Martin v. Smith

Headnote

Partnership accounting.—Death of one partner after dissolution ; specific claim for contribution for expenses as to one asset, and a denial thereof— outstanding assets afford no reason for refusing interlocutory judgment— Receiver of partnership assets, may be appointed to collect or dispose of, though one of the partners is deceased.—Practice—when findings not necessary.

Neither the fact that one of the members of a firm died after its dissolution; nor the fact of averments being made in the complaint in respect of expenses and disbursements incurred and made, in and about divers transactions had since the death of the deceased, in respect of an asset of the firm, and a claim made for contribution by the estate of the deceased partner, which averments are denied, and which claim is disputed by the executors; nor the fact that there are outstanding assets uncollected— afford any reason for refusing an interlocutory judgment for an accounting of the partnership affairs.

A receiver may be appointed in action commenced after the dissolution of partnership for an accounting, and to wind up the partnership affairs, to collect debts due the firm, or to dispose of them as the court may direct. This, although one of the partners may have died since the dissolution.

Findings are not necessary when judgment is rendered on the pleadings.

Appeal from an interlocutory judgment entered on the decision of a judge at special term.

This is an action for a partnership accounting. The complaint alleged that plaintiff and defendants, Elliott Smith and S. Sidney Smith, together with Augustus F. Smith, for several years prior to January 1, 1876, had been, and were up to that date copartners, under the firm name of Martin & Smith, in the business of attorneys and counsellors at law; that the firm was on that day dissolved by the retirement of Augustus F. Smith ; that Augustus F. Smith died in August, 1876, leaving a

will which was duly admitted to probate, and letters testamentary were duly issued to Elliott Smith, S. Sidney Smith and Howard A. Smith, as executors thereof ; that the liquidation of the firm had been going on for nine and one-half years. These allegations were admitted by the answer. The complaint further contained various allegations respecting divers transactions had since the decease of the retiring member, in respect of a certain asset of the ■firm called the Mariposa claim, among them, that divers expenses had been incurred, and disbursements made in and about these transactions which. had been paid by plaintiffs, and that a certain proportion thereof, to wit, $4,067.68, should be paid by the estate of the retiring partner ; that the executors had not paid the same, but resisted the payment thereof on technical and untenable grounds.

The answer denied all these allegations, in which it admitted the facts that the executors were called on to pay the sum of $4,067.68, and that the same had not been paid ; and made some affirmative allegations tending to establish that they were not bound to pay that sum, and that they were not bound to contribute to the expenses and disbursements incurred and made in and about said Mariposa claim.

The complaint further alleged that the remaining partners became, and were in fact the liquidating partners.

The answer denied that defendants, Elliott Smith or S. Sidney Smith, ever became or were in fact liquidating partners, or that they ever acted as such.

The complaint further alleged that the remaining property and assets of the said firm in liquidation comprised open book accounts, for which bills have been rendered at various times, amounting to about $13,000, also of a number of other book accounts for which bills were rendered from time to time, and which accounts had been charged off to profit and loss, the amount of which the plaintiffs were unable at that time to state,

also two first mortgage bonds of the Florida Central Railroad Company, of $1,000 each, with coupons since January, 1879, upon which the railroad company ceased to pay interest after January, 1879, also the said Mariposa claim amounting, with interest and the said outlay, to the sum of about $42,000, also a proportionate interest in several suits then pending and undisposed of.

The answer denied these allegations, but alleged that there were assets of said firm, consisting of debts and accounts due thereto, which remained uncollected.

The complaint claimed that the said partnership property remaining should be closed out by a public sale thereof, without further delay; and that the estate of Augustus F. Smith, deceased, and the executors of his will should be debited with said sum of $4,067.68, with interest, in the accounting therein prayed for.

The answer alleged that the plaintiffs, or said Isaac P. Martin, undertook and agreed as liquidating partner or partners, at the time of the dissolution of said firm, to collect the debts and accounts due to the firm, with reasonable care and diligence, and that it is the duty of said liquidating partner or partners, to collect such assets in the usual course of business from the individuals owing the same, and that they are not equitably entitled to have the same sold at public sale, for the reason that such a sale would necessarily result in an entire loss and sacrifice of such claims, so far as these defendants, being executors, are concerned; and denied that the estate of Augustus F. Smith, deceased, or the executors of his will should be debited with the sum of $4,067.68.

The complaint prayed that an account might be taken; that a referee be appointed to take and state such account; that judgment be rendered against the partners, and said estate, respectively, for the amounts respectively (if any) found due by them, respectively, to the other partners, or said estate, on such accounting; that a receiver be appointed with the usual powers and duties, or that a referee be appointed to take charge of and sell at public

auction all the remaining property and assets of the firm, and that the net proceeds of such sale (after payment of debts and liabilities, if any) be distributed between the surviving partners, and said estate, in proportion to their respective interests therein, and such interest should appear in such accounting.

The cause came on for trial at special term, when plaintiffs’ counsel moved on the pleadings for an interlocutory judgment, that an accounting be had, and for a reference for that purpose.

The motion was granted.

Thereafter an interlocutory judgment was made and entered, whereby it was adjudged that the plaintiffs have judgment, that an account be taken and stated of all the partnership dealings and transactions of the said firm, from the date of its formation to the time of its dissolution and since its dissolution, and of the moneys and other things received by or paid to the respective partners thereof, respectively, and their respective representatives, or paid out by them respectively in respect thereto, before and since the time of such dissolution down to and including the time of such accounting, and that an account be stated showing the respective amounts of- credit or debit, as the case might be, of said partners respectively, and of the defendants Elliott and 8. Sidney Smith, as executors of the last will, etc., of Augustus F. Smith, deceased, to the others respectively, in respect to the said partnership transactions, and in respect to the liquidation of the business of said firm, and showing the respective interests of the respective partners and of said executors in the remaining property and assets of said firm, or in the proceeds thereof when sold or otherwise realized after first paying thereout all indebtedness and liabilities (if any) of said firm. And whereby it was further adjudged that S. J., be and he thereby was appointed referee to take and state such account and to report the same to the court, and whereby it was further adjudged that said referee report to this court the evidence taken by him in

such accounting, and that upon the coming in of such report the final judgment be settled by a judge of the court upon eight days’ notice by either party, and that either party be at liberty to apply to the court at any time for any further provisions to be added at the foot of the decree.

From this judgment defendants appealed.

on the question considered in the opinion, argued :—I. The court erred in directing judgment for an accounting upon the pleadings, the allegations of the answer being taken as true, as they must be here, for the following reasons, viz: A suit for accounting will not be entertained even between partners unless an indebtedness appears (Stamps v. Bracy, How. (Miss. Rep.] 314; Hunt v. Cordon, 52 Miss. 197 ). This does not appear by the complaint herein as to the executors of Augustus F. Smith, deceased, the plaintiffs occupy towards the estate of Mr. Augustus F. Smith the relation of surviving partners: And this notwithstanding he retired from the firm No. 1 a few months before his decease (Nicoll v. Reid, 5 Sess. Cas. [Scotch] 4th series, p. 137). When one partner dies the survivors become the owners of the personal property of the firm : They hold the legal title pending the settlement of the partnership business, and not as trustees (Beatty v. Wray, 19 Penn. St. 516 ; Bush v. Clark 127 Mass. 111 ; Smith v. Wood, 31 Md. 293 ; Pfiffer v. Steiner, 27 Mich. 537 ; Robertshaw v. Hanway, 52 Miss. 717 ; Story on Partnership, § 346). The law casts upon the surviving partners the duty to wind up the affairs of the partnership and pay its debts out of the assets, if sufficient, and divide the residue, if any, among those entitled to it; and it is their legal duty to collect and realize upon them, so much so that the law requires them to do it without compensation (Beatty v. Wray, 19 Penn. St. 516 ; Johnson v. Hartshorn, 52 N. Y. 180 ; Ames v. Down

ing, 1 Bradf. 334 ). They are not entitled to have an account taken by the court until the property of the partnership is reduced to a money basis (Trufant v. Merrill, 37 How. [N. Y.] 531; Haywood v. Hutchins, 65 N. C. 574 ; Durand v. Einstein, 35 How. Pr. R. 241; Porter v. Spences, 2 Johns. Ch. 171 ). Plaintiffs cannot avoid performance of their duty as surviving partners, by asking the court to appoint a receiver, or referee, to sell the remaining assets—no reason being shown why the plaintiffs cannot sell them, if proper to be sold, or collect them in the usual way (Weber v. Dufa, 8 How. Pr. R. 502). They are not entitled to have account taken by the court until the property of the partnership is reduced to a money basis. As to contribution for the disbursements in the Mariposa claim, no calculation can be had until all the affairs of the partnership are wound up and a balance struck, and it is thereby ascertained that there are no partnership assets to pay such balance (Gleason v. White, 34 Cal. 258 ).

II. Even if the action in the opinion of the court might be entertained, despite the grounds urged for dismissing it, then it is further respectfully urged that the trial of the issues ought to have been proceeded with by the court (1) in order to ascertain in the first instance whether an accounting should be decreed, and (2) the principles upon which it should be conducted, and especially (3) whether the alleged Mariposa claim should be allowed upon such accounting, and, if allowed, (4) upon what principles it should be adjusted between the parties (Slee v. Bloom, 20 Johns. 689 ).

III. The issue presented as to the claim for contribution to expenses and disbursements connected with the Mariposa matter presented difficult questions of law, and should have been tried by the court (Code Civ. Pro. § 1013 ; Swan v. Liverpool Ins. Co., 21 Hun, 259 ; Barnes v. West, 16 Hun, 68 ; Reed v. Hozier, 31 Hun, 287 ; Magoun v. Sinclair, 5 Daly, 70 ), especially as no long issue appears to be involved (Keep v. Keep, 68 How. 139 ).

Counsel here argued that these expenses and disbursements grew out of a new contract or arrangement made since the death of Augustus F. Smith; and, therefore, defendants were not bound to contribute thereto—and cited 2 Bindley on Partnership, 1060 ; Story on Partnership, § 319 ; 1 Collyer on Part. (6 Am. ed.) 169 ; Bennet v. Buchan ( 61 N. Y. 225 ); Betts v. June (51 Ib. 279); Bacon v. Pomeroy ( 104 Mass. 577 ); Nelson v. Tanney ( 26 Hun, 330 ); Philips v. Wells ( 2 Ind. Rep. 324 ); Balsh v. Wyam (2 P. Williams, 453) ; Phene v. Gillam (5 Hare, 1); Jervis v. Wolferstan (43 Law J. Eq. 812; Perry on Trusts, § 907, &c. ; Hill on Trustees, 578) ; Downing v. Marshall ( 38 N. Y. 389 ); and distinguished Clark v. Clark (8 Paige, 152).

IV. The judge should have made a decision, stating his conclusions of law, and directing the interlocutory judgment to be entered thereon (Code §§ 1010, 1021, 1022). And entry of the interlocutory judgment without such decision was irregular (Code § 1228). And for that reason alone the judgment should be reversed (Loeschigk v. Addison, 3 Rob. 331 ). The memorandum of opinion handed down by Judge O’Gorman, is not such a decision as is required by the Code, and does not authorize the entry of judgment, neither does the signature of the justice to the interlocutory judgment constitute it a decision to satisfy the requirements of the Code (Weyman v. Nat. B’way Bank, 59 How. 332 ; Adams v. Nellis, 59 Ib. 385).

V. Even as a matter of discretion, the court ought to determine the question as to liability with respect to the Mariposa disbursements, first, in order to save the estate of a deceased person from unnecessary expense, and then, if the proof of such items should become necessary, a reference could be made for that purpose under the Code § 1015 (Camp v. Ingersoll, 86 N. Y. 433 ).

on the questions

considered in the opinion, argued :—I. This is the proper and usual case for a partnership accounting under the direction of the court. The authorities lay down the rule that a partnership, a dissolution, and unsettled affairs, are all that it is necessary to show in such an action. It is a matter of course, after the dissolution of a partnership, for any partner, if he so desires, to demand an accounting, and this will be decreed by the court (Story's Equity Juris. § 672; Collyer on Partnership, § 285a; Kuhnemundt v. Haar, 46 Super. Ct. 188; Ludington v. Taft, 10 Barb. 448 ; Cheeseman v. Wiggins, 1 T. & C. 595 ; Hall v. Sherman, 11 Week. Dig. 534; Kitchen v.. Duryee, Hoffm. Ch. 538). Defendant’s counsel on the argument below had much to say upon the proposition that it was “ a part of the contract of partnership,” that when one partner dies the surviving partners shall go on and close up the business, and that until they have so closed it up (i. e., as was expressly asserted in the oral argument, until they have “ converted all its assets into cash ”), they .cannot come to a court of equity and ask for an accounting. This extraordinary proposition, unsupported as it is by authority, and contrary to the every-day experience of the profession and the courts, it is hardly worth while to discuss, for the facts in this case do not bring it within the proposition, if conceded. The counsel has overlooked the fact that the partnership involved in the case at bar was not dissolved by death of one partner, but by agreement of all, and Mr. Augustus F. Smith did not die until about six months after this dissolution.

II. There was no error in regard to the “Mariposa item.” Defendants urged, as a subordinate proposition, that in case the court decided us to be entitled to an accounting, it should, before appointing a referee for that purpose, hear arid determine the controversy existing between the parties in regard to what is called the “Mariposa item.” This item, in and of itself, involves an accounting, inasmuch as the disbursements challenged by defendants extended over a series of years, and if the

court undertook to try this question, all of these expenditures would have to be examined. Some might be legal, even though others were not. We presume that the defendants are hardly ready to stipulate that if any one item in the Mariposa matter proves to be a proper charge against them, they will admit all the rest. But if not, then it follows that the court would have to examine, and pass upon each and every item.