Case ID: ny-super-ct_46/html/0188-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Freedman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

CHARLES F. KUEHNEMUNDT, Respondent, v. JOHN H. HAAR, et al., Impleaded, &c., Appellants.
    
      Partnership—accounting by—assignment, what passes under.—Pleading..
    
    
      It seems, that an accounting may be had for the purpose of adjusting, the accounts of a copartnership, as between the pa/rtners, though the-complaint fails to show whether there are outstanding claims due to or from the firm, or whether there is property owned by the firm.
    
      In an action for such an accounting, where the complaint shows that an assignment for the benefit of creditors has been made by the firm, the complaint will be held insufficient on demurrer. The cause of action for such sums as may have been withdrawn in excess by any of the partners is in the firm, and passes as an asset by the assignment.
    Before Sedgwick and Freedman, JJ.
    
      Decided April 5, 1880.
    Appeal from judgment and order overruling demurrer to complaint.
    The facts appear in the opinion of the court.
    
      Jacob A. Gross, for appellant, urged:—I.
    I. Assuming that the complaint states facts sufficient to constitute a cause of action, it also states facts which constitute a defense, consequently the whole complaint must be considered together in determining upon demurrer whether the complaint states a cause of .action (Calvo v. Davies, 73 N. Y. 211).
    II. If it be assumed, in the language of the complaint, “that each of said partners drew out of said firm’s account large sums of money in excess of the .amount drawn by plaintiff,” it does not follow that the plaintiff is entitled to any relief ; because,—1. By the terms of the agreement, as stated by plaintiff, defendant Haar was entitled to ten per cent, more of the gross amount of the profits than the plaintiff, and no cause of action would arise unless that sum had been exceeded. 2. The cause of action for any sum withdrawn by a partner in excess of his share of the profits was in the firm, and passed by the general assignment to their assignee as an asset, and he alone can maintain an action for its recovery (Busby v. Chenault, 13 B. Monr. 554).
    III. Until the firm debts are discharged in. full the plaintiff is liable in solido to the creditors of the firm to the full amount of their claims, and this liability can be enforced by the assignee, who is for this purpose the trustee of the creditors.
    IV. The proceedings of the assignee, as well as his powers and duties, are regulated by statute (Laws 1877, c. 446). The jurisdiction to compel an account, or the performance of any other duty, is exclusively .vested in the court of common pleas (§§ 12-24), and until the proceedings under the assignment have been terminated, the claims of the partners arising out of the partnership are either suspended or vested absolutely in the assignee, subject'to the execution of his trust.
    V. The partnership was dissolved immediately upon the declaration of the insolvency (Story on Partnership, § 814; Collyer on Id. b. 4, c. 1, 583-590, 2 ed. ; Griswold v. Waddington, 15 Johns. 82 ; Marquard v. Manuf. Co., 17 Johns. Ch. 535 ; Exp. Smith, 5 Ves. 295 ; Barker v. Goodair, 11 Ves. 78-83).
    VI. Courts of equity will not interfere to settle accounts and set right any alleged balance between the partners, but will await the regular winding up of the partnership concern under the insolvency proceedings (Richardson v. Bank of England, 4 Maud & Craig, 156, 172, 178 ; Brown v. Litton, 1 P. Will. 224; Story on Part. § 229, subd. 1). The individual claim of a partner against the partnership is subordinate to, and inferior to the claims of the creditors of the firm (Kirby v. Schoonmaker, 3 Barb. Ch. 46 ; 1 Story Eg. §§ 675, 676; Exp. Buffin, 6 Ves. 119-126; Exp. Williams, 11 Id. 3, 5). The cases which hold that after the dissolution of a firm an action for an accounting may still be maintained by one partner against the other, are not in conflict with these views. Such an action can only be maintained by the party in whom the cause of action is vested. In the case before the court it affirmatively appears, by the allegation of the pláintiff,' that that cause of action has been transferred by him, and it follows that he has no more right to bring this action than a mere stranger would have.
    VII. The rule of equity, that partnership property is tó be first applied to the payment of partnership debts, and the individual property to the payment of individual debts, has no application in this case, because : 1. That rule exists for the benefit of the creditors, and can be invoked only by them. 2. It does not appear that there are any individual creditors as distinguished _from partnership creditors. 3. Until the firm creditors are satisfied, the claim against the partners for overdrafts is, as we have seen,, a firm asset.
    
      John L. Logan, attorney, and G. M. Bayne, of counsel, for respondent, urged:
    I. The facts stated constitute a cause of action (Luddington v. Taft, 10 Barb. 447).
    II. An accounting may be had after a general assignment under the insolvent laws, to determine the equities between the partners ; non constat that there will not be a surplus after the payment of all debts ; at any rate one partner would be entitled to a personal judgment against the others for any amount which might be found due him, even if there was no surplus. This was an assignment of the partnership assets, and if one partner paid more towards the partnership debts than the-other, he would be entitled to recover this amount from his copartners. In any case, the proper remedy here would be by answer setting forth that plaintiff is not the proper person to bring this action, as he has assigned his interest therein. An assignment is of itself a dissolution, and entitles either partner to an accounting. This principle is fairly deduced from the cases cited under this head (Collyer Partn., 6 ed. 442 ; Marquand v. N. Y. Man. Co., 17 Johns. Ch. 
      
      525; Neudecker v. Kohlburg, 3 Daly, 407; Butler v. Ballard, 11 J. & S. 191 ; McKelvey’s Appeal, 72 Penn. St. 409 ; Eden v. Williams, 36 Ill. 252).
    
   By the Court.—Freedman, J.

This is an action between partners for an accounting within certain limits, and the ground of the demurrer is that the complaint does not state facts sufficient to constitute a cause of action. The complaint sets up a partnership, its dissolution by consent, that each of the defendants during the existence of the partnership drew out large sums of money in excess of the amount drawn by the plaintiff, and that no accounting has been had, and judgment is demanded that such partnership be declared dissolved, pursuant to said consent, and an account taken of all the said partnership dealings and transactions from the commencement of the partnership, and of the moneys received and paid by the partners respectively, and that the .said accounts be adjusted, as between said partners, and the balance due each as from the other be declared, and for such other and further relief as to the court may seem just and proper.

If this were all, the complaint might be sustained under the rule laid down in Luddington v. Taft (10 Barb. 447), though it fails to show whether or not there are outstanding accounts or demands due to or from the firm, or property owned by the firm.

But the complaint further alleges that the dissolution by consent took place in consequence of the insolvency of the firm, and that thereupon all the partners duly executed and delivered an assignment of all their partnership property and assets to one Frederick Meyer, under the insolvent laws of this State, for the benefit of their creditors, which said assignment was duly filed, and that said Meyer has duly qualified as such assignee, and entered upon the performance of his duty as such.

The complaint therefore not only states a cause of action, but also facts sufficient to constitute, a defense thereto, and the whole complaint must be considered together in determining its sufficiency upon demurrer (Calvo v. Davies, 73 N. Y. 211). Upon all the facts pleaded, the court will not interfere to settle accounts within the narrow limits prayed for, but will await the regular winding up of the affairs of the partnership under the insolvency proceedings.

In Richardson v. Bank of England (4 Myl. & C. 165, 172), Lord Cottenham said that nothing is more settled than that, even after the determination of the partnership and before the settlement of the account, and before the payment of the joint debts, or the realization of the partnership estate, “what may have been advanced by one partner, or received by another, can only constitute items in the account. There may be losses, the particular partner’s share of which may be more than sufficient to exhaust what he has advanced, or profits more than equal to what the other has received ; and until the amount of such profit and loss be ascertained by the winding up of the partnership affairs, neither party has any remedy against, or liability to, the other, for payment from one to the other of what may have been advanced or received.”

The cause of action for the sums alleged to have been withdrawn by the defendants in excess, was in the firm at the time of its dissolution and of the assignment, and it passed by the general assignment to the assignee as an asset. He alone can maintain an action thereon, and his proceedings as well as his powers and duties are regulated by statute.

The judgment and order appealed from should be reversed with costs, and an order entered sustaining the demurrer, with costs.

Sedgwick, J., concurred.