Opinion
(June Term, 1846.)
1. Where a copartnership owned a dwelling house, which was exclusively occupied by one of the partners and his family: Held, that this partner was liable for rent, though there was no special agreement to that effect, and though no charge against him for rent was made on the books of the firm during his lifetime.
2. The general rule for interest on accounts in ordinary dealings is, that it is chargeable only after an account has been rendered, so that the parties can see which is the debtor and what he has to pay, unless it be agreed otherwise, or the course of business shows it to have been otherwise understood.
3. In the case of a copartnership, without some agreement or understanding to the contrary, interest is chargeable by one partner against another only on the balance found due from the latter at the time of the dissolution of the partnership, whether that dissolution be by death or otherwise, and only from and after that period.
This cause, having been set for hearing, was transmitted to this Court from the Court of Equity of WAKE, at Spring Term, 1846.
W. H. Haywood for the plaintiff.
Badger for the defendant.
(227)
The pleadings presented the following case:
In November, 1798, Joseph Peace and the defendant, (224) William Peace, entered into copartnership as retail dealers in dry goods and other merchandise, in Raleigh, and carried on their business actively and prosperously until the year 1832, when their stock of goods and shop were burned. They began to trade with very little capital, but from diligence and skill they made considerable profits, and, during the period mentioned, they invested the surplus profits, which were not needed in their regular business, in loans, stocks, lands, houses, slaves, and other things. After 1832, they made no more purchases of merchandise for sale again, but never dissolved the partnership, and continued to invest their funds, as they were collected, in real and personal property and stocks, as before mentioned, until December, 1842, when Joseph Peace died suddenly and intestate.
These two gentlemen were brothers and were both unmarried, and jointly conducted their trade personally, and resided together, generally in lodgings in the building in which their business was carried on. Joseph Peace, however, had a family of children, whom he recognized, and for whom and their mother he provided a house and servants and other necessaries, and defrayed the expenses of their education, as a parent. In consequence of this difference in their situation, the demands of Joseph for money were much greater than those of William; and as neither of them had any other resources than his share in the partnership, Joseph's account became much the larger of the two, as appearing on the books at the death of Joseph.
Among the real estate purchased for profit by the firm, were two lots, with a house on one of them, in Raleigh, at the price of $1,612.50. Soon afterwards, Joseph Peace expressed a wish to give up the house he had before leased, and to take this for the use of his family aforesaid; and he did so. In consequence thereof, expenditures were made in repairs (225) and erecting other buildings, and various outlays on it to render it comfortable, which, together with the first cost, made the property stand the firm in the sum of $4,405, as stated in the books. After the fire in 1832, Joseph Peace removed, himself, to the same house, and lived there with his family for ten years preceding his death; and during that period, William Peace paid for his lodging and board at other places, and charged himself with the sums he took from the joint funds for that purpose, as well as for all other personal uses; and, for several years before the death of Joseph, William, resided with his brother, but during that time, he, William, regularly charged himself to Joseph, on the books of the firm, with his board. But, at no time during the life of Joseph, was he charged with rent for the premises so occupied by his family for one period, and by himself and his family for another period. After the death of his brother, however, Mr. William Peace, in bringing up the books with a view, as a surviving partner, to stating a final account between the two partners, in order to settling with his brother's administrator, entered, as a charge in Joseph's account, the rent of the house and lots during the period they had been thus occupied, amounting to about $4,000.
There never was a settlement between the two brothers. Having the greatest confidence in each other, and living in the greatest intimacy, each was suffered to take what he wished and to charge himself with it; and the items were merely posted into the ledger, and the accounts carried on from year to year and from book to book, without ever having been added up, much less closed. But, after the death of Joseph, the surviving partner ascertained the amount of the annual dealings of each partner, and computed interest upon the several balances from the end of each year, including interest on the sums before mentioned, and charged the same in the several accounts of the brother and himself, whereby a very large balance of interest appears against Joseph Peace. When his administrator and the surviving partner came together (226) to settle, the former objected to the charges of rent and the interest thereon, and all the other interest, and he then filed this bill for an account. In order to render it the easier to take between the parties themselves, or by the master, the pleadings were framed so as to obtain the opinion of the Court on those questions, which seem to form the chief obstacles to the adjustment of the business. As to the point respecting the interest besides the facts already mentioned, the answer admits, that there was no agreement between the parties, that the interest should be charged, and that the subject was never mentioned between them. But the defendant insists on the propriety of charging it, upon the ground, that the moneys withdrawn from the joint funds by the respective partners would have been actively employed, either in trade or by investments yielding interest, or in property increasing in value, and that there is no danger of doing injustice to either side, as the items of account all appear in the books, and making up the interest account is mere matter of computation. The defendant states that he was advised, in the lifetime of his brother, of his right to charge interest upon a final settlement; and though he is not called on to decide whether he would have insisted on his right, if they had, themselves, made a settlement, yet under existing circumstances, he is unwilling to surrender anything, to which he is entitled, since his brother's sudden death prevented him from bestowing his property on his own family, as he would no doubt have done, and the law casts it on persons who have not as strong claims on him.
The case was heard upon the bill, answer and exhibits.
Joseph Peace is justly charged with a reasonable rent of the premises, occupied by himself or his family. There is no ground on which he could have the use of the property gratuitously, more than he could take merchandise from the store without being charged for it. He did not purchase the property as his own, but the firm bought it, took the conveyances, and made all the outlays on it. If it was decayed or was burned, the loss would have been that of the partnership; and, as he exclusively enjoyed it, he ought to pay to the partnership a fair rent. Of course the Court can not undertake to inquire into the period of his occupation, nor the proper rent to be charged, nor is it supposed the parties expect it, or that the Court should do more than determine the principle. If they can not agree upon those points, they must be referred to the master.
With respect to the heavier item of interest, the law, we think, is against the defendant. The general rule for interest, on accounts in ordinary dealings, is, that it is chargeable only after an account has been rendered, so that the parties can see which is the debtor and what he has to pay, unless it be agreed otherwise, or the course of business shows it to have been otherwise understood. This applies still more forcibly, as between partners, because their accounts can not be fully made up between them without, in truth, taking all the accounts of the firm; in other words, without a dissolution: and it is impossible to tell before, what either would be bound to pay or entitled to receive. Therefore, if the parties mean that interest should be charged on the accounts of the partners, for dealings in the shop and money withdrawn for personal expenses or other things, from year to year, the course is to come to an agreement to that effect, and then for balances appearing upon the individual accounts annually or oftener, according to the agreement, charges of interest are made from time to time, or, if omitted, will be allowed in making the final settlement. If there be no agreement upon the subject, (228) it must be understood that the parties, especially when they have no separate property, were aware that each must draw from the firm the means of supporting himself and his family, and that an exact equality could not be expected in those matters; and therefore, that it was not intended that interest should be charged during the partnership. In Dexter v. Arnold, 3 Mass. 284, Mr. Justice Story lays it down, that interest is not allowed upon partnership accounts generally, until a balance is struck on a settlement between the partners, unless the parties have otherwise agreed or acted in their partnership concerns. And Chancellor Kent, in Stoughton v. Lynch, 2 John. C. C., 209, says, that the time of dissolution is the period to adjust the balance between the partners, and the party, then found the debtor, becomes so with obligation to pay, and is, therefore, charged with interest on that debt. In that case, the partners had made no settlement, but the master in taking the accounts in a suit to settle the partnership, found the balance at the period of dissolution, and thence-forward allowed the interest thereon; and the Chancellor approved of it, saying that it was the general practice, as well as the good sense of the thing, that a rest should be made on the liquidation and adjustment of accounts, at the period of the dissolution of the concern. These positions render it clear, that there can be no charge of interest before the death of Joseph Peace, and that interest ought to be charged after that event, on the amount found to have been then due from him. It can not be allowed before, because it is admitted that there was no agreement for it, nor even a suggestion of it in conversation; and the accounts had just been kept on in the books, without being examined or even added up, upon the entire confidence of the brothers, in the good faith of each other, that all proper charges were respectively made by each against himself. It is absolutely certain, we think, that Joseph Peace had no idea that he was to pay interest, else he (229) would have charged it or mentioned it at least; and it is nearly certain that the defendant had had as little thought of charging him with it, though he is now from peculiar circumstances, induced to prefer the claim against his administrator. But the benevolence of his view, as to the disposition of what he might gain by the charge, can not change the law. If he had been dissatisfied with the amount of his brother's expenditures, he might either have stopped the business, or made an agreement as to interest. Having done neither, and knowing that no interest had been charged at any time during forty-four years, it is presumed that it was not intended to be charged. The omission of this charge has a very different effect from the omission merely of the charge of rent, since the latter required an adjustment, as to the proper amount between the parties, while the other would have required but computation. We have said, that interest can not be allowed before the death of Joseph Peace — which is, because there had been no dissolution before. It is true the buying and selling of goods had been stopped ten years, but nearly all their property remained joint, and all their accounts went through the books of the firm, regularly kept up to his death, which event alone dissolved the concern. But upon the principle held in Stoughton v. Lynch, the balance then due must be ascertained, and interest computed thereon from that time until the settlement be made.
The pleadings also raise another question, upon the following facts stated in the answer. One John W. Young married a daughter of Joseph Peace, who took charge of their advancement and also of the support of their children, and from time to time supplied them with necessaries or money to purchase them. For some of those advances he took memorandums or notes from Young; and upon one occasion, the defendant, finding a number of them in the store, computed the amount due thereon and took the bond of Young to (230) the firm therefor. Other memorandums of the same kind were found, upon the death of Joseph Peace, among his private papers. There were also on the books other small debts charged to some "other members of said Joseph's family." The defendant states his belief, that Joseph Peace did not expect or intend that Young and "the other members of his family" should pay any part of those debts, and considered himself accountable for them, as he recorded them as advancements or supplies to his family, and would not have thought of the defendant's contributing to them. In consequence of these views, the defendant, after the death of Joseph, transferred to his debit the debts before charged to Young and "the other members of his family," and also charged him with the amount of the due bills of Young, that were found in Joseph Peace's desk, and the interest thereon. It is submitted to the Court whether that charge or any part of it is proper. The statement is so deficient, as to the period and amounts of the several advances, which form the subject of this part of the controversy, and also as to what other sums Joseph Peace laid out for advancements to Mrs. Young, or for the benefit of the "other members of the family," that the Court is not able to speak conclusively on the subject. It would seem from the circumstances, that Joseph Peace generally charged to his own account immediately the sums expended for the maintenance or advancement of the dependent members of his family, that he did not intend to take on himself the debts contracted for those persons by Young himself or the others, and for which he took notes or made charges in account against them. Why charge them instead of himself, if he meant the debts to be his own? This reason is particularly strong in respect of the bond of Young, which was taken by the defendant for a number of those demands, whereby all parties made Young, and not Joseph Peace, debtor to the firm therefor. It is possible that Joseph Peace purposed to take the debt on himself in the final settlement, especially, if Young was unable to pay, and was known to be at the time his debts were contracted. But it does not sufficiently appear, (231) that it was so intended between the parties, or that even he had a distinct intention upon the subject. Nothing seems to have been said upon it at any time; and the presumption is, that the debts were exclusively those of the persons against whom a note was held or a charge made in the books. For the sums, for which Young's notes were found in Joseph Peace's private papers, it is natural to suppose he had already charged himself on the books of the firm; otherwise, he would have placed those notes among the papers of the concern, as he had done the others. Upon the whole, therefore, the Court holds that it was improper to charge Joseph Peace with the bond of Young, which the defendant took as before mentioned; and we incline to the opinion, that no part of Young's debt was chargeable to Joseph Peace — the same is probably true, for the same reasons, in respect to the debts of the "other members of the family," but as the facts in relation to those debts do not sufficiently appear, we are unable to come to any definite decision of the point.
PER CURIAM. DECREED ACCORDINGLY.
Cited: Armfield v. Colvert, 103 N.C. 158.