Opinion
January Term, 1812.
From New Hanover.
Upon the settlement of a copartnership account between A and B, it appeared that a loss had been sustained whilst the business was under the exclusive management of B, who could not satisfactorily explain how the loss had accrued. They referred the case to arbitrators, who awarded that the loss should be equally divided between A and B, as there was no proof of fraud on the part of B, whom they examined on oath. Award excepted to, (1) because it was wrong in principle; and (2) because the arbitrators had permitted B to purge himself of the charge of fraud by examining him on oath. Exceptions overruled.
THIS was a bill filed for the settlement of a copartnership account; and the principal question made in the case was, Whether, as a loss had been sustained whilst the business was under the exclusive management of the defendant, and he could not satisfactorily explain how the loss had accrued, and it appearing that he had acted fairly and honestly, the loss should be divided or borne entirely by the defendant. The complainants' intestate and the defendant entered into a copartnership agreement in writing, on 27 October, 1800, for the purpose of carrying on the business of retailing merchandise in the town of Wilmington. In this agreement, among other things, it was stipulated that after deducting store expenses and clerk's hire, the profits arising from the business should be equally shared between them; but there was no stipulation relative to losses by deficiencies or in any other way. The defendant managed and directed the partnership, solely, and had the property employed therein in his sole care and trust. One Timothy Bloodworth was employed in the business as storekeeper and clerk, was intrusted with the care of retailing goods, and generally made the first entries in the books. He deposed that the goods sold by retail were charged with the customary profit. He further swore that the store was broken open and money (128) stolen to the amount of about $73. It appeared from the cash account that more money had been paid away than had been received; and how this had happened could not be explained. It further appeared that in the course of the business merchandise had been purchased and furnished at wholesale prices to the amount of $8,536; that merchandise was sold at retail prices to the amount of $5,170, and that goods remained on hand at the time of the dissolution of the partnership by the death of McCrae to the amount of $1,463, at wholesale prices, leaving a deficiency of $1,902. The defendant could not show how this deficiency happened.
The master, in his report, not only charged the defendant with this deficiency, but with one-half of the usual profit on the capital stock, after deducting the amount remaining on hand at the dissolution of the partnership, on the ground that the business had been under his exclusive management.
Upon the coming in of the master's report the parties agreed to refer the entire case to Richard Bradley and William Giles, and that their award should be a rule of court. The arbitrators examined the defendant upon oath as to the loss which the partnership had sustained, and he declared that he was entirely unable to account for it. They made the following award, to wit:
"It appears that commercial business was conducted on account of the complainants' intestate and the defendant, from February, 1800, without any particular articles, until October of the same year, when the terms on which their said concern should be conducted were specified in a deed signed and sealed by the parties, having, in its operation, relation back to the commencement of the copartnership. It appears that on closing the said copartnership concern, at the death of complainants' intestate, a loss appeared; and the point in dispute between the parties is whether this loss arising from the business of said concern should be wholly sustained by the defendant, or be divided between him and the complainants.
"To decide this point correctly, it seems to us that a recurrence should be had to the general principles of the laws relative to copartnerships, as they may appear modified, extended (129) or limited in their operation by the deed of the parties regulating their particular copartnership. This deed excludes the general principles operating on copartnership concerns only (1) as to the articles wherein they were to deal, and (2) that either party crediting out any part of the property of the copartnership should become individually responsible for the amount thereof. It does not seem to us that on either of these points any complaints or claims can be made against the defendant, he having taken upon himself to account for all the debts on the books of the concern.
"Whenever profits are to be equally divided, it is always implied that losses are to be sustained in the same proportion. It is not to be presumed, and it does not appear from any evidence before us, that the defendant guaranteed the success of the concern, nor that he in any way became responsible for the integrity of their clerks and servants. It was well known to the complainants' intestate, at the forming of the copartnership, that the defendant, being employed in his office as deputy collector of the port, would appropriate but a very small portion of his time to their mercantile concerns, and ought to have been aware of the risk of loss that would naturally attach to business so conducted. If he overrated the abilities, industry or carefulness of the defendant, as we are not possessed of any evidence of fraud on his part, and he having purged himself thereof on oath before us, it is not for us to remedy the effect of his imprudence, by overturning every principle of law, justice and common sense. We are therefore of opinion that the loss arising from the business should be equally sustained by the parties."
The following exceptions were filed to this award: 1. That the award was improper, in making the complainants sustain a loss on the business, which was under the special management and direction of the defendant, and which could have arisen only from the gross negligence or irregular conduct of the defendant. 2. That the arbitrators received and acted upon the affidavit of the defendant himself, and from the facts sworn to by him undertook to discharge him from his legal accountability.
The case was sent to this Court upon these exceptions; and the judges were divided in opinion upon the first exception.
If the fact really was as is set forth in the first exception, that the award made the complainants' intestate sustain a loss on the business whilst under the special management of the defendant and occasioned by his mismanagement, it would seem to be inequitable; but the referees do not admit that to have been the fact. They direct the loss to be divided, because from the books, documents and testimony adduced it did not appear to have been occasioned by the misconduct of any one of them. They were not bound by the master's report nor opinion; they had a right to exercise their own judgments and draw their own conclusions from all the facts of the case before them. They profess to be governed by the principles of law arising out of the case; and in this respect they seem not to have been mistaken. If they had been, it would be a good reason for setting aside their award. All the facts of the case were laid before them; if they acted honestly (and the contrary is not presumed), although the opinions which they formed might be different from the opinions of others formed upon the same evidence, that is no reason for setting aside their award. The first exception must therefore be overruled. As to the second exception, it is only necessary to remark that arbitrators have great latitude of discretion; they are not bound down by the strict rules of law. Besides, courts of equity, in settling disputes like the present, frequently direct a party to the suit to be examined on oath. Nothing more is stated to have been done by the arbitrators by this exception; and the exception must be overruled.
TAYLOR, C. J., contra, as to the first exception.
(131)