Opinion
(June Term, 1831.)
1. All the members of a partnership are necessary parties to a final settlement of the partnership accounts; and if after such settlement one leaves his share in the hands of the acting partner, he does so at his own risk. But if pending an account, and before its settlement, one of the partners receives his share of the profits without the consent of the others, upon the insolvency of the active partner he must account with the others for the amount thus received.
2. After the dissolution of a partnership each partner is a trustee for the others as to the partnership funds in his hands. But if one of them pays over to the acting partner the partnership effects, unless mala fides be improved, he is not liable upon the insolvency of the latter.
3. If several partners conspire to defraud their copartner out of his share of the profits, and act with a view to effect that purpose, it seems that each is liable for the balance due such copartner, on an adjustment of the partnership accounts.
4. A partner who has received none of the profits must first exhaust the partnership effects existing in specie before he can compel contribution from a partner who has received his share.
5. Where of four partners one died insolvent, largely indebted to the partnership, and two others, without the consent of the fourth, received their shares from his executor, the sum so received remains, as between the survivors, joint stock.
6. Where an acting partner dies insolvent, having appointed one of his copartners executor, who retains his profits as a debt due from the testator, he is bound to account with the other partners for the sum retained.
7. Where an acting partner takes bonds payable to himself for partnership debts, and dies, in equity these bonds are copartnership effects.
THIS bill was originally filed in IREDELL, in 1822, and was amended in the following year. It charged that in 1817 the plaintiff entered into partnership with the defendant Davidson, and with Robert Worke and Robert Simonton, who were also defendants, for the purchase of slaves in this State and the sale of them in the State of Mississippi; that each partner was to advance $4,000, and that the profits were to be equally divided; that in pursuance of this agreement a large number of slaves were purchased, which were carried by the plaintiff and Simonton to Natchez, in the State of Mississippi, and there sold; that a very large profit was made upon this adventure; that Simonton had, while at Natchez, the charge of the slaves, and received the money upon cash sales, and was the active partner; that in 1818 the plaintiff received from Simonton the capital advanced by him, but that all the defendants had, upon various pretences, refused to come to a settlement with the plaintiff and pay him his share of the profits. The prayer was for an account and for payment of the plaintiff's share of the profits.
Badger Devereux for plaintiff.
Gaston for defendant Davidson.
The defendant Simonton, in his answer, stated that previous to 1817 a copartnership had subsisted between the other defendants and himself in the purchase and sale of slaves; that in 1816 they sold a large number on credit in the State of Mississippi, and upon the debts becoming due, it was determined that the person who went to collect them should carry out a number of slaves with him; that Worke had left Iredell for the purpose of making purchases of slaves, and himself and Davidson were to have followed him, when he met the plaintiff's father, who proposed that the plaintiff should be taken into their (80) copartnership, observing that as the plaintiff was a very young man and entirely inexperienced, he did not expect him to be admitted upon terms of perfect equality, and that he, the father, was principally anxious to get the plaintiff into business and enable him to acquire some knowledge of it from experience; that he (Simonton) being upon terms of great intimacy with Allison, the elder, replied that he was willing the plaintiff should be admitted, but that his admission must finally depend upon its meeting with the approbation of Davidson and Worke. He denied that any other agreement as to the admission of the plaintiff was ever made, and admitted that $4,000 was advanced by Allison, the elder, for the benefit of the plaintiff, in the speculation then on foot.
The answer contained a discovery as to the purchase and sale of the negroes. To an amendment averring that he had executed a memorandum in writing, whereby the plaintiff was declared to be equally interested in the profits, he answered that he had no recollection thereof.
The defendants Davidson and Worke both denied the right of the plaintiff to an account. Before the case was set for hearing both Simonton and Worke died, the former having appointed the defendant Davidson and Theophilas Falls and James Campbell executors; the latter, his wife and John Mushat, who were severally made parties by sci. fa., and all denied assets liable to the plaintiff's demand.
Replications were taken to the several answers, and depositions filed in one of which a written memorandum of Simonton was proved, whereby he declared the plaintiff interested in one-fourth of the negroes "now buying."
At December Term, 1829, by an interlocutory order, the right of the plaintiff to an account was established, and a reference of the partnership dealings was directed, and also an account of the assets of Simonton and Worke.
At this term the clerk reported that the net profits of the partnership dealings amounted to $9,507.10, of which each partner (81) was entitled to $2,376.25; that a capital of $4,180 was advanced by the plaintiff and $4,420.91 by each of the defendants; that Simonton received for cash sales at Natchez, $20,275; that at the same time sales to the amount of $6,125 were made upon a credit, the notes for which were taken payable to Simonton; that after crediting him with his own capital and profits, and the capital of Davidson, which it was admitted by the latter was advanced by him, he owed to the copartnership $8,794. 88. In relation to this balance, the clerk reported specially that Simonton, Worke, and Davidson had been copartners in the business before 1817; that Simonton and Worke both died before a settlement of their various copartnership dealings had taken place; that the executors of Worke filed a bill against the executors of Simonton for an account; that the matter in dispute had been referred to an arbitrator, who had decided that the executors of Simonton owed the executors of Worke $6,127.89, which had been paid them; that there was no direct evidence before him whether the whole or any part of this sum was on account of Worke's capital and profits in the partnership, of which the plaintiff was a member, but from the fact that nearly all the partnership effects were in Simonton's possession, he inferred that those profits and that capital did constitute a part of the said sum of $6,127.89.
As to the sum of $6,125, the amount of credit sales at Natchez, the clerk reported that $4,967 thereof had been collected by Davidson's to whom Simonton had delivered the bonds; that upon Davidson's return from that place he paid Simonton $3,468, and retained in his own hands $1,504, and that Falls, one of the executors of Simonton, had, since the death of his testator, received from the agent who collected the debts the balance thereof, including interest, amounting to $761.90; that Davidson had received of the partnership effects the sum of $1,504 above mentioned, and also $1,430.85, remitted him by the agent charged (82) with the collection of the bond given upon the credit sales; that at the death of Simonton there existed an unsettled account between him and Davidson; that this account was, by an agreement between Davidson and his coexecutors, referred to arbitration, and that Davidson charged Simonton, and was allowed by the arbitrators, the sum of $3,250 as his share of the profits of this copartnership; that the balance in Davidson's favor, and which was awarded him after sundry credits, and among them the sum of $1,504 above mentioned, amounted to $2,389. 98, and that in entering up judgments against the executors of Simonton, Davidson had uniformly retained this sum.
The clerk also reported that the plaintiff was entitled to interest upon the amount due him, as follows, viz., upon three-fourths thereof from the time when the copartnership operation closed, 1 June, 1818, and upon the balance from 1 June, 1819.
The clerk reported upon the account of Worke's and Simonton's assets; but as it was agreed by the counsel, at this term, to discuss the cause only so far as the defendant Davidson was personally liable to the plaintiff, upon the supposition that both Worke and Simonton died insolvent, it is unnecessary to state the result.
After the exceptions mentioned below were filed, the clerk, in a supplemental report, stated that he had overlooked an admission of Simonton's in his answer, which proved that he had improperly charged the defendant Davidson with the sum of $1,430.85, and that it was properly chargeable to Simonton.
The plaintiff excepted to the report as follows:
1. Because the master had not charged Davidson with the sum of $3,250 retained by him as his share of the profits of the copartnership.
2. Because the clerk had not charged Davidson with all the money received by Simonton, so as to render him liable for the plaintiff's capital and profits.
3. Because the clerk had not charged Davidson with the full amount of cash actually received by him, but only with that which he retained out of collections made at Natchez.
Other exceptions were filed as to the liability of Worke's (83) executors, one of which was that the clerk had not charged the executors of Worke with the share of the profits which he had received. These exceptions were not argued.
The defendants Davidson and Falls excepted, (1) because the clerk had improperly charged the former with $1,430.85, as received from the agent at Natchez; (2) because it did not appear whether the sum of $761.90, mentioned in the report as having been received by Falls, was partnership effects or the separate property of Simonton.
Of these two exceptions, the first was admitted by the counsel of the plaintiff to be well founded. The second was withdrawn by the defendants.
It has been contended on behalf of the plaintiff that Davidson is liable for the insolvency of Simonton, because this, being a limited partnership, was dissolved on the completion of the trip, and after dissolution each partner has a lien on the effects for his share, and each is, as to the funds in his hands, a trustee for the others for their share, made several by the dissolution.
This proposition must be qualified at least thus far: that the expiration of the term leaves the copartnership in existence for the purpose of closing its concerns. And if by the terms of the agreement and course of the business it is plain that one of the partners was to close it, was to be the acting and managing partner, a deposit of the effects of the firm with that partner by another is justifiable. Such a deposit is taken as made for the purposes of the business, that is to collect the effects into one fund, in the proper hand for adjusting the accounts, ascertaining the profits, and making actual division. That, in such a case, is to be taken as the intent until bad faith is made to appear. It is to be so taken because it was so agreed. This repels the idea that the payment to the acting partner of the money in which another partner (85) had a share, was to defeat this latter one and so in breach of trust. A partner, thus holding property after the dissolution, may be a trustee for each of the others severally. But he is only liable as other trustees. He is not bound to pay to each one personally his share of that money if, by the agreement, the whole was to be paid to a particular partner for division; for then the payment to the partner, who is the general receiver, is according to and in execution of the trust.
In the case before the Court it is plain that this last was the nature of the agreement or understanding of the parties. The whole business had been conducted in the name of Simonton alone. The plaintiff accompanied him to Natchez to make sales, yet the sales were made by Simonton; he received all the money, although the plaintiff was present, and did not even then return his capital; the bonds for the price of the negroes sold on credit were made payable to Simonton. He was looked to and trusted by all parties, and more particularly by the plaintiff, who alone went with him in person on the trip. The next year Davidson received the bonds from Simonton, and went to Natchez to collect them. He did collect $4,967 thereon, and on his return paid to Simonton the sum of $3,463 and retained $1,504. The clerk has charged him with this last sum, and the plaintiff excepts because he has not charged Davidson with the whole sum of $4,967. If the payment had been wrongful, if it had been against the agreement, if it had not been according to the argument, the exception might be well founded. But under the understanding existing in this case, which we are obliged to see from the circumstances, the payment to Simonton was a proper one; and, therefore, this exception is overruled.
It is said, however, that the denial of the plaintiff's right, and of the partnership by Worke and Davidson, amounted to a combination to defeat the plaintiff by placing the funds in Simonton's hands, out of his reach, and so amounted to a conversion, and that renders each liable for the other.
If the purpose of paying the money into Simonton's hands, (86) or if the purpose of denying the plaintiff's right in the answer, was that the money might be there with a view of defeating the plaintiff of rights clearly known to those defendants, a case of flagrant fraud and perjury would be made out, which would induce the Court, as far as possible, to reinstate the plaintiff out of the effects of the defendants. But it does not appear that Worke and Davidson did know the terms on which Simonton had admitted the plaintiff. And if they had, it does not appear that the payment to Simonton was designed to defeat the plaintiff, or that he objected to such payment. On the contrary, Simonton's hands were those which the plaintiff wished to hold the money. He had no confidence in the others; he had in Simonton, and looked to him for what he was entitled to. The bill is filed upon the foundation that Simonton had, and rightfully had, the money. The others are not made parties for the sake of relief against them, but because they were necessary parties against whom the partnership was to be established, and between whom the division of profits was to be made. The liability of Worke and Davidson for Simonton is an afterthought, inconsistent with the scheme on which the bill is framed, and inconsistent with the true agreement between the plaintiff and Simonton. That those defendants must have been aware of an interest of some sort in the plaintiff, of a kind of partnership, cannot be doubted. But both sides trusted to Simonton to determine the particulars, and as the line of their union, and whatever might be the extent of the respective interests, the general fund was to be in Simonton's custody. The Court, therefore, sees nothing in this part of the case, more than rein the other, to make either of those persons liable for more than remains in his hands. And therefore, the second exception of the plaintiff is overruled.
But that each of these defendants is respectively liable for what he has in his hands seems equally clear. When a partnership is closed by stating a final account, ascertaining the amount of the general fund, and of the shares of each partner, each hath a right then to receive his share. If one gets in from the holder his share, as his (87) share, and another delays to take his, but leaves it in deposit, it must be taken that he leaves it as his own, and not the property of the whole. Each partner is necessarily a party to such an adjustment in fact as well as interest, and must know the state of his property. He leaves it at his risk; and if the general receiver fail, the loss is that of the individual who trusted him. But until the concern be closed by taking a final account there is no power in any number of the partners to the prejudice of another, to declare either the sum or the shares of profits; and any effects of the concern received by one remain, in respect to the rights of the excluded partner, joint property. Upon a loss of the residue, he has a right to resort to any one for his proportion of the effects in his hands. The injured partner has never consented to his receiving them as his own, and is, therefore, not bound by the division. It is true, he who has thus got a part may point out to the other how he may get his share — where the fund for his satisfaction may be found — and so far as that will go, he shall take it, and not disturb what has been done. But the arrangement is no further obligatory. For example: Falls has here $761.90, said to be of the partnership effects. If that turn out so, that will do to satisfy Allison pro tanto, and he shall look to it, if it can be got. But if it cannot be got, the loss must fall on all three of these partners, Allison, Worke, and Davidson equally; and the two last must make a common stock, for the three, of the moneys in their hands, because, as to the plaintiff, it remains joint stock, though as between themselves and as between them and Simonton it is several. Wherefore, the exception as to the liability of Worke's executors is allowed, because it is reported that the executors of Worke have received his capital, viz., $4,420.92, and full share of the profits, viz., $2,376.271/2, and yet the clerk hath not charged him with the latter sum, or any part thereof. As to the plaintiff, that remains a joint fund, for the payment of profits.
The question yet remains, With what sum is the defendant Davidson to be charged ? The clerk states an account in which he is charged with $2,934.85, which he collected of the funds in Mississippi, and (88) gives him credit for $2,376.27 1/2 for his profits; leaving a balance in his hands of $558.57 1/2. To an item of $1,430.85 of those debits this defendant excepts; and the exception is allowed, because the evidence is that Simonton received that sum, and not Davidson. This reduces the sum chargeable to Davidson to $1,504, which he retained, as before mentioned. The sum this defendants claims, and the clerk submits the property of the claim, as for his own profits. This claim the Court has already discussed, and disallows upon the principle on which the exception relating to the liability of Worke's executors was allowed.
Is that the only sum which the plaintiff has a right to consider as debits this defendants excepts; and the exception is allowed, because the exception. That relates to this state of facts: Davidson is one of the executors of Simonton, and by arbitration between him and his co-executors, their accounts were settled after the death of the testator. Upon that occasion Davidson gave Simonton credit for $1,504, and charged him with $3,250, as "his fourth part of profits on sale of negroes the last trip to Natchez," and a balance was awarded to Davidson, which he has retained. This was an excess of $873,72 1/2 above his actual profit. It has been contended for, first, that this excess alone is open to Allison, because he received the other as his own profit. That has been already answered. Next, that no part of it is accessible to Allison, because there are judgments against Simonton's executors for a very heavy amount, on specialties, not satisfied, and that Davidson will be bound to answer for this sum as assets, to those creditors. If such were the facts, the Court would not take them now; for if the act by which he attempted to appropriate that sum to his own satisfaction, did not effectually appropriate it, it must be left for the benefit of those whose legal priorities would overreach both these parties. But such is not the case. In taking all the judgments this retainer has been allowed, and the judgments (rendered since the receipt of the assets, and the appropriation of this portion of them) are all quando, as appears from the report (89) of Simonton's estate, which the defendant does not except to. Those judgments never can reach this money. Mara v. Quin, 6, Term 1. The case is then this: that this defendant has retained the money upon a ground which, as between him and the plaintiff, is for their joint benefit, and it can never be taken from him by anybody having a better right. Can he be permitted to keep off the plaintiff by allegation that he ought not to have retained at all? The very proposition pronounces its own answer. For these reasons, the plaintiff's first exception is allowed.
The defendant Falls excepts to the clerk's report charging him with having $761.90 of the partnership effects in his hands. This sum was received by him since the death of Simonton, as the balance due on bonds taken on the sale of negroes. That fact is clear. The bonds were payable to Simonton, who transacted the business; which enabled Falls to collect them. But they are not the assets of Simonton. They are, in this Court, the effects of the copartnership, and belong to the surviving partners. If the partnership property cannot be traced, it necessarily falls into the general funds of the possessor, as money. But if it remain in specie or securities, it is joint property, and survives. Wherefore the exception of Falls is overruled.
The effect of these several judgments is that Falls must pay into this Court, for the use of the plaintiff, the said sum of $761.90, with interest thereon from this day, unless the whole be paid to the clerk or the plaintiff within thirty days, and in default of such payment within that time, that execution issue therefore, with interest as aforesaid. As it does not appear that Falls is insolvent, that sum must be taken, for the present, as available to the plaintiff, and therefore the residue of the plaintiff's stock, namely, $180, with interest thereon from 1 June, 1818, to 1 September, 1831, viz., $145.80, making together the sum of $325.80, must be first satisfied thereout, which will leave a balance thereof (90) of $466.10 applicable towards the plaintiff's profits. The sum then due to the plaintiff as principal money, by way of profits, will be $1,910.17 1/2 which with the profit of $2,376.27 1/2 belonging to the defendant Davidson, makes an aggregate of $4,286.45; towards which the said sum of $3,250, received and retained by Davidson, is applicable to the respective profits belonging to each — namely, to Davidson the sum of $1,858.05, and to Allison the sum of $1,391.95, with interest on $927.95 (part thereof) from 1 June, 1818, and $418 (the residue thereof) from 1 June, 1819, until paid; and it is decreed that execution may forthwith be sued therefor.
This sum is thus ordered to be presently raised from the defendant Davidson, as that which the plaintiff will be entitled to receive from him, upon the supposal that Robert Worke's estate is insolvent. Equity will adjust the loss equally between the three; but at present the estate of Worke is reported insolvent, and the counsel have not thought proper to dispose of the report upon that part of the case. Should it turn out to be otherwise, that estate will hereafter be compelled to pay its proportions of the plaintiff's demand, and Davidson will then stand in the plaintiff's shoes for such sum as he hereby is made to advance, which Worke's estate ought in the first place, if able, to do.
All the said matters are ordered and decreed accordingly; and the other matters excepted to, and all the other questions appearing upon the report and pleadings, are reserved for the further decision of the Court.
PER CURIAM. Decree accordingly.
Cited: S.C., 21 N.C. 46; Leary v. Cheshire, 56 N.C. 172; Eason v. Cherry, 59 N.C. 262.