transactions connected with the firm; that said transactions have never been settled or wound up, and could not be until on or about the date last mentioned; and that said transactions involve assets of the copartnership to the amount of $15,000, of which no account has been taken or had. Here, it will be observed, a distinct issue is tendered as to the possibility of settling or winding up the copartnership transactions prior to the 1st day of July, 1884. How is this issue met? We have searched the defendant’s answer in vain for a denial. He does not even deny the allegation that the copartnership transactions were outstanding and unadjusted on the 1st day of July, 1884. The answer on this head reads as follows:

“ (7) And, further answering, this defendant denies that any of the copartnership transactions which belong to the said copartnership of H. W. Gray & Company were outstanding and unadjusted on or about the 1st day of July, 1884 ; but he says that if there were any such transactions outstanding and unadjusted they were and are the property of the plaintiff herein, and became his sole and separate property on or about the 21st day of October, 1872, when the said partnership was dissolved.”

This is really no denial at all. It is but a supplement to the allegation contained in the sixth paragraph of the answer:

“ That upon the dissolution of the said firm, as aforesaid, in October, 1872, the whole of the assets thereof became and was the property of the said H. W. Gray, as representing the capital he had contributed to the partnership.”

The allegation of the complaint is that on the 1st day of July, 1884, “there remained outstanding and unadjusted certain co-partnership transactions connected with said firm." The denial is that any of the copartnership transactions which belonged to the copartnership of H. W. Gray & Co. were outstanding and unadjusted at that time; in other words, they were outstanding and

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unadjusted, but they did not belong to the copartnership, because they became the sole and separate property of the plaintiff when the partnership was dissolved. Thus there is no specific denial of what is alleged, but rather an evasion of the averment. Words are imported into the averment for the purpose of denying it as thus modified. The effect is an admission of the fact averred, coupled with an affirmative allegation that whatever copartnership transactions remained unadjusted on the 1st day of July, 1884, belonged to the plaintiff, and not to H. W. Gray & Co. But as to the averment that these copartnership transactions have never been settled or wound up, and could not be until on or about July 1, 1884, there is not even a qualified denial. The only reference to this crucial averment which we find in the entire answer is at the close of the eleventh paragraph thereof, in these words:

“ And he says that there were no accounts and transactions of the said firm outstanding after the said date (October 21, 1872) which would prevent such an accounting as the plaintiff demands in his complaint herein.”

This is simply an averment of a conclusion of law. It is not a denial, general or specific, of the averment of the complaint; nor is it a statement of new matter constituting a defense. The effect of the pleading, therefore, is that it amounts to a plea of the statute of limitations as against the admitted averments of the com- % plaint, namely, the averments that copartnership transactions of which no account had ever been taken or had remained outstanding and unadjusted on the 1st day of July, 1884, and could not have been settled or wound up prior to that date ; in other words, that the statute ran against an accounting notwithstanding the impossibility of completing the liquidation prior to the specified date. Thus the defendant meets the issue of fact tendered by the complaint in substance by the tender of an issue of law; and that issue necessarily amounts to thisthat the statute ran from the date of dissolution under any and all circumstances, and without regard to the special facts pleaded, admitted, proved and found. This is an extreme view, to which no countenance is given by the court of appeals, and it is in direct opposition to the great weight of authority. Gray v. Green, 125 N. Y., 205 ; 34 St. Rep., 732 , opinion of Finch, J. (see paragraph quoted by the learned judge at special term); Riddle v. Whitehill, 135 U. S., 637 . And see, also, cases cited in 17 Amer. & Eng. Enc. Law, p. 1283, note 3; Wood, Lim. Act., 430, § 210; 2 Lindl. Partn. (Ewell’s Amer. Ed.), 964; and cases cited in the opinion delivered at special term.

We now come to the third averment of the complaint. Here the plaintiff avers, in substance, that the defendant has received more money from the partnership funds and assets than belonged to him ; that is, more than his proper share of such partnership funds and assets. The facts thus pleaded in the second and third paragraphs are followed in the fourth paragraph by an averment that “ no final adjustment of the business of said firm, or accounting between said parties as said partners, has been had.”

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The averment is not denied. Instead of a denial, we find an affirmative statement that “ the business and affairs of the said partnership were settled and adjusted at the time of the dissolution thereof by the transfer of all the assets thereof to the plaintiff herein, to wit, at or about the 21st day of October, 1872,” a statement, we may say, which was concededly inaccurate. Here the defendant does not, as in the instance already discussed, import the affirmative statement into the plaintiff’s averment, and then deny the latter as modified. He completely ignores the latter averment, and plants himself upon the alleged transfer as furnishing a sufficient reason why the final adjustment has not been had. The prayer for such final adjustment and accounting and for a judicial dissolution follows. This complaint, because of the averments contained in the third paragraph, was treated upon the last appeal as sufficient to sustain the supposed liquidator’s cause of action. If the defendant had become possessed of and retained assets of the partnership in excess of his partnership interest (as averred in this third paragraph), the liquidator had a right, and, indeed, it was his duty, to collect it immediately upon dissolution. But, now that the theory of a special liquidator is eliminated from the case, this third averment becomes an aid merely to the other averments of the complaint, and amounts to nothing more than a general statement that, upon the final adjustment and accounting prayed for, the balance will be found to be in the plaintiff’s favor. What have we, then, in the absence of any agreement on the subject of liquidation, but a cause of action for the final adjustment of the partnership affairs, as between the partners themselves,upon allegations (admitted, proved and found) that the very transactions which are to be embraced in such final adjustment remained outstanding until a late period, and could not have been settled or wound up at an earlier period? We think, therefore, that the cause of action stated in the complaint is in harmony with the findings of fact as now presented, and that certainly the statute did not run against such a cause of action at the moment of dissolution.

The learned judge has also found certain facts which negative the idea of any disagreement between the parties at the time of the dissolution, or any differences respecting their rights. The fifth finding is as follows:

“ Fifth. Bach of said parties in the settlement and adjustment of the affairs of said copartnership has acted faithfully, and without unnecessary or inexcusable delay; and no complaint has at any time been made by either party of any want of diligence on the part of the other in closing up said affairs, and neither has requested or notified the other to wind up or settle the affairs in any other manner, or in any shorter or other time, than was employed in winding up and settling the same; and the assets of said firm could not have been collected or realized sooner than they have been.”

This indicates that the liquidation proceeded peaceably, and without question, and that there was a “tacit understanding” to

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postpone the final accounting, upon which the defendant’s liability should be ultimately stated and fixed, until he could be credited with the collections made in the due course of such liquidation. That, under these circumstances, the statute did not run at the date of dissolution is abundantly established by the reasoning of the learned judge at special term, and we can add nothing to what he has said upon that subject. And this reasoning is sustained not only by what was said by Finch, J., in the court of appeals in this case, but also by the precise language used by Chief Justice Fuller, in the supreme court of the United States, in Riddle v. Whitehill, supra. There are, however, one or two addi: tional facts disclosed by the record which, we think, fortify this position. It appears that the partnership was continued for several purposes after what is styled “ dissolution.” The general business of the firm was undoubtedly terminated, but its subsisting engagements called for and received continuous service. Thus the defendant tells us that when the business terminated the firm was carrying certain securities, upon which it was necessary for them to borrow money, and they did so. “ Such loans,” he testified, “ were made in the months of October, November, and December, 1872, and January, February, March, April, May, June, and even in August, 1873.” If they had not made these loans from time to time, it is apparent that they could not have carried the securities for their customers or for themselves, if they, or i either of them, were interested in the transactions ; and the continuance of such transactions is consistent with the defendant’s testimony that he believed profits were made after the dissolution.

But these continuous transactions were not the only ones which, as matter of.fact, called for the continuance of the firm. A single illustration will suffice on this head: One of the claims, the realization of which was necessarily postponed, was that against the government for the return of certain taxes illegally imposed. The learned counsel for the appellant, in an elaborate “ note ” upon the sixth page of his points, contends that this claim was not a partnerership asset at all, but that “ it was money which had been charged to the account of customers, for whom it had been paid, and to whom, if collected, it rightfully belonged.” The facts are that these customers were in the main the parties themselves, and, consequently, the collection was divisible under the partnership arrangement It is true, however, that a part of the claim rightfully belonged to outside customers, as pointed out by the learned counsel. But what does this establish, except that, so far as this part of the claim was concerned, the parties were still partners for the purpose of serving their customers and performing duties which they still assumed, and assumed quite properly ? The learned judge at special term has stated with clearness the rule, and has fortified the statement with abundant citation of authority, that where parties are proceeding amicably to wind up the business without judicial intervention, the firm continues to exist for the purpose •of collecting, settling up, and distributing its assets, and performing its antecedent engagements. It will be perceived that in the

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present case this general rule is supplemented by the fact that some of these antecedent engagements were continuous, and that the partnership duties to customers, apart from the ordinary duties of liquidation, lasted certainly until the 25th of August, 1875, when the claim against the government was realized.

It is suggested that an action for an accounting and settlement might have been brought upon the dissolution of the firm, and that a receiver might have wound up the business, and sold such claims as the defendant admits could not have been realized in due course until long afterwards. Without considering the question discussed by the learned judge at special term, as to whether the claim against the United States was saleable under § 1910 of the Code of Civil Procedure, read in connection with § 3477 of the United States Statutes, we need only say that the parties were not bound to sacrifice these contingent and doubtful claims. It was, indeed, their duty to nurse them, and to realize all they could upon them for the benefit of their customers or of their creditors, and they also had a right to do as much for themselves-when their customers were settled with. With what propriety, for instance, could either of these parties have rushed into a court of equity while they were carrying the securities already referred to after the dissolution; that is, from that time down to August, 1873? Would it have been a proper performance of duty to leave these securities to the tender care of a receiver, and to trust to his borrowing money, from time to time, under authority of the court, to save such securities from being sacrificed? And would it not, as against their customers, have been a downright breach of trust to permit a receiver to sell at auction so nebulous a claim, for instance, as that against the government? So, too, as to the claims against Dauchy and Neill. Dauchy gave the firm a mortgage upon land in Connecticut in which he had a vested remainder, subject to a life estate in his father; and the defendant actually authorized and requested a New York attorney to employ a Connecticut attorney to foreclose this mortgage as late as July, 1884. Neill had no immediate assets, but he had a contingent interest in real estate in this city, liable to be defeated by his death before his mother. These examples serve to suggest the reason for the rule stated by Finch, J., that the right to an accounting and settlement may accrue upon dissolution, and does accrue when “ some material necessity exists ” therefor, and no other fact or circumstance bars or postpones the remedy; all of which is another and more illustrative way of expressing the general principle, which runs through all the cases, that the statute does not necessarily run immediately upon dissolution, and that the question whether or not it does run must be determined upon the peculiar facts of each case.

It is also suggested that even in an action strictly between partners the receiver need not sell contingent and doubtful claims, but that these claims could be reserved, and the rights of the parties adjusted, upon such a winding up as might be presently possible, making proper provision, however, for the future division of what might ultimately be realized upon contingent or doubt

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fui claims. This suggestion, however, is based upon the former theory of the action. Of course, when it was found as a fact that the plaintiff was suing as a firm liquidator, and that the defendant owed the firm a specified sum, a cause of action for that specific sum, or for an accounting to ascertain such sum, was shown. The defendant, upon that theory, was bound to pay that specified sum (or whatever sum might be shown upon an accounting to be presently due) without regard to future credits. But, under the present findings, the question is not what he owed the firm, or was bound to make good to the liquidator at the moment of dissolution, but what, upon a final adjustment, he owed the plaintiff as a partner. That depended, as the learned judge has found, upon his net indebtedness to the firm, namely, his gross indebtedness according to the books, less his proportionate share of all future collections; and, consequently, his indebtedness to the plaintiff upon a final adjustment could not be ascertained or estimated until the assets had been realized. The learned judge has found that the defendant was entitled, as against the specific sum which he owed the firm, to be credited with one-fifth of all sums which might thereafter be collected and realized from the assets of the firm, and this finding is not excepted to. How, what is the force of this finding? The defendant was certainly not entitled to these credits as against a liquidator in a liquidator’s action ; that is, not presently entitled to such credits. He was bound in such an action to respond for. his gross indebtedness, and for his credits he had to await future collections. If, therefore, he is entitled' to such credits in this action, it is because of the character of the action, because, in truth, it is an action, not by an authorized agent of the firm to collect, an overdraft, but an action by one partner to compel his copartner to pay him the balance due upon the first day of July, 1884, the date specified in the complaint as that upon which, for the first time, the partnership transactions as between partners could be adjusted.

In addition to this finding, and in connection therewith, the learned judge has specifically found that (we quote the language) “ the amount of defendant’s indebtedness to the plaintiff depended upon the amount of his indebtedness to the firm, and could not be ascertained or-estimated until the assets of said firm were collected or realized, and defendant’s account with the firm had been adjusted; and defendant has claimed to be credited with his share of said assets when collected or realized.” This latter finding is excepted to, but the evidence in support of it is, as we have seen, overwhelming. The parties acted upon this view of the defendant’s rights; and their understanding, as it may be gathered from their acts and methods of liquidation, plainly was that neither party should be precipitate, and that the defendant should have the full benefit of all collections before any final accounting between the parties as partners should be required. The fact is that there was no difference or disagreement between the parties upon the dissolution. There was nothing to go into a court of equity about. There were then no charges or counter charges. They simply proceeded, each

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of them, with the liquidation, in the manner and upon the principles found by the learned judge at special term. The first nominal divergence occurred in 1880 and 1881, when the plaintiff demanded a settlement; but the real divergence occurred only when the liquidation was completed, and the hour for final adjustment, accounting' and money judgment thereupon had arrived. It was then that the defendant put in his answer in this action, and for the first time alleged that the business and affairs of the firm had been settled and adjusted at the date of the dissolution by the transfer of all the assets thereof to the plaintiff; an allegation, however, which conflicted with his own subsequent testimony, and which he has been compelled to abandon.

The learned counsel for the appellant does not dispute that the liquidation was peaceable, nor does he contend that there was any special cause for appealing to the courts, or, indeed, any cause whatever save the inherent right, which he insists always vests eo. instanti upon dissolution. But he does contend that the precise action could have been brought by the plaintiff at once. It is really difficult to appreciate the force of this contention, and especially difficult to comprehend the meaning of the statement which follows, and upon which the contention is founded, namely, that, if such an action as the present had been then brought, the allegations of the complaint and the prayer for relief would have been identically the same as they are now.

How could the plaintiff have alleged in October, 1872, that there remained outstanding and unadjusted copartnership transactions on the 1st day of July, 1884, and that these transactions had never been settled or wound up, and could not be until the date last mentioned ? And how could the plaintiff, in October, 1872, as a sequence to this last allegation, further allege that no final adjustment of the business or accounting between the “ parties as partners ” has been had ? But, apart from this, the statute did not necessarily run even against such a cause of action as that set forth in this complaint, omitting these impossible averments, for clearly the parties could postpone the ordinary remedy for a reasonable time, or until such remedy, because of some new fact or future circumstance, became needful. Our conclusion is that, upon the pleadings, the proofs and the findings, this case, in its true aspect, comes within the principle to which we have already adverted, and we think, therefore, upon its own special facts, the statute of limitations did not run at the time of dissolution, which was the 21st day of October, 1872, nor certainly between that date and the 5th day of August, 1874, which latter date preceded the commencement of this action by ten years. This conclusion is all that is necessary to sustain this judgment, although we have no doubt, upon all the facts, that the running of the statute was deferred at least during the continuance of the partnership for partnership purposes. But, further than this, upon both principle and authority, the partners could postpone the right to an accounting as between themselves until the business

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had been peaceably liquidated, to the end that all payments and receipts might be embraced in such accounting, and it might thus be final. No reasons occur to us for doubting that partners may do this if they please, and that they have done so in a given case may be implied from their acts in proceeding severally with the liquidation without antagonism, each, as here, giving the other assistance from time to time in effecting realizations, and without cause for seeking judicial aid. We think, therefore, that the real cause of action stated in the complaint and found by the learned judge upon ample evidence was a cause of action for a final accounting, which had by mutual consent been postponed until the defendant could receive credit for his share of all collections, and until his net indebtedness thereon could be ascertained, and this cause of action did not arise until the date specified in the complaint when the partnership transactions could finally be wound up, namely, “on or about the 1st day of July, 1884.”

The judgment should, therefore, be affirmed, with costs.

Yan Brunt, P. J., concurs.