Case ID: ny-super-ct_6/html/0552-01.html
Source: Caselaw Access Project
Author: {"author": "Campbell, J. Duer, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Anderson v. Lemon.
    "Where one of two partners, in his own name and with his own funds, purchased in fee the premises on which the firm, under a lease, was conducting its business, (after the term limited for the partnership had expired, but before an actual dissolution,) such purchase being made, not fraudulently, but without the con- ' gent or knowledge of his copartner, and the purchase of real estate not being any part of their ordinary business; it was held that the latter could not, at his • election, claim that the premises so bought were to be deemed partnership property.
    A partner will, in respect of a renewed lease, be held to stand as a trustee for the firm, where he would not be so deemed in respect of a purchase of the reversion.
    Two partners had been conducting business as tobacconists on leased premises. The term limited for their connection had expired, but the business was continuing with a view to arrange for a further term. One of them, with the other’s . knowledge, was treating with the owners of the reversion for its purchase, professedly intending the premises for the use of the firm, if it continued, and consulting his copartner as to the price demanded. The latter privately, without the knowledge of the former, went and bought the premises with his own means, and in his own name, and then refused to continue the firm permanently. Meld, that the purchase was not made fraudulently as against the purchaser’s partner, and that the premises were not to be deemed partnership property.
    (Before Duer, Mason, and Campbell, J. J.)
    March 3,14, IT, 18;
    May 10, 1851.
    
      This was a suit in equity commenced in tbe supreme court in October, 1847. The plaintiff was a tobacconist in tbe city of New York; tbe defendant, in September, 1840, became bis clerk, and on tbe first of August, 1842, became bis partner in tbe business, for a term of five years, with an interest of one-fourth in tbe profits and losses. During all these periods, and t'o tbe end of their connection together, tbe business was conducted at tbe premises known as No. 4 Wall-street. Tbe lease was in tbe name of tbe plaintiff. On tbe 1st May, 1843, a new lease for five years commenced in bis name, determinable sooner, on tbe death of W. Roberts, a lunatic. This occurred on 1st August, 1846, when R.’s heirs continued tbe lease at an increased rent to May 1st, 1848.
    On Roberts’s death, bis heirs commenced proceedings in partition, which led to negotiations for tbe purchase of tbe premises, both by tbe plaintiff and tbe defendant; and on tbe first of September, 1847, tbe defendant bought tbe same in bis own name, and for bis sole benefit. Tbe heirs of Roberts conveyed tbe same to him on tbe first of October, 1847. Tbe plaintiff claimed that be was negotiating for them in good faith for tbe mutual benefit of tbe parties, consulting and advising with tbe defendant, and that tbe latter secretly and fraudulently obtained tbe purchase, and sought to deprive him of its benefit. Tbe partnership term expired on tbe 1st of August, 1847, but tbe business was still going on when tbe defendant purchased, without any agreement as to time, tbe parties in fact, being engaged in negotiating respecting a further term. They failed to agree upon its terms, further than that on tbe 27th of September, 1847, they agreed to continue tbe business as before until the first day of May, 1848. Some other facts appear in tbe decision of tbe court. Tbe bill prayed that there might be a partition of tbe premises between tbe parties, or a sale, or that tbe defendant be decreed to pay to tbe plaintiff three-fourths of tbe yalue of tbe same over and above tbe price paid by tbe defendant; and for various other relief.
    Tbe cause was transferred from tbe supreme court, and was* brought to a bearing on tbe pleadings and proofs.
    
      
      W. G. Russell and F. B. Gutting, for the plaintiff.
    I. The purchase of the land and premises known as No. 4 Wall-street, by William C. Lemon, and the procuring to himself individually of a conveyance thereof to the exclusion of. the plaintiff, was a fraud upon' the latter.
    The purchase of the premises by the defendant, should be declared to be for the account and benefit of the partnership. (Pickett v. Loggin, 14 Ves. 234; Brown v. Lynch, 1 Paige, 147, 158; 1 Story’s Eq. Jur. § 218, § 219, § 323; 2 Ibid. § 1207, § 1261.)
    A partner may not make secret stipulations with third parties, in anticipation of the formation or of the dissolution of copartnership. (Fawcett v. Whitehouse, 1 Russ & Mylne, 132; Fenwick v. Featherstonhaugh, 17 Ves. 298; Hitchens v. Congreve, 1 Russ & Myl. 150, n. b; Eliot v. Brown, 3 Swanst. 489 n.; Gow on Part. ch. 5, § 4, p. 349; Story on Part. § 174, § 331; Collyer on Part. B 2, ch. 2, § 1, p. 120, 2d ed.; Alder v. Fouracre, 3 Swanst. 489; 2 Spence Equit. Juris. 208, 299.)
    II. The defendant ought to be considered a trustee of the premises for the plaintiff. Standing in the relation of a partner, and confidential friend and adviser, he took an unconscientious and fraudulent advantage of his position, to obtain the title to. the. premises for his individual benefit, to the exclusion of the plaintiff. (Lees v. Nutall, 1 Russ. & Myl. 53; Taylor v. Solomon, 4 Mylne & Craig, 139; Rings v. Binns, 10 Peters R. 269; Carter v. Palmer, 11 Bligh, 397, 418, 419 ; Brown v. Lynch, 1 Paige, 147; Giddings v. Eastman, 5 Paige, 565; 1 Story’s Eq. Jurisp. § 316; 2 Ibid. § 1207, § 1211 a.)
    III. The defendant, having by artifice and fraud obtained possession of the place of business of the partnership, and of the custom appertaining to it, ought -to be compelled to pay to' the plaintiff the reasonable value of the good-will.
    The good-will of a trade is partnership property, and must be disposed of like other partnership effects. (Dougherty v. Van Nostrand, 1 Hoff Ch. R. 68; Story on Part. § 99.) Upon dissolution, the real estate of a partnership should be sold to ascertain its value. (Cook v. Collingridge, Jac. R. 607; Crawshaw v. Collins, 17 Ves. 218, 227; Story on Part. § 850.)
    IY. If the defendant was authorized to make private arrangements for his exclusive benefit in contemplation of a dissolution, the plaintiff, by virtue of the lease for three years, from 1st May, 1848, is entitled to a proper allowance for the use of the premises by the copartnership, and for the cost of the building.
    
      H. Nicoll and C. O’Conor, for the defendant.
    I. There is no ground for this suit under the head of contract. *
    1. The bill does not allege an agreement to purchase the fee of the premises in question, in the names or on the account of John Anderson and William C. Lemon, and therefore no recovery can be had on that ground.
    An agreement to take a deed in Anderson’s name for the benefit of himself and Lemon, would have been absolutely void by statute, if it had existed. (2 E. S. p. 18, § 51, 3d ed.; Norton v. Stone, 8 Paige, 222.) If such agreement had existed and been carried into execution, no title, legal or equitable, would have vested in any one except Anderson, even if the funds of Lemon, in whole or in part, had been applied to the purchase. The complaint does not pretend an intent to purchase otherwise than in Anderson’s own name, and the existence of the intent to purchase in that form is affirmatively proved.
    2. An agreement to purchase lands on joint account, orto purchase lands for another, is- absolutely,.void, unless in writing ; and, therefore, if such an agreement had been made and averred in the bill, it would have been void, by the statute of frauds. (Smith v. Burnham, 3 Sumner, 434.) .
    3. The only agreement pretended in the complaint is, that John Anderson should purchase and give the firm, during any renewed term which might be agreed upon, the benefit of the purchase, that is to say, that the rent of the part occupied by the firm should be no more .than might be necessary to save Anderson, as landlord, from loss.. The complaint.is indefinite as to details, but must be understood- to mean, that during the term, Anderson would make no profit.
    This agreement is denied in the answer, and such denial is no way contradicted. The answer states an entirely different understanding. And,.indeed, the plaintiff’s own witness confirms the answer in this respect.
    ' This agreement was purely conditional, and never could have any operation unless a renewal of the partnership should be agreed upon.
    There is no pretence in the bill, that by the agreement or understanding which- existed, Lemon was to have any interest «in the purchase, in case Anderson and himself failed to agree upon a renewal- of the partnership.
    II. .If it were possible to find the existence of .a contract between the parties, it would be impossible to determine, from the allegations of the bill or. from any proofs in the case, the proportions in which they were to o.wn the premises.
    1. The ordinary form.’ of a deed, even if executed to both, would give to each an equal moiety.. But the plaintiff claims that the arrangement entitles him to three quarters. Such an unequal division could not legally exist.unless the deed was so drawn as to express it. (2 R. S. p. 13, § 51, 3d ed.)
    2. This total uncertainty as to the relation in which the parties would stand, if Anderson had purchased, shows that this is the only consistent construction which can be given to the loose allegations of the bill.
    III. There is .no ground of recovery under the head of fraud.
    1. -During the treaty for the purchase, and at its consummation, Anderson and Lemon were each seeking to renew the copartnership upon better terms than the other, would, as yet, assent to; and each must have contemplated a failure to make 'such a renewal as a possible event.
    Under these circumstances, the actual existence of a copartnership drawing nigh to its termination did not create a fiduciary, relation between them. On the contrary, they were in an .attitude of contest .essentially adverse, which necessarily. placed each upon his guard against the efforts of the other. They stood emphatically “ at arm’s length,” each warned of the motives of the other, and seeking, for his own private interest, all legitimate advantages in the pending negotiation.
    2. The worst construction that the plaintiff himself attempts to put upon the conduct of the defendant, and which is wholly denied by the answer, if proved, would merely place the parties in pari delicto, in which case the plaintiff must fail.
    The answer of the defendant denies all fraudulent conduct and motives, and it is not effectually disproved.
    IY. The only equity which could fairly be grounded in any view of the facts alleged or proved, is that the partnership, had it been formed for a renewed term, might claim the use of the premises on the terms specified in the first point. This advantage was freely offered by the defendant. (Norris v. Le Neve, 3 Atkyns, 38; Randall v. Russell, 3 Meriv. 197; Hardman v. Johnson, Ibid. 347; Lesley's Case, 2 Freeman, 52; Stokes v. Clarke, Colles, P. C. 193.)
    Y. The premises purchased by Lemon were in no sense of the word partnership property. He bought in fee simple, a house and lot, of which the parties, as members of the old firm, their lease having expired, were merely tenants at will or by sufferance, with no pretence of any right or expectation of a renewal of their lease. The premises were offered in the market for sale, and were, in fact, absolutely to be sold by a day certain, as was well known both to the plaintiff and defendant. ■
   By the Court.

Campbell, J.

The parties were copartners engaged in the manufacture and sale of tobacco. Their place of business for the sale of their tobacco was at No. 4 Wall-street, in the city of New York. These premises were occupied by the parties under a lease from a committee of the estate of a lunatic, which lease was to continue for five years, if not sooner terminated by the death of the lunatic. This lease was in the name of the complainant as lessee, though the advantages arising from it were enjoyed by the firm of John Anderson & Co., composed of the parties to this suit. The lunatic had died before the expiration of the five years, but the heirs had extended the lease. Improvements had been made by the copartners upon the premises, but which would belong to the owners of the fee at the expiration of the lease.

In the summer of 1847, the copartnership term being about expiring, the parties entered into a negotiation for a renewal, and at the same time the heirs, owners of the fee of the premises above mentioned, offered the same for sale. The extended lease of the premises would expire in the following spring. Thereupon the complainant, with the' knowledge, and, as is charged, with the approbation of the defendant, opened an egotiation with the agent of the heirs for the purchase of the fee of the premises, and from time to time reported 'to the defendant the progress of such negotiation. But whether the complainant intended to purchase the premises for the copartnership and to be held as copartnership property, or whether he intended to purchase in his own name, and to be held as his individual property, simply giving to the copartnership the'benefit of the purchase during the existence of the new term, if one should be agreed upon, is a question in dispute between the parties. According to the agreement for the copartnership during the term which was about expiring, the parties were not equal copartners, the complainant receiving three-fourths and the defendant one-fourth of the profits. In the negotiation for the new term", the complainant insisted upon the same division of profits, and the defendant, on the other hand, insisted that in the new term he should become an equal copartner.

• Under this state of things the defendant obtained from the agent of the owners of the premises a promise not to sell to the complainant without notice to the defendant, and the defendant agreed to become a secret bidder against the complainant. Both of the negotiations, for the purchase of the premises and for the new copartnership, were continued for some time. The original term of copartnership had in the mean time expired, and the copartnership continued from day to day at the will of .the parties. The defendant failing, as he owns, to make an arrangement satisfactory to him for a new copartnership, without the knowledge of the complainant, succeeded in effecting a purchase of the premises in question, and obtained a conveyance to himself individually. No new copartnership between the parties was ever formed. ■ The complainant now seeks to have the property in question decreed to be copartnership property, and asks that the same may be sold for the benefit of the original copartnership; and failing that, then that the defendant pay for the improvements erected upon the premises by the copartnership during the continuance of the lease.

It seems to me that two important questions present themselves in this case for our consideration.

1st. Whether the fee of real estate, where a portion of the business of a copartnership is carried on, purchased by one partner and paid for out of his individual property without the knowledge or consent of his copartner, can, at the election of his copartner, be decreed to be partnership property, it being no part of the ordinary business of such copartnership to engage in the purchase of real estate. 2d. Whether under the particular circumstances of this case, looking at the relation which these parties sustained to each other at the time of the commencement of the negotiation for the purchase by the complainant, and at the ■time of the actual purchase by the defendant, we may consider that the defendant acted fraudulently in making the purchase, and on the ground of fraud may decree the purchase made for the benefit of the copartnership.

In reference to the first question. In Norris v. Le Neve, (3 Atkyns, 26,) an effort was made to set aside the purchase of a reversion which had been made by a barrister while he was acting as executor and trustee under the will of the original owner. Lord Hardwicke says, “ The case which has been cited of Bumford Market and other cases of leases, (Pierson v. Shore, 1 Atkyns, 480,) are different from this, for there tenant right of renewals are rather a courtesy from the landlord, and cceteris paribus, the relations of the same family who took the original lease from bishops, deans, chapters, &c., are generally preferred, and they have a natural expectation of it.” And he adds in another part of his opinion, “ This is primes impressionia, and no case has been cited in point, but only argued by way of analogy, to cases of leases which I have shown are very different.” And though he declined in that case to interfere, mainly on the ground of great lapse of time, yet the distinction there taken remains, and in many cases where a party from his previous confidential relations might be decreed to-stand as trustee in a renewal lease taken in his own name, he would not be so decreed where he had become the purchaser of the reversion.

Sir William Grant, in Randall v. Russell, 3 Merivale, 190, says truly: “ There never was a stronger case for turning the purchaser of a reversion into a trustee for those who had the antecedent interests in the estate, than that of Norris v. Le Neve. ” And yet he approved and enforced the .doctrine. There the defendant, who was tenant for life, under her husband’s will, of certain leasehold estates, purchased in her own name the reversion in fee, and the bill was filed, among other things, to have her declared a trustee of this estate for the benefit of the heirs of her husband. The Master of the Rolls remarks: “ It is not enough to say that Mrs. Russell’s situation as tenant for life gave her the opportunity of making the purchase. They must go on and show what right ’ or interest of theirs she acquired or defeated by making the purchase.”

So in the case before us, laying out of view all allegations of fraud and circumstances and facts to support them. Whose right or interest did the defendant acquire b.y this purchase ? Not that of the complainant,'for he had none, except a common right with every other man in the community to become the purchaser. The premises were not offered for lease, but for sale to the highest bidder, and there is no evidence going to show any favor to either complainant or defendant; on the contrary, the agent avowed his intention in availing himself of the relative position of these parties to procure as large a price as possible. The death of the original owner, and the descent of the estate, like the change of ownership of the fee in Randall v. Russell, had altered the relation of these parties to the premises in question.

We entertain no doubt as to the right of a partner to make such a purchase, under circumstances free ’ from deception or fraud; and if in this case 'the defendant had made this purchase in his individual name, and with his own money, and without the knowledge of the complainant, and free from any imputation of deception or fraud, that he would be entitled to retain the premises as his individual property, and ought not, at the election of his copartner, to be decreed to stand as trustee for the benefit of the firm. We are not prepared to say, that, under some circumstances, a partner might not be decreed to stand as such trustee of real estate for the firm. Whether, in case of a continuing partnership, he might not be decreed to hold the premises for the benefit of the firm until the expiration of the term of copartnership, is a question perhaps not necessary to discuss in this case, as there was no renewal of the copartnership between the parties.

The general rule is no doubt as laid down in § 1207, 2d Story’s Eq. Jur., and to which we were referred by the complainant,, viz., “ In cases, therefore, where real estate is purchased for partnership purposes and on partnership account, it is wholly immaterial, in the view of a court of equity, in whose name or names the purchase is made and the conveyance is taken, whether in the name of one partner or of all the partners.” But it must appear that the real estate is purchased for “partnership purposes, and on partnership account, and then it is immaterial in whose name it stands, because, quoad hoc the partnership property, each partner is a trustee for the other. It is very evident that the real estate in question was not purchased ostensibly by the defendant for partnership purposes and on partnership account.

If the relations in which these parties stood to each other were such as to constitute the defendant an agent for the complainant, or in this transaction an agent for the firm, then it ■ may well be that the defendant cannot appropriate the property to his individual use. But the mere fact of being a partner, could hardly constitute the defendant such agent. The partnership was organized for the purpose of dealing in tobacco, and not in real estate. The fact that one man is the copartner of another in a specific business, can hardly constitute him the agent of the copartner in all his other business and pursuits. But it is said that the defendant effected the purchase through artifice and fraud; that standing in the relation of partner and confidential adviser, he took a fraudulent advantage, and should therefore be considered a trustee.

In the cases of Lees v. Nuttall, 1 Russ. & Myl. 53, Taylor v. Solomon, 4 Mylne & Craig, 139, and Brown v. Lynch, 1 Paige, 147, the defendants were acting as agents for others, such agency appearing on the face of the papers, or being avowed at the time of the purchase, except in case of Lees v. Nuttall, where the defendant was an attorney, and was instructed by the complainant .to draw the articles of agreement for the purchase of an estate which the complainant had negotiated, and the defendant afterwards procured a deed to himself, having negotiated subsequently with the seller on his own account. In 'Brown v. Lynch, the defendant represented that he was purchasing for the complainants, and prevented competition on their part and others, and throughout the negotiations and transactions avowed himself as their agent. Subsequently, by disavowing the agency which he had previously and repeatedly avowed, he sought to practise a gross fraud, and he was properly decreed to stand as trustee for their, benefit. In Fawcett v. Whitehouse, and Hitchens v. Congreve, 1 Russ. & Mylne, 132 and 150, the defendants, while professedly negotiating for their partners and joint owners, secured large bonuses for themselves, without the knowledge and consent of their copartners, and they were justly decreed to account for the moneys thus received. The other cases are of similar character, either of express or implied agency.

Now, did the parties to this suit stand in that relation of confidence which necessarily constituted such an agency; because it is not pretended that it appeared upon the articles of agreement for the purchase, nor upon the deed, that there was any sucb agency, nor tbat tbe defendant at any time avowed or disclosed tbat he was purchasing for tbe copartnership, but on tbe contrary, he explicitly stated tbat be was purchasing for himself, and negotiated with the agent of tbe owners upon that distinct basis. The term for which the copartnership had been formed between the plaintiff and defendant expired some weeks before the purchase was made, but the copartnership was continued on from day to day for the purpose of seeing whether the parties could agree upon their respective interests for another term. Tbe owner of the premises in question, who had been for many years insane, bad died. Tbe lease under which the parties, occupied, and which bad been extended by tbe heirs, was drawing to a close, and a partition suit had been instituted between the heirs for the purpose of settling the estate, and making a sale of the premises in fee. It can hardly, we think, be contended that, if instead of continuing on the partnership from day to day, it had been allowed to.expire on the day fixed for its limitation, and the defendant had made the purchase as he did, tbat be would not be entitled to bold tbe premises as bis individual property.

But though tbe partnership was continued in this mode, it is very evident tbat tbe parties were treating with each other at arms-lengtb for a future term, tbe defendant insisting that in sucb future term be should be an equal partner, and the plaintiff requiring him to remain and receive only his original fourth of tbe profits. Tbe confidence and joint interest of a partnership could hardly be said to exist.

Again, we think it very manifest, from the whole of the pleadings and proofs in this case, tbat tbe plaintiff intended to .purchase the property on bis own account and in bis own name, giving simply to tbe partnership the benefit of tbe purchase during tbe continuance of a new term, if one should be agreed upon satisfactory to him. And the plaintiff could not have been compelled to stand as trustee for the firm, if he had .purchased, as he proposed, and had made the admissions in an answer, as broadly as tbe allegations are made in bis complaint. As we re.ad bis complaint, it contains no positive averment that he intended to purchase the premises, and hold them as partnership property. His statement to the witness, Pitcher, and which we have no doubt was correct, was, that he intended to purchase the premises for his own use, letting the firm have it at the rate of seven per cent, on the cost. The great contest between the parties was, as to the terms upon which the partnership should be renewed, and the possession and ownership of the premises were undoubtedly considered as important in the adjustment of the conditions of such renewal.

There are imperfect obligations which no court can enforce. The conduct of the defendant may not have been as open and independent as could have been desired. But we are unable to see upon what principle he can be decreed to stand as trustee for the partnership.

He purchased the property in fee, and obtained all the rights of the heirs. The copartnership had no interest in the improvements which had been made upon the premises during the continuance of the lease, nor had the plaintiff.

The bill must be dismissed, but looking at the conduct of the defendant in the matter, which we cannot approve of, we think it must be dismissed without costs.

Duer, J.

It is proper to add to the opinion which our brother Campbell has delivered, that we are not to be understood as saying that cases may not arise in which a purchase by one partner of the fee of the property in which the business of the partnership is conducted may not be justly held to create a trust for the benefit of the firm. Had it distinctly appeared in this case, that the plaintiff intended that the property, if purchased by him, should, in the full sense of the term, be partnership property, and that his intentions had been explicitly declared to the defendant, and were assented to by him, we must not be understood as saying that the secret purchase made by the defendant, might not, in equity, be justly treated as a fraud entitling the plaintiff to the relief which he seeks. Our judgment is founded upon the particular circumstances of this case, the actual dissolution of the copartnership, and the uncertainty of its renewal, the serious doubts which hang over the intentions of the plaintiff, and the obscure and ambiguous manner in which they are stated in the bill, and the strong probability that in consequence of the price which was demanded, he had wholly abandoned his own intentions of becoming thé purchaser before the bargain was concluded. We cannot say upon the pleadings and proofs, that the plaintiff, had he made the purchase himself and taken the deed in his own name, intended, or would have been bound, to make any conveyance whatever to the defendant; if not, it was admitted by his counsel that he can have no right to demand a conveyance from the defendant.