Fairchild v. Valentine — 30 N.Y. Super. Ct. 564

Majority

p. 564

Charles A. Fairchild, plaintiff, vs. John H. Valentine et al., defendants.

Headnote

1. Where both parties seek an accounting in respect to business transacted under an agreement between them, and it is alleged and conceded that the business has entirely ceased, by reason of the failure of one of the parties to the agreement, each of such parties has a present right to an accounting, whether they are partners or not; and the principles on which the accounting is to take place will be the same, whether the agreement constituted a partnership or not.

2. If the agreement be construed as constituting a partnership, then an action for an account can only be sustained on the ground of its necessity for the purpose of adjusting mutual accounts. Hence the plaintiff must account, as well as the defendant, so that the mutual accounts may be adjusted.

3. Where, by the agreement between the parties, the plaintiff was to dispose of goods shipped to him by the defendants, and remit the proceeds to the latter, to be applied to the payment of drafts drawn on them by the plaintiff, the defendants relying on the goods to furnish the means of paying for them,

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and not on the personal responsibility of the plaintiff; Held that if the defendants were, under the agreement, only agents of the plaintiff, as to the . duties to be performed by them, the plaintiff was also their agent, as to the things to be done by him. And that this presented a strong case of mutual accounts.,

4. And that if the agreement constituted a partnership, then the accounting must be mutual; and that the defendants were entitled to an accounting on the theory of a partnership, although they did not aver that the partnership had been dissolved, nor pray for a dissolution; nor bring into court a sum of money which it >vas alleged they had received and not applied according'to the agreement; where the partnership was one at will, determinable at any moment, at the will of either of the partners; it appearing that the business had entirely ceased; and by reason of the insolvency and assignment of the defendants it was impossible to resuscitate or continue it; and that the sum of money was not a private debt due to the firm, but money received by the defendants as partners, in course of the partnership business, and they insisted there was a balance in their favor.

6. These facts, if they do not of themselves dissolve the partnership, furnish ample cause for a decree of dissolution.

6. Where both parties agree that the business transacted between them is at an end, and that the subject matter of the agreement is extinguished, and they both seek an accounting, disputing only as to the principles on which it shall be taken, the court may, in settling the decree, after trial, well disregard the want of an averment that the partnership has been dissolved, even if such an averment and prayer be technically necessary.

7. Such an adjustment of accounts between the parties may, in either aspect of the agreement, be had, in an action brought by one party thereto against another. If the agreement constitutes an agency, only, the accounting may be had under the allegations and prayer of the complaint; if it creates a partnership, then an accounting may be had under the answer and the prayer thereof, as affirmative relief.

(Before Jones, J., at Special Term,

July —, 1867.)

In this case the complaint sets forth a certain agreement made between the firm of. Fairchild & Eobinson and the firm of Valentine & Go.; that no agreement was made as to any losses that might arise in the prosecution of the business; that no mention was made of any partnership between the parties, but that the agreement was made simply as a method of compensation for the services of Valentine & Co., and in lieu of any fixed commissions

p. 566

therefor. That in pursuance of said agreement, Fairchild & Robinson purchased goods in the city of blew York, for the price of which they drew drafts on Valentine & Co., who accepted and paid the same to the amount of $25,000 and over. That Robinson died October 28, 1865, and Fairchild continued the business, as survivor. That Fair-child & Robinson, and Fairchild as survivor, purchased large amounts of goods for the price of which they and he drew drafts on Valentine & Co. to the amount of $25,000, which drafts were accepted but not paid by Valentine & Co. That Fairchild & Robinson, and the plaintiff as survivor, under said agreement, shipped to Valentine & Co. large amounts of goods and remitted divers drafts, amounting in all to $30,000, which under said agreement were to be applied by Valentine & Co. to the payment of the drafts drawn on them. That on the 27th day of December, 1865, Valentine & Co. had in their hands, after deducting all drafts paid them, and all proper expenses, a surplus remaining out of the said goods and remittances sent to them, of about $3322.23, which surplus was applicable to the payment of debts contracted for the goods sent to Fair-child & Robinson, and Robinson as survivor, but which has not been so applied by Valentine & Co. That Valentine & Co. effected certain insurances .on goods purchased for Fairchild & Robinson, and Fairchild as survivor, the losses on which goods, if any, were under said agreement to be paid over to Fairchild & Robinson, or the plaintiff* as survivor, and to be applied to the payment of the outstanding indebtedness that might exist, growing out of the business conducted under said agreement. That some of such goods so insured were wholly lost, and others damaged by the perils insured against. That Valentine & Co. failed in December 1865, and on the 26th day of December, 1865, made a general assignment of all their property to George F. Valentine. That .such assignment

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was voluntary, was made for the benefit of the creditors of Valentine & Co. and was without any valuable consideration. That the plaintiff* was not a party to such assignment, and has not ratified or confirmed the same, and that the same is fraudulent and void as to him, and as to the creditors of Fairchild & Robinson, and of the plaintiff* as survivor. . That after the execution of such assignment, and in ignorance thereof, the plaintiff sent to Valentine & Co., under said agreement, a certain draft which was by them assigned to their assignee. That there are certain scrip dividends arising out of an insurance effected under said agreement. That the assignee of Valentine & Co. claims, under the assignment made to him, the six policies of insurance and losses payable thereon, the scrip dividends, the said draft, and all moneys transferred by the firm of Valentine & Co. and claims the right to apply the same to the payment of the general indebtedness of Valentine & Co. in which firm the plaintiff was never interested in any manner. That prior to the commencement of this action the plaintiff" requested said assignee to apply the above mentioned assets to the payment of the outstanding obligations arising out of the business carried on under the aforesaid agreement; which the said assignee refused to do.

The answer of the defendants, as I construe it, denies, 1st. That the agreement set forth in the complaint was made simply as a method of compensation, or that it did not constitute, in law and in fact, a partnership. 2d. That the agreement was continued with the plaintiff as survivor. 3d. That Fairchild & Robinson, and Fairchild as survivor, purchased large amounts of goods, for the price of which they and he drew drafts on Valentine & Co. to the amount of $25,000, which drafts were accepted but not paid by Valentine & Co., or that Fairchild & Robinson, or Fairchild as survivor, shipped to Valentine & Co.

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large amounts of goods and remitted their drafts amounting to $30,000. 4th. All the allegations of the complaint respecting the surplus of $3322.23, and also denies that that sum, or any sum, is due the plaintiff, or to him as . survivor. 5th. That the moneys to he-received from insurances were to be paid to Fairchild & Eobinson. 6th. That any goods covered by insurance have been lost or damaged by the perils insured against. 7th. That the assignment made by Valentine & Co. is fraudulent and void as to the plaintiff or any other person.

The defendants then allege, as affirmative matters, that the firm of Fairchild & Eobinson made large profits and earnings in said business, to all of which the defendants Valentine & Co. are entitled to one half, which half, they believe amounts to over $6000, no part of which has been paid or accounted for by the plaintiff or the firm of Fair-child & Eobinson. That the draft of Jeffry Brothers, mentioned in the complaint, was applied by Valentine & Co. to the payment of the indebtedness of the plaintiff to them, and therefore delivered to their assignee for the benefit of all their creditors.

The plaintiff, on the allegations in the complaint, demands as relief that the said assignment be adjudged void as to' the plaintiff and the creditors of Fairchild & Eobinson, and of the plaintiff' as survivor, so far as said assignment tends to transfer any property sent to Valentine & Co. under the said agreement, or the proceeds, ■thereof; that the defendants be decreed to account with the plaintiff, of and concerning the money, property and assets, or the value of such property which they or either of them have received from said firm of Fairchild & Eobinson or the plaintiff', or which may have come into their hands, or those of either of them, from said firm or said plaintiff, or which, under said agreement would be properly applicable to the payment of the debts of Fairchild

p. 569

& Eobinson, and of the plaintiff as survivor; and that the defendants be adjudged to .pay over and deliver the same to the plaintiff, or to a receiver to be appointed by the court. That an injunction issue restraining the defendants from interfering with or disposing of any part of said assets or property; and that such other and further order may be made in the premises, for a distribution of the said moneys, property and proceeds among the creditors of Fairchild & Eobinson, and of the plaintiff as survivor, as to the court may seem just and proper.

The defendants demand as relief, that an accounting be had as to the profits earned by Fairchild & Eobinson, and that one half of such profits be credited to Valentine & Co. and the balance be paid to the assignee of Valentine & Co.

The evidence, in connection with the allegations in the pleadings, established the following facts: The firm of Fairchild & Co., doing business in Florida, and the firm of Valentine & Co., doing business in the city of Flew York, made an agreement with each other, by which goods were to be purchased at the city of Flew York and shipped to Fairchild & Co. at Florida, for sale, and Fair-child & Co. were to purchase goods at Florida and ship them to Valentine & Co. at the city of Flew York, for sale. The goods purchased by either firm were to be paid for by Fairchild & Co.’s drafts on Valentine & Co., accepted by Valentine & Co., which drafts were to be paid by Valentine & Co. The proceeds" derived from the sale of the goods, both of those sold at Florida and those sold at the city of FTew York, were to be applied by Valentine & Co. to the payment of such drafts. If net profit arose from such business of purchasing and selling, it was to be equally divided between the two firms. In ascertaining the net profits, expenses of freight, store rent, clerk hire and the like, were to be deducted from the gross proceeds.

p. 570

If any goods were insured, and a loss occurred, the amount received from the insurance companies was to be applied in the same manner as the proceeds of the goods, if sold, would have been.

Neither in the .negotiation that led to the agreement, nor at the time of making the agreement, was the term or word partnership used, or any division or sharing of losses mentioned, or any thing said about the half of the net profits being a compensation for the defendant’s services in lieu of services.

Under this agreement, the two firms commenced the business contemplated thereby, and continued the same until the failure of Valentine & Co. In the course of the prosecution of this business, a large quantity of goods were sent from New York city to Fairchild & Co., and also sundry goods were shipped by Fairchild & Co. to Valentine & Co. For the payment of the purchase money of these goods, drafts to a large amount were drawn by Fair-child & Co. on-Valentine & Co. Of the drafts some were accepted and paid, others accepted and not paid, others neither accepted nor paid. There was also an open account for the purchase money of goods sent to Fairchild & Co. for which no draft was drawn, and which remains unpaid. The drafts which were paid, were, as the plaintiff claims, paid with proceeds of goods shipped to Fairchild & Co., which proceeds were remitted to Valentine & Co. for that purpose, and with the proceeds of goods shipped to Valentine & Co. by Fairchild & Co.- And the plaintiff claims that after deducting from such proceeds the amounts of drafts paid, there remains a surplus which ought also to have been applied to the payment of other drafts, but ■which were not applied. The defendant, on the other hand, claims that the amount of such proceeds was not sufficient to cover the drafts which they did pay.

In the course of the business, certain goods which

p. 571

were shipped under the agreement were insured in the name of Valentine & Co. The goods were either lost or damaged by perils covered by the policies. ÍTothing had been collected on the policies at the time of the cessation of the business.

: At the time of the cessation of the business, Fairchild & Co. either had on hand, or had sold and failed to remit the proceeds of, a large quantity of goods shipped to them from blew York by Valentine & Co., under the agreement. For these goods, or the proceeds thereof, Fairchild & Co. refused to account.

• Valentine & Co. failed, and made an assignment preferring certain debts due by them, other than those contracted in the above mentioned business, together with certain of the said drafts. ' The assignment also, in terms, assigns the above mentioned policies, and after the assignment a draft sent by Fairchild & Co. to Valentine & Co., under the said agreement, was delivered to the assignee.

Mr. Hills, for the plaintiff.

Mr. Foster, for the defendants.

The expressed terms and conditions agreed on between Valentine & Co. and Fairchild & Robinson were as above found, and the complaint, although inartificially, yet substantially, alleges them to have been the terms and conditions of the agreement, bfor does it seem to me that there is any serious conflict between the parties but that the expressed terms and conditions were as above found. But the dispute is as to the effect of these expressed terms and conditions. The plaintiff claims that by them no partnership is created, but that the defendants are merely his agents, and that they are bound to account to him, without his accounting to them. The defendants,

p. 572

on the other hand, claim that a partnership is constituted by them, and consequently that they are entitled to an account, and the plaintiff cannot have an account from, without accounting to, them.

For the disposition of this action, I think it unnecessary to determine whether this agreement constitutes a technical partnership, as between the parties themselves, or not. Both parties seek an accounting under the agreement. Each of them has a present right, as against the other, to an accounting, whether they are partners or not, it being alleged and conceded that the business has entirely ceased by reason of the failure of Valentine & Co.; and the principles on which the accounting müst be taken will be the same whether the agreement constitutes' a partnership or not.

The plaintiff seems to suppose that if there is no partnership, and the defendants were simply his agents, he is entitled to an account from, without rendering an account to, the defendants. This, however, is not so. . If such be the construction of the agreement, then this action can only be sustained on the ground of its necessity for the purpose of adjusting mutual accounts. ( Wilson v. Mallett, 4 Sandf. 112 .) It being sustainable on that ground alone, it is obvious that the plaintiff -must also account, so that the mutual accounts may be adjusted.

' But the plaintiff is in error in supposing that, in. the event of the agreement not constituting a partnership, the sole relation of the defendant Valentine & Co. to him is that of his agents owing duties to him without his owing any duty to 'them. Under the agreement, the plaintiff' was to dispose of the goods shipped to him, and remit the proceeds to the defendants, to be applied, under the agreement, to the payment of drafts. It is evident that the defendants- relied on the goods to furnish the means wherewith to pay for them, and not on the personal

p. 573

responsibility of the plaintiff. If, then, the defendants Valentine & Co. were, under the agreement, only agents of the plaintiff, as to the matters to be performed by them, the plaintiff was also their agent, as to the matters to be done by him. This presents a strong ease of mutual accounts.

If, however, the agreement did constitute a partnership, there is no question but that- the accounting must be mutual. But the plaintiff says the defendant is not entitled to an accounting on the theory of a partnership, because he does not aver that the partnership has been dissolved, nor pray for a dissolution, and also because he does not bring into court the sum of $3322, which it is alleged he has received and not applied according to the agreement.

As to the first objection, the partnership was one at will, determinable at any moment, -at the will of either of the partners; the business had entirely ceased; and by reason of the insolvency and assignment of Valentine & Co. it was impossible to resuscitate or continue it. These facts appear both in the complaint and answer. If they do not of themselves dissolve the partnership, they furnish ample cause for a decree of dissolution.- Both parties agree that the business is at an end, and that the subject matter of the - agreement is extinguished; they both seek an accounting, disputing only as to the principles on which it shall be taken; under such circumstances, the court may, in disposing of the cause after trial, well disregard the want of an averment that the partnership has been dissolved, or of a prayer for a decree of dissolution, even if such averment and prayer be technically necessary. -

As to the second objection, the sum in question is not a private debt due to the firm. It is money received by one of the partners in course of the partnership business, and Valentine & Co. insist there is a balance in their favor.

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There is, therefore, no pretense for compelling them to pay it in. (Collyer on Partnership, § 302.)

The plaintiff, however, insists that Valentine & Oo. were bound by the terms of the agreement to apply this sum to the payment of debts of the business, and that they are consequently bound so to apply it irrespective of the state of the accounts. It is not, however, at present, a question as to what they were bound to do during the running of the business, but what they are bound to do to entitle themselves to an accounting from the plaintiff. This action is between the original parties to the agreement. By the agreement, the primary fund for the payment of the debts in question was the proceeds arising from the sale of the goods. If the goods themselves, now held by the plaintiff, and the proceeds arising from the sale thereof, now actually or in contemplation of law in the plaintiff’s hands, are sufficient to pay the debts of the business, and leave a profit, one half of which would be the sum of $3222, there can be no justice in requiring the defendants, as between themselves and the plaintiff, to pay that sum into court, or apply it to the debts. It is, on the contrary, the duty of the plaintiff to apply the goods and proceeds in his hands to such payment.

Whether the agreement, then, constitutes a technical partnership or not, the accounting must be mutual. That accounting must be taken, and the assets of the business applied according to the terms of the agreement. And it is evident that the principles on 'which the account must be conducted will be the same, whether the agreement constitutes a partnership or not.

T-his adjustment of accounts may. be had in this action, in either aspect of the agreement. If it constitutes an agency only, under, the allegation and prayer of the complaint; if it be a partnership, it may be had under the

p. 575

answer and its prayer, as affirmative relief. (Code, §§ 149, 150, 274.)

There must he judgment declaring said assignment void as to the plaintiff and Fairchild & Robinson, and the creditors of the business carried on under said agreement, so far as it tends to transfer any property sent to Valentine & Co. under said agreement, or the proceeds thereof, and directing both the plaintiff and defendants to come to an accounting together, of and concerning said business. Such accounting to be had before John M. Mason, who is hereby appointed a referee for that purpose. A receiver must also be appointed, under the direction of said referee, to whom both plaintiff and defendants must transfer all assets now remaining' in their hands, of the said business, including the policies of insurance and Jeffry drafts mentioned in the complaint, and all moneys received thereon, and all goods now in the hands of the plaintiff, and drafts or evidences of debt taken for the payment of such as have been sold; but excluding any mere general indebtedness of either of the parties to the other for moneys received in the course of the business, and not on hand at the time of the assignment, for which indebtedness, when ascertained by the referee, the receiver to be appointed shall, in case the assets be insufficient to pay the creditors of the business in full, bring an action to recover; but if such assets be sufficient to pay such creditors in full, but insufficient to pay such indebtedness in full, the party in whose favor such indebtedness is reported shall have against the other a personal judgment for the amount unpaid.

The transfer of the assets must be under the direction of said referee, who shall for that purpose have power to summon the parties and witnesses, as shall be necessary for that purpose.

The receiver to ascertain who are the creditors of said

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business, and the amounts due them respectively, and out of the assets in his hands to pay such creditors the amounts due them respectively in full; or if the assets be insufficient to pay them in full, then to pay them fro rata. And if any surplus be left, then to divide such surplus equally between the plaintiff and the defendant George F. Valentine; unless the said referee shall find either said plaintiff or Valentine & Co.'to be indebted, the one to the other, on the accounting taken by him; in which case such surplus shall be first appropriated to the payment of ■ such indebtedness, and the residue only (if any) be divided equally between the plaintiff and the defendant George F. Valentine.

An injunction must also go against both plaintiff and defendants.

Both parties to have costs of this action, to be paid out of said assets in the first instance.

Cases cited

Wilson v. Mallett 4 Sandf. 112 N.Y. Super. Ct. 1850-07-15 p. 572