Case ID: ad_114/html/0455-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.;", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Anna M. Clausen, Respondent, v. Henry Puvogel, Appellant, Impleaded with Adelheit M. Holsten and Henry Puvogel, as Administrators, etc., of Richard Holsten, Deceased, Defendants.
    First Department,
    July 12, 1906.
    Partnership accounting — business carried on by surviving partner without authority —when surviving partner not entitled to salary —■ when not liable for interest on salary drawn — compound interest voluntarily paid not recoverable.
    A surviving partner who is also an executor of his deceased partner, and who carries on the business at a profit for the benefit of the estate and himself, is not entitled to draw a salary either in the capacity of surviving partner or as executor, and if he draws a salary must account therefor to the estate although under the original articles of partnership he was entitled to a salary.
    One interested in the estate has an election either to compel such surviving partner to account for the business as of the date of its dissolution (the death of the partner), or to claim the profits of the business if carried on without authority after the dissolution, and on making the latter election is not entitled to charge such surviving partner with interest on a salary unlawfully withdrawn by him, being only entitled to share in the actual profits and not such profits as might have been made had the business been conducted differently. As the money withdrawn as salary earned no profits, no profits by way of interest can be charged thereon.
    When on the final public sale of the partnership assets, the surviving partner purchases part thereof and gives his note to the estate in part payment, he cannot recover back compound interest which he voluntarily paid on the note if the facts warrant a finding of bad faith in that he carried on the business without authority and refused to account..
    
      A surviving partner who continues to carry on the business without authority, is under the burden of showing that disbursements, evidenced by checks drawn by him were made in the business, and on a failure to sustain this burden, is chargeable with the amount of the checks.
    Appeal by the defendant, Hpnry Puvogel, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 27th day of June, 1905, overruling the said defendant’s exceptions to the report of a referee didy appointed “ to hear and determine the issues raised by the pleadings herein, to take and state the account of Henry Puvogel of all copartnership dealings, * * * and to report what, if any thing, shall appear to be due from the said Henry Puvogel to the estate of the said Richard Holsten, deceased,” and confirming the said report. . , •
    On the 6th day of May, 1890, Richard Holsten, since deceased, and Henry Puvogel, by written articles formed a copartnership for carrying on a livery business in the city of New York, to be continued “ until a termination thereof may mutually be agreed upon.” They were to share the profits equally. Holsten was to be permitted during the continuance of the copartnership to carry on the liquor and saloon business, and Puvogel was to give his entire time and attention to the supervision and management of the livery business and to be permitted to withdraw therefor from the receipts of the business the sum of twenty-five dollars per week as salary, “ the same to be considered an expense of carrying on the said business.” They purchased a livery business at 393 Fourth avenue for $20,000. Each member of the firm contributed $6,500 in cash, and they raised about $9,000 on notes of the firm, secured by a chattel mortgage upon firm assets. The evidence tends to show that neither party was experienced in that line of business and that they paid for the property purchased about .twice what it was worth. They continued business under their copartnership articles. until the 17th day of February, 1891, when Holsten died. At that time the notes had not been paid and the entire copartnership assets were not worth more than $7,500. The surviving partner and the widow of the deceased partner were appointed administrators. Puvogel continued the business until the 31st day of August, 1894, apparently without objection on the part of his coadministratrix or 'the next of kin, but the record does not show that they either consented to his continuing the business or acquiesced therein, or agreed that he might continue to draw the weekly salary as before. On the last-mentioned date he sold the firm assets at public auction, realizing thereon the sum of $7,654.30, and became a purchaser himself to the extent of $5,728.20 thereof. On account of his own purchase he paid $1,000 in cask and gave a demand note for $1,101.50, and a note for $3,626.70 payable in sixty days to the order of the estate of his deceased partner, retaining possession of both notes. The larger of these notes he paid, with compound interest, in 1903, and seeks in this action to recover back the excess over the legal rate of interest. At the time of the accounting he had not paid the other note. Puvogel, after the death of his partner continued to draw the weekly salary as before until the business was sold, and the aggregate thus drawn out by him on account of salary was $4,614.29. His account has been surcharged with this amount, together with interest thereon at four per cent per annum, aggregating $1,881.81. The referee also surcharged the account of Puvogel with four checks', payable to the order of bearer, aggregating $650 ; and the appellant claims this was error. It appears that the debts of the deceased partner have been settled and that the surviving partner has settled with the next of kin, excepting the plaintiff, one of the daughters of the decedent, who brought this action in the right of the personal representatives of her father’s estate, for an accounting, after the administratrix refused to bring the same.
    The complaint demands an accounting from the formation of the partnership to its dissolution by the death of Holsten, and for an accounting “ of all his (Puvogel’s) dealings with and transactions in regard to the property, assets and effects of said firm since its dissolution, "x" * * and the profits of the-said business, and the property sold or disposed of by him, either as surviving partner or otherwise, and of the moneys collected and received and paid out 1 y him on account thereof.” After issue joined, Puvogel filed an account to which objections were filed, and thereupon the order of reference was made by consent.
    The appellant made diligent effort to sell the business at private sale from time to time after the death of his partner, and finally at the time the sale was made, the lease was about to expire and the landlord desired possession, and the appellant, therefore, concluded to close out the business at public auction. The business as conducted by the appellant after the death of his partner was prosperous. He succeeded in paying off the firm notes and realizing a net profit of $11,603.35 as found by the referee. '
    The referee found that the amount still due and owing from the appellant as surviving partner to the estate of the decedent was $5,692.72. The appellant contends that the judgment should be reduced to $1,878.31, by deducting the amount rvitli which his account was surcharged for salary, together with interest surcharged on account thereof, by crediting him with the difference between simple interest and compound interest on the note which he paid to the estate, and by charging the four checks, aggregating $650, for which he is unable to account, to profit and loss, so that the estate of the deceased partner would share the loss equally with him.
    The referee found that the appellant continued the business as “ surviving partner.”
    
      Hamilton R. Squier, for the appellant.
    
      Jerome Eisner, for the respondent.
   Laughlin, J.;

The principal contention of the appellant is that lie should have been allowed the salary. It is urged that he continued the business in good faith; that he did not deny that he was continuing it for the benefit of the estate of the deceased partner, as well as for himself, and that as he made a substantial profit in which the estate of his deceased partner shares equally, it is but equitable that he should be allowed compensation for his services. Hpon the facts presented, there is no room for questioning the appellant’s good faith in continuing the business and it would seem equitable and right that he should be compensated for his services which resulted in a profit and enables the plaintiff and others interested in the estate of her father to receive a substantial distributive share. The court, however, is without authority to compel the plaintiff to do equity in this particular case without disregarding a wholesome rule which it is essential to preserve inviolate.

It has long been the established rule that a surviving partner should not be allowed any compensation for his services in the business. (King v. Leighton, 100 N. Y. 394; Slater v. Slater, 78 App. Div. 449, 459; Burgess v. Badger, 82 Hun, 488 ; Skidmore v. Collier, 8 id. 50; Coursen v. Hamlin, 2 Duer, 520.) It is the duty of an administrator, and, in the absence of a direction for the continuance of the business of the decedent in his will, of an executor, to dispose of the business and convert it into cash with all reasonable dispatch, having due regard for the interests of the next of kin or beneficiaries and creditors (Riddle v. Whitehill, 135 U. S. 621; Gilmore v. Ham, 142 N. Y. 1, 8); and a continuance of the business beyond a reasonable time for this purpose is An administrator or executor is ordinarily confined to the fees or commissions prescribed by statute; and if the business of the decedent be continued under authority contained in the will, the services rendered by the executor in continuing it are deemed part of the duties of his office and he cannot receive therefor any compensation other than the commissions allowed by law. (Matter of Hayden, 54 Hun, 197; 7 N. Y. Supp. 313; affd., 125 N. Y. 776, on opinion at General Term.) In Matter of Hayden (supra) it was'held that h son employed by his father at, a salary of, §5,000 per annum, appointed executor of his father’s will and authorized thereby to continue the business in his discretion, electing to it under an arrangement with his coexecutors that he should receive the same salary as during the lifetime of his father, was not entitled to an allowance for the salary on an accounting, it appear-ing that there were infants in interest for whom lawful consent thereto had not been given. If, however, the appellant had the business at the request of all parties in interest, and they were competent to consent, then doubtless he would have been entitled to receive the salary which he appears to have justly earned. (Matter of Braunsdorf 13 Misc. Rep. 666; 2 App. Div. 73 ; Lent v. Howard, 89 N. Y. 169. See, also, Burgess v. Badger, 82 Hun, 488, and Robinson v. Simmons, 146 Mass. 167.) It follows, therefore, that the appellant’s account was properly surcharged with the amount of the salary withdrawn by him.

I am of opinion, however, that his account should not have been surcharged with interest on the moneys which he drew out as salary. The plaintiff in the circumstances disclosed had her election to have an accounting to the estate as of the date of the death of her father and to demand that the surviving partner account for and pay over the share of the assets of the estate to which she would be entitled, together with interest thereon, or, instead of. asserting this claim for interest, to claim the profits of the business, which, according to her theory, was wrongfully conducted by the appellant with the firm assets. Having made such election, she is only entitled to an accounting for the principal and for the profits which take the place of interest. 'In such case the appellant is not obliged to account in detail for the business as conducted by him, and he may in the first instance merely account for the profits, but the contestant is then at liberty to show that the profits are greater than the amount admitted. (Matter of Peck, 79 App. Div. 296; affd., 177 N. Y. 538.) It is manifest that the accounting for profits is confined to an inquiry as to the actual profits and not to the profits that might have been realized had the business been conducted differently. (Matter of Peck, supra.) It is evident, therefore, that on the accounting the propriety of disbursements other than • to the appellant himself cannot be investigated. If in addition to being charged with the amount with which he has credited himself as salary he is also to be charged with interest thereon, then the court is revising the profits and adding thereto without proof that the amount added on account of interest was earned. Since he was not entitled to the moneys withdrawn for salary, he should be charged therewith as if the moneys were still in his hands, and they are thus considered in arriving at the profits. In the ordinary case of a copartnership accounting partners are not liable for interest upon moneys withdrawn, because, until there is an accounting and the balance is ascertained, it cannot be said whether the partner was owing the firm or, the firm was owing him. (Johnson v. Hartshorne, 52 N. Y. 177.) Although the rule is not applicable here, yet the effect of limiting the plaintiff to requiring an accounting for the profits is the same. The money withdrawn earned no. profits in the business and, therefore, no profits by way of interest or otherwise can be charged.

. The compound interest on the note was paid voluntarily ; there was no mistake of fact. If a mistake at all, it was merely a mistake of law. The appellant, instead of paying cash for the estate’s share of the property, as he should have done, gave a note therefor and thereby deprived the estate of the use of the money. There is no insuperable obstacle to recovering back money paid under a mistake of law or fact or even negligently, pz-ovided the position of the party receiving it has not changed so that he will be prejudiced. (Mayer v. Mayor, 63 N. Y. 455; Martin v. Home Bank, 160 id. 190.) In this case, however, it appears that the appellant continued the business without authority and that he refused to account. In Johnson v. Hartshorne (supra,) the court said: “ Compound interest may be charged in cases of bad faith, refusal to account, and private use of money, and the question of its propriety was a question of fact for the referee, whose decision is conclusive. There were facts found from which the referee might conclude to make this charge. (2 Kent Com. 231, note; Collyer on Part. § 336, note 3.) ” The money’' having been paid voluntarily, therefore, we are of opinion that the referee was justified in refusing to permit the plaintiff to be credited therewith.

The remaining claim is that the appellant should have received credit for the checks. His books of account were inaccurate, and it was difficult to ascertain the true state of the accounts. While the propriety of a disbursement, if made in the business, could not, as already shown, be considered, the burden was upon the appellant to show that the disbursements evidenced by these checks wei'e made in the business. That he has failed to do and his account was, therefore, properly surcharged therewith.

It follows, therefore, that the judgment should be modified by-deducting the amount charged for interest on the amounts withdrawn for salary and interest thereon, and as so modified affirmed, without costs.

O’Brien, P. J., Patterson, McLaughlin and Clarke, JJ., concurred.

Judgment modified as directed in opinion, and as modified,, affirmed, without costs. Settle order on notice. 
      
      See Code Civ. Proc. § 2730.- [Rep.
     
      
      See 2 Kent Com. (12th ed.) *231, note; Id. (14th ed.) *231, note.— [Ref.
     
      
      See Collyer Part (5th Am. ed.) § 336, note 2.— [Rep.